<PAGE>
As filed with the Securities and Exchange Commission on February 18, 1997
REGISTRATION NO. 333-20559
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
AMENDMENT NO. 1.
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________________
IRATA, INC.
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C> <C>
TEXAS 7993 76-0366015
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
________________________________
8554 KATY FREEWAY, SUITE 100
HOUSTON, TEXAS 77024
(713) 467-4300
(Address and telephone number of principal executive offices)
________________________________
8554 KATY FREEWAY, SUITE 100
HOUSTON, TEXAS 77024
(Address of principal place of business or intended principal place of business)
________________________________
LANCE P. WIMMER, CHAIRMAN OF THE BOARD AND PRESIDENT
IRATA, INC.
8554 KATY FREEWAY, SUITE 100
HOUSTON, TEXAS 77024
(713) 467-4300
(Name, address and telephone number of agent for service)
________________________________
with copies to:
ANDREW J. CLARK, III
1000 LOUISIANA, SUITE 3640
HOUSTON, TEXAS 77002
(713) 652-6630
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, AS DETERMINED BY THE SELLING
SHAREHOLDERS NAMED HEREIN.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]....................
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]....................
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
[X] If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the foregoing box.
Pursuant to Rule 416, there are also registered such additional common stock
shares as may become issuable pursuant to the anti-dilution provisions of the
common stock purchase warrants and the Unit Purchase Options.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to completion, dated February 18, 1997
PROSPECTUS
IRATA, INC.
8,233,500 SHARES OF CLASS A COMMON STOCK ($.10 PAR VALUE)
This Prospectus relates to the offering from time to time of up to
8,233,500 shares (the "Shares") of Class A Common Stock, par value $.10 per
share (the "Class A Common Stock") of Irata, Inc. (the "Company") by the holders
thereof (the "Selling Shareholders") consisting of (1) an aggregate of 3,630,000
shares of Class A Common Stock owned directly by the Selling Shareholders, (2)
an aggregate of 486,750 shares of Class A Common Stock which may be issued to
certain Selling Shareholders upon the exercise of certain Unit Purchase Options,
(3) an aggregate of 3,630,000 shares of Class A Common Stock which may be issued
to the Selling Shareholders upon the exercise of certain Common Stock Purchase
Warrants (the "Private Placement Warrants") owned by the Selling Shareholders
and (4) an aggregate of 486,750 shares of Class A Common Stock which may be
issued to certain Selling Shareholders upon the exercise of certain Special
Private Placement Warrants which may be issued to such persons upon exercise of
the Unit Purchase Options. See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the Shares by the Selling
Shareholders. See "Use of Proceeds." The Company is paying the expense of
registration of the Shares.
It is anticipated that sales of the Shares will be made in one of four
ways: (i) a block trade in which the broker or dealer so engaged will attempt to
sell the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (ii) a purchase by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (iii) an ordinary brokerage transaction; or (iv) a transaction
in which the broker solicits purchasers. The period of distribution of the
Shares may occur over an extended period of time. See "Plan of Distribution."
The Company's Class A Common Stock is traded on the Boston Stock Exchange
and the Nasdaq SmallCap Market under the symbol "IRATA". On February 14, 1997
the closing price of the Class A Common Stock in the Nasdaq SmallCap System was
$ .813. See "Description of Securities-Market for Common Equity and Related
Stockholder Matters."
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February , 1997.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in the Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, the information in this
Prospectus gives retroactive effect to reverse stock splits effected in October
and December 1993 and assumes that none of the warrants issued in the Private
Placement or any other warrants or options of the Company as are discussed
herein are exercised.
THE COMPANY
Irata, Inc. (the "Company") has developed and operates a computerized
version of the traditional self-service photo booth. The Company's photo booth
is marketed under the name Video Foto. Video Foto booths combine traditional
photo options with a variety of souvenir, novelty, and amusement options,
utilizing computer imaging technology, a laser printing device, and other
computer hardware and software. Booths provide customers a variety of black and
white photo product options, including traditional prints ranging in size up to
8" x 10", and novelty items such as "wanted" posters, newspaper front pages,
photo greeting cards, and photo calendars.
The Company's strategy is to grow the Company by placing on location a
steadily increasing number of additional Video Foto booths. The Company is also
attempting to maximize average revenue per booth by placing them in locations
that meet the Company's criteria. At December 31, 1996, the Company had 684
Video Foto booths in operation. Booths are generally placed on a revenue-sharing
basis, with the Company retaining responsibility for operational, service, and
product costs. The Company now intends to begin producing and operating color
video photo booths. The Company's continued growth and capacity for production
and operation of photo booths will depend on its ability to obtain additional
financing, through operations or outside funding. There can be no assurance that
additional financing will be available.
The Company was incorporated under the laws of the State of Texas on March
22, 1992. The principal office of the Company is located at 8554 Katy Freeway,
Suite 100, Houston, Texas 77024 and its telephone number at that office is (713)
467-4300.
RECENT DEVELOPMENTS
In July 1996, the Company began the final phase of its color Video Foto
booth development project, a next generation product design. This development
effort included booth size and shape configuration, hardware component
selection, and software systems design. Out of this effort, the Company
successfully completed its first prototype color photo booth and displayed it at
the International Arcade & Amusement Parks Association annual convention in
November 1996. Initial field testing of ten booths is scheduled to begin during
the quarter ending March 31, 1997 with market roll out thereafter. See
"Business-Color Video Foto Booth."
On January 8, 1997, the Company completed a private placement of 3,245,000
shares of Class A Common Stock and 3,245,000 Private Placement Warrants. Net
proceeds to the Company are approximately $1,275,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2
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THE OFFERING
Securities Offered by the 3,630,000 shares of Class A Common Stock;
Selling Shareholders 3,630,000 shares of Class A Common Stock
issuable upon exercise of the Private
Placement Warrants; 486,750 shares of
Class A Common Stock which may be issued
upon the exercise of certain Unit Purchase
Options; an aggregate of 486,750 shares of
Class A Common Stock which may be issued
upon the exercise of certain Special
Private Placement Warrants issuable upon
exercise of the Unit Purchase Options.
See "Principal and Selling Shareholders"
and "Description of Securities."
Number of Shares Capital Stock
Outstanding:
Class A Common Stock ........ 6,434,215/1/
Class B Common Stock ........ 1,500,000/2/
Use of Proceeds The Company will receive none of the
proceeds from the sale of the Shares.
Any proceeds received by the Company
upon exercise of the Private Placement
Warrants, the Unit Purchase Options and
the Special Private Placement Warrants
will be used for working capital and
general corporate purposes. See "Use of
Proceeds."
Nasdaq Symbol Class A Common Stock-IRATA
__________
(1) Excludes shares issuable upon exercise of options and warrants described in
footnote (2) to the Capitalization table.
(2) The Class B Common Stock is non-voting and does not participate with the
Class A Common Stock in dividends and distributions until the Company has
achieved $1,000,000 in earned surplus, after which it is limited in the amount
of dividends and distributions it may receive to an amount that cannot exceed
$1,000,000 in the aggregate. See "Description of Securities."
RISK FACTORS
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION
PRESENTED UNDER THE CAPTION "RISK FACTORS" IN THIS PROSPECTUS, INCLUDING RISKS
RELATED TO THE COMPANY'S LIMITED OPERATING HISTORY AND LOSSES TO DATE, AND
POSSIBLE NEED FOR ADDITIONAL FINANCING, AMONG OTHERS.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996 DECEMBER 31, DECEMBER 31,
-------------- -------------- ------------------- -------------------
1995 1996
---- ----
<S> <C> <C> <C> <C>
Statement of Operations Date:
Revenue $5,520,452 $ 7,451,098 $ 4,103,673 $ 3,083,963
Net loss $ (595,800) $(2,114,557) $ (313,658) $ (951,683)
Net loss per share $(0.24) $(0.83) $ (0.12) $ (0.26)
Weighted average number of common or
equivalent shares outstanding 2,534,711 2,545,409 2,544,318 3,622,208
JUNE 30, 1996 DECEMBER 31, 1996
------------- ------------------
Selected Balance Sheet Data:
Working Capital (Deficit) $(3,496,537) $ 274,313
Property and Equipment, net $ 5,405,787 4,972,842
Total Assets $ 6,865,045 $ 6,471,886
Stockholders' Equity $ 2,429,435 $ 3,481,805
</TABLE>
4
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THEREFORE, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS AS WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS IN
EVALUATING THE COMPANY AND ITS BUSINESS.
LIMITED OPERATING HISTORY. The Company began operations in June 1992 and has
incurred annual losses to date. The Company's Product is a relatively new
concept and, as is typical in the case of a new product or concept, the ultimate
level of demand for and market acceptance of the Company's product is uncertain.
The Company's operations are subject to many of the risks inherent in the
establishment of a new business enterprise. The likelihood of success of the
Company must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with a new
business. See "Business-Formation History."
CONTINUING LOSSES. For the period from inception through June 30, 1996 the
Company incurred losses of $(4,335,563). For the six month period ended
December 31, 1996 the Company incurred losses of $(951,683), and losses are
continuing. At December 31, 1996 the Company had an accumulated deficit of
$(5,287,246). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Financial Statements."
AUDITORS REPORT CONTAINING GOING CONCERN QUALIFICATION. The reports of the
Company's independent auditors for the fiscal years ended June 30, 1995 and June
30, 1996 contain an explanatory paragraph as to the Company's ability to
continue as a going concern. Among the factors cited by the auditors as raising
substantial doubt as to the Company's ability to continue as a going concern are
that the Company has incurred net losses, negative cash flows from operations
and negative working capital. See "Report of Independent Auditors in the
Financial Statements" and "Experts."
POSSIBLE REQUIREMENT FOR ADDITIONAL FINANCING TO MEET CAPITAL NEEDS; NO
ASSURANCE OF AVAILABLE FINANCING. The Company's capital requirements have been
and will continue to be significant as the Company intends to build and install
up to 100 booths within the next 12 months. The Company anticipates using the
proceeds of a recently completed private placement and from additional
borrowings to satisfy its contemplated cash requirements for the next 12 month
period. In the event that the Company's plans change, its assumptions change or
prove to be inaccurate or if the proceeds of the aforementioned private
placement otherwise prove to be insufficient to fund operations (due to
unanticipated expenses or difficulties or otherwise), the Company could be
required to seek additional financing sooner than currently anticipated or may
be required to curtail its activities. Except for funds available from its
senior lender to construct new booths, the Company has no current arrangements
with respect to, or sources of, additional financing and there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Any additional financing may involve dilution to
the interests of the Company's then existing shareholders. See "Business."
ABILITY TO MAINTAIN AND MANAGE CONTINUED RAPID GROWTH. The Company is pursuing
a rapid growth strategy that will involve the construction of additional booths
and the relocation of up to 30 existing booths per month. Accomplishing the
continued growth planned for the Company will depend upon a number a factors,
including the Company's ability to locate and obtain acceptable sites, to
contract with and train competent service contractors and to integrate new
technologies into its existing equipment. The Company's continued growth may be
constrained by inadequate cash flow. There can be no assurance that the Company
will be able to relocate low performing booths, open additional favorable
locations in the future, or that the Company's strategy of increasing revenues
at existing locations will be successful. See "Business", "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
"Financial Statements."
5
<PAGE>
REVENUES DEPENDENT UPON LOCATION OF BOOTHS; POSSIBLE FLUCTUATION IN OPERATING
RESULTS DUE TO SEASONALITY. As is typical in the vending industry, the
Company's revenues are generated from free standing, non-attended units. Much of
the Company's success will depend upon the traffic patterns of the individual
locations and the ability to attract site locations in sufficient proximity to
each other so as to facilitate efficient service routes. To date, the Company
has experienced certain lower performing units which it has sought and is
seeking to relocate. There can be no assurance that the Company will continue to
be successful in placing its products in locations that will have high levels of
customer use or that the Company will place booths in locations that will enable
it to organize efficient routes. Certain locations may be subject to seasonal
customer traffic patterns and there can be no assurance the the Company will not
experience significant fluctuations in operating results in the future. See
"Business-Geographic and Demographic Location of Booths", "Business-
Seasonality", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and "Financial Statements."
LACK OF LONG-TERM CONTRACTS FOR LOCATIONS. The agreements pursuant to which the
Company's products are located at sites are generally terminable by the site
owner for any reason upon short-term notice. A significant number of contract
terminations, in the absence of the Company being able to relocate booths, would
have a material adverse affect the Company's business. See "Business."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends largely upon the
continuing contributions of its executive officers, particularly Lance P.
Wimmer, the Company's Chairman, President and Chief Executive Officer, and
Robert A. Searles, Jr., Executive Vice President and John Stuecheli, Chief
Financial Officer. Although the Company has entered into employment agreements
with Messrs. Wimmer, Searles, and Stuecheli, the loss of the services of these
executives or certain other key personnel, could materially adversely affect the
business of the Company. See "Management."
LACK OF PATENT PROTECTION FOR THE COMPANY'S TECHNOLOGY; POSSIBLE TECHNOLOGICAL
OBSOLESCENCE. The Company's business is subject to technological developments
and new product introductions. The Company's Video Foto booth products could be
rendered obsolete by technological advances by one or more of the Company's
present competitors or by future entrants into the industry. While the Company
considers the technology embodied in its Video Foto booths to be proprietary,
none of such know-how has been protected by patent or copyright. Therefore
there can be no assurance that others will not attempt to develop and use
comparable or superior technology. Although the Company is not aware of any
patents or other proprietary rights that its technology may violate, there can
be no assurance that such rights do not exist. Should the Company learn that
its technology does violate any existing patents, the Company may be required to
modify its technology to avoid such infringement or obtain licenses from others
to be able to operate its business as planned. The failure to obtain such
licenses on favorable terms, or at all, could have a material adverse effect on
the Company. See "Business-Patents and Proprietary Rights."
COMPETITION IN THE PHOTO BOOTH BUSINESS. The market for the Company's products
and services is highly competitive. The Company faces competition for leased
space from two established competitors, Photp-Me International, PLC and Polaroid
Corporation, as well as numerous independent and lesser known regional
organizations in the photo booth business. Many of these firms have far greater
financial resources, experience or industry relationships than the Company. In
addition, such organizations have proven operating histories, which may afford
these firms significant advantages in negotiating and obtaining future retail
leases or merchandise licenses, arranging financing, attracting skilled
personnel and developing technology and products. The Company also competes
with a number of firms which create traditional photographic products within
shopping malls, theme parks, and retail stores selling at
6
<PAGE>
significantly higher prices. The Company attempts to compete on the basis of
product quality, selection, location, and competitive pricing. There can be
assurnace that it will be able to do so. See "Business-Competition."
DEPENDENCE ON SUPPLIERS TO SUPPLY BOOTHS. The Company has been and will
continue to be dependent on outside suppliers for the supply of components and
fabrication of the Video Foto booths. Although the Company believes that
additional alternative sources are available, failure by its manufacturer to
supply the Company with high quality finished products at commercially
reasonable terms, or at all, in the absence of readily available alternative
sources, would have a material adverse effect on the Company. The software
embodied in the Company's products was developed by an independent software
developer. The Company does not have the capability internally to perform this
work and there can be no assurnace that required enhancements can be
successfully developed, that required modifications to existing software wil be
supported or that the improved software will be available on a tmely basis. See
"Business-Manufacturing and Suppliers."
POSSIBLE INFLUENCE BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. Current officers,
directors and shareholders owning 5% or more of the Class A Common Stock of the
Company own, of record or beneficially, an aggregate of approximately 11% of the
issued and outstanding shares (excluding outstanding options and warrants).
Accordingly, they will be in a position to influence the outcome of matters
requiring a vote of shareholders. See "Principal and Selling Shareholders."
NO DIVIDENDS LIKELY IN THE FORESEEABLE FUTURE. The Company has not paid any
cash dividends to date and does not expect to declare or pay any cash dividends
in the foreseeable future. See "Financial Statements."
POTENTIAL ANTI-TAKEOVER EFFECTS OF DISCRETIONARY ISSUANCE OF PREFERRED STOCK.
The Company's Articles of Incorporation authorizes the issuance of up to 100,000
shares of preferred stock, par value $1.00 per share ("Preferred Stock"), with
such designations, rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Class A Common
Stock. In the event of issuance, the Preferred Stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company, which could have the effect of discouraging
bids for the Company and, thereby, prevent shareholders from receiving the
maximum value for their shares. Although the Company has no present intention
of issuing any shares of preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities-Preferred
Stock."
7
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POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET; DISCLOSURE
RELATING TO LOW-PRICED STOCKS. While the Company's Class A Common Stock is
quoted in The NASDAQ SmallCap Market ("Nasdaq"), there can be no assurance that
the Company will meet the criteria for continued listing of securities on
Nasdaq. To continue to be included in Nasdaq, a company must currently maintain
$2,000,000 in total assets, a $200,000 market value of the public float and
$1,000,000 in total capital and surplus. In November 1996, the board of
dirctors of Nasdaq proposed changes to these quantitative standards, which if
approved as proposed, would require company to maintain a $1,000,000 market
value of the public float rather $200,000 and to have net tangible assets of
$2,000,000 or net income of $500,000 in two of the last three years or a market
capitalization of at least $35,000,000 as well as to follow certain corporate
governance standards. In addition, continued inclusion currently requires two
market-makers and a minimum bide price of $1.00 per share; provided, however,
that if a company falls below such minimum bid price, it will currently remain
eligible for continued inclusion in Nasdaq if the market value of the public
float is at least $1,000,000 and the Company has $2,000,000 in capital and
surplus. In November 1996, Nasdaq proposed that this alternative be eliminated.
The failure to meet these existing or amended maintenance criteria in the future
may result in the discontinuance of the inclusion of the Class A Common Stock in
Nasdaq. In such event, trading, if any, in the Class A Common Stock may then
continue to be conducted in the non-Nasdaq over-the-counter market in what is
commonly referred to as the "pink sheets," or, if then available, the "OTC
Bulletin Board Service." As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations, for the Company's securities. In
addition, the Company would be subject to a rule promulgated by the Securities
and Exchange Commission (the "Commission") that, if the Company fails to meet
certain criteria set forth in such rule, imposes additional sales practice
requirements on broker-dealers who sell securities governed by the rule to
persons other than established customers and accredited investors (generally
institutions) with assets in excess of $5,000,000 or individuals with a net
worth of $1,000,000 or annual income exceeding $200,000 (or $300,000 jointly
with spouse). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
Company's securities, and also may affect the ability of purchasers in this
offering to sell the Company's securities in the secondary market.
The Commission has adopted regulations which generally define a "penny stock" to
be any non-exchange listed or non-Nasdaq equity security that has a market price
(as therein defined) less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any transaction by
broker-dealers involving a penny stock, unless exempt, the rules require
delivery, prior to a transaction in a penny stock, of a risk disclosure document
relating to the penny stock market. Disclosure is also required to be made
about compensation payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on any exchange or Nasdaq,
are otherwise listed in Nasdaq and have certain price and volume information
provided on a current and continuing basis or if the Company meets certain
minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, they would remain subject to Section 15(b)(6) of the
Securities Exchange Act of 1934, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stocks, the market liquidity for the
Company's securities could be severely adversely affected. See "Description of
Securities-Market for Common Equity and Related Stockholder Matters."
8
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CAPITALIZATION
The following table sets forth the actual capitalization of the
Company at December 31, 1996 and giving pro forma effect to the completion of
the Private Placement of 3,245,000 shares of Class A Common Stock at $0.50 per
share and application of the proceeds thereof.
December 31, 1996
------------------
Actual Pro Forma
------ ---------
Long-term Debt:
Senior Debt 2,247,639 $ 2,247,639
Stockholders' Equity:
Preferred Stock, $1.00 par value; -0- -0-
100,000 authorized, none issued and
outstanding
Class A Common Stock, $.10 par 629,421 641,421
value; 20,000,000 authorized;
6,294,215 shares issued and
outstanding; 6,414,215 shares
issued and outstanding pro forma (1),
(2) and (3).
Class B Common Stock, $.01 par 15,000 15,000
value; 1,500,000 authorized, issued
and outstanding
Additional Paid-in Capital 8,124,630 8,164,830
Accumulated Deficit (5,287,246) (5,287,246)
Total Stockholders' Equity 3,481,805 3,534,005
Total Capitalization $ 5,729,444 $ 5,781,644
_______
1. On January 8, 1996, 120,000 shares of Class A Common Stock were issued
to complete the Private Placement of 3,245,000 shares of Class A Common
Stock at $.50 per share.
9
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2. Excludes (i)148,920 shares of Class A Common Stock issuable under
unsurrendered stock options exercisable at $5.00 per share granted under
the Company's 1993 Stock Option Plan; (ii) 686,250 shares of Class A
Common Stock issuable under stock options exercisable at $.50 per share
granted under the Company's 1996 Stock Option Plan; (iii) 1,797,436
shares of Class A Common Stock issuable under redeemable warrants
evidencing the right to purchase one share of Class A Common Stock per
warrant at an exercise price of $4.93 per share at any time prior to the
close of business on May 11, 1997 issued as a part of the units offered
in the Company's initial public offering in May 1994; (iv) 20,681 shares
of Class A Common Stock issuable pursuant to the exercise of warrants
expiring March 31,1997 that were granted in connection with formation of
the Company having an exercise price of $1.50 per share; (v) up to
312,596 additional shares of Class A Common Stock that would be issued
upon exercise of the unit purchase option, exercisable at any time prior
to the close of business on May 11, 1999 at $4.93 per unit, granted to
Royce Investment Group, Inc. to purchase 156,298 units with each unit
consisting of one share of Class A Common Stock and one redeemable
warrant exercisable at $4.93 per share; (vi) 52,988 shares of Class A
Common Stock exercisable under warrants granted to Hill Branscomb and
Venlease Associates exercisable at any time prior to June 1, 2000 at
$1.98 per share issued pursuant to the placement of the Company's senior
indebtedness; (vii) an aggregate of 510,000 shares of Class A Common
Stock issuable to the Company's senior lender at an exercise price of
$6.63 per share issued in connection with the Company's credit facility
with its senior lender; (viii) 63,881 shares of Class A Common Stock
upon exercise of warrants exercisable at any time prior to March 28,
2000 at $1.98 per share issued to J. T. Trotter in consideration for his
guarantee of bank debt; (ix) 3,630,000 shares of Class A Common Stock
issuable upon exercise of the Private Placement Warrants; (x) 486,750
shares of Class A Common Stock issuable upon exercise of 486,750 Unit
Purchase Options granted to the Placement Agents in connection with the
Company's private placement completed in January 1997; and (xi) 486,750
shares of Class A Common Stock issuable upon exercise of the Special
Private Placement Warrants. The number of shares of Class A Common Stock
and the exercise price as set forth above have been adjusted in
accordance with the antidilution provisions of the underlying
instruments.
3. Excludes 20,000 shares of Class A Common Stock issued in January 1997
to John D. Higgins, a director of the Company, as consideration for
$10,000 in unpaid 1996 director fees.
USE OF PROCEEDS
The Company will receive none of the proceeds from the sale of shares by
the Selling Shareholders.
Any proceeds received by the Company upon exercise of the Private Placement
Warrants, the Unit Purchase Options and the Special Private Placement Warrants
will be added to working capital. Proceeds not immediately required for the
purposes described above will be invested in United States government
securities, short-term certificates of deposit, money market funds or similar
short-term interest bearing investments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere herein (See
"Financial Statements"), and is qualified in its entirety by the foregoing and
by other more detailed financial information appearing elsewhere herein. See
also the information under "Risk Factors."
The Company's principal business is the placement and operation of Video
Foto booths throughout the United States. Booth manufacturing is subcontracted
with the Company providing limited assembly and extensive testing and quality
control. The Company seeks what it considers to be desirable locations (sites)
and then contracts with the site owner to place the booths in operation.
Typically the contracts are from month-to-month with rents based on a percentage
of the revenue collected. In most cases there is a minimum guarantee and
occasionally a simple monthly rate, or some combination.
The Company's levels of monthly sales revenues are affected by seasonal
increases and decreases in customer traffic. The Company's experience shows that
June, July, August, and December generate the highest levels of traffic through
its booths, with peak revenues experienced during school breaks and holiday
shopping periods. Additionally, revenues of the Company are generally affected
by adverse weather conditions or any economic downturn having a material affect
on traffic patterns of retail customers or tourists. The Company's financial
results are dependent on (i) number of booths in operation (operating days), and
(ii) revenue per booth. The historical results for the Company for the years
ending June 30, 1995 and 1996 and for the six months ended December 31, 1995
and 1996 are shown in the table below:
<TABLE>
<CAPTION>
December 31 June 30
------------ -------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $4,103,673 $3,083,963 $5,520,452 $ 7,451,098
Net Loss ($313,658) ($951,683) ($595,800) $(2,114,557)
Booths in Operation at End of Period 761 684 706 738
Average Monthly Revenue per Booth $ 920 $ 732 $ 866 $ 842
</TABLE>
(Average monthly revenue per booth is calculated by dividing the monthly
revenues by the number of booths in operation at month end.)
As of June 30,1996 the Company recognized a net loss of ($2,114,557).See
"Risk Factors-Continuing Losses." A significant portion of this loss is
attributable to the costs associated with certain non-recurring events. During
fiscal year 1996, the Company permanently removed approximately 120 booths from
operations. These early prototype booths, which were acquired in 1992, contained
older components, which had high failure rates and, in some cases, replacement
parts were no longer available to supply them. Also, the cabinet construction
was not designed for high traffic, unattended locations, resulting in security
problems. These booths were replaced with the current booth, which has a
sturdier
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cabinet and more reliable up-to-date components. As a result of this decision,
the Company incurred a charge of approximately $300,000, representing the
undepreciated book value of these older booths. In addition, the Company reduced
the carrying value of hardware and components by approximately $470,000, to
account for obsolescence and to value used parts at the lower of cost or
realizable value. The removal and replacement of these booths accounted for a
significant part of the installation costs.
During the three months ended September 30, 1996 the Company's number
of booths on location decreased by an additional 39 booths. The decrease was
primarily attributable to the removal of 41 booths from locations of one
national arcade at the request of the customer. Approximately 20 of the booths
removed were generating less than the average revenue.
During May 1996, the State of Texas conducted a sales and use tax audit for
the period March 1992 to March 1996. In connection with the auditor's review of
sales records, the Company was unable to provide documentation to show that
certain third party operators, who collect cash from the photo booths, had paid
the appropriate sales tax or that they had obtained sales tax exemption
certificates from the appropriate state tax authority. As a result of this
review, the Company was issued a preliminary delinquent sales tax assessment of
approximately $150,000. Management is pursuing collection of taxes or submission
of certificates from third party operators to mitigate the sales tax liability.
Additionally, the Company has been assessed use tax of approximately $150,000 on
booth components acquired from out of state vendors. The use tax obligation was
capitalized and is being depreciated over the life of the related components.
Accordingly, the sales and use tax has been charged to operations or capitalized
in the accompanying financial statements for 1996. The provision did not have a
material effect on the Company's financial position or results of operations
for 1996.
On November 1, 1996 the Company had an initial closing on $1,200,000 of a
$1,500,000 private offering to accredited investors of units (the "Private
Placement"), each unit consisting of 50,000 shares of Class A Common Stock and
50,000 Common Stock Purchase Warrants. The Offering Price was $25,000 per Unit.
On November 1, 1996 the Company received net proceeds of $1,044,000 from the
initial $1,200,000 closing of the Private Placement. Two subsequent closings on
December 6, 1996 and January 8, 1997, respectively, resulted in total gross
proceeds of $1,622,500 and net proceeds of approximately $1,275,000 after
commissions and related expenses. The Company intends to apply these net
proceeds over the twelve-month period ending December 31, 1997 as follows:
APPLICATION OF PROCEEDS APPROXIMATE DOLLAR APPROXIMATE PERCENTAGE
AMOUNT OF PROCEEDS
Fabrication of Video Foto booths $ 737,000.00 58%
Partial settlement of trade claims $ 128,000.00 10%
Working Capital $ 411,000.00 32%
TOTAL: $1,275,000.00 100%
The Company had been in default on its loan covenants with its senior
lender since July 1995. In August 1996, the Company negotiated an agreement to
revise certain covenants to bring the Company into compliance. Among other
provisions, the negotiated terms provide for extensive revisions to all
financial ratio covenants consistent with a revised detailed financial plan
developed by management. In addition, the Company was required to satisfy
certain conditions including raising $1,500,000 through a private placement with
net proceeds of at least $1,250,000. By November 1996 the Company had raised
the requisite proceeds and all loan covenant defaults were eliminated.
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<PAGE>
The level of past due trade payables had increased significantly from
March 1996 through June 1996. To resolve this situation, the Company
successfully concluded a restructuring of certain trade payables totaling
$734,000. The trade creditors holding these payables agreed to exchange the
amounts owed for a combination of 15% cash, 18% cash payable in 15 equal monthly
installments and 67% stock (the "Trade Payable Agreement"). The restructuring
was subject to completion of the Private Placement. The price of the stock to be
issued to the trade creditors was to be the greater of $2.25 per share or the
lower of: (a) 80% of the average closing price at which the Class A Common Stock
of the Company trades during the 30 calendar day period following the date of
the initial closing of the Private Placement or (b) the lowest closing price at
which the Class A Common Stock trades during such 30-day period. The Company is
obligated to register the shares of Class A Common Stock issued to the trade
creditors prior to December 31, 1997.
RESULTS OF OPERATIONS
Twelve Months Ended June 30, 1995 Compared to Twelve Months Ended
June 30, 1996
Revenues. Revenues increased 35% from $5,520,452 for the twelve month
period ended June 30, 1995 to $7,451,098 for the twelve month period ended June
30, 1996. The growth in revenues was primarily attributable to the 38% increase
in operating days from 180,108 in 1995 to 249,175 in 1996. However, average
monthly revenue per booth dropped from $932 to $910. This decrease was due to
attrition in revenue at booths installed for more than one year
Cost of Services. Cost of services increased from 73% to 91% of gross
revenues or $4,014,428 and $6,746,601 for the twelve months ended June 30, 1995
and 1996, respectively. The dollar increase is primarily due to losses on
disposal of property and equipment and site rent expense. The $770,000 loss on
disposal of property and equipment expense in 1996 is attributable to the
removal of older version booths and the writedown of hardware and components.
Management believes that these are one time occurrences. Site rent expense as a
percentage of revenue increased to 37% in 1996 for two reasons. First, the
number of theme park locations, which have a 50% site rent percentage, increased
at a greater rate than locations with lower rent factors. Second, revenues at
certain mall locations with fixed monthly rents decreased causing the site rent
expense to increase as a percentage of revenue. Management believes that a
combination of lower fixed rent at mall locations and relocation of booths to
sites with higher revenue will reduce the site rent percentages in the future.
Selling, General, and Administrative Expense. Selling, general, and
administrative expenses increased 7% from $2,057,789 for the twelve months ended
June 30, 1995 to $2,209,285 for the twelve months ended June 30, 1996. This
expense category decreased as percentage of revenue from 37% in 1995 to 30% in
1996. Management believes that this positive trend will continue in the future.
Other Income and Expense. Interest expense and financing costs
increased from a total of $57,885 for the twelve moths ended June 30, 1995 to a
total of $613,531 for the twelve months ended June 30, 1996. This increase is
attributable to the $3,500,000 line of credit loan entered into in June 1995.
LIQUIDITY AND CAPITAL RESOURCES
Twelve Months Ended June 30, 1995 Compared to Twelve Months Ended
June 30, 1996
For the year ended June 30, 1996 net cash provided by operating
activities was $1,053,482 as compared to $479,317 for the twelve months ended
June 30, 1995. The net cash provided in 1996 was due
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<PAGE>
to continued utilization of vendor credit lines and increases in other
categories of current liabilities, primarily sales and use tax payable. The net
cash provided in 1995 was due primarily to the utilization of vendor credit
lines.
The Company's revenues and booths in operation have increased in each of
the first four years in business; however, the Company has yet to achieve an
operating profit. Management's plan for fiscal 1997 is to relocate approximately
200 existing booths, with below average revenue, to new locations and utilize
approximately $750,000 of the Private Placement proceeds to build approximately
100 booths. Other than the purchase of new booths, the Company does not expect
to have any significant capital expenditures for the foreseeable future.
The Company had a working capital deficit of $3,496,537 as of
June 30, 1996. After receiving the Private Placement proceeds, finalizing the
Lender Agreement and completing the Trade Payable Agreement, the Company will
have working capital of approximately $500,000. In addition to building new
booths, Management intends to use the proceeds of the Private Placement for the
initial payments under the Trade Payable Agreement, payment of delinquent sales
and use taxes and other working capital purposes.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1995 Compared to Three Months Ended December
31, 1996
Revenues. Revenues decreased 37% from $1,985,115 for the three month period
ended December 31, 1995 to $1,263,812 for the three month period ended December
31, 1996. The decrease in revenues was primarily attributable to 80 fewer booths
on location and attrition in revenue at booths installed for more than one year.
Cost of Services. Cost of services, as a percent of revenue, increased from
76% to 94% for the three months ended December 31, 1995 and 1996, respectively.
The two largest booth operating costs, site rent and route labor, increased from
46% to 50% of revenue. The decline in revenue at certain mall locations with
fixed monthly rents and guaranteed route contractor payments caused the increase
as a percentage of revenue. Equipment depreciation, a fixed expense, increased
from 13% to 21% of revenue, again, due to the decline in revenues.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $520,620 and $553,701 for the quarters ending
December 31, 1995 and 1996, respectively. This increase was primarily
attributable to $45,145 in personal property taxes on booths for calendar year
1996.
Other Expense. Interest expense and financing costs were $135,053 and $140,324
for the three months ended December 31, 1995 and 1996, respectively. These
expenses are attributable to the $3,500,000 line of credit loan.
Net Operating Results. For the three months ended December 30, 1996 the
Company realized a net loss of $586,558 versus a net loss of $186,011 for the
three months ended December 31, 1995. This difference is attributable to the
lower revenues and reduced gross profit in 1996.
Six Months Ended Dectember 31, 1995 Compared to Six Months Ended December 31,
1996
Revenues. Revenues decreased 25% from $4,103,673 for the six month period
ended December 31, 1995 to $3,091,463 for the six month period ended December
31, 1996. The decrease in revenues was primarily attributable to 48 fewer booths
on location and attrition in revenue at booths installed for more than one year.
Cost of Services. Cost of services, as a percent of revenue, increased from
76% to 86% for the six months ended December 31, 1995 and 1996, respectively.
Site rent expense as a percentage of revenue increased to 38% in 1996 from 36%
in 1995 for two reasons. First, the number of theme park locations, which have a
50% site rent percentage, increased at a greater rate than locations with lower
rent factors. Second, revenues at certain mall locations with fixed monthly
rents decreased causing the site rent expense to increase as a percentage of
revenue. Equipment depreciation, a fixed expense, increased from 12% to 17% of
revenue, again, due to the decline in revenues.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $1,049,641 and $1,135,780 for the six month period
ending December 31, 1995 and 1996, respectively. This increase was primarily
attributable to $55,000 in personal property taxes on booths for calendar year
1996 and a $115,000 increase in professional fees related to restructuring
activities.
Other Expense. Interest expense and financing costs were $271,426 and $271,090
for the six months ended December 31, 1995 and 1996, respectively. These
expenses are attributable to the $3,500,000 line of credit loan.
Net Operating Results. For the six months ended December 30, 1996 the Company
realized a net loss of $951,683 versus a net loss of $313,658 for the six months
ended December 31, 1995. This difference is attributable to the lower revenues
and reduced gross profit in 1996.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 1996 net cash used in operating
activities was $909,213 as compared to $836,072 cash provided by operating
activities for the six months ended December 31, 1995. Net cash used in 1996 is
primarily due to reductions in accounts payable, sales and use tax payable, and
site rents payable to mall locations. The net cash provided in 1995 is primarily
attributable to increases in current liabilities.
The net proceeds from the Private Placement of approximately $1,275,000
allowed the Company to settle all past due obligations to creditors including
sales and use taxes. As a result, the Company had positive working capital of
$275,000 at December 31, 1996. In addition, the proceeds from the Private
Placement were used to fund the final phase of the Company's color Video Foto
booth project and to construct 25 color photo booths which will be placed in
mall and theme park locations beginning February 1997. Additional color booths
will be funded from operations or new outside financing. Other than the purchase
of new color booths, the Company does not expect to have any significant capital
expenditures for the foreseeable future.
BUSINESS
GENERAL
Irata, Inc., a Texas corporation, (the "Company") was incorporated on
March 22, 1992. The Company has developed and operates a computerized version
of the traditional self-service photo booth known as Video Foto. Video Foto
booths combine traditional photo options with a variety of souvenir, novelty,
and amusement options, utilizing computer imaging technology, a laser printing
device, and other computer hardware and software. Booths provide customers a
variety of photo product options, including traditional prints ranging in size
up to 8"x10", and novelty items such as "wanted" posters, newspaper front page,
photo greeting cards, and photo calendars. At September 30, 1996 the Company had
699 Video Foto booths in operation.
Video Foto is a free standing, self service, vending machine which accepts
paper currency and coins. The current consumer price is $1.00 per transaction.
An external black & white TV monitor advertises the booth's products and
services utilizing a computerized advertising loop which plays continually while
the booth is not in use. Customers wishing to purchase products begin the
transaction by entering the booth and depositing the appropriate amount in bills
or coins. Following a simple series of computer prompts on the booth's internal
TV monitor, the customer's image is captured four different times at five second
intervals. Customers are then directed to step outside the booth to conclude
their transaction on the external TV monitor, thereby freeing the booth to
accept another customer. Outside the booth, the customer is shown a preview of
the four captured images and are directed to select their favorite pose by
activating the corresponding button. Following pose selection, customers see a
preview of four different product options, and are directed to make their
selection. Following product selection, the finished black & white laser printed
photo is delivered through a corresponding slot on the exterior of the booth
within 30-60 seconds.
The Company believes that by replacing the chemical photographic
development process or instant film process used by others with its own
technology, the Company is not subject to the handicaps of chemical waste or
high consumable costs incurred by others. Product stability is increased using
the Company's process. The Company believes that its ability to offer multiple
product selections gives it an advantage over most of its competitors, who
typically offer only one customer option per transaction. The combination of
environmental, economic, and technological benefits are believed by the Company
to appeal to site owners.
The Company's strategy is to grow the Company by placing on location a
steadily increasing number of additional Video Foto booths. The Company also is
attempting to maximize average revenue
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<PAGE>
per booth by placing them in locations that meet the Company's criteria. This
involves locating booths primarily in the larger Metropolitan Statistical Areas
("MSAs") and further developing its route structure. The primary focus will be
to place the new booths in these areas, but in addition any booths determined to
be operating in sites that are below standard will be moved and placed in more
profitable locations. See "Risk Factors-Ability to Maintain and Manage Continued
Rapid Growth."
PRODUCTS
Booths occupy 18 square feet of merchandising space and require a standard
110 volt outlet provided by the landlord. Much of the computer and imaging
equipment used to construct booths involves off-the-shelf components from major
equipment manufacturers. Booths have the capability of providing a wide range of
black & white traditional portrait products in a variety of sizes (postage stamp
through 8"x10") as well as different seasonal, amusement, or custom souvenirs,
combining the customer's photo with entertaining boarders and print formats.
Products are produced in black & white using plain paper and toner through the
use of laser printers. The Company offers competitively priced, consumer
attractive products at prices significantly less than similar services. The
Company believes its ability to offer multiple product choices (four per
transaction) and rotate selections seasonally (through software) give it a
retailing advantage over most of its competitors.
Composite photographic products. The Company believes that the concept of
inserting an image of an individual or group of individuals into a scene or
product through a self service kiosk will appeal to children, teenagers, single
adults, groups, and families. The Company believes that the majority of users
are females between the ages of 6 and 25 years of age. The Company expects to
serve its customers by permitting them to be photographed on seasonal photo
greeting cards, local themes and fun products, as well as traditional photo
settings, all offered within 30-60 seconds for $1.00 per product.
Traditional photography. The Company believes that traditional style photo
products constitute its core business in most locations. It anticipates that its
composite products will generate higher than average customer traffic, and will
assist in acquiring customers for its core business. These services will be
directed toward children, adults, groups, and families.
Similar to photographic studios and competitive products, the Company
anticipates that its business will be stimulated largely due to the increased
customer traffic near its booths by time-specific events such as major holidays
and promotions by the landlords.
COLOR VIDEO FOTO BOOTH
In July 1996, the Company began the final phase of its color Video Foto
booth development project, a next generation product design. This development
effort included booth size and shape configuration, hardware component selection
and software systems design. The hardware and software configuration and their
synchronous interaction are proprietary and the exclusive property of the
Company. In addition, consumer market research was undertaken concurrently to
help focus the design effort to meet specific consumer needs.
In November 1996, the Company's first prototype color Video Foto booth was
displayed at the International Arcade & Amusement Parks Association (IAAPA)
annual convention. The IAAPA convention is the largest entertainment and
amusement vending program of the year. Additional market research was gathered
at the convention from a wide range of industry personnel for the purposes of
identifying further improvements for the Company's new color booth.
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Production of the new color booth is expected to commence in January 1997
with an initial field testing of ten booths and a market roll out by March 31,
1997. Management anticipates that such a product should have a favorable impact
on both sales and net revenues. There can be no assurance that the Company will
be successful in its efforts to develop and market such a product.
GEOGRAPHIC AND DEMOGRAPHIC LOCATION OF BOOTHS
The Company locates booths throughout the United States, predominantly in
shopping malls, discount stores, amusement arcades, theme parks, and tourist
attractions. The Company believes that an MSA having a population base of
250,000 is the minimum population density required for the establishment and
operation of profitable service routes. The Company is focusing its efforts on
the top 50 MSAs, all of which support a population base in excess of 1,000,000
potential customers. The Company believes there are in excess of 14,000
potential locations which meet its criteria within the top 50 MSAs. These
potential locations consist of super regional/regional malls, discount stores,
arcades and family entertainment centers, theme parks, and other high traffic
outlets. While the Company plans to create new route operations in other MSA's,
its main focus will be the increase in the number of booths within its existing
service areas. Although it is the Company's intention to focus expansion on the
top 50 MSAs, it recognizes that it will be required to expand within smaller
markets to accommodate commitments made to existing or future national accounts.
The Company believes that locations that meet its criteria will afford its
booths with a relatively consistent flow of customers, and widespread exposure
to potential patrons whose demographic profile constitute the primary market for
its products and service. See "Risk Factors-Revenues Dependent Upon Location of
Booths; Possible Fluctuation In Operating Results Due to Seasonality."
MARKETING
From the Company's inception, its primary marketing focus was on
establishing relationships with multi-outlet national discount store chains and
amusement arcades. As the Company has matured it has shifted its marketing
emphasis to malls and theme parks. The average monthly revenue per booth has
proven to be higher in malls and theme parks and there is an adequate market for
its booths in these locations. Malls and theme parks currently account for over
50% of the Company's revenues.
Booths are placed on a fixed rental, revenue sharing, or a revenue sharing
with a minimum rental payment, in each case at no cost to the landlord except
the insignificant cost of power. The Company is responsible for all other
operational, service, and product costs including commissions to independent
service contractors. Individual booth sales performance is assessed monthly by
the Company against minimum performance standards. Booths producing
unsatisfactory sales results are identified monthly for removal and re-siting in
new locations. The Company continues to seek sites for additional booths in
high profile, high traffic locations through its own personnel as well as
through the use of third party locator services and outside operating companies.
The Company anticipates it will own the equipment operated in these locations,
although it may enter into joint ventures, licensing, or similar collaborative
arrangements with others to operate such locations in the future in both the
U.S. and elsewhere. See "Risk Factors-Lack of Long-Term Contracts for
Locations."
SERVICE
The Company's operating strategy calls for the establishment of service
routes and hubs for the conduct of its daily business. Each route is maintained
by an independent contractor service person. The independent service
contractors are responsible for maintaining the overall appearance of the
booths, keeping them supplied with paper and toner and making minor adjustments
and repairs where necessary. It
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<PAGE>
is anticipated that service will continue to be performed by independent
contractors who will be recruited locally. Independent service contractors
typically visit booths a minimum of twice weekly. Account/customer initiated
service calls are routinely responded to within 24 hours. Independent service
contractors also collect the money from the coin and bill collectors on a
frequent basis and are responsible for maintaining local contact with the site
operators. Typically, the independent service contractor is paid a percentage
based upon the net receipts from the booths serviced by him.
MANUFACTURING AND SUPPLIERS
The Company purchases hardware and consumables such as paper and toner from
several suppliers. Although the Company does not maintain formal agreements
with any of its manufacturers or suppliers of hardware or consumables, the
Company believes that its current manufacturing and supply arrangements will
satisfy the Company's present and anticipated production requirements, and that
the Company has suitable alternative manufacturing and supply sources available
to it in the event that its current arrangements are terminated or that current
manufacturers and suppliers are otherwise unable to fulfill its needs. As of
September 30, 1996, the Company estimated that current booths manufactured for
use by the Company have a unit production cost of approximately $7,500. See
"Risk Factors-Dependence on Suppliers to Supply Booths."
SEASONALITY
June, July, August, and December generate the highest levels of traffic
through the Company's booths, with peak revenues experienced during school break
and holiday shopping periods. Additionally, revenues of the Company are
generally affected by adverse weather conditions or any economic downturn having
a material affect on retail traffic patterns or the tourist industry. See "Risk
Factors-Revenues Dependent Upon Location of Booths; Possible Fluctuation In
Operating Results Due to Seasonality."
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company has developed hardware and software that, when used in
conjunction with a variety of off-the-shelf computer and imaging equipment,
delivers a high quality, black & white laser printed image to its customers.
The Company has worked closely with several manufacturers to develop and
integrate equipment to meet its specifications. Certain of these manufacturers
have supplied the Company on a test basis with key components for its current
and future systems. Booths operated by the company as of September 30, 1996
function with either 300 or 600 dots per inch ("dpi") resolution depending on
printer model.
The Company has introduced a series of new customer products with themes
for specific holidays, events, and circumstances such as Christmas and future
seasonal products will incorporate such holiday periods as Valentine's Day,
Mother's Day, Father's Day, and Thanksgiving. The Company believes that by
rotating product selections periodically, it will maintain a higher level of
sales per booth.
The Company continues to develop new exterior cabinets for its booths,
designed with interchangeable advertising and cosmetic panels. The Company
believes this has enhanced its ability to procure high profile, high traffic
locations, without having to customize exteriors for limited production runs.
These enhancements allow the Company to periodically remerchandize existing
booths on locations in conjunction with promotional or seasonal events, for
advertising purposes, or in the event an existing booth is moved to a new
location requiring a specific cosmetic appearance.
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COMPETITION
The Company competes with two major companies, Photo-Me International, PLC
("PMI") and Polaroid Corporation, as well as various independent and regional
operators of self service photographic booths. Many of the firms with which the
Company competes have far greater financial resources, experience, or industry
relationships than the Company. In addition, such organizations have proven
operating histories, which may afford these firms significant advantages in
negotiating and obtaining future merchandise licenses and retail leases,
arranging financing, attracting skilled personnel and developing technology and
products. The Company attempts to compete based upon product quality,
selection, location and competitive pricing. See "Risk Factors-Competition in
the Photo Booth Business."
Wet Process Photo Booths. Wet process photo booths are self service,
paper currency or coin operated booths which produce a photograph (black & white
or color) through the use of photographic paper and photographic chemicals.
Typical products are a strip of three or four black & white or color photos (1"x
2" in size), four passport/visa size photos, or one 4" x 5" photo. Retail
prices typically range from $1.00-$10.00, with most selling in the $2.00-$3.00
range.
PMI is a publicly traded company on the London Stock Exchange. Through
subsidiaries, PMI operates in approximately 100 countries including the United
States through Auto Photo Systems. In addition to its photo booth operations,
PMI operates a variety of other coin/bill operated equipment, including,
business card machines, scales, kiddie rides, etc. PMI operates approximately
20,000 photo booths and an unknown number of other vending pieces throughout the
world.
Instant Process Photo Booths. The Company defines instant process photo
booths in two ways: those using Polaroid instant film, and units which produce
products through digital computer signals on thermal paper. Polaroid
Corporation has for approximately the past fifteen years attempted to produce an
instant process photo booth for sale to outside operators. Customers receive a
one pose photograph on Polaroid instant film for between $3.00-$5.00 per photo.
The Company is unaware of any large territorial operators of these units.
During the past five years, a number of individuals and small companies
have developed different approaches to electronic or digital photo booths.
Technology is similar to that used by the Company, but is generally directed
toward the production of small format (4"x5") color thermal prints, in either
postcard or souvenir form. The Company believes that the cost of the technology
is expensive ($15,000-$40,000 per booth) and the cost of consumables is high
($.60-$1.00 per image). Typical retail prices for products of this nature are
$3.00-$5.00 per photo.
The Company is aware of several entities that are exploring the concept of
composite photography through attended operations. There are a number of
independent and company owned vendors currently utilizing technology similar to
the Company's to produce coffee mugs, T-shirts, photo buttons, etc. These
products are currently being sold at prices that are generally higher than those
the Company charges.
19
<PAGE>
PATENTS AND PROPRIETARY RIGHTS
Although certain of the technology currently utilized in the Company's
booths has been treated by the Company as proprietary, none of it is protected
by patents or copyrights. The Company has no outstanding license agreements.
Although the Company is not aware of any patents or proprietary rights of others
that its technology may violate, there can be no assurance that such rights do
not exist. The Company anticipates the possibility of entering into licensing
agreements involving well known persons or characters which will grant the
Company the right to manufacture, distribute and sell, in defined geographic
areas, computer generated personalized photographs incorporating a customer's
photograph into a still image. Such license agreements may include the rights to
characters, designs, and visual representations as they appear on television,
motion pictures, or print media. Such licensing agreements typically require an
advance, non-refundable payment against royalties, as well as a stipulated
guarantee of minimum annual royalty payments to be made to the licensors during
the term of the agreement. See "Risk Factors-Lack of Patent Protection for the
Company's Technology; Possible Technological Obsolescence."
EMPLOYEES
As of December 31, 1996 the Company had 28 full-time employees and 210
independent contractors to service booths on location. None of the Company's
employees or independent contractors are represented by labor organizations. The
Company considers its relationships with its employees and independent
contractors to be excellent.
PROPERTY
The Company has a sixty-five month lease agreement for approximately
11,000 square feet in an office and warehouse complex at 8554 Katy Freeway,
Suite 100, Houston, Texas 77024 and 8560 Katy Freeway, Suite 172, Houston, Texas
77024. The lease provides for minimum monthly rent obligations of approximately
$7,800. The Company uses the space for its administrative offices and warehouse.
To facilitate the lease, the Company entered into a twelve month letter of
credit in the amount of $50,000 with a financial institution as temporary
collateral for the lease. The financial institution is entitled to a 2% fee. At
the present time, no monies have been drawn down.
LEGAL PROCEEDING
On February 6, 1997, Fish Construction, Inc., a trade creditor, commenced
an action against the Company in the 240th Judicial District Court in and for
Fort Bend County, Texas. The action, which seeks compensatory damages of
$174,074, alleges that the Company has breached the terms of an agreement
between the Company and the plaintiff for the supply of booths to the Company.
The Company is vigorously defending the action. Although the outcome of any
litigation is subject to uncertainty, the Company believes, based upon
information currently available to it, that the action is without merit, and
that it will be able to successfully conclude this litigation. However, an
adverse ruling against the Company with respect to this litigation could have a
material adverse effect on the Company and its financial condition.
FORMATION HISTORY
The Company was formed with the intention of acquiring or developing the
right to manufacture and operate photo booths. Commercial development of a
similar in concept to that initially operated by the Company was attempted by
Names 'N Faces, a California corporation. Names 'N Faces transferred the
concept and related technology owned by it to Data East USA, Inc. ("Data East").
Data East later alleged that Names 'N Faces failed to transfer technology that
would permit them to manufacture a functional photo booth. Lone Star Photo
Video, Inc., a Texas corporation beneficially owned by C. W. Moody, Jr., who was
a director of the Company and who may be regarded as a promoter of the Company
("LSV"), acquired from Names 'N Faces two photo booths which were found by LSV
not to be commercially operable. Names 'N Faces had also delivered ten photo
booths to Aladdin's Castle locations which did not operate. Accordingly, on
May 31, 1991, LSV, Aladdin's, and Names 'N Faces entered into a mutual release
pursuant to which LSV agreed to take possession of the ten photo booths, and
each party released the other parties. LSV and the Moody Family Trust, the
principal shareholder of LSV, then funded the development cost to produce the
software and proprietary hardware necessary to make the photo booths function
commercially. See "Risk Factors-Limited Operating History."
20
<PAGE>
The Company was incorporated under the laws of Texas on March 22, 1992 and
upon its incorporation, Nolan Bushnell, Inno Co. (a company beneficially owned
by Kevin Kimberlin), Randall Glash, Robert R. Salyard, John Steinmetz, and J. T.
Trotter, persons who may be regarded as promoters of the Company, acquired an
aggregate of 289,255 shares of Class A Common Stock of the Company for aggregate
consideration of $42,375 as follows:
NAME SHARES CONSIDERATION
---- ------ -------------
J. T. Trotter........................ 51,196 $ 7,500
Robert R. Salyard.................... 51,196 7,500
Nolan Bushnell....................... 51,194 7,500
Inno Co.............................. 74,235 10,875
John Steinmetz....................... 30,717 4,500
Randall Glash........................ 30,717 4,500
------ -------
Total........................... 289,255 $42,375
Upon its incorporation, the Company acquired from LSV, the photo booths
then operated by it and its related assets for 165,809 shares of Class A Common
Stock and from the Moody Family Trust, the engineering enhancements, for 62,016
shares of Class A Stock. LSV and the Moody Family Trust had invested $77,462 in
the assets acquired by the Company. The Board of Directors of the Company valued
these assets at $33,375.00. Additionally, the Company acquired from Data East up
to 130 booths and the basic design, specification and technology for cash and a
note, from Names 'N Faces any residual rights or claims based upon the
technology valued by the Board of Directors of the Company at $15,000 in
exchange for 1,500,000 shares of Class B Common Stock and from certain of the
former shareholders of the parent of Names 'N Faces, releases of the Company and
others in exchange for an aggregate of 97,519 shares of Class A Common Stock.
21
<PAGE>
MANAGEMENT
The following persons are the current executive officers, directors and key
employees of the Company.
Name Age Position
---- --- --------
Lance P. Wimmer 52 Chairman of the Board, President, Chief
Executive Officer and Director
Robert A. Searles, Jr. 40 Executive Vice President and Director
John C. Stuecheli 49 Vice President-Finance and Chief
Financial Officer
Andrew J. Clark, III 58 Director
John D. Higgins 63 Director
Robert R. Salyard 70 Director
Andrew J. Clark, III, 58, is an attorney and has been engaged in the
full-time practice of law since June 1, 1994. For more than five years prior to
becoming a sole practitioner, he was a partner in the law firm of Butler &
Binion, L.L.P., Houston, Texas. Mr. Clark was first elected a director at the
annual meeting of shareholders in September 1993.
John D. Higgins, 63, has been involved in corporate finance as Senior
Vice President of Royce Investment Group Inc. ("Royce") for more than the past
five years. Royce was the manager of the Company's Private Placement completed
in January 1997. Mr. Higgins is also a director of Iatros Health Network, Inc.,
an operator of nursing homes. Mr. Higgins was appointed to fill the vacancy
created by the resignation of Mr. Morgan as a director on November 28, 1995 and
was first elected at the annual meeting of shareholders in January 1996.
Pursuant to the Agency Agreement, dated September 9, 1996, between the Company
and Royce and Spencer Trask Securities Incorporated ("Spencer Trask"), executed
in connection with the Private Placement, the Company agreed until January 2002,
at Royce's option, to nominate a designee of Royce to the Company's Board of
Directors. Mr. Higgins is currently serving as Royce's designee.
Robert R. Salyard, 70, was appointed to the Board of Directors
effective November 3, 1996 to fill the vacancy created by the resignation of
Richard W. Fairchild, Jr. For more than the past five years Mr. Salyard has been
a private investor and engaged in the management consulting business. He serves
as a Director and Corporate Secretary of Spencer Trask, a member firm of the
National Association of Securities Dealers, and co-manager of the Private
Placement.
Robert A. Searles, Jr., 40, assumed the responsibilities of Executive
Vice President on November 3, 1996 and continues to serve on the Company's Board
of Directors. Mr. Searles first assumed the responsibilities of director,
President and Chief Executive Officer of the Company on June 23, 1992. From
1988 until joining the Company, Mr. Searles served as Vice President of Sales
and Marketing of Auto Photo Systems, Inc., the U. S. subsidiary of Photo-Me-
International PLC, the worldwide manufacturer and operator of approximately
20,000 wet process photo booths and a competitor of the Company.
22
<PAGE>
John C. Stuecheli, 49, was elected Vice President-Finance and Chief
Financial Officer effective as of November 3, 1996. Mr. Stuecheli had served as
a consultant to the Company from April 1996 until his appointment as chief
financial officer of the Company. From October 1993 until March of 1996, Mr.
Stuecheli engaged in the practice of accounting. Prior to October 1993, Mr.
Stuecheli was in the employ of Buccino & Associates, Inc., a leading operations
restructuring consulting firm.
Lance P. Wimmer, 52, was appointed to the Board of Directors effective
November 3, 1996 to fill the vacancy created by the death of C.W. Moody, Jr.
Additionally, he was elected Chairman of the Board, President and Chief
Executive Officer of the Company effective as of the same date. Mr. Wimmer had
served as a consultant to the Company from April 1996 until his appointment as
an officer and director of the Company. Mr. Wimmer formed Wimmer Associates,
Inc., a professional consulting and management firm, in 1992 and has been its
Managing Director since its organization. Prior to organization of Wimmer
Associates, Inc., Mr. Wimmer managed the Southwest region for Buccino &
Associates, Inc., a leading operations restructuring consulting firm.
The Company currently has an Audit Committee and a Compensation Committee.
The Audit Committee is authorized to review, with the Company's independent
accountants, the annual financial statements of the Company prior to
publication; to review the work of, and approve non-audit services performed by
such independent accountants; and to review the effectiveness of the financial
and accounting functions, organization, operations and management of the
Company. The Audit Committee consists of Messrs. Clark and Higgins. The
Compensation Committee reviews and recommends the compensation and benefits of
all officers and administers the issuance and grants of options under the
Company's stock option plans. The Compensation Committee consists of Messrs.
Clark and Salyard.
OTHER KEY MANAGEMENT
The following persons are key employees of the Company:
NAME AGE POSITION
---- --- --------
Sue Camp 63 Corporate Secretary and Logistics Manager
Rodger Osgood 42 Vice President, Manufacturing and Engineering
Richard W. Bell 61 Director of Marketing
RODGER OSGOOD joined the Company the Company in December, 1992 as
Manufacturing Manager and assumed his current position in December of 1996.
Prior to joining the Company on a full time basis, Mr. Osgood served as
technical consultant to the Company from the Company's inception in April 1992.
Previously, he was employed as a technical engineer for Data Eact, Inc., a
manufacturer of photo booths in San Jose, California.
SUE CAMP joined the Company in September 1992 as Administrative Manager and
Corporate Secretary. Ms. Camp assumed her current position in September 1996.
Prior to joining the Company, she worked with Century 21 Real Estate in a
variety of sales and administrative capacities for more than five years.
RICHARD W. BELL joined the Company in April 1994 as a marketing
representative and assumed his current position in September 1996. Prior to
joining the Company, Mr. Bell spent more than the past five years as Marketing
Manager-South Central Region for Auto Photo Systems.
There is no family relationship between any present executive officers and
directors.
23
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all cash compensation paid or accrued
by the Company to the Company's President and Chief Executive Officer, former
Chairman of the Board and former Vice-President, Chief Financial Officer for
services rendered in all capacities to the Company for the years ended June 30,
1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS SECURITIES UNDERLYING
----------------------- --------------------------------
NAME AND PRINCIPAL POSITION ALL OTHER
YEAR SALARY BONUS OPTIONS/SARS(1) COMPENSATION
---- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard W. Fairchild, Jr. (Resigned 1996 $ 61,167 $ -0- -0- N/A
June 1996) 1995 16,667 -0- 57,410 N/A
Chairman of the Board 1994 N/A N/A N/A N/A
Robert A. Searles, Jr. 1996 $115,000 $ -0- -0- $12,502(3)
President and Chief Executive Officer 1995 120,000 -0- -0- 15,555(2)
1994 120,000 37,500 52,770 15,555(2)
M. G. Morgan (Resigned November 1995) 1996 $ 76,250 $ -0- 50,000 $ 2,400(4)
Vice President-Finance and Chief 1995 120,000 -0- 52,770 7,200(4)
Financial Officer 1994 110,000 15,000 N/A -0-
</TABLE>
(1) Includes 52,770 options to Mr. Searles, 102,770 options to Mr. Morgan
and 57,410 options to Mr. Fairchild, all exercisable at $5.00 per
share.
(2) Represents employer contributions for insurance ($6,233) and a car
allowance ($7,198).
(3) Represents employer contributions for insurance ($8,355) and a car
allowance ($7,200).
(4) Represents employer contributions for a car allowance.
OPTIONS EXERCISED IN LAST FISCAL YEAR AND YEAR-END VALUE
The following table sets forth information with respect to the named
executive officers with respect to the exercise of stock options during the year
ended June 30, 1996 and unexercised stock options held as of June 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
ACQUIRED ON VALUE OPTIONS HELD AT THE MONEY OPTIONS AT
EXERCISE (#) REALIZED ($)(1) JUNE 30, 1996 JUNE 30, 1996(2)
------------ --------------- ---------------------- -----------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard W. Fairchild, Jr. -0- $ N/A 75,000/-0- N/A/N/A
Robert A. Searles, Jr. -0- N/A 52,770/-0- N/A/N/A
M. G. Morgan -0- N/A 73,920/-0- N/A/N/A
</TABLE>
(1) Represents the difference between the market price of the underlying
shares of Class A Common Stock at the exercise date and the exercise
price.
(2) Based on the closing price of the Company's Class A Common
Stock in the Nasdaq SmallCap Market on that date.
24
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an Employment Agreement on June 15, 1993 with Mr.
Searles providing for a base salary of $10,000 per month and a primary term of
three years. The Employment Agreement extended to Mr. Searles the opportunity
to subscribe for and purchase up to 51,196 shares of Class A Stock at the
purchase price of $7,500. Any such stock purchased by him was subject to
restrictions on transfer which would lapse with respect to 17,066 shares at the
end of the first year of employment and with respect to an additional increment
of 17,065 shares after each of the second and third years of employment had been
completed. On July 7, 1993 Mr. Searles borrowed $7,500 from the Company and
exercised his right to purchase these shares. On September 1, 1993, the
employment agreement between the Company and Mr. Searles was amended to extend
the term until June 30, 1997, to terminate the restrictions on transfer of the
shares of capital stock purchased by Mr. Searles, to restrict Mr. Searles from
competing with the Company for a two-year period upon termination of the
employment relationship, to provide for a $30,000 bonus to be paid to him on
January 15, 1994 to assist him with federal tax liability with respect to the
exercise of the stock options and to obligate the Company to forgive the $7,500
liability of Mr. Searles under the note executed to borrow the $7,500 if Mr.
Searles remained in the employ of the Company on June 30, 1994. The $30,000
bonus was paid to Mr. Searles and the $7,500 note was forgiven. Under the terms
of the employment relationship with Mr. Searles, he has been provided with a car
allowance, medical insurance and other customary employee benefits.
The Company entered into employment agreements with Messrs. Wimmer and
Stuecheli which became effective as of November 3, 1996. The agreement with Mr.
Wimmer has a term of twenty-four months and from month to month thereafter and
provides for a base salary of $135,000 per annum and the opportunity to earn up
to $40,000 in bonus compensation upon achieving goals established by the Board
of Directors in the Company's business plan. The agreement obligated the
Company to grant to Mr. Wimmer options to purchase an aggregate of 300,000
shares of Class A Common Stock at $0.50 per share, to fund up to $3,000 per
month in commuting expenses between Dallas, Texas and the Company's office and
to provide minimum levels of officers' and directors' liability insurance. The
agreement with Mr. Stuecheli is for a term of twelve months and from month to
month thereafter and provides for a base salary of $80,000 per annum and the
opportunity to earn up to $24,000 in bonus compensation upon achieving goals
established by the Board of Directors in the Company's business plan. The
agreement obligates the Company to grant to Mr. Stuecheli options to purchase an
aggregate of 60,000 shares of Class A Common Stock at $0.50 per share, to fund
up to $2,000 per month in commuting expenses between Dallas, Texas and the
Company' office and to provide minimum levels of officers' and directors'
liability insurance.
The Company entered into a consulting agreement with Robert R. Salyard
which became effective on November 3, 1996. The agreement with Mr. Salyard has
a term of twenty-four months and provides for consulting compensation of
$1,500 per month. The agreement obligated the Company to grant to Mr. Salyard
options to purchase an aggregate of 125,000 shares of Class A Common Stock at
$.50 per share, and to provide minimum levels of officers' and directors'
liability insurance.
Under the terms of the agreements between the Company and each of Messrs.
Wimmer, Stuecheli and Salyard, the Company is obligated to register the Class A
Common Stock underlying the options granted to these persons.
25
<PAGE>
STOCK OPTION PLANS
In September 1993, the Company adopted a stock option plan (the "1993
Plan") pursuant to which 250,000 shares of Class A Common Stock were reserved
for issuance upon exercise of options designated as (i) options intended to
constitute incentive stock options ("ISOs") under the Internal Revenue Code of
1986, as amended (the "Code"), or (ii) non-qualified options. In January 1997,
the shareholders of the Company approved the 1996 stock option plan (the "1996
Plan") pursuant to which 950,000 shares of Class A Common Stock have been
reserved for issuance upon the exercise of options designated either as ISOs or
non-qualified options. ISOs may be granted under the 1993 or the 1996 Plan to
employees and officers of the Company. Non-qualified options may be granted
under either the 1993 or the 1996 Plan to consultants, directors (whether or not
such director is an employee), employees or officers of the Company ("Eligible
Participants"). Additionally, the 1996 Plan permits the Plan Administrator to
make stock grants to Eligible Participants.
The purpose of both of the option plans is to attract and retain the best
available talent and encourage the highest level of performance to serve the
best interests of the Company and its shareholders. The option plans are
administered by the Board of Directors, or, at their discretion, by a committee
which is appointed by the Board to perform such function. The administering
party is referred to herein as the "Plan Administrator." As of the date of this
Prospectus, the Compensation Committee of the Board of Directors is serving as
the Plan Administrator. The Plan Administrator, within the limitations of the
plans, determines, among other things, when to grant options, the persons to
whom options will be granted, the number of shares to be covered by each option,
whether the options granted are intended to be ISOs or non-qualified options,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, and whether restrictions such as repurchase
rights in the Company are to be imposed upon the shares subject to options. In
determining the employees, officers, consultants and directors to whom options
should be granted and the number of shares to be covered by such options, the
Plan Administrator is to take into account the nature of their duties, their
present and potential contributions to the success of the Company and such other
factors as they shall deem relevant.
ISOs granted pursuant to the option plans may not be granted at a price
less than the fair market value of the Class A Common Stock on the date of grant
(or 110% of the fair market value in the case of persons holding 10% more of the
voting stock of the Company). The aggregate fair market value of shares for
which ISOs granted to any employee are exercisable for the first time by such
employee during any calendar year (pursuant to all stock option plans of the
Company and any related corporation) may not exceed $100,000. Non-qualified
options may be granted at a price determined by the Plan Administrator, but not
less than the par value of the Class A Common Stock. Options granted pursuant to
the option plans will expire no more than ten years from the date of grant (five
years in the case of ISOs granted to persons holding 10% or more of the voting
stock of the Company).
Options granted pursuant to the option plans are not transferable during
the optionee's lifetime, but are transferable at death by will or by the laws of
descent and distribution.
26
<PAGE>
Prior to the approval of the 1996 Plan, the following options, all
exercisable at $5.00 per share, were outstanding:
NAME NUMBER OF OPTIONS
Richard W. Fairchild, Jr. 75,000
M. G. Morgan 73,920
Robert A. Searles, Jr. 52,770
Deborah Schmied 30,000
Andrew J. Clark, III 25,000
Effective December 6, 1996, the Plan Administrator granted the following
options under the 1996 Plan, all of which are exercisable at $.50 per share and
all of which expire on November 1, 2002:
NUMBER OF
NAME POSITION OPTIONS
Lance P. Wimmer(1)(2) Chairman of the Board, 300,000
President and CEO
Robert R. Salyard(1)(3) Director 125,000
Robert A. Searles, Jr.(2) Executive Vice President and 67,500
Director
John C. Stuecheli(2) Vice President-Finance and Chief 60,000
Financial Officer
Andrew J. Clark, III(3) Director 50,000
Rodger Osgood(2) Vice President-Manufacturing and 28,750
Engineering
John D. Higgins(3) Director 25,000
Sue Camp(2) Corporate Secretary and 15,000
Logistics Manager
Richard W. Bell(2) Director of Marketing 15,000
- -----------
(1) The Employment Agreements and Consulting Agreement, respectively, pursuant
to which Messrs. Wimmer, Stuecheli and Salyard were engaged by the Company
obligated the Company to grant to Messrs. Wimmer, Stuecheli and Salyard the
stock options granted to them by the Plan Administrator.
(2) Incentive Stock Option
(3) Non-incentive Stock Option
The options granted to Messrs. Searles and Clark were conditioned upon them
surrendering for cancellation the 52,770 share option and the 25,000 share
option, respectively, held by them, exercisable at $5.00 per share.
27
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Clark has acted as counsel to the Company since its inception. During
the fiscal year ended June 30, 1996, he was paid an aggregate of $23,497.50 in
fees and expenses, all of which was for work performed prior to the beginning of
the fiscal year. During the year ended June 30, 1996, Mr. Clark billed the
Company an additional $55,585.52 in fees and expenses, none of which were paid.
Mr. Clark, along with twelve other trade creditors of the Company who held in
the aggregate $734,309.84 in debt of the Company, entered into a Settlement
Agreement pursuant to which on November 1, 1996 his claim for $55,585.50 was
settled in exchange for a cash payment of $8,337.83, an aggregate of 16,466
shares of Class A Common Stock and the agreement to pay $680.00 a month for
fifteen months.
Mr. Salyard has served as a consultant to the Company. In November 1996, he
exchanged $22,500 in unpaid consulting fees for an aggregate of 45,000 shares of
Class A Common Stock and 45,000 Private Placement Warrants.
In December 1995, the Company received an interim loan of $160,000 from
C.W. Moody, Jr. ($59,000), Dominion Investment Corporation, an affiliate of J.T.
Trotter ($57,000) and George V. Kane ($44,000) at prime plus 1% with maturity in
June of 1996. These lenders were granted warrants to purchase 16,000 shares of
Class A Common Stock at $4.00 per share. On November 15, 1996 these notes and
warrants were exchanged by the Moody Estate for 118,000 shares of Class A Common
Stock and 118,000 Private Placement Warrants, by Dominion Investment Corporation
for 114,000 shares of Class A Common Stock and 114,000 Private Placement
Warrants and by George V. Kane for 88,000 shares of Class A Common Stock and
88,000 Private Placement Warrants.
In January 1997, John D. Higgins, exchanged $10,000 in unpaid director
fees for an aggregate of 20,000 shares of Class A Common Stock of the Company
and 20,000 Private Placement Warrants.
28
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
All 1,500,000 shares of Class B Common Stock were issued to and remain
owned of record by Names 'N Faces, Inc. The following table sets forth certain
information as of December 31, 1996, with respect to the beneficial ownership
of shares Class A Common Stock held by (i) each person known by the Company to
be the owner of more than 5% of the outstanding shares Class A Common Stock,
(ii) each director, (iii) each of the executive officers named under "Executive
Compensation", and (iv) all officers and directors as a group.
PERCENTAGE OF OUTSTANDING
SHARES OWNED (2)
-----------------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS
------------------------ -----------------------------------
Royce Investment Group, Inc.(5) 1,204,994 16.10%
199 Crossways Park Drive
Woodbury, N.Y. 11797
The Estate of C. W. Moody, Jr.(3)....... 463,825 7.25%
P. O. Box 573117
Houston, TX 77257-3117
Petrus Fund, L.P.(4).................... 470,000 6.96%
1700 Lakeside Square
12377 Merit Drive
Dallas, TX 75251
J.T.Trotter (6)......................... 453,452 7.02%
1000 Louisiana, Suite 3600
Houston, TX 77002
John D. Higgins (7). 200,000 3.13%
199 Crossways Park Drive
Woodbury, N.Y. 11797
Robert R. Salyard(8).................... 90,000 1.42%
530 Mulberry Lane
Haverford, PA 19041
Robert A. Searles, Jr.(9)............... 84,946 1.35%
8554 Katy Freeway, Suite 100
Houston, TX 77024
M. G. Morgan(10)........................ 73,920 1.16%
1819 Augusta
Houston, TX 77057
Richard W. Fairchild, Jr.(11)........... 75,000 1.18%
4545 Post Oak Place, Suite 130
Houston, TX 72027
Andrew J. Clark, III................... 16,466 *
1000 Louisiana, Suite 3640
Houston, TX 77002
John C. Stuecheli 10,000 *
8554 Katy Freeway, Suite 100
Houston, TX 77024
Lance P. Wimmer 0 *
8554 Katy Freeway, Suite 100
Houston, TX 77024
All officers and directors as a 418,287 6.46%
group(12) (8 persons)
* Less than 1%
29
<PAGE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to shares of Class
A Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such persons and which are exercisable within 60 days from
the date of this Prospectus have been exercised. In the case of shares
underlying warrants, the number of shares reflected and the exercise price
have been adjusted to give effect to the antidilution adjustment required
resulting from the Company's issuance of 3,245,000 shares in the Private
Placement completed in January 1997.
(3) Includes 165,809 shares owned of record by Lone Star Photo Video, Inc., a
company beneficially owned by the estate of Mr. Moody, 62,016 shares owned
of record by the C. W. Moody Family Trust, of which Mr. Moody was the
beneficiary, 118,000 shares issuable upon exercise of Private Placement
Warrants issued on November 15, 1996 to the Estate of Mr. Moody in exchange
for the surrender of a note of the Company in the amount of $59,000.00 and
warrants to purchase 5,900 shares at $4.00 granted to Mr. Moody in
December 1995 in consideration for loaning the Company $59,000.
(4) Includes 470,000 shares issuable under Warrants granted under a Loan
Agreement and Loan Commitment to Petrus Fund, L.P. that are currently
exercisable. Petrus Fund, L.P. was granted an additional 40,000 warrants
that are not currently exercisable.
(5) Includes 133,747 shares issuable under the unit purchase option granted May
1994, exercisable at $5.96 per unit (consisting of one share and one common
stock warrant) and 133,747 shares of Class A Common Stock issuable upon
exercise of the 133,747 Warrants upon exercise at $5.75 per share. Also
includes 468,750 shares issuable under the unit purchase option granted
Royce Investment Group, Inc. and Spencer Trask Securities, Inc. in December
1996, exercisable at $.50 per unit (consisting of one share and one common
stock purchase warrant) and 468,750 shares issuable upon exercise of the
warrants at $1.00 per share until November 12, 1998 and thereafter until
November 1, 1999 at $1.50 per share.
(6) Includes 63,081 shares issuable under warrants granted in March 1995 to Mr.
Trotter in exchange for his guarantee of the $500,000 loan of the Company,
114,000 shares issuable upon exercise of Private Placement Warrants issued
to Mr. Trotter on November 15, 1996 in exchange for surrender of other
warrants and $57,000 in debt.
(7) Includes 100,000 Private Placement Warrants. The Private Placement Warrants
were acquired on November 1, 1996 along with 100,000 shares of Class A
Common Stock for an aggregate consideration of $50,000 as part of the
Private Placement.
(8) Includes 45,000 Private Placement Warrants. The Private Placement Warrants
and 45,000 shares of Class A Common Stock were acquired on November 15,
1996 upon conversion of $22,500 in debt of the Company to Mr. Salyard for
consulting services.
(9) Includes 33,750 shares issuable upon exercise of currently exercisable
options granted under the Company's 1996 Stock Option Plan.
30
<PAGE>
(10) Represents 52,770 shares issuable upon exercise of currently exercisable
options granted in February 1994 under the Company's 1993 Stock Option Plan
and 21,150 shares that were exercisable as of November 30, 1995 with
respect to a grant on January 17, 1995 of options to purchase 50,000 shares
under the Company's 1993 Stock Option Plan.
(11) Represents shares issuable upon exercise of currently exercisable options
granted under the Company's 1993 Stock Option Plan.
(12) Includes 195,625 shares issuable upon exercise of warrants and currently
exercisable stock options granted under the Company's 1996 Stock Option
Plan.
SELLING SHAREHOLDERS-PRIVATE PLACEMENT
Pursuant to a Agency Agreement dated September 9, 1996, between the Company
and Royce Investment Group, Inc. and Spencer Trask Securities Incorporated, on
January 8, 1997, the Company completed the Private Placement under which persons
representing that they were Accredited Investors (as defined in Rule 501 of
Regulation D under the Securities Act) acquired an aggregate of 3,245,000 shares
of Class A Common Stock and Private Placement Warrants to purchase 3,245,000
shares of Class A Common Stock. The shares of Class A Common Stock and Private
Placement Warrants were sold in $25,000 Units ("Units") each unit consisting of
50,000 shares of Class A Common Stock and 50,000 Private Placement Warrants.
Neither the Units nor the components of the Units are transferable prior to
March 31, 1997 without the prior written consent of Royce Investment Group, Inc.
Except for John D. Higgins, a director of the Company and an officer of
Royce Investment Group, Inc., one of the placement agents in the Private
Placement, and Lance P. Wimmer, Chairman, President & Chief Executive Officer,
none of the purchasers in the Private Placement was an officer or director or
had a material relationship with the Company within the past three years. The
following table sets forth the names of each of the persons who purchased Units
in the Private Placement and the number of shares of Class A Common Stock
including shares underlying Warrants to purchase shares of Class A Common Stock
known by the Company to be beneficially owned by such Selling Shareholders:
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Peter Horrigan 50,000
Scott Page 50,000
Gordon Edelheit and Jami Edelheit JTWROS 50,000
Alexander Masucci 100,000
Nicholas Sitnycky 100,000
31
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Joseph Mure, Jr. 100,000
Neil Axelrod and Deena Axelrod JTWROS 100,000
Myron Weiner 100,000
Fred Nicotra 50,000
Deborah A. Lanava 100,000
Peter Montalbano 50,000
Andrew Levey 50,000
Michael Mandel 100,000
Charles R. Buckridge 100,000
Susan Adelman 50,000
Arthur L. Filion and Grace M. Filion 50,000
JTWROS
Gary Persichetti 50,000
32
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Harry MacDougall Jr. Revocable Trust 50,000
DTD 9/3/94
Kenneth B. Milyard, Jr. 100,000
Norman F. Barnes 50,000
Robert P. Miller and Leddy M. Miller 50,000
JTWROS
Sanjay Kamiani and Kevin A. Broussel TIC 50,000
Mark L. Rachleff 50,000
Ross Asset Management Limited 200,000
Delaware Charter Guarantee and Trust 50,000
Co. C/F Matthew Saltzman IRA
Lawrence A. Cook 100,000
Sagax Find II Ltd. 100,000
c/o International Fund Administration
Ltd.
Robert J. Mahon 50,000
Resources Trust Co. FBO William B. 75,000
Dioguardi IRA dated 4/4/83
33
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Delaware Charter Guarantee and Trust 50,000
Co. C/F Victor Melnichuk M/P
Henry Kolpan 50,000
William Parisi 50,000
Steve Nicoletti 50,000
Robert F. Koehler Securities Def. Emp. 50,000
Pen. Plan DTD 10/31/87
Robert & Helke Koehler, TTEES
Jewel Hirsch 50,000
Delaware Charter Guarantee and Trust Co. C/F 50,000
Vincent Tonne IRA
Bruce Wigo 50,000
Berlin Engineering Assoc. Inc. Profit 50,000
Sharing Plan
Calisto Bernham TTEE
Lawrence J. Corneck 100,000
Richard M. Hoffman 100,000
34
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
David L. Schlotterback 100,000
Equity First Limited Partnership 200,000
Independent Trust Corp. FBO Prime 100,000
Discount Securities, Tr. #1205235
Irvin G. Vincent 50,000
Delaware Charter Guarantee & Trust Co. 50,000
C/F Robert Cottone IRA
Delaware Charter Guarantee & Trust Co. 50,000
C/F Walter Krzanowski
Newton Y. Robinson 50,000
OK Associates Pension Trust, Edmund 200,000
O'Connell, Trustee
Grigsby Bradford Retirement Trust 60,000
Allan Notowitz 50,000
Girish K. Bhargava 50,000
35
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
M. Janet DiGuilio 40,000
Christopher Porter 50,000
Delaware Charter Guarantee & Trust Co. 50,000
C/F Richard Incontro IRA
John D Higgins 200,000
Elaine Cotaling 50,000
Howard Weiss 200,000
Travis Green 250,000
Neil Bellet 250,000
Raourf Radi 100,000
Conrad J. Isoldi 100,000
Arthur Inden 100,000
Couch Family Intervivo Trust 1991 50,000
Gerald Masucci 100,000
36
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Jack W. Murray & Marion K. Murray JTWROS 100,000
Rocco Comis 25,000
Stephen A. Lasher Trust 100,000
Steven Prince IRA 100,000
Smith Barney Inc. Rollover Cust.
Frisian Holdings Ltd. 200,000
Waal Investments Ltd. 200,000
Robert Oosterwyk, Director
Ashdown Holdings Limited 200,000
Lance P. Wimmer 100,000
SEP/IRA
c/o Fidelity Investments
Livingston, Barger, Brandt & Schroeder 40,000
Self Emp. Ret. Plan DTD 9/30/94,
William C. Wetzel, TTEE FBO
37
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY OWNED*
Donald F. Frazee 50,000
John Mickowski 50,000
_____________
* Includes shares issuable upon exercise of Common Stock Purchase Warrants
SELLING SHAREHOLDERS-UNIT PURCHASE OPTION
Pursuant to a Agency Agreement dated September 9, 1996, between the
Company and Royce Investment Group, Inc. and Spencer Trask Securities
Incorporated, the Company issued Unit Purchase Options consisting of 486,750
shares of Class A Common Stock and 486,750 Special Private Placement Warrants to
the placement agents (the "Agency Placement"). The 973,500 shares of Class A
Common Stock are to be offered herein.
SELLING SHAREHOLDERS-OTHER
In December 1995, C. W. Moody, Jr., a director and principal shareholder,
Dominion Investment Corporation, an affiliate of J. T. Trotter, a principal
shareholder, and George V. Kane, Jr. loaned the Company $59,000, $57,000 and
$44,000, respectively, in exchange for the Company's notes ("Interim Notes") and
warrants to purchase an aggregate of 37,830 shares of Class A Common Stock (the
"Interim Warrants"). In satisfaction of a condition of closing the Private
Placement, the Interim Notes and the Interim Warrants were surrendered upon the
first closing of the Private Placement in exchange for an aggregate of 320,000
shares of Class A Common Stock and 320,000 Private Placement Warrants. In
January 1997, 67,816 shares of Class A Common Stock and 67,816 Private Placement
Warrants were sold by the Estate of C. W. Moody, Jr. to John F. Higgins whose
father is a director of the Company.
Robert R. Salyard, a director of the Company, upon the first closing of the
Private Placement exchanged $22,500 in consulting fees receivable from the
Company for 45,000 shares of Class A Common Stock and 45,000 Private Placement
Warrants.
In January 1997, John D. Higgins a director of the Company, exchanged
$10,000 in unpaid director fees for an aggregate of 20,000 shares of Class A
Common Stock of the Company and 20,000 Private Placement Warrants.
These six shareholders (the Estate of C.W. Moody, Jr., Dominion Investment
Corporation, George V. Kane, Jr., Robert R. Salyard, John D. Higgins and John F.
Higgins) have agreed not to sell publicly any securities of the
Company prior to November 1, 1997 without the prior written consent of Royce
Investment Group, Inc. The 385,000 shares of Class A Common Stock and
385,000 shares of Class A Common Stock issuable upon exercise of 385,000 Private
Placement Warrants are to be offered herein.
38
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby may be sold from time to time by
the Selling Shareholders, or by the Selling Shareholders' pledgees, donees,
transferees or other successors in interest, either directly by the Selling
Shareholder owning such shares or such Selling Shareholder's successors in
interest or through agents, underwriters or dealers. Such sales may be effected
in transactions in the Nasdaq SmallCap Market, on any exchange on which the
Common Stock may from time to time be traded, in independent, negotiated
transactions or otherwise. The shares of Common Stock offered hereby may be sold
at market prices prevailing at the time of sale or at negotiated prices. The
shares may be sold in the following manner: (i) a block trade in which the
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (ii) a purchase by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (iii) an
ordinary brokerage transaction; or (iv) a transaction in which the broker
solicits purchasers.
Any broker, dealer or underwriter to be utilized by a Selling Shareholder
will be selected by such Selling Shareholder. Any compensation payable to such
persons by a Selling Shareholder will be negotiated in the future. The Selling
Shareholders and any underwriters, dealers or agents that participate in
distribution of the shares offered hereby may be deemed to be underwriters, and
any profit on sale of the shares by the Selling Shareholders and any discounts,
commissions or concessions received by any underwriter, dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933 (the "Securities Act").
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 of Class
A Common Stock, $.10 par value per share, of which 6,400,136 shares were
outstanding as of the date of this Prospectus; 1,500,000 of Class B Common
Stock, $.01 par value per share, all of which are held by Names 'N Faces; and
100,000 of Preferred Stock, $1.00 par value per share, none of which are
presently outstanding. All outstanding shares of Class A Common Stock and all
shares of capital stock of the Company to be outstanding upon completion of this
offering will be, when issued, fully paid and non-assessable.
COMMON STOCK - CLASS A AND CLASS B
The holders of shares of Class B Common Stock shall not be entitled to
receive and the Company shall not pay any dividends to the holders of shares of
Class B Common Stock until such time as the Company has accumulated earned
surplus equal to at least $1,000,000 in the aggregate. After the Company has
accumulated earned surplus equal to at least $1,000,000 in the aggregate, the
holders of shares of Class B stock shall be entitled to receive the same
dividends as are declared and paid on each share of Class A Common Stock;
provided, however, that the total amount of dividends paid to the holders of
Class B Common Stock shall not exceed the "distribution amount" (as defined
herein), and all dividends to holders of shares of Class A Common Stock and
shares of Class B Common Stock are subject to the prior and superior rights in
any resolution or resolutions providing for the issue of a series of Preferred
Stock. In the event of any liquidation, dissolution or winding up of the affairs
of the Company, after payment to the holders of Preferred Stock of the amounts
to which they are entitled pursuant to the resolution or resolutions of the
Board of Directors providing for the issue of a series of Preferred Stock, the
holders of Class A Common Stock and Class B Common Stock shall be entitled to
share ratably in all assets then remaining subject to the condition that holders
of shares of Class B Common Stock shall not be entitled to share ratably in
assets of the Company until the holders of Class A Common Stock have received,
as a group, in
39
<PAGE>
distributions in liquidation or in dividends prior to dissolution, or in both,
an amount equal to $1,000,000 and the total amount of distributions in
liquidation plus all prior dividends paid to the holders of shares of Class B
Common Stock as a group shall not exceed the distribution amount. The
distribution amount shall equal the lesser of $1,000,000 or the aggregate of
$750,000 plus interest at the rate of 3% per annum compounded yearly, computed
on the amount by which $750,000 plus any accrued interest hereunder exceeds the
amount of distributions as are made to the holders of Class B Common Stock. Once
holders of Class B Common Stock have received the distribution amount, they
shall be entitled to no further payments or distributions from the Company and
the shares of Class B Common Stock outstanding shall be returned and canceled.
VOTING RIGHTS
Except as otherwise provided by law or in the resolution or resolutions by
the Board of Directors provided for the issue of any series of Preferred Stock,
the holders of Class A Common Stock shall have the exclusive right to vote for
the election of directors and for all other purposes. The holders of shares of
Class A Common Stock are entitled to one vote per share on all matters submitted
to a vote of shareholders. Shares of Class A Common Stock do not have cumulative
voting rights which means that the holders of a majority of the shares voting
for the election of the Board of Directors elect all of the directors and, in
such event, the holders of the remaining shares will not be able to elect any
directors.
PREFERRED STOCK
The Preferred Stock may be issued in series and shares of each series shall
have such rights and preferences as shall be fixed by the Board of Directors in
the resolution or resolutions authorizing the issuance of that particular
series. In designating any series of Preferred Stock, the Board of Directors has
authority, without further action by the shareholders, to fix the number of
shares constituting that series and to fix the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including any
sinking fund provision) and the liquidation preferences of that series of
Preferred Stock. It is anticipated that the holders of any series of any
Preferred Stock, when and if issued, will have priority claims to dividends and
to any distribution upon liquidation of the Company, and may have other
preferences over the common stock, including the preferential right to elect
directors in the event preferred dividends are not paid for a specified period.
No Preferred Stock has been issued and the Company has no present plans to do
so. See "Risk Factors-Potential Anti-Takeover Effects of Discretionary Issuance
of Preferred Stock."
PREEMPTIVE RIGHTS
Shareholders of the Company do not have preemptive rights to subscribe for
or purchase any stock, obligations, warrants or any securities of the Company.
WARRANTS
Redeemable Warrants. There are outstanding in stock purchase warrants (the
"Redeemable Warrants") to purchase 1,666,615 shares of Class A Common Stock that
were issued by the Company in May 1994 as a part of the Company's initial public
offering. Each Redeemable Warrant entitles the registered holder to purchase one
share of Class A Common Stock, at an exercise price of $5.31 at any time prior
to the close of business on May 11, 1997, providing that at such time a current
prospectus relating to the Class A Common Stock is in effect and the Class A
Common Stock is qualified for sale or exempt from qualification under applicable
states securities laws.
The Redeemable Warrants are redeemable by the Company on 30 days' prior
written notice at a redemption price of $.01 per Redeemable Warrant, provided
the average closing bid price of the Company's
40
<PAGE>
Class A Common Stock in the over-the-counter market as reported by Nasdaq for
any 20 consecutive business days ending within five days of the notice of
redemption exceeds $9.00 per share (subject to adjustment by the Company as
described below, in the event of any reverse stock split or similar events)
provided no closing bid price during such period was less than $8.25. The notice
of redemption will be sent to the registered address of the registered holder of
the Redeemable Warrant. All Redeemable Warrants must be redeemed if any are
redeemed.
Private Placement Warrants. As a part of the Company's private placement
that was concluded on January 8, 1997, the Company issued Private Placement
Warrants to purchase an aggregate of 3,610,000 shares of Class A Common Stock.
Each Private Placement Warrant entitles the registered holder to purchase one
share of Class A Common Stock, at an exercise price of $1.00 per share (subject
to adjustment) at any time prior to the close of business on november 1, 1998,
and at $1.50 per share (subject to adjustment) at any time prior to expiration
of the Warrant on November 1, 1999. Each of the holders of shares of Class A
Common Stock and Warrants acquired in the private placement are subject to a
lock-up agreement not to sell any of such securities until March 31, 1997; 75%
of such securities until June 30, 1997; 50% of such securities until
September 30, 1997; and 25% of such securities until December 31, 1997.
Special Private Placement Warrants. Pursuant to the Agency Placement, the
Company issued Unit Purchase Options consisting of 486,750 shares of Class A
Common Stock and 486,750 Special Private Placement Warrants to the placement
agents. Each Special Private Placement Warrant entitles the registered holder
to purchase one share of Class A Common Stock, at an exercise price of $1.00 per
share (subject to adjustment) at any time prior to the close of business on
November 1, 1998, and at $1.50 per share (subject to adjustment) at any time
prior to expiration of the Warrant on November 1, 2001.
The exercise price of the warrants was in each case determined by
negotiations between the Company and its investment bankers and should not be
construed to predict, or to imply that, any price increases will occur in the
Company's securities. The exercise price of the warrants and the number and kind
of shares of Class A Common Stock or other securities and property to be
obtained upon exercise of the warrants are subject to adjustment in certain
circumstances, including a stock split of, or stock dividend on, or subdivision,
combination of recapitalization of, the Common Stock or the issuance of shares
of Common Stock at less than the market price of the Common Stock. Additionally,
an adjustment would be made upon the sale of all or substantially all of the
assets of the Company for less than the market value, a merger or other unusual
events (other than share issuances pursuant to employee benefit and stock
incentive plans for directors, officers and employees of the Company) so as to
enable warrant holders to purchase the kind and number of shares or other
securities or property (including cash) receivable in such event by a holder of
the kind and number of shares of Class A Common Stock that might otherwise have
been purchased upon exercise of such warrant. No adjustment for previously paid
cash dividends, if any, will be made upon exercise of the warrants. The Company
is not required to issue fractional shares of its Class A Common Stock and in
lieu thereof will make a cash payment based upon the current market value of
such fractional shares.
The warrants do not confer upon the warrant holder any voting or other
rights as a shareholder of the Company. Upon notice to the warrant holders, the
Company has the right to reduce the exercise price or extend the expiration date
of the warrants. All other right is intended to benefit the warrant holders, to
the extent the Company exercises this right when the warrants would otherwise be
exercisable at a price higher than the prevailing market price for Class A
Common Stock, the likelihood of exercise and the result and increase in the
number of shares outstanding, may result in making more costly, or impeding, a
change in control of the Company.
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS
In accordance with the Texas Business Corporation Act, the Company has
included a provision in its Articles of Incorporation to limit the personal
liability of its directors for violations of their fiduciary duty. The provision
eliminates directors liability to the Company or its stockholders for monetary
damages, except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit.
41
<PAGE>
Additionally, in accordance with the Texas Business Corporation Act, the
Company's Articles of Incorporation and Bylaws indemnifies its directors against
liability which they may incur in their capacity as a director against
judgments, penalties, fines, settlements and reasonable expenses incurred in
connection with threatened, pending or completed civil, criminal,
administrative, or investigative proceedings by reason of the fact that he is or
was a director, officer, employee, fiduciary or agent of the Company if such
director acted in good faith and in a manner reasonably believed to be in the
best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling or persons controlling
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the Company's Class B Common Stock,
all of which is held of record by one securityholder.
On May 11, 1994 the Company commenced an initial public offering pursuant
to which an aggregate of 1,265,000 shares of the Class A Common Stock were
issued and sold as part of 1,265,000 units, with each unit consisting of one
share of Class A Common Stock and one Redeemable Warrant to purchase one share
of Class A Common Stock at an exercise price of $7.00 per share at any time for
three years after issuance. The Redeemable Warrants are subject to redemption by
the Company commencing six months following the date of the offering for $.01
per warrant in the event the Class A Common Stock trades in excess of $9.00 per
share for 20 consecutive business days.
The Class A Common Stock did not separately trade until August 9, 1994. The
Class A Common Stock and the Redeemable Warrants are listed on the Boston Stock
Exchange and are also traded in the Nasdaq SmallCap Market under the Symbol
"IRATAW". See "Risk Factors-Possible Delisting of Securities from The Nasdaq
Stock Market; Disclosure Relating to Low-Priced Stocks.". For the year ended
June 30, 1996, the high bid and low bid price for Class A Common Stock as
reported by Nasdaq was $5.625 and $3.125, respectively. Based upon information
provided by the Company's transfer agent the Company has approximately 80
holders of record of its equity securities who are believed by the Company to
hold for the benefit of approximately 1,100 shareholders.
DIVIDENDS
To date, the Company has not declared or paid any dividends on its capital
stock. The payments of dividends, if any, is within the discretion of the Board
of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition and other relevant factors. The Board does
not intend to declare any dividends in the foreseeable future, but instead
intends to retain all future earnings, if any, for use in the Company's business
operations. See "Risk Factors-No Dividends Likely in the Foreseeable Future."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock and the Warrant Agent
is Continental Stock Transfer & Trust Company, New York, New York.
42
<PAGE>
REPORTS TO SHAREHOLDERS
The Company furnishes its shareholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Andrew J. Clark, III, Houston, Texas.
EXPERTS
The financial statements of the Company for the year ended June 30, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their respective report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon authority of such firm as
experts in accounting and auditing. The financial statements of the Company for
the year ended June 30, 1996 were audited by Lane Gorman Trubitt, L.L.P., as set
forth in their respective report thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The Company's financial statements were previously audited by Ernst &
Young LLP, whose resignation, effective June 11, 1996, was accepted by the
Board of Directors. The Company subsequently engaged Lane Gorman Trubitt, L.L.P.
to perform audit services for the year ended June 30, 1996. The report of Ernst
& Young LLP on the Company's financial statements for the two years ended June
30, 1995 contained an unqualified opinion. However, the audit report included an
explanatory paragraph that raised substantial doubt about the Company's ability
to continue as a going concern. At no time was there any disagreement between
the Company and Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure. See
"Auditors Report Containing Going Concern Qualification."
43
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2, (together with any amendments thereto, the
"Registration Statement") under the
Securities Act with respect to the shares of Class A Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the Commission
and certain items of which may be contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission and to which reference is hereby made for further information with
respect to the Company and the Class A Common Stock. Items of information
omitted from this Prospectus but contained in the Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, New
York, NY10048, and Citicorp Center, 500 West Madison, Suite 1400, Chicago, IL
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. The address
of the Web site is http://www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission referred to above. In addition, copies of such reports, proxy
statements and other information concerning the Company may also be inspected
and copied at the offices of The Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C. 20006-1506 on which the Class A Common Stock is traded.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Statements
Statements of Operations for Six Months Ended December 31, 1995 and 1996..................... 46
Balance Sheet as of December 31, 1996........................................................ 47
Statements of Cash Flows for Six Months Ended December 31, 1995 and 1996..................... 48
Notes to Financial Statements............................................................. 49-50
Reports of Independent Auditors................................................................ 51-52
Financial Statements
Balance Sheet as of June 30, 1996............................................................ 53
Statements of Operations for Years Ended June 30, 1995 and 1996.............................. 54
Statements of Stockholders' Equity for Years Ended June 30, 1995 and 1996.................... 55
Statements of Cash Flows for Years Ended June 30, 1995 and 1996.............................. 56
Notes to Financial Statements............................................................. 57-66
</TABLE>
45
<PAGE>
IRATA, INC
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ------------------------------
1995 1996 1995 1996
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues:
Booth Services.......................... $1,985,115 $1,256,312 $4,103,673 $3,083,963
Booth Sales............................. -- 7,500 -- 7,500
---------- ---------- ---------- ----------
Total revenues............................ 1,985,115 1,263,812 4,103,673 3,091,463
Cost of booth services:
Site rent............................... 718,514 482,527 1,458,144 1,174,295
Route labor............................. 189,164 151,610 415,151 331,780
Equipment depreciation.................. 260,587 263,009 499,936 510,304
Consumables............................. 175,025 127,286 341,462 316,371
Freight and re-installation costs....... 91,516 92,701 149,346 165,969
Loss on disposal of property &
equipment............................. 25,730 29,213 141,666 87,116
Other costs of service.................. 56,764 34,815 93,993 76,593
---------- ---------- ---------- ----------
Total cost of booth services.............. 1,517,300 1,181,161 3,099,698 2,662,428
Cost of booths sold....................... -- 7,454 -- 7,454
---------- ---------- ---------- ----------
Gross profit.............................. 467,815 75,197 1,003,975 421,581
Selling, general and administrative
expenses:
Salaries and wages...................... 282,247 276,163 574,526 514,255
Professional fees....................... 75,333 55,671 156,818 251,683
Insurance............................... 41,942 49,277 75,484 69,410
Marketing............................... 24,294 18,242 58,461 27,848
Travel and entertainment................ 20,136 12,012 23,545 18,639
Depreciation and amortization........... 9,350 13,755 17,444 25,139
Personal property and franchise taxes... 4,979 45,145 4,979 75,022
Office expense.......................... 62,339 78,436 133,560 148,784
Bad debt................................ -- 5,000 4,824 5,000
---------- ---------- ---------- ----------
Total selling, general and administrative
expenses................................ 520,620 553,701 1,049,641 1,135,780
---------- ---------- ---------- ----------
Operating (loss).......................... (52,805) (478,504) (45,666) (714,199)
Other income (expense):
Interest expense........................ (67,211) (67,920) (135,085) (130,844)
Financing costs......................... (67,842) (72,404) (136,341) (140,246)
Interest income......................... 66 3,150 232 3,150
Other, net.............................. 1,781 29,120 3,202 30,456
---------- ---------- ---------- ----------
Total other income (expense).............. (133,206) (108,054) (267,992) (237,484)
---------- ---------- ---------- ----------
Net (loss)................................ $ (186,011) $ (586,558) $ (313,658) $ (951,683)
========== ========== ========== ==========
Net loss per share........................ $ (0.07) $ (0.12) $ (0.12) $ (0.26)
========== ========== ========== ==========
Weighted average number of common or
equivalent shares outstanding........... 2,544,318 4,694,344 2,544,318 3,622,208
========== ========== ========== ==========
</TABLE>
See accompanying notes.
46
<PAGE>
IRATA, INC.
BALANCE SHEET (UNAUDITED)
ASSETS
DECEMBER 31,
1996
-------------
Current assets:
Cash................................................ $ 248,921
Accounts receivable-trade,
net of $15,000 allowance........................... 376,251
Accounts receivable-other........................... 28,770
Consumable inventory................................ 240,079
Prepaids and other currents assets.................. 122,734
-----------
Total current assets.......................... 1,016,755
Property and equipment, at cost:
Equipment-Booths.................................... 6,131,886
Components and hardware............................. 642,099
Furniture, fixtures and equipment................... 268,428
-----------
7,042,413
Accumulated depreciation............................ (2,069,571)
-----------
Total property and equipment, net............. 4,972,842
Other assets:
Deferred loan costs, net............................ 379,985
Other, net.......................................... 102,304
-----------
482,289
-----------
Total assets.................................. $ 6,471,886
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................. $ 284,934
Sales and use tax payable........................... 191,419
Site rents payable.................................. 11,573
Other accrued liabilities........................... 254,516
-----------
Total current liabilities..................... 742,442
Long-term debt........................................ 2,247,639
Commitments
Stockholders' equity:
Preferred stock, $1 par value:
100,000 shares authorized, zero issued........ --
Class A common stock, $.10 par value:
20,000,000 shares authorized, 6,294,215
issued and outstanding...................... 629,421
Class B common stock, $.01 par value:
1,500,000 shares authorized, issued and
outstanding................................. 15,000
Additional paid-in-capital.......................... 8,124,630
Accumulated deficit................................. (5,287,246)
-----------
Total stockholders' equity.................... 3,481,805
-----------
Total liabilities and stockholders' equity.... $ 6,471,886
===========
See accompanying notes.
47
<PAGE>
IRATA, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
---------------------------
1995 1996
---------------------------
Operating activities
Net (loss).................................. $ (313,658) $ (951,683)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization............... 517,380 535,443
Financing costs............................. 136,341 140,245
Loss on disposal of property and equipment.. 141,666 87,116
Stock awards................................ 6,829 (28,702)
Net book value of booths sold............... -- 7,454
Changes in operating assets
and liabilities:
Accounts receivable-trade................... (178,274) 96,336
Accounts receivable-other................... 10,579 (18,585)
Other current assets........................ 26,852 (81,287)
Other assets................................ (99,914) (50,819)
Accounts payable............................ 348,109 (240,361)
Sales and use tax payable................... 230,550 (373,527)
Site rents payable.......................... 159,000 (123,445)
Other accrued liabilities................... (149,388) 92,602
----------- -----------
Net cash provided (used) by operating
activities.................................. 836,072 (909,213)
Investing activities
Purchases of property and equipment......... (1,135,850) (248,326)
----------- -----------
Net cash used in investing activities......... (1,135,850) (248,326)
Financing activities
Proceeds from Private Placement, net........ -- 1,232,108
Proceeds from Loan Agreement, net........... 315,000 --
Proceeds from short-term notes.............. 96,000 --
Principal payments on short-term notes...... (93,947) --
----------- -----------
Net cash provided by financing activities..... 317,053 1,232,108
----------- -----------
Net (decrease) increase in cash and cash
equivalents................................. 17,275 74,569
Cash and cash equivalents at
beginning of year........................... 186,052 174,352
----------- -----------
Cash and cash equivalents at end of period.... $ 203,327 $ 248,921
=========== ===========
See accompanying notes.
48
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
IRATA, Inc. (the "Company") was incorporated March 22, 1992 under the laws
of the State of Texas, for the purpose of acquiring and operating Video Foto
booths throughout the United States in shopping malls, theme parks, discount
stores and high traffic areas. The booths produce a black and white
computer generated, laser printed image superimposed on a variety of background
options.
The accompanying unaudited interim financial statements of the Company have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules and
regulations. The accompanying unaudited interim financial statements reflect all
adjustments which the Company considers necessary for a fair presentation of the
results of operations for the interim periods covered and for the financial
condition of the Company at the date of the interim balance sheet. All such
adjustments (except as otherwise disclosed herein) are of a normal recurring
nature. Results for the interim periods are not necessarily indicative of
results for the year.
Revenue Recognition
The Company recognizes booth services revenue as photos are produced by the
booth. Location owners where booths are sited are paid a fixed rental,
percentage of net revenues or a combination thereof, which is recorded as site
rent. The independent service contractor is also paid a fixed commission,a
percentage based upon the net revenues generated by the Booths serviced by him,
or a combination thereof, which is recorded as route labor.
The Company recognizes booth sales revenue as of the booth delivery date. Cost
of booths sold includes the undepreciated cost of the booth and direct expenses
related to the sale.
Statement of Cash Flows
Supplemental disclosures of cash flow information are as follows:
1995 1996
---- ----
Interest paid 132,000 131,000
Taxes paid -- --
Reduction of Sales and Use Taxes Payable -- 55,000
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions
and improvements are capitalized while minor replacements, maintenance and
repairs which do not improve or extend the life of such assets are expensed as
incurred. Depreciation is provided using the straight line method over the
estimated useful lives of the various classes of assets, as follows:
ESTIMATED
------------
USEFUL LIFE
------------
Booths............................. 5 to 7 Years
Furniture, Fixtures and Equipment.. 3 to 7 Years
Components and hardware consist of parts used to construct and repair booths.
No depreciation is provided on new parts until they are installed into a booth
and that booth is placed into service.
49
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS -(CONTINUED)
(UNAUDITED)
2. STOCKHOLDERS' EQUITY
Private Placement
On January 8, 1997, the Company completed a private placement of 3,245,000
shares of Class A Common Stock and 3,245,000 Private Placement Warrants. The
private placement was sold in $25,000 units consisting of 50,000 shares of Class
A Common Stock and 50,000 Private Placement Warrants. Net proceeds to the
Company were approximately $1,275,000.
Each Private Placement Warrant will be exercisable for a period of three
years after the initial closing date into one share of common stock at an
exercise price equal to $1.00 per share during the first two years and $1.50 per
share thereafter. The Warrants will be protected against dilution upon the
occurrence of certain events, including, but not limited to, sales of shares of
common stock for less than fair market value, certain dividends, split-ups,
reclassifications, and asset sales. The Company has agreed to register for
resale the shares issued at closing and the shares issued or issuable upon
exercise of the Warrants under the Securities Act of 1933, on or prior to
December 31, 1996, subject to certain lock-up provisions. If the registration is
not declared effective by March 1, 1997, then the Company will issue to each
investor 5,000 shares for each unit.
Trade Payable Agreement
In connection with the Trade Payable Agreement, effective November 1, 1996,
the Company issued 268,223 shares of Class A Common Stock to fourteen creditors
in settlement of approximately $850,000 in past due obligations.
Other
Dominion Investment Corporation, an affiliate of J.T. Trotter, a principal
shareholder, C.W. Moody, Jr., also a principal shareholder, and George V. Kane,
Jr. loaned the Company $160,000 in December 1995 and were issued notes in the
principal amount of $160,000 and warrants to purchase 22,733 shares of Class A
Common Stock at an exercise price of $2.81. On November 1, 1996, the notes and
the warrants were exchanged for 320,000 shares of Class A Common Stock and
320,000 Private Placement Warrants. In November 1996, Robert R. Salyard, a
director of the Company, exchanged $22,500 in unpaid consulting fees for 45,000
shares of Class A Common Stock and 45,000 Private Placement Warrants.
3. SUBSEQUENT EVENTS
On February 6, 1997, Fish Construction, Inc., a trade creditor, commenced an
action against the Company in the 240th Judicial District Court in and for Fort
Bend County, Texas. The action, which seeks compensatory damages of $174,074,
alleges that the Company has breached the terms of an agreement between the
Company and the plaintiff for the supply of booths to the Company. The Company
is vigorously defending the action. Although the outcome of any litigation is
subject to uncertainty, the Company believes, based upon information currently
available to it, that the action is without merit, and that it will be able to
successfully conclude this litigation. However, an adverse ruling against the
Company with respect to this litigation could have a material adverse effect on
the Company and its financial condition.
On February 18, 1997 a Registration Statement on Form SB-2, filed with The
Securities and Exchange Commission on January 28, 1997 (File No. 333-20559), was
declared effective. This occurrence fulfills the Company's agreement to register
for resale the shares of Class A Common Stock issued at the closing of the
Private Placement and the shares issued or issuable upon exercise of the
Warrants under the Securities Act of 1933.
50
<PAGE>
IRATA, INC.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Irata, Inc.
We have audited the accompanying balance sheet of Irata, Inc. as of June 30,
1996, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Irata, Inc. at June 30, 1996,
and the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements as of and for the year ended June 30,
1996 have been prepared assuming that Irata, Inc. will continue as a going
concern. As more fully described in Note 2, the Company has incurred recurring
losses and has a working capital deficiency. In addition, the Company has not
complied with certain covenants of a loan agreement with a Lender. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Lane Gorman Trubitt, L.L.P.
Dallas, Texas
August 29, 1996
51
<PAGE>
IRATA, INC.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Irata, Inc.
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of Irata, Inc. for the year ended June 30, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Irata, Inc.
for the year ended June 30, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Irata,
Inc. will continue as a going concern. As more fully described in Note 2, the
Company has incurred recurring losses and has a working capital deficiency. In
addition, the Company has not complied with certain covenants of a loan
agreement with a Lender. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Ernst & Young LLP
Houston, Texas
September 22, 1995
52
<PAGE>
IRATA, INC.
BALANCE SHEET
JUNE 30, 1996
ASSETS
------
Current assets:
Cash.......................................................... $ 174,352
Accounts receivable-trade, net of $10,000 allowance........... 472,587
Accounts receivable-other..................................... 10,185
Consumable inventory.......................................... 200,581
Prepaids and other current assets............................. 71,368
-----------
Total current assets.................................... 929,073
Property and equipment, at cost:
Equipment-Booths.............................................. 6,318,711
Components and hardware....................................... 507,499
Furniture, fixtures and equipment............................. 203,931
-----------
7,030,141
Accumulated depreciation...................................... (1,624,354)
-----------
Total property and equipment, net....................... 5,405,787
Other assets:
Deferred loan costs, net...................................... 463,838
Other, net.................................................... 66,347
-----------
530,185
-----------
Total assets............................................ $ 6,865,045
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable........................................ $ 1,129,829
Long-term debt in default..................................... 2,150,000
Sales and use tax payable..................................... 620,660
Short-term notes-stockholders................................. 160,000
Short-term note-vender........................................ 63,389
Site rents payable............................................ 135,018
Other accrued liabilities..................................... 166,714
-----------
Total current liabilities............................... 4,425,610
Commitments
Stockholders' equity:
Preferred stock, $1 par value:
100,000 shares authorized, zero issued.................. --
Class A common stock, $.10 par value:
20,000,000 shares authorized, 2,550,071 issued and
outstanding........................................... 255,007
Class B common stock, $.01 par value:
1,500,000 shares authorized, issued and outstanding..... 15,000
Additional paid-in-capital.................................... 6,504,991
Accumulated deficit........................................... (4,335,563)
-----------
Total stockholders' equity.............................. 2,439,435
-----------
Total liabilities and stockholders' equity.............. $ 6,865,045
===========
See accompanying notes.
53
<PAGE>
IRATA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
---------------------
1995 1996
---------------------
<S> <C> <C>
Revenues......................................................... $5,520,452 $7,451,098
Cost of services:
Site rent...................................................... 1,724,559 2,778,502
Route labor.................................................... 622,723 780,431
Equipment depreciation......................................... 650,822 1,111,191
Consumables.................................................... 528,771 760,530
Freight and installation costs................................. 174,063 329,976
Loss on disposal of property & equipment....................... 188,925 771,363
Other costs of service......................................... 124,565 214,608
----------- ----------
Total cost of services........................................... 4,014,428 6,746,601
----------- ----------
Gross profit..................................................... 1,506,024 704,497
Selling, general and administrative expenses:
Salaries and wages............................................. 982,356 1,101,870
Professional fees.............................................. 480,745 405,042
Insurance...................................................... 101,218 154,212
Marketing...................................................... 99,447 117,251
Travel and entertainment....................................... 41,647 52,818
Depreciation and amortization.................................. 37,865 42,834
Personal property and franchise taxes.......................... 19,941 51,465
Office expense................................................. 230,111 267,167
Bad debt....................................................... 64,459 16,626
----------- ----------
Total selling, general and administration expenses............... 2,057,789 2,209,285
----------- ----------
Operating loss................................................... (551,765) (1,504,788)
Other income (expense):
Interest expense............................................... (43,778) (342,166)
Financing costs................................................ (14,107) (271,365)
Interest income................................................ 29,128 284
Other, net..................................................... (15,278) 3,478
----------- ----------
Total other income (expense)..................................... (44,035) (609,769)
----------- ----------
Net loss......................................................... (595,800) (2,114,557)
=========== ==========
Net loss per share............................................... $ (0.24) $ (0.83)
=========== ==========
Weighted average number of common or equivalent shares outstanding. 2,534,711 2,545,409
=========== ==========
</TABLE>
See accompanying notes.
54
<PAGE>
IRATA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Common Stock Class B Common
----------------------- --------------------- Additional Total
Number of Nunber of Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
---------- ----------- ----------- -------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994............... 2,367,992 $ 236,799 1,500,000 $ 15,000 $ 5,471,004 $ (1,625,206) $ 4,097,597
Exercise of overallotment,
net of costs.......................... 165,000 16,500 -- -- 676,193 -- 692,693
Stock awards........................... 9,619 962 -- -- 28,983 -- 29,945
Value of warrants issued in connection
with Loan Agreement.................. -- -- -- -- 313,200 -- 313,200
Net loss............................... -- -- -- -- -- (595,800) (595,800)
---------- ----------- ----------- -------- ------------- -------------- -------------
Balance at June 30, 1995............... 2,542,611 254,261 1,500,000 15,000 6,489,380 (2,221,006) 4,537,635
Stock awards........................... 7,460 746 -- -- 13,311 -- 14,057
Value of warrants issued in connection
with Loan Agreement.................. -- -- -- -- 2,300 -- 2,300
Net loss............................... -- -- -- -- -- (2,114,557) (2,114,557)
---------- ----------- ----------- -------- ------------- -------------- -------------
Balance at June 30, 1996............... 2,550,071 $ 255,007 1,500,000 $ 15,000 $ 6,504,991 $ (4,335,563) $ 2,439,435
========== =========== =========== ======== ============= ============== =============
</TABLE>
See accompanying notes.
55
<PAGE>
IRATA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------
1995 1996
---------------------------------
<S> <C> <C>
Operating activities
Net loss...................................................... $ (595,800) $ (2,114,557)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................. 688,687 1,154,025
Financing costs............................................... 14,107 271,365
Loss on disposal of property and equipment.................... 188,925 771,363
Stock awards.................................................. 29,945 14,057
Changes in operating assets and liabilities:
Accounts receivable-trade..................................... (277,681) (51,724)
Accounts receivable-other..................................... (20,921) 16,445
Other current assets.......................................... (221,112) 21,200
Other assets.................................................. (10,615) (33,976)
Accounts payable.............................................. 690,058 301,544
Sales and use tax payable..................................... 62,628 518,541
Site rents payable............................................ (30,312) 121,518
Other accrued liabilities..................................... (38,592) 63,681
---------------------------------
Net cash provided by operating activities....................... 479,317 1,053,482
Investing activities
Purchases of property and equipment........................... (4,762,891) (1,447,646)
Maturity of short-term investments............................ 1,016,765 --
Proceeds from insurance claim for damaged property............ 25,294 --
------------- --------------
Net cash used in investing activities........................... (3,720,832) (1,447,646)
Financing activities
Proceeds from bank notes...................................... 600,000 --
Principal payments on bank notes.............................. (600,000) --
Proceeds from short-term notes................................ -- 160,000
Proceeds from exercise of overallotment, net.................. 692,693 --
Proceeds from Loan Agreement, net............................. 1,404,107 315,000
Principal payments on short-term notes........................ (67,459) (92,536)
------------- --------------
Net cash provided by financing activities....................... 2,029,341 382,464
------------- --------------
Net (decrease) increase in cash and cash equivalents............ (1,212,174) (11,700)
Cash and cash equivalents at beginning of year.................. 1,398,226 186,052
------------- --------------
Cash and cash equivalents at end of year........................ $ 186,052 $ 174,352
============= ==============
</TABLE>
See accompanying notes.
56
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
IRATA, Inc. (the "Company") was incorporated March 20, 1992 under the laws of
the State of Texas, for the purpose of acquiring and operating VIDEO FOTO
("Booths") throughout the United States at shopping malls, theme parks, retail
stores and other areas of high pedestrian traffic. The Booths produce a computer
generated laser printed image with various background options.
Revenue Recognition
The Company recognizes revenue as products and services are provided.
Landlords are paid a fixed rental, percentage of net revenues or a combination
thereof, which is recorded as site rent. The independent service contractor is
also paid a fixed commission, a percentage based upon the net revenues generated
by the Booths serviced by him, or a combination thereof, which is recorded as
route labor.
Statement of Cash Flows
Supplemental disclosures of cash flow information are as follows:
1995 1996
---- ----
Interest paid...................................... $ 22,140 $264,162
Taxes paid......................................... --- ---
Conversion of vendor payable to note............... 223,384 35,000
Warrant value associated with the Loan Agreement... 313,200 2,300
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions
and improvements are capitalized while minor replacements, maintenance and
repairs which do not improve or extend the life of such assets are charged to
operations as incurred. Depreciation is provided using the straight line method
over the estimated useful lives of the various classes of assets, as follows:
ESTIMATED
USEFUL LIFE
-----------
Equipment-Booths 5 to 7 Years
Furniture, Fixtures and Equipment 3 to 7 Years
Components and hardware consist of parts used to construct and repair Booths. No
depreciation is provided for these parts until they are installed into a Booth
and that Booth is placed into service. Used parts are recorded at the lower of
cost or net realizable value.
Other Assets
Organization costs are amortized using the straight-line method over five
years. Deferred loan costs are amortized over the life of the loan (see Note 4).
Certain technology currently utilized in the Company's Booths has been treated
by the Company as proprietary. The Company has determined that seven years is an
appropriate life for proprietary process.
57
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
Expenditures related to printer software upgrades are capitalized and
amortized over three years which the Company has determined to be the estimated
useful life.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax liabilities are determined based upon differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted marginal tax rates and laws that will be in effect when the
differences reverse.
Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Loss Per Share
Loss per share has been computed based upon the weighted average number of
common and common equivalent shares outstanding. The Class B Common Stock has
not been considered in the loss per share computation because it is not
considered a Senior security or a common stock equivalent based on rights
associated with the Class B Common Stock. Options and warrants have not been
included in the computation as they have an antidilutive effect.
Reclassifications
Certain reclassifications have been made to conform to the 1996 presentation
Inventory
Consumable inventory is stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
Newly Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is
effective for the Company's 1997 fiscal year end. The adoption of SFAS No. 121
is not expected to have a material impact on the Company's financial position,
liquidity, cash flow or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which requires companies to measure employee stock compensation
plans based on the fair value method of accounting or to continue to apply APB
No. 25, "Accounting for Stock Issued to Employees" and provide pro forma
footnote disclosures under the fair value method in SFAS No. 123. The Company
has decided to
58
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
adopt SFAS No. 123 through disclosure only, and accordingly, pro forma fair
value disclosures will be made in the 1997 financial statements.
Fair Value of Financial Instruments
Fair value of financial instruments are estimated to approximate the related
book values, unless otherwise indicated, based on market information available
to the Company.
2. LIQUIDITY AND WORKING CAPITAL DEFICIT
As of June 30,1996 the Company recognized a net loss of $2,114,557. A
significant portion of this loss is attributable to the costs associated with
certain non-recurring events. During the current fiscal year, the Company
permanently removed approximately 120 booths from operations. These early
prototype booths, which were acquired in 1992, contained older components, which
had high failure rates and, in some cases, replacement parts were no longer
available to supply them. Also, the cabinet construction was not designed for
high traffic, unattended locations, resulting in security problems. These booths
were replaced with the current booth, which has a sturdier cabinet and more
reliable up-to-date components. As a result of this decision, the Company
incurred a charge of approximately $300,000, representing the undepreciated book
value of these older booths. In addition, the Company reduced the carrying value
of hardware and components by approximately $470,000, to account for
obsolescence and to value used parts at the lower of cost or realizable value.
The removal and replacement of these booths accounted for a significant part of
the installation costs.
During May 1996, the State of Texas conducted a sales and use tax audit for
the period March 1992 to March 1996. In connection with the auditor's review of
sales records, the Company was unable to provide documentation to show that
certain third party operators, who collect cash from the photo booths, had paid
the appropriate sales tax or that they had obtained sales tax exemption
certificates from the appropriate state tax authority. As a result of this
review , the Company was issued a preliminary delinquent sales tax assessment of
approximately $150,000. Management is pursuing collection of taxes or submission
of certificates from third party operators to mitigate the sales tax liability.
Additionally, the Company has been assessed use tax of approximately $150,000 on
booth components acquired from out of state vendors. The use tax obligation was
capitalized and is being depreciated over the life of the related components.
Accordingly, the sales and use tax has been charged to operations or capitalized
in the accompanying financial statements for 1996. The provision did not have a
material effect on the Company's financial position or results of operations for
1996.
The Company has been in default on its loan covenants with its Lender since
July 1995. In August 1996, the Company negotiated an agreement with its Lender
to revise certain covenants to bring the Company into compliance. Among other
provisions, the negotiated terms provide for extensive revisions to all
financial ratio covenants consistent with a revised detailed financial plan
developed by Management. In addition, the Company must satisfy certain
conditions including raising $1,500,000 through a Private Placement with net
proceeds of at least $1,250,000.
The level of past due trade payables has increased significantly since March
1996. To resolve this situation, the Company successfully concluded a
restructuring of certain trade payables totaling $734,000. The trade creditors
holding these payables agreed to exchange the amounts owed for a combination of
15% cash, 18% cash payable in 15 equal monthly installments and 67% stock. The
restructuring is subject to completion of the Private Placement. The price of
the stock to be issued to the trade creditors is to be the
59
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
greater of $2.25 per share or the lower of: (a) 80% of the average closing price
at which the Class A Common Stock of the Company trades during the 30 calendar
day period following the date of closing of this offering or (b) the lowest
closing price at which the Class A Common Stock trades during such 30-day
period.
If the Company is unsuccessful in completing the Private Placement, the
Lender Agreement or the Trade Payable Agreement, the Company's ability to
continue as a going concern will be in doubt.
The Company had a working capital deficit of $3,496,537 as of June 30, 1996.
If the Company receives the Private Placement proceeds, finalizes the Lender
Agreement and completes the Trade Payable Agreement, it will have working
capital of approximately $500,000. Management intends to use the proceeds for
the initial payments under the Trade Payable Agreement, payment of delinquent
sales and use taxes, building of approximately 100 new booths and other working
capital purposes.
3. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue up to 100,000 shares of preferred stock,
none of which are outstanding. The Company's Board of Directors is authorized to
provide for the issuance of the preferred stock in series, to establish the
number of shares to be included in each such series and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, rights, conversion privileges, dividend rates, redemption
rights, sinking fund provisions and liquidation rights which shall be superior
to the common stock.
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Class A Common
Stock with a par value of $.10 per share and 1,500,000 shares of Class B Common
Stock with a par value of $.01 per share. Class B Common Stock shareholders are
entitled to receive the same distribution as Class A Common Stock shareholders,
up to the Distribution Amount after the Company has accumulated retained
earnings equal to $1,000,000. The Distribution Amount is the lessor of
$1,000,000 or the aggregate of $750,000 plus interest at a rate of 3% per annum
compounded yearly, computed on the amount by which $750,000 plus any accrued
interest exceeds the amount distributed to the holders of Class B Common Stock.
The accrual started with the filing of the Articles of Incorporation (March 12,
1992). On September 29, 1993 the shareholders approved an amendment to the
Company's Articles of Incorporation providing for the cancellation and
retirement of the Class B Common Stock once the holders receive the Distribution
Amount.
The holders of Class A Common Stock are each entitled to one vote for every
share held and have the exclusive right to vote for the election of directors,
unless the Board of Directors includes the right to vote for directors in any
series of preferred stock issued. Holders of Class B Common Stock have no voting
privileges, except as provided by law. Holders of Class B Common Stock will not
share in dissolution until $1,000,000 is received by holders of Class A Common
Stock and their share is limited to the Distribution Amount.
During the years ended June 30, 1995 and 1996, the Company awarded 9,619 and
3,413 shares, respectively, of Class A Common Stock to employees. Compensation
expense was recognized for the stock
60
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
awards totaling $29,945 and $13,652, respectively, based on the fair value of
the common stock awarded. In March 1996 the Company issued 4,047 shares of Class
A Common Stock to a stockholder in connection with a 1993 agreement. The shares
were valued at $405.
Options
In October 1994, the Board of Directors of the Company increased the number of
Class A Common Stock shares available to the stock option plan from 175,900 to
350,000. Stock options granted may be either qualified incentive stock options
or non qualified options. The exercise price must be at least 100% of the fair
market value per share of the stock on the date of grant, except that such price
must be at least 110% of the fair market value per share for any grantee who
owns more than 10% of the outstanding shares of Class A Common Stock. The
options are exercisable over a period of ten years with the initial right to
exercise starting on the date of grant.
In October 1993, the Company granted 52,770 options each to an officer and
former officer of the Company and 17,590 options each to a director and former
director of the Company to purchase Class A Common Stock at $5.00 per share. The
options have a five year term and are immediately exercisable. In January 1995
the Company amended options granted to the director and former director of the
Company from 17,590 to 25,000 options.
In May 1994, the Company granted 45,000 options to a former officer of the
Company to purchase Class A Common Stock at $5.00 per share. The options are
exercisable in increments of 15,000 over a three year period commencing May 1995
subject to the officer being in the employ of the Company on the anniversary
dates. The officer resigned in June 1996, therefore, 15,000 shares were canceled
and 30,000 shares remain exercisable.
In connection with the registration statement, the underwriters received an
option to purchase up to 110,000 Equity Units at $7.25 per Equity Unit
exercisable over a four year period commencing one year from the effective date
of the registration statement.
In January 1995, the Company granted up to 50,000 options to a former officer of
the Company to purchase Class A Common Stock exercisable at $5.00 per share. The
options vest in increments of one share for each $100 in financing achieved by
the Company prior to December 31, 1995. In June 1995, the Company entered into
the Loan Agreement for a $3,500,000 line of credit. The Lender advanced
$2,115,000 prior to this date. Therefore, 21,150 options were exercisable as of
June 30, 1996. The options have a five year term.
In May 1995, the Company granted 50,000 options to purchase Class A Common
Stock at $5.00 per share in connection with an employment agreement entered into
between the Company and a former officer. The options have a five year term and
are immediately exercisable.
61
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
The following schedule summarizes the changes in employee and other stock
options:
Option Price
-----------------------------------
Number of Per Share Total Option Price
Shares
-------------------------- ------------------
Outstanding at June 30, 1994 295,720 $5.00 - $7.25 $ 1,726,100
(250,720 exercisable)
For the year ended
June 30,1995:
Granted 99,820 $5.00 499,100
Canceled --- ---
-------- ------------------
Outstanding at June 30, 1995 395,540 2,225,200
(348,540 exercisable)
For the year ended
June 30, 1996:
Granted --- ---
Canceled (28,850) $5.00 (144,250)
-------- ------------------
Outstanding at June 30,
1996 366,690 2,080,950
(366,690 exercisable)
======== ==================
Warrants
In connection with a private placement in fiscal year 1993, the Company
issued warrants to soliciting brokers to purchase 8,464 shares of Class A Common
Stock at $3.66 per share through March 31, 1997.
In connection with the Bridge Financing completed in January 1994 , the
Company issued 300,000 warrants to purchase Class A Common Stock at an exercise
price of $2.50 per share through December 20, 1996.
The 1,100,000 redeemable stock warrants included in the Equity Units from the
public offering and the 165,000 redeemable stock warrants from the exercise of
the overallotment are exercisable for $7.00 at any time for three years after
issuance. The stock warrants are subject to redemption by the Company six months
following the date of the offering for $.01 per warrant in the event the Class A
Common Stock trades in excess of $9.00 per share for 20 consecutive business
days.
In connection with the short-term financing in March 1995 , the Company issued
25,000 warrants to purchase Class A Common Stock at an exercise price of $5.00
per share. The warrants have a 5 year term.
In connection with the Loan Agreement (see Note 4), the Company issued
warrants to purchase Class A Common Stock at an exercise price of $6.63 per
share of Class A Common Stock subject to anti-dilution provisions. As of June
30, 1996 470,000 warrants were exercisable through June 1, 2000. An additional
21,000 warrants to purchase Class A Common Stock was issued to a third party in
connection with the private placement at an exercise price of $5.00. These
warrants are all exercisable and expire on June 1, 2000.
62
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
In connection with the short-term financing in December 1995 (see Note 4), the
Company issued 16,000 warrants to purchase Class A Common Stock at an exercise
price of $4.00 per share through December 21, 2000.
4. DEBT
In June 1995, the Company entered into a Loan Agreement with a Lender for a
$3,500,000 line of credit, evidenced by a Note and Security Agreement granting
to the Lender a first lien security interest in the assets of the Company. The
terms of the Loan Agreement provided an initial draw of $1,800,000 on June 5,
1995 which was used to pay an existing bank loan of $500,000, pay fees and costs
associated with obtaining this line of credit, and provide working capital
needs. Subsequent loan draws are to provide the Company with amounts equal to
$5,000 for each new VIDEO FOTO booth placed in service during the term of the
loan agreement. The Loan Agreement provides for payments of interest only at an
annual rate of 12% due on July 1, 1995, and the first day of each month
thereafter until maturity on June 2, 1998 at which time all outstanding
principal is due and payable. The Company may pay off the loan at an earlier
date incurring a penalty not to exceed 2% of the total available borrowing limit
available during the preceding year. The Company also will pay the Lender an
annual commitment fee of $35,000. as part of the Loan Agreement the company also
entered into a Warrant Purchase Agreement whereby the Lender may receive
warrants to purchase up to 260,000 shares of the Company's Class A Common Stock.
The warrants must be exercised within 5 years from the closing date of the loan
agreement and the exercise price is $6.63 per share of Class A Common Stock
subject to anti-dilution provisions. The warrants are exercisable as follows:
100,000 exercisable from June 2, 1995 to June 1, 2000
120,000 exercisable from June 2, 1996 to June 1, 2000
40,000 exercisable from June 2, 1997 to June 1, 2000
--------
260,000
========
The 120,000 and 40,000 warrants are only exercisable if the Company has not
paid off the remaining balance of the line of credit prior to the exercisable
dates noted in the table above.
Additionally, in June 1995, the Company and the Lender entered into a Loan
Commitment Agreement whereby the Lender agreed to enter into an additional
$2,000,000 Loan Agreement upon satisfaction of certain conditions including the
full funding of the $3,500,000 line of credit. The terms of the $2,000,000 line
of credit are to be similar to the terms of the $3,500,000 line of credit and
the funds are for the construction of new VIDEO FOTO booths. As a result of this
Loan Commitment, the Lender and the Company entered into a Warrant Purchase
Agreement whereby the Lender may receive warrants to purchase up to 250,000
shares of the Company's Class A Common Stock. The warrants must be exercised
within 5 years from June 2, 1995. The exercise price is $6.63 per share of Class
A Common Stock subject to anti-dilution provisions. The warrants are exercisable
as follows:
140,000 exercisable from June 2, 1995 to June 1, 2000
110,000 exercisable from January 10, 1996 to June 1, 2000
--------
250,000
========
The Company also issued 21,000 warrants to purchase Class A Common Stock with
an exercise price of $5.00 to a third party in connection with the Loan
Agreement. These warrants are all exercisable and expire in the year 2000.
63
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
The Company capitalized the costs of obtaining the financing totaling
$709,093, which includes the 240,000 warrants exercisable by the Lender as of
June 30, 1995 and the 21,000 issued to the third party all at a value of $1.20,
as deferred loan costs, to be amortized over the life of the Loan Agreement. The
warrants were determined to have a fair value, by independent appraisal, of
$1.20 for each share of Class A Common Stock the warrant holder is entitled to
purchase. The remaining 270,000 warrants will be capitalized as deferred loan
costs at their fair value if and when they become exercisable as noted above.
In June 1996 an additional 230,000 warrants became exercisable. These warrants
were determined to have a fair value of $.01 for each share of Class A Common
Stock the warrant holder is entitled to purchase. The Company capitalized the
costs of the warrants as deferred loan costs, to be amortized over the life of
the Loan Agreement.
Subsequent to June 5, 1995, the Lender provided the Company with $315,000 in
additional draws for booths placed in service. In connection with the Lender
Agreement negotiated in August 1996, the annual commitment fee due June 1996 was
added to the outstanding principal.
The Loan Agreement contains various loan covenants and the Company is in
default.(see note 2)
In February 1995, the Company issued an unsecured promissory note to a vendor
for $223,384. The note bore interest at 15% with a maturity date of January 3,
1996. The unpaid principal balance of $63,389 is included in the Trade Payable
Agreement. (See note 2)
In February 1995, the Company borrowed $100,000 from a financial institution
to be utilized as short-term working capital. The note bore interest at 11% and
was due in November 1995. However, the Company paid the principal and interest
due in March 1995.
In March 1995, the Company borrowed $500,000 from a financial institution to
be utilized as short-term working capital. The note bore interest at 11% and was
due in September 1995. However, the Company paid the principal and interest due
in June 1995.
In December 1995, the Company borrowed $160,000 from related parties, issuing
unsecured promissory notes. The notes bear interest at prime plus 1% with a
maturity date of June 5, 1996. In connection with the borrowing, the Company
issued warrants to purchase 16,000 shares of Class A Common Stock at $4.00 per
share. Interest expense on these loans for 1996 was $5,415.
5. COMMITMENTS
Leases
The Company leases its office and warehouse facilities under noncancelable
operating leases expiring at various dates through April 30, 2001. In May 1995
the Company entered into a noncancelable operating lease for its marketing
office space expiring May 31, 1998. The Company closed this office in May 1996
and entered into a sub-lease for approximately 70% of base rent. Rental expense
for the leases were $48,593 and $111,636 for the years ended June 30, 1995 and
1996, respectively.
64
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
Future minimum lease payments, by year and in the aggregate, excluding
sublease income, under these leases consisted of the following at June 30,1996:
1997................................ $ 97,183
1998................................ 92,374
1999................................ 84,085
2000................................ 84,085
2001................................ 74,770
--------
$432,497
========
In addition to the noncancelable operating leases, the Company leases space
for each Booth operating under cancelable lease agreements. The lease terms for
each Booth location are generally less than three months and the agreements are
renewable on a month-to-month basis.
In connection with certain Booth leases, the Company recognized revenue of
approximately $630,000 and $780,000 for the years ended June 30, 1995 and 1996,
respectively from Booths located in various stores owned by one national
discount store chain. The Company also recognized revenue of approximately
$416,000 and $507,000 for the years ended June 30, 1995 and 1996, respectively
from Booths located in various stores owned by one national arcade.
License Agreements
The Company has an agreement to use software and pays a monthly maintenance
fee of $2.50 for each booth in operation up to a cap of $3,000 per month. In
addition, the Company pays an initial $100 fee for each new 600 dpi printer
software installed in a booth up to 500 copies. Additional copies may be
purchased at $75 each. The Company incurred obligations of $9,535 and $34,837
in 1995 and 1996,respectively. The maintenance fee is charged to cost of sales
when incurred and the initial fee is amortized over three years.
Litigation
The Company, in the normal course of business, is a party to a number of
lawsuits and other proceedings. The company's Management does not expect that
the results of these lawsuits and proceedings will have a material impact on the
Company's financial position or results of operations.
6. INCOME TAXES
At June 30, 1996, the Company has net operating loss carryforwards of
approximately $4,980,000, subject to limitations as described below and will
expire in 2009 through 2011.
In May 1994, the Company successfully filed a registration statement
experiencing an ownership change and consequently is subject to limitation on
the utilization of $1,385,000 of its net operating loss under the Internal
Revenue Code of 1986. The annual limitation for utilizing the net operating
losses prior to the ownership change is $240,000. To the extent the annual
limitation exceeds the Company's taxable income for a given year, the excess may
be added to a subsequent year's limitation.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
65
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
1995 1996
---- ----
Deferred tax liabilities:
Tax over book depreciation $ 309,852 $ 363,266
---------- -----------
Total deferred tax liabilities 309,852 363,266
Deferred tax assets:
Net operating loss carryforwards 1,008,298 1,693,082
Other 36,968 60,041
---------- -----------
Total deferred tax assets 1,045,266 1,753,123
---------- -----------
Net deferred tax asset 735,414 1,389,857
Valuation allowance for deferred tax (735,414) (1,389,857)
assets ---------- -----------
Net deferred taxes $ -- $ --
========== ===========
7. RELATED PARTY TRANSACTIONS
The Company expensed $120,000 and $59,700 during the year ended June 30,1995
and 1996, respectively, in exchange for consulting and legal services from a
stockholder and a director. At June 30, 1996, the Company owed related parties
$59,000 which is included in accounts payable.
66
<PAGE>
======================================= =============================
No dealer, salesman or other person has
been authorized to give any information
or to make representations, other than IRATA, INC.
those contained in this Prospectus,
and, if given or made, such information
or representations must not be relied 8,233,500 SHARES OF
upon as having been authorized by the CLASS A COMMON STOCK
Company or by the Underwriter. This
Prospectus does not constitute an offer
to seek, or a solicitation of an offer
to buy any securities offered hereby by
anyone in any jurisdiction in which
such offer to solicitation is not
qualified and to do so or to anyone to
whom it is unlawful to make such offer
or solicitation.
______________
TABLE OF CONTENTS
Page
______________
Prospectus Summary.................... 2
Risk Factors.......................... 5 PROSPECTUS
Capitalization........................ 9 ______________
Use of Proceeds....................... 10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................ 11
Business.............................. 15 ____________________
Management............................ 22
Executive Compensation................ 24
Principal and Selling Shareholders.... 29
Plan of Distribution.................. 39
Description of Securities............. 39
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 44
Index to Financial Statements......... 45
_____________
FEBRUARY __, 1997
======================================== =============================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1.1 -- Agency Agreement between the Company and Royce Investment
Group, Inc. and Spencer Trask Securities Incorporated
1.2 -- Unit Purchase Option between the Company and Royce Investment
Group, Inc. and Spencer Trask Securities Incorporated
2.1* -- Formation and Settlement Agreement dated effective as of March
23, 1992 by and among the Company, Buffalo Incorporated, Names
'N Faces, Inc., Lone Star Photo Video, Inc. and the C. W. Moody
Family Trust.
3.1* -- Articles of Incorporation of the Company.
3.2* -- Articles of Amendment to the Articles of Incorporation of the
Company filed October 8, 1993.
3.3* -- Articles of Amendment to the Articles of Incorporation of the
Company filed December 22, 1993.
3.4* -- Bylaws of the Company
4.1 -- Form of Common Stock Purchase Warrant to purchase shares of Class
A Common Stock issued to the Selling Shareholders pursuant to the
Agency Agreement and issued to the Estate of C. W. Moody, Jr.,
Dominion Investment Corporation, George V. Kane, John D. Higgins
and Robert R. Salyard
5.1**-- Opinion of Andrew J. Clark, III, Counsel to Registrant re:
Legality.
10.1* -- Release and Exchange Agreement dated effective as of March 23,
1992 between the Company and Hill Branscomb.
10.2* -- Form of Investor Release and Exchange Agreement dated effective
as of March 31, 1992 between the Company and an investor in
Buffalo Incorporated.
10.3* -- Assignment dated June 22, 1992 from the C. W. Moody, Jr. Family
Trust to the Company.
10.4* -- General Conveyance, Assignment and Transfer dated effective as of
June 22, 1992 from Lone Star Photo Video, Inc. to the Company.
10.5* -- Letter Agreement dated April 8, 1992 between Data East U.S.A.,
Inc. and the Company.
10.6* -- Settlement and Release Agreement dated effective as of August 11,
1993 between Data East U.S.A., Inc. and the Company.
10.7* -- Employment Agreement dated June 15, 1992 between the Company and
Robert A. Searles, Jr.
10.8* -- First Amendment to Employment Agreement between the Company and
Robert A.
</TABLE>
II-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
Searles, Jr. dated September 1, 1993.
10.9* -- Employment Agreement dated September 1, 1993 between the
Company and M. G. Morgan.
10.10* -- First Amendment to Employment Agreement between the Company and
M.G. Morgam dated effective as of January 19, 1994.
10.11* -- 1993 Stock Option Plan of the Company.
10.12* -- Stock Option Agreement dated February 8, 1994 between the
Company and Robert A. Searles, Jr.
10.13* -- Stock Option Agreement dated February 8, 1994 between the
Company and M. G. Morgan.
10.14* -- Stock Option Agreement dated February 8, 1994 between the
Company and Andrew J. Clark, III.
10.15* -- Stock Option Agreement dated February 8, 1994 between the
Company and Richard W. Fairchild, Jr.
10.16* -- Memorandum of Agreement dated effective February 1994 between
the Company, J. T. Trotter and George V. Kane, Jr.
10.17* -- Form of Consulting Agreement to be dated the Effective Date
of the Registration Statement between the Company and Royce
Investment Group, Inc.
10.18 -- 1996 Stock Option Plan of the Company
10.19 -- Stock Option Agreement dated December 6, 1996 between the
Company and Andrew J. Clark, III
10.20 -- Stock Option Agreement dated December 6, 1996 between the
Company and John D. Higgins
10.21 -- Stock Option Agreement dated December 6, 1996 between the
Company and Robert R. Salyard
10.22 -- Stock Option Agreement dated December 6, 1996 between the
Company and Lance P. Wimmer
10.23 -- Stock Option Agreement dated December 6, 1996 between the
Company and John C. Stuecheli
10.24 -- Stock Option Agreement dated December 6, 1996 between the
Company and Sue Camp
10.25 -- Stock Option Agreement dated December 6, 1996 between the
Company and Rodger Osgood
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.26 -- Stock Option Agreement dated January 7, 1997 between the
Company and Rodger Osgood
10.27 -- Stock Option Agreement dated December 6, 1996 between the
Company and Robert A. Searles, Jr.
10.28 -- Consulting Agreement dated as of NOvember 1, 1996 between the
Company and Robert R. Salyard
10.29 -- Executive Employment Agreement dated effective November 1,
1996 between the Company and Lance P. Wimmer
10.30 -- Executive Employment Agreement dated effective November 5, 1996
between the Company and John C. Stuecheli
10.31 -- Subscription Agreement dated effective as of September 9, 1996
between the Company and Robert R. Salyard
10.32 -- Subscription Agreement dated effective as of September 9, 1996
between the Company and Dominion Investment Corporation, George
V. Kane, Jr. and the Estate of C. W. Moody, Jr.
10.33 -- Settlement Agreement and Release dated effective as of
November 18, 1996 between the Company and Corporate Laser
Charge, Inc.
10.34 -- Form of Settlement Agreement and Release between the Company
and trade creditors
10.35 -- Form of Supplement Letter to Settlement Agreement with trade
creditors
10.36 -- Form of First Amendment to Settlement Agreement and Release
between the Company and trade creditors
10.37 -- Amended and Restated Loan agreement dated as of October 31,
1996 between Petrus fund, L.P. and the Company
10.38 -- Subscription Agreement dated January 22, 1997 between the
Company and John D. Higgins
23.1** -- Consent of Ernst & Young LLP
23.2** -- Consent of Lane Gorman Trubitt, L.L.P.
23.3** -- Consent of Andrew J. Clark, III, Counsel to Registrant, is
included in his opinion filed as Exhibit 5.1 to this
Registration Statement
24** -- Powers of Attorney of certain directors and officers of the
Company (included on page II-8 of the Registration Statement on
Form SB-2 (Registration No. 333-20559) filed with the
Commission on January 28, 1997).
* Filed as exhibits to the Company's Form SB-2 Registration Statement
(File No. 33-75216) effective May 11, 1994
** Previously filed
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, in the
City of Houston, State of Texas, on the 18th day of February, 1997.
IRATA, INC.
By: /s/ Lance P. Wimmer
_______________________________
Lance P. Wimmer
Chairman of the Board,
President and CEO
In accordance with the requirements of the Securities Act of 1933,
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities stated on February 18, 1997.
SIGNATURE TITLE
/s/ Lance P. Wimmer Chairman of the Board, President and Chief
- --------------------------- Executive Officer and Director (Principal
Lance P. Wimmer Executive Officer)
/s/ John C. Stuecheli Vice President-Finance and Chief
- --------------------------- Financial Officer (Principal Financial
John C. Stuecheli and Accounting Officer)
/s/ Andrew J. Clark, III*
- --------------------------- Director
Andrew J. Clark, III
/s/ Robert A. Searles, Jr.*
- --------------------------- Director
Robert A. Searles, Jr.
/s/ John D. Higgins*
- --------------------------- Director
John D. Higgins
/s/ Robert R. Salyard*
- --------------------------- Director
Robert R. Salyard
- -------------
* Lance P. Wimmer, pursuant to a Power of Attorney executed by each of the
directors and officers noted above and filed with the Securities and Exchange
Commission, by signing his name hereto, does hereby sign and execute this
Amendment No. 1 to Registration Statement on Form SB-2 on behalf of each of
the persons noted above, in the capacities indicated.
/s/ Lance P. Wimmer
--------------------------
Lance P. Wimmer
II-4
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EXHIBIT 1.1
IRATA, INC.
AGENCY AGREEMENT
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
Spencer Trask Securities Incorporated
535 Madison Avenue
New York, New York 10022
September 9, 1996
Gentlemen:
Irata, Inc., a Texas corporation (the "Company"), proposes to offer
for sale to "accredited investors", in a private placement, units ("Units"),
each Unit consisting of 50,000 shares of the Company's Class A Common Stock,
$.10 par value ("Shares") and 50,000 common stock purchase warrants
("Warrants"). A minimum of 60 Units ("Minimum Offering") and a maximum of 69
Units ("Maximum Offering") will be sold in the offering at $25,000 per Unit.
The Units will be offered pursuant to those terms and conditions acceptable to
you as reflected in the Confidential Term Sheet (the "Term Sheet"). Of the
Units, 60 will be offered on a "best efforts - all-or-none basis and nine Units
will be offered on a "best efforts" basis. The Units are being offered pursuant
to the Term Sheet and related documents in accordance with Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") and Regulation D
promulgated thereunder.
Royce Investment Group, Inc. ("Royce") and Spencer Trask Securities
Incorporated ("Trask") are sometimes referred to herein as the "Placement
Agents." The Term Sheet (including the exhibits thereto), as it may be amended
from time to time, and the form of proposed subscription agreement between the
Company and each subscriber (the "Subscription Agreement") and the exhibits
which are part of the Term Sheet and/or Subscription Agreement are collectively
referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agents a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used
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herein, unless otherwise defined or unless the context otherwise indicates,
shall have the same meanings provided in the Offering Documents.
1. Appointment of Placement Agents.
(a) Royce and Trask are hereby appointed exclusive Placement Agents
of the Company (subject to the Placement Agents' right to have Selected Dealers,
as defined in Section 1(c) hereof, participate in the Offering) during the
Offering Period herein specified for the purposes of assisting the Company in
finding qualified Subscribers pursuant to the offering (the "Offering")
described in the Offering Documents. The Offering Period shall commence on the
day the Offering Documents are first made available to you by the Company for
delivery in connection with the offering for sale of the Units and shall
continue until the earlier to occur of (i) the sale of all of the Maximum
Offering or (ii) October 31, 1996 (unless extended for a period of up to 60 days
under circumstances specified in the Term Sheet). If the Minimum Offering is not
sold prior to the end of the Offering Period, the Offering will be terminated
and all funds received from Subscribers will be returned, without interest and
without any deduction. The day that the Offering Period terminates is
hereinafter referred to as the "Termination Date."
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, Royce and Trask hereby accept such agency and agree to use their best
efforts to assist the Company in finding qualified subscribers pursuant to the
Offering described in the Offering Documents. It is understood that the
Placement Agents have no commitment to sell the Units. The Placement Agents'
agency hereunder is not terminable by the Company except upon termination of the
Offering Period.
(c) The Placement Agents may engage other persons, selected by them
in their discretion, that are members of the National Association of Securities
Dealers, Inc., ("NASD") and that have executed a Selected Dealers Agreement
substantially in the form attached hereto as Schedule A, to assist you in the
Offering (each such person being hereinafter referred to as a "Selected Dealer")
and may allow such persons such part of the compensation and payment of
expenses payable to the Placement Agents hereunder as they shall determine.
Each Selected Dealer shall be required to agree in writing to comply with the
provisions of, and to make the representations, warranties and covenants
contained in, this Section 1.
(d) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing,
all subscription funds received shall be held as described in the Subscription
Agreement. The Placement Agents shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency, or validity of any
check delivered by any prospective investor in payment for Units.
(e) The Placement Agents and their respective affiliates may purchase
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Units sold in the Offering, in which event such Units may be purchased net of
commissions.
2. Representations and Warranties of the Company. The Company
represents and warrants to the Placement Agents and each Selected Dealer, if
any, as follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not contain an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering Documents so that they do not include any untrue
statement of any material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances then
existing, not misleading, the Company will promptly notify you and will supply
you with amendments or supplements correcting such statement or omission. The
Company will also provide the Placement Agents for delivery to all offerees and
purchasers and their representatives, if any, any information, documents and
instruments which the Placement Agents deem necessary to comply with applicable
state and federal law.
(b) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite corporate power and authority to own and lease its properties, to
carry on its business as currently conducted and as proposed to be conducted, to
execute and deliver this Agreement and to carry out the transactions
contemplated by this Agreement, as appropriate and is duly licensed or qualified
to do business as a foreign corporation in each jurisdiction in which the
conduct of its business or ownership or leasing of its properties requires it to
be so qualified except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition or prospects of the
Company.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable and have
not been issued in violation of the preemptive rights of any stockholder of the
Company. All prior sales of securities of the Company were either registered
under the Act and applicable state securities laws or exempt from such
registration, and no security holder has any rescission rights with respect
thereto.
(d) Warrants, Preemptive Rights, Etc. Except for the options to
purchase Units to be issued ot the Placement Agents hereunder (the "Agents'
UPO"), and except as set forth in or contemplated
3
<PAGE>
by the Offering Documents, there are not, nor will there be immediately after
the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or other
commitments pursuant to which the Company is, or may become, obligated to issue
any shares of its capital stock or other securities of the Company and this
offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. The Company has no subsidiaries and
the Company does not own, directly or indirectly, any capital stock or other
equity ownership or proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity.
(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects. The Company's
Form 10-QSB for the nine month period ended March 31, 1996, contains the
Company's (i) Balance Sheet at March 31, 1996 (hereinafter, March 31, 1996 being
referred to as the "Balance Sheet Date"), (ii) Statements of Operations for the
three and nine months ended March 31, 1995 and 1996 (iii) Statements of Cash
Flows for the nine months ended March 31, 1995 and 1996 (such financial
statements attached to the Offering Documents hereinafter referred to
collectively as the "Financial Statements"). The Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied and show all material liabilities, absolute or contingent,
of the Company required to be recorded thereon and present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated.
(g) Absence of Changes. Other than as set forth in the Term Sheet,
since the Balance Sheet Date, the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which is
material to the business of the Company, and, except as set forth in Schedule G
to this Agreement there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. Except as set forth on Schedule H hereto, the Company has
good and marketable title to all properties and assets, owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to the Company's business;
all of the material leases and subleases under which the Company is the lessor
or sublessor of properties or assets or under which the Company holds properties
or assets as lessee or sublessee are in full force and effect, and the Company
is not in
4
<PAGE>
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no material claim has been asserted by
anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continued possession of the leased or
subleased premises or assets under any such lease or sublease. The Company owns
or leases all such properties as are necessary to its operations as now
conducted and to be conducted, as presently planned.
(i) Proprietary Rights. Except as set forth in Schedule I hereto, the
Company owns or possesses adequate and enforceable rights to use all patents,
patent applications, trademarks, service marks, copyrights, trade secrets,
processes, formulations, technology or know-how used or proposed to be used in
the conduct of its business as described in or contemplated by the Term Sheet
(the "Proprietary Rights"). The Company has not received any notice of any
claims, nor does it have any knowledge of any threatened claims, and knows of no
facts which would form the basis of any claim, asserted by any person to the
effect that the sale or use of any product or process now used or offered by the
Company or proposed to be used or offered by the Company infringes on any
patents or infringes upon the use of any such Proprietary Rights of another
person and, to the best of the Company's knowledge, no others have infringed the
Company's Proprietary Rights.
(j) Litigation. Other than as set forth in the Term Sheet, there is no
material action, suit, investigation, customer complaint, claim or proceeding at
law or in equity by or before any arbitrator, governmental instrumentality or
other agency now pending or, to the knowledge of the Company, threatened against
the Company (or basis therefore known to the Company) the adverse outcome of
which would materially adversely affect the Company's business or prospects. The
Company is not subject to any judgment, order, writ, injunction or decree of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign which would materially
adversely affect the Company's business or prospects.
(k) Non-Defaults; Non-Contravention. Other than as set forth in
the Term Sheet and Schedule K hereto, the Company is not in violation of or
default under, nor will the execution and delivery of this Agreement or any of
the Offering Documents, the M/A Agreement, the Escrow Agreement, the Warrants,
the Consulting Agreement or the Agents' UPO (as defined herein) or consummation
of the transactions contemplated herein or therein result in a violation of or
constitute a default in the performance or observance of any obligation (i)
under its Articles of Incorporation, or its By-laws, or any indenture, mortgage,
contract, material purchase order or other agreement or instrument to which the
Company is a party or by which it or its property is bound or affected or (ii)
with respect to any material order, writ, injunction or decree of any court of
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, and there exists
no condition, event or act which constitutes, nor which after notice, the lapse
of time or both, could constitute a default under any of the foregoing, which in
either case would have a material adverse effect on the business, financial
condition or prospects of the Company.
5
<PAGE>
(l) Taxes. Except as set forth in the Term Sheet and on Schedule L,
the Company has filed all Federal, state, local and foreign tax returns which
are required to be filed by it and all such returns are true and correct in all
material respects. Except as set forth in the Term Sheet and on Schedule L, the
Company has paid all taxes pursuant to such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. Except as set forth in the Term
Sheet and on Schedule L, the Company has properly accrued all taxes required to
be accrued. Except as set forth in the Term Sheet and on Schedule L, the tax
returns of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.
(m) Compliance With Laws; Licenses, Etc. Other than as set forth in
the Term Sheet, the Company has not received notice of any violation of or
noncompliance with any Federal, state, local or foreign, laws, ordinances,
regulations and orders applicable to its business which has not been cured, the
violation of, or noncompliance with which, would have a materially adverse
effect on the business or operations of the Company. Other than as set forth in
the Term Sheet, the Company has all licenses and permits and other governmental
certificates, authorizations and permits and approvals (collectively,
"Licenses") required by every Federal, state and local government or regulatory
body for the operation of its business as currently conducted and the use of its
properties, except where the failure to be licensed would not have a material
adverse effect on the business of the Company. Other than as set forth in the
Term Sheet, the Licenses are in full force and effect and no violations are or
have been recorded in respect of any License and no proceeding is pending or
threatened to revoke or limit any thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly and
validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreements, the M/A Agreement, the Escrow Agreement, the Warrants and the
Consulting Agreement have been duly authorized by all requisite corporate action
by the Company and when delivered, constitute or will constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
(o) Authorization of Shares and Warrants Etc. The issuance, sale and
delivery of the Shares and Warrants and the Agents' UPO have been duly
authorized by all requisite corporate action of the Company. When so issued,
sold and delivered, the Shares and the Warrants will be duly executed, issued
and delivered and will constitute valid and legal obligations of the Company
enforceable in accordance with their respective terms and, in each case, will
not be subject to preemptive or any other similar rights of the stockholders of
the Company or others which rights shall not have been waived prior to the first
closing of the Offering (the "Initial Closing").
(p) Authorization of Reserved Shares. The issuance, sale and delivery
by the Company of the shares of Common Stock issuable upon exercise of the
Warrants including
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the Warrant underlying the Agents' UPO (the "Reserved Shares") have been duly
authorized by all requisite corporate action of the Company, and the Reserved
Shares have been duly reserved for issuance upon exercise of all or any of the
Warrants and exercise of the Agents' UPO and when so issued, sold, paid for and
delivered, the Reserved Shares will be validly issued and outstanding, fully
paid and nonassessable, and not subject to preemptive or any other similar
rights of the stockholders of the Company or others which rights shall not have
been waived prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agents have complied in all material respects with
the provisions of Regulation D promulgated under the Securities Act, the offer
and sale of the Units pursuant to the terms of this Agreement are exempt from
the registration requirements of the Securities Act and the rules and
regulations promulgated thereunder (the "Regulations"). The Company is not
disqualified from the exemption under Regulation D by virtue of the
disqualifications contained in Rule 505(b)(2)(iii) or Rule 507 promulgated
thereunder.
(r) Registration Rights. Except with respect to holders of the Units
and the Agents' UPO and except as set forth in the Term Sheet or on Schedule R
hereto, no person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.
(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agents.
(t) Title to Units. When certificates representing the securities
comprising the Units and/or the Reserved Shares shall have been duly delivered
to the purchasers and payment shall have been made therefor, the several
purchasers shall have good and marketable title to the Shares and Warrants
and/or the Reserved Shares free and clear of all liens, encumbrances and claims
whatsoever (with the exception of claims arising or through the acts of the
purchasers and except as arising from applicable Federal and state securities
laws), and the Company shall have paid all taxes, if any, in respect of the
original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal held
by Royce, no person, firm or other business entity is a party to any agreement,
contract or understanding, written or oral entitling such party to a right of
first refusal with respect to the Company.
(v) Securities Exchange Act Compliance. The Company has filed with the
Securities and Exchange Commission ("SEC") on a timely basis all filings
required of a company whose securities have been registered under the Securities
Exchange Act of 1934, as amended ("Exchange Act"). All information contained in
such filings is true, accurate and complete in all material respects. The
Company covenants to maintain the registration of its
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Common Stock under the Exchange Act and to make all filings thereunder on a
timely basis. For the purpose of this paragraph, filings pursuant to Rule 12b-25
of the Exchange Act shall be deemed timely.
(w) Non-Affiliated Directors. The Company's Board of Directors has not
less than two directors who are independent from, and unaffiliated with,
management of the Company.
3. Closing; Placement and Fees.
(a) Closing. Provided the Minimum Offering shall have been subscribed
for and funds representing the sale thereof shall have cleared, the Initial
Closing shall take place at the offices of Royce, 199 Crossways Park Drive,
Woodbury, NY 11797 within ten (10) days following the Termination Date (which
date (the "Closing Date") may be accelerated or adjourned by agreement between
the Company and Royce). At the Initial Closing, payment for the Units issued and
sold by the Company shall be made against delivery of certificates representing
the Shares and Warrants comprising such Units. In addition, subsequent closings
(if applicable) may be scheduled at the discretion of the Company and Royce,
each of which shall be deemed a "Closing" hereunder.
(b) Conditions to Placement Agents' Obligations. The obligations of
the Placement Agents hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The offering contemplated by
this Agreement will become qualified or be exempt from qualification under the
securities laws of the several states pursuant to paragraph 4(e) below not later
than the Closing Date, and (B) at the Closing Date no stop order suspending the
sale of the Units shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky qualification
materials or the Term Sheet, or any supplement thereto, will contain an untrue
statement of a fact which in the opinion of either Placement Agent or their
counsel is material, or omits to state a fact, which in the opinion of either
Placement Agent or their counsel is material and is required to be stated
therein, or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of the
Company's
8
<PAGE>
board of directors, for the execution and delivery of this Agreement, the
performance by the Company of its obligations hereunder and the offering
contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of Andrew J. Clark, Esq., dated the Closing(s), substantially to the
effect that:
(A) the Company has been duly organized and is validly existing and in good
standing under the laws of the State of Texas, has all requisite power and
authority necessary to own or hold its respective properties and conduct its
business and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires such
qualification, except where the failure to so qualify or be licensed would not
have a material adverse effect on the business and condition (financial or
otherwise) of the Company;
(B) each of this Agreement, the Escrow Agreement (as hereinafter defined), the
Warrants, the Subscription Agreements, the M/A Agreement, the Consulting
Agreement and the Agents' UPO has been duly and validly authorized, executed and
delivered by the Company, and is the valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to any
applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally and to general equitable principles;
(C) the authorized, issued and outstanding capital stock of the Company as of
the date hereof (before giving effect to the transactions contemplated by this
Agreement) is as set forth in the Offering Documents. Except for the Units and
Warrants to be issued as contemplated by this Agreement, to such counsel's
knowledge, there are no outstanding warrants, options, agreements, convertible
securities, preemptive rights or other commitments pursuant to which the Company
is, or may become, obligated to issue any shares of its capital stock or other
securities of the Company other than as set forth in the Term Sheet. All of the
issued shares of capital stock of the Company have been duly and validly
authorized and issued, are fully paid and nonassessable and have not been issued
in violation of the preemptive rights of any securityholder of the Company. The
offers and sales of such outstanding securities were either registered under the
Act and applicable state securities laws or exempt from such registration
requirements. The Shares included in the Units have been duly authorized,
validly issued, fully paid and nonassessable and no personal liability will
attach to the ownership thereof. The Reserved Shares have been duly reserved,
and when issued in accordance with the terms of the Warrants and the Agents' UPO
will be validly issued, fully paid and nonassessable and not subject to
preemptive or any other similar rights and no personal liability will attach to
the ownership thereof;
(D) assuming (i) the accuracy of the information provided by the Subscribers in
the Subscription Documents and (ii) that the Placement Agent has complied in all
material respects with the requirements of section 4(2) of the Securities Act
(and the provisions of Regulation D promulgated thereunder), the issuance and
sale of the Units is exempt from registration under the Securities Act and
Regulation D promulgated thereunder;
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<PAGE>
(E) neither the execution and delivery of this Agreement, the Warrants, the
Subscription Agreements, the M/A Agreement, the Consulting Agreement, or the
Agents' UPO nor compliance with the terms hereof or thereof, nor the
consummation of the transactions herein or therein contemplated, has, nor will,
conflict with, result in a breach of, or constitute a default under the
Certificate of Incorporation or By-laws of the Company, or any material
contract, instrument or document to which the Company is a party, or by which it
or any of its properties is bound or violate any applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its properties or business;
(F) to such counsel's knowledge, there are no claims, actions, suits,
investigations or proceedings before or by any arbitrator, court, governmental
authority or instrumentality pending or threatened against or affecting the
Company or involving the properties of the Company which might materially and
adversely affect the business, properties or financial condition of the Company
or which might materially adversely affect the transactions or other acts
contemplated by this Agreement or the validity or enforceability of this
Agreement, except as set forth in or contemplated by the Offering Documents; and
(G) such counsel has participated in the preparation of the Offering Documents
and nothing has come to the attention of such counsel to cause them to have
reason to believe that the Offering Documents contained any untrue statement of
a material fact required to be stated therein or omitted to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading (except for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(vi) Officers' Certificate. The Placement Agent shall receive a
certificate of the Company, signed by the President and Secretary thereof, that
the representations and warranties contained in Section 2 hereof are true and
accurate in all material respects at such Closing with the same effect as though
expressly made at such Closing.
(vii) Escrow Agreement. The Placement Agent shall receive a copy of a
duly executed escrow agreement in the form previously delivered to you (the
"Escrow Agreement") with Continental Stock Transfer & Trust Company, New York,
NY.
(viii) Lock-Up Agreements. The Placement Agent shall receive
agreements from each officer and director of the Company to the effect that such
individual shall not publicly sell, assign or transfer any of their securities
of the Company for a period commencing on the date of this Agreement and
expiring 24 months from the effective date of a registration statement covering
the securities underlying the Units sold in the Offering.
(ix) Conversion of Debt. On or before the Initial Closing Date, the
Company shall have effected the conversion of an aggregate of $160,000 principal
amount of
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past due debt, together with accrued interest, into equity of the Company on
such terms as shall have been agreed to by the Placement Agents.
(x) Agreement of Lender. On or before the Initial Closing Date, the
Company shall have received the agreement of its senior lender to (a)
restructure the terms of the Company's credit facility to the satisfaction of
the Placement Agents and (b) permit the granting by the Company of the
registration rights contained in the Term Sheet.
(xi) Transmittal Letters. Within five days after the Closing, the
Placement Agents shall receive evidence of the transmittal of the Warrants and
Shares to the investors and shall receive a letter from the Company confirming
transmittal of the securities to the investors.
(c) Blue Sky. A summary blue sky survey shall be prepared by counsel to
the Placement Agents stating the extent to which and the conditions upon which
offers and sales of the Units may be made in certain jurisdictions. It is
understood that such survey may be based on or rely upon (i) the representations
of each Subscriber set forth in the Subscription Agreement delivered by such
Subscriber, (ii) the representations, warranties and agreements of the Company
set forth in Section 2 of this Agreement, (iii) the representations and
warranties of the Placement Agents, and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (iii) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agents (i) a commission equal
to 10% of the aggregate purchase price of the Units sold and (ii) a non-
accountable expense allowance equal to 3% of the aggregate purchase price of the
Units sold. The Company shall also pay all expenses in connection with the
qualification of the Units under the securities or Blue Sky laws of the states
which the Placement Agents shall designate. The Company will, at each Closing,
issue to you or your designees (which may include any Selected Dealer or any
officer of the Placement Agents or a Selected Dealer) the Agents' UPO in the
form annexed hereto as Exhibit 1 to purchase 15% of the Units sold in the
Offering. The Agents' UPO will be exercisable for a period of five years from
the Initial Closing.
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agents updated opinions and certificates as described in (v) and (vi) of Section
3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any time prior
to the Closing or, if applicable, any additional Closing, (i) any domestic or
international event, act or occurrence which has materially disrupted, or in the
opinion of either Placement Agent will in the immediate future materially
disrupt, the securities markets; (ii) a general suspension of, or a general
limitation on prices for, trading in securities on the New York Stock Exchange
or the American Stock Exchange or in the over-the-counter market; (iii) any
outbreak
11
<PAGE>
of major hostilities or other national or international calamity; (iv) any
banking moratorium declared by a state or federal authority; (v) any moratorium
declared in foreign exchange trading by major international banks or other
persons; (vi) any material interruption in the mail service or other means of
communication within the United States; (vii) any material adverse change in the
business, properties, assets, results of operations, or financial condition of
the Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the reasonable judgment
of either Placement Agent, makes it inadvisable to proceed with the offering,
sale, and delivery of the Units.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used by the
Company substantially as set forth in the Term Sheet. Other than as set forth
in the Term Sheet, the Company shall not use any of the proceeds from the
Offering to repay any indebtedness of the Company to any current executive
officers, directors or principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and shall bear
all expenses directly incurred in connection with, the proposed Offering
including, but not limited to, legal fees relating to the costs of preparing the
Offering Documents and all amendments, supplements and exhibits thereto;
preparing and delivering all placement agent and selling documents, including,
but not limited to, the Agency Agreement with the Placement Agents and the blue
sky memorandum; Warrant Agreements, Share and Reserved Share certificates; blue
sky fees, filing fees and the fees and disbursements of counsel in connection
with blue sky matters (the "Company Expenses"). Such expenses shall not include
the cost of the Placement Agents' mailing, telephone, telegraph, travel, due
diligence meeting and other similar expenses (the "Placement Agents expenses")
which are covered by the 3% non-accountable expense allowance payable by the
Company to the Placement Agents.
(c) Reservation of Common Stock. The Company shall reserve and keep available
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon exercise of the Warrants and the Agents' UPO, including the
Warrants underlying the Agents' UPO.
(d) Notification. The Company shall notify the Placement Agent immediately,
and in writing, (A) when any event shall have occurred during the period
commencing on the date hereof and ending on the later of the last Closing or the
Termination Date as a result of which the Offering Documents would include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (B) of the receipt of any notification with respect to the modification,
rescission, withdrawal or suspension of the qualification or registration of the
Units, or of any exemption from such registration or qualification, in any
jurisdiction. The Company will use its best efforts to prevent the issuance of
any such modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you
12
<PAGE>
so request, to obtain the lifting thereof as promptly as possible.
(e) Blue Sky. The Company will use its best efforts to qualify or register the
Units for offering and sale under, or establish an exemption from such
qualification or registration under, the securities or "blue sky" laws of such
jurisdictions as you may reasonably request; provided however, that the Company
will not be obligated to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified. The Company will not consummate any sale of
Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(f) Form D Filing. The Company shall file five copies of a Notice of Sales of
Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish Royce with copies of all such filings.
(g) Press Releases, Etc. The Company shall not, during the period commencing
on the date hereof and ending on the later of the last Closing and the
Termination Date, issue any press release or other communication, or hold any
press conference with respect to the Company, its financial condition, results
of operations, business, properties, assets, or liabilities, or the Offering,
without the prior consent of Royce, which consent shall not be unreasonably
withheld.
(h) Form 10-KSB. The Company will provide to Royce, promptly upon the filing
thereof with the Commission (and in any event no later than two days of such
filing), a copy of its Annual Report on Form 10-KSB for the year ended June 30,
1996.
(i) Restrictions on Issuance of Securities. Prior to the Closing Date, the
Company will not, without the prior written consent of Royce, issue additional
shares of Common Stock or grant any warrants, options or other securities of the
Company.
(j) Right of First Refusal. During the five year period from the date of the
Initial Closing, Royce shall have the right of first refusal (the "Right of
First Refusal") to purchase for its account of or to act as underwriter or agent
for any and all public or private offerings of the securities of the Company, or
any successor to or subsidiary of the Company or other entity in which the
Company has an equity interest (collectively referred to herein as the
"Company") by the Company (the "Subsequent Company Offering") or any secondary
offering ("Secondary Offering") of the Company's securities by any of the
Company's stockholders owning at least five percent (5%) of the Company's
securities prior to or immediately following the consummation of the Offering
("Principal Stockholders"). Accordingly, if during such period the Company
intends to make a Subsequent Company Offering or the Company receives
notification from any of such Principal Stockholders of its securities of such
holder's intention to make a Secondary Offering, the Company shall notify Royce
in writing of such intention and of the
13
<PAGE>
proposed terms of the offering. The Company shall thereafter promptly furnish
Royce with such information concerning the business, condition and prospects of
the Company as Royce may reasonably be requested. If within thirty (30) business
days of the mailing by registered mail addressed to Royce with respect to a
Subsequent Company Offering, or within two (2) business days of the receipt by
Royce with respect to a Secondary Offering, of such notice of intention and
statement of terms Royce does not accept in writing such offer to act as
underwriter or agent with respect to such offering upon the terms proposed, the
Company and each of the Principal Stockholders shall be free to negotiate terms
with other underwriters or agents with respect to such offering and to effect
such offering on such proposed terms. Before the Company and/or any of the
Principal Stockholders shall accept any modified proposal from such underwriter
or agent, Royce's preferential right shall be reinstated and the same procedure
with respect to such modified proposal as provided above shall be adopted. The
failure by Royce to exercise its Right of First Refusal in any particular
instance shall not affect in any way such right with respect to any other
Subsequent Company Offering or Secondary Offering. By execution of this
Agreement, each of the Principal Stockholders agrees to be bound by the terms of
this Section 4(j) concerning any proposed Secondary Offering of the Company's
securities.
(k) M/A Agreement. Prior to or on the Initial Closing Date, the Company shall
execute and deliver to Royce an agreement with Royce regarding mergers,
acquisitions, joint ventures and certain other forms of transactions, in the
form previously delivered to the Company by Royce (the "M/A Agreement").
(l) Board Designee. The Company shall, for a period of five years following
the Initial Closing, at Royce's option, nominate a designee of Royce to the
Company's Board of Directors.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement Agents and
each Selected Dealer, if any, and their respective shareholders, directors,
officers, agents and controlling persons (an "Indemnified Party") against any
and all loss, liability, claim, damage and expense whatsoever (and all actions
in respect thereof), and to reimburse the Placement Agents for legal fees and
related expenses as incurred (including, but not limited to the costs of giving
testimony or furnishing documents in response to a subpoena or otherwise, and
the costs of investigating, preparing or defending any such action or claim
whether or not in connection with litigation in which either Placement Agent is
a party), arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Offering Documents or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(b) The Company agrees to indemnify and hold harmless an Indemnified Party to
the same extent as the foregoing indemnity, against any and all loss, liability,
claim, damage and expense whatsoever directly arising out of the exercise by any
person of any right under the Securities Act or the Exchange Act or the
securities or Blue Sky laws of any state
14
<PAGE>
on account of violations of the representations, warranties or agreements set
forth in Section 2 hereof.
(c) Promptly after receipt by a person entitled to indemnification pursuant
to the foregoing subsection (a) or (b) (an "indemnified party") under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the indemnified party otherwise than under this Section. In case
any such action is brought against an indemnified party, and it notifies the
Company of the commencement thereof, the Company will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to the
indemnified party, and after notice from the Company to the indemnified party of
its election so to assume the defense thereof, the Company will not be liable to
the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the Company if the Company has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that the fees and expenses of such counsel shall be at the
expense of the Company if (i) the employment of such counsel has been
specifically authorized in writing by the Company or (ii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party or parties and the Company and, in the judgment of the indemnified party,
it is advisable for the indemnified party or parties to be represented by
separate counsel (in which case the Company shall not have the right to assume
the defense of such action on behalf of the indemnified party or parties, it
being understood, however, that the Company shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party or parties. No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to the indemnified party.
6. Contribution.
To provide for just and equitable contribution, if (i) an indemnified party
makes a claim for indemnification pursuant to Section (5) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Securities Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee or agent for the
Company, or any controlling person of the Company), on the one hand, and the
Placement Agents and any Selected Dealers
15
<PAGE>
(including for this purpose any contribution by or on behalf of
an indemnified party), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agents and
the Selected Dealers, on the other hand; provided, however, that if applicable
law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement
Agents and the Selected Dealers in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses shall also be
considered. In no case shall any Placement Agent or Selected Dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or the Selected Dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls either Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of
either Placement Agent or a Selected Dealer, shall have the same rights to
contribution as either Placement Agent or the Selected Dealer, and each person,
if any who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and each officer, director,
employee and agent of the Company, shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 6. Anything
in this Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation thereof
shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Closing for
a period of three years.
(b) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company as of the date hereof shall survive execution of
this Agreement and delivery of the Units and the termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York without regard to conflict of
law provisions.
16
<PAGE>
(e) Counterparts. This Agreement may be signed in counterparts with the same
effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be in
writing, if sent to the Placement Agents, will be mailed, delivered and
confirmed to them at Royce Investment Group, Inc., 199 Crossways Park Drive,
Woodbury, New York 11797, Att: John Higgins, with a copy to Bachner, Tally,
Polevoy & Misher LLP, 380 Madison Avenue, New York, New York 10017, Att: Fran
Stoller, Esq. and if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 8554 Katy Freeway, Houston, Texas 77024,
Att: Robert Searles, with a copy to Andrew J. Clark, Esq., 1000 Louisiana, Suite
3640, Houston, Texas 77002.
(g) Entire Agreement. This Agreement constitutes the entire agreement of the
parties with respect to the matters herein referred and supersedes all prior
agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor any term
hereof may be changed, waived or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver or
termination is sought.
If you find the foregoing is in accordance with our understanding, kindly sign
and return to us a counterpart hereof, whereupon this instrument along with all
counterparts will become a binding agreement between us.
Very truly yours,
IRATA, INC.
By:
__________________________________
Title:
Agreed:
ROYCE INVESTMENT GROUP, INC.
By: ____________________________
Authorized Officer
SPENCER TRASK SECURITIES INCORPORATED
17
<PAGE>
By: ____________________________
Authorized Officer
18
<PAGE>
SCHEDULE A
IRATA, INC.
PRIVATE PLACEMENT SELLING AGREEMENT
Woodbury, New York
, 1996
Dear Sirs:
1. Irata, Inc. (the "Company") is offering for sale a minimum of 60 and a
maximum of 69 Units, each unit consisting of 50,000 shares of the Company's
Class A Common Stock ("Shares") and 50,000 common stock purchase warrants
("Warrants") ("Units"). The Units and the terms under which they are to be
offered for sale by the Company are more particularly described in the
Confidential Term Sheet dated , 1996 (the "Term Sheet") and the form of
subscription agreement between the Company and each subscriber (the
"Subscription Agreement"), the exhibits to the Term Sheet and the Subscription
Agreement, and any other documents delivered to subscribers (herein,
collectively the "Offering Documents"). Royce Investment Group, Inc. and Spencer
Trask Securities Incorporated (the "Placement Agents") have agreed to act as
exclusive placement agents to the Company for the purpose of assisting the
Company in finding subscribers who satisfy the requirements set forth in the
Offering Documents and more particularly in the Subscription Agreement (herein,
"Qualified Subscribers") pursuant to the offering ("Private Placement")
described in the Offering Documents.
2. The Units are to be offered to a limited number of subscribers by the Company
at the price per Unit set forth in the Offering Documents (the "Subscription
Price"), in accordance with the terms of offering thereof set forth in the
Offering Documents.
3. We are extending the right, subject to the terms and conditions hereof, to
assist the Company in finding Qualified Subscribers to purchase a portion of the
Units, to certain dealers who are actually engaged in the investment banking or
securities business and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD") (such dealers who shall
agree to assist in locating Qualified Subscribers for Units hereunder being
herein called "Selected Dealers"), at the Subscription Price, for which they
will receive a commission of % of the Subscription Price for Units purchased by
Qualified Subscribers presented to the Company by them. The Selected Dealers
have agreed to comply with the provisions of all applicable Rules of Fair
Practice of the NASD. We may be included among the Selected Dealers.
4. We shall have full authority to take such action as we may deem advisable
19
<PAGE>
in respect of all matters pertaining to the Private Placement of the Units.
5. If you desire to present to the Company any Qualified Subscribers for Units,
your application should reach us promptly by telephone or telegraph at either
Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York
11797, Attention: Ed Rose, telephone number 516-393-8300 or Spencer Trask
Securities Incorporated, 535 Madison Avenue, New York, New York 10022,
Attention: __________________, telephone number 212355-5565. We reserve the
right to reject subscriptions in whole or in part, to make allotments and to
close the subscription books at any time without notice. The Shares Units
allotted to the Qualified Subscribers presented by you will be confirmed,
subject to the terms and conditions of this Agreement.
6. The privilege of assisting the Company in finding Qualified Subscribers for
the Units is extended to you only so long as the Company may lawfully sell the
Units to residents in the state in which any such Qualified Subscribers reside
pursuant to the terms of the Offering Documents.
7. Any Units offered under the terms of this Agreement and the Offering
Documents may only be offered and sold subject to the securities or blue sky
laws of the various states or other jurisdictions.
You agree to advise us from time to time, upon request, of the number of sets of
Offering Documents delivered to qualified subscribers by you hereunder at the
time of such request.
No expenses shall be charged to Selected Dealers.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the offer or sale
of the Units other than as contained in the Offering Documents.
8. On becoming a Selected Dealer, and in assisting the Company in finding
Qualified Subscribers for the Units, you agree to comply with all the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act")
specifically with respect to the requirements of Regulation D thereunder. You
confirm that you are familiar with Rules 501 and 502 under the 1933 Act relating
to the limitations on the manner in which a private placement may be conducted
pursuant to Regulation D under the 1933 Act.
9. Upon request, you will be informed as to the states and other jurisdictions
in which we have been advised that the Units have been qualified or are exempt
from registration requirements for offer and sale under the respective
securities or blue sky laws of such states and other jurisdictions, but we do
not assume any obligation or responsibility as to the right of any Selected
Dealer to offer the Units in any state or other jurisdiction or as to the
eligibility of the Units for sale therein. We will, if requested, file a
Further State Notice in respect of the Units
20
<PAGE>
pursuant to Article 23-A of the General Business Law of the State of New York.
10. No Selected Dealer is authorized to act as our agent or an agent of the
Company or otherwise to act on our behalf in assisting the Company in finding
Qualified Subscribers or otherwise or to furnish any information or make any
representation except as contained in the Offering Documents.
11. Nothing will constitute the Selected Dealers an association or other
separate entity or partners with us, or with each other, but you will be
responsible for your share of any liability or expense based on any claim to the
contrary. We shall not be under any liability for or in respect of value,
validity or form of the components of the Units or the delivery of the Shares
and Warrants comprising the Units, including certificates for the Shares, or the
performance by anyone of any agreement on its part, or the qualification of the
Units for offer or sale under the laws of any jurisdiction, or for or in respect
of any other matter relating to this Agreement, except for lack of good faith
and for obligations expressly assumed by us in this Agreement and no obligation
on our part shall be implied herefrom. The foregoing provisions shall not be
deemed a waiver of any liability imposed under the federal securities laws.
12. Payment for the Units subscribed for hereunder is to be made by Qualified
Subscribers at the Subscription Price during the term of the Private Placement
set forth in the Offering Documents at the office of either Placement Agent, by
a certified or official bank check, payable to the order of Continental Stock
Transfer & Trust Company Special Acct Re: Irata, Inc.
13. Notice to us should be send to the addresses either Placement Agent set
forth in paragraph 5 above. Notices to you shall be deemed to have been duly
given if mailed to you at the address to which this letter is addressed.
14. If you desire to assist the Company in finding Qualified Subscribers
pursuant to the terms set forth above, please confirm your application by
signing and returning to us your confirmation on the duplicate copy of this
letter enclosed herewith, even though you may have previously advised us thereof
by telephone or telegraph. Our signature hereon may be by facsimile.
Very truly yours,
ROYCE INVESTMENT GROUP, INC. OR SPENCER TRASK SECURITIES
INCORPORATED
By: __________________________ By: ____________________________
Authorized Officer Authorized Officer
21
<PAGE>
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, NY 11797
We hereby present to Irata, Inc. (the "Company") Qualified Subscribers for
____________ Units in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Offering Documents
referred to in the first paragraph thereof relating to said Units. We confirm
that we are a dealer actually engaged in the investment banking or securities
business and that we are a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD"). We hereby agree to comply with all of
the applicable provisions of the Rules of Fair Practice of the NASD.
Name
By:
________________________________
Authorized Officer
Address:
Dated: ________________________
22
<PAGE>
23
<PAGE>
Spencer Trask Securities Incorporated
535 Madison Avenue
New York, NY 10022
We hereby present to Irata, Inc. (the "Company") Qualified Subscribers for
____________ Units in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Offering Documents
referred to in the first paragraph thereof relating to said Units. We confirm
that we are a dealer actually engaged in the investment banking or securities
business and that we are a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD"). We hereby agree to comply with all of
the applicable provisions of the Rules of Fair Practice of the NASD.
Name
By:
________________________________
Authorized Officer
Address:
Dated: ________________________
24
<PAGE>
SCHEDULE G
The Company's Board of Directors has previously authorized the issuance of 4,047
shares of its Class A Common Stock to Walnut Capital Corporation, 2,500 shares
of its Class A Common Stock to Dan Stroick and 10,239 shares of its Class A
Common Stock to Roger Osgood. Certificates evidencing these shares have not yet
been issued by the Company's transfer agent.
25
<PAGE>
SCHEDULE H
The Company's assets and properties are subject to no liens and encumbrances
except for (i) liens in favor of its senior lender, Petrus Investments, Ltd.;
(ii) liens for current property taxes not yet due and payable; (iii) statutory
liens not yet delinquent; and (iv) minor defects and irregularities in title or
encumbrances which are not substantial in character, amount or extent and which
do not materially and adversely affect the value of or interfere with the use of
the properties subject thereto or affected thereby.
26
<PAGE>
SCHEDULE L
The Company has previously filed sales tax returns in the following states but
is delinquent for the listed period. The Company intends to cure the
delinquencies.
<TABLE>
<CAPTION>
Number of Delinquent Estimated
State Locations Period Tax Due
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama 2 July - Dec. '95 $ 1,600
Georgia 7 July - Dec. '95 $ 2,530
Missouri 9 Jan. '95 - June '96 $16,700
West Virginia 8 July '94 - Dec. '95 $ 9,700
Ohio 1 Jan. '95 - June '96 $ 1,000
Minnesota 9 Oct. '94 - Dec. '95 $ 5,500
-------
$37,030
=======
</TABLE>
The Company is registered in the following states but has not filed an initial
tax return for the listed periods. The Company intends to cure the
delinquencies
<TABLE>
<CAPTION>
Number of Delinquent Estimated
State Locations Period Tax Due
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kansas 6 Dec. '94 - June '96 $ 4,780
Maine 3 Mar. '95 - June '96 $ 760
Massachusetts 10 (All Third-Party) $ --
Michigan 7 Aug. '94 - June '96 $ 6,100
Nebraska 2 Jan. '95 - June '96 $ 2,040
Nevada 4 July '94 - June '96 $ 4,650
North Carolina 4 Nov. '94 - June '96 $ 3,710
North Dakota 1 Jan. '95 - June '96 $ 1,870
Rhode Island 2 (All Third-Party) $ --
Vermont 1 Sept. '95 - June '96 $ 1,160
Washington 10 Nov. '94 - June '96 $12,400
-------
$37,470
=======
</TABLE>
27
<PAGE>
SCHEDULE R
The holders of the following securities of the Company have registration rights:
1. The holders of the bridge warrants issued by the Company in connection with
the Company's December 1994 financing, who hold the right, after application of
the antidilution provisions of such bridge warrants, to purchase 395,173 shares
of Class A Common Stock, at a price per share of $1.8979009 have mandatory
registration rights.
2. The underwriting agreement pursuant to which the Company issued and sold
units in its initial public offering that included redeemable warrants, that
after application of the antidilution provisions of the warrants provide for the
issuance of 1,666,315 shares of Class A Common Stock at a purchase price of
$5.3141226, obligate the Company to file post effective amendments to the
registration statement covering such securities. The Company is in default with
respect to this provision.
3. The holder of the Unit Purchase Option granted to Royce Investment Group,
Inc. in connection with the Company's initial public offering has a mandatory
registration right with respect to the Unit Purchase Option, the underlying
144,897 shares of Class A Common Stock, the 144,897 Redeemable Warrants issuable
upon exercise of the Unit Purchase Option and the 144,897 shares of Class A
Common Stock issuable upon exercise of the Redeemable Warrants (giving effect to
the antidilution provisions of such securities).
4. Venlease Associates and Hill Branscomb, who hold warrants that after
application of the antidilution provisions of such warrants, are exercisable for
54,424 shares of Class A Common Stock of the company at an exercise price of
$1.9292956, have piggy-back registration rights.
5. The interim lenders who arranged bridge financing in December 1995 and who
hold warrants to purchase 38,745 shares of Class A Common Stock of the Company,
giving effect to the antidilution provisions of such securities, have piggy-back
registration rights.
6. The Company's senior lender who holds warrants to
purchase 510,000 shares of the Class A Common Stock of the Company has mandatory
registration rights that prohibit granting other registration rights.
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SCHEDULE K
The Company is in default under the loan agreement with its senior lender.
Additionally, the Company is in default with respect to its covenant under its
underwriting agreement with Royce Investment Group, Inc. to keep its
registration statement current with respect to the Redeemable Warrants issued in
connection with its initial public offering.
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EXHIBIT 1.2
Option to Purchase
Units
IRATA, INC.
Unit Purchase Option
Dated: January 8, 1997
THIS CERTIFIES THAT [Royce Investment Group, Inc.] (herein sometimes
called the "Holder") is entitled to purchase from Irata, Inc., a Texas
corporation (hereinafter called the "Company"), at the prices and during the
periods as hereinafter specified, up to 9.74 Units (the "Units"), each Unit
consisting of 50,000 shares of the Company's Class A Common Stock, $10 par
value, as now constituted ("Common Stock"), and 50,000 Common Stock Purchase
Warrants ("Warrants"). Each Warrant is exercisable to purchase one share of
Common Stock.
This Unit Purchase Option, together with options of like tenor,
constituting in the aggregate options (the "Options") to purchase 9.74 Units
(the "Option Units"), subject to adjustment in accordance with Section 8 of this
Option, was originally issued pursuant to an agency agreement between the
Company and Royce Investment Group, Inc. ("Royce") and Spencer Trask Securities
Incorporated ("Trask"), as placement agents (the "Placement Agents") in
connection with a private offering (the "Offering") of a maximum of 69 Units
(the "Offering Units") through the Placement Agents.
Except as specifically otherwise provided herein, the Warrants shall be
governed by the same terms and conditions of the Form of Common Stock Purchase
Warrant attached hereto as Exhibit A (the "Warrant Agreement"), except that (i)
the holder of this Option (the "Holder") shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Common Stock
included in the Option Units, and the shares of Common Stock underlying the
Warrants included in the Option Units, as more fully described in Section 6 of
this Option and (ii) the Warrants included in the Option Units shall be
exercisable through November 1, 2001. The Company will list the Common Stock
underlying this Option on the Nasdaq National Market, the Nasdaq Small Cap
Market or such other exchange or market as the Common Stock may then be listed
or quoted. In the event of any reduction of the exercise price of the Warrants
included in the Offering Units, the same change to the Warrants included in the
Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) Between November 1, 1996, and November 1, 2001,
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inclusive, the Holder shall have the option to purchase Option
Units hereunder at a price of $25,000 per Unit. For purposes of
the adjustments under Section 8 hereof, the Per Share Exercise
Price shall be deemed to be $.50, subject to further adjustment
as provided in such Section 8.
(b) After November 1, 2001, the Holder shall
have no right to purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the Exercise Price then in effect for the number of
Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any. This Option shall be deemed to have
been exercised, in whole or in part to the extent specified, immediately prior
to the close of business on the date this Option is surrendered and payment is
made in accordance with the foregoing provisions of this Section 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock and Warrants shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock and Warrants at that time and date.
The certificates for the Common Stock and Warrants so purchased shall be
delivered to the Holder as soon as practicable but not later than ten (10) days
after the rights represented by this Option shall have been so exercised.
(b) At any time during the period above specified, during which
this Option may be exercised, the Holder may, at its option, exchange this
Option, in whole or in part (an "Option Exchange"), into the number of Option
Units determined in accordance with this Section 2(b), by surrendering this
Option at the principal executive office of the Company or at the office of its
stock transfer agent, accompanied by a notice stating such Holder's intent to
effect such exchange, the number of Option Units into which this Option is to be
exchanged and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock and Warrants issuable upon such Option Exchange and, if
applicable, a new Option of like tenor evidencing the balance of the Option
Units remaining subject to this Option, shall be issued as of the Exchange Date
and delivered to the Holder within seven (7) days following the Exchange Date.
In connection with any Option Exchange, this Option shall represent the right to
subscribe for and acquire the number of Option Units (rounded to the next
highest integer) equal to (x) the number of Option Units specified by the Holder
in its Notice of Exchange up to the maximum number of Option Units subject to
this Option (the "Total Number") less (y) the number of Option Units equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the Fair Market Value. "Fair Market Value" shall
mean first, if there is a trading market as indicated in Subsection (i) below
for
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<PAGE>
the Units, such Fair Market Value of the Units and if there is no such trading
market in the Units, then Fair Market Value shall have the meaning indicated in
Subsections (ii) through (v) below for the aggregate value of all shares of
Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities exchange or
listed or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq National Market or the Nasdaq Small
Cap Market, the Fair Market Value shall be the average of the last
reported sale prices or the average of the means of the last reported
bid and asked prices, respectively, of the Units on such exchange or
market for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a national
securities exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National Market or the
Nasdaq Small Cap Market, the Fair Market Value shall be the average of
the last reported sale prices or the average of the means of the last
reported bid and asked prices, respectively, of Common Stock or
Warrants, respectively, on such exchange or market for the twenty (20)
business days ending on the last business day prior to the Exchange
Date; or
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall
be the average of the means of the last reported bid and asked prices
of the Common Stock or Warrants, respectively, for the twenty (20)
business days ending on the last business day prior to the Exchange
Date; or
(iv) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
Fair Market Value shall be an amount, not less than book value thereof
as at the end of the most recent fiscal year of the Company ending
prior to the Exchange Date, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company; or
(v) If the Warrants are not so listed or admitted to unlisted
trading privileges, and bid and asked prices are not so reported for
Warrants, then Fair Market Value for the Warrants shall be an amount
equal to the difference between (i) the Fair Market Value of the
shares of Common Stock which may be received upon the exercise of the
Warrants, as determined herein, and (ii) the Warrant Exercise Price.
3. Any assignment of this Option shall be effected by the Holder (i)
executing the form of assignment at the end hereof and (ii) surrendering this
Option for cancellation at the office or agency of the Company referred to in
Section 2 hereof, accompanied by a certificate
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<PAGE>
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this Section 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Option Units as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Option Units purchased hereunder and the
Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that during the periods within which this Option may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Units.
5. This Option shall not entitle the Holder to any voting rights or
any other rights, or subject to the Holder to any liabilities, as a stockholder
of the Company.
6. (a) The Company shall advise the Holder or its transferee, whether
the Holder holds the Option or has exercised the Option and holds Option Units
or any of the securities underlying the Option Units, by written notice at least
two weeks prior to the filing of any new registration statement under the Act
covering any securities of the Company (other than a registration statement on
Form S-4, S-8 or other limited purpose form), for its own account or for the
account of others, and will for a period of six years from August 14, 1996, upon
the request of the Holder within 10 days after receipt of such notice from the
Company, include in any such registration statement, such information as may be
required to permit a public offering of the Common Stock included in the Option
Units and/or the Common Stock issuable upon the exercise of the Warrants
included in the Option Units (the "Registrable Securities"). If any registration
pursuant to this Section 6(a) shall be underwritten in whole or in part, the
Company may require that the Registrable Securities requested for inclusion
pursuant to this Section 6(a) be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
In the event that the Registrable Securities requested for inclusion pursuant to
this Section 6(a) together with any other shares which have similar piggyback
registration rights (such shares and the Registrable Securities being
collectively referred to as the "Requested Stock") would constitute more than
15% of the total number of shares to be included in a proposed underwritten
public offering, or if in the good faith judgment of the managing underwriter of
such public offering the inclusion of all of the Requested Stock originally
covered by a request for registration would reduce the number of shares to be
offered by the Company or interfere with the successful marketing of the shares
of stock offered by the Company, the number of shares of Requested Stock
otherwise to be included in the underwritten public offering may be reduced pro
rata (by number of shares) among the holders thereof requesting such
registration or excluded in their entirety if so required by the underwriter. To
the extent only a portion of the
4
<PAGE>
Requested Stock is included in the underwritten public offering, those shares of
Requested Stock which are thus excluded from the underwritten public offering
shall be withheld from the market by the holders thereof for a period, not to
exceed 120 days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time to the effect that such holder desires to register the
Registrable Securities under the Act, then the Company will promptly, but no
later than three weeks after receipt of such notice, prepare and file a
registration statement pursuant to the Act, to the end that the Registrable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
statement to become and remain effective (including the taking of such steps as
are necessary to obtain the removal of any stop order); provided, that such 50%
holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% holder may,
at its option, request the filing of a registration statement under the Act
pursuant to this Section 6(b) on one occasion during the five year period
beginning three months from _______, 1996. The 50% holder may, at its option
request the registration of the Registrable Securities in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Registrable Securities issuable upon exercise of the Option and even though the
Holder has not given notice of exercise of the Option.
Within ten days after receiving any such notice pursuant to this
Section 6(b), the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with a new registration statement and
offering to include therein the securities underlying the Options of the other
holders, provided that they shall furnish the Company with such appropriate
information (relating to the intentions of such holders) in connection therewith
as the Company shall reasonably request in writing. In the event the
registration statement is not filed within the period specified herein, the
expiration date of this Option and the underlying Warrants shall be extended by
an amount of time equal to the delay in filing, and in the event the
registration statement is not declared effective under the Act prior to
________, 2001, the Company shall extend the expiration date of the Option and
the underlying Warrants to a date not less than 90 days after the effective date
of such registration statement.
All costs and expenses of the first such new registration statement
under this paragraph 6(b) and all registrations under paragraph 6(a) shall be
borne by the Company, except that the holders shall bear the fees of their own
counsel and any underwriting discounts or commissions applicable to any of the
securities sold by them. If the Company determines to include securities to be
sold by it in any registration statement originally requested pursuant to this
Section 6(b), such registration shall instead be deemed to have been a
registration under Section 6(a) and not under this Section 6(b).
5
<PAGE>
The Company will maintain such registration statement or post-
effective amendment current under the Act for a period of at least six months
(and for up to an additional three months if requested by the Holder) from the
effective date thereof.
(c) The term "50% holder" as used in this Section 6 shall mean
the holder of at least 50% of the Common Stock included in the Option Units and
the shares of Common Stock underlying the Warrants included in the Option Units
(considered in the aggregate) and shall include any owner or combination of
owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares of Common Stock then issuable upon exercise of the Warrants.
(d) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed, amended or supplemented under
the Act the Company shall (i) supply prospectuses and such other documents as
the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, (ii) use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates, provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified, (iii) furnish
indemnification in the manner provided in Section 7 hereof, (iv) notify each
Holder of Registrable Securities at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and, at the request of any such Holder, prepare and
furnish to such Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading and (v) do any and all other acts and things which may be necessary
or desirable to enable such Holders to consummate the public sale or other
disposition of the Registrable Securities. The Holder shall furnish appropriate
information in connection therewith and indemnification as set forth in
Section 7.
(e) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same
6
<PAGE>
matters with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(f) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Securities and Exchange Commission (the "Commission") and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to non-
confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed, amended or supplemented under
the Act, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and will reimburse the Distributing Holder and each
such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder specifically for use in the preparation thereof.
7
<PAGE>
(b) Each Distributing Holder agrees, severally but not jointly,
to indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under 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 made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder specifically for use in the
preparation thereof; except that the maximum amount which may be recovered from
the Distributing Holder pursuant to this Section 7 or otherwise shall be limited
to the amount of net proceeds received by the Distributing Holder from the sale
of the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled 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, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Option shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify
its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the
effective date of
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<PAGE>
such subdivision, combination or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such action,
and the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than (i) the current market price of the Common Stock (as defined in
Subsection (h) below) on the record date mentioned below, or (ii) the
Per Share Exercise Price on such record date, the Exercise Price shall
be adjusted so that the same shall equal the lower of (i) the price
determined by multiplying the number of shares then comprising an
Option Unit by the product of the Per Share Exercise Price in effect
immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per
share of the Common Stock, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so
offered are convertible) or (ii) in the event the Subscription Price
is equal to or higher than the current market price but is less than
the Per Share Exercise Price, the price determined by multiplying the
number of shares then comprising an Option Unit by the product of the
Per Share Exercise Price in effect immediately prior to the date of
issuance multiplied by a fraction, the numerator of which shall be the
sum of the number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at the Per Share Exercise Price
in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below and the
number of additional shares of Common Stock offered for subscription
or purchase (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such rights or warrants; and to the extent that shares of
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<PAGE>
Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or
warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders
of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in Subsection (a) above) or subscription rights or
warrants (excluding those referred to in Subsection (b) above), then
in each such case the Exercise Price in effect thereafter shall be
determined by multiplying the number of shares then comprising an
Option Unit by the product of the Per Share Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as
defined in Subsection (h) below), less the fair market value (as
determined by the Company's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market
price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment
shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in
Subsections (a), (b), (c) or (e) of this Section 8; (ii) upon exercise
of options granted to the Company's employees under a plan or plans
adopted by the Company's Board of Directors and approved by its
stockholders, if such shares would otherwise be included in this
Subsection (d), (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date hereof, shall not
exceed 10% of the Company's Common Stock outstanding at the time of
any issuance); (iii) upon exercise of options and warrants or upon
conversion of convertible securities outstanding at ________, 1996,
and this Option; (iv) to stockholders of any corporation which merges
into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger; (v) in
a bona fide public offering pursuant to a firm commitment
underwriting; or (vi) issued in connection with a corporate partnering
transaction, but only if no adjustment is required pursuant to any
other specific subsection of this Section (8) (without regard to
Subsection (i) below) with respect to the transaction giving rise to
such rights for a consideration per share (the "Offering Price") less
than (i) the
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current market price per share as defined in Subsection (h) below on
the date the Company fixes the offering price of such additional
shares, or (ii) the Per Share Exercise Price, then the Exercise Price
shall be adjusted immediately thereafter so that it shall equal the
lower of (i) the price determined by multiplying the number of shares
then comprising an Option Unit by the product of the Per Share
Exercise Price in effect immediately prior thereto multiplied by a
fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock
which the aggregate consideration received determined as provided in
Subsection (g) below for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares
or (ii) in the event the Offering Price is equal to or higher than the
current market price per share but less than the Per Share Exercise
Price, the price determined by multiplying the number of shares then
comprising an Option Unit by the product of the Per Share Exercise
Price in effect immediately prior to the date of issuance multiplied
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received determined as provided in Subsection
(g) below for the issuance of such additional shares would purchase at
the Per Share Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
(e) In case the Company shall issue any securities convertible
into or exchangeable for its Common Stock excluding securities issued
in transactions described in Subsections (b) and (c) above for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
determined as provided in Subsection (g) below less than (i) the
current market price per share as defined in Subsection (h) below in
effect immediately prior to the issuance of such securities, or (ii)
the Per Share Exercise Price, then the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the lower of
(i) the price determined by multiplying the number of shares then
comprising an Option Unit by the product of the Per Share Exercise
Price in effect immediately prior thereto multiplied by a fraction,
the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received determined as provided in Subsection
(g) below for such securities would purchase at such current market
price per share of Common Stock, and the denominator of which
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<PAGE>
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance and the maximum number of shares of
Common Stock of the Company deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange
price or rate, or (ii) in the event the Conversion Price is equal to
or higher than the current market price per share but less than the
Per Share Exercise Price, the price determined by multiplying the
number of shares then comprising an Option Unit by the product of the
Per Share Exercise Price in effect immediately prior to the date of
issuance multiplied by a fraction, the numerator of which shall be the
sum of the number of shares outstanding immediately prior to the
issuance of such securities and the number of shares of Common Stock
which the aggregate consideration received determined as provided in
Subsection (g) below for such securities would purchase at the Per
Share Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the maximum number of shares of Common
Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate.
Such adjustment shall be made successively whenever such an issuance
is made.
(f) Whenever the Exercise Price payable upon exercise of each
Option is adjusted pursuant to Subsections (a), (b), (c), (d) or (e)
above, (i) the number of shares of Common Stock included in an Option
Unit shall simultaneously be adjusted by multiplying the number of
shares of Common Stock included in Option Unit immediately prior to
such adjustment by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the Exercise
Price, as adjusted and (ii) the number of shares of Common Stock or
other securities issuable upon exercise of the Warrants included in
the Option Units and the exercise price of such Warrants shall be
adjusted in accordance with the applicable terms of the Warrant
Agreement.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following
shall apply :
(A) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the net amount of such cash
actually received by the Company;
(B) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Company, whose determination shall be
conclusive, but in no event more than the amount entered on the
books of the Company; and
(C) in the case of the issuance of securities convertible
into or
12
<PAGE>
exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the net
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange
thereof the consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of this
Subsection (g).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of
Common Stock at any date shall be deemed to be the average of
the daily closing prices for 30 consecutive business days
before such date. The closing price for each day shall be the
last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported bid
and asked prices regular way, in either case on the principal
national securities exchange, including the Nasdaq National
Market, on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on such
exchange or market, the average of the highest reported bid and
lowest reported asked prices as reported by Nasdaq, or other
similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as
determined by the Board of Directors.
(i) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of
at least two and one-half cents ($0.025) in such price;
provided, however, that any adjustments which by reason of this
Subsection (i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this
Section 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in
the Exercise Price, in addition to those required by this
Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company
shall not result in any Federal income tax liability to the
holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this
Option).
(j) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting
forth the adjusted Exercise Price and adjusted number of Option
Units issuable upon exercise of each Option and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holders, at the address set
forth herein, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by
the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by
this Section 8, and a certificate signed by such
13
<PAGE>
firm shall be conclusive evidence of the correctness of such
adjustment, barring obvious error.
(k) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder of
this Option thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
Subsections (a) to (i), inclusive above.
(l) In case any event shall occur as to which the other
provisions of this Section 8 or Section 1(a) hereof are not
strictly applicable but as to which the failure to make any
adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the
Holders of Options representing the right to purchase a
majority of the Option Units may appoint a firm of independent
public accountants reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights
represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this
Option and shall make the adjustments described therein. The
fees and expenses of such independent public accountants shall
be borne equally by the Company and the Holder.
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated December , 1996.
IRATA, INC.
By:_________________________
Lance Wimmer, President
(Corporate Seal)
Attest:
____________________________
Sue Camp, Secretary
14
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of Irata, Inc., each Unit consisting of
50,000 shares of $.10 par value Class A Common Stock, and 50,000 Common Stock
Purchase Warrants, and herewith makes payment of $____ thereof, and requests
that the Warrants and certificates for shares of Common Stock be issued in the
name(s) of, and delivered to whose address(es) is (are )
Dated:
__________________________________
__________________________________
Address
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing
Option, hereby elects to exchange its Option for ________Units of
Irata, Inc., each Unit consisting of 50,000 shares of $.10 par value
Class A Common Stock, and 50,000 Common Stock Purchase Warrants,
pursuant to the Option Exchange provisions of the Option.
Dated:
_________________________________
__________________________________
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns,
and transfers unto the right to purchase Units
represented by the foregoing Option to the extent of Units , and
appoints attorney to transfer such
rights on the books of , with full power of
substitution in the premises.
Dated: , 19
By:_______________________________
__________________________________
Address
In the presence of:
<PAGE>
Exhibit A
Form of Common Stock Purchase Warrant
<PAGE>
********************************************************************************
COMMON STOCK PURCHASE WARRANT
To Purchase Class A Common Stock of
IRATA, INC.
********************************************************************************
<PAGE>
Void after 5:00 p.m. New York Time, on __________, 2001.
Warrant to Purchase ______ Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
IRATA, INC.
This is to Certify That, FOR VALUE RECEIVED, , or assigns ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from Irata,
Inc., a Texas corporation ("Company"), _______ fully paid, validly issued and
nonassessable shares of Class A Common Stock, par value $.10 per share, of the
Company ("Common Stock") at a cash price per share equal to $1.00 through
________, 1998 and $1.50 from ______, 1998 through ______, 2001. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after ______________, 1996 and until
___________, 2001 (the "Exercise Period"), subject to the provisions of Section
(i) hereof; provided, however, that if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day. This Warrant may be
exercised by presentation and surrender hereof to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of Warrant Shares specified in such form. As soon as
practicable after each such exercise of the warrants, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate or certificate for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder. Upon receipt by the Company of this Warrant at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve
<PAGE>
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market, the current
market value shall be the last reported sale price of the Common Stock
on such exchange or market on the last business day prior to the date
of exercise of this Warrant or if no such sale is made on such day,
the average closing bid and asked prices for such day on such exchange
or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq Small Cap Market, the
current market value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the
2
<PAGE>
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(2) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the current market price of the Common Stock (as defined in
Subsection (8) below) on the record date mentioned below, the Exercise
Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately
prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered)
would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the number
of additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are
3
<PAGE>
convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such rights or warrants; and to the extent that shares of
Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or
warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in Subsection (1) above) or subscription rights or
warrants (excluding those referred to in Subsection (2) above), then
in each such case the Exercise Price in effect thereafter shall be
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the total
number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (8)
below), less the fair market value (as determined by the Company's
Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock.
Such adjustment shall be made successively whenever such a record date
is fixed. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date
for the determination of shareholders entitled to receive such
distribution.
(4) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in
Subsection (1) above, (ii) upon exercise of options granted to the
Company's employees under a plan or plans adopted by the Company's
Board of Directors and approved by its shareholders, if such shares
would otherwise be included in this Subsection (4), (but only to the
extent that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 10% of the Company's Common
Stock outstanding at the time of any issuance) (iii) upon exercise of
options and warrants outstanding at ______, 1996 and this Warrant (iv)
to stockholders of any corporation which merges into the Company in
proportion to their stock holdings or option holdings of such
corporation immediately prior to such merger, upon such merger, (v)
issued in a bona fide public offering pursuant to a firm commitment
underwriting (vi) issued in connection with a corporate partnering
transaction, but only if no adjustment is required pursuant to any
other specific subsection of this Section (f) (without regard to
Subsection (9) below) with respect to the transaction giving rise to
such rights for a consideration per share (the "Offering Price") less
than the current market price per share as defined in
4
<PAGE>
Subsection (8) below on the date the Company fixes the offering price
of such additional shares, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by
a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock
which the aggregate consideration received determined as provided in
Subsection (7) below for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares
Such adjustment shall be made successively whenever such an issuance
is made.
(5) In case the Company shall issue any securities convertible into
or exchangeable for its Common Stock excluding securities issued in
transactions described in Subsections (2) and (3) above for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
determined as provided in Subsection (7) below less than the current
market price per share as defined in Subsection (8) below in effect
immediately prior to the issuance of such securities, the Exercise
Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of
shares of Common Stock which the aggregate consideration received
(determined as provided in Subsection (7) below) for such securities
would purchase at such current market price per share of Common Stock,
and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and (5)
above, the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by
the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following
shall apply:
(A) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the net amount of such cash
actually received by the Company;
5
<PAGE>
(B) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors of the
Company, whose determination shall be conclusive, but in no event
more than the amount entered on the books of the Company; and
(C) in the case of the issuance of securities convertible into
or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the net
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as
provided in clauses (A) and (B) of this Subsection (7)).
(8) For the purpose of any computation under Subsections (2), (3),
(4) and (5) above, the current market price per share of Common Stock at any
date shall be determined in the manner set forth in Section (c) hereof
except that the current market price per share shall be deemed to be the
average of the prices for 30 consecutive business days immediately preceding
such date.
(9) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least two and
one-half cents ($.025) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be. Anything in this Section (f) to
the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination
of Common Stock, hereafter made by the Company shall not result in any
Federal income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Shares issuable upon exercise of each
Warrant, and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Holders at their last
addresses appearing in the Warrant Register, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Company may
retain a firm of independent certified public accountants selected by the
Board of Directors (who may be the regular accountants employed
6
<PAGE>
by the Company) to make any computation required by this Section (f), and a
certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustment, barring obvious error.
(11) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in Subsections (1) to (9),
inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement .
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
7
<PAGE>
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. Subject to the
provisions of Section (k)(2) hereof, in case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
Company, or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section (f) hereof.
IRATA, INC.
By ______________________________
[SEAL]
Dated: ____________, 1996
Attest:
_____________________________
8
<PAGE>
PURCHASE FORM
Dated ____________
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Class A Common Stock and
hereby makes payment of _______ in payment of the actual exercise price thereof.
________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________
(Please typewrite or print in block letters)
Address ______________________________
Signature ____________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers
unto
Name _____________________________
(Please typewrite or print in block letters)
Address ____________________________
the right to purchase Class A Common Stock represented by this Warrant to the
extent of ______ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________ as attorney, to transfer the same
on the books of the Company with full power of substitution in the premises.
Date ______________________
Signature ___________________
<PAGE>
EXHIBIT 4.1
COMMON STOCK PURCHASE WARRANT
TO PURCHASE CLASS A COMMON STOCK OF
IRATA, INC.
<PAGE>
Void after 5:00 p.m. New York Time, on ____________, 1999.
Warrant to Purchase _____ Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
IRATA, INC.
This is to Certify That, FOR VALUE RECEIVED,
____________________________ or assigns ("Holder"), is entitled to purchase,
subject to the provisions of this Warrant, from Irata, Inc., a Texas corporation
("Company"), ___________ fully paid, validly issued and nonassessable shares of
Class A Common Stock, par value $.10 per share, of the Company ("Common Stock")
at a cash price per share equal to $1.00 through ________________, 1998 and
$1.50 from _______________, 1998 through ______________, 1999. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price." This Warrant, together with warrants of
like tenor, constituting in the aggregate warrants (the "Warrants") to purchase
up to 3,000,000 shares of Common Stock, was originally issued in connection with
a private placement (the "Private Placement") through Royce Investment Group,
Inc. and Spencer Trask Securities Incorporated, as placement agents, pursuant to
a Confidential Term Sheet dated September ____, 1996.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after ______________, 1996 and until
__________________, 1999 (the "Exercise Period"), subject to the provisions of
Section (i) hereof; provided, however, that if either such day is a day on which
banking institutions in the State of New York are authorized by law to close,
then on the next succeeding day which shall not be such a day. This Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of the warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ National Market, the current market value
shall be the last reported sale price of the Common Stock on such
exchange or market on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is
<PAGE>
traded on the NASDAQ Small Cap Market, the current market value shall be
the average of the closing bid and asked prices for such day on such
market and if the Common Stock is not so traded, the current market
value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount not less than book value thereof
as at the end of the most recent fiscal year of the Company ending prior
to the date of the exercise of the Warrant, determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that
it shall equal the price determined by multiplying the Exercise Price by
a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price") (or
having a conversion price per share) less than the current market price
of the Common Stock (as defined in Subsection (8) below) on the record
date mentioned below, the Exercise Price shall be adjusted so that the
same shall equal the price determined by multiplying the Exercise Price
in effect immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below and the
number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered (or the
2
<PAGE>
aggregate conversion price of the convertible securities so offered)
would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants
are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights or
warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise
Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
(3) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (1) above) or subscription
rights or warrants (excluding those referred to in Subsection (2)
above), then in each such case the Exercise Price in effect thereafter
shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in
Subsection (8) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common
Stock. Such adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such distribution.
(4) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in
Subsection (1) above, (ii) upon exercise of options granted to the
Company's employees under a plan or plans adopted by the Company's Board
of Directors and approved by its shareholders, if such shares would
otherwise be included in this Subsection (4) (but only to the extent
that the aggregate number of shares excluded hereby and issued after the
date hereof shall not exceed 10% of the Company's Common Stock
outstanding at the time of issuance), (iii) upon exercise of options and
warrants outstanding at ____________, 1996 and this Warrant (iv) to
stockholders of any corporation which merges into the Company in
proportion to their stock holdings or option holdings of such
corporation immediately prior to such merger, upon such merger, (v)
issued in a bona fide public offering pursuant to a firm commitment
underwriting (vi) issued in connection with a corporate partnering
transaction, but only if no adjustment is required pursuant to any other
specific subsection of this Section (f) (without regard to
Subsection (9) below) with respect to the transaction giving rise to
such rights for a consideration per share (the "Offering Price") less
than the current market price per share as defined in Subsection (8)
below on the date the Company fixes the offering price of such
additional shares, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction,
the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received determined as provided in
Subsection (7) below for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares.
Such adjustment shall be made successively whenever such an issuance is
made.
(5) In case the Company shall issue any securities convertible
into or exchangeable for its Common Stock excluding securities issued in
transactions described in Subsections (2) and (3) above for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
determined as provided in Subsection (7) below less than the current
market price per share as defined in Subsection (8) below in effect
immediately prior to the issuance of such securities, the Exercise Price
shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately
3
<PAGE>
prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received (determined as
provided in Subsection (7) below) for such securities would purchase at
such current market price per share of Common Stock, and the denominator
of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of
shares of Common Stock of the Company deliverable upon conversion of or
in exchange for such securities at the initial conversion or exchange
price or rate. Such adjustment shall be made successively whenever such
an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2), (3), (4) and (5)
above, the number of Shares purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration
received pursuant to Subsections (4) and (5) above, the following shall
apply:
(A) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the net amount of such cash
actually received by the Company.
(B) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration of other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors of the Company, whose determination shall be
conclusive, but in no event more than the amount entered on the
books of the Company; and
(C) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the net
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to
be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of this
Subsection (7)).
(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in Section
(c) hereof except that the current market price per share shall be
deemed to be the average of the prices for 30 consecutive business days
immediately preceding such date.
(9) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least two
and one-half cents ($.025) in such price; provided, however, that any
adjustments which by reason of this Subsection (9) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this
Section (f) to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section (f), as it
shall determine, in its sole discretion, to be advisable in order that
any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal income tax liability
to the holders of Common Stock or securities convertible into Common
Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer agent,
if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment,
4
<PAGE>
barring obvious error.
(11) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained
in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior to the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. Subject to the
provisions of Section (k)(2) hereof, in case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
Company, or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an
5
<PAGE>
issue of Common Stock covered by the provisions of Subsection (1) of Section (f)
hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Holder of this
Warrant shall have the registration rights set forth in Section IV of the
Subscription Agreement dated ________________________, 1996 between the Holder
and the Company relating to the Private Placement.
IRATA, INC.
By:____________________________
[SEAL]
Dated:_______________ , 1996
Attest:
_____________________________
6
<PAGE>
PURCHASE FORM
Dated _______________, 19____
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing _________ shares of Common Stock and hereby makes payment
of ______________ in payment of the actual exercise price thereof.
_________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_______________________________________
(Please typewrite or print in block letters)
Address____________________________________
Signature________________________________________
7
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells,
assigns and transfers unto
Name_______________________________________
(Please typewrite or print in block letters)
Address____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint__________________________________________________________
as attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Date__________________, 19______
Signature_______________________
8
<PAGE>
EXHIBIT 10.18
Exhibit A
IRATA, INC.
1996 STOCK OPTION AND RESTRICTED STOCK PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
This Plan is established (i) to offer selected Employees, Directors and
Consultants of the Company or its Subsidiaries an equity ownership interest in
the financial success of the Company, (ii) to provide the Company an opportunity
to attract and retain the best available personnel for positions of substantial
responsibility, and (iii) to encourage equity participation in the Company by
eligible Participants. This Plan provides for the grant by the Company of (i)
Options to purchase Shares, and (ii) shares of Restricted Stock. Options
granted under this Plan may include nonstatutory options as well as incentive
stock options intended to qualify under Section 422 of the Code.
SECTION 2
DEFINITIONS
"Board of Directors" shall mean the board of directors of the Company,
as duly elected from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
"Committee" shall mean the Compensation Committee of the Company, or
such other Committee as may be appointed by the Board of Directors from time to
time.
"Company" shall mean Irata, Inc., a Texas corporation.
"Consultant" shall mean any individual that is expressly designated as a
consultant of the Company or its Subsidiaries by the Committee or the Board of
Directors of the Company as a whole, in each case in its sole discretion.
"Date of Grant" shall mean the date on which the Committee or the Board
of Directors resolves to grant an Option to an Optionee or grant Restricted
Stock to a participant, as the case may be.
"Employees shall include every individual performing Services to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to the
definition set forth in Section 3401(c) of the Code and the regulations
thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated thereunder.
"Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee (or Board of
Directors as a whole if the option is granted by the Board) in the applicable
Stock Option Agreement, but in no event less than the par value per Share.
"Fair Market Value" shall mean such amount as the Committee or Board of
Directors, if an option is granted by the Board of Directors as a whole, in each
case in its sole discretion, shall determine, giving consideration to (i) if
there is a public market for the securities, the mean of the bid and asked
prices of the securities per share or unit, as the case may be, as reported in
the Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation System) as of the
date in question or, (ii) in the event the securities are listed on a stock
exchange, the closing sales price of the securities per share or unit, as the
case may be, on such exchange, as reported in the Wall Street Journal, as of the
date in question, and (iii) in the event of a contemporaneous sale of Stock by
the Company, the sales price to the Company before commissions and underwriting
discounts for such sale.
<PAGE>
"ISO" shall mean a stock option which is granted to an individual and
which meets the requirements of Section 422(b) of the Code, pursuant to which
the Optionee has no tax consequences resulting from the grant or, subject to
certain holding period requirements, exercise of the option and the employer is
not entitled to a business expense deduction with respect thereto.
"Non-Employee Director" shall mean a director who (i) is not an officer
of the Company or a parent or subsidiary of the Company, or otherwise employed
by the Company or parent or subsidiary of the Company; (ii) does not receive
compensation, either directly or indirectly, from the Company or a parent or
subsidiary of the Company, for services rendered as a consultant or in any
capacity other than as a director, except for an amount not exceeding $60,000;
(iii) does not possess an interest in any transaction for which disclosure would
be required under item 404(a) of Regulation S-K of the Securities Act of 1933,
as amended ("Securities Act"); or (iv) is not engaged in a business relationship
for which disclosure would be required pursuant to Item 404(b) of Regulation S-K
of the Securities Act.
"Nonstatutory Option" shall mean any Option granted by the Committee or
the Board of Directors that does not meet the requirements of Sections 421
through 424 of the Code, as amended.
"Option" shall mean either an ISO or Nonstatutory Option, as the context
requires.
"Optionee" shall mean a Participant who holds an Option. "Participants"
shall mean those individuals described in Section 1 of this Plan selected by the
Committee or the Board of Directors who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"Permanent and Total Disability" shall mean that an individual is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Committee may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that Section 22(e)(3) of the
Code is amended to reduce or expand the scope of the definition of Permanent and
Total Disability thereunder.
"Plan" shall mean this Irata, Inc. 1996 Stock Option and Restricted
Stock Plan, as amended from time to time.
"Plan Award" shall mean the grant of either an Option or Restricted
Stock, as the context requires.
"Plan Administrator" shall mean the Board of Directors of the Company or
if created by the Board of Directors, the Committee.
"Restricted Stock" shall have that meaning set forth in Section 7(a) of
this Plan.
"Restricted Stock Account" shall have that meaning set forth in
Section 7(a)(ii) of this Plan.
"Restricted Stock Criteria" shall have that meaning set forth in
Section 7(a)(iv) of this Plan.
"Restriction Period" shall have that meaning set forth in
Section 7(a)(iii) of this Plan.
"Services" shall mean services rendered to the Company or any of its
Subsidiaries as an Employee, Director or Consultant, as the context requires.
"Share" shall mean one share of Stock, as adjusted in accordance with
Section 9 of this Plan (if applicable).
"Stock" shall mean the Class A Common Stock of the Company, par value
$.10 per share.
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"Stock Option Agreement" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the granting of an Option.
"Subsidiary" shall mean any corporation as to which more than fifty
percent (50%) of the outstanding voting stock or shares shall now or hereafter
be owned or controlled, directly by a person, any Subsidiary of such person, or
any Subsidiary of such Subsidiary.
"Ten-Percent Stockholder" shall mean a person that owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in Section 424 of the Code, as amended. For purposes of this
definition of "Ten-Percent Stockholder," the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"Vest Date" shall have the meaning set forth in Section 7(a)(v) of this
Plan.
SECTION 3
ADMINISTRATION
(a) General Administration. This Plan shall be administered by the Plan
Administrator which shall be the Board of Directors as a whole, or if appointed
the Committee, which shall consist of at least two persons, each of whom shall
be Non-Employee Directors. The members of the Committee shall be appointed by
the Board of Directors for such terms as the Board of Directors may determine.
The Board of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, however caused, may be filled by
the Board of Directors.
(b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by a majority of all Committee members, shall be valid
acts of the Committee. A majority of the Committee shall constitute a quorum.
(c) Authority of Plan Administrator. This Plan shall be administered by,
or under the direction of, either the Board of Directors or if appointed by the
Board of Directors, the Committee constituted in such a manner as to comply at
all times with Rule 16b-3 (or any successor rule) under the Exchange Act. The
Plan Administrator shall administer this Plan so as to comply at all times with
the Exchange Act and, subject to the Code, shall otherwise have absolute and
final authority to interpret this Plan and to make all determinations specified
in or permitted by this Plan or deemed necessary or desirable for its
administration or for the conduct of the Plan Administrator's business
including, without limitation, the authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to this Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under this
Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to each
Plan Award;
(vii) To prescribe the terms, conditions and restrictions of each
Plan Award, including, without limitation, the Exercise Price
and the determination whether an Option is to be
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classified as an ISO or a Nonstatutory Option;
(viii) To amend any outstanding Stock Option Agreement or the terms,
conditions and restrictions of a grant of Restricted Stock,
subject to applicable legal restrictions and the consent of the
Optionee or Participant, as the case may be, who entered into
such agreement;
(ix) To establish procedures so that an Optionee may obtain a loan
through a registered broker-dealer under the rules and
regulations of the Federal Reserve Board, for the purpose of
exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the
exercise of an Option that number of Shares having a Fair
Market Value which, together with such cash as shall be paid in
respect of fractional shares, shall equal the Exercise Price,
and (2) to exercise a portion of an Option by delivering that
number of Shares already owned by an Optionee having a Fair
Market Value which shall equal the partial Exercise Price and
to deliver the Shares thus acquired by such Optionee in payment
of Shares to be received pursuant to the exercise of additional
portions of the Option, the effect of which shall be that an
Optionee can in sequence utilize such newly-acquired shares in
payment of the Exercise Price of the entire Option, together
with such cash as shall be paid in respect of fractional
shares;
(xi) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon
exercise of an Option, to meet the obligation of withholding
for federal and state income and other taxes, if any, incurred
by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable for the
administration of this Plan.
All interpretations and determinations of the Plan Administrator made
with respect to the granting of Plan Awards shall be final, conclusive, and
binding on all interest parties. The Plan Administrator may make grants of Plan
Awards on an individual or group basis. No member of the Committee shall be
liable for any action that is taken or is omitted to be taken if such action or
omission is taken in good faith with respect to this Plan or grant of any Plan
Award.
SECTION 4
ELIGIBILITY AND CURRENT GRANTS
(a) General Rule. Subject to the limitations set forth in subsection (b)
below, Participants shall be eligible to participate in this Plan; provided,
however, that any Non-Employee Directors who are serving on the Committee shall
not be eligible for any Plan Awards not granted by the Board of Directors as a
whole nor shall any person be eligible for any Plan Awards if the granting of a
Plan Award to such person would destroy the satisfaction by this Plan of the
general exemptive conditions of Rule 16b-3 under the Exchange Act.
(b) Non-Employee Ineligible for ISOs. In no event shall an ISO be
granted to any individual who is not an Employee on the Date of Grant.
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(c) Current Non-Statutory Option Grants. Upon adoption of this Plan, the
Board of Directors has made the following grants of Non-Statutory Options:
(i) To Robert R. Salyard, a Director of and Consultant to the
Company, a Non-Statutory Option to purchase an aggregate of 125,000
Shares, at an exercise price of $.50 per Share, 75,001 Shares of which
shall become exercisable on August 1, 1997, 16,667 Shares of which shall
become exercisable on October 30, 1997, 16,667 Shares of which shall
become exercisable on January 28, 1998, and the final 16,665 of which
shall become exercisable on April 28, 1998. Except as otherwise provided
in this Plan the Options granted to Mr. Salyard shall terminate and
expire on November 3, 2002.
(ii) To Andrew J. Clark, III, a Director of the Company, a Non-
Statutory Option to purchase an aggregate of 50,000 Shares, at an
exercise price of $.50 per Share, 30,000 Shares of which shall become
exercisable on August 1, 1997, 6,667 Shares of which shall become
exercisable on October 30, 1997, 6,667 Shares of which shall become
exercisable on January 28, 1998, and the final 6,665 of which shall
become exercisable on April 28, 1998. The Options granted to Mr. Clark
become exercisable only upon surrender to the Company of the options to
purchase 25,000 Shares outstanding under the Company's 1993 Stock Option
Plan. Except as otherwise provided in this Plan the Options granted to
Mr. Clark shall terminate and expire on November 3, 2001.
(iii) To John D. Higgins, a Director of the Company, a Non-Statutory
Option to purchase an aggregate of 25,000 Shares, at an exercise price
of $.50 per Share, 15,000 Shares of which shall become exercisable on
August 1, 1997, 3,334 Shares of which shall become exercisable on
October 30, 1997, 3,333 Shares of which shall become exercisable on
January 28, 1998, and the final 3,333 of which shall become exercisable
on April 28, 1998. Except as otherwise provided in this Plan the Options
granted to Mr. Higgins shall terminate and expire on November 3, 2002.
(d) Current ISO Option Grants. Upon adoption of this Plan, the Board of
Directors has made the following grants of ISO Options:
(i) To Lance P. Wimmer, Chairman of the Board of Directors,
President and chief executive officer of the Company, an ISO Option to
purchase an aggregate of 300,000 Shares, at an exercise price of $.50
per Share, 175,001 Shares of which shall become exercisable on August 1,
1997, 24,000 Shares of which shall become exercisable on October 30,
1997, 59,334 Shares of which shall become exercisable on January 28,
1998, and the final 41,665 of which shall become exercisable on April
28, 1998. Except as otherwise provided in this Plan the Options granted
to Mr. Wimmer shall terminate and expire on November 3, 2002.
(ii) To Robert A. Searles, a Director and Executive Vice President
of the Company, an ISO Option to purchase an aggregate of 67,500 Shares,
at an exercise price of $.50 per Share, 33,750 Shares of which shall be
immediately exercisable, an additional 11,250 Shares of which shall
become exercisable on November 1, 1998, an additional 11,250 Shares of
which shall become exercisable on November 1, 1999 and the final 11,250
Shares of which shall become exercisable on November 1, 2000. The
Options granted to Mr. Searles become exercisable only upon surrender to
the Company of the options to purchase 52,770 Shares outstanding under
the Company's 1993 Stock Option Plan. Except as otherwise provided in
this Plan the Options granted to Mr. Searles shall terminate and expire
on November 3, 2002.
(iii) To John Stuecheli, the Vice President-Finance and chief
financial officer of the Company, an ISO Option to purchase an aggregate
of 60,000 Shares, 36,000 Shares of which shall become exercisable on
August 1, 1997, 8,000 Shares of which shall become exercisable on
October 30, 1997, 8,000 Shares of which shall become exercisable on
January 28, 1998, and the final 8,000 of which shall become exercisable
on April 28, 1998. Except as otherwise provided in this Plan the Options
granted to Mr. Stuecheli shall terminate and expire on November 3, 2002.
(iv) To Sue Camp, the Secretary of the Company, an ISO Option to
purchase an aggregate of 15,000 Shares, at an exercise price of $.50 per
Share, 7,500 Shares of which shall be immediately
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<PAGE>
exercisable, an additional 2,500 Shares of which shall become
exercisable on November 1, 1998, an additional 2,500 Shares of which
shall become exercisable on November 1, 1999 and the final 2,500 Shares
of which shall become exercisable on November 1, 2000. Except as
otherwise provided in this Plan the Options granted to Ms. Camp shall
terminate and expire on November 3, 2002.
(v) To Roger Osgood, the Director of Manufacturing and Technical
Support for the Company, an ISO Option to purchase an aggregate of
18,750 Shares, at an exercise price of $.50 per Share, 9,375 Shares of
which shall be immediately exercisable, an additional 3,125 Shares of
which shall become exercisable on November 1, 1998, an additional 3,125
Shares of which shall become exercisable on November 1, 1999 and the
final 3,125 Shares of which shall become exercisable on November 1,
2000. Except as otherwise provided in this Plan the Options granted to
Mr. Osgood shall terminate and expire on November 3, 2002.
(vi) To Richard Bell, the Director of Marketing of the Company, an
ISO Option to purchase an aggregate of 15,000 Shares, at an exercise
price of $.50 per Share, 5,000 Shares of which shall be immediately
exercisable, an additional 2,500 Shares of which shall become
exercisable on November 1, 1998, an additional 2,500 Shares of which
shall become exercisable on November 1, 1999, an additional 2,500 Shares
of which shall become exercisable on November 1, 2000 and the final
2,500 Shares of which shall become exercisable on November 1, 2001.
Except as otherwise provided in this Plan the Options granted to Mr.
Bell shall terminate and expire on November 3, 2002.
SECTION 5
SHARES SUBJECT TO PLAN
(a) Basic Limitation. Shares offered under this Plan may be authorized
but unissued Shares or Shares that have been reacquired by the Company. The
aggregate number of Shares that are available for issuance under this Plan shall
not exceed Nine Hundred Fifty Thousand (950,000) Shares, subject to adjustment
pursuant to Section 9 of this Plan. The Plan Administrator shall not issue more
Shares than are available for issuance under this Plan. The number of Shares
that are subject to unexercised Options at any time under this Plan shall not
exceed the number of Shares that remain available for issuance under this Plan.
The Company, during the term of this Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of this Plan.
(b) Additional Shares. In the event any outstanding Option for any
reason expires, is cancelled or otherwise terminates, the Shares allocable to
the unexercised portion of such Option shall again be available for issuance
under this Plan. In the event that Shares issued under this Plan revert to the
Company prior to the Vest Date under a grant of Restricted Stock, such Shares
shall again be available for issuance under this Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
(a) Term of Option. The term of each Option shall be ten (10) years from
the Date of Grant or such shorter term as may be determined by the Committee;
provided, however, in the case of an ISO granted to a Ten-Percent Stockholder,
the term of such ISO shall be five (5) years from the Date of Grant or such
shorter time as may be determined by the Committee.
(b) Vesting of Options. Unless otherwise provided in the applicable
Stock Option Agreement as approved by the Plan Administrator, each Option
granted pursuant to this Plan shall vest at the rate of twenty-five percent
(25%) per year, on each anniversary of the Date of Grant, until such Option is
fully vested. Notwithstanding this Section 6(b), the Plan Administrator may
accelerate the vesting of any Option granted hereunder.
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(c) Exercise Price and Method of Payment.
(i) Exercise Price. The Exercise Price shall be such price as is
determined by the Plan Administrator in its sole discretion and set
forth in the Stock Option Agreement; provided, however, in the case of
an ISO granted to an Optionee, the Exercise Price shall not be less than
100% of the Fair Market Value of the Shares subject to such option on
the Date of Grant (or 110% in the case of an Option granted to a
Participant who is a Ten-Percent Stockholder on the Date of Grant).
(ii) Payment of Shares. Payment for the Shares upon exercise of an
Option shall be made in cash, by certified check, or if authorized by
the Plan Administrator, by delivery of other Shares having a Fair Market
Value on the date of delivery equal to the aggregate exercise price of
the Shares as to which said Option is being exercised, or by any
combination of such methods of payment or by any other method of payment
as may be permitted under applicable law and this Plan and authorized by
the Plan Administrator under Section 3(c) of this Plan.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights of Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as shall be determined by the Plan Administrator, including,
without limitation, performance criteria with respect to the Company
and/or the Optionee, and in accordance with the terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the Stock
Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares and any withholding and other applicable taxes with
respect to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Plan Administrator, consist of any form of
consideration and method of payment allowable under Section 6(c)(ii) of this
Plan. Upon the receipt of notice of exercise and full payment for the Shares and
taxes, the Shares shall be deemed to have been issued and the Optionee shall be
entitled to receive such Shares and shall be a shareholder with respect to such
Shares, and the Shares shall be considered fully paid and nonassessable. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date on which the stock certificate is issued, except as
provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) Termination of Status as an Employee, Director or Consultant.
Except as provided in Subsections 6(d)(iii) and 6(d)(iv) below, an
Optionee holding an Option who ceases to be an Employee, Director or
Consultant of the Company may, but only until the earlier of the date
(i) the Option held by the Optionee expires, or (ii) (y) in the case of
an ISO, ninety (90) days, and (z) in the case of a Nonstatutory Option,
six (6) months, after the date such Optionee ceases to be an Employee,
Director or a Consultant (or in each case, such shorter period as may be
provided in the Stock Option agreement), exercise the Option to the
extent that the Optionee was entitled to exercise it on such date,
unless the Plan Administrator further extends such period in its sole
discretion. To the extent that the Optionee was not entitled to exercise
an Option on such date, or if the Optionee does not exercise it within
the time specified herein, such Option shall terminate. The Plan
Administrator shall have the authority to determine the date an Optionee
ceases to be an Employee, Director or a Consultant.
(iii) Permanent and Total Disability. Notwithstanding the provisions
of Section 6(d)(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any of its Subsidiaries
as a result of such Optionee's Permanent and Total Disability (and, for
ISOs, at the time such Permanent and Total Disability begins, the
Optionee was an Employee and had been an Employee since the Date of
Grant), such Optionee may exercise an Option in whole or in part to the
extent that the
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Optionee was entitled to exercise it on such date, but only until the
earlier of the date (i) the Option held by the Optionee expires, or (ii)
twelve (12) months from the date of termination of Services due to such
Permanent and Total Disability. To the extent the Optionee is not
entitled to exercise an Option on such date or if the Optionee does not
exercise it within the time specified herein, such Option shall
terminate.
(iv) Death of an Optionee. Upon the death of an Optionee, any Option
held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(d)(ii)
above, in the event an Optionee's death occurs during the term of an
Option held by such Optionee and, at the time of death, the Optionee was
an Employee, Director or Consultant (and, for ISOs, at the time of
death, the Optionee was an Employee and had been an Employee since the
Date of Grant), the Option may be exercised in whole or in part to the
extent that the Optionee was entitled to exercise it on such date, but
only until the earlier of the date (i) the Option held by the Optionee
expires, or (ii) twelve (12) months from the date of the Optionee's
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance. To the extent the Option
is not entitled to be exercised on such date or if the Option is not
exercised within the time specified herein, such Option shall terminate.
(v) Return of Proceeds.
(a) The Plan Administrator, in its discretion, may include as a
term of any Optionee's Stock Option Agreement a provision that, if
within one year after ceasing to be an Employee, Director or Consultant
(whether voluntarily or involuntarily), an Optionee shall, directly or
indirectly, engage in an activity to competes with the business of the
Company or a Subsidiary as conducted at the time the Optionee ceased to
be an Employee, Director or Consultant (as determined by the Board of
Directors in its sole discretion and good faith) and such Optionee had
exercised Options within six months of the date the Optionee ceased to
be an Employee, Director or Consultant, the Optionee shall be required
to remit to the Company in good funds within 5 business days of receipt
of written demand therefor an amount equal to the excess of (A) the Fair
Market Value per share of Common Stock on the date of exercise of such
Option(s) multiplied by the number of shares with respect to which the
Options were exercised over (B) the aggregate option exercise price for
such number of shares of Common Stock (the "Proceeds").
(b) The Plan Administrator, in its discretion, may include as a
term of any Optionee's Stock Option Agreement a provision requiring the
remittance by an Optionee to the Company in good funds within 5 business
days of receipt of written demand therefor of Proceeds by an Optionee
that has exercised Options within six (6) months of the date the
Optionee ceased to be an Employee, Director or Consultant (whether
voluntarily or involuntarily). The Plan Administrator shall have the
authority in its discretion to include such other conditions and/or
terms in an Optionee's Stock Option Agreement that it deems appropriate
or desirable in furtherance of the foregoing provisions.
(e) Non-Transferability of Options. No Option granted under this Plan
may be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and no Option
granted under this Plan is assignable by operation of law or subject to
execution, attachment or similar process. Any Option granted under this Plan can
only be exercised during the Optionee's lifetime by such Optionee. Any attempted
sale, pledge, assignment, hypothecation or other transfer of the Option contrary
to the provisions hereof and the levy of any execution, attachment or similar
process upon the Option shall be null and void and without force or effect. No
transfer of the Option by will or by the laws of descent and distribution shall
be effective to bind the Company unless the Company shall have been furnished
written notice thereof and an authenticated copy of the will and/or such other
evidence as the Plan Administrator may deem necessary to establish the validity
of the transfer and the acceptance by the transfer or transferees of the terms
and conditions of the Option. The terms of any Option transferred by will or by
the laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Optionee.
(f) Time of Granting Options. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the Plan
Administrator's determination to grant an Option to an Optionee,
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evidenced by a Stock Option Agreement, dated as of the Date of Grant, shall be
given to such Optionee within a reasonable time after the Date of Grant.
(g) Modification, Extension and Renewal of Options. Within the
limitations of this Plan, the Plan Administrator may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options (to
the extent not previously exercised) for the granting of new Options in
substitution therefor. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, alter or impair the
Optionee's rights or obligations under such Option.
(h) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such rights of repurchase and other transfer
restrictions as the Plan Administrator may determine in its sole discretion.
Such restrictions shall be set forth in the applicable Stock Option Agreement.
(i) Special Limitation on ISOs. To the extent that the aggregate Fair
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Options that are not
ISOs.
(j) Leaves of Absence. Leaves of absence approved by the Company which
conform to the policies of the Company shall not be considered termination of
employment if the employer-employee relationship as defined under the Code or
the regulations promulgated thereunder otherwise exists.
(k) Early Exercise. In the Plan Administrator's sole and absolute
discretion, an Option may include a provision whereby the Optionee may elect at
any time while an Employee, Director or Consultant to exercise the Option as to
any part or all of the shares subject to the Option prior to the full vesting of
the Option. Any unvested shares so purchased may be subject to a repurchase
right in favor of the Company, with the repurchase price to be equal to the
original purchase price of the stock, or to any other restriction the Company
determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a rate equal to the
remaining portion of the original vesting schedule of the shares so purchased,
(ii) such repurchase right shall be exercisable by the Company within (A) the
ninety (90) day period following the termination of employment or relationship
as a Consultant, or (B) such longer period as may be agreed to by the Company
and the Optionee (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such repurchase right shall be exercisable for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and stock's Fair Market Value if
the original purchase price is less than the stock's Fair Market Value.
SECTION 7
RESTRICTED STOCK
(a) Authority to Grant Restricted Stock. The Plan Administrator shall
have the authority to grant to Participants Shares that are subject to certain
terms, conditions and restrictions (the "Restricted Stock"). The Restricted
Stock may be granted by the Plan Administrator either separately or in
combination with Options. The terms, conditions and restrictions of the
Restricted Stock shall be determined from time to time by the Plan Administrator
without limitation, except as otherwise provided in this Plan; provided,
however, that each grant of Restricted Stock shall require the Participant to
remain an Employee or Director of (or otherwise provide Services to) the Company
or any of its Subsidiaries for at least six (6) months from the Date of Grant.
The granting, vesting and issuing of the Restricted Stock shall also be subject
to the following provisions:
(i) Nature of Grant. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to
Participant; provided, however, that the value of the Services performed
must, in the opinion of the Plan Administrator, equal or exceed the par
value of the Restricted Stock to be granted to the Participant.
(ii) Restricted Stock Account. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each
Participant to whom Restricted Stock is granted, and such Restricted
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Stock shall be credited to such account. No certificates will be issued
to the Participant with respect to the Restricted Stock until the Vest
Date as provided herein. Every credit of Restricted Stock under this
Plan to a Restricted Stock Account shall be considered "contingent" and
unfunded until the Vest Date. Such contingent credits shall be
considered bookkeeping entries only, notwithstanding the "crediting" of
"dividends" as provided herein. Such accounts shall be subject to the
general claims of the Company's creditors. The Participant's rights to
the Restricted Stock Account shall be no greater than that of a general
creditor of the Company. Nothing contained herein shall be construed as
creating a trust or fiduciary relationship between the Participants and
the Company, the Board of Directors or the Plan Administrator.
(iii) Restrictions. The terms, conditions and restrictions of the
Restricted Stock shall be determined by the Plan Administrator on the
Date of Grant. The Restricted Stock may not be sold, assigned,
transferred, redeemed, pledged or otherwise encumbered during the period
in which the terms, conditions and restrictions apply (the "Restriction
Period"). More than one grant of Restricted Stock may be outstanding at
any one time, and the Restriction Periods may be of different lengths.
Receipt of the Restricted Stock is conditioned upon satisfactory
compliance with the terms, conditions and restrictions of this Plan and
those imposed by the Plan Administrator.
(iv) Restricted Stock Criteria. At the time of each grant of
Restricted Stock, the Plan Administrator in its sole discretion may
establish certain criteria to determine the times at which restrictions
placed on Restricted Stock shall lapse (i.e., the termination of the
Restriction Period), which criteria may include, without limitation,
performance measures and targets and/or holding period requirements (the
"Restricted Stock Criteria"). The Plan Administrator may establish a
corresponding relationship between the Restricted Stock Criteria and (i)
the number of Shares of Restricted Stock that may be earned, and (ii)
the extent to which the terms, conditions and restrictions on the
Restricted Stock shall lapse. Restricted Stock Criteria may vary among
grants of Restricted Stock; provided, however, that once the Restricted
Stock Criteria are established for a grant of Restricted Stock, the
Restricted Stock Criteria shall not be modified with respect to that
grant.
(v) Vesting. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who
may then require the Company to issue certificates evidencing the
Restricted Stock credited to the Restricted Stock Account of such
Participant.
(vi) Dividends. The Plan Administrator may provide from time to time
that amounts equivalent to dividends shall be payable with respect to
the Restricted Stock held in the Restricted Stock Account of a
Participant. Such amounts shall be credited to the Restricted Stock
Account and shall be payable to the Participant on the Vest Date.
(vii) Termination of Services. If a Participant (x) with the consent
of the Plan Administrator, ceases to be an Employee or Director of, or
otherwise ceases to provide Services to, the Company or any of its
Subsidiaries, or (y) dies or suffers from Permanent and Total
Disability, the vesting or forfeiture (including, without limitation,
the terms, conditions and restrictions) of any grant under this
Section 7 shall be determined by the Plan Administrator in its sole
discretion, subject to any limitations or terms of this Plan. If the
Participant ceases to be an Employee or Director of, or otherwise ceases
to provide Services to, the Company or any of its Subsidiaries for any
other reason, all grants of Restricted Stock under this Plan shall be
forfeited (subject to the terms of this Plan).
(b) Deferral of Payments. The Plan Administrator may establish
procedures by which a Participant may elect to defer the transfer of Restricted
Stock to the Participant. The Plan Administrator shall determine the terms and
conditions of such deferral in its sole discretion.
10
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SECTION 8
ISSUANCE OF SHARES
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Plan
Administrator has determined that the Participant has tendered to the Company
any and all applicable federal, state or local tax owed by the Participant as
the result of the receipt of a Plan Award, the exercise of an Option or the
disposition of any Shares issued under this Plan, in the event that the Company
reasonably determines that it might have a legal liability to satisfy such tax.
The Company shall not be liable to any person or entity for damages due to any
delay in the delivery or issuance of any stock certificate evidencing any Shares
for any reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER
(a) Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the aggregate number of Shares that have been authorized for
issuance under this Plan, the maximum number of Shares that an Optionee may
receive rights to pursuant to Section 6(k) of this Plan, and the number of
Shares of Restricted Stock credited to any Restricted Stock Account of a
Participant (as well as the Exercise Price covered by any outstanding Option),
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, payment of a stock dividend with
respect to the Stock or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company. Such adjustment
shall be made by the Plan Administrator in its sole discretion, which adjustment
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) Dissolution, Liquidation, Sale of Assets or Merger. In the event of
the proposed dissolution or liquidation of the Company, or a proposed sale of
all or substantially all of the assets of the Company, or the proposed merger of
the Company with or into another corporation, any Options and grants of
Restricted Stock shall terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Plan Administrator. The Plan
Administrator may, in the exercise of its sole discretion, in such instances
declare that any Option shall terminate as of a date fixed by the Plan
Administrator and give each Optionee the right to exercise the Optionee's Option
as to all or any part of the Shares covered by such Option, including Shares as
to which the Option would not otherwise be exercisable.
SECTION 10
NO EMPLOYMENT RIGHTS
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee or Director of, or provide Services to, the Company or any
of its Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
SECTION 11
SHAREHOLDER APPROVAL
With respect to any amendment to this Plan adopted by the Plan
Administrator that is required to be approved by the Company's shareholders
pursuant to the terms of Section 12 of this Plan, such approval shall be
obtained within twelve (12) months after the date such amendment is adopted by
the Plan Administrator; provided, that such amendment shall not become effective
until such approval has been obtained.
11
<PAGE>
If the Company is required to comply with Section 14(c) of the Exchange
Act, the approval by the Company's shareholders of this Plan, and their approval
of any subsequent amendment to this Plan requiring their approval, shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder. If the Company is not required
to comply with Section 14(a) of the Exchange Act at the time of seeking such
approval and such approval is not solicited substantially in accordance with the
rules and regulations, if any, in effect under Section 14(a) of the Exchange Act
at the time of such approval, the Company shall furnish in writing to the
holders of record of the securities entitled to vote for this Plan substantially
the same information concerning this Plan which would be required by the rules
and regulations in effect under Section 14(a) of the Exchange Act at the time
that such information is furnished, if proxies to be voted with respect to the
approval or disapproval of this Plan were then being solicited, on or prior to
the date of the first annual meeting of security holders held subsequent to the
later of: (i) the first registration of an equity security under Section 12 of
the Act or (ii) the acquisition of an equity security which exemption from
Section 16(b) under the Exchange Act is claimed.
SECTION 12
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
(a) Term of Plan. This Plan shall become effective upon its adoption by
the Board of Directors. This Plan shall continue in effect for a term of ten
(10) years unless sooner terminated under this Section 12.
(b) Amendment and Termination. The Plan Administrator in its sole
discretion may terminate this Plan at any time. The Plan Administrator may amend
this Plan at any time in such respects as the Plan Administrator may deem
advisable; provided, that the following amendments shall require approval of the
holders of a majority of the outstanding Shares entitled to vote:
(i) Any change in the aggregate number of Shares that may be issued
under this Plan, other than in connection with an adjustment under
Section 9 of this Plan;
(ii) Any change in the designation of the Participants eligible to
be granted Plan Awards; or
(iii) Any change in this Plan that would materially increase the
benefits accruing to Participants under this Plan.
(c) Effect of Termination. In the event this Plan is terminated, no
Shares shall be issued under this Plan nor shall any Shares of Restricted Stock
be credited to a Restricted Stock Account, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock Account. The termination of this Plan,
or any amendment thereof, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any Restricted
Stock previously credited to a Restricted Stock Account.
SECTION 13
GOVERNING LAW
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS
RELATING TO THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12
<PAGE>
EXHIBIT 10.19
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between IRATA,
INC., a Texas corporation (the "Company"), and ANDREW J. CLARK, III (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued director of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable
and in the best interest of the Company to provide the Optionee with additional
incentive by providing Optionee with a proprietary interest in the success of
the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option
to purchase 50,000 shares of Class A Stock at a price of $.50 per
share, such purchase to be upon the terms and conditions hereinafter
set forth. The Option granted hereunder is granted under the 1996
Stock Option Plan of the Company (the "Plan") and is designated a
"Non-Qualified Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested with respect to 25,000 shares which shall become exercisable
on August 1, 1997. The remainder of this option shall become
exercisable with respect to an additional 12,500 shares on
November 1, 1998 and the final additional 12,500 shares shall become
exercisable on November 1, 1999. All of such options shall thereafter
be fully exercisable until November 3, 2002, when the option shall
expire.
3. Exercise of Option. The option granted hereunder shall be exercised
in accordance with Section 6 of the Plan by delivering to the Company
a written notification specifying the number of shares of Class A
Stock which the Optionee desires to purchase, together with payment
of the exercise price either by check, cash, certified check, bank
draft, postal or express money order to the order of the Company, by
delivery to the Company for cancellation of a portion of this option
that is then exercisable valued at "Fair Market Value", or by
delivery to the Company of other shares of Class A Stock valued at
"Fair Market Value" or by any combination of such methods. For
purposes hereof the "Fair Market Value" of a portion of this option
or shares of Class A Common Stock shall be determined in good faith
by the Board of Directors of the Company. As promptly as practical
after receipt of such written notification and payment, the Company
shall deliver to the Optionee a certificate for the number of shares
with respect to which the option has been exercised in accordance
with Section 6 of the Plan.
<PAGE>
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be a director of the Company by reason other than death
before the expiration date of this option ("Expiration Date"), this
option shall terminate and the Optionee shall have the right, prior
to three months after the date of termination and prior to the
Expiration Date, to exercise any vested or exercisable portion of
this option. In the event of death, Optionee's executors,
administrators or any person or persons to whom this option may be
transferred by will or by the laws of descent and distribution, shall
have the right, prior to twelve months after the date of death and
prior to the Expiration Date, to exercise this option in whole or in
part to the extent to which the Optionee was entitled to exercise
this option immediately prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws
of any State and may not be sold or transferred except upon such
registration or upon receipt by the corporation of an opinion of counsel
for the Corporation that registration is not required for such sale or
transfer."
Any determination in this connection by the Company shall be final,
binding and conclusive. At such time as a registration statement under the '33
Act is in effect with respect to the shares of Class A Stock represented by
certificates bearing the above legend or at such time as, in the opinion of
counsel for the Company, such legend is no longer required solely for compliance
with applicable securities laws, then the holders of such certificates shall be
entitled to exchange such certificates for certificates representing a like
number of shares but without such legend. The Company may, but shall in no event
be obligated to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the
2
<PAGE>
Company shall not be required to issue such shares unless, in the opinion of
counsel for the Company, the issuance of such shares is exempt from the
provisions of the Texas Act. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action
in order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no
adjustment for dividends, or otherwise, shall be made if the record
date therefor is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way
the right or power of the Company or its stockholders to
make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the
Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar
character or otherwise.
(ii) If, while this Option is outstanding, the Company shall
effect a subdivision or consolidation of shares or other
increase or reduction of the number of shares of the Common
Stock outstanding without receiving compensation therefor
in money, services or property, then (a) in the event of an
increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to this
Option shall be proportionately increased; and (b) in the
event of a decrease in the number of such shares
outstanding the number of shares then available under this
Option shall be proportionately decreased.
(iii)After a merger of one or more corporations into the
Company, or after a consolidation of the Company and one or
more corporations in which the Company shall be the
surviving corporation, the holder of this Option shall, at
no additional cost, be entitled upon exercise of this
Option to receive (subject to any required action by
stockholders) in lieu of the number of shares as to which
this Option shall then be so exercisable, the number and
class of shares of stock or other securities to which such
holder would have been entitled to receive pursuant to the
terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such
holder had been the holder of record of a number of shares
of the Company equal to the number of shares as to which
this Option had been exercisable.
3
<PAGE>
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its
assets to another corporation or other entity while this
Option remains outstanding, then the Plan Administrator (as
defined in the Plan) may direct that any of the following
shall occur:
(a) If the successor entity is willing to assume the
obligation to deliver shares of stock or other
securities after the effective date of the merger,
consolidation or sale of assets, as the case may be,
the holder of this Option shall be entitled to receive,
upon the exercise of this Option and payment of the
option price, in lieu of shares of Common Stock, such
shares of stock or other securities as the holder of
this Option would have been entitled to receive had
this Option been exercised immediately prior to the
consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set
forth in or imposed pursuant to the Plan or this Option
Agreement with respect to this Option such that this
Option shall become exercisable prior to the record or
effective date of such merger, consolidation, or sale
of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or
sale of assets provided that prior notice of such
cancellation shall be given to the holder of this
Option at least 30 days prior to the effective date of
such merger, consolidation, or sale of assets, and the
holder of this Option shall have the right to exercise
this Option in full during a period of not less than 30
days prior to the effective date of such merger,
consolidation, or sale of assets.
(v) Except as provided in the Plan, the issuance by the Company
of Common Stock or any other shares of capital stock or
securities convertible into shares of capital stock, for
cash property, labor done, or other consideration, shall
not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of
Common Stock then subject to this Option.
9. Optionee has been previously granted options under the Company's 1993
Stock Option Plan. This grant has been made to Optionee conditioned upon
Optionee's agreement to surrender and cancel the options previously granted
under the 1993 Plan. Accordingly, by the acceptance hereof, Optionee hereby
surrenders and cancels all unexercised options granted to Optionee under the
1993 Plan.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
4
<PAGE>
IRATA, INC.
By:_________________________________
Authorized Officer
By:_________________________________
ANDREW J. CLARK, III, Optionee
5
<PAGE>
EXHIBIT 10.20
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between
IRATA, INC., a Texas corporation (the "Company"), and JOHN D. HIGGINS (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued director of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable
and in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the
option to purchase 25,000 shares of Class A Stock at a price of $.50
per share, such purchase to be upon the terms and conditions
hereinafter set forth. The Option granted hereunder is granted under
the 1996 Stock Option Plan of the Company (the "Plan") and is
designated a "Non-Qualified Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested with respect to 12,500 shares which shall become exercisable
on August 1, 1997. The remainder of the option shall become
exercisable with respect to an additional 6,250 shares on November
1, 1998; and the final additional 6,250 shares shall become
exercisable on November 1, 1999. All of such options shall
thereafter be fully exercisable until November 3, 2002, when the
option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised
in accordance with Section 6 of the Plan by delivering to the
Company a written notification specifying the number of shares of
Class A Stock which the Optionee desires to purchase, together with
payment of the exercise price either by check, cash, certified
check, bank draft, postal or express money order to the order of the
Company, by delivery to the Company for cancellation of a portion of
this option that is then exercisable valued at "Fair Market Value",
or by delivery to the Company of other shares of Class A Stock
valued at "Fair Market Value" or by any combination of such methods.
For purposes hereof the "Fair Market Value" of a portion of this
option or shares of Class A Common Stock shall be determined in good
faith by the Board of Directors of the Company. As promptly as
practical after receipt of such written notification and payment,
the Company shall deliver to the Optionee a certificate for the
number of shares with respect to which the option has been exercised
in accordance with Section 6 of the Plan.
<PAGE>
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be a director of the Company by reason other than death
before the expiration date of this option ("Expiration Date"), this
option shall terminate and the Optionee shall have the right, prior
to three months after the date of termination and prior to the
Expiration Date, to exercise any vested or exercisable portion of
this option. In the event of death, Optionee's executors,
administrators or any person or persons to whom this option may be
transferred by will or by the laws of descent and distribution,
shall have the right, prior to twelve months after the date of death
and prior to the Expiration Date, to exercise this option in whole
or in part to the extent to which the Optionee was entitled to
exercise this option immediately prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws
of any State and may not be sold or transferred except upon such
registration or upon receipt by the corporation of an opinion of counsel
for the Corporation that registration is not required for such sale or
transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates representing a like number of shares
but without such legend. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the
2
<PAGE>
Company shall not be required to issue such shares unless, in the opinion of
counsel for the Company, the issuance of such shares is exempt from the
provisions of the Texas Act. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action
in order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no
adjustment for dividends, or otherwise, shall be made if the record
date therefor is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock
or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect
a subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease
in the number of such shares outstanding the number of shares
then available under this Option shall be proportionately
decreased.
(iii)After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled to
receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares
as to which this Option had been exercisable.
3
<PAGE>
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option
remains outstanding, then the Plan Administrator (as defined in
the Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities
after the effective date of the merger, consolidation or
sale of assets, as the case may be, the holder of this
Option shall be entitled to receive, upon the exercise of
this Option and payment of the option price, in lieu of
shares of Common Stock, such shares of stock or other
securities as the holder of this Option would have been
entitled to receive had this Option been exercised
immediately prior to the consummation of such merger,
consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option
Agreement with respect to this Option such that this
Option shall become exercisable prior to the record or
effective date of such merger, consolidation, or sale of
assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale
of assets provided that prior notice of such cancellation
shall be given to the holder of this Option at least 30
days prior to the effective date of such merger,
consolidation, or sale of assets, and the holder of this
Option shall have the right to exercise this Option in
full during a period of not less than 30 days prior to the
effective date of such merger, consolidation, or sale of
assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
4
<PAGE>
By:_________________________________
Authorized Officer
By:_________________________________
JOHN D. HIGGINS, Optionee
5
<PAGE>
EXHIBIT 10.21
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between
IRATA, INC., a Texas corporation (the "Company"), and ROBERT R. SALYARD (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued director of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable and
in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option
to purchase 125,000 shares of Class A Stock at a price of $.50 per
share, such purchase to be upon the terms and conditions hereinafter
set forth. The Option granted hereunder is granted under the 1996
Stock Option Plan of the Company (the "Plan") and is designated a
"Non-Qualified Option" under the Plan.
2. Amount and Dates Exercisable The Optionee shall become immediately
vested in 25,000 shares, shall be vested with respect to an additional
16,667 shares on February 1, 1997, shall be vested with respect to an
additional 16,667 shares on May 1, 1997, and shall be vested with
respect to an additional 16,667 shares on August 1, 1997. This option
shall become exercisable with respect to 75,001 shares on August 1,
1997; shall become exercisable with respect to an additional 16,667
shares on October 30, 1997; shall become exercisable with respect to
an additional 16,667 shares on January 28, 1998; and the final
additional 16,665 shares shall become exercisable on April 28, 1998.
All of such options shall thereafter be fully exercisable until
November 3, 2002, when the option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft,
postal or express money order to the order of the Company, by delivery
to the Company for cancellation of a portion of this option that is
then exercisable valued at "Fair Market Value", or by delivery to the
Company of other shares of Class A Stock valued at "Fair Market Value"
or by any combination of such methods. For purposes hereof the "Fair
Market Value" of a portion of this option or shares of Class A Common
Stock shall be determined in good faith by the Board of Directors of
the Company. As promptly as
<PAGE>
practical after receipt of such written notification and payment, the
Company shall deliver to the Optionee a certificate for the number of
shares with respect to which the option has been exercised in
accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be a director of the Company by reason of voluntary
termination by the Optionee or by reason of termination for Cause (as
defined in the Consulting Agreement between the Company and Optionee
dated November 1, 1996) by the Company, prior to the expiration date
of this option ("Expiration Date"), this option shall terminate and
the Optionee shall have the right, prior to three months after the
date of termination and prior to the Expiration Date, to exercise any
vested or exercisable portion of this option. After a "Change of
Control" of the Company (as defined in the Executive Employment
Agreement), the death of the Optionee, or termination of the
employment relationship with the Optionee by the Company other than
for Cause, all unexercised options shall be vested and fully
exercisable and in the case of change of control or termination by the
Company other than for cause, the Optionee shall have the right, prior
to three months after the date of termination and prior to the
Expiration Date, to exercise any vested or exercisable portion of this
option. In the event of death, Optionee's executors, administrators or
any person or persons to whom this option may be transferred by will
or by the laws of descent and distribution, shall have the right,
prior to twelve months after the date of death and prior to the
Expiration Date, to exercise this option in whole or in part to the
extent to which the Optionee was entitled to exercise this option
immediately prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 ( as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a Specifically in connection with the Securities Act of 1933 (as now in
effect or registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel
2
<PAGE>
for the Company, such legend is no longer required solely for compliance with
applicable securities laws, then the holders of such certificates shall be
entitled to exchange such certificates for certificates representing a like
number of shares but without such legend. The Company may, but shall in no event
be obligated to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the Company shall not be
required to issue such shares unless, in the opinion of counsel for the Company,
the issuance of such shares is exempt from the provisions of the Texas Act. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no adjustment
for dividends, or otherwise, shall be made if the record date therefor
is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or
property, then (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock
then subject to this Option shall be proportionately increased;
and (b) in the event of a decrease in the number of such shares
outstanding the number of shares then available under this Option
shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations
in which the Company shall be the surviving corporation, the
holder of this Option shall, at no additional cost, be entitled
upon exercise of this Option to receive (subject to any required
action by stockholders) in lieu of the number of shares as to
which this Option shall then be so exercisable, the number and
class of shares of stock or other securities to which such holder
would have been entitled to receive pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to
3
<PAGE>
such merger or consolidation, such holder had been the holder of
record of a number of shares of the Company equal to the number
of shares as to which this Option had been exercisable.
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company sells or
otherwise disposes of substantially all of its assets to another
corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the Plan)
may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the
obligation to deliver shares of stock or other
securities after the effective date of the merger,
consolidation or sale of assets, as the case may be, the
holder of this Option shall be entitled to receive, upon
the exercise of this Option and payment of the option
price, in lieu of shares of Common Stock, such shares of
stock or other securities as the holder of this Option
would have been entitled to receive had this Option been
exercised immediately prior to the consummation of such
merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set
forth in or imposed pursuant to the Plan or this Option
Agreement with respect to this Option such that this
Option shall become exercisable prior to the record or
effective date of such merger, consolidation, or sale of
assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or
sale of assets provided that prior notice of such
cancellation shall be given to the holder of this Option
at least 30 days prior to the effective date of such
merger, consolidation, or sale of assets, and the holder
of this Option shall have the right to exercise this
Option in full during a period of not less than 30 days
prior to the effective date of such merger,
consolidation, or sale of assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
4
<PAGE>
By:_________________________________
Authorized Officer
By:_________________________________
ROBERT R. SALYARD, Optionee
5
<PAGE>
EXHIBIT 10.22
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between
IRATA, INC., a Texas corporation (the "Company"), and LANCE P. WIMMER (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable and
in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option
to purchase 300,000 shares of Class A Stock at a price of $.50 per
share, such purchase to be upon the terms and conditions hereinafter
set forth. The Option granted hereunder is granted under the 1996
Stock Option Plan of the Company (the "Plan") and is designated as an
"Incentive Stock Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested in 50,000 shares, shall be vested with respect to an additional
41,667 shares on February 1, 1997, shall be vested with respect to an
additional 41,667 shares on May 1, 1997, and shall be vested with
respect to an additional 41,667 shares on August 1, 1997. This option
shall become exercisable with respect to 175,001 shares on August 1,
1997; shall become exercisable with respect to an additional 24,000
shares on October 30, 1997; shall become exercisable with respect to
an additional 59,334 shares on January 28, 1998; shall become
exercisable with respect to an additional 41,665 shares on April 28,
1998; and shall be fully exercisable thereafter until November 3,
2002, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised by
delivering to the Company a written notification specifying the number
of shares of Class A Stock which the Optionee desires to purchase,
together with payment of the exercise price either by check, cash,
certified check, bank draft, postal or express money order to the
order of the Company, by delivery to the Company for cancellation of a
portion of this option that is then exercisable valued at "Fair Market
Value", or by delivery to the Company of other shares of Class A Stock
valued at "Fair Market Value" or by any combination of such methods.
For purposes hereof the "Fair Market Value" of a portion of this
option or shares of Class A Common Stock shall be determined in good
faith by the Board of Directors of the Company. As promptly as
practical after receipt of such written notification and
<PAGE>
payment, the Company shall deliver to the Optionee a certificate for
the number of shares with respect to which the option has been
exercised in accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be an employee of the Company by reason of voluntary
termination by the Optionee or by reason of termination for Cause (as
defined in the Executive Employment Agreement between the Company and
Optionee dated November 1, 1996) by the Company, prior to the
expiration date of this option ("Expiration Date"), this option shall
terminate and any vested or exercisable portion shall remain
exercisable until the Expiration Date of the option. After a "Change
of Control" of the Company (as defined in the Executive Employment
Agreement), the death of the Optionee, or termination of the
employment relationship with the Optionee by the Company other than
for Cause, all unexercised options shall be vested and fully
exercisable and shall remain exercisable until the Expiration Date of
the option. In the case of death, Optionee's executors, administrators
or any person or persons to whom this option may be transferred by
will or by the laws of descent and distribution, shall have the right
to exercise this option until the Expiration Date of the option.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the corporation of an opinion of
counsel for the Corporation that registration is not required for such
sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates
2
<PAGE>
representing a like number of shares but without such legend. The Company may,
but shall in no event be obligated to, register any securities covered hereby
pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the Company shall not be
required to issue such shares unless, in the opinion of counsel for the Company,
the issuance of such shares is exempt from the provisions of the Texas Act. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no adjustment
for dividends, or otherwise, shall be made if the record date therefor
is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease in
the number of such shares outstanding the number of shares then
available under this Option shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or
3
<PAGE>
other securities to which such holder would have been entitled
to receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as
to which this Option had been exercisable.
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the
Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option
and payment of the option price, in lieu of shares of
Common Stock, such shares of stock or other securities as
the holder of this Option would have been entitled to
receive had this Option been exercised immediately prior to
the consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option Agreement
with respect to this Option such that this Option shall
become exercisable prior to the record or effective date of
such merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale
of assets provided that prior notice of such cancellation
shall be given to the holder of this Option at least 30
days prior to the effective date of such merger,
consolidation, or sale of assets, and the holder of this
Option shall have the right to exercise this Option in full
during a period of not less than 30 days prior to the
effective date of such merger, consolidation, or sale of
assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this 6th day of December, 1996, but as of the day and year first
above written.
4
<PAGE>
IRATA, INC.
By:_________________________________
Authorized Officer
By:_________________________________
LANCE P. WIMMER, Optionee
5
<PAGE>
EXHIBIT 10.23
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between
IRATA, INC., a Texas corporation (the "Company"), and JOHN C. STUECHELI (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable and
in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option
to purchase 60,000 shares of Class A Stock at a price of $.50 per
share, such purchase to be upon the terms and conditions hereinafter
set forth. The Option granted hereunder is granted under the 1996
Stock Option Plan of the Company (the "Plan") and is designated as an
"Incentive Stock Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested in 11,000 shares, shall be vested with respect to an additional
8,333 shares on February 1, 1997, shall be vested with respect to an
additional 8,333 shares on May 1, 1997, and shall be vested with
respect to an additional 8,334 shares on August 1, 1997. This option
shall become exercisable with respect to 36,000 shares on August 1,
1997; shall become exercisable with respect to an additional 8,000
shares on October 30, 1997; shall become exercisable with respect to
an additional 8,000 shares on January 28, 1998; shall become
exercisable with respect to an additional 8,000 shares on April 28,
1998; and shall be fully exercisable thereafter until November 3,
2002, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft,
postal or express money order to the order of the Company, by delivery
to the Company for cancellation of a portion of this option that is
then exercisable valued at "Fair Market Value", or by delivery to the
Company of other shares of Class A Stock valued at "Fair Market Value"
or by any combination of such methods. For purposes hereof the "Fair
Market Value" of a portion of this option or shares of Class A Common
Stock shall be determined in good faith by the Board of Directors of
the Company. As promptly as
<PAGE>
practical after receipt of such written notification and payment, the
Company shall deliver to the Optionee a certificate for the number of
shares with respect to which the option has been exercised in
accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be an employee of the Company by reason of voluntary
termination by the Optionee or by reason of termination for Cause (as
defined in the Executive Employment Agreement between the Company and
Optionee dated November 1, 1996) by the Company, prior to the
expiration date of this option ("Expiration Date"), this option shall
terminate and the Optionee shall have the right, prior to three months
after the date of termination and prior to the Expiration Date, to
exercise any vested or exercisable portion of this option. After a
"Change of Control" of the Company (as defined in the Executive
Employment Agreement), the death of the Optionee, or termination of
the employment relationship with the Optionee by the Company other
than for Cause, all unexercised options shall be vested and fully
exercisable and in the case of change of control or termination by the
Company other than for cause, the Optionee shall have the right, prior
to three months after the date of termination and prior to the
Expiration Date, to exercise any vested or exercisable portion of this
option. In the event of death, Optionee's executors, administrators or
any person or persons to whom this option may be transferred by will
or by the laws of descent and distribution, shall have the right,
prior to twelve months after the date of death and prior to the
Expiration Date, to exercise this option in whole or in part to the
extent to which the Optionee was entitled to exercise this option
immediately prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A
2
<PAGE>
Stock represented by certificates bearing the above legend or at such time as,
in the opinion of counsel for the Company, such legend is no longer required
solely for compliance with applicable securities laws, then the holders of such
certificates shall be entitled to exchange such certificates for certificates
representing a like number of shares but without such legend. The Company may,
but shall in no event be obligated to, register any securities covered hereby
pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the Company shall not be
required to issue such shares unless, in the opinion of counsel for the Company,
the issuance of such shares is exempt from the provisions of the Texas Act. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no adjustment
for dividends, or otherwise, shall be made if the record date therefor
is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease in
the number of such shares outstanding the number of shares then
available under this Option shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or
3
<PAGE>
other securities to which such holder would have been entitled
to receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as
to which this Option had been exercisable.
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the
Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option
and payment of the option price, in lieu of shares of
Common Stock, such shares of stock or other securities as
the holder of this Option would have been entitled to
receive had this Option been exercised immediately prior to
the consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option Agreement
with respect to this Option such that this Option shall
become exercisable prior to the record or effective date of
such merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale
of assets provided that prior notice of such cancellation
shall be given to the holder of this Option at least 30
days prior to the effective date of such merger,
consolidation, or sale of assets, and the holder of this
Option shall have the right to exercise this Option in full
during a period of not less than 30 days prior to the
effective date of such merger, consolidation, or sale of
assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
4
<PAGE>
By:_________________________________
Authorized Officer
By:_________________________________
JOHN C. STUECHELI, Optionee
5
<PAGE>
EXHIBIT 10.24
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and between
IRATA, INC., a Texas corporation (the "Company"), and SUE CAMP (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable and
in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest in
the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option
to purchase 15,000 shares of Class A Stock at a price of $.50 per
share, such purchase to be upon the terms and conditions hereinafter
set forth. The Option granted hereunder is granted under the 1996
Stock Option Plan of the Company (the "Plan") and is designated as an
"Incentive Stock Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested with respect to 7,500 shares which shall become exercisable
August 1, 1997. The remainder of the option shall become exercisable
with respect to 2,500 shares on November 1, 1997; shall become
exercisable with respect to an additional 2,500 shares on November 1,
1998; shall become exercisable with respect to an additional 2,500
shares on November 1, 1999; and shall be fully exercisable thereafter
until November 3, 2002, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft,
postal or express money order to the order of the Company, by delivery
to the Company for cancellation of a portion of this option that is
then exercisable valued at "Fair Market Value", or by delivery to the
Company of other shares of Class A Stock valued at "Fair Market Value"
or by any combination of such methods. For purposes hereof the "Fair
Market Value" of a portion of this option or shares of Class A Common
Stock shall be determined in good faith by the Board of Directors of
the Company. As promptly as practical after receipt of such written
notification and payment, the Company shall deliver to the Optionee a
certificate for the number of shares with respect to which the option
has
<PAGE>
been exercised in accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this
option shall not be transferable by the Optionee otherwise than by
will or under the laws of descent and distribution, and shall be
exercisable, during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be an employee of the Company by reason other than death
before the expiration date of this option ("Expiration Date"), this
option shall terminate and the Optionee shall have the right, prior to
three months after the date of termination and prior to the Expiration
Date, to exercise any vested or exercisable portion of this option. In
the event of death, Optionee's executors, administrators or any person
or persons to whom this option may be transferred by will or by the
laws of descent and distribution, shall have the right, prior to
twelve months after the date of death and prior to the Expiration
Date, to exercise this option in whole or in part to the extent to
which the Optionee was entitled to exercise this option immediately
prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under this option if the issuance of such shares
shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates representing a like number of shares
but without such legend. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement
2
<PAGE>
under the Texas Act is in effect with respect to the shares of Class A Stock
covered hereby, the Company shall not be required to issue such shares unless,
in the opinion of counsel for the Company, the issuance of such shares is exempt
from the provisions of the Texas Act. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the
date of issuance of a stock certificate for such shares; no adjustment
for dividends, or otherwise, shall be made if the record date therefor
is prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease in
the number of such shares outstanding the number of shares then
available under this Option shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled to
receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as
to which this Option had been exercisable.
3
<PAGE>
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the
Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option
and payment of the option price, in lieu of shares of
Common Stock, such shares of stock or other securities as
the holder of this Option would have been entitled to
receive had this Option been exercised immediately prior to
the consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option Agreement
with respect to this Option such that this Option shall
become exercisable prior to the record or effective date of
such merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale
of assets provided that prior notice of such cancellation
shall be given to the holder of this Option at least 30
days prior to the effective date of such merger,
consolidation, or sale of assets, and the holder of this
Option shall have the right to exercise this Option in full
during a period of not less than 30 days prior to the
effective date of such merger, consolidation, or sale of
assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
4
<PAGE>
By:_________________________________
Authorized Officer
By:_________________________________
SUE CAMP, Optionee
5
<PAGE>
EXHIBIT 10.25
STOCK OPTION AGREEMENT
This Agreement made as of this 7th day of January, 1997, by and
between IRATA, INC., a Texas corporation (the "Company"), and RODGER OSGOOD (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable
and in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest
in the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option to
purchase 10,000 shares of Class A Stock at a price of $.50 per share,
such purchase to be upon the terms and conditions hereinafter set forth.
The Option granted hereunder is granted under the 1996 Stock Option Plan
of the Company (the "Plan") and is designated as an "Incentive Stock
Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested in this option as of January 7, 1997. This option shall become
exercisable August I, 1997 and shall be fully exercisable thereafter
until January 7, 2003, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft, postal
or express money order to the order of the Company, by delivery to the
Company for cancellation of a portion of this option that is then
exercisable valued at "Fair Market Value", or by delivery to the Company
of other shares of Class A Stock valued at "Fair Market Value" or by any
combination of such methods. For purposes hereof the "Fair Market Value"
of a portion of this option or shares of Class A Common Stock shall be
determined in good faith by the Board of Directors of the Company. As
promptly as practical after receipt of such written notification and
payment, the Company shall deliver to the Optionee a certificate for the
number of shares with respect to which the option has been exercised in
accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this option
shall not be transferable by the Optionee otherwise than by will or under
the laws of descent and
<PAGE>
distribution, and shall be exercisable, during Optionee's lifetime, only
by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee ceases
to be an employee of the Company by reason other than death before the
expiration date of this option ("Expiration Date"), this option shall
terminate and the Optionee shall have the right, prior to three months
after the date of termination and prior to the Expiration Date, to
exercise any vested or exercisable portion of this option. In the event
of death, Optionee's executors, administrators or any person or persons
to whom this option may be transferred by will or by the laws of descent
and distribution, shall have the right, prior to twelve months after the
date of death and prior to the Expiration Date, to exercise this option
in whole or in part to the extent to which the Optionee was entitled to
exercise this option immediately prior to the death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or issue
any shares under this option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions
of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates representing a like number of shares
but without such legend. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement under the Texas Act is in effect with
respect to the shares of Class A Stock covered hereby, the Company shall not be
required to issue such shares unless, in the opinion of counsel for the Company,
the issuance of such shares is exempt from the provisions of the Texas Act. The
Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Texas Act.
2
<PAGE>
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the date
of issuance of a stock certificate for such shares; no adjustment for
dividends, or otherwise, shall be made if the record date therefor is
prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the right
or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations, or
other changes in the Company's capital structure or its business,
or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or
property, then (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock then
subject to this Option shall be proportionately increased; and (b)
in the event of a decrease in the number of such shares outstanding
the number of shares then available under this Option shall be
proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations
in which the Company shall be the surviving corporation, the holder
of this Option shall, at no additional cost, be entitled upon
exercise of this Option to receive (subject to any required action
by stockholders) in lieu of the number of shares as to which this
Option shall then be so exercisable, the number and class of shares
of stock or other securities to which such holder would have been
entitled to receive pursuant to the terms of the agreement of
merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as to
which this Option had been exercisable.
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company sells or
otherwise disposes of substantially all of its assets to
3
<PAGE>
another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the Plan)
may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option and
payment of the option price, in lieu of shares of Common
Stock, such shares of stock or other securities as the holder
of this Option would have been entitled to receive had this
Option been exercised immediately prior to the consummation
of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth in
or imposed pursuant to the Plan or this Option Agreement with
respect to this Option such that this Option shall become
exercisable prior to the record or effective date of such
merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale of
assets provided that prior notice of such cancellation shall
be given to the holder of this Option at least 30 days prior
to the effective date of such merger, consolidation, or sale
of assets, and the holder of this Option shall have the right
to exercise this Option in full during a period of not less
than 30 days prior to the effective date of such merger,
consolidation, or sale of assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property, labor
done, or other consideration, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Common Stock then subject to this Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
By:_________________________________
Authorized Officer
4
<PAGE>
By:_________________________________
RODGER OSGOOD, Optionee
5
<PAGE>
EXHIBIT 10.26
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and
between IRATA, INC., a Texas corporation (the "Company"), and RODGER OSGOOD (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable
and in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionee with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest
in the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option to
purchase 18,750 shares of Class A Stock at a price of $.50 per share,
such purchase to be upon the terms and conditions hereinafter set forth.
The Option granted hereunder is granted under the 1996 Stock Option Plan
of the Company (the "Plan") and is designated as an "Incentive Stock
Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested with respect to 9,375 shares which shall become exercisable
August 1, 1997. The remainder of the option shall become exercisable
with respect to 3,125 shares on November 1, 1997; shall become
exercisable with respect to an additional 3,125 shares on November 1,
1998; shall become exercisable with respect to an additional 3,125
shares on November 1, 1999; and shall be fully exercisable thereafter
until November 3, 2002, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft,
postal or express money order to the order of the Company, by delivery
to the Company for cancellation of a portion of this option that is then
exercisable valued at "Fair Market Value", or by delivery to the Company
of other shares of Class A Stock valued at "Fair Market Value" or by any
combination of such methods. For purposes hereof the "Fair Market Value"
of a portion of this option or shares of Class A Common Stock shall be
determined in good faith by the Board of Directors of the Company. As
promptly as practical after receipt of such written notification and
payment, the Company shall deliver to the Optionee a certificate for the
number of shares with respect to which the option has
<PAGE>
been exercised in accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this option
shall not be transferable by the Optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be an employee of the Company by reason other than death
before the expiration date of this option ("Expiration Date"), this
option shall terminate and the Optionee shall have the right, prior to
three months after the date of termination and prior to the Expiration
Date, to exercise any vested or exercisable portion of this option. In
the event of death, Optionee's executors, administrators or any person
or persons to whom this option may be transferred by will or by the laws
of descent and distribution, shall have the right, prior to twelve
months after the date of death and prior to the Expiration Date, to
exercise this option in whole or in part to the extent to which the
Optionee was entitled to exercise this option immediately prior to the
death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or issue
any shares under this option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions
of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates representing a like number of shares
but without such legend. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement
2
<PAGE>
under the Texas Act is in effect with respect to the shares of Class A Stock
covered hereby, the Company shall not be required to issue such shares unless,
in the opinion of counsel for the Company, the issuance of such shares is exempt
from the provisions of the Texas Act. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the date
of issuance of a stock certificate for such shares; no adjustment for
dividends, or otherwise, shall be made if the record date therefor is
prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease in
the number of such shares outstanding the number of shares then
available under this Option shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled to
receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as
to which this Option had been exercisable.
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<PAGE>
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the
Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option and
payment of the option price, in lieu of shares of Common
Stock, such shares of stock or other securities as the
holder of this Option would have been entitled to receive
had this Option been exercised immediately prior to the
consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option Agreement
with respect to this Option such that this Option shall
become exercisable prior to the record or effective date of
such merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale of
assets provided that prior notice of such cancellation shall
be given to the holder of this Option at least 30 days prior
to the effective date of such merger, consolidation, or sale
of assets, and the holder of this Option shall have the
right to exercise this Option in full during a period of not
less than 30 days prior to the effective date of such
merger, consolidation, or sale of assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
IRATA, INC.
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By:_________________________________
Authorized Officer
By:_________________________________
RODGER OSGOOD, Optionee
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EXHIBIT 10.27
STOCK OPTION AGREEMENT
This Agreement made as of this 6th day of December, 1996, by and
between IRATA, INC., a Texas corporation (the "Company"), and ROBERT A. SEARLES,
JR. (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is a valued employee of the Company, having
substantial responsibility for its future growth; and
WHEREAS, the Board of Directors of the Company considers it advisable
and in the best interest of the Company to provide the Optionee with additional
incentive by providing the Optionene with a proprietary interest in the success
of the Company; and
WHEREAS, in order to provide the Optionee with a proprietary interest
in the Company, the Board has granted the Optionee an option to purchase Class A
Common Stock, $.10 par value ("Class A Stock"), of the Company.
NOW, THEREFORE, in order to set forth the terms and conditions of such
option, the Company and the Optionee hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee the option to
purchase 67,500 shares of Class A Stock at a price of $.50 per share,
such purchase to be upon the terms and conditions hereinafter set forth.
The Option granted hereunder is granted under the 1996 Stock Option Plan
of the Company (the "Plan") and is designated as an "Incentive Stock
Option" under the Plan.
2. Amount and Dates Exercisable. The Optionee shall become immediately
vested with respect to 33,750 shares which shall become exercisable
August 1, 1997. The remainder of this option shall become exercisable
with respect to 11,250 shares on November 1, 1998; shall become
exercisable with respect to an additional 11,250 shares on November 1,
1999; shall become exercisable with respect to an additional 11,200
shares on November 1, 2000; and shall be fully exercisable thereafter
until November 3, 2002, when this option shall expire.
3. Exercise of Option. The option granted hereunder shall be exercised in
accordance with Section 6 of the Plan by delivering to the Company a
written notification specifying the number of shares of Class A Stock
which the Optionee desires to purchase, together with payment of the
exercise price either by check, cash, certified check, bank draft,
postal or express money order to the order of the Company, by delivery
to the Company for cancellation of a portion of this option that is then
exercisable valued at "Fair Market Value", or by delivery to the Company
of other shares of Class A Stock valued at "Fair Market Value" or by any
combination of such methods. For purposes hereof the "Fair Market Value"
of a portion of this option or shares of Class A Common Stock shall be
determined in good faith by the Board of Directors of the Company. As
promptly as practical after receipt of such written notification and
payment, the Company shall deliver to the Optionee a certificate for the
number of shares with respect to which the option has
<PAGE>
been exercised in accordance with Section 6 of the Plan.
4. Transferability of Option. Except as hereinafter set forth, this option
shall not be transferable by the Optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable,
during Optionee's lifetime, only by Optionee.
5. Termination of Service of Optionee. In the event that the Optionee
ceases to be an employee of the Company by reason other than death
before the expiration date of this option ("Expiration Date"), this
option shall terminate and the Optionee shall have the right, prior to
three months after the date of termination and prior to the Expiration
Date, to exercise any vested or exercisable portion of this option. In
the event of death, Optionee's executors, administrators or any person
or persons to whom this option may be transferred by will or by the laws
of descent and distribution, shall have the right, prior to twelve
months after the date of death and prior to the Expiration Date, to
exercise this option in whole or in part to the extent to which the
Optionee was entitled to exercise this option immediately prior to the
death of Optionee.
6. Requirements of Law. The Company shall not be required to sell or issue
any shares under this option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions
of any law or regulation of any governmental authority.
Specifically in connection with the Securities Act of 1933 (as now in
effect or hereunder amended) (the "'33 Act"), upon exercise of this option,
unless a registration statement under the '33 Act is in effect with respect to
the shares of Class A Stock covered hereby, the Company shall not be required to
issue such shares unless the Company has received evidence satisfactory to it to
the effect that the issuance of shares is exempt from the registration
provisions of the '33 Act, the Optionee is acquiring such shares for investment
and not with a view to distribution thereof, and unless the certificate issued
representing the share of Class A Stock bears a legend in substantially the
following form:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of
any State and may not be sold or transferred except upon such registration
or upon receipt by the corporation of an opinion of counsel for the
Corporation that registration is not required for such sale or transfer."
Any determination in this connection by the Company shall be final, binding and
conclusive. At such time as a registration statement under the '33 Act is in
effect with respect to the shares of Class A Stock represented by certificates
bearing the above legend or at such time as, in the opinion of counsel for the
Company, such legend is no longer required solely for compliance with applicable
securities laws, then the holders of such certificates shall be entitled to
exchange such certificates for certificates representing a like number of shares
but without such legend. The Company may, but shall in no event be obligated
to, register any securities covered hereby pursuant to the '33 Act.
Specifically in connection with The Securities Act of the State of Texas
(as now in effect or hereafter amended) (the "Texas Act"), upon exercise of this
option, unless a registration statement
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<PAGE>
under the Texas Act is in effect with respect to the shares of Class A Stock
covered hereby, the Company shall not be required to issue such shares unless,
in the opinion of counsel for the Company, the issuance of such shares is exempt
from the provisions of the Texas Act. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Texas Act.
The Company shall not be obligated to take any other affirmative action in
order to cause the exercise of this option or the issuance of shares pursuant
hereto to comply with any law or regulation of any governmental authority.
7. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to shares covered by this option until the date
of issuance of a stock certificate for such shares; no adjustment for
dividends, or otherwise, shall be made if the record date therefor is
prior to the date of issuance of such certificate.
8. Changes in the Company's Capital Structure.
(i) The existence of this Option shall not affect in any way the
right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If, while this Option is outstanding, the Company shall effect a
subdivision or consolidation of shares or other increase or
reduction of the number of shares of the Common Stock
outstanding without receiving compensation therefor in money,
services or property, then (a) in the event of an increase in
the number of such shares outstanding, the number of shares of
Common Stock then subject to this Option shall be
proportionately increased; and (b) in the event of a decrease in
the number of such shares outstanding the number of shares then
available under this Option shall be proportionately decreased.
(iii) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving
corporation, the holder of this Option shall, at no additional
cost, be entitled upon exercise of this Option to receive
(subject to any required action by stockholders) in lieu of the
number of shares as to which this Option shall then be so
exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled to
receive pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as
to which this Option had been exercisable.
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<PAGE>
(iv) If the Company is merged into or consolidated with another
corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company
sells or otherwise disposes of substantially all of its assets
to another corporation or other entity while this Option remains
outstanding, then the Plan Administrator (as defined in the
Plan) may direct that any of the following shall occur:
(a) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of
assets, as the case may be, the holder of this Option shall
be entitled to receive, upon the exercise of this Option and
payment of the option price, in lieu of shares of Common
Stock, such shares of stock or other securities as the
holder of this Option would have been entitled to receive
had this Option been exercised immediately prior to the
consummation of such merger, consolidation or sale.
(b) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to the Plan or this Option Agreement
with respect to this Option such that this Option shall
become exercisable prior to the record or effective date of
such merger, consolidation, or sale of assets.
(c) The Plan Administrator may cancel this Option as of the
effective date of any such merger, consolidation, or sale of
assets provided that prior notice of such cancellation shall
be given to the holder of this Option at least 30 days prior
to the effective date of such merger, consolidation, or sale
of assets, and the holder of this Option shall have the
right to exercise this Option in full during a period of not
less than 30 days prior to the effective date of such
merger, consolidation, or sale of assets.
(v) Except as provided in the Plan, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash property,
labor done, or other consideration, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock then subject to this
Option.
9. Optionee has been previously granted options under the Company's 1993
Stock Option Plan. This grant has been made to Optionee conditioned upon
Optionee's agreement to surrender and cancel the options previously
granted under the 1993 Plan. Accordingly, by the acceptance hereof,
Optionee hereby surrenders and cancels all unexercised options granted
to Optionee under the 1993 Plan.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ___ day of _____________, 19__, but as of the day and year
first above written.
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<PAGE>
IRATA, INC.
By:____________________________________
Authorized Officer
By:____________________________________
ROBERT A. SEARLES, JR., Optionee
5
<PAGE>
EXHIBIT 10.28
CONSULTING AGREEMENT
--------------------
This Consulting Agreement ("Agreement"), dated as of November 1, 1996
(the "Effective Date"), is executed by and between Irata, Inc., a Texas
corporation with offices at 8554 Katy Freeway, Suite 100, Houston, Texas 77024
(the "Company"), and R. R. Salyard, residing at 530 Mulberry Lane, Haverford,
Pennsylvania 19041 ("Consultant").
The Company desires to retain Consultant as a senior advisor to the
Company to perform such consulting services for the Company and to serve on its
Board of Directors, and Consultant desires to render such services, on the terms
and conditions hereafter set forth.
1. Term.
(a) Initial Term. The Company agrees to engage Consultant, and
Consultant agrees to render the consulting services described in Section 2
below, on the terms and conditions set forth in this Agreement, for a period of
two (2) years commencing upon the closing of the Company's conduct of a private
placement of approximately $1,500,000.00 of the Company's common stock and
warrants (the "Offering") and ending twenty-four (24) months thereafter (the
"Consulting Period").
2. Duties and Services.
2.1 Nature of Services. During the Consulting Period, Consultant
shall serve as a senior advisor to the Company's President and shall serve as a
member of its Board of Directors (the "Board"). The Board shall nominate
Consultant to serve as a member of the Board at each election of Board members
occurring during the term of this Agreement. The failure of the shareholders of
the Company to elect Consultant shall not result in a termination of this
Agreement. In performance of his duties, Consultant shall be subject to the
direction of the President. Excepting disabilities and illness as provided in
Section 3(e) below, Consultant agrees to devote such time necessary or desirable
to perform his duties under this Agreement and to achieve the Company's plans
and goals as established by the Board and/or the President from time to time
("Company's Business Plan"). In performing his duties to the Company hereunder,
Consultant shall be available for reasonable travel as the needs of the business
require.
2.2 Independent Contractor. It is expressly understood by the
parties that Consultant is acting as an independent contractor and is not
subject to Company's control nor authorized to act as Company's agent or legal
representative. This Agreement shall not act or be construed to create an
employer-employee relationship, partnership, joint venture or any other agency
relationship between the parties. Absent Company's prior approval, Consultant
shall have no authority or power to make any commitments of any nature
whatsoever for the account of or on behalf of Company. Consultant shall have
the right to employ such personnel as Consultant deems necessary to render
services hereunder; however, the retention of such personnel shall be at
Consultant's sole cost, risk and responsibility. Consultant shall be
responsible for all social security, income tax withholding, unemployment
insurance, and such other amounts Company would otherwise be required to deduct
and withhold from amounts payable to its employees.
<PAGE>
3. Consulting Fees.
(a) Consulting Fees. As compensation for all of Consultant's services
hereunder, including services as a director, the Company shall pay to
Consultant, during the Consulting Period, monthly consulting fees ("Consulting
Fees") equal to One Thousand Five Hundred Dollars ($1,500.00). Consultant's
Consulting Fees shall be payable by the last day of each calendar month during
the Consulting Period. Consulting Fees for any partial month shall be prorated
based on a thirty (30) day month.
(b) Directors and Officers Liability Insurance. The Company shall
take out and maintain directors and officers liability insurance with coverage
consistent with industry standards for comparable businesses. Proof of such
insurance shall be provided to Consultant prior to the commencement of the
Consulting Period. If such insurance has not been obtained prior to the
commencement of the Consulting Period, Consultant shall have the right to
terminate this Agreement immediately upon written notice to the Company or may
elect to commence the Consulting Period if such insurance is forthcoming within
a reasonable period of time and will relate back to the commencement of the
Consulting Period. If such insurance is not obtained after the Consulting
Period commences, Consultant may at any time given ten (10) days' prior written
notice of his intent to terminate this Agreement. Upon such notice of
termination, this Agreement shall be null and void and neither party shall have
any further rights or obligations hereunder except as otherwise provided in this
Agreement.
(c) Stock Option. Contemporaneously with the commencement of the
Consulting Period and subject to the vesting schedule set forth below, the
Company shall grant to Consultant the option ("Option") to acquire One Hundred
Twenty-Five Thousand (125,000) shares of the Company's common stock, $0.10 par
value ("Company's Stock"), at a purchase price equal to 50 cents per share.
Consultant's Option shall be deemed fully vested as follows:
(i) Upon the Close of the Offering and the commencement of the
Consulting Period, Consultant's Option shall be fully vested as to
Twenty-Five Thousand (25,000) shares;
(ii) Thereafter, Sixteen Thousand Six Hundred Sixty-Seven
(16,667) shares shall be deemed fully vested at the end of each ninety
(90) day period commencing on the closing date of the Offering and
continuing for six (6) consecutive ninety (90) day periods, at which
time all One Hundred Twenty-Five Thousand (125,000) shares shall be
deemed fully vested.
The Company will use best efforts to register Consultant's
Option, at the Company's cost and expense, in conjunction with
Company's registration of its Employee Stock Option Plan.
(d) Change in Control. In the event of a "change of control" (as
defined in Exhibit A hereto): (i) Consultant's Option shall be deemed fully
vested as to all One Hundred Twenty-Five Thousand (125,000) shares of Company's
stock notwithstanding any vesting schedule set forth in Section 3(c) above, and
(ii) Consultant's right to receive any unpaid portion of his Consulting Fees for
the then current term shall survive any termination of his Consulting by reason
of such change in control.
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4. Expenses.
(a) General Business Expenses. Consultant shall be entitled to
reimbursement for all reasonable travel and other out-of-pocket expenses
necessarily incurred in the performance of his duties hereunder, including
attendance at meetings of the Board, upon submission and approval of written
statements and bills in accordance with the then regular procedures of the
Company.
(b) Legal Fees. Upon execution of this Agreement, the Company shall
reimburse Consultant for his legal fees up to the sum of Two Thousand Dollars
($2,000.00) incurred in connection with the negotiation, documentation and
consummation of this Agreement.
5. Representations and Warranties of Consultant. Consultant represents
and warrants to the Company that (a) Consultant is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder and (b) Consultant is under no physical or mental disability
that would hinder his performance of duties under this Agreement.
6. Non-Competition. In view of the unique and valuable services it is
expected Consultant will render to the Company, Consultant's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the Company it is expected Consultant will obtain, and in
consideration of the compensation to be received hereunder and of the shares of
Company';s stock being sold to Consultant, Consultant agrees that he will not
"Participate in" (hereinafter defined in this Section 6) any other business or
organization, if such business or organization is now or shall then be competing
with or of a nature similar to the business of the Company. The provisions of
this Section 6 will not be deemed breached merely because Consultant owns not
more than five percent (5%) of the outstanding common stock of a competing
corporation if, at the time of its acquisition by Consultant, such stock is
listed on a New York Stock Exchange, American Stock Exchange, or a regional
securities exchange, is reported on NASDAQ or NMS, or is regularly traded in the
over-the-counter market by a member of a national securities exchange. The term
"Participant in" shall mean: "directly or indirectly, for his own benefit or
for, with, or through any other person, firm, or corporation, own, manage,
operates, control, loan money to, or participate in the ownership, management,
operation, or control of, or be connected as a director, officer, employee,
partner, consultant, agent, independent contractor, or otherwise with, or
acquiesce in the use of his name in." Consultant will not directly or
indirectly reveal the name of, solicit or interfere with, or endeavor to entice
away from the Company any of its suppliers, customers, or employees. For a two
(2) year period after the termination of this Agreement, Consultant will not
directly or indirectly employ any person who was an officer of the Company
within a period of one (1) year after such person leaves the employ of the
Company. Since a breach of the provisions of this Section 6 could not
adequately be compensated by money damages, the Company shall be entitled, in
addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith. Consultant agrees
that the provisions of this Section are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in this
Section 6 shall be deemed to be invalid, illegal, or enforceable by reason of
the extent, duration, or geographical scope hereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
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7. Patents, etc. Any interest in patents, patent applications,
inventions, technological innovations, copyrights, copyrightable works,
developments, discoveries, designs and processes which Consultant now or
hereafter, during the period he is employed by the Company under this Agreement
or otherwise, and for six (6) months thereafter may own, conceive of, or develop
and either relating to the fields in which the Company may then be engaged or
contemplates (as demonstrated by the records of the Company) being engaged or
conceived of or developed utilizing the time, material, facilities, or
information of the Company ("Such Inventions") shall belong to the Company. As
soon as Consultant owns, conceives of, or develops any Such Inventions, he
agrees immediately to communicate such fact in writing to the Secretary of the
Company, and without further compensation, but at the Company's expense,
forthwith upon request of the Company, Consultant shall execute all such
assignments and other documents (including applications for patents, copyrights,
trademarks, and assignments thereof) and take all such other action as the
Company may reasonably request in order (a) to vest in the Company all
Consultant's right, title and interest in and to Such Inventions, free and clear
of liens, mortgages, security interests, pledges, charges and encumbrances
arising rom the acts of Consultant ("Liens") (Consultant to take such action, at
his expense, as is necessary to remove all such Liens if caused by Consultant's
acts and not operation of law) and (b) if patentable or copyrightable, to obtain
patents or copyrights (including extensions and renewals) therefor in any and
all countries in such name as the Company shall determine.
8. Confidential Information. All confidential information which
Consultant may now possess, may obtain during or after the Consulting Period, or
may create prior to the end of the period he is employed by the Company under
this Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed, or made
accessible by him to any other person, firm, or corporation either during or
after the termination of this Agreement or used by him except during the
Consulting Period in the business and for the benefit of the Company, in each
case without the prior written permission of the Company. Consultant shall
return all physical evidence of such confidential information to the Company
prior to or at the termination of this Agreement. As used in this Section 8,
"confidential information" shall mean any information except that information
available to competitors or which is generally available to the public or which
was in the possession of Consultant prior to the Consulting Period.
9. Termination. Notwithstanding anything herein contained, if, on or
after the Effective Date and prior to the end of the Consulting Period:
(a) Grounds for Termination. Either (i) Consultant shall be
physically or mentally incapacitated or disabled or otherwise unable fully to
discharge his duties hereunder for a period of sixty (60) days, as mutually
determined by the President and Consultant's attending physician(s), (ii)
Consultant shall be convicted of a crime of moral turpitude or a felony, (iii)
Consultant shall breach any fiduciary duty to the Company, or (iv) Consultant
shall breach any material term of this Agreement and fail to correct such breach
within ten (10) days after notice by the Company to Consultant of his commission
of the same, then, and in each such case, the Company shall have the right to
give notice of termination of Consultant's services hereunder as of a date (not
earlier than ten (10) days from such notice) to be specified in such notice, and
this Agreement shall terminate on the date so specified. Nothing contained in
this Section 9(a) shall be deemed to limit any other right the Company may have
to terminate Consultant's Consulting Agreement hereunder upon any ground
permitted by law.
(b) Termination on Death. If Consultant shall die, then this
Agreement shall terminate on the date of Consultant's death, whereupon
Consultant or his estate, as the case may be, shall be entitled to receive his
Consulting Fees, prorated to the date on which termination shall take
4
<PAGE>
effect. Consultant's Option shall fully vest on Consultant's death.
(c) Effect on Compensation. In the event of termination of Consultant
for all other reasons other than death or "for cause" (as defined herein), (i)
Consultant shall be entitled to receive as severance compensation in one lump
sum payment any unpaid portion of his total Consulting Fees for the unexpired
term of the Consulting Period and (ii) Consultant's Option shall be deemed fully
vested.
(d) Effect on Compensation on Termination for Cause. In the event of
termination "for cause," Consultant shall be entitled to receive his Consulting
Fees, prorated through the effective date of such termination and only that
portion of his Option vested to the termination date. Any portion of
Consultant's Option not fully vested by the termination date shall be deemed
terminated, null and void as to the portion not so vested. For the purposes of
this Agreement, termination "for cause" shall mean termination pursuant to the
grounds specified in Sections 9(a)(ii), (iii) and (iv) above.
10. Survival. The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive Consultant's
termination as provided herein.
11. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
12. Notice. All notices and other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when:
(i) delivered personally and evidenced by a signed receipt for such delivery;
(ii) mailed by United States registered mail or certified mail, return receipt
requested, postage prepaid, addressed as set forth below; or (iii) mailed by a
nationally recognized courier service (e.g., Federal Express, DHL, etc.) and
addressed as set forth below. Any address set forth below may be changed by a
party by written notice given in accordance with this Section.
If to Consultant: R. R. Salyard
530 Mulberry Lane
Haverford, Pennsylvania 19041
If to Company: Irata, Inc.
8554 Katy Freeway, Suite 100
Houston, Texas 77024
Attention: Lance P. Wimmer, President
13. Waiver. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by both parties.
14. Binding Effect. Consultant's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise. Such rights
shall not be subject to commutation, encumbrance, or the claims of Consultant's
creditors, and any attempt to do any of the foregoing shall
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be void. The provisions of this Agreement shall be binding upon and inure to the
benefit of Consultant and his heirs and personal representatives, and shall be
binding upon and inure to the benefit of the Company and its successors and
assigns.
15. No Third-Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
16. Headings. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
17. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of Texas,
without giving effect to the conflict of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
Effective Date.
IRATA, INC.,
A Texas Corporation
By:
----------------------------------
Lance P. Wimmer
Title: President
----------------------------------
R. R. Salyard
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EXHIBIT "A"
CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if at any time
during the Employment Period any of the following events occur:
(a) The Company is merged, consolidated or reorganized into or with
another person or legal entity ("Acquiring Entity") and as a
result of such merger, consolidation or reorganization less than
fifty-one percent (51%) of the combined voting power of the then-
outstanding securities of the Acquiring Entity immediately after
such transaction are held in the aggregate by the holders of the
voting securities of the Company immediately prior to such
transaction; or
(b) The Company sells all or substantially all of its assets or all of
its outstanding securities to an Acquiring Entity in whom less
than fifty-one percent (51%) of the combined voting power of the
then-outstanding voting securities are held in the aggregate by
the holders of the voting securities of the Company immediately
prior to such sale; or
(c) The Company files a report on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"), disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing ten
percent (10%) or more of the outstanding stock of the Company; or
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to Item 1 of Form 8-K thereunder or Item 5(f) of Schedule
14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-
existing contract or transaction; or
(e) There is a significant adverse change in the nature or scope of
the authorities, powers, functions or duties attached to the
position of Executive; or
(f) The Company files for bankruptcy protection.
<PAGE>
EXHIBIT 10.29
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement"), dated as of
November 1, 1996 (the "Effective Date"), is executed by and between Irata, Inc.,
a Texas corporation with offices at 8554 Katy Freeway, Suite 100, Houston, Texas
77024 (the "Company"), and Lance P. Wimmer, residing at 16323 Red Cedar Trail,
Dallas, Texas 75248 ("Executive").
The Company desires to retain Executive as President, Chief Executive
Officer and Chairman of the Board of Directors ("Board") of the Company and to
perform executive management services for the Company, and Executive desires to
assume such offices and perform such services, on the terms and conditions
hereinafter set forth.
1. Term. The Company agrees to employ Executive, and Executive agrees
to serve in the capacity described in Section 2 below, on the terms
and conditions set forth in this Agreement, for an initial period
of two (2) years commencing upon the Effective Date and from month
to month thereafter until terminated in accordance with the
provisions herein contained (the "Employment Period"). Either the
Company or the Executive may terminate this Agreement after the
expiration of the first twenty-four months of employment by written
notice to the other party in accordance with provisions hereof at
least sixty days prior to the date fixed for termination by such
notice.
2. Duties and Services. During the Employment Period, Executive shall
be employed in the business of the Company as its President, Chief
Executive Officer and Chairman of the Board. The Board shall
nominate Executive to serve as a member of the Board at each
election of Board members occurring during the term of this
Agreement. The failure of the shareholders of the Company to elect
Executive as a member of the Board shall not result in a
termination of this Agreement. In performance of his duties,
Executive shall be subject to the direction of the Board, and
Executive agrees to his employment as described in this Section 2.
Excepting disabilities, illness, and vacation as provided as in
Section 3(e) below, Executive agrees to devote such time necessary
or desirable to perform his duties under this Agreement and to
achieve the Company's plans and goals as established by the Board
with Executive from time to time ("Company's Business Plan"). In
performing his duties to the Company hereunder, Executive shall be
available for reasonable travel as the needs of the business
require. Provided that Executive is performing in full and in a
timely manner the material aspects of his duties and
responsibilities to the Company, Executive shall have the right to
devote time to Executive's business known as Wimmer Associates,
Inc.
3. Compensation and Other Benefits.
(a) Annual Base Salary. As compensation for his services hereunder,
the Company shall pay to Executive, during the Employment
Period, an annual base salary ("Annual Base Salary") equal to
One Hundred Thirty-Five Thousand Dollars ("$135,000.00).
Executive's Annual Base salary shall be payable every two weeks
in twenty-six (26) equal installments.
(b) Incentive Compensation. In order to provide an incentive to
Executive to render his very best efforts on behalf of the
Company and to achieve the goals for the Company contained in
its Business Plan, the Company shall establish a bonus pool for
the benefit of Executive in the sum of no less than Forty
<PAGE>
Thousand Dollars ($40,000.00) (the "Incentive Pool") per each
year of the Employment Period. The Board shall establish an
"Incentive Award Program" to award to Executive annually
incentive compensation ("Incentive Compensation") in the sum of
no less than Forty Thousand Dollars ($40,000.00) from the
Incentive Pool based on Executive's performance and achievement
of the Company's Business Plan. Incentive Compensation, as
earned and paid under the Incentive Award Program, shall be
deemed fully vested upon award.
(c) Additional Bonuses/Incentive Programs. Executive shall have the
right to participate in such other bonus or incentive programs
established by the Company from time to time as an incentive to
its senior executives, managers and key employees ("Other Bonus
Plans"). Such participation shall be on the terms and
conditions set forth in such Other Bonus Plans.
(d) Other Benefits. Executive shall be entitled to participate in
all group health and insurance programs and all other fringe
benefit or retirement plans or additional compensation which
the Company may hereafter, in its sole and absolute discretion,
elect to make available to its senior executives, managers, and
key employees generally, provided Executive meets the general
qualifications therefor as established for such benefit.
Nothing in this Subsection (d) shall obligate the Company to
establish any such programs or plans just for Executive.
(e) Vacation. Executive shall be entitled to three (3) weeks of
paid vacation per year during the Employment Period.
(f) Directors and Officers Liability Insurance. The Company shall
take out and maintain directors and officers liability
insurance with coverage in an amount of not less than Two
Million Dollars ($2,000,000.00) and providing for reimbursement
of attorneys' fees and costs in the sum of not less than Three
Hundred Thousand Dollars ($300,000.00). Proof of such insurance
shall be provided to Executive prior to the commencement of the
Employment Period. If such insurance has not been obtained
prior to the commencement of the Employment Period, Executive
shall have the right to terminate this Agreement immediately
upon written notice to the Company or may elect to commence the
Employment Period if such insurance is forthcoming within a
reasonable period of time and will relate back to the
commencement of the Employment Period. If such insurance is not
obtained after the Employment Period commences, Executive may
at any time give ten (10) days prior written notice of his
intent to terminate this Agreement. Upon such notice of
termination, this Agreement shall be null and void and neither
party shall have any further rights or obligations hereunder
except as otherwise provided in this Agreement.
(g) Stock Option. Contemporaneously with the commencement of the
Employment Period and subject to the vesting schedule set forth
below, the Company shall grant to Executive pursuant to the
Company's Employee Stock Option Plan an option ("Option") to
acquire Three Hundred Thousand (300,000) shares of the
Company's common stock, $.10 par value ("Company's Stock"), at
a purchase price equal to 50 cents per share. Executive's
Option shall be deemed fully vested and shall become
exercisable as follows:
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(i) On the Effective Date Executive shall be vested with
respect to 50,000 shares and shall be vested with an
additional 41,667 shares after each ninety days
thereafter until the Executive is fully vested with
respect to the Options.
(ii) On August 1, 1997, Executive's Option shall be
exercisable as to the One Hundred Seventy-five Thousand
and One (175,001) shares that are then fully vested;
(iii) Thereafter, an additional twenty-four thousand (24,000)
shares shall become exercisable on October 30, 1997, an
additional fifty-nine thousand, three hundred thirty
three (59,333) shares shall become exercisable on January
28, 1998 and the final Forty-one Thousand, Six Hundred
Sixty six (41,666) shares shall become exercisable on
April 28, 1998 when all unexercised shares shall be
deemed fully vested and exercisable.
The Company will use best efforts to register Executive's Option as part of
or at the same time as Company registers Company's Employee Stock Option Plan.
If such registration has not been filed with the applicable regulatory
authorities on or about August 1, 1997, then Executive shall have the right
thereafter to demand registration of Executive's Option. Any registration shall
be at the Company's cost and expense.
(h) Change in Control. In the event of a "change in control" (as
defined in Exhibit "A" hereto): (i) Executive's Option shall be
deemed fully vested as to all Three Hundred Thousand (300,000)
shares of Company's Stock notwithstanding any vesting schedule
set forth in Section 3(g) above, (ii) Executive's Option shall
be fully exercisable on the later of the date of change of
control or August 1, 1997 and (iii) Executive's right to
receive any unpaid portion of his Annual Base Salary for the
initial twenty-four month term or any unpaid Incentive
Compensation shall survive any termination of his employment by
reason of such change in control.
(i) Review of Compensation and Benefits. No later than sixty (60)
days prior to the expiration of the first twelve (12) month
period of the Employment Period, the parties shall meet to
discuss the current terms and conditions of Executive's
employment. The parties shall negotiate in good faith
Executive's Annual Base Compensation, Incentive Compensation
and other benefits. In no event shall Executive's Annual Base
Compensation and minimum Incentive Compensation increase for
the second twelve months by less than five percent (5%). Any
changes to this Agreement shall be set forth in writing and
signed by the parties. In the event that the parties are unable
to agree on new or different terms and conditions of
employment, the Agreement shall continue in full force and
effect on the same terms and conditions as then otherwise in
effect except during the second twelve months the Base
Compensation and minimum Incentive compensation shall increase
by 5%.
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4. Expenses.
(a) General Business Expenses. In performing his duties to the Company
hereunder, Executive shall be available for reasonable travel. The
Executive shall be entitled to reimbursement for all reasonable
travel and other out-of-pocket expenses necessarily incurred in
the performance of his duties hereunder upon submission and
approval of written statements and bills in accordance with the
then-regular procedures of the Company.
(b) Commuting and Living Expenses. In addition to the foregoing
general business expense reimbursements, Executive shall be
entitled to commuting and local living expenses in an amount not
to exceed Three Thousand Dollars ($3,000.00) per month to
reimburse Executive dollar-for-dollar for his out-of-pocket costs
for commuting between Houston, Texas, and Dallas, Texas. Such
expenses shall include hotel, car rental, meals, parking,
telephone and laundry. Such expenses shall be reimbursed no less
than twice monthly, based on such receipts provided by Executive.
Expenditures in an amount less than Twenty-Five Dollars ($25.00)
shall not require a receipt.
(c) Legal Fees. Upon execution of this Agreement, the Company shall
reimburse Executive for his legal fees up to the sum of Two
Thousand Five Hundred Dollars ($2,500.00) incurred in connection
with the negotiation, documentation and consummation of this
Agreement.
5. Representations and Warranties of Executive. Executive represents and
warrants to the Company that (a) Executive is under no contractual or
other restriction or obligation which is inconsistent with the
execution of this Agreement, the performance of his duties hereunder,
or the other rights of the Company hereunder and (b) Executive is under
no physical or mental disability that would hinder his performance of
duties under this Agreement.
6. Non-Competition. In view of the unique and valuable service it is
expected Executive will render to the Company, Executive's knowledge of
the customers, trade secrets, and other proprietary information
relating to the business of the Company and its customers and suppliers
and similar knowledge regarding the Company it is expected Executive
will obtain, and in consideration of the compensation to be received
hereunder and of the shares of Company's Stock being sold to Executive,
Executive agrees that he will not during the Employment Period and for
a period of two years thereafter, "Participate in" (hereinafter defined
in this Section 6) any other business or organization, if such business
or organization is now or shall then be competing with or of a nature
similar to the business of the Company. The provisions of this
Section 6 will not be deemed breached merely because Executive owns not
more than five percent (5%) of the outstanding common stock of a
competing corporation if, at the time of its acquisition by Executive,
such stock is listed on the New York Stock Exchange or the American
Stock Exchange or a regional securities exchange, is reported on NASDAQ
or NMS, or is regularly traded in the over-the-counter market by a
member of a national securities exchange. The term "Participate in"
shall mean: "directly or indirectly, for his own benefit or for, with,
or through any other person, firm, or corporation, own, manage,
operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director,
officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of his name in connection
with a competing business or
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organization." During the Employment Period and two years thereafter,
Executive will not directly or indirectly reveal the name of, solicit
or interfere with, or endeavor to entice away from the Company any of
its suppliers, customers, or employees. For a two (2) year period after
the termination of this Agreement, with the exception of John
Stuecheli, Executive will not directly or indirectly employ any person
who was an employee of the Company within a period of one (1) year
after such person leaves the employ of the Company.
All parties recognize that the services to be rendered under this Agreement
by each Executive are special, unique, and of extraordinary character, and that
in the event of the breach by Executive of the terms and conditions of this
Agreement to be performed by him, that the Company shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity to obtain damages for any breach of the
covenants herein contained, or to enforce a specific performance thereof by
Executive, but nothing herein contained shall be construed to prevent such
remedy in the courts, in case of any breach of this Agreement by Executive, as
the Company may elect to invoke. Executive agrees to waive and hereby waives
any requirement for the securing of any bond in connection with the obtaining of
such injunction or other equitable relief.
All parties recognize that the covenant not to compete required by the
Company of the Executive constitutes a restraint of the future employment,
business and trade rights of such Executive and as such, is enforceable only to
the extent necessary to protect and preserve to the Company the valuable
goodwill and proprietary rights of the Company as they now exist and as they may
be developed in the future by Executive and others on behalf of the Company.
The Parties, in preparing this Agreement, and Executive, in considering its
terms and conditions, recognize that the business of the Company and thus its
protectable and valuable good will and proprietary rights are not restricted to
a single geographical area but extend to many different markets. Many Employees
of the Company will have responsibilities restricting their activities on behalf
of the Company to the single small geographical market area surrounding their
place of employment. The Company and Executive have entered into the employment
or consulting relationship with the expectation that as the skills and
responsibilities of Executive increase, such Executive may develop relationships
in other markets which will constitute a part of the growing goodwill of the
Company. The obligation of Executive not to compete has been limited to those
markets of the Company where Executive has had some contact with the product,
process of service offered by the Company in that market. The restriction or
restraint on such Executive's business activities is similarly limited in time
to the expiration of two years after termination of the employment relationship
with the Company. Accordingly, the Company and Executive agree that the
restrictive covenant not to compete is limited to that necessary to protect the
goodwill and proprietary rights of the Company. Executive agrees that the
restrictions contained herein will not, in all likelihood, constitute a serious
hardship in securing future employment. The Company agrees that in the event of
an unexpected undue hardship to Executive resulting from application of the
provisions hereof, it shall make every reasonable effort to minimize the
inconvenience to Executive as far as is consistent with the protection of the
goodwill and proprietary rights of the Company.
In the event any court shall finally hold that any provision stated in this
Agreement constitute unreasonable restrictions upon Executive, the parties
hereby agree that the provisions hereof shall not be rendered void, but shall
apply as to time and territory or to such other extent as such court may
judicially indicate constitutes a reasonable restriction under the
circumstances. In so holding, if the court shall fail to indicate an
alternative restriction of time or territory, then the parties hereby expressly
agree to submit this matter to arbitration with the American Arbitration
Association, for the purposes of determining a reasonable restriction under the
circumstances as will protect the goodwill of the Company and will not
unreasonable restrict
5
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Executive.
7. Patents, etc. Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works,
developments, discoveries, designs and processes which Executive now or
hereafter, during the period he is employed by the Company under this
Agreement or otherwise, and for six (6) months thereafter may own,
conceive of, or develop and either relating to the fields in which the
Company may then be engaged or contemplates (as demonstrated by the
records of the Company) being engaged or conceived of or developed
utilizing the time, material, facilities, or information of the Company
("Such Inventions") shall belong to the Company. As soon as Executive
owns, conceives of, or develops any Such Inventions, he agrees
immediately to communicate such fact in writing to the Secretary of the
Company, and without further compensation, but at the Company's
expense, forthwith upon request of the Company, Executive shall execute
all such assignments and other documents (including applications for
patents, copyrights, trademarks, and assignments thereof) and take all
such other action as the Company may reasonably request in order (a) to
vest in the Company all Executive's right, title and interest in and to
Such Inventions, free and clear of liens, mortgages, security
interests, pledges, charges and encumbrances arising from the acts of
Executive ("Liens") (Executive to take such action, at his expense, as
is necessary to remove all such Liens if caused by Executive's acts and
not operation of law) and (b) if patentable or copyrightable, to obtain
patents or copyrights (including extensions and renewals) therefor in
any and all countries in such name as the Company shall determine.
8. Confidential Information. All confidential information which Executive
may now possess, may obtain during or after the Employment Period, or
may create prior to the end of the period he is employed by the Company
under this Agreement or otherwise relating to the business of the
Company or of any customer or supplier of the Company shall not be
published, disclosed, or made accessible by him to any other person,
firm, or corporation either during or after the termination of his
employment or used by him except during the Employment Period in the
business and for the benefit of the Company. Executive shall return all
physical evidence of such confidential information to the Company prior
to or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that
information available to competitors or which is generally available to
the public or which was in the possession of Executive prior to the
Employment Period.
9. Life Insurance. If requested by the Company, Executive shall submit to
such physical examinations and otherwise take such actions and execute
and deliver such documents as may be reasonably necessary to enable the
Company, at its expense and for its own benefit, to obtain life
insurance on the life of the Executive.
10. Termination. Notwithstanding anything herein contained, if on or after
the Commencement Date and prior to the end of the Employment Period:
(a) Grounds for Termination. Either (i) Executive shall be physically
or mentally incapacitated or disabled or otherwise unable fully to
discharge his duties hereunder for a period of three (3) months, as
mutually determined by the Board of Directors and Executive's
attending physician(s), (ii) Executive shall be convicted of a
crime of moral turpitude or a felony, (iii) Executive shall breach
any fiduciary duty to the Company, or (iv) Executive shall breach
any material term of this Agreement and fail to correct such breach
within ten (10)
6
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days after notice by the Company to Executive of his commission of
the same, then, and in each such case, the Company shall have the
right to give notice of termination of Executive's services
hereunder as of a date (not earlier than ten (10) days from such
notice) to be specified in such notice, and this Agreement shall
terminate on the date so specified and shall be deemed terminated
for "Cause." Nothing contained in this Section 10 shall be deemed
to limit any other right the Company may have to terminate
Executive's employment hereunder upon any ground permitted by law.
(b) Termination on Death. If Executive shall die, then this Agreement
shall terminate on the date of Executive's death, whereupon his
estate shall be entitled to receive his Annual Base Salary,
prorated to the date on which termination shall take effect, and
all Incentive Compensation awarded under Paragraph 3.6 in full.
Furthermore, Executive's Option shall vest in full as of the date
of death. If this Agreement is terminated as a result of
Executive's death, and if the Company shall not, at the date of
such death, be providing life insurance coverage for the benefit of
Executive's estate, Executive's estate shall also be entitled to
receive a payment in the amount of six (6) installments of Annual
Base Salary.
(c) Effect on Compensation. In the event of termination of Executive's
employment during the first twenty-four months of employment
hereunder for all other reasons other than voluntary termination by
the Executive, by reason of death or "for cause" (as defined
herein), (i) Executive shall be entitled to receive as severance
compensation in one lump sum payment any unpaid portion of his
total Annual Base Salary for the entire first twenty-four months of
the Employment Period and the full amount of any unpaid Incentive
Compensation awarded under Section 3(b) above; and (ii) Executive's
Option shall be deemed fully vested. All other compensation and
benefits upon termination shall be paid to Executive in accordance
with such Company plans and policies governing such compensation
and benefits.
(d) Effect on Compensation on Termination for Cause or Voluntary
Termination. In the event of termination "for cause," or voluntary
termination by Executive, the Executive shall be entitled to
receive his Annual Base Salary, prorated through the effective date
of such termination, plus any unpaid Incentive Compensation already
awarded and any portion of Executive's Option vested to date. Any
portion of Executive's Option not fully vested by the termination
date shall be deemed terminated, null and void as to the portion
not so vested. All other compensation and benefits shall be paid to
Executive in accordance with such Company plans and policies
governing such compensation and benefits. For the purposes of this
Agreement, termination "for cause" shall mean termination pursuant
to the grounds specified in Sections 10(a)(ii), (iii) and (iv)
above.
11. Survival. The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive
Executive's termination of employment as provided herein.
12. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning
such subject matter, and may be modified only by a written instrument
duly executed by each party.
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13. Notice. All notices and other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly
given when: (i) delivered personally and evidenced by a signed receipt
for such delivery; (ii) mailed by United States registered mail or
certified mail, return receipt requested, postage prepaid, addressed as
set forth below; or (iii) mailed by a nationally recognized courier
service (e.g., Federal Express, DHL, etc.) and addressed as st forth
below. Notice shall be deemed given when indicated as received or
refused on the applicable receipt. Any address set forth below may be
changed by a party by written notice given in accordance with this
Section.
If to Executive: Lance P. Wimmer
16323 Red Cedar Trail
Dallas, Texas 75248
If to Company: Irata, Inc.
8554 Katy Freeway, Suite 100
Houston, Texas 77024
Attn: Sue Camp, Corporate Secretary
14. Waiver. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision
of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall
not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other
term of this Agreement. Any waiver must be in writing, signed by both
parties.
15. Binding Effect. Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise. Such rights shall
not be subject to commutation, encumbrance, or the claims of
Executive's creditors, and any attempt to do any of the foregoing shall
be void. The provisions of this Agreement shall be binding upon and
inure to the benefit of Executive and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of
the Company and its successors and assigns.
16. No Third-Party Beneficiaries. This Agreement does not create, and shall
not be construed as creating, any rights enforceable by any person not
a party to this Agreement.
17. Headings. The headings in this Agreement are solely for the convenience
of reference and shall be given no effect in the construction or
interpretation of this Agreement.
18. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. It
shall be governed by and construed in accordance with the laws of the
State of Texas, without giving effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
Effective Date.
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IRATA, INC., a Texas corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
Lance P. Wimmer
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EXHIBIT "A"
CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if at any time
during the Employment Period any of the following events occur:
(a) The Company is merged, consolidated or reorganized into or with
another person or legal entity ("Acquiring Entity") and as a
result of such merger, consolidation or reorganization less than
fifty-one percent (51%) of the combined voting power of the then-
outstanding securities of the Acquiring Entity immediately after
such transaction are held in the aggregate by the holders of the
voting securities of the Company immediately prior to such
transaction; or
(b) The Company sells all or substantially all of its assets or all of
its outstanding securities to an Acquiring Entity in whom less
than fifty-one percent (51%) of the combined voting power of the
then-outstanding voting securities are held in the aggregate by
the holders of the voting securities of the Company immediately
prior to such sale; or
(c) The Company files a report on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"), disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing ten
percent (10%) or more of the outstanding stock of the Company; or
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to Item 1 of Form 8-K thereunder or Item 5(f) of
Schedule 14A thereunder (or any successor schedule, form or report
or item therein) that a change in control of the Company has or
may have occurred or will or may occur in the future pursuant to
any then-existing contract or transaction; or
(e) There is a significant adverse change in the nature or scope of
the authorities, powers, functions or duties attached to the
position of Executive; or
(f) The Company files for bankruptcy protection.
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EXHIBIT 10.30
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement"), dated as of
November 5, 1996 (the "Effective Date"), is executed by and between Irata, Inc.,
a Texas corporation with offices at 8554 Katy Freeway, Suite 100, Houston, Texas
77024 (the "Company"), and John C. Stuecheli residing at 1861 Brown Blvd. #612,
Arlington, Texas 76006 ("Executive").
The Company desires to retain Executive as Finance Vice-President-Finance
and Chief Financial Officer of the Company and to perform executive management
services for the Company, and Executive desires to assume such offices and
perform such services, on the terms and conditions hereinafter set forth.
1. Term. The Company agrees to employ Executive, and Executive agrees
to serve in the capacity described in Section 2 below, on the terms and
conditions set forth in this Agreement, for an initial period of years one (1)
year commencing upon the Effective Date, and from month to month thereafter
until terminated in accordance with the provisions herein contained (the
"Employment Period"). Either the Company or the Executive may terminate this
Agreement after the expiration of the first twelve months of employment by
written notice to the other party in accordance with provisions hereof at least
forty-five days prior to the date fixed for termination by such notice.
2. Duties and Services. During the Employment Period, Executive shall
be employed in the business of the Company as its Vice-President-Finance and
Chief Financial Officer. In performance of his duties, Executive shall be
subject to the direction of the President of the Company and its Board of
Directors, and Executive agrees to his employment as described in this
Section 2. Excepting disabilities, illness, and vacation as provided as in
Section 3(e) below, Executive agrees to devote such time necessary or desirable
to perform his duties under this Agreement and to achieve the Company's plans
and goals as established by the President and Board with Executive from time to
time ("Company's Business Plan"). In performing his duties to the Company
hereunder, Executive shall be available for reasonable travel as the needs of
the business require. Provided that Executive is performing in full and in a
timely manner the material aspects of his duties and responsibilities to the
Company, Executive shall have the right to devote time to the business known as
Wimmer Associates, Inc.
3. Compensation and Other Benefits.
(a) Annual Base Salary. As compensation for his services hereunder,
the Company shall pay to Executive, during the Employment Period, an annual base
salary ("Annual Base Salary") equal to Eighty Thousand Dollars ("$80,000.00).
Executive's Annual Base salary shall be payable every two weeks in twenty-six
(26) equal installments.
(b) Incentive Compensation. To provide an incentive to Executive to
render his very best efforts on behalf of the Company and to achieve the goals
for the Company contained in its Business Plan, the Company shall establish a
bonus pool for the benefit of Executive in the sum of no less than Twenty-four
Thousand Dollars ($24,000.00) (the "Incentive Pool") per each year of the
Employment Period. The Board shall establish an "Incentive Award Program" to
award to Executive annually incentive compensation ("Incentive Compensation") in
the sum of no less than Twenty-four Thousand Dollars ($24,000.00) from the
Incentive Pool based on Executive's performance and achievement of the Company's
Business Plan. Incentive Compensation, as earned and paid under the Incentive
Award Program, shall be deemed fully
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vested upon award.
(c) Additional Bonuses/Incentive Programs. Executive shall have the
right to participate in such other bonus or incentive programs established by
the Company from time to time as an incentive to its senior executives, managers
and key employees ("Other Bonus Plans"). Such participation shall be on the
terms and conditions set forth in such Other Bonus Plans.
(d) Other Benefits. Executive shall be entitled to participate in all
group health and insurance programs and all other fringe benefit or retirement
plans or additional compensation which the Company may hereafter, in its sole
and absolute discretion, elect to make available to its senior executives,
managers, and key employees generally, provided Executive meets the general
qualifications therefor as established for such benefit. Nothing in this
Subsection (d) shall obligate the Company to establish any such programs or
plans just for Executive.
(e) Vacation. Executive shall be entitled to three (3) weeks of
paid vacation per year during the Employment Period.
(f) Directors and Officers Liability Insurance. The Company shall
take out and maintain directors and officers liability insurance with coverage
in an amount of not less than Two Million Dollars ($2,000,000.00) and providing
for reimbursement of attorneys' fees and costs in the sum of not less than Three
Hundred Thousand Dollars ($300,000.00). Proof of such insurance shall be
provided to Executive prior to the commencement of the Employment Period. If
such insurance has not been obtained prior to the commencement of the Employment
Period, Executive shall have the right to terminate this Agreement immediately
upon written notice to the Company or may elect to commence the Employment
Period if such insurance is forthcoming within a reasonable period of time and
will relate back to the commencement of the Employment Period. If such
insurance is not obtained after the Employment Period commences, Executive may
at any time give ten (10) days prior written notice of his intent to terminate
this Agreement. Upon such notice of termination, this Agreement shall be null
and void and neither party shall have any further rights or obligations
hereunder except as otherwise provided in this Agreement.
(g) Stock Option. Contemporaneously with the commencement of the
Employment Period and subject to the vesting schedule set forth below, the
Company shall grant to Executive pursuant to the Company's Employee Stock Option
Plan an option ("Option") to acquire Sixty Thousand (60,000) shares of the
Company's common stock, $.10 par value ("Company's Stock"), at a purchase price
equal to 50 cents per share. Executive's Option shall be deemed fully vested
and exercisable as follows:
(i) On the Effective Date Executive shall be vested with respect to
11,000 shares and shall be vested with an additional 8,333 shares on January 31,
1997, and an additional 8,333 shares at the end of each three month period
thereafter until the Executive is fully vested with respect to the Options. On
August 1, 1997, Executive's Option shall be exercisable as to the Thirty-six
Thousand (36,000) shares that are then fully vested; and
(ii) Thereafter, an additional Eight thousand, three hundred thirty-
three (8,333) shares shall be deemed both fully vested and exercisable on
October 31, 1997 and at the end of each ninety (90) day period thereafter until
all Sixty thousand (60,000) shares shall be deemed both fully vested and shall
then be exercisable.
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The Company will use best efforts to register Executive's Option as
part of or at the same time as Company registers Company's Employee Stock Option
Plan. If such registration has not been filed with the applicable regulatory
authorities on or about August 1, 1997, then Executive shall have the right
thereafter to demand registration of Executive's Option. Any registration shall
be at the Company's cost and expense.
(h) Change in Control. In the event of a "change in control" (as
defined in Exhibit "A" hereto: (i) Executive's Option shall be deemed fully
vested and exercisable as to all Sixty Thousand (60,000) shares of Company's
Stock notwithstanding any vesting schedule or exercise schedule set forth in
Section 3(g) above, and (ii) Executive's right to receive any unpaid portion of
his Annual Base Salary for the first twelve month term or any unpaid Incentive
Compensation shall survive any termination of his employment by reason of such
change in control.
(i) Review of Compensation and Benefits. No later than sixty (60)
days prior to the expiration of the first twelve (12) month period of the
Employment Period, the parties shall meet to discuss the current terms and
conditions of Executive's employment. The parties shall negotiate in good faith
Executive's Annual Base Compensation, Incentive Compensation and other benefits.
Any changes to this Agreement shall be set forth in writing and signed by the
parties. In the event that the parties are unable to agree on new or different
terms and conditions of employment, so long as the Agreement is not terminated
by notice in accordance with the provisions of Section 1 hereof, the Agreement
shall continue in full force and effect on the same terms and conditions.
4. Expenses.
(a) General Business Expenses. In performing his duties to the
Company hereunder, Executive shall be available for reasonable travel. The
Executive shall be entitled to reimbursement for all reasonable travel and other
out-of-pocket expenses necessarily incurred in the performance of his duties
hereunder upon submission and approval of written statements and bills in
accordance with the then-regular procedures of the Company.
(b) Commuting and Living Expenses. In addition to the foregoing
general business expense reimbursements, for the first twelve months of
employment hereunder, Executive shall be entitled to commuting and local living
expenses in an amount not to exceed Two Thousand Dollars ($2,000.00) per month
to reimburse Executive dollar-for-dollar for his out-of-pocket costs for
commuting between Houston, Texas, and Dallas, Texas. Such expenses shall
include hotel, car rental, meals, parking, telephone and laundry. Such expenses
shall be reimbursed no less than twice monthly, based on such receipts provided
by Executive. Expenditures in an amount less than Twenty-Five Dollars ($25.00)
shall not require a receipt.
5. Representations and Warranties of Executive. Executive represents
and warrants to the Company that (a) Executive is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder and (b) Executive is under no physical or mental disability
that would hinder his performance of duties under this Agreement.
6. Non-Competition. In view of the unique and valuable service it is
expected Executive will render to the Company, Executive's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and
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suppliers and similar knowledge regarding the Company it is expected Executive
will obtain, and in consideration of the compensation to be received hereunder
and of the shares of Company's Stock being sold to Executive, Executive agrees
that he will not during the Employment Period, and for a two year period
thereafter "Participate in" (hereinafter defined in this Section 6) any other
business or organization, if such business or organization is now or shall then
be competing with to the business of the Company in the geographic markets
served by the Company. The provisions of this Section 6 will not be deemed
breached merely because Executive owns not more than five percent (5%) of the
outstanding common stock of a competing corporation if, at the time of its
acquisition by Executive, such stock is listed on the New York Stock Exchange or
the American Stock Exchange or a regional securities exchange, is reported on
NASDAQ or NMS, or is regularly traded in the over-the-counter market by a member
of a national securities exchange. The term "Participate in" shall mean:
"directly or indirectly, for his own benefit or for, with, or through any other
person, firm, or corporation, own, manage, operate, control, loan money to, or
participate in the ownership, management, operation, or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in connection with a competing business or organization." Executive will not
directly or indirectly reveal the name of, solicit or interfere with, or
endeavor to entice away from the Company any of its suppliers, customers, or
employees. For a two (2) year period after the termination of this Agreement,
Executive will not directly or indirectly employ any person who was an employee
of the Company within a period of one (1) year after such person leaves the
employ of the Company.
All parties recognize that the services to be rendered under this
Agreement by each Executive are special, unique, and of extraordinary character,
and that in the event of the breach by Executive of the terms and conditions of
this Agreement to be performed by him, that the Company shall be entitled, if it
so elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity to obtain damages for any breach of the
covenants herein contained, or to enforce a specific performance thereof by
Executive, but nothing herein contained shall be construed to prevent such
remedy in the courts, in case of any breach of this Agreement by Executive, as
the Company may elect to invoke. Executive agrees to waive and hereby waives
any requirement for the securing of any bond in connection with the obtaining of
such injunction or other equitable relief.
All parties recognize that the covenant not to compete required by the
Company of the Executive constitutes a restraint of the future employment,
business and trade rights of such Executive and as such, is enforceable only to
the extent necessary to protect and preserve to the Company the valuable
goodwill and proprietary rights of the Company as they now exist and as they may
be developed in the future by Executive and others on behalf of the Company.
The Parties, in preparing this Agreement, and Executive, in considering its
terms and conditions, recognize that the business of the Company and thus its
protectable and valuable good will and proprietary rights are not restricted to
a single geographical area but extend to many different markets. Many Employees
of the Company will have responsibilities restricting their activities on behalf
of the Company to the single small geographical market area surrounding their
place of employment. The Company and Executive have entered into the employment
or consulting relationship with the expectation that as the skills and
responsibilities of Executive increase, such Executive may develop relationships
in other markets which will constitute a part of the growing goodwill of the
Company. The obligation of Executive not to compete has been limited to those
markets of the Company where Executive has had some contact with the product,
process of service offered by the Company in that market. The restriction or
restraint on such Executive's business activities is similarly limited in time
to the expiration of two years after termination of the employment relationship
with the Company. Accordingly, the Company and Executive agree that
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the restrictive covenant not to compete is limited to that necessary to protect
the goodwill and proprietary rights of the Company. Executive agrees that the
restrictions contained herein will not, in all likelihood, constitute a serious
hardship in securing future employment. The Company agrees that in the event of
an unexpected undue hardship to Executive resulting from application of the
provisions hereof, it shall make every reasonable effort to minimize the
inconvenience to Executive as far as is consistent with the protection of the
goodwill and proprietary rights of the Company.
In the event any court shall finally hold that any provision stated in
this Agreement constitute unreasonable restrictions upon Executive, the parties
hereby agree that the provisions hereof shall not be rendered void, but shall
apply as to time and territory or to such other extent as such court may
judicially indicate constitutes a reasonable restriction under the
circumstances. In so holding, if the court shall fail to indicate an
alternative restriction of time or territory, then the parties hereby expressly
agree to submit this matter to arbitration with the American Arbitration
Association, for the purposes of determining a reasonable restriction under the
circumstances as will protect the goodwill of the Company and will not
unreasonable restrict Executive.
7. Patents, etc. Any interest in patents, patent applications,
inventions, technological innovations, copyrights, copyrightable works,
developments, discoveries, designs and processes which Executive now or
hereafter, during the period he is employed by the Company under this Agreement
or otherwise, and for six (6) months thereafter may own, conceive of, or develop
and either relating to the fields in which the Company may then be engaged or
contemplates (as demonstrated by the records of the Company) being engaged or
conceived of or developed utilizing the time, material, facilities, or
information of the Company ("Such Inventions") shall belong to the Company. As
soon as Executive owns, conceives of, or develops any Such Inventions, he agrees
immediately to communicate such fact in writing to the Secretary of the Company,
and without further compensation, but at the Company's expense, forthwith upon
request of the Company, Executive shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Executive's right,
title and interest in and to Such Inventions, free and clear of liens,
mortgages, security interests, pledges, charges and encumbrances arising from
the acts of Executive ("Liens") (Executive to take such action, at his expense,
as is necessary to remove all such Liens if caused by Executive's acts and not
operation of law) and (b) if patentable or copyrightable, to obtain patents or
copyrights (including extensions and renewals) therefor in any and all countries
in such name as the Company shall determine.
8. Confidential Information. All confidential information which
Executive may now possess, may obtain during or after the Employment Period, or
may create prior to the end of the period he is employed by the Company under
this Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed, or made
accessible by him to any other person, firm, or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company. Executive
shall return all physical evidence of such confidential information to the
Company prior to or at the termination of his employment. As used in this
Section 8, "confidential information" shall mean any information except that
information available to competitors or which is generally available to the
public or which was in the possession of Executive prior to the Employment
Period.
9. Life Insurance. If requested by the Company, Executive shall submit
to such
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physical examinations and otherwise take such actions and execute and deliver
such documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain life insurance on the life of the
Executive.
10. Termination. Notwithstanding anything herein contained, if on or
after the Effective Date and prior to the end of the Employment Period:
(a) Grounds for Termination. Either (i) Executive shall be physically
or mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of three (3) months, as mutually determined by the
Board of Directors and Executive's attending physician(s), (ii) Executive shall
be convicted of a crime of moral turpitude or a felony, (iii) Executive shall
breach any fiduciary duty to the Company, or (iv) Executive shall breach any
material term of this Agreement and fail to correct such breach within ten (10)
days after notice by the Company to Executive of his commission of the same,
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than ten
(10) days from such notice) to be specified in such notice, and this Agreement
shall terminate on the date so specified. Nothing contained in this Section 10
shall be deemed to limit any other right the Company may have to terminate
Executive's employment hereunder upon any ground permitted by law.
(b) Termination on Death. If Executive shall die, then this Agreement
shall terminate on the date of Executive's death, whereupon his estate shall be
entitled to receive his Annual Base Salary, prorated to the date on which
termination shall take effect, and all Incentive Compensation awarded under
Paragraph 3.6 in full. Furthermore, Executive's Option shall vest in full as of
the date of death and be fully exercisable by his estate from the later of the
date of death or August 1, 1997 until the earlier of twelve months after the
date of death or expiration of the Option.
(c) Effect on Compensation. In the event of termination by the
Company of Executive's employment during the first twelve months of employment
hereunder for all other reasons other than voluntary termination by the
Executive, by reason of death or "for cause" (as defined herein), (i) Executive
shall be entitled to receive as severance compensation in one lump sum payment
any unpaid portion of his total Annual Base Salary for the entirety of the first
twelve months of the Employment Period and the full amount of any unpaid
Incentive Compensation awarded under Section 3(b) above; and (ii) Executive's
Option shall be deemed fully vested and shall become exercisable on the later of
the date of termination or August 1, 1997 for a term expiring ninety days
thereafter. All other compensation and benefits upon termination shall be paid
to Executive in accordance with such Company plans and policies governing such
compensation and benefits. Such payment shall be Executives sole remedy.
(d) Effect on Compensation upon Termination for Cause or Voluntary
Termination. In the event of termination "for cause," or voluntary
termination, Executive shall be entitled to receive his Annual Base Salary,
prorated through the effective date of such termination, plus any unpaid
Incentive Compensation already awarded and any portion of Executive's Option
vested to date which shall be exercisable for a period of ninety days after the
later of the date of termination or August 1, 1997. Any portion of Executive's
Option not fully vested by the termination date shall be deemed terminated, null
and void as to the portion not so vested. All other compensation and benefits
shall be paid to Executive in accordance with such Company plans and policies
governing such compensation and benefits. For the purposes of this Agreement,
termination "for cause" shall mean termination pursuant to the grounds specified
in Sections 10(a)(ii), (iii) and (iv) above.
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11. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive
Executive's termination of employment as provided herein.
12. Entire Agreement; Modification. This Agreement sets forth the
entire understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
13. Notice. All notices and other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when:
(i) delivered personally and evidenced by a signed receipt for such delivery;
(ii) mailed by United States registered mail or certified mail, return receipt
requested, postage prepaid, addressed as set forth below; or (iii) mailed by a
nationally recognized courier service (e.g., Federal Express, DHL, etc.) and
addressed as set forth below. Notice shall be deemed given when indicated as
received or refused on the applicable receipt. Any address set forth below may
be changed by a party by written notice given in accordance with this Section.
If to Executive: John C. Stuecheli
1861 Brown Blvd. #612
Arlington, Texas 76006
If to Company: Irata, Inc.
8554 Katy Freeway, Suite 100
Houston, Texas 77024
Attn: Sue Camp, Corporate Secretary
14. Waiver. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by both parties.
15. Binding Effect. Executive's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise. Such rights
shall not be subject to commutation, encumbrance, or the claims of Executive's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of
Executive and his heirs and personal representatives, and shall be binding upon
and inure to the benefit of the Company and its successors and assigns.
16. No Third-Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
17. Headings. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
18. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws
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of the State of Texas, without giving effect to the conflict of laws.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the Effective Date.
IRATA, INC., a Texas corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
------------------------------------
John Stuecheli
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EXHIBIT "A"
CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if at any time
during the Employment Period any of the following events occur:
(a) The Company is merged, consolidated or reorganized into or with
another person or legal entity ("Acquiring Entity") and as a
result of such merger, consolidation or reorganization less than
fifty-one percent (51%) of the combined voting power of the then-
outstanding securities of the Acquiring Entity immediately after
such transaction are held in the aggregate by the holders of the
voting securities of the Company immediately prior to such
transaction; or
(b) The Company sells all or substantially all of its assets or all of
its outstanding securities to an Acquiring Entity in whom less
than fifty-one percent (51%) of the combined voting power of the
then-outstanding voting securities are held in the aggregate by
the holders of the voting securities of the Company immediately
prior to such sale; or
(c) The Company files a report on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"), disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing ten
percent (10%) or more of the outstanding stock of the Company; or
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in
response to Item 1 of Form 8-K thereunder or Item 5(f) of Schedule
14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-
existing contract or transaction; or
(e) There is a significant adverse change in the nature or scope of
the authorities, powers, functions or duties attached to the
position of Executive; or
(f) The Company files for bankruptcy protection.
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EXHIBIT 10.31
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT made and entered into effective as of the
9th day of September, 1996, is by and between Irata, Inc., a Texas corporation
(the "Company"), and Robert Salyard, a resident of the Commonwealth of
Pennsylvania ("Salyard").
RECITALS
Salyard has acted as consultant to the Company and the Company is
indebted to Salyard for such services in the amount of $22,500.00 (herein the
"Salyard Debt"). The Company has reached agreement with its senior lender,
Petrus Investments, Ltd. (the "Senior Lender") to cure the existing defaults
under the Company's loan agreement with the Senior Lender (herein the "Loan
Agreement Amendment"). The Loan Agreement Amendment is conditioned upon (i) the
Company successfully completing a private placement of not less than 48 units
("Units"), with each Unit consisting of 50,000 shares of Class A common stock
and 50,000 common stock purchase warrants at an offering price of $25,000 per
Unit in accordance with the confidential term sheet of the Company dated
September 6, 1996 (the "Term Sheet") of the Company through Royce Investment
Group, Inc. and Spencer Trask Securities Incorporated (collectively the
"Placement Agents") under an agency agreement (the "Agency Agreement") between
the Company and the Placement Agents and (ii) the commitment of certain parties
indebted to the Company (herein collectively the "Interim Lenders") to convert
their indebtedness into "Interim Lender Units" of the Company which each Interim
Lender Unit consisting of one share of Class A common stock and one common stock
purchase warrant having substantially the same terms as the common stock
purchase warrant to be issued by the Company under the Agency Agreement.
Subject to the prior or simultaneous closing of the purchase and sale
of not less than 48 Units under the Agency Agreement at a purchase price of
$25,000 per Unit, Salyard has agreed to convert the Salyard Debt into 45,000
shares of Class A Common Stock and 45,000 common stock purchase warrants and the
Company has agreed to issue and deliver to Salyard an aggregate of 45,000 shares
of Class A Common Stock and 45,000 common stock purchase warrants in exchange
for the surrender of the Salyard Debt. Accordingly, the Company and Salyard
have agreed as follows:
1. Subscription and Purchase. Subject to the terms and provisions
herein set forth, Salyard has agreed to purchase an aggregate of 45,000 shares
of Class A Common Stock and 45,000 common stock purchase warrants in
consideration for the surrender at the Closing of the Salyard Debt.
2. Representations and Warranties of Salyard. Salyard hereby
represents and warrants to the Company and its agents, employees and
representatives as follows:
(a) Investment Intent. (i) The Interim Lender Units, the underlying
shares of Class A Common Stock, the underlying warrants to purchase shares of
Class A Common Stock and the shares of Class A Common Stock underlying the
warrants (herein collectively the "Securities") are being acquired solely for
the account of Salyard, for investment, and not with a view to or for the
resale, distribution, subdivision, or fractionalization thereof, (ii) Salyard
has no contract, understanding, undertaking, agreement, or arrangement with any
person to sell, transfer, or pledge to any person the Securities or any part
thereof, (iii) Salyard has no present plans to enter into any such contract,
undertaking, agreement or arrangement, (iv) Salyard understands the legal
consequences of the foregoing representations and warranties to mean that
Salyard must bear the economic risk of the investment in the Securities for an
indefinite period of time, (v) Salyard has such knowledge and experience in
financial and business matters that Salyard is capable of evaluating the merits
and risks of acquiring the Securities, and (vi) Salyard acknowledges that the
acquisition of the Securities involves a high degree of risk which may result in
the loss of the total amount of Salyard's investment in the Securities.
(b) Securities Compliance. Salyard understands that no sale,
distribution, transfer or other disposition of the Securities can be made by
Salyard unless the Securities have been registered under the Securities Act of
1933, as amended (the "Act"), and applicable securities laws of any other
relevant jurisdiction, or exemptions from such registrations are available, as
evidenced by an opinion of counsel satisfactory to the Company, with respect to
the proposed sale, distribution, transfer or other disposition. Any purchaser on
resale or transfer of the Securities will also be required to meet the
suitability requirements applicable to investors and such purchaser or Salyard
will be required to bear all expenses of such transfer (including the costs of
any legal advice or opinions required).
(c) Experience. Salyard, together with any Purchaser
Representative, is knowledgeable and
<PAGE>
experienced in the field of investments involving the business of the Company or
has a general understanding and knowledge of such investments; furthermore,
Salyard alone, or together with any Purchaser Representative, has such knowledge
and experience in financial and business matters that Salyard is capable of
understanding the information set forth in the Circular, evaluating the risks of
any investment in the Securities and making an informed investment decision.
(d) No General Solicitation. The Securities have been offered to
Salyard without any form of general solicitation or advertising of any type by
or on behalf of the Company or any of their employees, agents or
representatives.
(e) Access to Information. Salyard has (i) read the Term Sheet and
all exhibits or schedules to the Term Sheet, (ii) for a reasonable amount of
time had an opportunity to ask questions and receive answers concerning the
terms and conditions of the offering and sale of the Securities and the actual
and proposed business and affairs of the Company, and is satisfied with the
results thereof, and (iii) been given access, if requested, to all documents
with respect to the Company or this transaction, as well as to such other
information that Salyard has requested in order to evaluate an investment in the
Securities. SALYARD HAS NOT RECEIVED NOR RELIED UPON ANY REPRESENTATIONS OR
WARRANTIES BY THE COMPANY OR THEIR OFFICERS, MANAGERS, MEMBERS, AGENTS,
EMPLOYEES OR REPRESENTATIVES, OR ANY OTHER PERSON, OTHER THAN THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TERM SHEET AND THIS AGREEMENT.
(f) Exemption Status. Salyard understands that the Securities to be
sold hereunder are being offered and sold in reliance upon exemptions from
registration under the Act and applicable state securities laws. Salyard
understands that the Company and its agents, employees, and representatives are
relying on, among other things, the representations and warranties of Salyard
set forth herein in offering and selling the Securities to Salyard in reliance
upon exemptions available under the Act and state securities laws.
(g) Domicile. Salyard is a bona fide resident or domiciliary of the
Commonwealth of Pennsylvania and meets the following requirements, as
applicable, for qualifying as a "person resident within the Commonwealth of
Pennsylvania":
(i) If a corporation, partnership, trust or other form of
business organization, Salyard has its principal office within the
Commonwealth of Pennsylvania.
(ii) If an individual, Salyard has a principal residence and
domicile in the Commonwealth of Pennsylvania and is a citizen of
the United States and is at least twenty-one (21) years of age.
(iii) If a corporation, partnership, trust or other form of
business organization WHICH WAS ORGANIZED FOR THE SPECIFIC PURPOSE
OF ACQUIRING SECURITIES, all of the beneficial owners of Salyard
are residents of the Commonwealth of Pennsylvania and are citizens
of the United States.
(h) Net Worth. Salyard's investment in the Securities will not
exceed 20% of Salyard's net worth (or joint net worth with Salyard's spouse)
determined as of the date of this Agreement.
(i) START-UP COMPANY. SALYARD ACKNOWLEDGES THAT THE COMPANY IS A
"START-UP" COMPANY WHICH HAS SUSTAINED SUBSTANTIAL LOSSES AND THAT IS ENGAGED IN
AN INDUSTRY WHICH IS A HIGHLY COMPETITIVE INDUSTRY. CONSEQUENTLY, SALYARD
ACKNOWLEDGES THAT AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF
RISK.
3. Covenants of Salyard. As an inducement for Royce Investment Group,
Inc. to act as Placement Agent for the Company's Securities under the Agency
Agreement, Salyard covenants and agrees that for a period commencing on the date
hereof and expiring twelve (12) months after the closing of the sale of the
Units as contemplated under the Agency Agreement, Salyard will not publicly
sell, assign or transfer any Securities of the Company without the prior written
consent of Royce Investment Group, Inc. Salyard, to facilitate enforcement of
this covenant, hereby consents to the Company imposing stop transfer
restrictions with respect to all shares of capital stock of the Company owned by
Salyard until the end of the lock-up period.
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4. Restrictions on Transfer. In addition to the restrictions set forth
above, Salyard understands and agrees that (i) the Securities are restricted
securities under the Act, and may not be sold, assigned or transferred unless
the sale, assignment or transfer of such Securities is registered under the Act
and applicable blue sky laws, as now in effect or hereafter amended, or there is
furnished evidence in form and substance satisfactory to the Company from
counsel acceptable to the Company that such registrations are not required, (ii)
the Company is under no obligation to register the Securities or to perfect any
exemption for resale of the Securities under applicable securities laws, and
(iii) the following restrictions and limitations will be applicable to the
Securities and any resales, pledges, hypothecations or other transfers of any of
the Securities:
(a) Legend. A legend will be placed on each certificate or other
document evidencing any of the Securities in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IF
SUCH SALE, PLEDGE, OR TRANSFER WOULD BE IN VIOLATION OF THE 1933
ACT OR THE SECURITIES LAWS OF ANY STATE.
(b) Stop Transfer Instructions. Stop transfer instructions can be
issued by the Company to restrict the resale, pledge, hypothecation or other
transfer in contravention of this Agreement.
(c) Transfers. Salyard acknowledges that Salyard will be
responsible for compliance with all conditions to transfer imposed by any
applicable securities law and for any expenses incurred by the Company
including, but not limited to, legal fees, accounting services and filing fees,
in connection with reviewing and effecting such transfer.
5. Closing. The closing of the purchase and sale of the Interim Lender
Units (the "Closing") may be held on any date, determined in the sole discretion
of the Company, on or after the date hereof, but in no event no later than
November 15, 1996.
6. Conditions Precedent to Closing. The obligations of Salyard to
exchange the Interim Loan and the Interim Lender Warrants for the Interim Lender
Units under this Agreement are subject to the satisfaction, at or before the
Closing Date, of all the conditions set out below in this Section 6(a). Salyard
may waive any or all of these conditions in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by Salyard of any of his other rights or remedies, at law or in equity,
if the Company shall be in default of any of its representations, warranties or
covenants under this Agreement.
(a) Senior Loan Agreement Amendment. The Company and Petrus
Investments, Ltd., its senior lender, shall have reached agreement amending the
Company's loan agreement with its senior lender to cure the defaults that have
been in existence.
(b) Closing of Offering. The Company shall have contemporaneously
or previously closed the sale of not less than 48 Units at a purchase price of
$25,000 per Unit through the Placement Agents, with each Unit consisting of one
share of Class A Common Stock of the Company and one Common Stock Purchase
Warrant evidencing the right to purchase one share of Class A Common Stock at an
exercise price of $1.00 per share if exercised prior to two years after the
closing and thereafter exercisable at $1.50 per share.
(c) Other Documents. Salyard shall have received at the Closing
such further instruments, documents and certificates, in form and content
reasonably satisfactory to Salyard and his counsel, as may be reasonably
requested by Salyard.
7. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of Salyard, the Company or any of their respective agents,
representatives, officers or managers or any controlling
3
<PAGE>
person, and will survive exchange for the Interim Lender Units.
8. Notice. All communications hereunder will be in writing and, if
sent to Salyard, will be mailed, delivered or telegraphed and confirmed to
Salyard at the address set forth on the signature page of this Agreement, or if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
them at 8554 Katy Freeway, Suite 100, Houston, Texas 77024, Attn: Lance Wimmer.
9. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Salyard may not assign the debt evidenced by the Interim Loan or the related
warrants nor any other rights hereunder without the prior written consent of the
Company, which may not be unreasonably withheld.
10. Attempted Breaches. Any transfer of interest effected, or
purported to be effected, not in accordance with the terms and conditions of
this Agreement or any other agreement referred to herein or to a person
prohibited by law from holding any of the Interim Lender Units shall be null and
void and shall not bind the Company.
11. Amendment. This Agreement may not be modified or amended except by
written instrument executed by or on behalf of each of the parties hereto.
12. Waivers. The observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Unless otherwise expressly provided herein, no
delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
13. Entire Agreement. This Agreement, including the exhibits hereto,
if any, and the documents and agreements expressly referred to herein constitute
the entire agreement between the parties hereto with respect to the matters
covered hereby, and any other prior or contemporaneous oral or written
understandings or agreements with respect to the matters covered hereby are
expressly superseded by this Agreement. There are no oral or unwritten
agreements between the parties.
14. Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstances, shall be declared
judicially to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effect as if such part
or parts had never been included herein. Any such finding of invalidity or
unenforceability shall not prevent the enforcement of such provision in any
other jurisdiction to the maximum extent permitted by applicable law.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMABLE IN
HARRIS COUNTY, TEXAS.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the _____ day of January, 1997.
Irata Inc.
By:_________________________
Authorized Officer
4
<PAGE>
Address:____________________________ _____________________________
____________________________ Robert Salyard
____________________________
5
<PAGE>
EXHIBIT 10.32
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT made and entered into effective as of the
_____ day of September, 1996, is by and among Irata, Inc., a Texas corporation
(the "Company"), Dominion Investment Corporation, a Texas corporation
("Dominion"), George V. Kane, Jr., a resident of Harris County, Texas ("Kane")
and the Estate of Charles W. Moody, Jr. (the "Estate").
RECITALS
Dominion, Charles W. Moody, Jr. and Kane (hereinafter, with the
Estate, collectively referred to as the "Interim Lenders" and singularly as an
"Interim Lender") have heretofore loaned the Company $160,000 (the "Interim
Loan"), with Dominion having loaned $57,000 in principal amount (the "Dominion
Debt"), Charles W. Moody, Jr. having loaned $59,000 in principal amount (the
"Estate Debt") and Kane having loaned $44,000 in principal amount (the "Kane
Debt"). In consideration for facilitating such financing, the Interim Lenders
were granted the following warrants to purchase shares of Class A Common Stock
of the Company ("Interim Lender Warrants") at an exercise price of $4.00 per
share:
WARRANT NO. NAME NO. OF SHARES
10 Dominion Investment Corporation 5,700
11 Charles W. Moody, Jr. 5,900
12 George V. Kane, Jr. 4,400
The Company has reached agreement with its senior lender, Petrus
Investments, Ltd. (the "Senior Lender") to cure the existing default under the
Company's loan agreement with the Senior Lender (herein the "Loan Agreement
Amendment"). The Loan Agreement Amendment is conditioned upon (i) the Company
successfully completing a private placement of not less than 60 "Units", with
each Unit consisting of 50,000 shares of Class A Common Stock and 50,000 Common
Stock purchase warrants at an offering price of $25,000 per Unit in accordance
with the Confidential Term Sheet dated September 9, 1996 (the "Term Sheet") of
the Company through Royce Investment Group, Inc. and Spencer Trask Securities
Incorporated (collectively the "Placement Agents") and (ii) the committment of
the Interim Lenders to convert the Interim Loan, as well as the Interim Lender
Warrants, into 320,000 Interim Lender Units of the Company with each Interim
Lender Unit consisting of one share of Class A Common Stock and one Common Stock
purchase warrant having substantially the same terms as the Common Stock
purchase warrants to be issued by the Company under the Agency Agreement (as
herein defined). The Company has entered into an agency agreement with the
Placement Agents providing for the Placement Agents to use their best efforts to
offer and sell the Units (the "Agency Agreement"). Subject to the simultaneous
closing of the purchase and sale of not less than 60 Units under the Agency
Agreement at a purchase price of $25,000 per Unit, each of the Interim Lenders
has agreed to convert their respective portion of the indebtedness of the
Company under the Interim Loan and the warrants set forth above into 320,000
Interim Lender Units and the Company has agreed to issue and deliver to the
Interim Lenders an aggregate of 320,000 Interim Lender Units in exchange for the
surrender of (i) the indebtedness evidenced by the Interim Loan and (ii) the
Interim Lender Warrants. Accordingly, the Company and the Interim Lenders have
agreed as follows:
1. Subscription and Purchase. Subject to terms and provisions
herein set forth, each of the Interim Lenders hereby irrevocably agrees to
purchase the Interim Lender Units set opposite their respective names in
consideration for the surrender at the Closing of the principal and accrued
interest on the debt evidenced by the Interim Loan and surrender of the Interim
Lender Warrants as set opposite their respective names:
NAME INTERIM LOAN INTERIM LENDER INTERIM LENDER UNITS
SURRENDERED WARRANTS SURRENDERED PURCHASED
Dominion $ 57,000.00 5,700 114,000
Kane 44,000.00 4,400 88,000
Estate 59,000.00 5,900 118,000
----------- ------ -------
TOTAL: $160,000.00 16,000 320,000
2. Representations and Warranties of Interim Lenders. Each Interim
Lender hereby represents and
<PAGE>
warrants to the Company and its agents, employees and representatives as
follows:
(a) Investment Intent. (i) The Interim Lender Units, the underlying
shares of Class A Common Stock, the underlying warrants to purchase shares of
Class A Common Stock and the shares of Class A Common Stock underlying the
warrants (herein collectively the "Securities") are being acquired solely for
the account of such Interim Lender, for investment, and not with a view to or
for the resale, distribution, subdivision, or fractionalization thereof, (ii)
the Interim Lender has no contract, understanding, undertaking, agreement, or
arrangement with any person to sell, transfer, or pledge to any person the
Securities or any part thereof, (iii) the Interim Lender has no present plans to
enter into any such contract, undertaking, agreement or arrangement, (iv) the
Interim Lender understands the legal consequences of the foregoing
representations and warranties to mean that Interim Lender must bear the
economic risk of the investment in the Securities for an indefinite period of
time, (v) the Interim Lender has such knowledge and experience in financial and
business matters that Interim Lender is capable of evaluating the merits and
risks of acquiring the Securities, and (vi) the Interim Lender acknowledges that
the acquisition of the Securities involves a high degree of risk which may
result in the loss of the total amount of Interim Lender's investment in the
Securities.
(b) Securities Compliance. The Interim Lender understands that no
sale, distribution, transfer or other disposition of the Securities can be made
by Interim Lender unless the Securities have been registered under the
Securities Act of 1933, as amended (the "Act"), and applicable securities laws
of any other relevant jurisdiction, or exemptions from such registrations are
available, as evidenced by an opinion of counsel satisfactory to the Company,
with respect to the proposed sale, distribution, transfer or other disposition.
Any purchaser on resale or transfer of the Securities will also be required to
meet the suitability requirements applicable to investors and such purchaser or
Interim Lender will be required to bear all expenses of such transfer (including
the costs of any legal advice or opinions required).
(c) Experience. Such Interim Lender, together with any Purchaser
Representative, is knowledgeable and experienced in the field of investments
involving the business of the Company or has a general understanding and
knowledge of such investments; furthermore, such Interim Lender alone, or
together with any Purchaser Representative, has such knowledge and experience in
financial and business matters that such Interim Lender is capable of
understanding the information set forth in the Circular, evaluating the risks of
any investment in the Securities and making an informed investment decision.
(d) No General Solicitation. The Securities have been offered to
Interim Lenders without any form of general solicitation or advertising of any
type by or on behalf of the Company or any of their employees, agents or
representatives.
(e) Access to Information. Such Interim Lender has (i) read the Term
Sheet and all exhibits or schedules to the Term Sheet, (ii) for a reasonable
amount of time had an opportunity to ask questions and receive answers
concerning the terms and conditions of the offering and sale of the Securities
and the actual and proposed business and affairs of the Company, and is
satisfied with the results thereof, and (iii) been given access, if requested,
to all documents with respect to the Company or this transaction, as well as to
such other information that such Interim Lender has requested in order to
evaluate an investment in the Securities. SUCH INTERIM LENDER HAS NOT RECEIVED
NOR RELIED UPON ANY REPRESENTATIONS OR WARRANTIES BY THE COMPANY OR THEIR
OFFICERS, MANAGERS, MEMBERS, AGENTS, EMPLOYEES OR REPRESENTATIVES, OR ANY OTHER
PERSON, OTHER THAN THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TERM
SHEET AND THIS AGREEMENT.
(f) Exemption Status. Such Interim Lender understands that the
Securities to be sold hereunder are being offered and sold in reliance upon
exemptions from registration under the Act and applicable state securities laws.
Such Interim Lender understands that the Company and its agents, employees, and
representatives are relying on, among other things, the representations and
warranties of Interim Lenders set forth herein in offering and selling the
Securities to Interim Lenders in reliance upon exemptions available under the
Act and state securities laws.
(g) Domicile. Such Interim Lender is a bona fide resident or
domiciliary of the State of Texas and meets the following requirements, as
applicable, for qualifying as a "person resident within the State of Texas":
(i) If a corporation, partnership, trust or other form of
business organization, Interim Lender has its principal office within
the State of Texas.
(ii) If an individual, Interim Lender has a principal residence
and domicile in the
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State of Texas and is a citizen of the United States and is at least
twenty-one (21) years of age.
(iii) If a corporation, partnership, trust or other form of
business organization WHICH WAS ORGANIZED FOR THE SPECIFIC PURPOSE OF
ACQUIRING SECURITIES, all of the beneficial owners of Interim Lender
are residents of the State of Texas and are citizens of the United
States.
(h) Net Worth. Interim Lender's investment in the Securities will not
exceed 20% of Interim Lender's net worth (or joint net worth with Interim
Lender's spouse) determined as of the date of this Agreement.
(i) START-UP COMPANY. INTERIM LENDERS ACKNOWLEDGES THAT THE COMPANY
IS A "START-UP" COMPANY WHICH HAS SUSTAINED SUBSTANTIAL LOSSES AND THAT IS
ENGAGED IN AN INDUSTRY WHICH IS A HIGHLY COMPETITIVE INDUSTRY. CONSEQUENTLY,
INTERIM LENDERS ACKNOWLEDGES THAT AN INVESTMENT IN THE SECURITIES INVOLVES A
HIGH DEGREE OF RISK.
3. Covenants of Interim Lenders. As an inducement for Royce Investment
Group, Inc. to act as Placement Agent for the Company's Securities under the
Agency Agreement, each of the Interim Lenders covenants and agrees that for a
period commencing on the date hereof and expiring twelve (12) months after the
closing of the sale of the Units as contemplated under the Agency Agreement,
such Interim Lender will not publicly sell, assign or transfer any Securities of
the Company without the prior written consent of Royce Investment Group, Inc.
Each such Interim Lender, to facilitate enforcement of this covenant, hereby
consents to the Company imposing stop transfer restrictions with respect to all
shares of capital stock of the Company owned by such Interim Lender until the
end of the lock-up period.
4. Restrictions on Transfer. In addition to the restrictions set forth
above, Interim Lenders understands and agrees that (i) the Securities are
restricted securities under the Act, and may not be sold, assigned or
transferred unless the sale, assignment or transfer of such Securities is
registered under the Act and applicable blue sky laws, as now in effect or
hereafter amended, or there is furnished evidence in form and substance
satisfactory to the Company from counsel acceptable to the Company that such
registrations are not required, (ii) the Company is under no obligation to
register the Securities or to perfect any exemption for resale of the Securities
under applicable securities laws, and (iii) the following restrictions and
limitations will be applicable to the Securities and any resales, pledges,
hypothecations or other transfers of any of the Securities:
(a) Legend. A legend will be placed on each certificate or other
document evidencing any of the Securities in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
SALE, PLEDGE, OR TRANSFER WOULD BE IN VIOLATION OF THE 1933 ACT OR THE
SECURITIES LAWS OF ANY STATE.
(b) Stop Transfer Instructions. Stop transfer instructions can be
issued by the Company to restrict the resale, pledge, hypothecation or other
transfer in contravention of this Agreement.
(c) Transfers. Interim Lenders acknowledges that Interim Lenders will
be responsible for compliance with all conditions to transfer imposed by any
applicable securities law and for any expenses incurred by the Company
including, but not limited to, legal fees, accounting services and filing fees,
in connection with reviewing and effecting such transfer.
5. Closing. The closing of the purchase and sale of the Interim Lender
Units (the "Closing") may be held on any date, determined in the sole discretion
of the Company, on or after the date hereof, but in no event no later than
November 15, 1996.
6. Conditions Precedent to Closing. The obligations of the Interim
Lenders to exchange the Interim Loan and the Interim Lender Warrants for the
Interim Lender Units under this Agreement are subject to the satisfaction, at or
before the Closing Date, of all the conditions set out below in this
Section 6(a). Each Interim Lender may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that
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<PAGE>
no such waiver of a condition shall constitute a waiver by such Interim Lender
of any of its other rights or remedies, at Law or in equity, if the Company
shall be in default of any of its representations, warranties or covenants under
this Agreement.
(a) Senior Loan Agreement Amendment. The Company and Petrus
Investments, Ltd., its senior lender shall have reached agreement amending the
Company's loan agreement with its senior lender to cure the defaults that have
been in existence.
(b) Closing of Offering. The Company shall have contemporaneously or
previously closed the sale of not less than 60 Units at a purchase price of
$25,000 per Unit through the Placement Agents, with each Unit consisting of one
share of Class A Common Stock of the Company and one Common Stock Purchase
Warrant evidencing the right to purchase one share of Class A Common Stock at an
exercise price of $1.00 per share if exercised prior to two years after the
closing and thereafter exercisable at $1.50 per share.
(c) Mutual Performance. Each of the Interim Lenders or their
successors or assigns shall have performed their obligations under this
Agreement, and shall contemporaneously performed its other obligations hereunder
to exchange the Interim Loan and the Interim Lender Warrants for their
respective portion of the Interim Lender Units.
(d) Other Documents. Interim Lenders shall have received at the
Closing, such further instruments, documents and certificates, in form and
content reasonably satisfactory to Interim Lenders and their respective counsel,
as may be reasonably requested by each such Interim Lender.
7. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of any Interim Lender, the Company or any of their
respective agents, representatives, officers or managers or any controlling
person, and will survive exchange for the Interim Lender Units.
8. Notice. All communications hereunder will be in writing and, if sent
to a Interim Lender, will be mailed, delivered or telegraphed and confirmed to
the Interim Lender at the address set forth on the signature page of this
Agreement, or if sent to the Company, will be mailed, delivered or telegraphed
and confirmed to them at 8554 Katy Freeway, Suite 100, Houston, Texas 77024,
Attn: Lance Wimmer.
9. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns. No
Interim Lender may not assign the debt evidenced by the Interim Lender or the
related warrants nor any other rights hereunder without the prior written
consent of the Company, which may not be unreasonably withheld.
10. Attempted Breaches. Any transfer of interest effected, or purported
to be effected, not in accordance with the terms and conditions of this
Agreement or any other agreement referred to herein or to a person prohibited by
law from holding any of the Interim Lender Units shall be null and void and
shall not bind the Company.
11. Amendment. This Agreement may not be modified or amended except by
written instrument executed by or on behalf of each of the parties hereto.
12. Waivers. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Unless otherwise expressly provided herein, no
delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
13. Entire Agreement. This Agreement, including the exhibits hereto, if
any, and the documents and agreements expressly referred to herein constitute
the entire agreement between the parties hereto with respect to the matters
covered hereby, and any other prior or contemporaneous oral or written
understandings or agreements with respect to the matters covered hereby are
expressly superseded by this Agreement. There are no oral or unwritten
agreements between the parties.
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<PAGE>
14. Severability. If any provision of this Agreement, or the application
of such provision to any person or circumstances, shall be declared judicially
to be invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effect as if such part
or parts had never been included herein. Any such finding of invalidity or
unenforceability shall not prevent the enforcement of such provision in any
other jurisdiction to the maximum extent permitted by applicable law.
15. Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
16. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMABLE IN
HARRIS COUNTY, TEXAS.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
_____ day of ______________________, 1996.
Irata Inc.
By:______________________________________
Authorized Officer
Address: ________________ The Estate of Charles W. Moody,
________________
Houston, Texas 770__
By:_______________________________________
Independent Executor
1000 Louisiana Dominion Investment Corporation
Suite 3600
Houston, Texas 77002
By:_______________________________________
Authorized Officer
8554 Katy Freeway __________________________________________
Suite 100 George V. Kane, Jr.
Houston, Texas 77024
5
<PAGE>
EXHIBIT 10.33
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release ("Agreement") is entered into by
and between Irata, Inc., a Texas corporation having its principal place of
business at 8554 Katy Freeway, Suite 100, Houston, Texas 77024 (the "Company"),
and Corporate Laser Charge, Inc. d/b/a Toner Cartridge Express and having its
principal place of business at 10400 West Office, Suite 115, Houston, Texas
77042 ("Creditor"), and is dated effective as of November 18, 1996.
RECITALS
Creditor has asserted a claim against Irata for certain products and
services provided to the Company in the amount of $118,686.14 (herein the
"Claim"). The parties acknowledge that because of costs, hazards, uncertainties
and pitfalls of adversarial collection efforts, including litigation and
appeals, they desire to enter into this Agreement to settle all controversies,
to avoid further costs, litigation and risk and to facilitate the Company's
continued business operations. Accordingly, the parties desire to resolve and
satisfy all claims against each other.
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter set forth, the parties have agreed as follows:
1. Settlement of Claim. The Claim of Creditor shall be satisfied and
settled as follows:
(a) Cash. One-fourth of Creditor's Claim will be paid by the Company
in cash installments agggregating $30,000.00, (i) the first of which in the
amount of $18,000.00 has been paid by the Company to Creditor upon
execution of this Agreement, receipt of which is hereby acknowledged by
Creditor, (ii) with a cash installment in the amount of $4,000.00 to be
paid on December 31, 1996, (iii) with a cash installment in the amount of
$4,000.00 to be paid on January 31, 1997, and (iv) with a final cash
installment of $4,000.00 to be paid on February 28, 1997; and
(b) Stock. The balance of Creditor's Claim shall be satisfied by the
issuance of 50,678 shares of Class A Common Stock of the Company.
2. Representations and Warranties of Creditor. As a material inducement
for the Company to enter into this Agreement, Creditor hereby represents,
warrants and agrees as follows:
(a) That the shares of Class A Common Stock, $.10 per share (herein
the "Common Stock"), have been offered and the terms and arrangements
relating to the transfer of Common Stock of the Company have been arrived
at through direct communication between the Company and the Creditor and
that the offer was not made pursuant to any general advertisement, public
solicitations, broadcast or other medium.
(b) That Creditor has been fully advised as to the business and
affairs and the proposed business and affairs of the Company and its
operations and its proposed operations and has had disclosed to her such
information regarding the Company and the controlling persons thereof as
would have been contained in a registration statement under the Securities
Act of 1933, as amended, and the rules and regulations promulgated
thereunder ("33 Act") covering the shares of Common Stock being acquired
by Creditor.
(c) That the Creditor has such knowledge and experience in financial
and business matters that Creditor is capable of utilizing the information
referred to in the immediately preceding paragraph to evaluate the risks of
investment in the Common Stock and of making an informed investment
decision in connection therewith and that Creditor has utilized the
information referred to in the immediately preceding paragraph in
evaluating the risks of an investment in the Common Stock and that Creditor
has made an informed investment decision with respect to the Common Stock.
(d) That the Common Stock being acquired by Creditor in view of the
economic risks associated therewith and the size and nature of the
investment in the Common Stock by Buyer is an appropriate and suitable
investment for Creditor and that Creditor's personal and financial
condition is such that it is capable of bearing the economic risks of an
investment in the Common Stock.
(e) That Creditor is acquiring the Common Stock for its own account
for investment and
<PAGE>
not with a view to or for sale in connection with any distribution thereof
except as provided or otherwise permitted under (i) the 33 Act and (ii) under
any applicable Blue Sky Act.
(f) That Creditor has been informed by the Company that the Common
Stock being issued to Creditor has not been registered under the 33 Act or
any Blue Sky Act and that accordingly, the Common Stock must be held
indefinitely unless it is subsequently registered under the 33 Act and
unless sold in compliance with all of the applicable Blue Sky Acts or any
exemption from such registration is available.
(g) That Creditor understands that Company has not registered the
Common Stock under the 33 Act or any Blue Sky Act in reliance upon the
representations herein contained and that accordingly, Creditor will not at
any time or times directly or indirectly, offer, sell or otherwise dispose
of or solicit any offer to buy, purchase or otherwise acquire any Common
Stock which Creditor receives unless one of the following conditions has
been fulfilled:
(i) a registration statement under the 33 Act is in effect as to
the Common Stock and the Common Stock has been duly qualified under
any applicable Blue Sky Laws; or
(ii) there is presented to the Company an opinion of counsel
satisfactory to the Company in form and substance satisfactory to the
Company to the effect that the proposed transfer of the Common Stock
is exempt from the registration provisions of the 33 Act and any
applicable Blue Sky Act.
(h) That to implement the foregoing, Creditor consents to the placing
of a legend in substantially the following form upon each certificate
evidencing the Common Stock transferred to Creditor from Company:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933. They may not be offered or sold and no
transfer of them will be made by the Company unless (i) they are
registered under the Securities Act of 1933; or (ii) there is
presented to the Company an opinion of counsel satisfactory to the
Company in form and substance satisfactory to the Company to the
effect that such registration is not necessary".
(i) Creditor shall indemnify the Company against all liability, cost
or expenses arising out of or resulting from any misrepresentation or
breach of warranty or breach of any covenant contained herein or in the
offer, sale, distribution or other distribution or other disposition of any
shares of Common Stock or any solicitation of any offer to buy, purchase or
otherwise acquire any Common Stock, in violation of the 33 Act or any Blue
Sky Act.
(j) Creditor has had the benefit of independent legal counsel in
entering into this Agreement.
(k) No promise or inducement has been offered or made to Creditor
except as expressly stated in the Agreement, the Agreement is executed
without reliance on any statement or representation by any third party or
any third party's agent and the Agreement supersedes all prior negotiations
and discussions.
(l) Creditor is the sole owner of the Claim and Creditor has not
previously assigned or transferred or purported to have assigned or
transferred any interest in the Claim to any person or entity.
(m) Creditor is not in a disparate bargaining position with respect to
the negotiation of this Agreement and Creditor is executing this Agreement
of its own free will, act and deed.
(n) Creditor has fully authority to enter into this Agreement and is
competent to do so.
(o) The person or persons executing this Agreement on Creditor's
behalf are duly authorized
2
<PAGE>
and empowered to do so and all corporate and other formalities necessary
for approval of this Agreement have been satisfied.
3. Release. Except for the obligations of the Company to deliver to
Creditor the certificate evidencing the Common Stock as is provided herein and
the obligation to make the deferred payments as are provided herein, Creditor,
for itself and on behalf of its employees, principals, successors and assigns
(the "Releasing Parties"), hereby unconditionally and irrevocably compromises,
settles and fully releases and forever discharges the Company and its officers,
agents, directors, shareholders, successors and assigns (the "Released Parties")
from any and all costs, expenses, claims, demands, damages, actions, causes of
action, liability or suits at law or in equity, of whatever kind or nature,
whether arising under state or federal law, rule or regulation which any of them
now has, in the past had or in the future may have against the Released Parties
or any of them, whether known or unknown, asserted or unasserted, that directly
or indirectly or any way relate to, are based upon or arise out of the Claim or
any of the transactions giving rise to the Claim. Each Releasing Party hereby
covenants and agrees not in any manner whatsoever to sue any Released Parties in
any court or tribunal or bring any action, lawsuit or cause of action (whether
by way of direct action, counterclaim, cross-claim or interpleader) against any
Released Party in any manner whatsoever based upon any matter directly or
indirectly related to the Claim or the transactions giving rise to the Claim.
4. Denial of Liability. The parties hereto specifically acknowledge that
they understand and agree that the execution hereof by the parties does not
constitute in any manner whatsoever an admission of liability on the part of any
party for any matters covered by this Agreement, but that such liability is
specifically denied and that the entering into this Agreement is simply to
compromise, settle and release claims, if any, which may have been alleged by
the parties hereto.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and the applicable laws of the
United States of America. This Agreement has been entered into in Harris
County, Texas, and shall be performable for all purposes in Harris County,
Texas.
6. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
7. Entire Agreement. This Agreement embodies the final, entire agreement
among the parties hereto and supersedes any and all prior commitments,
agreements, representations and understandings, whether written or oral,
relating to the subject matter hereof and may not be contradicted or varied by
evidence of prior, contemporaneous or subsequent oral agreements or discussions
of the parties hereto. There are no oral agreements between the parties hereto.
The provisions of this Agreement may be amended or waived only by an instrument
in writing signed by the parties hereto.
8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of November 18, 1996.
IRATA, INC.
By:__________________________
John C. Stuecheli
Vice President & Chief Financial Officer
CORPORATE LASER CHARGE, INC. d/b/a
TONER CARTRIDGE EXPRESS
By:___________________________
Ralph Tollander, Authorized Officer
3
<PAGE>
EXHIBIT 10.34
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement ("Agreement") is entered into by and between IRATA,
INC ("Irata") on the one hand, and ________________________ on the other hand
("Creditor"), (Creditor and Irata are hereinafter referred to as the Parties"),
for the purposes of settling, resolving and satisfying the various claims,
causes of action, controversies, and/or other disputes between them as
hereinbelow provided.
RECITALS
The parties have entered into this Agreement under the following circumstances
and to effect the following aims and purposes:
A. Irata and Creditor agree that as of the date of this Agreement Irata
is indebted to Creditor in the amount of $__________ (the "Claim"). By
entering into this Agreement, the Parties intend to resolve and
satisfy all claims against each other.
B. The Parties, without admitting or denying any liability to each other,
wish to compromise and settle this matter in a manner satisfactory to
the Parties.
C. The Parties acknowledge specifically the costs, hazards, uncertainties
and pitfalls of adversarial collection efforts, including litigation
and appeals, and they desire to enter this Agreement in order to
settle any controversy, to avoid further costs, litigation and risks,
and to buy the peace and time necessary to allow Irata to arrange for
a $1.5 million capital infusion required for the effective and
profitable continuation of its business operations (the "New
Capital");
IT IS THEREFORE AGREED:
1. Upon Creditor's execution of this Agreement and its delivery to Irata, and
provided Irata receives a sufficient number of acceptances of the Agreement
from its other principal creditors, Irata will undertake the steps
necessary to obtain the New Capital.
2. Following receipt by Irata of the New Capital, the Claim of Creditor shall
be satisfied and settled as follows:
a. CASH. One-third of Creditor's Claim will be paid in cash installments,
(i) the first of which shall be equal to fifteen percent (15%) of the
Claim (the "Initial Payment"), (ii) with the remaining balance of the
one-third to be paid monthly beginning September 15, 1996, and
continuing for fifteen (15) months thereafter;
and
b. STOCK. Two-thirds of Creditor's Claim will be satisfied through the
issuance of Irata Class A Common Stock, $.10 par value each (the
"Stock"). The exchange will be $1.00 of debt forgiveness for each $1
dollar value of shares issued. The price of the shares to be issued to
Creditor shall be fixed at the greater of-
i) $2.25 per share; or
ii) the lower of-
1
<PAGE>
a) 80 percent of the average closing price at which the stock
trades during the thirty calendar day period following the
date of Irata's receipt of the New Capital; or
b) the lowest closing price at which the stock trades during
such thirty day period.
3. CONSIDERATION. The Parties acknowledge the receipt and adequacy of
consideration as expressed by the recitations and mutual covenants of this
Agreement.
4. WARRANTIES. Creditor represents and warrants to Irata (a) that it has full
knowledge of the terms, conditions, and effects of the Agreement; (b) that
is has had the benefit of independent legal counsel in entering into this
Agreement; (c) that no promise or inducement has been offered or made to it
except as expressly stated in the Agreement; that this Agreement is
executed without reliance on any statement or representation by any third
party or any third party's agent, and that this Agreement supersedes all
prior negotiations and discussions; (d) that it is the sole owner of the
claims or causes of action it has released in this Agreement and has not
previously assigned or transferred or purported to assign or transfer any
interest in such claims to any person or entity; (e) that it is not in a
disparate bargaining position with respect to the negotiation of this
Agreement and that it is executing this Agreement of its own free will,
act, and deed; (f) that it has full authority to enter this Agreement on
its behalf and is competent to do so; and (g) that the person executing
this Agreement on its behalf is duly authorized and empowered to do so and
that all corporate and other formalities necessary for its approval of the
Agreement have been satisfied.
Further, Creditor acknowledges its understanding that the Stock which will
be issued to creditors pursuant to this Agreement will not be registered at
the time of its issuance with the United States Securities and Exchange
Commission nor with the State Securities Board of Texas or with any other
state. Rather, the Stock will be issued by Irata in reliance upon an
exemption from the securities registration provisions of applicable federal
and state law and may be transferred by the holders of such common stock
only in accordance with the provisions of Rule144 promulgated under the
Securities Act of 1933, as amended, or in accordance with some other
available exemption. In other words, the Stock will not be tradable in
accordance with Rule 144 for two years following its issuance to Creditor.
A legend to this effect will be placed by Irata on each stock certificate
issued by Irata under this Agreement and Creditor will be required to
execute an Acknowledgment will also contain representations and warranties
from the Creditor, including but not limited to, the representation that
Creditor has consulted with its respective legal, tax, and financial
advisors in reaching the decision to accept the terms and conditions of
this Agreement.
However, notwithstanding the tow year trading restriction applicable to the
Stock by way of Rule 144, Irata has agreed to seek registration of the
Stock with the Securities & Exchange Commission by no later than December
of 1997.
5. RELEASE. EXCEPT for the agreements, representations, and warranties
contained in this Agreement, Creditor on behalf of itself and on behalf of
nay other persons claiming by, through, or under shall upon receipt by
Creditor of the Initial Payment and the Stock, as recited herein, and
Irata's receipt of the New Capital by September 30, 1996, RELEASE,
DISCHARGE AND ACQUIT Irata from any and all past and present claims
demands, debts, liabilities, expense or costs owing Creditor by Irata, in
connection with the Claim, and agrees to execute any and all documents
relating thereto.
6. CESSATION OF COLLECTION. It is the intent of the Parties that the mutual
consideration received pursuant to this Agreement satisfies and resolves
the controversies that have arisen between them. It is expressly intended
and agreed that
2
<PAGE>
upon execution of this Agreement by Creditor, Creditor shall cease to
pursue and all collection efforts, and shall dismiss any collection suit
with prejudice immediately following the receipt of the Initial Payment and
the Stock.
7. DENIAL OF LIABILITY. No term or provision of the Agreement shall constitute
or be deemed to be an admission of liability on the part of any party
hereto, all such liability being executed by both Parties.
8. EFFECTIVE DATE. The effective date of this Agreement shall be the date on
which the last party signs this Agreement. No party to this Agreement shall
be bound by it until it has been executed by both of the Parties.
9. CONFIDENTIALITY. The Parties agree to use their best efforts to keep
confidential this dispute, the terms of this Agreement and the
Consideration for this Agreement, except as may be otherwise required by
law, statute, tax or accounting requirement, or to effectuate this
Agreement. Furthermore, Creditor agrees to return to Irata any and all
Confidential Information received from Irata in accordance with the terms
of the Confidentiality Agreement heretofore executed by Creditor.
10. MISCELLANEOUS.
a. This Agreement embodies the entire agreement between the Parties
hereto and supersedes all prior proposals, negotiations, agreements,
and understandings relating to the subject matter hereof.
b. This Agreement shall be binding upon and inure to the benefit of all
the Parties and their respective subsidiaries, related entities,
successors and assigns, including purchasers of all or substantially
all of the assets of any corporate party hereto.
c. In the event that any provision of the Agreement should be held to be
void, voidable, or unenforceable in any respect, the remaining
portions shall remain in full force and effect.
d. Any modifications or waivers of any provision of this Agreement or any
consent to any departure from its terms shall not be binding unless
the same is in writing and signed by all of the parties hereto.
e. The parties specifically agree to execute any and all documents
necessary to effectuate this Agreement.
IN WITNESS WHEREOF, the Parties hereby execute this Agreement effective as of
the last date reflected below.
IRATA, INC. __________________________
By: _________________________ By: __________________________
_________________________ __________________________
Title: _________________________ Title: __________________________
Date: _________________________ Date: __________________________
3
<PAGE>
EXHIBIT 10.35
August __, 1996
Irata, Inc.
8554 Katy Freeway, Suite 100
Houston, Texas 77024
Gentlemen:
The purpose of this letter is to supplement the investment
representations and warranties set forth in the SETTLEMENT AGREEMENT AND RELEASE
between Irata, Inc. (the "Company") and the undersigned creditor of the Company
(the "Creditor") so as to provide the investment representations requisite for
the Company to be able to issue to the Creditor the "Stock" required to be
issued by the Company under the Settlement Agreement and Release under
exemptions from the registration requirements under the Securities Act of 1933
(the "33 Act") and any applicable state securities laws (the "Blue Sky Acts").
To facilitate such issuance of stock, the Creditor understands as follows:
(a) That the shares of Common Stock have been offered and the terms
and arrangements relating to the transfer of Common Stock of the Company have
been arrived at through direct communication between the Company and the
Creditor and that the offer was not made pursuant to any general advertisement,
public solicitations, broadcast or other medium.
(b) That Creditor has been fully advised as to the business and
affairs and the proposed business and affairs of the Company and its operations
and its proposed operations and has had disclosed to her such information
regarding the Company and the controlling persons thereof as would have been
contained in a registration statement under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder ("33 Act")
covering the shares of Class A Common Stock being acquired by Creditor.
(c) That the Creditor has such knowledge and experience in financial
and business matters that Creditor is capable of utilizing the information
referred to in the immediately preceding paragraph to evaluate the risks of
investment in the Class A Common Stock and of making an informed investment
decision in connection therewith and that Creditor has utilized the information
referred to in the immediately preceding paragraph in evaluating the risks of an
investment in the Class A Common Stock and that Creditor has made an informed
investment decision with respect to the Class A Common Stock.
(d) That the Class A Common Stock being acquired by Creditor in view
of the economic risks associated therewith and the size and nature of the
investment in the Class A Common Stock by Buyer is an appropriate and suitable
investment for Creditor and that Creditor's personal and financial condition is
such that she is capable of bearing the economic risks of an investment in the
Class A Common Stock.
(e) That Creditor is acquiring the Class A Common Stock for his, her
or its own account for investment and not with a view to or for sale in
connection with any distribution thereof except as provided or otherwise
permitted under (i) the 33 Act and (ii) under any applicable Blue Sky Act.
(f) That Creditor has been informed by the Company that the Class A
Stock being issued to Creditor has not been registered under the 33 Act or any
Blue Sky Act and that accordingly, the Class A Stock must be held indefinitely
unless it is subsequently registered under the 33 Act and unless sold in
compliance with all of the applicable Blue Sky Acts or any exemption from such
registration is available. However, Creditor has been informed by the Company
that the Company is obligated to seek registration of the Stock under the 33 Act
by no later than December 1997.
(g) That Creditor understands that Company has not registered the
Class A Common Stock under the 33 Act or any Blue Sky Act in reliance upon the
representations herein contained and that accordingly, Creditor will not at any
time or times directly or indirectly, offer, sell or otherwise dispose of or
solicit any offer to buy, purchase or otherwise acquire any Class A Common Stock
which Creditor receives unless one of the following conditions has been
fulfilled:
(i) a registration statement under the 33 Act is in effect as to the
Class A Common
<PAGE>
Stock and the Class A Common Stock has been duly qualified under any
applicable Blue Sky Laws; or
(ii) there is presented to the Company an opinion of counsel
satisfactory to the Company in form and substance satisfactory to the
Company to the effect that the proposed transfer of the Class A Common
Stock is exempt from the registration provisions of the 33 Act and any
applicable Blue Sky Act.
(h) That to implement the foregoing, Creditor consents to the placing of a
legend in substantially the following form upon each certificate evidencing the
Class A Common Stock transferred to Creditor from Company:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933. They may not be offered or sold and no transfer of
them will be made by the Company unless (i) they are registered under the
Securities Act of 1933; or (ii) there is presented to the Company an
opinion of counsel satisfactory to the Company in form and substance
satisfactory to the Company to the effect that such registration is not
necessary".
(i) Creditor shall indemnify Company and the Company against all liability,
cost or expenses arising out of or resulting from any misrepresentation or
breach of warranty or breach of any covenant contained herein or in the offer,
sale, distribution or other distribution or other disposition of any shares of
Class A Common Stock transferred by Company pursuant to this investment letter
or any solicitation of any offer to buy, purchase or otherwise acquire any Class
A Common Stock, in violation of the 33 Act or any Blue Sky Act.
You understand and agree that the foregoing information has been fully
disclosed by the Company and that your acceptance of stock is subject to the
foregoing provisions.
Very truly yours,
-----------------------------------
(Creditor)
UNDERSTOOD AND AGREED TO BY:
- ------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
2
<PAGE>
3
<PAGE>
EXHIBIT 10.36
SETTLEMENT AGREEMENT AND RELEASE
This First Amendment to the Settlement Agreement and Release between
Irata, Inc., a Texas corporation ("Irata"), on the one hand, and
_______________________________________, on the other ("Creditor"), is to be
effective as of the date last appearing hereon.
RECITALS
The Settlement Agreement and Release provided for Irata to raise
$1,500,000.00 in "new capital." Irata has been successful in raising
$1,200,000.00 and desires to amend the definition of "new capital" to only
require $1,200,000.00 in capital infusion.
Paragraph 2 of the Settlement Agreement and Release provided for the
first monthly payment to be made on September 15, 1996 and Paragraph 5
conditioned the release of Irata upon Irata's receipt of the new capital by
September 30, 1996. Creditor and Irata desire to amend and reinstate the
Settlement Agreement and Release in the following manner:
1. Paragraph C. of the Recitals is amended to change the definition of
"new capital" to $1,200,000.00.
2. Paragraph 2.a. is amended to read as follows:
a. Cash. One-third of the Creditor's Claim will be paid by Irata in
cash installments, (i) the first of which shall be equal to
fifteen percent (15%) of the Claim (the "Initial Payment") and
shall be paid at such time as Irata receives the New Capital,
(ii) with the remaining balance of the cash portion of one-third
of the Claim to be paid in fifteen (15) equal installments, the
first two (2) installments of which shall be paid within two (2)
days of receipt by Irata of the New Capital, with the remaining
installments being payable November 15, 1996 and each month
thereafter; and
3. Paragraph 5 is revised to read as follows:
5. RELEASE. EXCEPT for the agreements, representations and warranties
contained in this Agreement, Creditor on behalf of itself and on behalf of
any other persons claiming by, through or under Creditor shall, upon
receipt by Irata of the New Capital on or before November 15, 1996 and
receipt by the Creditor of the Initial Payment as contemplated hereby,
RELEASE, DISCHARGE AND ACQUIT Irata from any and all past and present
claims, demands, debts, liabilities, expense or costs owing Creditor by
Irata in connection with the Claim and agrees to execute any and all
documents relating thereto.
4. Except as otherwise herein provided, the Settlement Agreement and
Release is hereby ratified and confirmed by Creditor and Irata.
5. This First Amendment may be executed in multiple counterparts.
IN WITNESS WHEREOF, the parties hereby execute this First Amendment
effective as of the last date reflected below.
IRATA, INC. CREDITOR
_________________________________
By:_____________________________ By:____________________________
Name:___________________________ Name:__________________________
Title:__________________________ Title:_________________________
Date:___________________________ Date:__________________________
<PAGE>
2
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EXHIBIT 10.37
AMENDED AND RESTATED LOAN AGREEMENT
DATED AS OF OCTOBER 31, 1996
BY AND BETWEEN
PETRUS FUND, L.P.,
THE "LENDER"
AND
IRATA, INC.,
THE "COMPANY"
REGARDING
12% SENIOR NOTE
<PAGE>
TABLE OF CONTENTS
Page
I. DESCRIPTION OF SENIOR NOTE AND ADVANCES......................... 1
1.1 Description of Senior Note.................................. 1
1.2 Advances.................................................... 1
1.3 Facility Fee................................................ 2
1.4 Use of Proceeds............................................. 2
1.5 Notice and Manner of Credit Borrowing....................... 2
II. PAYMENT AND PREPAYMENT OF SENIOR OBLIGATIONS.................... 2
2.1 Principal and Interest Payments............................. 2
2.2 Optional Prepayments........................................ 3
2.3 Additional Payments......................................... 3
2.4 Direct Payment.............................................. 3
2.5 Payments Payable on Business Days........................... 3
2.6 Interest Laws............................................... 3
2.7 Security.................................................... 4
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 4
3.1 Corporate Existence and Authority........................... 4
3.2 Financial Statements........................................ 4
3.3 Default..................................................... 5
3.4 Authorization and Compliance with Laws
and Material Agreements................................... 5
3.5 Environmental Condition of the Photo Booths................. 5
3.6 Litigation and Judgments.................................... 5
3.7 Rights in Properties; Liens................................. 5
3.8 Enforceability.............................................. 6
3.9 Indebtedness................................................ 6
3.10 Taxes...................................................... 6
3.11 Use of Proceeds; Margin Securities......................... 6
3.12 ERISA...................................................... 6
3.13 Disclosure................................................. 6
3.14 Subsidiaries and Capitalization............................ 7
3.15 Current Locations.......................................... 7
3.16 No Burdensome Restrictions................................. 7
3.17 Securities Laws............................................ 7
3.18 No Labor Disputes.......................................... 7
3.19 Brokers.................................................... 7
3.20 Liens...................................................... 7
3.21 Insurance.................................................. 7
3.22 Conduct of Business........................................ 7
IV. CONDITIONS PRECEDENT TO INITIAL OBLIGATIONS OF LENDER........... 8
4.1 No Litigation; Consummation of Transactions................. 8
4.2 Documents................................................... 8
4.3 Private Placement........................................... 9
4.4 Trade Creditors............................................. 10
4.5 Material Adverse Changes.................................... 10
4.6 Lender's Fees, Costs and Expenses........................... 10
4.7 Subordinated Debt........................................... 10
4.8 No Default.................................................. 10
4.9 Interest.................................................... 10
4.10 Securities Laws............................................ 10
4.11 Representations and Warranties............................. 10
4.12. Depository, Concentration Investment and Accounts......... 10
i
<PAGE>
V. CONDITIONS PRECEDENT TO EACH ADVANCE............................ 11
5.1. Notice of Borrowing........................................ 11
5.2 Representations and Warranties.............................. 11
5.3 No Event of Default......................................... 11
5.4. Compliance with Procedures................................. 11
5.5 Adjusted Maximum Facility Amount............................ 11
VI. AFFIRMATIVE COVENANTS........................................... 11
6.1 Financial Statements........................................ 11
6.2 Certificates; Other Information............................. 13
6.3 Books and Records........................................... 14
6.4 Financial Disclosure........................................ 14
6.5 Disclosure of Material Matters.............................. 14
6.6 Performance of Obligations.................................. 14
6.7 Preservation of Existence and Conduct of Business........... 14
6.8 Maintenance of Properties................................... 14
6.9 Payment of Taxes............................................ 14
6.10 Payment of Impositions..................................... 15
6.11 Compliance with Laws....................................... 15
6.12 Payment of Expenses........................................ 15
6.13 Leasehold Obligations...................................... 15
6.14 Insurance.................................................. 15
6.15 Inspection Rights.......................................... 16
6.16 Negative Pledge............................................ 16
6.17 Maintenance of Equipment................................... 16
6.18 Notices.................................................... 16
6.19 Further Assurances......................................... 16
6.20 Compliance with ERISA and the Code......................... 16
6.21 Compliance with Regulations G, T, U and X.................. 17
6.22 Fiscal Year............................................... 17
6.23 Board Observation and Membership........................... 17
6.24 Environmental Costs........................................ 17
6.25 Audits..................................................... 17
6.26 Replacement of Senior Note................................. 18
6.27 Board Meetings............................................. 18
6.28 Depository and Concentration Accounts...................... 18
6.29 Investment Account......................................... 18
6.30 Shareholder Subscription Agreements........................ 18
6.31 Performance of Settlement Agreements....................... 18
6.32 Tax and Payroll Accounts................................... 18
VII. NEGATIVE COVENANTS.............................................. 19
7.1 Indebtedness................................................ 19
7.2 Commitments................................................. 19
7.2 Limitation on Liens......................................... 19
7.3 Merger, Acquisition, Dissolution and Sale of Assets......... 19
7.4 Restricted Payments......................................... 19
7.5 Loans and Investments....................................... 19
7.6 Transactions with Affiliates................................ 19
7.7 Nature of Business.......................................... 20
7.8 Financial Covenants......................................... 20
7.9 Capital Expenditures........................................ 20
7.10 Remuneration............................................... 20
VIII. FINANCIAL COVENANTS............................................. 20
8.1 Minimum Tangible Net Worth.................................. 20
ii
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8.2 Maximum Total Liabilities to Tangible Net Worth Ratio....... 20
8.3 Minimum Working Capital..................................... 21
8.4 Minimum Gross Cash Flow to Total Debt Service Ratio......... 21
8.5 Minimum Gross Cash Flow..................................... 23
8.6 Minimum Net Income.......................................... 23
8.7 Maximum Current Liability + Commitments..................... 24
8.8 Maximum Component/WIP Inventory............................. 24
IX. EVENTS OF DEFAULT AND REMEDIES THEREFOR........................ 25
9.1 Events of Default........................................... 25
9.2 Remedies of Holders upon Occurrence of Event of Default..... 26
9.3 Payment of Senior Obligations............................... 26
9.4 Remedies.................................................... 26
9.5 Conduct No Waiver........................................... 26
9.6 Notice of Default........................................... 26
X. INTERPRETATION OF AGREEMENT..................................... 27
10.1 Certain Terms Defined...................................... 27
10.2 Accounting Principles...................................... 34
10.3 Directly or Indirectly..................................... 34
XI. MISCELLANEOUS................................................... 34
11.1 Expenses................................................... 34
11.2 Indemnification............................................ 34
11.3 Notices.................................................... 35
11.4 Reproduction of Documents.................................. 35
11.5 Assignment, Sale of Interest............................... 35
11.6 Successors and Assigns..................................... 35
11.7 Headings................................................... 35
11.8 Counterparts............................................... 36
11.9 Reliance on and Survival Provisions........................ 36
11.10 Integration and Severability.............................. 36
11.11 LAW GOVERNING............................................. 36
11.12 WAIVERS; MODIFICATION..................................... 36
11.13 WAIVER OF JURY TRIAL...................................... 36
11.14 Agreement for Binding Arbitration......................... 36
11.15 Amendment and Restatement................................. 36
ANNEX, SCHEDULES AND EXHIBITS
Annex I - Information Concerning the Lender
Schedule 1.2(b) - Fees and Expenses Paid
Schedule 1.5(b) - Authorized Persons
Schedule 3.2 - Operating Plan
Schedule 3.3 - Defaults under Existing Agreements
Schedule 3.4 - Authorizations, Approvals, Consents and Filings
Schedule 3.5 - Environmental Condition of Property
Schedule 3.6 - Litigation and Judgments
Schedule 3.9 - Indebtedness to Affiliates
Schedule 3.10 - Tax Proceedings
Schedule 3.14 - Capitalization
Schedule 3.15 - Current Locations
Schedule 3.22 - Conduct of Business
Schedule 6.25 - Procedures
Schedule 7.1 - Indebtedness
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Schedule 7.11 - Remuneration
Exhibit A - Form of Senior Note
Exhibit B - Form of Legal Opinion
Exhibit C - Form of Officer's Compliance Certificate
Exhibit D - Permitted Liens
Exhibit E - Depository Accounts
Exhibit F - Arbitration Program
Exhibit G - Form of Other Reports
Exhibit H - Form of Contribution Analysis Report
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AMENDED AND RESTATED LOAN AGREEMENT
This Amended and Restated Loan Agreement (this "Agreement"),
dated as of October 31, 1996, is by and between IRATA, INC., a Texas
corporation (the "Company"), and PETRUS FUND, L.P., a Texas limited
partnership (the "Lender"). Capitalized terms used in this Agreement
are defined in Section 10.1.
The Company and the Lender entered into that certain Loan
Agreement (the "Original Agreement") dated June 2, 1995, under which
the principal amount of $2,115,000.00 is presently advanced and
outstanding. Various Events of Default have occurred and are existing
under the Original Agreement. These Events of Default are more
particularly described in the letter dated February 15, 1996 from the
Lender to the Company (the "Existing Defaults"). The Company has
requested and the Lender has agreed to reinstate the Original
Agreement, waive the Existing Defaults, and agree to make advances in
an aggregate amount of funds up to $290,000.00. Subject to the terms
and conditions set forth below, Lender has agreed to reinstate the
Original Agreement, to waive the Existing Defaults and to make the
requested advances.
I. DESCRIPTION OF SENIOR NOTE AND ADVANCES
1.1 Description of Senior Note. The Company has issued a Senior
Note which is dated June 2, 1995, and is in the original principal
amount of $3,500,000.00. The outstanding principal balance of the
Senior Note, together with accrued and unpaid interest thereof bears
interest at the fixed rate of twelve percent (12%) per annum (the
"Contract Rate"); provided, however, that upon the occurrence of any
Event of Default, and during the continuation thereof, the unpaid
principal amount of the Senior Note shall bear interest at the Maximum
Rate. The Senior Note is substantially in the form attached hereto as
Exhibit A. Interest on the Senior Note that accrues at the Contract
Rate shall be computed on the basis of the actual number of days
elapsed over a 360 day year. Interest on the Senior Note that accrues
at the Maximum Rate shall be computed on the basis of a year of 365 or
366 days, as the case may be.
1.2 Advances.
(a) Present Advances Outstanding. As of the date of this
Agreement, the aggregate amount of outstanding, unpaid advances under
this Agreement is Two Million, One Hundred Fifteen and No/100 Dollars
($2,115,000.00).
(b) Additional Advances. The Company's right to receive
any and all Advances under this Agreement from and after the date
hereof, will be limited up to a maximum additional amount of Two
Hundred Ninety Thousand Dollars ($290,000.00), in the aggregate,
subject, however, to the provisions of Section 1.2(c) below. Such
additional Advances will be made solely for the following purposes:
(i) payment for additional installed Photo
Booths, limited to One Thousand Two Hundred Fifty Dollars
($1,250.00) per additional installed and operational Photo Booth
in excess of 755 installed and operational Photo Booths, as
determined at the time of each Advance, and
(ii) payment of fees and expenses as expressly set
forth in Schedule 1.2(b) attached hereto.
The Company will have no right to any other Advances under this
Agreement.
(c) Limitation on Advances. In the event that the funds
raised by the Company in the Private Placement are less than
$1,500,000.00, then, so long as the funds raised by the Company in the
Private Placement are at least One Million Two Thousand and No/100
Dollars ($1,200,000.00) and such amount, net of commissions of
$156,000, is transferred to the Investment Account upon the execution
and delivery of this Agreement, then this Agreement nevertheless shall
be in force and effect, with the exception that Lender will have no
obligation to make any further Advance under this Agreement, other
than the Advance for payment of fees and
RESTATED LOAN AGREEMENT - Page 1
<PAGE>
expenses as provided in Section 1.2(b)(ii), unless the Company achieves the
$1,500,000.00 level of funds raised by November 30, 1996.
1.3 Facility Fee. The Company shall pay to the Lender a
facility fee of Twenty-Four Thousand Fifty and No/100 Dollars
($24,050.00), which shall be due and payable on June 2, 1997. The
facility fee shall be deemed fully earned and non-refundable on the
due date thereof.
1.4 Use of Proceeds. The proceeds of Advances made under the
Senior Note from and after the Closing Date shall be used solely to
(a) finance installed Photo Booths for use by the Company in the
ordinary course of business, as contemplated in Section 1.2(b) above,
and (b) make the payment of fees and expenses more specifically
described in Section 1.2 and in Section 4.6.
1.5 Notice and Manner of Credit Borrowing. The amount and date
of each Advance shall be made as set forth in this Section.
(a) Request for Loan. The Company shall give the Lender
prior written notice (a "Notice of Borrowing") of each requested
Advance to be made under this Agreement. The Company shall be
entitled to a maximum of one (1) Notice of Borrowing per calendar
week, on a non-cumulative basis. Each Notice of Borrowing shall
specify the following:
(i) the requested amount of the Advance;
(ii) the requested Borrowing Date (such date not to be
less than six (6) Business Days after Lender receives and
confirms such receipt of the Notice of Borrowing and all other
information and documentation Lender may request);
(iii) evidence reasonably satisfactory to the
Lender that Photo Booths are installed and operational at the
time of an Advance;
(iv) a certificate from the President or Chief
Executive Officer of the Company certifying that there has been
no Event of Default under this Agreement and the total number of
the Company's installed and operational Photo Booths as of the
date of the requested Advance; and
(v) wiring instructions for the Advance.
(b) Notice Irrevocable. The individual persons authorized
to deliver a Notice of Borrowing to Lender on behalf of the Company
are set forth on Schedule 1.5(b) attached hereto. Lender is
authorized to rely upon any Notice of Borrowing purportedly signed by
any one of such authorized persons until and unless Lender receives
from the Company a written revocation of such authority.
(c) Funding. If, and only if, each of the requirements in
Section 1.5(a) are satisfied, Lender shall, on the Borrowing Date,
authorize the wire transfer of funds in the amount of such Advance in
immediately available funds in accordance with the wiring instructions
provided to the Lender pursuant to Section 1.5(a)(vi) above. If all
of the requirements set forth in Section 1.5(a) are not satisfied,
then the Lender shall have no obligation to make the requested
Advance.
II. PAYMENT AND PREPAYMENT OF SENIOR OBLIGATIONS.
2.1 Principal and Interest Payments. Principal and interest on
the Senior Note shall be due and payable as follows:
(a) Unless otherwise accelerated pursuant to the terms
hereof, principal shall be due and payable in one (1) installment on
the Maturity Date; and
RESTATED LOAN AGREEMENT - Page 2
<PAGE>
(b) Interest on the outstanding principal advanced under
the Senior Note shall be due and payable (i) in arrears on the first
Business Day of each month, commencing October 1, 1996, and (ii) on
the Maturity Date.
2.2 Optional Prepayments. At the Company's option, upon notice
given as provided below, the Company may, at any time and from time to
time, prepay all or any part of the principal of the Senior Note, by
payment to the Lender of the principal amount to be prepaid, plus (a)
accrued unpaid interest on the principal amount so prepaid and (b) any
expenses for which the Lender may be entitled to receive payment or
reimbursement hereunder or, if the Senior Note is being prepaid in
full, the aggregate amount of all other Senior Obligations. Each
partial prepayment under this Section 2.2 shall be in a principal
amount of not less than $100,000.00. Each prepayment under this
Section 2.2 shall be applied first to accrued interest, then to any
expenses for which the Lender may be entitled, and then to
installments of principal in the inverse order of their maturities.
The amount of any such prepayment may not be re-borrowed by the
Company. The Company shall give notice of any optional prepayment to
the Lender not less than thirty (30) days nor more than sixty (60)
days before the date for prepayment, specifying in each such notice
the date upon which prepayment is to be made and the principal amount
(together with accrued interest) to be prepaid on such date. Notice
of prepayment having been so given, the applicable prepayment amount
shall become due and payable on the specified prepayment date. The
Company shall have no right to prepay the Senior Note except as
provided in this Section 2.2.
2.3 Additional Payments. Unless otherwise provided herein or in
the Other Agreements, all Senior Obligations shall be payable by the
Company to the Holder thereof, on demand, and shall bear interest from
the date of demand until paid at the rate of interest then applicable
under Section 1.1.
2.4 Direct Payment. The Company will pay all sums becoming due
hereunder and on the Senior Note to the Lender at the address
specified for the Lender on Annex I hereto, by wire transfer in U.S.
Dollars of Federal Reserve Funds or other immediately available funds,
to the account specified for the Lender on Annex I, or at such other
address or in such other form as the Lender shall have designated by
notice to the Company at least five (5) Business Days prior to the
date of any payment, in each case without presentment and without
notations being made thereon. All payments by the Company shall be
made without set-off or counterclaim. Any wire transfer shall
identify such payment as "Irata, Inc. 12% Senior Note" and shall
identify the payment as principal, premium, interest and/or
reimbursement of costs and expenses, together with the applicable date
or period to which it relates.
2.5 Payments Payable on Business Days. Payments of all amounts
due hereunder or under the Senior Note shall be made on a Business
Day. Any payment due on a day that is not a Business Day shall be
made on the next Business Day, together with all interest (if any)
accrued in the interim.
2.6 Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any Other Agreement, the
Company shall not be required to pay, and the Lender shall not be
permitted to contract for, take, reserve, charge or receive, any
compensation which constitutes interest under applicable law in excess
of the maximum amount of interest permitted by law ("Excess
Interest"). If any Excess Interest is provided for or determined by a
court of competent jurisdiction to have been provided for in this
Agreement or in any Other Agreement or otherwise contracted for,
taken, reserved, charged or received, then in such event: (a) the
provisions of this Section 2.6 shall govern and control; (b) the
Company shall not be obligated to pay any Excess Interest; (c) any
Excess Interest that the Lender may have contracted for, taken,
reserved, charged or received hereunder shall be, at the Lender's
option, (i) applied as a credit against the outstanding principal
balance of the Senior Obligations or accrued and unpaid interest (not
to exceed the maximum amount permitted by law), (ii) refunded to the
payor thereof, or (iii) any combination of the foregoing; (d) the
interest provided for shall be automatically reduced to the maximum
lawful rate allowed from time to time under applicable law (the
"Maximum Rate"), and this Agreement and the Other Agreements shall be
deemed to have been, and shall be, reformed and modified to reflect
such reduction; and (e) the Company shall have no action against the
Lender for any damages arising due to any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on
any Senior Obligations is calculated at the Maximum Rate rather than
the applicable rate under this Agreement, and thereafter such
RESTATED LOAN AGREEMENT - Page 3
<PAGE>
applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Senior Obligations shall remain at the
Maximum Rate until the Lender shall have received the amount of
interest which the Lender would have received during such period on
such Senior Obligations had the rate of interest not been limited to
the Maximum Rate during such period. All sums paid or agreed to be
paid hereunder or under the Other Agreements for the use, forbearance
or detention of sums due shall, to the extent permitted by applicable
law, be amortized, pro-rated, allocated and spread throughout the full
term of the Senior Obligations until payment in full so that the rate
or amounts of interest on account of the Senior Obligations does not
exceed the Maximum Rate. The terms of this Section 2.6 shall be
deemed incorporated into each Other Agreement and any other document
or instrument between the Company and the Lender or directed to the
Company by the Lender, whether or not specific reference to this
Section 2.6 is made.
2.7 Security. Payment of the Senior Note and the other Senior
Obligations, and the performance of the covenants set forth herein and
in the Other Agreements, will be secured by a perfected security
interest, mortgage, assignment or Lien, as the case may be and in
favor of the Lender, in and upon the Collateral and in favor of the
Lender, subject to no prior or superior Lien except Permitted Liens.
The Company shall execute, acknowledge and deliver, and/or cause to be
executed, acknowledged and delivered, to the Lender such certificates,
stock powers, instruments, security agreements, pledges, statements,
assignments, consents, Lien waivers, financing statements or
amendments thereof, guarantees and other documents, in form and
substance reasonably acceptable to the Lender, as in the Lender's good
faith belief may be required to grant, enforce, perfect and protect
such security interest, assignments, Liens and mortgages, including,
without limitation, the Security Documents.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce the Lender to enter into this Agreement, the Company
represents and warrants to the Lender that the following statements
are true, correct and complete as of the Closing Date and as of each
date on which the Company requests an Advance:
3.1 Corporate Existence and Authority. The Company (a) is a
corporation duly organized, validly existing, and in good standing
under the laws of Texas; (b) has all requisite corporate power and
authority to own its assets and carry on its business as now
conducted; and (c) is qualified to do business in all jurisdictions in
which the nature of its business makes such qualification necessary
and where failure to so qualify would have a Material Adverse Effect.
The Company has the corporate power and authority to execute, deliver,
and perform its obligations under this Agreement and all Other
Agreements to which it is or, in connection with the transactions
contemplated hereby, may become, a party.
3.2 Financial Statements. The Company has delivered to the
Lender (a) unaudited financial statements of the Company as at and for
the fiscal year ended June 30, 1996, (b) unaudited financial
statements of the Company for the one (1) month period ended July 31,
1996, and (c) as set forth in Schedule 3.2, a Company operating plan,
including income statement and balance sheet projections and analyses
of the Company for the period following the Closing Date through the
Maturity Date, together with the assumptions underlying them (the
"Operating Plan"). The financial statements referred to in clauses
(a) and (b) of the first sentence of this Section 3.2 are true and
correct in all material respects, have been prepared in accordance
with GAAP (except as otherwise noted therein), and fairly present both
the financial condition of the Company as of the respective dates
indicated therein and the results of the Company's operations for the
respective periods indicated therein. The Operating Plan fairly
presents the Company's best estimate of the future financial position
of the Company, based on the Company's historical performance and the
Company's knowledge of its business plans and assumptions underlying
them. It is the Company's good faith belief that such projections are
reasonably achievable by the Company. At July 31, 1996, the Company
has no liabilities or obligations (absolute, accrued, contingent or
otherwise) of a nature required by GAAP to be reflected in such
financial statements which are, individually or in the aggregate,
material to the condition, financial or otherwise, or operations of
the Company as of that date which are not reflected on such financial
statements. There has been no material adverse change in the
condition, financial or otherwise, or operations of the Company since
July 31, 1996, nor has there otherwise occurred a Material Adverse
Effect.
RESTATED LOAN AGREEMENT - Page 4
<PAGE>
3.3 Default. Except as disclosed on Schedule 3.3, the Company
is not in default under any loan agreement, indenture, mortgage,
security agreement, lease, franchise, permit, license or other
agreement or obligation to which it is a party or by which any of its
properties may be bound and the Company is paying its debts as they
become due.
3.4 Authorization and Compliance with Laws and Material
Agreements. The execution, delivery and performance by the Company of
this Agreement and the Other Agreements to which it is or may in
connection with the transactions contemplated hereby become a party,
have been or prior to the consummation of such transactions will be
duly authorized by all requisite action on the part of the Company and
do not and will not violate its Articles of Incorporation or Bylaws or
any law or any order of any court, governmental authority or
arbitrator, and do not and will not upon the consummation of the
transactions contemplated hereby conflict with, result in a breach of,
or constitute a default under, or result in the imposition of any Lien
(except Permitted Liens) upon any assets of the Company pursuant to
the provisions of any loan agreement, indenture, mortgage, security
agreement, franchise, permit, license or other instrument or agreement
by which the Company or any of its properties is bound. Except as set
forth on Schedule 3.4, no authorization, approval or consent of, and
no filing or registration with, any court, governmental authority or
third Person is or will be necessary for the execution, delivery or
performance by the Company of this Agreement and the Other Agreements
to which it is a party or the validity or enforceability thereof. All
such authorizations, approvals, consents, filings and registrations
described in Schedule 3.4 have been obtained. The Company is not in
violation of any term of its Articles of Incorporation or Bylaws or
any contract, agreement, judgment or decree and, to the best of its
knowledge, is in full compliance with all applicable laws, regulations
and rules.
3.5 Environmental Condition of the Photo Booths. Except as
disclosed on Schedule 3.5, the location, construction, occupancy,
operation and use of the Photo Booths do not violate any applicable
law, statute, ordinance, rule, regulation, order or determination of
any governmental authority or other body exercising similar functions,
or any restrictive covenant or deed restriction (recorded or
otherwise) affecting the Photo Booths, including, without limitation,
all applicable zoning ordinances and building codes, occupational
health and safety laws and Environmental Laws and regulations
(hereinafter sometimes collectively called "applicable laws").
3.6 Litigation and Judgments. Except as disclosed on Schedule
3.6, there is no material action, suit, proceeding or investigation
before any court, governmental authority or arbitrator pending, or to
the knowledge of the Company threatened, against or affecting the
Company, this Agreement and/or the Other Agreements. Except as
disclosed on Schedule 3.6, there are no outstanding judgments against
the Company. None of the matters listed on Schedule 3.6 could
reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
3.7 Rights in Properties; Liens. The Company has good and
indefeasible title to all properties and assets reflected on its
balance sheets, and none of such properties or assets is subject to
any Liens, except Permitted Liens. The Company enjoys peaceful and
undisturbed possession under all leases necessary for the operation of
its Photo Booths, other properties, assets, and businesses; and all
such leases are valid and subsisting and are in full force and effect.
There exists no default under any provision of any lease which would
permit the lessor thereunder to terminate any such lease or to
exercise any rights under such lease which, individually or together
with all other such defaults, could have a Material Adverse Effect.
The Company has the exclusive right to use all of the Intellectual
Property necessary to its business as presently conducted, and the
Company's use of the Intellectual Property does not infringe the
rights of any other Person. To the best of the Company's knowledge,
no other Person is infringing the rights of the Company in any of the
Intellectual Property. The Company owes no royalties, honoraria or
fees to any Person by reason of its use of the Intellectual Property.
3.8 Enforceability. This Agreement and the Other Agreements to
which the Company is a party, when delivered, shall constitute the
legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms.
3.9 Indebtedness. The Company has no Indebtedness, except
Permitted Indebtedness. All Indebtedness owed by the Company to any
Affiliate is set forth on Schedule 3.9.
RESTATED LOAN AGREEMENT - Page 5
<PAGE>
3.10 Taxes. The Company has filed all tax returns (federal,
state, and local) required to be filed, including, without limitation,
all income, franchise, employment, property, and sales taxes, and has
paid all of its tax liabilities, other than immaterial amounts and
taxes that are being contested by the Company in good faith by
appropriate actions or proceedings, diligently pursued and with
respect to which adequate reserves in accordance with GAAP have been
provided for on the Company's books. The Company knows of no pending
investigation of the Company by any taxing authority or pending but
unassessed tax liability of the Company, except as disclosed on
Schedule 3.10. The Company has made no presently effective waiver of
any applicable statute of limitations or request for an extension of
time to file a tax return, and the Company is not a party to any
tax-sharing agreement.
3.11 Use of Proceeds; Margin Securities. The Company is not
engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System), and no part of the
proceeds of any extension of credit under this Agreement will be used
to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.
Neither the Company nor any Person acting on its behalf has taken any
action that might cause the transactions contemplated by this
Agreement or any Other Agreements to violate Regulations G, T, U or X
or to violate the Securities Exchange Act of 1934, as amended.
3.12 ERISA. All members of any Controlled Group have complied
with all applicable minimum funding requirements and all other
applicable and material requirements of ERISA and the Code, applicable
to the Employee Benefit Plans it or they sponsor or maintain, and
there are no existing conditions that would give rise to material
liability thereunder. With respect to any Employee Benefit Plan, all
members of any Controlled Group have made all contributions or
payments to or under each Employee Benefit Plan required by law, by
the terms of such Employee Benefit Plan or the terms of any contract
or agreement. No Termination Event has occurred in connection with
any Pension Plan, and there are no unfunded benefit liabilities, as
defined in Section 4001(a)(18) of ERISA, with respect to any Pension
Plan which poses a risk of causing a Lien to be created on the assets
of the Company or which will result in the occurrence of a Reportable
Event. No member of any Controlled Group has been required to
contribute to a multiemployer plan, as defined in Section 4001(a)(3)
of ERISA, since September 2, 1974. No material liability to the
Pension Benefit Guaranty Corporation has been, or is expected to be,
incurred by any member of a Controlled Group. The term "liability,"
as referred to in this Section 3.12, includes any joint and several
liability. No prohibited transaction under ERISA or the Code has
occurred with respect to any Employee Benefit Plan which could have a
Material Adverse Effect or a material adverse effect on the condition,
financial or otherwise, of an Employee Benefit Plan.
3.13 Disclosure. No representation or warranty made by the
Company in any Other Agreement to which the Company is a party
contains any untrue fact or omits to state any material fact necessary
to make the statements herein or therein not misleading. There is no
fact known to the Company which the Company has determined has a
Material Adverse Effect, or which the Company has determined might in
the future have a Material Adverse Effect, that has not been disclosed
in writing to the Lender.
3.14 Subsidiaries and Capitalization. The Company has no
Subsidiaries. All the issued and outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid and non-
assessable. The capitalization of the Company on the Closing Date is
set forth on Schedule 3.14. No violation of any preemptive rights of
shareholders of the Company has occurred by virtue of the transactions
contemplated under this Agreement, or any Other Agreement. Except as
otherwise set forth on Schedule 3.14, there are no outstanding
contracts, options, warrants, instruments, documents or agreements
binding upon the Company granting to any Person or group of Persons
any right to purchase or acquire shares of the Company's capital
stock, except pursuant to the Warrant Documents.
3.15 Current Locations. Schedule 3.15 identifies (a) the
Company's principal place of business and chief executive office, (b)
all the locations where the Company maintains any books or records
relating to any of its assets, (c) all other locations where the
Company has a place of business, and (d) each address where any of the
Company's assets are located. Schedule 3.15 accurately indicates
whether each such location is owned or leased,
RESTATED LOAN AGREEMENT - Page 6
<PAGE>
and, if leased, identifies the owner of such location. No Person other than the
Company has possession of any material amount of the assets of the Company
except as disclosed on Schedule 3.15.
3.16 No Burdensome Restrictions. The Company is not a party to,
or bound by any agreement, condition, contract or arrangement which
has, or which the Company reasonably expects in the future will have,
a Material Adverse Effect.
3.17 Securities Laws. The Company has complied with or is exempt
from the registration and/or qualification requirements of all federal
and state securities or blue sky laws applicable to the issuance of
the Senior Note.
3.18 No Labor Disputes. The Company is not involved in any labor
dispute. There are no strikes or walkouts or union organization of
any of the Company's employees threatened, to the knowledge of the
Company, or in existence and no labor contract is scheduled to expire
during the term of this Agreement. The Company is in compliance with
all laws, rules, regulations, orders and decrees applicable to the
Company or its properties, except for instances of noncompliance
which, individually or in the aggregate, will not have a Material
Adverse Effect.
3.19 Brokers. Neither the Company nor any of its shareholders
has dealt with any broker, finder, commission agent or other Person
other than as set forth on Schedule 3.19 in connection with the
transactions referenced in or contemplated by this Agreement, nor is
the Company or any of its shareholders under any obligation to pay any
broker's fee or commission in connection with such transactions.
3.20 Liens. The Lender's Liens attaching to the Collateral will
constitute at all times valid, perfected and enforceable Liens,
subject to no prior or superior Lien, except Permitted Liens. The
Company has taken, or participated with the Lender in taking, all
necessary action (including making all necessary filings) to provide
the Lender with first priority perfected Liens in the Collateral under
the laws of all applicable jurisdictions.
3.21 Insurance. The amount and types of insurance carried by the
Company, and the terms and conditions thereof, are substantially
similar to the coverage maintained by companies in the same or similar
business as the Company and similarly situated.
3.22 Conduct of Business. On the Closing Date, the Company is
engaged only in businesses of the type described in Schedule 3.22.
IV. CONDITIONS PRECEDENT TO INITIAL OBLIGATIONS OF LENDER
The Lender's obligations hereunder to reinstate the Original
Agreement, to waive the Existing Defaults and to make the initial
Advance hereunder shall be subject to the satisfaction of the
following conditions on or before the Closing Date:
4.1 No Litigation; Consummation of Transactions. No injunction,
preliminary injunction, or temporary restraining order shall be
threatened or shall exist which prohibits or may prohibit the
transactions contemplated herein or any other related transaction, and
no litigation or similar proceeding (including, without limitation,
any litigation or other proceeding seeking injunctive or similar
relief) shall be threatened or shall exist with respect to the
transactions contemplated herein, which, if adversely determined,
would in the judgment of the Lender have a Material Adverse Effect.
4.2 Documents. The Lender shall have received the following,
each in form and substance satisfactory to the Lender:
(a) Insurance. Certified copies of all insurance policies
and endorsements thereto required by Section 6.13, together with a
written report from an insurance broker acceptable to the Lender,
confirming that the amount of such insurance coverage and the terms
and conditions thereof, are substantially similar to policies
maintained by companies similarly situated to the Company and engaged
in the same or a similar business;
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(b) Approvals and Consents. Copies, certified by the
Company of all consents, authorizations, filings, licenses and
approvals, if any, required in connection with the execution, delivery
and performance by the Company, or the validity and enforceability of,
this Agreement or the Other Agreements to which the Company is a
party;
(c) Opinion of Counsel to the Company. The written legal
opinion of legal counsel to the Company, such opinion to be
substantially in the form of Exhibit B hereto; except with respect to
Sections (m) and (n) of such opinion, which shall be exactly in the
form of Exhibit B hereto;
(d) General Certificate of the Company's Secretary. A
certificate of the Secretary of the Company together with true,
correct and complete copies of the following:
(i) Articles of Incorporation. The Articles of
Incorporation of the Company, including all amendments thereto,
certified by the Secretary of State of the state of its
incorporation;
(ii) Bylaws. The Bylaws of the Company, including all
amendments thereto;
(iii) Resolutions. The resolutions of the Board of
Directors of the Company authorizing the execution, delivery and
performance of this Agreement and the Other Agreements to which
the Company is a party;
(iv) Existence and Good Standing Certificates.
Certificates of the appropriate government officials of the state
of incorporation of the Company as to its existence and good
standing, and certificates of the appropriate government
officials in each state where the Company does business and where
failure to qualify as a foreign corporation would have a Material
Adverse Effect, as to its good standing and due qualification to
do business in such state, each dated within thirty (30) days
prior to the Closing Date; and
(v) Incumbency. The names of the officers of the
Company authorized to sign this Agreement and the Other
Agreements to be executed by the Company, together with a sample
of the true signature of each such officer;
(e) Transaction Certificate. A certificate of the
President and the Executive Vice President of the Company that, to the
best of their knowledge after due investigation, all conditions
precedent to the effectiveness of this Agreement have been satisfied
or waived;
(f) Financing Statements. UCC-1 financing statements and
all other requisite filing documents, instruments, assignments or
other agreements necessary to ensure a first priority security
interest in the Collateral in favor of the Lender, in form
satisfactory for filing with the appropriate filing officers;
(g) Liens. Evidence satisfactory to the Lender that as of
the Closing Date the Lender has a perfected first priority Lien on the
Collateral; and
(h) Additional Information, Other Documents and Agreements.
Such other information, documents, agreements, commitments and
undertakings as the Lender shall reasonably request.
4.3 Private Placement. The Company shall have raised at least
One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00),
which shall result in at least One Million Two Hundred Fifty Thousand
and No/100 Dollars ($1,250,000.00) net proceeds to the Company, in a
private placement (the "Private Placement"), subject to the following
additional conditions:
(a) If the over allotment is sold, the Company may raise up
to an additional Two Hundred Twenty-Five Thousand and No/100
($225,000.00) gross proceeds;
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(b) Total cash fees payable to third parties shall not exceed 13% of
the capital raised, plus a $30,000 consulting fee;
(c) The Private Placement shall be subordinate in all respects to the
Senior Obligations;
(d) The Private Placement shall be structured as the sale of sixty
(60) units for Twenty-Five Thousand and No/100 Dollars ($25,000.00) each; and
each unit will consist of fifty thousand (50,000) common shares of the Company
and a warrant to purchase another fifty thousand (50,000) common shares of the
Company exercisable at $1 per share, increasing to $1.50 per share after two (2)
years from the consummation of the Private Placement;
(e) All proceeds of the Private Placement shall be deposited in
escrow with Continental Stock Transfer & Trust Company, New York, New York,
pending consummation of the Private Placement and execution and delivery of this
Agreement; and
(f) Upon execution and delivery of this Agreement, the net proceeds
to the Company from the Private Placement shall be transferred to the Investment
Account.
In the event that the funds raised by the Company in the Private Placement
are less than $1,500,000.00, then, so long as the funds raised by the Company in
the Private Placement are at least One Million Two Thousand and No/100 Dollars
($1,200,000.00) and such amount, net of commissions of $156,000, is transferred
to the Investment Account upon the execution and delivery of this Agreement,
then this Agreement nevertheless shall be in force and effect, with the
exception that Lender will have no obligation to make any further Advance under
this Agreement, other than the Advance for payment of fees and expenses as
provided in Section 1.2(b)(ii), unless the Company achieves the $1,500,000.00
level of funds raised by November 30, 1996.
4.4 Trade Creditors. The Company shall have restructured at least Seven
Hundred Thousand and No/100 ($700,000.00) of past due trade accounts payable
owing by the Company to its trade creditors, in accordance with the following
terms and conditions:
(a) The trade creditors shall receive one-third (1/3) of their claims
in cash, payable 15% of the total claim upon consummation of the Private
Placement. The balance of cash payment shall be made in equal monthly
installments over fifteen (15) months.
(b) The balance of each trade claim (i.e., two-thirds of the whole
claim) shall be exchanged for the common stock of the Company to be issued upon
completion of the pricing of the stock. The stock will be priced at a price
equal to the lower of (a) 80% of the average daily closing price during the
thirty (30) days following the consummation of the Private Placement, or (b) the
lowest closing price during such 30-day period, but in no event will the price
at which the shares are issued to the trade creditors be less than $2.25 per
share.
4.5 Material Adverse Changes. During the period beginning March 31, 1996
and continuing through the Closing Date, and, except for inventory write-offs
and operating losses disclosed to Lender in writing, there will have been (a) no
material adverse change in the business, financial or other conditions of the
Company, or in the Collateral which will be subject to Lender's security
interest, or in the prospects or projections of the Company, (b) there will have
been no material increase in the liabilities (absolute or contingent) of the
Company, whether or not disclosed or required to be reserved against on any pro
forma balance sheet, and (c) no material decrease in the assets of the Company
nor distribution by the Company either by dividends or otherwise.
4.6 Lender's Fees, Costs and Expenses. On the Closing Date, all of
Lender's legal and other fees shall be paid by the Company as an additional
Advance under the Senior Note. Included within such legal and other fees will be
the $35,000 facility fee due on June 2, 1996, all legal expenses and other
consulting expenses (including all expenses associated with this transaction).
RESTATED LOAN AGREEMENT - Page 9
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4.7 Subordinated Debt. The Company shall have entered into
binding agreements ("Shareholder Subscription Agreements") for the
conversion of the Shareholder Subordinated Debt, together with accrued
interest, into equity of the Company on substantially the same terms
as subscribers to the Private Placement.
4.8 No Default. As of the Closing Date, there shall not have
occurred and be continuing any Event of Default under the Loan
Agreement, except for the Existing Defaults.
4.9 Interest. The Company shall have made all interest payments
to Lender that become due under the Loan Agreement from the date
hereof through and including the Closing Date.
4.10 Securities Laws. The Company and its underwriters and
investment advisors shall have complied with all applicable state and
federal securities laws in connection with the Private Placement.
4.11 Representations and Warranties. All representations and
warranties contained in this Agreement and the Other Agreements shall
be true and correct on the Closing Date.
4.12. Depository, Concentration Investment and Accounts.
(a) Prior to the Closing Date, the Company shall have
established one or more Depository Accounts into which the cash
receipts for Photo Booths shall be deposited, and shall have delivered
to the Lender, with respect to such Depository Accounts, a depository
account agreement (as amended, modified or supplemented from time to
time, a "Depository Account Agreement"), duly executed and delivered
by the Company and duly acknowledged by the financial institution at
which such Depository Account is established.
(b) Prior to the Closing Date, the Company shall have
established a Concentration Account at a financial institution
acceptable to the Lender and shall have delivered to the Lender, with
respect to such Concentration Account, a concentration account
agreement (as amended, modified or supplemented from time to time, a
"Concentration Account Agreement"), duly executed and delivered by the
Company and duly acknowledged by the financial institution at which
such Concentration Account is established.
(c) Prior to the Closing Date, the Company shall have
established an Investment Account at a financial institution
acceptable to the Lender and shall have delivered to the Lender, with
respect to such Investment Account, an account agreement (as amended,
modified or supplemented from time to time, the "Investment Account
Agreement"), duly executed and delivered by the Company and duly
acknowledged by the financial institution at which such Investment
Account is established.
V. CONDITIONS PRECEDENT TO EACH ADVANCE
The Lender's obligations hereunder to make any Advance shall be
subject to satisfaction of the following conditions precedent on each
Borrowing Date:
5.1. Notice of Borrowing. The Company delivers to the Lender a
Notice of Borrowing.
5.2 Representations and Warranties. All representations and
warranties made by the Company contained in this Agreement or
otherwise made in any Other Agreements, officer's certificate or any
agreement, instrument, certificate, document or other writing
delivered to the Lender in connection herewith or therewith, shall be
true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of
the date of such borrowing.
5.3 No Event of Default. On each Borrowing Date, there shall
exist no Event of Default or Potential Default.
5.4. Compliance with Procedures. The Company shall have complied
with all procedures and given all certificates, notices and other
documents required hereunder for such Advance.
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<PAGE>
5.5 Adjusted Maximum Facility Amount. The making of such
Advance shall not cause the outstanding principal balance of the
Senior Note to exceed the Adjusted Maximum Facility Amount.
VI. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, from the date hereof and
until the Senior Obligations have been finally and irrevocably paid in
full in accordance with the terms hereof and thereof:
6.1 Financial Statements. The Company will furnish to the
Lender:
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company, beginning
with the fiscal year ending June 30, 1996, (i) a copy of the annual
audit report of the Company for such fiscal year containing a balance
sheet, statement of income, statement of stockholders' equity, and
statement of cash flow as at the end of such fiscal year and for the
fiscal year then ended, in each case setting forth in comparative form
the figures for the preceding fiscal year, along with management's
discussion and analysis of variances, all in reasonable detail and
audited and certified by Lane, Gorman & Trubitt, L.L.P. or other
independent certified public accountants of recognized national
standing selected by the Company and consented to by the Lender
(provided the Lender's consent shall not unreasonably be withheld) to
the effect that such report has been prepared in accordance with GAAP;
(ii) a certificate delivered to the Lender by such independent
certified public accountants confirming the calculations set forth in
the officers' certificate delivered to the Lender simultaneously
therewith in accordance with Section 6.2(a); and (iii) a comparison of
the actual results during such fiscal year to those originally
budgeted by the Company prior to the beginning of such fiscal year,
along with management's discussion and analysis of variances. Further,
the Company agrees to indicate in footnotes to such financial
statements the specific dollar amount of any line item required for
the calculations set forth in the officers' certificate required by
Section 6.2, where the financial statements delivered pursuant to this
Section do not present a corresponding line item.
(b) As soon as available, and in any event either (i)
within forty-five (45) days after the end of each calendar month for
the period beginning September 30, 1996 until November 30, 1996, or
(ii) within thirty (30) days after the end of each calendar month for
the period beginning December 31, 1996 and thereafter, a copy of an
unaudited financial report of the Company as of the end of such
calendar month and for the portion of the fiscal year then ended,
containing balance sheets, statements of income, and statements of
cash flow, in each case setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, along with,
on a quarterly basis, management's discussion and analysis of
variances, all in reasonable detail, including, without limitation, a
comparison of the actual results during such period to those
originally budgeted by the Company prior to the beginning of such
fiscal period. Further, the Company agrees to indicate in footnotes
to such financial statements the specific dollar amount of any line
item required for the calculations set forth in the officers'
certificate required by Section 6.2, where the financial statements
delivered pursuant to this Section do not present a corresponding line
item.
(c) On or before sixty (60) days prior to the beginning of
each fiscal year of the Company, an annual budget or business plan for
such fiscal year showing monthly detail, including a projected
consolidated and consolidating balance sheet, income statement, and
cash flow statement for such year, and, promptly during each fiscal
year, all revisions thereto approved by the board of directors of the
Company.
(d) As soon as available, and in any event not later than
either (x) forty-five (45) days after the end of each calendar month
for the period beginning with the month ending September 30, 1996
through November 30, 1996, or (y) thirty (30) days after the end of
each calendar month for the period beginning with the month ending
December 31, 1996 and thereafter, a copy of the following:
(i) summary booth inventory report;
RESTATED LOAN AGREEMENT - Page 11
<PAGE>
(ii) detailed inventory of booths including state, city and
county location detail;
(iii) detailed list of booths in process;
(iv) list of outstanding booth commitments;
(v) list of all bank accounts, together with account
balances;
(vi) summary accounts payable aging with detail for accounts
over ninety (90) days;
(vii) summary accounts receivable aging with detail for
accounts over ninety (90) days;
(viii) inventory report classified as (1) consumable, (2)
work-in-process, (3) new parts and (4) used parts;
(ix) budget versus actual maintenance expense analysis;
(x) budget versus actual maintenance capital expenditures
analysis, and
(xi) budget versus actual analysis of all financial
statements.
Such reports shall be in substantially the form as set forth in
Exhibit G attached hereto.
(e) As soon as available, and in any event not later than
forty-five (45) days after the end of each calendar month, beginning
with the month ending September 30, 1996 and continuing regularly
thereafter, a copy of the contribution analysis of each booth location
formatted on a computer readable diskette in Microsoft Excel, version
5.0, in substantially the form as set forth in Exhibit H attached
hereto.
6.2 Certificates; Other Information. The Company will furnish
to the Lender all of the following:
(a) Concurrently with the delivery of each of the financial
statements referred to in Section 6.1(a) and Section 6.1(b) and the
business plans and projections referred to in Section 6.1(c), a
certificate of the President and the Executive Vice President of the
Company in the form of the officers' certificate attached hereto as
Exhibit C (i) stating that no Potential Default or Event of Default
has occurred and is continuing or, if such officers have knowledge of
a Potential Default or Event of Default, the nature thereof and
specifying the steps taken or proposed to remedy such matter, (ii)
showing in reasonable detail the calculations showing compliance with
Sections 7.9 and 7.10, (iii) stating that the financial statements
attached have been prepared in accordance with GAAP and fairly and
accurately present (subject to year-end audit adjustments, for the
annual certificates) the financial condition and results of operations
of the Company at the date and for the period indicated therein, (iv)
containing a schedule of the outstanding Indebtedness for borrowed
money of the Company and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan, and (v) a report detailing (A) all matters
materially affecting the value, enforceability or collectibility of
any material portion of its assets including, without limitation, the
Company's reclamation or repossession of, or the return to the Company
of, a material amount of goods and material claims or disputes
asserted by any customer or other obligor, and (B) any material
adverse change in the relationship between the Company and any of its
material suppliers or customers.
(b) On or before forty-five (45) days after the end of each
fiscal quarter, a copy of the Form 10QSB filed by the Company with the
Securities and Exchange Commission.
(c) On or before ninety (90) days after the end of each
fiscal year, (i) a copy of the Form 10KSB filed by the Company with
the Securities and Exchange Commission, (ii) annual report prepared by
the Company for its stockholders, (iii) a report by the Company's
independent auditors of the cash management
RESTATED LOAN AGREEMENT - Page 12
<PAGE>
procedures utilized by the Company, and (iv) a copy of each financial statement,
report, notice or proxy statement sent by the Company to its stockholders in
their capacity as stockholders.
(d) Within fifteen (15) days of availability, (i) all
budget updates and revisions prepared by the Company, (ii) a copy of
each regular, periodic or special report, registration statement, or
prospectus filed by the Company with any securities exchange or the
Securities and Exchange Commission or any successor agency, and any
material order issued by any court, governmental authority, or
arbitrator in any material proceeding to which the Company is a party,
(iii) copies of all public announcements, press releases and other
statements made available generally by the Company to the public
generally concerning material developments in the Company's business,
(iv) copies of the minutes of each meeting of the board of directors
of the Company, and (v) copies of any offering memoranda issued in
conjunction with the sale of securities by the Company.
(e) Promptly, such additional information concerning the
Company as the Lender may reasonably request.
6.3 Books and Records. The Company shall (a) keep proper books
of record and account in which full, true and correct entries will be
made of all dealings or transactions of or in relation to its business
and affairs; (b) set up on its books accruals with respect to all
taxes, assessments, charges, levies and claims; and (c) on a
reasonably current basis set up on its books from its earnings
allowances against doubtful receivables, advances and investments and
all other proper accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required payments
and accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to this
Section shall be made in accordance with, or as required by, GAAP
consistently applied.
6.4 Financial Disclosure. The Company hereby irrevocably
authorizes and directs all accountants and auditors employed by it at
any time during the term of this Agreement to exhibit and deliver to
the Lender copies of any of the Company's financial statements, trial
balances or other accounting records of any sort in the accountant's
or auditor's possession, and to disclose to the Lender any
information they may have concerning the Company's financial status
and business operations. The Company hereby irrevocably authorizes
all federal, state and municipal authorities to furnish to the Lender
copies of reports or examinations relating to the Company, whether
made by the Company or otherwise.
6.5 Disclosure of Material Matters. The Company will,
immediately upon learning thereof, report to the Lender (a) all
matters materially affecting the value, enforceability or
collectibility of any material portion of the Collateral or its other
assets including, without limitation, the Company's reclamation or
repossession of, or the return to the Company of, a material amount of
goods and material claims or disputes asserted by any customer or
other obligor, and (b) any material adverse change in the relationship
between the Company and any of its suppliers or customers.
6.6 Performance of Obligations. The Company will duly and
punctually pay and perform its obligations under this Agreement and
the Other Agreements to which it is a party.
6.7 Preservation of Existence and Conduct of Business. The
Company will preserve and maintain its corporate existence and all of
its leases, privileges, franchises, qualifications and rights that are
necessary or desirable in the ordinary conduct of its business, and
conduct its business as presently conducted in an orderly and
efficient manner in accordance with good business practices.
6.8 Maintenance of Properties. The Company will operate and
maintain in good condition and repair (ordinary wear and tear
excepted) and replace as necessary, all of its assets and properties
which are necessary or useful in accordance with sound business
practices in the proper conduct of its business so that the value and
operating efficiency of its assets and properties are maintained and
preserved. The Company will at all times maintain the Intellectual
Property in full force and effect, and will defend and protect the
Intellectual Property against all adverse claims.
RESTATED LOAN AGREEMENT - Page 13
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6.9 Payment of Taxes. The Company will file all tax returns
(federal, state, and local) required to be filed, including, without
limitation, all income, franchise, employment, property, and sales
taxes, and will pay all of its tax liabilities other than:
(a) immaterial amounts and taxes that are being contested
by the Company in good faith by appropriate actions or proceedings,
diligently pursued and with respect to which adequate reserves in
accordance with GAAP have been provided for on the Company's books;
and
(b) sales taxes, the payment of which is pending issuance
or assignment to the Company of appropriate taxpayer identification
number(s) by the applicable state taxing authority, but only so long
as (i) the Company has accrued such taxes as a current liability in
accordance with GAAP, (ii) the Company has deposited the amount of
such tax liability into a special sales tax deposit account of the
Company on a regular basis, but not less often than monthly, (iii) the
Company is diligently taking reasonable action to complete the process
of obtaining appropriate taxpayer identification numbers from the
applicable state taxing authority, (iv) upon issuance of the
appropriate taxpayer identification number(s) to the Company, the
Company promptly pays then due and payable liability for sales taxes
owing to the applicable state tax authority, and (v) the Company
reports to the Lender, in writing, on a monthly basis, concurrently
with the submission of the financial statements as required in
Section 6.1(b), the amount of taxes collected, but not paid, and, if
requested by the Lender, the applicable taxing authority to which
the taxes are payable, together with such other information as the
Lender may reasonably request.
The Company will promptly notify the Lender in writing of any pending
investigation of the Company by any taxing authority or pending but
unassessed tax liability of the Company.
6.10 Payment of Impositions. The Company will pay or discharge,
at or before maturity or before becoming delinquent (a) all taxes,
levies, assessments, vault, water and sewer rents, rates, charges,
levies, permits, inspection and license fees and other governmental
and quasi-governmental charges and any penalties or interest for
nonpayment thereof, heretofore or hereafter imposed or which may
become a Lien upon any property owned by the Company or arising with
respect to the occupancy, use, possession or leasing thereof
(collectively the "Impositions") and (b) all lawful claims for labor,
material, and supplies, which, if unpaid, might become a Lien upon
any of its property; provided, however, that the Company shall not be
required to pay or discharge any claim for labor, material, or
supplies or any Imposition which is being contested in good faith by
appropriate actions or proceedings diligently pursued, and for which
adequate reserves in conformity with GAAP have been established.
6.11 Compliance with Laws. The Company shall comply with all
acts, rules, regulations and orders of any legislative, administrative
or judicial body or official applicable to the operation of the
Company's business; provided, however, the Company may contest or
dispute any acts, rules, regulations, orders and directions of those
bodies or officials by appropriate actions or proceedings diligently
pursued, if adequate reserves with respect thereto are established to
the reasonable satisfaction of the Lender.
6.12 Payment of Expenses. All Miscellaneous Expenses shall be
payable to the Lender, on demand, shall be secured by the Collateral,
and shall accrue interest from the date of demand until paid at the
same rate(s) of interest as the outstanding principal balance of the
Senior Note.
6.13 Leasehold Obligations. The Company shall provide copies of
all leases under which it is a tenant or lessee, at the Lender's
request. The Company shall at all times pay, when and as due, its
rental obligations under all leases under which it is a tenant or
lessee, and shall otherwise comply, in all material respects, with all
other terms of such leases and keep them in full force and effect and,
at the Lender's request, will provide evidence of its having done so;
provided, however, the Company may contest or dispute its obligations
under such leases, by appropriate actions or proceedings diligently
pursued if adequate reserves with respect thereto are established to
the reasonable satisfaction of the Lender.
6.14 Insurance. The Company will maintain, with financially
sound, reputable and solvent companies, insurance policies (a)
insuring its assets against loss by fire, explosion, theft and other
risks and
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casualties as are customarily insured against by companies engaged in the same
or a similar business, (b) insuring it against liability for personal injury and
property damages relating to its assets, such policies to be in such amounts and
covering such risks as are usually insured against by companies engaged in the
same or a similar business, and (c) insuring such other matters as may from time
to time be requested by the Lender. All policies shall be endorsed in favor of
the Lender as an additional insured, loss payee or assignee, as appropriate. The
Company shall provide copies of all such insurance policies to the Lender within
ten (10) days following the Lender's request for the same. The Company shall (i)
deliver copies of all such policies to the Lender immediately upon the Company's
receipt thereof, (ii) pay, or cause to be paid, all premiums for such insurance
at least thirty (30) days before such premiums become due, (iii) furnish to the
Lender satisfactory proof of the timely making of such payments, (iv) deliver
copies of all renewal policies to the Lender at least five (5) days before the
expiration date of each expiring policy, (v) cause such policies to require the
insurer to give notice to the Lender of termination of any such policy at least
thirty (30) days before such termination is to be effective, and (vi)
immediately deliver written notice to the Lender of any casualty loss affecting
the Collateral.
6.15 Inspection Rights. At any reasonable time and from time to
time, the Company will permit representatives of the Lender to examine
and make copies of the books and records of, and visit and inspect the
properties of, the Company, and to discuss the business, operations,
and financial condition of the Company with its respective officers
and employees and with its independent certified public accountants.
In accordance with the terms of Section 6.12 hereof, the Company will
promptly reimburse the Lender for all reasonable expenses incurred by
representatives of the Lender in connection with such inspections.
6.16 Negative Pledge. Until payment and performance in full of
all of the Senior Obligations and termination of this Agreement, the
Company shall not, without the Lender's prior written consent, pledge,
sell (except inventory in the ordinary course of business), assign,
transfer, create or suffer to exist any Lien (except for Permitted
Liens) upon any part of its assets.
6.17 Maintenance of Equipment. The Company's equipment shall be
maintained in its existing repair and condition (reasonable wear and
tear excepted); and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the
equipment shall be maintained and preserved.
6.18 Notices. The Company will promptly, but in any event within
two (2) business days after first becoming aware thereof, notify the
Lender in writing of:
(a) the commencement of any event, including but not
limited to, any action, suit, or proceeding against the Company that
could have a Material Adverse Effect which notice shall specify the
nature of such event and what action the Company has taken or is
taking or proposes to take with respect thereto;
(b) the occurrence of a default, or an event which with the
passage of time or giving of notice or both constitutes a default or
event of default under any instrument or agreement evidencing any
other Indebtedness of the Company;
(c) any other matter that might have a Material Adverse
Effect; and
(d) the occurrence of a Potential Default or an Event of
Default.
Any notification required by this Section 6.18 shall be accompanied by
a certificate of the President or Executive Vice President setting
forth the details of the specified events and the action which the
Company proposes to take with respect thereto.
6.19 Further Assurances. The Company shall execute and deliver
to the Lender from time to time, upon demand, such supplemental
agreements, statements, assignments and transfers, or instructions or
documents as the Lender may request, in order that the full intent of
this Agreement and the Other Agreements may be carried into effect.
RESTATED LOAN AGREEMENT - Page 15
<PAGE>
6.20 Compliance with ERISA and the Code. The Company will
comply, and will cause each other member of any Controlled Group to
comply, with all minimum funding requirements, and all other material
requirements, of ERISA and the Code, if applicable, to any Employee
Benefit Plan it or they sponsor or maintain, so as not to give rise to
any liability thereunder. The Company will pay and will cause each
other member of any Controlled Group to pay when due any amount
payable by it to the Pension Benefit Guaranty Corporation. Promptly
after the filing thereof, the Company shall furnish to the Lender with
regard to each Employee Benefit Plan, copies of each annual report
required to be filed pursuant to Section 104 of ERISA in connection
with each such plan for each plan year.
6.21 Compliance with Regulations G, T, U and X. Neither the
Company nor any Person acting on its behalf will take any action which
might cause this Agreement, the Senior Note, the Warrant Documents or
any Other Agreement to violate, and the Company will take all actions
necessary to cause compliance with, Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System and the Securities
Exchange Act of 1934, in each case as now in effect or as the same may
hereafter be in effect.
6.22 Fiscal Year. The Company will cause its fiscal year to be
the twelve month period ending on the last day of June of each year.
6.23 Board Observation and Membership. The Company will deliver
to the Lender a certified copy of the minutes of and all materials
distributed at or prior to all meetings of the Board of Directors of
the Company, certified as true and accurate by the Secretary of the
Company, promptly following each such meeting. The Company will (a)
permit the Lender so long as the Lender is a Holder or owns any stock,
warrants or other equity interest in the Company, to designate one
person that is not directly or indirectly a competitor of the Company
to attend all meetings of the Company's board of directors, (b)
provide such designee not less than ten (10) business days actual
notice of all regular meetings and three (3) calendar days' actual
notice of all special meetings of the Company's board of directors,
(c) permit such designee to attend such meetings as an observer, and
(d) provide to such designee a copy of all materials distributed at
such meetings.
6.24 Environmental Costs.
(a) The Company hereby indemnifies and holds the Lender
harmless from and against any liability, loss, damage, suit, action or
proceeding pertaining to solid or hazardous waste materials or other
waste-like or toxic substances, including, but not limited to, claims
of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under any federal, state
or municipal law or regulation, or tort, contract or common law that
relates to the Company.
(b) To the extent the laws of the United States or any
state in which property, leased or owned, of the Company provide that
a lien upon the property of the Company may be obtained for the
removal of Polluting Substances which have been or may be released, no
later than sixty (60) days after notice is given by the Lender to the
Company, the Company shall deliver to the Lender a report issued by a
qualified, third party engineer certifying as to the existence of any
Polluting Substances located upon or beneath the specified property,
leased or owned. To the extent any such Polluting Substance is
located therein or thereunder that either (i) subjects the property to
Lien or (ii) requires removal to safeguard the health of any Person,
the Company shall remove, or cause to be removed, such lien and such
Polluting Substance at the Company's expense.
6.25 Audits. The Company will, in accordance with the procedures
set forth in Schedule 6.25 hereto, provide a letter to the Lender on a
quarterly basis, setting forth the locations of the Collateral, the
Leases under which the Company is a tenant or lessee, and cash
management procedures. In addition, the Company will, on an annual
basis, employ an independent auditor, at the Company's sole expense,
that is acceptable to the Lender in its sole discretion, to audit and
otherwise evaluate the Collateral, the locations of the Collateral,
all leases or other agreements under which the Company is a tenant or
other occupant of premises, and the cash management procedures, such
audits and evaluations prepared on an accounting basis and utilizing
the procedures set forth on Schedule 6.25.
RESTATED LOAN AGREEMENT - Page 16
<PAGE>
6.26 Replacement of Senior Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or
destruction of the Senior Note and, in the case of any such loss,
theft or destruction, upon delivery of a bond of indemnity in such
form and amount as shall be reasonably satisfactory to the Company or,
in the event of such mutilation upon surrender and cancellation of the
Senior Note, the Company, without charge to the Holder thereof, will
make and deliver a new Senior Note of like tenor and the same series
in lieu of such lost, stolen, destroyed or mutilated Senior Note. If
any such lost, stolen or destroyed Senior Note is owned by the Lender
or any other Holder whose credit is satisfactory to the Company, then
the affidavit of an authorized officer of such owner setting forth the
fact of loss, theft or destruction and of its ownership of the Senior
Note at the time of such loss, theft or destruction shall be accepted
as satisfactory evidence thereof, and no further indemnity shall be
required as a condition to the execution and delivery of a new Senior
Note, other than a written agreement of such owner (in form
reasonably satisfactory to the Company) to indemnify the Company.
6.27 Board Meetings. The Company agrees to hold meetings of the
Board of Directors, such meetings to be held at least quarterly.
6.28 Depository and Concentration Accounts. The Company shall
deposit or cause to be deposited all cash receipts from Photo Booths
into a Depository Account and, on each Business Day, shall transfer
all collected balances from all Depository Accounts to the
Concentration Account. The Company shall deliver, or cause each
financial institution that established a Depository Account or the
Concentration Account, as the case may be, to deliver, to Lender, on a
monthly basis simultaneously upon delivery to the Company, the monthly
account statements that pertain to the Depository Accounts and the
Concentration Account.
6.29 Investment Account. The net proceeds to the Company from
the Private Placement shall be put into an investment account (the
"Investment Account"), which will be subject to the same terms and
conditions as the Concentration Account with respect to the security
interest in favor of the Lender and the occurrence of an Event of
Default. The Company will not make any withdrawals or transfers of
funds from the Investment Account, except for transfers of funds into
the Company's operating account such that the aggregate balance of
funds in the operating account(s) existing from time to time is equal
to or less than $100,000. Further, in the event that the aggregate
balance of funds in the operating account(s) of the Company exceeds a
balance of $100,000, the excess will be transferred into the
Investment Account. The Company shall deliver, or cause the financial
institution that established the Investment Account to deliver, to
Lender, on a monthly basis simultaneously upon delivery to the
Company, the monthly account statement that pertains to the Investment
Account.
6.30 Shareholder Subscription Agreements. The Company will
consummate the transactions contemplated by the Shareholder
Subscription Agreements for the conversion of the Shareholder
Subordinated Debt, together with accrued interest, into equity of the
Company, not later than fifteen (15) days after the Closing Date.
6.31 Performance of Settlement Agreements. The Company will duly
and punctually pay and perform its obligations under the Settlement
Agreements and Releases, which reflect the re-structuring with the
Company's trade creditors, as contemplated by Section 4.4 above, and
which are more fully described in Schedule 7.1 to this Agreement.
6.32 Tax and Payroll Accounts. The Company will maintain the
deposit accounts designated as Tax Account and Payroll Account on
Exhibit E to this Agreement solely for deposit of funds for the
payment of taxes and employee payroll, respectively, and will maintain
the amounts on deposit in such accounts in amounts not in excess of
the amounts respectively due for the then current applicable payment
period.
VII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof until
the Senior Obligations have been finally and irrevocably paid in full
in accordance with the terms hereof and thereof:
RESTATED LOAN AGREEMENT - Page 17
<PAGE>
7.1 Indebtedness. Except as set forth in Schedule 7.1, the
Company will not create, incur, issue, assume, guarantee or otherwise
become liable for any Indebtedness except (a) Permitted Indebtedness,
(b) any extension, renewal or refinancing of any Permitted
Indebtedness on such terms and conditions as are, on the whole, no
more onerous to the Company than the terms and conditions of such
Permitted Indebtedness on the date of such extension, renewal or
refinancing and (c) indebtedness subordinate to the Lender on terms
and conditions acceptable to the Lender, in its sole discretion. Any
Permitted Indebtedness which is subordinated to the Senior Obligations
shall continue to be subordinated to the Senior Obligations on terms
and conditions satisfactory to the Lender.
7.2 Commitments. Without the prior written consent of the
Lender, the Company will not enter into any Commitments except (a)
Permitted Indebtedness, and (b) any extension, renewal or refinancing
of any Permitted Indebtedness on such terms and conditions as are, on
the whole, no more onerous to the Company than the terms and
conditions of such Permitted Indebtedness on the date of such
extension, renewal or refinancing.
7.3 Limitation on Liens. The Company will not incur, create,
assume, or permit to exist any Lien upon any of its property, assets,
or revenues, including, but not limited to, its shares of capital
stock of each of its Subsidiaries, whether now owned or hereafter
acquired, except Permitted Liens.
7.4 Merger, Acquisition, Dissolution and Sale of Assets. The
Company will not become a party to a merger or consolidation, or
purchase or otherwise acquire all or a substantial part of the assets
of any Person or any shares or other evidence of beneficial ownership
of any Person, or dissolve or liquidate. The Company will not form,
acquire or permit the existence of any Subsidiary or Subsidiaries of
the Company. The Company will not, without the Lender's prior written
consent, pledge, sell (except inventory in the ordinary course of
business and other assets reasonably and in good faith determined by
the Company to be obsolete or no longer necessary to the Company's
business), assign, transfer, create or suffer to exist a Lien (except
for Permitted Liens) upon any of the Company's assets.
7.5 Restricted Payments. The Company will not at any time make
or become obligated to make, directly or indirectly, any (a)
declaration of any dividend on, or any other payment or distribution
in respect of, any shares of the Company, (b) payment or distribution
on account of the purchase, repurchase, redemption, put, call or other
retirement of any shares of the Company or of any warrant, option or
other right to acquire such shares (except pursuant to the Warrant
Documents), or (c) payment or distribution on account of any
Indebtedness of the Company which is subordinate to the Senior Note.
7.6 Loans and Investments. Except for Permitted Investments and
travel or other advances in the ordinary course of business of
immaterial amounts, the Company will not make any advance, loan,
extension of credit, or capital contribution to or investment in, or
purchase any stock, bonds, notes, debentures, or other securities of
any Person.
7.7 Transactions with Affiliates. Except as contemplated by
this Agreement and the Other Agreements, the Company will not, without
the prior written consent of the Lender, enter into any transaction
with any director, officer, employee, shareholder, or Affiliate of the
Company, other than employee contracts, employee stock options or
grant agreements or other transactions (including those permitted by
Section 7.6, if any) in the ordinary course of business, all such
contracts, stock options and other agreements being subject to the
terms and conditions of the Warrant Purchase Agreement.
7.8 Nature of Business. The Company will not engage in any
business other than the businesses in which it is engaged as of the
date hereof (as more particularly set forth on Schedule 3.22), or any
business reasonably related thereto.
7.9 Financial Covenants. Until payment in full of the Senior
Note and all other Senior Obligations of the Company hereunder, the
Company covenants that it shall (without the Lender's prior written
consent) comply with the financial covenants set forth in Article
VIII.
RESTATED LOAN AGREEMENT - Page 18
<PAGE>
7.10 Capital Expenditures. Except the funding leasehold
improvements not to exceed $100,000 in amount and the costs of
construction of Photo Booths, the annual Capital Expenditures of the
Company may not exceed $250,000.00 without the prior written consent
of the Lender. In the event that the Company enters into a capital
lease or other contract with respect to fixed assets, for purposes of
calculating Capital Expenditures under this Section 7.10, the
aggregate amount of all payments due for the entire term of such
contract or capital lease shall be considered expended in full on the
date that the Company enters into such contract or capital lease.
7.11 Remuneration. The Company will not pay salaries and other
direct and indirect remuneration (including, but not limited to,
employee benefits and professional, consulting and management fees and
expenses) during any fiscal year to any of the Persons set forth on
Schedule 7.11 or any member of such Person's immediate family,
without the prior written consent of the Lender, exceeding the amounts
set forth for such Persons in Schedule 7.11.
VIII. FINANCIAL COVENANTS
8.1 Minimum Tangible Net Worth. Tangible Net Worth, as
calculated at any time and from time to time, shall not be less than
the amount indicated below during the respective period of time
indicated below:
Minimum Tangible
Time Period Net Worth
October 31, 1996 through
December 30, 1996 $3,250,000
December 31, 1996 through
March 30, 1997 $3,000,000
March 31, 1997 through
June 29, 1997 $2,850,000
June 30, 1997 through
September 29, 1997 $2,850,000
September 30, 1997 through
December 30, 1997 $3,200,000
December 31, 1997 through
March 30, 1998 $3,550,000
March 31, 1998
and thereafter $3,850,000
8.2 Maximum Total Liabilities to Tangible Net Worth Ratio. The
ratio of Total Liabilities to Tangible Net Worth , as calculated at
any time and from time to time, shall be no greater than the ratio
indicated below during the respective period of time indicated below:
Maximum Total
Liabilities to
Tangible Net
Time Period Worth Ratio
October 31, 1996 through
June 30, 1997 1.10 to 1.0
July 1, 1997 and thereafter 1.00 to 1.0
RESTATED LOAN AGREEMENT - Page 19
<PAGE>
8.3 Minimum Working Capital. The Company's working capital,
calculated from time to time and at any time as the Company's current
assets minus the Company's current liabilities (each determined in
accordance with GAAP), shall not be less than the amount indicated
below during the respective period of time indicated below:
Minimum Working
Time Period Capital
October 31, 1996 through
December 30, 1996 $400,000
December 31, 1996 through
March 30, 1997 $250,000
March 31, 1997 through
June 29, 1997 $150,000
June 30, 1997 through
September 29, 1997 $200,000
September 30, 1997
and thereafter $500,000
8.4 Minimum Gross Cash Flow to Total Debt Service Ratio. The
ratio of (a) Gross Cash Flow, as calculated at the end of each month
for the three (3)-month period consisting of the month then ended plus
the two preceding months, divided by 3, to (b) Total Debt Service, as
calculated at the end of each month for the three (3)-month period
consisting of the month then ended plus the two preceding months,
divided by 3, shall not be less than the ratio indicated below as at
the end of each month occurring during the respective period of time
indicated blow:
Minimum Gross
Cash
Flow to Total Debt
Time Period Service Ratio
October 31, 1996 through
December 30,1996 Not calculated.
December 31, 1996 through
March 30, 1997 Not calculated.
March 31, 1997 through
June 29, 1997 1.00 to 1.0
June 30, 1997
and thereafter 2.00 to 1.0
RESTATED LOAN AGREEMENT - Page 20
<PAGE>
8.5 Minimum Gross Cash Flow. Gross Cash Flow, as calculated at
the end of each month for the three (3)-month period consisting of the
month then ended plus the two preceding months, divided by 3, shall be
no less than the amount indicated below as at the end of each month
occurring during the respective period of time indicated below:
Minimum Gross
Time Period Cash Flow
October 31, 1996 through
December 30, 1996 $ (50,000)
December 31, 1996 through
March 30, 1997 $ (50,000)
March 31, 1997 through
June 29, 1997 $ - 0 -
June 30, 1997 through
September 29, 1997 $ 50,000
September 30, 1997
and thereafter $175,000
8.6 Minimum Net Income. Net Income as calculated at the end of
each month for the three (3)-month period consisting of the month then
ended plus the two preceding months, divided by 3, shall be no less
than the amount indicated below as at the end of each month occurring
during the respective period of time indicated below:
Minimum Net
Time Period Income
October 31, 1996 through
December 30, 1996 $(200,000)
December 31, 1996 through
March 30, 1997 $(175,000)
March 31, 1997 through
June 29, 1997 $(125,000)
June 30, 1997 through
September 29, 1997 $(50,000)
September 30, 1997 through
December 30, 1997 $ - 0 -
December 31, 1997
and thereafter $25,000
RESTATED LOAN AGREEMENT - Page 21
<PAGE>
8.7 Maximum Current Liabilities Plus Commitments. The sum of
the Company's current liabilities below plus Commitments, as
calculated at any time and from time to time, shall not be greater
than the amount indicated during the respective period of time
indicated below:
Maximum Current
Liabilities plus
Time Period Commitments
October 31, 1996 through
December 30, 1996 $1,200,000
December 31, 1996 through
March 30, 1997 $1,100,000
March 31, 1997 through
June 29, 1997 $1,000,000
June 30, 1997 through
September 29, 1997 $1,000,000
September 30, 1997 through
December 30, 1997 $850,000
December 31, 1997
and thereafter $800,000
8.8 Maximum Component Parts/WIP Inventory. The amount of the
Company's parts inventory (including new and used parts) plus work-in-
process inventory, as calculated at any time and from time to time,
shall be no greater than the amount indicated below during the
respective period of time indicated below:
Maximum
Component Parts/
Time Period WIP Inventory
October 31, 1996 through
December 30, 1996 $550,000
December 31, 1996 through
March 30, 1997 $500,000
March 31, 1997 through
June 29, 1997 $450,000
June 30, 1997 through
September 29, 1997 $400,000
September 30, 1997
and thereafter $350,000
RESTATED LOAN AGREEMENT - Page 22
<PAGE>
IX. EVENTS OF DEFAULT AND REMEDIES THEREFOR
9.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) Payment Default. The Company shall fail to pay, when
due (whether upon acceleration or otherwise), any principal, interest,
facility fee or other reasonable sums payable under the Senior Note or
this Agreement, or shall fail to pay, when due (whether upon
acceleration or otherwise), any other Senior Obligations;
(b) Payment Default to Third Parties. The Company shall
fail to pay, on or before sixty (60) calendar days after the date when
due and after passage of any other applicable notice and cure periods,
whether upon acceleration or otherwise, any Indebtedness owing to any
Person other than the Lender, and such failure shall remain unremedied
by the Company for a period of ten (10) calendar days following the
Company's receipt of Lender's notice of same;
(c) Covenant Default under Agreement or Senior Note.
Except as specifically provided otherwise in Section 9.1(d), the
Company shall fail to perform or observe any agreement, covenant, term
or condition contained in this Agreement or in the Senior Note, which
failure shall remain unremedied for a period of ten (10) calendar days
after the Company's receipt of Lender's notice regarding such failure;
(d) Certain Covenant Defaults Not Entitled to Notice or
Cure. The Company shall fail to perform or observe any of the
agreements, covenants, terms or conditions referenced below and
contained in this Agreement, with respect to which no notice or cure
whatsoever shall be required of Lender:
(i) Article VIII (pertaining to Financial Covenants),
(ii) Subsections 6.1(a)(i) and (ii), Section
6.1(b), Subsection 6.1(d)(i), and Sections 6.2(a), (b) and (c)
(pertaining to certain Financial Statements, Summary Booth
Inventory Reports, and Certificates),
(iii) Sections 6.28 and 6.29 (pertaining to
Depository, Collection and Investment Accounts), and
(iv) the agreements and covenants that are
addressed separately in Sections 9.1(a), (f), (g), (h) and(i);
(e) Covenant Default under Other Agreements. The Company
shall fail to comply with any agreement, indenture, mortgage, deed of
trust, or other agreement binding on it or affecting its properties or
business, including, without limitation, the Other Agreements, to
which the Company is a party, and such failure remains unremedied by
the Company for a period of ten (10) calendar days from the Company's
receipt of Lender's notice regarding such failure; except with respect
to any failure to comply with the Depository Account Agreements, the
Concentration Account Agreement or the Investment Account Agreement,
for which neither notice nor an opportunity to cure will be required
of Lender;
(f) Breach of Representation or Warranty. Any
representation, warranty or other material information whatsoever made
or provided by the Company in connection with this Agreement or
otherwise to induce the Lender to purchase the Senior Note or the
Warrant was incorrect or misleading in any respect, when made;
(g) Event of Bankruptcy. The Company shall initiate, or
otherwise become the subject of, an Event of Bankruptcy;
RESTATED LOAN AGREEMENT - Page 23
<PAGE>
(h) Judgment. Any judgment or order for payment of money
shall be rendered against the Company which exceeds $100,000.00 and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order, or (ii) there shall be a period
of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(i) Change in Management Control. The occurrence of a
material change in management control, directly or indirectly of the
Company, except as specifically contemplated by the Private Placement
Memorandum upon consummation of the Private Placement, unless Lender
has given its prior, written consent to such change.
9.2 Remedies of Holders upon Occurrence of Event of Default.
When any Event of Default described in Section 9.1 above, other than
any Event of Default described in subparagraph (f) thereof, has
occurred and is continuing, the Lender may (in addition to any other
right, power or remedy permitted to the Lender by law) declare the
entire amount of the Senior Obligations, including, without
limitation, the entire principal and all interest accrued then
outstanding under the Senior Note, to be, and the same shall thereupon
become, forthwith due and payable, without any presentment, demand,
protest, notice of default, notice of intention to accelerate, notice
of acceleration or other notice of any kind, all of which are hereby
expressly waived, and in such event the Company shall forthwith pay to
the Lender an amount equal to 100% of the amount thereof. When any
Event of Default described in subparagraph (f) of Section 9.1 above
shall occur, all of the Senior Obligations, including, without
limitation, the entire principal and all accrued interest then
outstanding under the Senior Note, shall thereupon be forthwith due
and payable without any presentment, demand, protest, notice of
default, notice of intention to accelerate, notice of acceleration or
other notice of any kind, all of which are hereby expressly waived by
the Company.
9.3 Payment of Senior Obligations. The Lender shall have the
right, which is absolute and unconditional, to receive payment of the
principal of and interest on such Senior Note and payment of all other
Senior Obligations on the date when due and, upon the occurrence and
continuance of an Event of Default, to institute suit against the
Company for the enforcement of any such payment. Such rights shall
not be impaired without the Lender's prior written consent.
9.4 Remedies. If any Event of Default shall occur and be
continuing, each and every Holder may exercise any right or remedy it
has at law, in equity or under this Agreement or any Other Agreement.
No right or remedy conferred upon or reserved to the Lender under this
Agreement or any Other Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative
and in addition to every other right or remedy given hereunder or now
or hereafter existing under any applicable law. Every right and
remedy given by this Agreement or by applicable law to the Lender may
be exercised from time to time and as often as may be deemed expedient
by the Lender.
9.5 Conduct No Waiver. No course of dealing on the part of the
Lender, nor any delay or failure on the part of the Lender to exercise
any of its rights, shall operate as a waiver of such right or
otherwise prejudice the Lender's rights, powers and remedies. If the
Company fails to pay, when due, the principal of, or the interest on,
the Senior Note, or fails to comply with any other provision of this
Agreement, the Company shall pay to the Holder, to the extent
permitted by law, on demand, such further amounts as shall be
sufficient to cover any Miscellaneous Expenses.
9.6 Notice of Default. With respect to Events of Default or
claimed defaults, or any condition or event which with notice or lapse
of time, or both, may become an Event of Default, the Company will
give the following notices:
(a) The Company will immediately furnish to the Lender
notice in writing of the occurrence of an Event of Default, or any
condition or event which, after notice or lapse of time, or both,
would constitute such an Event of Default. Such notice shall specify
the nature of such event, condition or default and what action the
Company has taken or is taking or proposes to take with respect
thereto.
RESTATED LOAN AGREEMENT - Page 24
<PAGE>
(b) If any holder of any other Indebtedness of the Company
gives any notice or takes any other action with respect to a claimed
default, the Company will immediately give written notice thereof to
the Lender, describing the notice or action and the nature of the
claimed event, condition or default.
X. INTERPRETATION OF AGREEMENT
10.1 Certain Terms Defined. When used in this Agreement, the
terms set forth below are defined as follows:
"Adjusted Maximum Facility Amount" means Two Million Four
Hundred Five Thousand Dollars ($2,405,000), which is the sum of
the outstanding principal balance of the Senior Note on the
Closing Date (i.e., $2,115,000) plus the maximum amount of
Advances that the Lender will be obligated to make under this
Agreement from and after the Closing Date (i.e., $290,000).
"Advance" means any advance of funds by the Lender to or for the
benefit or account of the Company, whether under this Agreement
or the Original Agreement.
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with, the Person in
question. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of
such corporation, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Loan Agreement,
including all schedules and exhibits hereto, as the same may be
modified, supplemented, extended and/or amended from time to
time.
"Borrowing Date" means the date of an Advance.
"Business Day" means each day of the week except Saturdays,
Sundays, and days on which banking institutions are authorized by
law to close in the State of Texas.
"Capital Expenditures" means expenditures made and liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a
useful life of more than one year; including, but not limited to,
the direct or indirect acquisition of such assets or incurrence
of such expenses by way of increased product or service charges,
offset items or otherwise and payments with respect to
capitalized lease obligations.
"Closing Date" means the date on which all of the conditions
stated in Article IV of this Agreement have been met to the
Lender's satisfaction and the purchase price for the Senior Note
has been paid, but in any event not later than October 31, 1996.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and the regulations promulgated
thereunder.
"Collateral" means all assets of the Company.
"Commitment" means for the Company, the creation, incurrence,
issuance, assumption, guarantee of, and any agreement (e.g.,
purchase orders), whether written or oral, to create, incur,
issue, assume, guarantee or otherwise become liable for: (a)
indebtedness, whether or not represented by notes or other
evidences of indebtedness, for Photo Booths or Photo Booth Parts,
(b) indebtedness representing deferred payment of the purchase
price of Photo Booths or Photo Booth Parts, (c) indebtedness
under any lease which, in conformity with GAAP, is required to be
capitalized for balance sheet purposes and leases of Photo Booths
or Photo Booth Parts made as a part of any sale and lease-back
transaction if required to be capitalized, (d) indebtedness under
guaranties, endorsements, assumptions, or other contractual
obligations, including any
RESTATED LOAN AGREEMENT - Page 25
<PAGE>
letters of credit, or the obligations in respect of, or to purchase or
otherwise acquire, Photo Booths or Photo Booth Parts, and (e) trade
accounts payable for Photo Booths or Photo Booth Parts.
"Company" means Irata, Inc. a Texas corporation.
"Concentration Account" shall mean a deposit account of the
Company, established pursuant to Section 4.12(b) hereof, into
which the balances of the Depository Accounts shall be deposited,
which account and proceeds have been pledged to the Lender
pursuant to a Concentration Account Agreement and the Security
Documents.
"Concentration Account Agreement" shall mean a depository account
agreement, as amended, modified or supplemented from time to
time, which provides, among other things, that (1) deposited
funds are forwarded daily from Depository Accounts to the
Concentration Account, (2) collection procedures otherwise
governing the Concentration Account shall be satisfactory to the
Lender and will continue unchanged, (3) the Concentration Account
is pledged to the Lender, (4) the bank that established the
Concentration Account will not change the agreed procedures
without the prior written consent of the Lender, and (5) the
Concentration Account balance will be deposited into the
Company's operating account every day unless and until the Lender
gives notice to the bank that established the Concentration
Account to the effect that the Company is in default under Loan
Agreement, at which point the Concentration Account balance will
be swept every day into a bank account owned and controlled by
the Lender, and those funds will be applied as mandatory
prepayments on the Senior Note, in inverse order of maturity.
"Controlled Group" means any group of organizations within the
meaning of Section 414(b), (c), (m) or (o) of the Code of which
the Company is a member.
"Deferred Loan Costs" means those expenses and costs incurred by
the Company in connection with the Senior Note and other
financing transactions of the Company, but which are properly
chargeable to operations over a period of years by capitalizing,
all in accordance with GAAP.
"Depository Account" shall mean each deposit account of the
Company established pursuant to Section 4.12(a) hereof (or as
otherwise established with the prior written consent of the
Lender), maintained at the banks identified on Exhibit E into
which the Company deposits receipts from Photo Booths, and as to
which all amounts deposited in which and all claims arising under
which have been pledged to the Lender pursuant to a Depository
Account Agreement and the Security Documents.
"Depository Account Agreement" shall mean a depository account
agreement as amended, modified or supplemented from time to time,
which provides, among other things, that (1) deposited funds are
forwarded daily from the Depository Account to the Concentration
Account, (2) collection procedures otherwise governing the
Depository Account shall be satisfactory to the Lender and will
continue unchanged, (3) the Depository Account is pledged to the
Lender and (4) the bank that established the Depository Account
will not change the agreed procedures without the prior written
consent of the Lender.
"Employee Benefit Plan" means any employee benefit plan, as
defined in Section 3(3) of ERISA, which is, previously has been
or will be established or maintained by any member of a
Controlled Group.
"Environmental Laws" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of
courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without
limitation, ambient air, surface water, ground water, land
surface, and subsurface strata), and other laws relating to (a)
Polluting Substances or (b) the manufacture, processing,
distribution, use, treatment, handling, storage, disposal, or
transportation of Polluting Substances.
RESTATED LOAN AGREEMENT - Page 26
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and in effect from time to time, and the
regulations promulgated thereunder.
"Event of Bankruptcy" means any of (a) the filing by a Person of
a voluntary petition in bankruptcy under any provision of any
bankruptcy law or a petition to take advantage of any insolvency
act, (b) the admission in writing by the Company of its inability
to pay its debts generally as they become due, (c) the
appointment of a receiver or receivers for all or a material part
of a Person's assets with the consent of such Person, (d) the
filing of any bankruptcy, arrangement or reorganization petition
by or, with the consent of a Person, against such Person under
any provision of any bankruptcy law, (e) a receiver, liquidator
or trustee of a Person or a substantial part of its assets shall
be appointed pursuant to the Federal Bankruptcy Code by the order
of a court of competent jurisdiction which shall not be dismissed
or stayed within thirty (30) days, or (f) an involuntary petition
to reorganize or liquidate a Person pursuant to the Federal
Bankruptcy Code shall be filed against such Person and shall not
be dismissed or stayed within thirty (30) days.
"Event of Default" is defined in Section 9.1.
"Excess Interest" is defined in Section 2.6.
"GAAP" means generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting
Standards Board and/or their respective successors and which are
applicable in the circumstances as of the date in question,
provided that the Company may not change the use or application
of any accounting method, practice or principle without the prior
written consent of the Lender, which consent may require that an
adjustment be made to any and all the financial covenants set
forth and the capital expenditures limitation covenant set forth
herein. Accounting principles are applied on a "consistent
basis" when the accounting principles observed in a current
period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Gross Cash Flow" for any period means Net Income plus
depreciation, plus amortization of Intangible Assets, plus
amortization of Deferred Loan Costs, plus amortization of
Organizational Costs, each as calculated for such period.
"Holder" when used in reference to the Senior Note and/or the
Senior Obligations, means the Person or Persons who, at the time
of determination, is the lawful owner of all or a portion of the
Senior Note or an obligee of all or a portion of the Senior
Obligations.
"Impositions" is defined in Section 6.10.
"Indebtedness" means for any Person: (a) all indebtedness,
whether or not represented by bonds, debentures, notes,
securities, or other evidences of indebtedness, for the repayment
of money borrowed, (b) all indebtedness representing deferred
payment of the purchase price of property or assets, (c) all
indebtedness under any lease which, in conformity with GAAP, is
required to be capitalized for balance sheet purposes and leases
of property or assets made as a part of any sale and lease-back
transaction if required to be capitalized, (d) all indebtedness
under guaranties, endorsements, assumptions, or other contractual
obligations, including any letters of credit, or the obligations
in respect of, or to purchase or otherwise acquire, indebtedness
of others, (e) all indebtedness secured by a Lien existing on
property owned, subject to such Lien, whether or not the
indebtedness secured thereby shall have been assumed by the owner
thereof, (f) trade accounts payable more than 60 days past due,
except such accounts as may be protested in good faith by the
Company and are immaterial in amount (it being the intention that
trade accounts payable do not become "Indebtedness" for purposes
of this definition until they are 60 days past due), (g) all
amendments, renewals, extensions, modifications and refundings of
any indebtedness or obligations referred to above in clauses (a),
(b), (c), (d) or (e), excluding trade accounts payable in the
ordinary course of business.
RESTATED LOAN AGREEMENT - Page 27
<PAGE>
"Intangible Assets" means all patents, copyrights, trademarks,
tradenames, franchises, goodwill, experimental expenses and other
similar assets that would be classified as an intangible asset on
the balance sheet.
"Intellectual Property" means all patents, patent rights, patent
applications, licenses, inventions, trade secrets, know-how,
proprietary techniques (including processes and substances),
trademarks, service marks, trade names and copyrights.
"Investment Account" shall mean a deposit account of the Company,
established pursuant to Section 4.12(c) hereof, into which the
net cash proceeds to the Company of the Private Placement shall
be deposited, which account and proceeds have been pledged the
Lender pursuant to an Investment Account Agreement and Security
Documents.
"Investment Account Agreement" shall mean a depository account
agreement, as amended, modified or supplemented from time to
time, which provides, among other things, that (1) collection
procedures otherwise governing the Investment Account shall be
satisfactory to the Lender and will continue unchanged, (2) the
Investment Account is pledged to the Lender, (3) the bank that
established the Investment Account will not change the agreed
procedures without the prior written consent of the Lender, (4)
investment of the funds on deposit therein shall be limited to
Permitted Investments, and (5) upon notice by the Lender to the
bank that established the Investment Account to the effect that
the Company is in default under this Agreement, the Investment
Account balance will be swept every day into a bank account owned
and controlled by the Lender, and those funds will be applied to
mandatory prepayments on the Senior Note, in inverse order of
maturity.
"Lender" means the Lender, together with all of their respective
transferees, successors and assigns of all or any portion of the
Senior Note or the Senior Obligations and any nominees on whose
behalf any of the foregoing purchase or otherwise acquire any of
such Indebtedness of the Company, and shall include, but not be
limited to, each and every "Holder" as defined herein.
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, financing statement, or conditional sale or
title retention agreement, or any other interest in property
designed to secure the repayment of Indebtedness or any other
obligation, whether arising by agreement, operation of law, or
otherwise.
"Material Adverse Effect" means (a) a material adverse effect
upon the business, operations, properties, assets, Collateral or
condition (financial or otherwise) of the Company or (b) the
impairment of the ability of any party to perform its obligations
under the Agreement or any of the Other Agreements to which it is
a party or of the Lender to enforce or collect any of the Senior
Obligations. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such
event does not of itself have such effect, a Material Adverse
Effect shall be deemed to have occurred if the cumulative effect
of such event and all other then existing events would result in
a Material Adverse Effect.
"Maturity Date" means the earliest to occur of (a) June 2, 1998,
(b) the date on which the Senior Note is accelerated pursuant to
Article IX, or (c) the date on which the Senior Obligations are
paid in full.
"Maximum Facility Amount" means Three Million Five Hundred
Thousand Dollars ($3,500,000.00).
"Maximum Rate" is defined in Section 2.6.
"Miscellaneous Expenses" is defined in Section 11.1.
"Net Income" means, for any period of determination, the net
earnings (or loss) after taxes of the Company for such period.
RESTATED LOAN AGREEMENT - Page 28
<PAGE>
"Operating Plan" is defined in Section 3.2.
"Organizational Costs" means those costs and expenses incurred by
the Company in connection with its creation and organization, all
as determined in accordance with GAAP.
"Original Agreement" is defined in the Preamble to this
Agreement.
"Other Agreements" means the Senior Note, the Warrant Documents,
the Security Documents and all other agreements, instruments and
documents (including, without limitation, notes, guarantees,
powers of attorney, consents, assignments, contracts, notices,
subordination agreements and all other written matter), and all
renewals, modifications and extensions thereof, whether
heretofore, now or hereafter executed by or on behalf of the
Company and delivered to and for the benefit of the Lender or any
Person participating with the Lender in the Senior Note with
respect to this Agreement or any of the transactions contemplated
by this Agreement.
"Pension Plan" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is, was or will be
established or maintained by any member of the Controlled Group.
"Permitted Indebtedness" means (a) any Indebtedness in favor of
the Lender under this Agreement and/or the Other Agreements and
created pursuant thereto, (b) presently existing or hereafter
arising purchase money Indebtedness incurred by the Company to
finance the acquisition of capital assets by the Company, subject
to the limitations placed on capital expenditures in Section 7.9,
and (c) the other Indebtedness set forth on Schedule 7.1.
"Permitted Investments" means the following:
(a) securities issued or directly and fully guaranteed or
insured by the United States Government or any agency or
instrumentality thereof (provided that the full faith and credit
of the United States Government is pledged in support thereof),
having maturities of not more than twelve months from the date of
acquisition;
(b) time deposits and certificates of deposit (i) of any
commercial bank incorporated in the United States of recognized
standing having capital and surplus in excess of $100,000,000
with maturities of not more than twelve (12) months from the date
of acquisition or (ii) which are fully insured by the Bank
Insurance Fund with maturities of not more than twelve months
from the date of acquisition;
(c) commercial paper issued by any Person incorporated in
the United States rated at least A-1 or the equivalent thereof by
Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case
maturing not more than twelve months after the date of
acquisition; or
(d) investments in money market funds substantially all of
whose assets are comprised of securities of the types described
in clauses (a) through (c) above.
"Permitted Liens" means (a) Liens in Favor of the Lender under
the Security Documents, (b) Liens securing purchase money
Indebtedness incurred to finance the acquisition of capital
assets by the Company, subject to the limitations placed on
Capital Expenditures in Section 7.9 hereof, but not encumbering
any assets other than those acquired with the proceeds of such
purchase money Indebtedness, (c) Liens for property taxes not yet
due, (d) materialmen's, mechanics', landlord's, worker's,
repairmen's, employees' or other like Liens arising against the
Company in the ordinary course of business, in each case which
are either not delinquent or are being contested in good faith
and by appropriate proceedings conducted with due diligence and
for the payment of which adequate reserves
RESTATED LOAN AGREEMENT - Page 29
<PAGE>
have been established by the Company, (e) deposits to secure payment of
worker's compensation, unemployment insurance or other social security
benefits and (f) Liens disclosed on Exhibit D.
"Person" means any individual, sole proprietorship, corporation,
business trust, unincorporated organization, association,
company, partnership, joint venture, governmental authority
(whether a national, federal, state, county, municipality or
otherwise, and shall include without limitation any
instrumentality, division, agency, body or department thereof),
or other entity.
"Photo Booth" means any video photo booth.
"Photo Booth Parts" means any and all materials used in
connection with the manufacturing, processing, constructing, re-
furbishing, packing, shipping and furnishing of a Photo Booth,
including without limitation, all raw materials, supplies,
component parts, accessions, attachments, replacements and
improvements to or for a Photo Booth.
"Polluting Substances" means all pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes
and shall include, without limitation, any flammable explosives,
radioactive materials, oil, hazardous materials, hazardous or
solid wastes, hazardous or toxic substances or related materials
defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Resource Conservation and
Recovery Act of 1976, the Hazardous and Solid Waste Amendments of
1984, and the Hazardous Materials Transportation Act, as any of
the same are hereafter amended, and in the regulations adopted
and publications promulgated thereto; provided, in the event any
of the foregoing Environmental Laws is amended so as to broaden
the meaning of any term defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment
and, provided, further, to the extent that the applicable laws
of any state establish a meaning for "hazardous substance,"
"hazardous waste," "hazardous material," "solid waste," or "toxic
substance" which is broader than that specified in any of the
foregoing Environmental Laws, such broader meaning shall apply.
"Potential Default" means the occurrence of any condition or
event which, with the passage of time or giving of notice or
both, would constitute an Event of Default.
"Prepaid Assets" means expenditures made or expenses incurred by
the Company during one accounting period for benefits to be
received in a future accounting period, all as determined in
accordance with GAAP.
"Property" means all real property owned, leased or operated by
the Company.
"Private Placement" is defined in Section 4.3 hereof.
"Private Placement Memorandum" means the Confidential Term Sheet,
dated September 6, 1996, which sets forth the terms of the
Private Placement.
"Reportable Event" means (i) any of the events set forth in
Sections 4043(b) (other than a merger, consolidation or transfer
of assets in which no Pension Plan involved has any unfunded
benefit liabilities), 4068(f) or 4063(a) of ERISA, (ii) any event
requiring any member of the Controlled Group to provide security
under Section 401(a)(29) of the Code, or (iii) any failure to
make payments required by Section 412(m) of the Code.
"Security Documents" means all security agreements, pledge
agreements, collateral assignments, mortgages, deeds of trust and
other documents executed in connection with the Original
Agreement and this Agreement and granting to the Lender first
priority liens and security interests in the Collateral, all
renewals, modifications or extensions of such documents, and any
such documents hereafter executed in favor of the Lender to
secure payment of all or any part of the Senior Obligations,
together with all
RESTATED LOAN AGREEMENT - Page 30
<PAGE>
financing statements and other documents necessary to record or perfect the
Liens granted by any of the foregoing.
"Senior Note" means that certain promissory note issued to the
Lender pursuant to this the Original Agreement, together with all
renewals, modifications, extensions, substitutions and
replacements thereof.
"Senior Obligations" means and includes any and all Indebtedness
and/or liabilities of the Company to the Lender of every kind,
nature and description, direct or indirect, secured or unsecured,
joint, several, joint and several, absolute or contingent, due or
to become due, now existing or hereafter arising, under this
Agreement or any Other Agreement (regardless of how such
Indebtedness or liabilities arise or by what agreement or
instrument they may be evidenced or whether evidenced by any
agreement or instrument) and all obligations of the Company to
the Lender to perform acts or refrain from taking any action
under any of the aforementioned documents, together with all
renewals, modifications, extensions, increases, substitutions or
replacements of any of such Indebtedness.
"Shareholder Subordinated Debt" means that certain subordinated
indebtedness outstanding of approximately $160,000 owing to
various of the Company's shareholders by the Company.
"Shareholder Subscription Agreement" is defined in Section 4.7.
"Subsidiary" means any Person of which or in which the Company
and its other Subsidiaries own directly or indirectly 50% or more
of (a) the combined voting power of all classes having general
voting power under ordinary circumstances to elect a majority of
the board of directors or equivalent body of such Persons, if it
is a corporation, (b) the capital interest or profits interest of
such Person, if it is a partnership, joint venture or similar
entity, or (c) the beneficial interest of such Person if it is a
trust, association or other unincorporated organization.
"Tangible Net Worth" means Total Assets minus Total Liabilities
minus Prepaid Assets minus Intangible Assets minus Deferred Loan
Costs minus Organizational Costs.
"Termination Event" means (a) a Reportable Event, (b) the
termination of a Pension Plan which has unfunded benefit
liabilities (including an involuntary termination under
Section 4042 of ERISA), (c) the filing of a Notice of
Intent to Terminate a Pension Plan, (d) the initiation of
proceedings to terminate a Pension Plan under Section 4042
of ERISA or (e) the appointment of a trustee to administer
a Pension Plan under Section 4042 of ERISA.
"Total Assets" means all assets of the Company.
"Total Debt Service" for any period means the aggregate amount
of all payments (principal, interest and other) with respect to
outstanding indebtedness for such period.
"Total Liabilities" means all liabilities of the Company that
would be classified as a liability on the balance sheet.
"Transfer" is defined in Section 11.5 hereof.
"Transferee" means any Person to whom a Transfer is made.
"Warrant" mean the warrants to purchase up to 510,000 shares of
the Company's common stock (on a fully diluted basis), as the
same may be amended from time to time.
"Warrant Documents" means, collectively, (a) the Warrant and, (b)
the Warrant Purchase Agreements dated as of June 2, 1995 executed
by and between the Company and the Lender, with respect to the
issuance to the Lender of the Warrant, as each of the foregoing
may be amended from time to time.
RESTATED LOAN AGREEMENT - Page 31
<PAGE>
Terms which are defined in other Sections of this Agreement shall have
the meanings specified therein. All other terms contained in this
Agreement shall have, when the context so indicates, the meanings
provided for by the Uniform Commercial Code as adopted and in force in
the State of Texas, as from time to time in effect.
10.2 Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is
required to be made for the purposes of this Agreement, the same shall
be done, unless specified otherwise, in accordance GAAP, except where
such principles are inconsistent with the requirements of this
Agreement.
10.3 Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable
whether the action in question is taken directly or indirectly by such
Person.
XI. MISCELLANEOUS
11.1 Expenses. The Company agrees to pay (a) all reasonable
out-of-pocket expenses of the Lender (including reasonable fees,
expenses and disbursements of the Lender's counsel and the allocated
costs of staff counsel) in connection with the preparation,
negotiation, enforcement, operation and administration of this
Agreement, the Senior Note, the Other Agreements, or any documents
executed in connection therewith, or any waiver, modification or
amendment of any provision hereof or thereof; and (b) if an Event of
Default occurs, all reasonable court costs and costs of collection,
including, without limitation, reasonable fees, expenses and
disbursements of counsel employed in connection with any and all
collection efforts. The attorneys' fees arising from such services,
including those of any appellate proceedings, and all expenses, costs,
charges and other fees incurred by such counsel or the Lender in any
way or respect arising in connection with or relating to any of the
events or actions described in this Article IX shall be payable by the
Company to the Lender, on demand, and shall be additional Senior
Obligations secured under this Agreement. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees
may include: reasonable recording costs, appraisal costs, paralegal
fees, costs and expenses; reasonable fees, costs and expenses of
accountants, consultants, and other professionals; reasonable court
costs and expenses; reasonable photocopying and duplicating expenses;
reasonable court reporter fees, costs and expenses; reasonable long
distance telephone charges; reasonable air express charges, telegram
charges, facsimile charges, and secretarial overtime charges; and
reasonable expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal, accounting, consulting
or other professional services. The costs, fees and expenses
described in and referred to in this Section 11.1 are defined as
"Miscellaneous Expenses." The Company agrees to indemnify the Lender
from and hold it harmless against any documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery by the Company or any other Person of this
Agreement, the Other Agreements, and any documents executed in
connection therewith.
11.2 Indemnification. In addition to and not in limitation of
the other indemnities provided for herein or in any Other Agreements,
the Company hereby indemnifies and holds harmless the Lender and any
other Holders, and every Affiliate of any of the foregoing, and their
respective officers, directors, employees and agents, from any claims,
actions, damages, costs, attorneys' fees and expenses (including any
of the same arising out of the sole or contributory negligence of the
Person to be indemnified) to which any of them may become subject,
insofar as such losses, liabilities, claims, actions, damages, costs
and expenses arise from or relate to this Agreement or the Other
Agreements, or any of the transactions contemplated thereby, or from
any investigation, litigation, or other proceeding, including, without
limitation, any threatened investigation, litigation or other
proceeding relating to any of the foregoing, or from any violation or
claim of violation of any applicable environmental laws with respect
to any real or personal property, or from any governmental or judicial
claim, order or judgment with respect to any real or personal property
of the Company, or from any applicable state or federal securities
laws, or from any breach of the warranties, representations or
covenants contained in this Agreement or the Other Agreements. THE
FOREGOING INDEMNIFICATION INCLUDES ANY SUCH CLAIMS, ACTIONS, DAMAGES,
COSTS, AND EXPENSES INCURRED BY REASON OF THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF THE PERSON
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<PAGE>
TO BE INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME INCURRED BY REASON OF SUCH
PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
11.3 Notices. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and
delivered or mailed by the United States mails, certified mail, return
receipt requested, (a) if to the Lender, on behalf of Lender and all
Holders, addressed to the Lender at the address specified on Annex I
hereto or to such other address as the Lender may in writing
designate, and (b) if to the Company, addressed to the Company at the
address set forth next to its name on the signature pages hereto or to
such other address as the Company may in writing designate. Except as
otherwise provided in Section 1.5(a)(ii), notices shall be deemed to
have been validly served, given or delivered (and "the date of such
notice" or words of similar effect shall mean the date) five (5) days
after deposit in the United States mails, certified mail, return
receipt requested, with proper postage prepaid, or upon actual receipt
thereof (whether by non-certified mail, telecopy, telegram, facsimile,
express delivery or otherwise), whichever is earlier.
11.4 Reproduction of Documents. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers
and modifications which may hereafter be executed, (b) documents
received by the Lender at the closing of the purchase of the Senior
Note, and (c) financial statements, certificates and other information
previously or hereafter furnished to the Lender, may be reproduced by
the Lender by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and the Lender may
destroy any original document so reproduced. The Company agrees and
stipulates that any such reproduction which is legible shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence
and whether or not such reproduction was made by you in the regular
course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in
evidence; provided that nothing herein contained shall preclude the
Company from objecting to the admission of any reproduction on the
basis that such reproduction is not accurate, has been altered, is
otherwise incomplete or is otherwise inadmissible.
11.5 Assignment, Sale of Interest. The Company may not sell,
assign or transfer this Agreement, or the Other Agreements or any
portion thereof, including, without limitation, the Company's rights,
title, interests, remedies, powers and/or duties hereunder or
thereunder. The Company hereby consents to the Lender's
participation, sale, assignment, transfer or other disposition
(collectively "Transfer"), at any time or times hereafter, of this
Agreement, or the Other Agreements to which the Company is a party, or
of any portion hereof or thereof, including, without limitation, the
Lender's rights, title, interests, remedies, powers and/or duties
hereunder or thereunder; provided, however, immediately following such
transfer, the Lender and/or its Affiliates, remain the beneficial
owner of not less than 51% of this Agreement and the Other Agreements,
and provided further, that the Company retains the ability to deal
directly solely with the Lender with respect to this Agreement and the
Other Agreements.
11.6 Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
11.7 Headings. The headings of the sections and subsections of
this Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
11.8 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart or
reproduction thereof permitted by Section 11.4.
11.9 Reliance on and Survival Provisions. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection
with a closing, (a) shall be deemed to be material and to have been
relied upon by the Lender, notwithstanding any investigation
heretofore or hereafter made by the Lender or on the Lender's behalf,
and (b) shall survive the delivery of this Agreement and the Senior
Note until all obligations of the Company under this Agreement shall
have been satisfied.
RESTATED LOAN AGREEMENT - Page 33
<PAGE>
11.10 Integration and Severability. This Agreement embodies
the entire agreement and understanding between the Lender and the
Company, and supersedes all prior agreements and understandings
relating to the subject matter hereof. In case any one or more of the
provisions contained in this Agreement or in any Senior Notes, or any
application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein, and any other application
thereof, shall not in any way be affected or impaired thereby.
11.11 Law Governing. THIS AGREEMENT HAS BEEN SUBSTANTIALLY
NEGOTIATED AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS
INTENDED TO BE PERFORMED, IN PART IN THE STATE OF TEXAS. ALL
OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER, SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS. THE SENIOR NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE SPECIFIED
THEREIN. LENDER RETAINS ALL RIGHTS UNDER THE LAWS OF THE UNITED
STATES OF AMERICA, INCLUDING THOSE RELATING TO THE CHARGING OF
INTEREST.
11.12 Waivers; Modification. NO PROVISION OF THIS AGREEMENT
MAY BE WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF
ACKNOWLEDGED, ORALLY, BUT ONLY BY AN AGREEMENT IN WRITING SIGNED BY
THE PARTY AGAINST WHOM THE ENFORCEMENT OF ANY WAIVER, CHANGE,
MODIFICATION OR DISCHARGE IS SOUGHT.
11.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, THE COMPANY AND LENDER HEREBY IRREVOCABLY AND
EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SENIOR NOTE OR ANY
DOCUMENTS ENTERED INTO IN CONNECTION THEREWITH OR THE TRANSACTIONS
CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF.
11.14 Agreement for Binding Arbitration. The parties agree
to be bound by the terms and provisions of the Arbitration Program,
which is attached hereto as Exhibit F and incorporated by reference
herein, pursuant to which any and all disputes shall be resolved by
mandatory binding arbitration upon the request of any party.
11.15 Amendment and Restatement. This Agreement is given in
amendment, modification, supplementation, restatement and renewal (and
not in extinguishment or satisfaction) of the Original Agreement. All
rights, titles, liens, security interests and priorities under the
Original Agreement are preserved, maintained and carried forward under
this Agreement, subject, however, to the terms of this Agreement.
RESTATED LOAN AGREEMENT - Page 34
<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this
Agreement to be executed and delivered by their respective officers
thereunto duly authorized.
Company:
IRATA, INC.
By: _____________________________________
Robert A. Searles, Jr., President
Company's Address for Notices:
8554 Katy Freeway, Suite 100
Houston, Texas 77024
Attn: Mr. Robert A. Searles, Jr.
Facsimile: (713) 467-1829
with a copy to:
Andrew J. Clark, III
Attorney at Law
1000 Louisiana, Suite 3640
Facsimile: (713) 652-6629
LENDER:
PETRUS FUND, L.P.
By: Perot Investments, Inc., its general partner
By: _______________________________________
Steven L. Blasnik, President
RESTATED LOAN AGREEMENT - Page 35
<PAGE>
ANNEX I
TO
LOAN AGREEMENT
Information Concerning the Lender
Lender: PETRUS FUND, L.P.
Principal Amount of
Senior Note: $3,500,000.00
Denomination of Warrant: 510,000 shares of the common stock of the Company
on a fully diluted basis
Address for notices: PETRUS FUND, L.P.
c/o Perot Investments, Inc.
1700 Lakeside Square
12377 Merit Drive
Dallas, Texas 75251
Attn: H. Hays Lindsley
Steven L. Blasnik
Facsimile: (214-788-3097)
and with a copy to:
Hughes & Luce, L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: James W. Sargent, Esq.
Facsimile: (214) 939-6100
Payments to be made
by wire transfer to: BK of NYC / CTR / BBK
ABA # 021000018
Account: IOC 565, Inst'l Custody
Favor PETRUS FUND, L.P.
Account # 286632
Annex I - Page 1 of 1
<PAGE>
SCHEDULE 1.2(B)
TO
LOAN AGREEMENT
Fees and Expenses Paid
1. Facility fee due on June 2, 1996: $ 35,000.00
2. Legal expenses and other
consulting expenses: $ 76,188.63
3. Henry Stein, Consultant: $ 21,450.00
-----------
Total: $132,638.63
Schedule 1.2(b) - Page 1 of 1
<PAGE>
SCHEDULE 1.5(B)
TO
LOAN AGREEMENT
Authorized Persons
1. Prior to consummation of the Private Placement:
Robert A. Searles, Jr., President
2. On or before November 4, 1996:
Lance P. Wimmer, Chairman, President and Chief Executive Officer
Robert A. Searles, Jr., Executive Vice President
Schedule 1.5(b) - Page 1 of 1
<PAGE>
SCHEDULE 3.2
TO
LOAN AGREEMENT
Operating Plan
[See attached.]
Schedule 3.2 - Page 1 of 1
<PAGE>
SCHEDULE 3.3
TO
LOAN AGREEMENT
Defaults under Existing Agreements
1. Events of Default described in letter dated February 15, 1996 from the
Lender to the Company, a copy of which is attached to this Schedule 3.3.
2. Failure to pay Facility Fee due June 2, 1996, as required by Section 1.4 of
the Original Agreement.
3. Failure to provide quarterly audits, as required by Section 5.24 of the
Original Agreement.
4. Defaults under the royalty agreement with Handmade Software, Inc., which
defaults will be fully cured and resolved under the terms of the Settlement
Agreement and Release between the Company and Handmade Software, Inc.,
dated effective as of August 28, 1996.
5. Failure to keep the Company's registration statement current, as required
by Underwriting Agreement with Royce Investment Group, Inc.
Schedule 3.3 - Page 1 of 1
<PAGE>
SCHEDULE 3.4
TO
LOAN AGREEMENT
Authorizations, Approvals, Consents and Filings
None.
Schedule 3.4 - Page 1 of 1
<PAGE>
SCHEDULE 3.5
TO
LOAN AGREEMENT
Environmental Condition of the Photo Booths
The Company is not aware of any breach of the representations and warranties set
forth in Section 3.5.
Schedule 3.5 - Page 1 of 1
<PAGE>
SCHEDULE 3.6
TO
LOAN AGREEMENT
Litigation and Judgments
Restructuring Arrangements. In August 1996, the Company successfully
concluded a restructuring of certain trade payables totaling $727,000. The trade
creditors holding these payables agreed to exchange the amounts owed for a
combination of 15% cash, 18 1/3 % cash payment in 15 equal monthly installments
and 66 2/3% stock. The restructuring is subject to completion of the Private
Placement, and the price of the stock to be issued to the trade creditors is to
be the greater of $2.25 per share or the lower of: (a) 80% of the average
closing price at which the Class A Common Stock of the Company trades during the
30 calendar day period following the date of closing of the Private Placement or
(b) the lowest closing price at which the Class A Common Stock trades during the
30-day period. Among the trade creditors accepting the restructuring
arrangements is Andrew J. Clark, III, a director of the Company who agreed to
exchange his claim for $55,585.52 for $8,337.83 in cash, the right to receive
$697.38 cash payments for 15 months and stock determined as set forth above
valued at $37,057.00. Two of the trade creditors holding a combined total of
$130,000 of the Company's payables filed law suits for collection of their
indebtedness in April and May 1996, respectively. The suits are described as
follows:
1. Collection suit styled All Points Moving & Storage Company, Inc. v.
Irata, Inc., filed in Harris County, Texas Civil Court of Law No. 3, under
Cause No. 644,355 for indebtedness in the Amount of $45,000.00, which will
be resolved by the Settlement Agreement and Release referenced in Schedule
7.1; and
2. Collection suit styled Fish Construction, Inc. v. Irata, Inc., filed in
the Fort Bend County, Texas Civil Court of Law No. 2, which will be
resolved by the Settlement Agreement and Release referenced in
Schedule 7.1.
The aforementioned restructuring arrangements signed by these two creditors also
released the Company from all claims alleged in the respective law suits.
Schedule 3.6 - Page 1 of 1
<PAGE>
SCHEDULE 3.9
TO
LOAN AGREEMENT
Indebtedness to Affiliates
The Company has no debts to any affiliate other than Andrew J. Clark
III, a director, in the amount of $55,586, for legal and professional services.
Schedule 3.9 - Page 1 of 1
<PAGE>
SCHEDULE 3.10
TO
LOAN AGREEMENT
Tax Proceedings
During the third quarter of 1996, the Company became aware that its method of
accounting and reporting sales and use taxes may not have complied with
regulatory requirements. Specifically, the Company has no documentation to show
that certain third party operators, who collect cash from the Photo Booths, had
paid the appropriate sales tax or that they had obtained sales tax exemption
certificates from the appropriate state tax authority. The State of Texas has
issued a preliminary sales tax assessment for approximately $170,000. The
Company is pursuing collection of taxes or submission of certificates from third
party operators to mitigate the sales tax liability and reduce the final tax
assessment. Additionally, the Company may have use tax exposure on equipment
they purchased outside of the State of Texas to the extent that the Company is
unable to demonstrate the purchase equipment has been put into service outside
the State of Texas. The preliminary use tax estimate from the State of Texas is
approximately $200,000. The Company is reviewing individual booth records to
determine which booths and purchased equipment has been relocated out of the
State of Texas.
The Company is currently delinquent in sales tax payments in certain other
states. The Company intends to cure such delinquencies and does not believe
they could have a material adverse impact on the Company.
Schedule 3.10 - Page 1 of 1
<PAGE>
SCHEDULE 3.14
TO
LOAN AGREEMENT
Capitalization
CAPITALIZATION: BEFORE PRIVATE PLACEMENT:
Class A Common Stock.............. 2,550,072 Shares/1/
Class B Common Stock.............. 1,500,000 Shares/2/
Preferred Stock................... None/3/
AFTER PRIVATE PLACEMENT:
MINIMUM:
Class A Common Stock.............. 5,895,072 Shares/4/
Class B Common Stock.............. 1,500,000 Shares/2/
Preferred Stock................... None/2/
MAXIMUM:
Class A Common Stock.............. 6,345,072 Shares/5/
Class B Common Stock.............. 1,500,000 Shares/2/
Preferred Stock................... None/3/
____________________________
(1) EXCLUDES
(i) 270,540 shares of Class A Common Stock issuable
under stock options exercisable at $5.00 per share granted under
the Company's Stock Option Plan;
(ii) 395,173 shares of the Company's Class A Common
Stock exercisable at $1.8979009 per share under bridge warrants
granted in connection with the Company's December 1994 financing
which expire December 2, 1996;
(iii) 1,666,315 shares of Class A Common Stock issuable
under redeemable warrants evidencing the right to purchase one
share of Class A Common Stock per warrant at an exercise price of
$5.3141226 per share at any time prior to the close of business on
May 11, 1997 issued as a part of the units offered in the Company's
initial public offering ("IPO");
(iv) 22,783 shares of Class A Common Stock issuable
pursuant to the exercise of warrants expiring March 31, 1997 that
were granted in connection with formation of the Company having an
exercise price of $1.3605721 per share;
(v) up to 289,794 additional shares of Class A Common
Stock that would be issued upon exercise of the unit purchase
option, exercisable at any time prior to the close of business on
May 11, 1999 at $5.5039128 per unit, granted to Royce in connection
with the IPO to purchase 144,897 units with each unit consisting of
one share of Class A Common Stock and one redeemable warrant
exercisable at $5.3141226 per share;
(vi) 54,424 shares of Class A Common Stock exercisable
under warrants granted to Hill Branscomb and Venlease Associates
exercisable at any time prior to June 1, 2000 at
Schedule 3.14 - Page 1 of 3
<PAGE>
$1.9292956 per share issued pursuant to the placement of the
Company's senior indebtedness;
(vii) an aggregate of 510,000 shares of Class A Common
Stock issuable to the Company's senior lender at an exercise price
of $6.63 per share issued in connection with the Loan Agreement;
(viii) 38,745 shares of Class A Common Stock issuable
upon exercise of warrants granted to certain interim lenders who
provided bridge financing in December 1995, exercisable at any time
prior to the close of business on December 21, 2000 at $1.6518138
per share;
(ix) 64,791 shares of Class A Common Stock upon exercise
of warrants exercisable at any time prior to March 28, 2000 at
$1.9292951 per share issued to J. T. Trotter in consideration for
his guarantee of bank debt;
(x) 300,000 shares and 125,000 shares, respectively, of
Class A Common Stock issuable by the Company upon exercise of
options exercisable at $0.50 per share at any time prior to July 1,
2002 and to be granted to Lance Wimmer and Robert Salyard,
respectively, upon their joining the Company's Board of Directors
upon completion of this private placement; and
(xi) up to 640,000 shares of Class A Common Stock,
320,000 of which are to be issued to the Estate of C. W. Moody,
Jr., Dominion Investment Corporation and George V. Kane
(collectively, the "Interim Lenders") upon closing of this private
placement by conversion of $160,000 of principal and the accrued
interest thereon of the Company (the "Interim Debt") now held by
the Interim Lenders and 320,000 of which may be issued to the
Interim Lenders upon exercise of warrants having substantially the
same terms as the Warrants and which may be issued to the Interim
Lenders as additional consideration for the conversion of the
Interim Debt.
The number of shares of Class A Common Stock and the
exercise price as set forth above have been adjusted in accordance
with the anti-dilution provisions of the underlying instruments
assuming the issuance of 60 Units in this private placement and
that the current market price of the Company's Common Stock is
$1.125 on the date of determination.
(2) The Class B Common Stock is non-convertible, non-voting and does
not participate with the Class A Common Stock in dividends and
distributions until the Company has achieved $1,000,000 in earned
surplus, after which it is limited in the amount of dividends and
distributions it may receive to an amount that cannot exceed
$1,000,000.
(3) The Company's Articles of Incorporation authorize the issuance of
up to 100,000 shares of Preferred Stock, $1.00 par value per share,
which may be issued in series and shares of each series shall have
such rights and preferences as may be fixed by the Board of
Directors in a resolution or resolutions authorizing the issuance
of that particular series.
(4) Excludes the shares of Class A Common Stock issuable as set forth
in footnote (1) above, except for the 320,000 shares to be issued
upon closing in conversion of the Interim Debt, and excludes
3,000,000 shares of Class A Common Stock issuable upon exercise of
the warrants to be issued pursuant to this offering and 320,000
shares of Class A Common Stock issuable upon exercise of the
warrants to be issued pursuant to conversion of the Interim Debt.
Schedule 3.14 - Page 2 of 3
<PAGE>
(5) Excludes the shares of Class A Common Stock issuable as set forth
in footnote (1) above, except for the 320,000 shares to be issued
upon closing in conversion of the Interim Debt, and excludes
3,450,000 shares of Class A Common Stock issuable upon exercise of
the warrants to be issued pursuant to this offering and 320,000
shares of Class A Common Stock issuable upon exercise of the
warrants to be issued pursuant to conversion of the Interim Debt.
Schedule 3.14 - Page 3 of 3
<PAGE>
SCHEDULE 3.15
TO
LOAN AGREEMENT
Current Locations
<TABLE>
<CAPTION>
<S> <C> <C>
1. Corporate Office - 8554 Katy Freeway (leased from R.W. Management)
Suite 100
Houston, Tx 77024
2. Assembly Facility - 8560 Katy Freeway (leased from R.W. Management)
Suite 172
Houston, Tx 77024
3. List of Booth Locations - (Attached)
</TABLE>
Schedule 3.15 - Page 1 of 1
<PAGE>
SCHEDULE 3.22
TO
LOAN AGREEMENT
Conduct of Business
The operation of Photo Booths throughout the United States.
Schedule 3.22 - Page 1 of 1
<PAGE>
SCHEDULE 6.25
TO
LOAN AGREEMENT
Procedures
FORM OF REPORT OF INDEPENDENT ACCOUNTS
This draft is furnished solely for the purpose of indicating the form of report
that the Company's independent accountants would be expected to be able to
furnish pursuant to the request by the Company for performance of limited
procedures relating to Photo Booths in operation. The text of the definitive
report will depend on the results of the procedures.
Board of Directors
IRATA, Inc.
Houston, Texas
At your request, we have applied certain agreed-upon procedures, described
below, to the listing of Photo Booths of IRATA, Inc. (the list) as of (period
ended), as set forth in the accompanying schedule. We were informed by
officials of the Company and other personnel of the Company who have
responsibility for accounting and financial matters that the list is a complete
and accurate list of Photo Booths owned by the Company and in service as of
___________.
Our procedures and findings were as follows:
. We obtained the list prepared by the Company of all Photo Booths owned and
operated by the Company as of _________________. The list indicated both the
location of each booth and the date it was placed in service. We mailed
confirmations to a third party representative (identified by the Company) of
each location for each of the Photo Booths on the list placed in service
during the quarter ended _______________. The confirmation requested a
response from that representative that a Photo Booth was on the premises and
operating as of the date specified on the confirmation. A total of
__________ confirmations were sent and __________ confirmations were
received with no exceptions noted.
Because we performed limited procedures, which were not intended and did not
constitute an audit in accordance with generally accepted auditing standards, we
are unable to express, and do not express, any opinion on the list provided the
Company or on information presented in the above description of procedures and
findings and related schedules. Our report relates only to items referred to in
the accompanying section and does not extend to any financial statements of
IRATA, Inc. taken as a whole.
This report is provided solely for the information of the Board of Directors,
management of the Company, and Petrus Fund, L.P. for use in connection with the
financing provided by Petrus Fund, L.P. and should not be used for any other
purpose.
Schedule 6.25 - Page 1 of 1
<PAGE>
SCHEDULE 7.1
TO
LOAN AGREEMENT
Indebtedness
1. Settlement Agreement and Release, dated effective as of August 28, 1996,
executed by Irata, Inc. and ANDREW J. CLARK, III.
2. Settlement Agreement and Release, dated effective as of August 28, 1996,
executed by Irata, Inc. and ALL POINTS MOVING & STORAGE COMPANY, INC.
3. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and ALLSTAR SYSTEMS, INC.
4. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and CHALLENGE CONSTRUCTION.
5. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and CNC INDUSTRIES.
6. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and DELL COMPUTER.
7. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and ELLIOTT & ASSOCIATES.
8. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and TECHNICAL CABLES, INC.
9. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and FISH CONSTRUCTION, INC.
10. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and HANDMADE SOFTWARE, INC.
11. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and MICROAGE INC.
12. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and TEKBILT INC.
13. Settlement Agreement and Release, dated effective as of August 28, 1996
executed by Irata, Inc. and TWIN INDUSTRIES INC.
14. Lease Agreements as referenced on Schedule 3.15.
Schedule 7.1 - Page 1 of 1
<PAGE>
SCHEDULE 7.11
TO
LOAN AGREEMENT
Remuneration
IRATA, INC.
SCHEDULE OF OFFICER'S AND DIRECTOR'S REMUNERATION
(FOR PURPOSES OF LOAN AGREEMENT, AS DESCRIBED IN SCHEDULE 7.11)
-------------------------------------------------------------------------------
NAME TITLE ANNUAL SALARY
---- ----- -------------
Robert A. Searles, Jr. Executive Vice President $125,000
and Director
Sue Camp Secretary 35,000
John Higgins Director 10,000
--------
$170,000
- --------------------------------------------------------------------------------
Total remuneration for the officers and directors listed above will be no more
than $200,000 without approval of the Lender.
In August 1996, the Board of Directors approved resolutions authorizing (i) the
Company to enter into an agreement with Lance P. Wimmer, Managing Director,
Wimmer Associates, Inc. providing for Mr. Wimmer to become Chairman, President,
and Chief Executive Officer of the Company, and (ii) the Company to enter into a
consulting agreement with Robert R. Salyard, a founder of the Company, for Mr.
Salyard to become a consultant to the Company and a member of its Board of
Directors. The agreements with each of Mr. Wimmer and Mr. Salyard provide for
them to assume their duties as members of the board only upon completion of the
Private Placement. At such time, Mr. Searles, currently President of the
Company, will become Executive Vice President. The agreements provide for
annual compensation to Messrs. Wimmer and Salyard of $135,000 and $18,000,
respectively, with Mr. Wimmer being entitled to earn bonus compensation of up to
$40,000 based on the achievement of plan projections and with additional bonus
potential for exceeding plan projections. The agreements provide for Messrs.
Wimmer and Salyard to receive options, exercisable for six years at $0.50 per
share for 300,000 and 125,000 shares, respectively.
Suhedule 7.11 - Page 1 of 1
<PAGE>
EXHIBIT A
TO
LOAN AGREEMENT
Form of Senior Note
[Attached.]
Exhibit A - Page 1 of 1
<PAGE>
EXHIBIT B
TO
LOAN AGREEMENT
Form of Legal Opinion
October ___, 1996
Petrus Fund, L.P.
1700 Lakeside Square
12377 Merit Drive
Dallas, Texas 75251
Attention: Mr. Steven L. Blasnik
Re: Reinstatement of 12.0% Senior Note
Ladies and Gentlemen:
We have represented Irata, Inc., a Texas corporation ("the Company"),
in connection with the above-captioned transactions.
In rendering the opinions set forth herein, we have examined copies
of:
A. the following documents (sometimes hereinafter collectively called
the "Loan Documents"):
1. Amended and Restated Loan Agreement of even date (the
"Restated Loan Agreement"), by and between the Company and Petrus
Fund, L.P. ("Petrus");
2. 12.0% Senior Note dated June 2, 1995 (the "Note"), in the
original principal amount of $3,500,000.00 executed by the Company and
payable to order of Petrus; and
3. The Restated Pledge of Accounts Agreement of even date
herewith (the "Restated Pledge Agreement"), by and between the Company and
Petrus.
B. the following documents (sometimes hereinafter collectively called
the "Warrant Documents"):
1. Warrant Purchase Agreement dated June 2, 1995 (the "Warrant -
Agreement"), by and between the Company and Petrus; and
2. Warrants to purchase 510,000 shares of Class A Common Stock of
the Company dated June 2, 1995 (the "Warrant"), executed by the
Company in favor of Petrus.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Restated Loan Agreement. References herein to the
"Transaction Documents" shall mean only such documents to which the Company is a
signatory and references herein to "Transaction Documents" shall explicitly
exclude the Loan Documents and the Warrant Documents.
As counsel for the Company, we have also examined copies of its
Articles of Incorporation and all amendments thereto which have been duly filed,
and its Bylaws as amended to date. We are familiar with the proceedings of the
Company with respect to its authorization, execution and delivery of the Loan
Documents and the Warrant Documents, and the transactions contemplated thereby.
In addition to the foregoing, we have examined and relied upon such other
matters of law, such documents, certificates and statements of public officials,
and such certificates and representations of
Exhibit B - Page 1 of 5
<PAGE>
officers of the Company as we have deemed relevant to rendering the opinions we
express herein. In all of our examinations, we have assumed the accuracy of all
information furnished to us, the genuineness of all documents submitted to us as
original or certified documents, the conformity to original or certified
documents of all copies submitted to us as conformed or photostatic copies, and
the genuineness of all signatures on all documents.
On the basis of the foregoing, we are of the opinion that:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Texas, and is presently in good
standing in that state. The Company has the corporate power and authority
to own, lease and operate its property and to carry on its business as now
conducted.
(b) The Company is duly qualified and licensed as a foreign
corporation in each state where the nature of its business or properties
requires such qualification and where failure to so qualify would have a
Material Adverse Effect (as defined in the Loan Agreement).
(c) The Company has full power and authority to execute, deliver
and perform its obligations under the Loan Documents.
(d) The transactions contemplated by the Loan Documents, the
Warrant Documents and the Transaction Documents, and the execution,
delivery and performance by the Company of its obligations under all such
documents, have been duly authorized by all requisite corporate action on
the part of the Company. The officers executing the Loan Documents, the
Warrant Documents and the Transaction Documents on behalf of the Company
have been authorized to execute and deliver the same to Petrus, as well as
any other documents required to consummate the transactions contemplated by
the Loan Documents, the Warrant Documents and the Transaction Documents.
(e) The Company has duly executed and delivered the Loan
Documents, the Warrant Documents and the Transaction Documents; such
documents constitute legal, valid and binding obligations of the Company,
and such documents may be enforced in accordance with their respective
terms except as may be limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and by
equitable principles and the availability of equitable remedies.
(f) To our knowledge, after due investigation, there is no action
or proceeding pending or threatened against the Company before any court,
administrative agency or governmental authority with respect to the Loan
Documents, the Warrant Documents or any of the transactions contemplated
thereby, which would, if adversely determined, result in a Material Adverse
Effect (as defined in the Loan Agreement).
(g) To our knowledge, after due investigation, the Company is not
in default under the provisions of any instruments evidencing any
obligation for borrowed money or of any agreement relating thereto, or in
default under or in violation of any order, writ, injunction or decree of
any court, or any order, regulation or demand of any administrative or
governmental instrumentality, any of which defaults or violations,
individually or in the aggregate, would have a Material Adverse Effect.
(h) The execution and delivery by the Company of the Loan
Documents, the consummation of the transactions respectively therein
contemplated, and the fulfillment of and compliance with the respective
terms, conditions and provisions thereof or of any instruments required
thereby, will not conflict with or result in a breach of any of the terms,
conditions or provisions of any material (i) law or regulation of any
administrative or governmental instrumentality applicable to the Company,
(ii) writ, injunction or decree of any court, or (iii) agreement or
instrument to which the Company is a party, by which it is bound, or to
which it is subject.
(i) The execution and delivery by the Company of the Loan
Documents, the consummation of the transactions respectively therein
contemplated, and the fulfillment of and compliance with the respective
terms, conditions, and provisions thereof or of any instruments required
thereby, will not result in (i) the creation or imposition of any Lien (as
defined in the Restated Loan Agreement) of any nature whatsoever on any of
the
Exhibit B - Page 2 of 5
<PAGE>
property of the Company prohibited by its Articles of Incorporation or
Bylaws, or (ii) any violation of the Articles of Incorporation or Bylaws of
the Company.
(j) No registration with or authorization, consent, order or
approval of any federal, state or other governmental authority or
regulatory body, which has not already been obtained or done, is required
in connection with the execution and delivery by the Company of the Loan
Documents, or the performance by the Company of its obligations thereunder.
(k) The compensation contracted for or to be received by Petrus
in connection with the Loan Documents and the Warrant Documents constitutes
lawful interest and such documents and the compensation contracted for
therein do not violate any laws of the State of Texas relating to interest
or usury.
(l) The Loan Documents and Warrant Documents will be governed by
the internal laws, and not the law of conflicts, of the State of Texas,
including all such laws relating to interest and usury.
(m) The Company has no Subsidiaries (as defined in the Loan
Agreement).
(n) The Company has available and has taken all necessary
corporate action to reserve sufficient authorized but unissued shares of
its Class A Common Stock (as defined in the Warrant Agreement) and to
reserve sufficient authorized but unissued shares of its Class A Common
Stock (as defined in the Warrant Agreement) to permit the exercise in full
of the Warrant and exercise in full by Petrus of its rights under the
Warrant Agreement.
(o) All shares of the Company's Common Stock that may be issued
upon exercise of the Warrant are duly authorized, and, upon issuance in
accordance with the terms of the Warrant, respectively, will be validly
issued, fully paid and nonassessable and will not be issued in violation of
the preemptive or similar rights of any Person (as defined in the Warrant
Agreement).
(p) The Company's authorized capitalization consists of
20,000,000 shares of Class A Common Stock, $.10 par value per share, of
which 2,536,405 shares are issued and outstanding, 15,000,000 of Class B
Common Stock, $.01 par value, of which all shares are issued and
outstanding and 100,000 shares of preferred stock, $1.00 par value, of
which none are issued and outstanding and owned of record by the persons
designated in the SEC Filings (as defined in the Warrant Agreement).
(q) Except as specified in Schedule 3.14 to the Loan Agreement,
to our knowledge, after due investigation, the Company has no outstanding
subscription, option, warrant, call, commitment or other rights of any kind
for the purchase of, or securities convertible or exchangeable for, any
Capital Stock (as defined in the Warrant Agreement), other than the Warrant
and as disclosed in the SEC Filings.
(r) The exercise by Petrus of the Warrant will not be prohibited
by any applicable law or governmental regulation, and will not be subject
to any penalty or other onerous condition under or pursuant to any
applicable law or governmental regulation.
(s) To our knowledge, after due investigation, the Company is not
a party to, or otherwise bound by, any agreement affecting the voting of
any Capital Stock of the Company, other than the Warrant Agreement.
(t) To our knowledge, after due investigation, the Company is not
a party to, or otherwise bound by, any agreement obligating it to register
any of its Capital Stock, other than the Warrant Agreement.
Exhibit B - Page 3 of 5
<PAGE>
The opinions expressed herein are for the exclusive benefit of, and
may be relied upon solely by, Petrus and its permitted successors and assigns.
Yours very truly,
[NAME OF COUNSEL]
Exhibit B - 4 of 5
<PAGE>
EXHIBIT C
TO
LOAN AGREEMENT
FORM OF OFFICERS' COMPLIANCE CERTIFICATE
FOR THE [MONTHLY] [ANNUAL] PERIOD
FROM __________ , 199___
TO _________ , 199___
To: HOLDER OF 12.0% SENIOR NOTE, pursuant to Amended and Restated Loan
Agreement dated October ___, 1996 by and between Petrus Fund, L.P. and
Irata, Inc. (the "Loan Agreement").
Ladies and Gentlemen:
This Certificate is delivered to the Lender pursuant to Section 6.2(a)
of the Loan Agreement. Unless otherwise stated in this Certificate, capitalized
terms used in this Certificate are defined in the Loan Agreement.
The undersigned hereby certifies to the Lender as follows:
1. The undersigned is, and at all times mentioned herein has been,
the duly elected, qualified and acting officer of Irata, Inc. (the "Company") as
specified below.
2. The undersigned have reviewed the provisions of the Loan Agreement
and the Other Agreements (collectively, the "Documents"), and a review of the
activities of Company during the period from ________________ , 199__, to,
199__ (the "Subject Period") has been made under the supervision of the
undersigned with a view towards determining whether, during the Subject Period,
the Company has kept, observed, performed and fulfilled all its obligations
under the Documents.
3. The financial statements of the Company delivered to the Lender
concurrently herewith have been prepared in accordance with GAAP and fairly
present (subject to year-end adjustment) the financial condition of the Company
at the date and for the period indicated therein. [Delete parenthetical for
Annual Certificate.]
4. To the undersigned's knowledge, based upon the foregoing review,
the Company has kept, observed, performed and fulfilled each and every covenant
and condition contained in the Documents, and, as of the date of the financial
statements to which this Certificate relates and as of the date hereof, the
Company is not in default in the performance, observance or fulfillment of any
of the covenants and conditions of the Documents and no Event of Default or
Potential Default has occurred, except for such defaults, if any, described on
Schedule A attached hereto. (If any are described, state nature and status
thereof and actions proposed to be taken with respect thereto.)
5. The calculations shown on Schedule B attached hereto demonstrate
compliance with Sections 6.8 and 6.9 of the Loan Agreement.
6. Attached hereto as Schedule C are summaries of the Company's
accounts payable agings, accounts receivable agings and inventory, as of the
date of the financial statements to which this Certificate relates.
7. Attached hereto as Schedule D is (a narrative report of the business
and affairs of the Company and its Subsidiaries which includes, but is not
limited to,) a comparison of the actual results of the Company's operations
during the Subject Period (and during the portion of the fiscal year then ended)
to those budgeted for such period(s), along with a brief description and
explanation of any budget variances. [Delete first parenthetical reference for
Monthly Certificate. Delete second and third parenthetical references for Annual
Certificate.]
Exhibit C - Page 1 of 2
<PAGE>
______________________________________
Lance P. Wimmer, President
______________________________________
Robert A. Searles, Jr., Executive Vice
President
Schedules:
A - Defaults
B - Calculations
C - Summaries of Agings and Inventory
D - Budget Variance Report
Exhibit C - Page 2 of 2
<PAGE>
Schedule A
to
Officers' Compliance Certificate
Defaults
[List. If no Defaults exist, state "None."]
1.
2.
3.
Schedule A - 1
<PAGE>
Schedule B
to
Officers' Compliance Certificate
Calculations
1. Tangible Net Worth (Section 8.1).
The Tangible Net Worth of the Company, as of the date hereof, is:
Total Assets: $ __________
Less: Total Liabilities: $(__________)
Less: Prepaid Assets: $(__________)
Less: Intangible Assets: $(__________)
Less: Deferred Loan Costs: $(__________)
Less: Organizational Costs: $(__________)
Tangible Net Worth: $ ___________
Requirement of Loan Agreement. Not less than:
From October 31, 1996 through
December 30, 1996: $ 3,250,000
From December 31, 1996 through
March 30, 1997: $ 3,000,000
From March 31, 1997 through
June 29, 1997: $ 2,850,000
From June 30, 1997 through
September 29, 1997: $ 2,850,000
From September 30, 1997
December 30, 1997: $ 3,200,000
From December 31, 1997 through
March 30, 1998: $ 3,550,000
From March 31, 1998
and thereafter: $ 3,850,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 1
<PAGE>
2. Ratio of Total Liabilities to Tangible Net Worth (Section 8.2)
Total Liabilities: $ __________
Tangible Net Worth (from Item 1 above): $ __________
The ratio of Total Liabilities to Tangible Net
Worth, as of the date hereof, is: ______ : 1.0
Requirement of Loan Agreement. Not greater than:
From October 31, 1996 through
June 30, 1997: 1.10 : 1.0
From July 1, 1997
and thereafter: 1.00 : 1.0
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 2
<PAGE>
3. Working Capital (Section 8.3).
The working capital of the Company, as of the date hereof, is:
Current assets: $ __________
Less: Current liabilities: $(__________)
Working capital: $ __________
Requirement of Loan Agreement. Not less than:
From October 31, 1996 through
December 30, 1996: $ 400,000
From December 31, 1996 through
March 30, 1997: $ 250,000
From March 31, 1997 through
June 29, 1997: $ 150,000
From June 30, 1997 through
September 29, 1997: $ 200,000
From September 30, 1997
and thereafter: $ 500,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 3
<PAGE>
4. Ratio of Gross Cash Flow to Total Debt Service (Section 8.4)
Gross Cash Flow, as calculated at the end of this month for the three
(3)-month period consisting of this month plus the two preceding months, is:
Month: __________ ___________ __________
Net Income: $ ________ $ _________ $ ________
Plus: Depreciation: $ ________ $ _________ $ ________
Plus: Amortization of Intangible
Assets: $ ________ $ _________ $ ________
Plus: Amortization of Deferred
Loan Costs: $ ________ $ _________ $ ________
Plus: Amortization of
Organizational Costs: $ ________ $ _________ $ ________
Gross Cash Flow: $ ________ $ _________ $ ________
Total Gross Cash Flow:
(Sum of Gross Cash Flow for 3 months): $ _________
Average Gross Cash Flow:
(Total Gross Cash Flow divided by 3) $ _________
Total Debt Service, as calculated at the end of this month for the three
(3)-month period consisting of this month plus the two preceding months, is:
Month: __________ __________ __________
Total Debt Service: $ ________ $ ________ $ ________
Total Debt Service
(Sum of Total Debt Service for 3 months): $ _________
Average Total Debt Service
(Sum of Total Debt Service divided by 3): $ _________
Schdule B - 4
<PAGE>
The ratio of average Gross Cash Flow to average
Total Debt Service is: ______ : 1.0
Requirement of Loan Agreement. Not less than:
From October 31, 1996 through
December 30, 1996: Not calculated.
From December 31, 1996 through
March 30, 1997: Not calculated.
From March 31, 1997 through
June 29, 1997: 1.00 : 1.0
From June 30, 1997
and thereafter: 2.00 : 1.0
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 5
<PAGE>
5. Gross Cash Flow (Section 8.5).
Gross Cash Flow, as calculated at the end of this month for the three
(3)-month period consisting of this month plus the two preceding months,
is:
Month: __________ __________ __________
Gross Cash Flow:
(See Item 4, above): $ ________ $ ________ $ ________
Total Gross Cash Flow:
(Sum of Gross Cash Flow for 3 months): $ _________
Average Gross Cash Flow:
(Total Gross Cash Flow divided by 3): $ _________
Requirement of Loan Agreement. Not less than:
From October 31, 1996 through
December 30, 1996: $ (50,000)
From December 31, 1996 through
March 30, 1997: $(50,000)
From March 31, 1997 through
June 29, 1997: $ 0
From June 30, 1997 through
September 29, 1997: $ 50,000
From September 30, 1997
and thereafter: $ 175,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 6
<PAGE>
6. Net Income (Section 8.6).
Net Income, as calculated at the end of this month for the three (3)-month
period consisting of this month plus the two preceding months, is:
Month: __________ __________ __________
Net Income: $ ________ $ ________ $ ________
Total Net Income:
(Sum of Net Income for 3 months) $ __________
Average Net Income:
(Total Net Income divided by 3) $ __________
Requirement of Loan Agreement. Not less than:
From October 31, 1996 through
December 30, 1996: $ (200,000)
From December 31, 1996 through
March 30, 1997: $ (175,000)
From March 31, 1997 through
June 29, 1997: $ (125,000)
From June 30, 1997 through
September 29, 1997: $ (50,000)
From September 30, 1997 through
December 30, 1997: $ 0
From December 31, 1997
and thereafter: $ 25,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 7
<PAGE>
7. Maximum Current Liabilities Plus Commitments (Section 8.7).
The sum of the Company's current liabilities plus Commitments, as of
the date hereof, is:
Current liabilities: $ __________
Commitments: $ __________
Sum of current liabilities plus Commitments: $ __________
Requirement of Loan Agreement. Not greater than:
From October 31, 1996 through
December 30, 1996: $ 1,200,000
From December 31, 1996 through
March 30, 1997: $ 1,100,000
From March 31, 1997 through
June 29, 1997: $ 1,000,000
From June 30, 1997 through
September 29, 1997: $ 1,000,000
From September 30, 1997 through
December 30, 1997: $ 850,000
From December 31, 1997
and thereafter: $ 800,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 8
<PAGE>
8. Maximum Component Parts/WIP Inventory (Section 8.8).
The sum of the Company's parts inventory (including new and used parts) plus
work-in-process inventory, as of the date hereof, is:
New parts inventory: $ __________
Used parts inventory: $ __________
Work-in-process inventory: $ __________
Sum of new and used parts inventory plus
work-in-process inventory: $ __________
Requirement of Loan Agreement. Not greater than:
From October 31, 1996 through
December 30, 1996: $ 550,000
From December 31, 1996 through
March 30, 1997: $ 500,000
From March 31, 1997 through
June 29, 1997: $ 450,000
From June 30, 1997 through
September 29, 1997: $ 400,000
From September 30, 1997
and thereafter: $ 350,000
COVENANT SATISFIED: _____; COVENANT NOT SATISFIED: _____
Schedule B - 9
<PAGE>
Schedule C
Summaries of Agings and Inventory
Schedule C - 1
<PAGE>
Schedule D
to
Officers' Compliance Certificate
Budget Variance Report
Schedule D - 1
<PAGE>
EXHIBIT D
TO
LOAN AGREEMENT
Permitted Liens
None.
Exhibit D - Page 1 of 1
<PAGE>
EXHIBIT E
TO
LOAN AGREEMENT
COLLECTION ACCOUNTS
Account No. 6605937 First Hawaiian Bank
45-480 Kaneohe Bay Drive
Building H
Kaneohe, Hawaii 96744
Account No. 200303433 Wells Fargo Bank of California
707 Wilshire Boulevard
Los Angeles, California 90017
Account No. 470043431 Wells Fargo Bank of Texas
P.O. Box 3326
Houston, Texas 77253-3326
INVESTMENT ACCOUNT
Account No. 120030 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
CONCENTRATION ACCOUNT
Account No. 77771 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
OPERATING ACCOUNT
Account No. 77674 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
SALES TAX ACCOUNT
Account No. 117544 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
LOCK BOX ACCOUNT
Account No. 77100 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
PAYROLL ACCOUNT
Exhibit - Page 1 of 2
<PAGE>
Account No. 77720 Southwest Bank of Texas
P.O. Box 27459
Houston, Texas 77227
The Company agrees that all of the above accounts will be evidenced by
account agreements in form and substance similar to the Depository, Collection
and Investment Account Agreements within thirty (30) days of the date of this
Agreement.
Exhibit E - Page 2 of 2
<PAGE>
EXHIBIT F
TO
LOAN AGREEMENT
Arbitration Program
(a) Binding Arbitration. Upon the request of any party, whether made before or
after the institution of any legal proceeding, any action, dispute, claim,
or controversy of any kind (e.g., whether in contract or in tort, statutory
or common law, legal or equitable) now existing or hereafter arising
between the parties in any way arising out of, pertaining to or in
connection with (1) the agreement, document or instrument to which this
Arbitration Program is attached or in which it is referred to or any
related agreements, documents, or instruments (the "Documents"), (2) all
past and present loans, credits, accounts, safekeeping agreements,
guarantees, letters of credit, goods or services or other transactions,
contracts or agreements, (3) any incidents, omissions, acts, practices, or
occurrences causing injury to either party whereby the other party or its
agents, employees or representatives may be liable, in whole or in part, or
(4) any aspect of the past or present relationships of the parties, shall
be resolved by binding arbitration in accordance with the terms of this
Arbitration Program. The foregoing matters shall be referred to as a
"Dispute." Any party to this Arbitration Program may, by summary
proceedings (e.g., a plea in abatement or motion to stay further
proceedings), bring an action in court to compel arbitration of any
Disputes.
(b) Governing Rules. All disputes between the parties shall be resolved by
binding arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the terms of this Arbitration Program, the
Commercial Arbitration Rules of the AAA, and to the maximum extent
applicable, the Federal Arbitration Act (Title 9 of the United States
Code). In the event of any inconsistency between this Arbitration Program
and such statute and rules, this Arbitration Program shall control.
Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction.
(c) No Waiver: Preservation of Remedies. No provisions of, nor the exercise of
any rights under, this Arbitration Program shall limit the right of any
party to employ other remedies, including, without limitation, (1)
foreclosing against any real or personal property collateral or other
security by the exercise of a power of sale under a deed of trust,
mortgage, or other security agreement or instrument, or applicable law, (2)
exercising self-help remedies (including set-off rights) or (3) obtaining
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, garnishment, or the appointment of a receiver from a court
having jurisdiction before, during, or after the pendency of any
arbitration. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies or exercise of self-
help remedies shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the Dispute to arbitration nor render
inapplicable the compulsory arbitration provisions hereof. Without
limitation of the foregoing, the parties shall be entitled to the benefits
of each and all of the remedies and assistance provided for by applicable
law.
In Disputes involving indebtedness or other monetary obligations, each party
agrees that the other party may proceed against all liable persons, jointly and
severally, or against one or more of them, less than all, without impairing
rights against other liable persons. Nor shall a party be required to join the
principal obligor or any other liable persons (e.g., sureties or guarantors) in
any proceeding against a particular person. A party may release or settle with
one or more liable persons as the party deems fit without releasing or impairing
rights to proceed against any persons not so released.
(d) Statute of Limitations: All statutes of limitation that would otherwise be
applicable shall apply to any arbitration proceeding.
(e) Scope of Award; Modification or Vacation of Award; Qualifications. Any
arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrators shall be practicing attorneys licensed to
practice law in the State of Texas and shall be knowledgeable in the
subject matter of the Dispute. With respect to a Dispute in which the
claim or amount in controversy does not exceed $1,000,000, a single
arbitrator (who shall have authority to render a maximum award of
$1,000,000, including all damages of any kind and costs, fees and the like)
shall be chosen and shall decide the Dispute. With respect to a Dispute in
which the claim or amount in controversy exceeds
Exhibit F - Page 1 of 3
<PAGE>
$1,000,000, the Dispute shall be decided by a majority vote of three
arbitrators. The arbitrators may grant any remedy or relief that the
arbitrators deem just and equitable and within the scope of this
Arbitration Program. The arbitrators may also grant such ancillary relief
as is necessary to make effective the award. In all arbitration proceedings
in which the amount in controversy exceeds $1,000,000, in the aggregate,
the parties shall have in addition to the limited statutory right to seek
vacation or modification of an award pursuant to applicable law, the right
to seek vacation or modification of any award that is based in whole, or in
part, on an incorrect ruling of law; provided, however, that any such
application for vacation or modification of an award based on an incorrect
ruling of law must be filed in a court having jurisdiction over the Dispute
within 15 days from the date the award is rendered. The arbitrators'
findings of fact shall be binding on all parties and shall not be subject
to further review except as otherwise allowed by applicable law.
(f) Other Matters and Miscellaneous. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings hereunder
shall be conducted at Dallas, Texas. Arbitrators shall be empowered to
impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could do pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure and applicable law.
This Arbitration Program constitutes the entire agreement of the parties
with respect to its subject matter and supersedes all prior discussions,
arrangements, negotiations, and other communications on dispute resolution.
The provisions of this Arbitration Program shall survive any termination,
amendment, or expiration of the Documents, unless the parties otherwise
expressly agree in writing. To the extent permitted by applicable law, the
arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, and arbitrators' fees) to
the prevailing party. This Arbitration Program may be amended, changed, or
modified only by the express provisions of a writing which specifically
refers to this Arbitration Program and which is signed by all the parties
hereto. If any term covenant, condition or provisions of this Arbitration
Program is found to unlawful or invalid or unenforceable, such illegality
or invalidity or unenforceability shall not affect the legality, validity
or enforceability of the remaining parts of this Arbitration Program, and
all such remaining parts hereof shall be valid and enforceable and have
full force and effect as if the illegal, invalid or unenforceable part has
not been included. The captions or headings in this Arbitration Program
are for convenience of reference only and are not intended to constitute
any part of the body or text of this Arbitration Program. Each party
agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the
ordinary course of business or by applicable law or regulation.
Exhibit F - Page 2 of 3
<PAGE>
EXHIBIT G
TO
LOAN AGREEMENT
Form of Other Reports
[Attached]
Attachments:
1. Statement of Operations
2. Balance Sheet
3. Statement of Cash Flow
4. Financial Statement Footnotes
5. Inventory Report
6. Booth Inventory
Exhibit G - Page 1 of 1
<PAGE>
EXHIBIT H
TO
LOAN AGREEMENT
Form of Contribution Analysis Report
[Attached]
Attachments:
1. Contribution Analysis for Booths Installed After August 1, 1996, for the
Month of ______________, 199__.
2. Contribution Analysis for All Booths for the Month of ______________,
199__.
Exhibit H - Page 1 of 1
<PAGE>
EXHIBIT 10.38
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT made and entered into effective as of the
22nd day of January, 1997, is by and between Irata, Inc., a Texas corporation
(the "Company"), and John D. Higgins, a resident of the State of New York
("Higgins").
RECITALS
Higgins has served as a director of the Company and the Company is
indebted to Higgins for such services in the amount of $10,000.00 (herein the
"Higgins Debt"). The Company recently successfully completed a private
placement of 3,245,000 shares of Class A common stock and 3,245,000 common
stock purchase warrants in Units of 50,000 shares of Class A Common Stock and
50,000 common stock purchase warrants at an offering price of $25,000 per Unit.
Higgins has agreed to convert the Higgins Debt into 20,000 shares of Class A
Common Stock and 20,000 common stock purchase warrants and the Company has
agreed to issue and deliver to Higgins an aggregate of 20,000 shares of Class A
Common Stock and 20,000 common stock purchase warrants in exchange for the
surrender of the Higgins Debt. Accordingly, the Company and Higgins have agreed
as follows:
1. Subscription and Purchase. Higgins has agreed to purchase and
hereby purchases an aggregate of 20,000 shares of Class A Common Stock and
20,000 common stock purchase warrants in consideration for the surrender and
cancellation of the Higgins Debt. The warrants shall have substantially the same
terms as the Private Placement Warrants and shall be exercisable at $1.00 per
share until November 1, 1998 and thereafter shall be exercisable at $1.50 until
expiration of the warrants on November 1, 1999.
2. Representations and Warranties of Higgins. Higgins hereby
represents and warrants to the Company and its agents, employees and
representatives as follows:
(a) Investment Intent. (i) The shares of Class A Common Stock, the
warrants to purchase shares of Class A Common Stock and the shares of Class A
Common Stock underlying the warrants (herein collectively the "Securities") are
being acquired solely for the account of Higgins, for investment, and not with a
view to or for the resale, distribution, subdivision, or fractionalization
thereof, (ii) Higgins has no contract, understanding, undertaking, agreement, or
arrangement with any person to sell, transfer, or pledge to any person the
Securities or any part thereof, (iii) Higgins has no present plans to enter into
any such contract, undertaking, agreement or arrangement, (iv) Higgins
understands the legal consequences of the foregoing representations and
warranties to mean that Higgins must bear the economic risk of the investment in
the Securities for an indefinite period of time, (v) Higgins has such knowledge
and experience in financial and business matters that Higgins is capable of
evaluating the merits and risks of acquiring the Securities, and (vi) Higgins
acknowledges that the acquisition of the Securities involves a high degree of
risk which may result in the loss of the total amount of Higgins's investment in
the Securities.
(b) Securities Compliance. Higgins understands that no sale,
distribution, transfer or other disposition of the Securities can be made by
Higgins unless the Securities have been registered under the Securities Act of
1933, as amended (the "Act"), and applicable securities laws of any other
relevant jurisdiction, or exemptions from such registrations are available, as
evidenced by an opinion of counsel satisfactory to the Company, with respect to
the proposed sale, distribution, transfer or other disposition. Any purchaser
on resale or transfer of the Securities will also be required to meet the
suitability requirements applicable to investors and such purchaser or Higgins
will be required to bear all expenses of such transfer (including the costs of
any legal advice or opinions required).
(c) Experience. Higgins, together with any Purchaser Representative,
is knowledgeable and experienced in the field of investments involving the
business of the Company or has a general understanding and knowledge of such
investments; furthermore, Higgins alone, or together with any Purchaser
Representative, has such knowledge and experience in financial and business
matters that Higgins is capable of understanding the information made available
to Higgins, evaluating the risks of any investment in the Securities and making
an informed investment decision.
(d) No General Solicitation. The Securities have been offered to
Higgins without any form of general solicitation or advertising of any type by
or on behalf of the Company or any of their employees, agents or
representatives.
(e) Access to Information. Higgins has (i) read the Term Sheet
prepared by the Company
<PAGE>
in connection with the Private Placement and all exhibits or schedules to the
Term Sheet, (ii) for a reasonable amount of time had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering and sale of the Securities and the actual and proposed business and
affairs of the Company, and is satisfied with the results thereof, and (iii)
been given access, if requested, to all documents with respect to the Company or
this transaction, as well as to such other information that Higgins has
requested in order to evaluate an investment in the Securities. HIGGINS HAS NOT
RECEIVED NOR RELIED UPON ANY REPRESENTATIONS OR WARRANTIES BY THE COMPANY OR
THEIR OFFICERS, MANAGERS, MEMBERS, AGENTS, EMPLOYEES OR REPRESENTATIVES, OR ANY
OTHER PERSON, OTHER THAN THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THE
TERM SHEET AND THIS AGREEMENT.
(f) Exemption Status. Higgins understands that the Securities to be
sold hereunder are being offered and sold in reliance upon exemptions from
registration under the Act and applicable state securities laws. Higgins
understands that the Company and its agents, employees, and representatives are
relying on, among other things, the representations and warranties of Higgins
set forth herein in offering and selling the Securities to Higgins in reliance
upon exemptions available under the Act and state securities laws.
(g) Domicile. Higgins is a bona fide resident or domiciliary of the
State of New York and meets the following requirements, as applicable, for
qualifying as a "person resident within the State of New York":
(i) If a corporation, partnership, trust or other form of
business organization, Higgins has its principal office within the
State of New York.
(ii) If an individual, Higgins has a principal residence and
domicile in the State of New York and is a citizen of the United
States and is at least twenty-one (21) years of age.
(iii) If a corporation, partnership, trust or other form of
business organization WHICH WAS ORGANIZED FOR THE SPECIFIC PURPOSE OF
ACQUIRING SECURITIES, all of the beneficial owners of Higgins are
residents of the State of New York and are citizens of the United
States.
(h) Net Worth. Higgins's investment in the Securities will not exceed
20% of Higgins's net worth (or joint net worth with Higgins's spouse) determined
as of the date of this Agreement.
(i) START-UP COMPANY. HIGGINS ACKNOWLEDGES THAT THE COMPANY IS A
"START-UP" COMPANY WHICH HAS SUSTAINED SUBSTANTIAL LOSSES AND THAT IS ENGAGED IN
AN INDUSTRY WHICH IS A HIGHLY COMPETITIVE INDUSTRY. CONSEQUENTLY, HIGGINS
ACKNOWLEDGES THAT AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF
RISK.
3. Covenants of Higgins. Higgins covenants and agrees that for a period
commencing on the date hereof and expiring November 1, 1997, Higgins will not
publicly sell, assign or transfer any Securities of the Company without the
prior written consent of Royce Investment Group, Inc. Higgins, to facilitate
enforcement of this covenant, hereby consents to the Company imposing stop
transfer restrictions with respect to all shares of capital stock of the Company
owned by Higgins until the end of the lock-up period.
4. Restrictions on Transfer. In addition to the restrictions set forth
above, Higgins understands and agrees that (i) the Securities are restricted
securities under the Act, and may not be sold, assigned or transferred unless
the sale, assignment or transfer of such Securities is registered under the Act
and applicable blue sky laws, as now in effect or hereafter amended, or there is
furnished evidence in form and substance satisfactory to the Company from
counsel acceptable to the Company that such registrations are not required, (ii)
the Company is under no obligation to register the Securities or to perfect any
exemption for resale of the Securities under applicable securities laws, and
(iii) the following restrictions and limitations will be applicable to the
Securities and any resales, pledges, hypothecations or other transfers of any of
the Securities:
(a) Legend. A legend will be placed on each certificate or other
document evidencing any of the Securities in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
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HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION
OR RESALE AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IF
SUCH SALE, PLEDGE, OR TRANSFER WOULD BE IN VIOLATION OF THE 1933 ACT
OR THE SECURITIES LAWS OF ANY STATE.
(b) Stop Transfer Instructions. Stop transfer instructions can be
issued by the Company to restrict the resale, pledge, hypothecation or other
transfer in contravention of this Agreement.
(c) Transfers. Higgins acknowledges that Higgins will be responsible
for compliance with all conditions to transfer imposed by any applicable
securities law and for any expenses incurred by the Company including, but not
limited to, legal fees, accounting services and filing fees, in connection with
reviewing and effecting such transfer.
5. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation or statement as to the results thereof,
made by or on behalf of Higgins, the Company or any of their respective agents,
representatives, officers or managers or any controlling person, and will
survive exchange for the Interim Lender Units.
6. Notice. All communications hereunder will be in writing and, if sent
to Higgins, will be mailed, delivered or telegraphed and confirmed to Higgins at
the address set forth on the signature page of this Agreement, or if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to them at 8554
Katy Freeway, Suite 100, Houston, Texas 77024, Attn: Lance Wimmer.
7. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Higgins may not assign the debt evidenced by the Interim Loan or the related
warrants nor any other rights hereunder without the prior written consent of the
Company, which may not be unreasonably withheld.
8. Attempted Breaches. Any transfer of interest effected, or purported
to be effected, not in accordance with the terms and conditions of this
Agreement or any other agreement referred to herein or to a person prohibited by
law from holding any of the Securities shall be null and void and shall not bind
the Company.
9. Amendment. This Agreement may not be modified or amended except by
written instrument executed by or on behalf of each of the parties hereto.
10. Waivers. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by the party entitled to enforce such term, but such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Unless otherwise expressly provided herein, no
delay on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
11. Entire Agreement. This Agreement, including the exhibits hereto, if
any, and the documents and agreements expressly referred to herein constitute
the entire agreement between the parties hereto with respect to the matters
covered hereby, and any other prior or contemporaneous oral or written
understandings or agreements with respect to the matters covered hereby are
expressly superseded by this Agreement. There are no oral or unwritten
agreements between the parties.
12. Severability. If any provision of this Agreement, or the application
of such provision to any person or circumstances, shall be declared judicially
to be invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effect as if such part
or parts had never been included herein. Any such
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finding of invalidity or unenforceability shall not prevent the enforcement of
such provision in any other jurisdiction to the maximum extent permitted by
applicable law.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMABLE IN
HARRIS COUNTY, TEXAS.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
22nd day of January, 1997.
Irata Inc.
By:_____________________________
Authorized Officer
Address: Royce Investment Group, Inc. _________________________________
199 Crossways Park Drive John D. Higgins
Woodbury, N.Y. 11797
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