<PAGE>
As filed with the Securities
and Exchange Commission on December 6, 1999 Registration No. 333-86643
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PRECIS SMART CARD SYSTEMS, INC.
(Name of small business issuer in its charter)
OKLAHOMA 5045
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
73-1494382
(I.R.S. Employer
Identification No.)
11032 QUAIL CREEK ROAD, SUITE 108 LARRY E. HOWELL
OKLAHOMA CITY, OKLAHOMA 73120 CHIEF EXECUTIVE OFFICER
(405) 752-5550 PRECIS SMART CARD SYSTEMS, INC.
11032 QUAIL CREEK ROAD, SUITE 108
OKLAHOMA CITY, OKLAHOMA 73120
(405) 752-5550
(Address and telephone number, (Name, address and telephone number,
including area code, of of agent for service)
registrant's principal
executive offices)
--------------------------
Copies To:
MICHAEL E. DUNN, ESQ. BERT L. GUSRAE, ESQ.
DUNN SWAN & CUNNINGHAM DAVID A. CARTER, P.A.
2800 OKLAHOMA TOWER 2300 GLADES ROAD
210 PARK AVENUE SUITE 210, WEST TOWER
OKLAHOMA CITY, OKLAHOMA 73102-5604 BOCA RATON, FLORIDA 33431
TELEPHONE NUMBER: (405) 235-8318 TELEPHONE NUMBER: (561) 750-6999
FACSIMILE NUMBER: (405)235-9605 FACSIMILE NUMBER: (561) 367-0960
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)............................... 1,150,000 $6.00 $6,900,000 $1,919
- ------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants........................ 100,000 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------
Common Stock Underlying
Underwriter's Warrants(3)................. 100,000 $9.00 $ 900,000 $ 250
- ------------------------------------------------------------------------------------------------------------------
Total................................... $7,800,000 $2,169
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c).
(2) Includes 150,000 shares of Common Stock subject to the underwriter's
over-allotment option.
(3) Pursuant to Rule 416, includes such indeterminate number of additional
securities as may be required for issuance on exercise of underwriter's
warrants as a result of adjustment in the number of securities issuable on
such exercise by reason of anti-dilution provisions of such warrants.
--------------------------
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 COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION CONTAINED IN THIS PROSPECTUS.
ALTHOUGH WE ARE PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER THESE
SECURITIES USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER
TO BUY THEM UNTIL DOCUMENTATION FILED WITH THE SEC RELATING TO THESE
SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
PRELIMINARY PROSPECTUS
DECEMBER , 1999
1,000,000 SHARES OF COMMON STOCK
PRECIS SMART CARD SYSTEMS, INC.
11032 Quail Creek Road, Suite 108
Oklahoma City, Oklahoma 73120
Telephone: (405) 752-5550
This is our initial public offering, and no public market exists for our
common stock. The offering price of our common stock may not reflect the
market price after the offering.
<TABLE>
<CAPTION>
==========================================================================
PER SHARE TOTAL
- --------------------------------------------------------------------------
<S> <C> <C>
Public offering price............................. $6.00 $6,000,000
- --------------------------------------------------------------------------
Underwriting Discounts and Commissions............ $ .60 $ 600,000
- --------------------------------------------------------------------------
Proceeds to Precis................................ $5.40 $5,400,000
</TABLE>
Barron Chase Securities is offering our common stock on a firm commitment
basis.
We have granted Barron Chase Securities a 45-day option to purchase up to
150,000 additional shares of our common stock to cover over-allotments. If
exercised in full, the total public offering price, underwriting discounts
and commissions, and proceeds to Precis will be $6,900,000, $690,000 and
$6,210,000, respectively.
WE ARE CONSIDERED TO BE IN UNSOUND FINANCIAL CONDITION. THIS INVESTMENT
INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. YOU SHOULD ONLY
PURCHASE SHARES IF YOU CAN AFFORD A COMPLETE LOSS. BEFORE INVESTING, YOU
SHOULD CAREFULLY READ THIS PROSPECTUS AND ANY SUPPLEMENT, PAYING PARTICULAR
ATTENTION TO THE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
BARRON CHASE
S E C U R I T I E S
<PAGE>
CAUTIONARY STATEMENT RELATING TO
FORWARD LOOKING INFORMATION
We have included some forward-looking statements in this prospectus
regarding our expectations after completion of this offering. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, levels of activity,
performance or achievements, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. Some of these
forward-looking statements can be identified by the use of forward-looking
terminology including "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategies that involve risks
and uncertainties. You should read statements that contain these words
carefully because they:
- - discuss our future expectations;
- - contain projections of our future operating results or of our future
financial condition; or
- - state other "forward-looking" information.
We believe it is important to communicate our expectations to you, but
events may occur in the future over which we have no control and which we are
not accurately able to predict.
----------------------
"Precis Health Card System-TM-" is our trade mark for which trade mark
applications are pending. "PrecisCache," "PrecisReserve," and "PrecisPersona"
are trade marks we use, but we have not made trade mark applications for
their protection. This prospectus also contains the trademarks and service
marks of other companies which are the property of their respective owners.
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Precis Smart Card Systems, Inc................................... 1
The Offering..................................................... 2
Summary Financial Information.................................... 3
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 14
Results of Operations............................................ 14
Liquidity and Capital Resources.................................. 17
Business................................................................. 18
Management............................................................... 28
Directors and Executive Officers................................. 28
Executive Officer Compensation................................... 30
Stock Option Plan................................................ 31
Director Liability and Indemnification........................... 32
Lack of Employment Arrangements
and Keyman Insurance......................................... 32
Certain Transactions..................................................... 33
Security Ownership of Certain Beneficial
Owners and Management................................................ 33
Description of Securities................................................ 34
Common Stock..................................................... 34
Preferred Stock.................................................. 35
Transfer Agent and Registrar..................................... 35
Outstanding Stock Options........................................ 35
Shareholder Action............................................... 35
Anti-Takeover Provisions......................................... 36
Shares Eligible for Future Sale.......................................... 37
Lock-Up Agreements............................................... 38
State Imposed Lock-In Arrangement................................ 38
Underwriting............................................................. 38
Legal Matters............................................................ 40
Experts.................................................................. 40
Where You Can Find Additional Information................................ 41
Index to Financial Statements............................................F-1
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS OR MAY BE IMPORTANT
TO YOU. YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY. FOR ADDITIONAL
INFORMATION, SEE "WHERE YOU CAN FIND ADDITIONAL INFORMATION."
WE CALL THIS DOCUMENT A PROSPECTUS. IT COVERS THE SHARES OF OUR COMMON
STOCK WHICH ARE OFFERED BY US TO YOU AND OTHERS. THIS OFFERING TO YOU AND OTHERS
IS REFERRED TO AS THE OFFERING. THESE SHARES OF OUR COMMON STOCK HAVE BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
GIVES EFFECT TO AND ASSUMES THE FOLLOWING:
- - THE SALE OF 1,000,000 SHARES OF OUR COMMON STOCK
FOR THE INITIAL PUBLIC OFFERING PRICE OF $6.00 PER
SHARE AND OUR RECEIPT OF NET PROCEEDS OF
$5,050,000 FROM THE OFFERING; AND
- - BARRON CHASE SECURITIES DOES NOT EXERCISE ITS
OVER-ALLOTMENT OPTION TO SELL AN ADDITIONAL
150,000 SHARES OF OUR COMMON STOCK.
WE RECOMMEND THAT YOU ESPECIALLY CONSIDER THE INFORMATION CONTAINED IN "RISK
FACTORS" (PAGE 4). ALL REFERENCES IN THIS PROSPECTUS TO FISCAL YEARS ARE TO THE
12 MONTHS ENDED DECEMBER 31 OF THE PARTICULAR YEAR.
PRECIS SMART CARD SYSTEMS, INC.
We at Precis Smart Card Systems, Inc. are a development stage company. We
develop and market commercial software products used with a technology commonly
referred to as "smart cards." The smart card contains an embedded microchip that
serves as an information storage device that performs limited computer
functions. This smart card technology enables electronic commerce for
point-of-sale transactions and can serve as an information storage device for
personal healthcare and emergency medical treatment.
Our products include the following:
- - Precis Health Card System -- personal medical history and information are
stored on the care smart card for use by healthcare providers and emergency
response personnel;
- - PrecisCache -- an amount of money value is stored on a disposable smart
card that may be used to purchase products or services typically in closed
areas including stadiums, arenas, campuses, and events and specific retail
sites;
- - PrecisReserve -- a reusable smart card system on which an amount of money
value is initially stored and additional amounts may be added to replenish
the money value and may be used to purchase products or services; and
- - PrecisPersona -- a smart card system designed for use by marketers,
retailers, distributors and manufacturers to track customer purchasing
preferences and patterns and reward customer loyalty through discounts,
refunds and other complementary gifts.
Our products may require enhancement or further development depending on the
customer's proposed use of our products.
During the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997, we
- - had product and service revenue of $48,513,
$322,483 and $40,856, respectively, and
- - incurred a net loss of $665,598, $671,330 and
$1,150,160, respectively.
Our principal executive offices are located at
11032 Quail Creek Road, Suite 108, Oklahoma City,
Oklahoma 73120, and our telephone number is (405)
752-5550.
-1-
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common stock offered............................... 1,000,000 shares.
Common stock outstanding after the offering........ 2,200,000 shares.
Use of proceeds.................................... We expect to have net proceeds of approximately $5,050,000 after payment
and deduction of the expenses of the offering. We plan to use the net
proceeds as follows:
- $2,709,000 (53.6% of net proceeds) for marketing of our smart card
products and systems at trade shows and conventions, for travel and
entertainment, trade journal advertising and for promotional
materials, and miscellaneous marketing expenses;
- $700,000 (13.9% of net proceeds) for further development of our smart
card products and technology;
- $425,800 (8.4% of net proceeds) for payment of accounts payable;
- $329,650 (6.5% of net proceeds) for repayment of shareholder loans;
- $277,550 (5.5% of net proceeds) for payment of long-term debt;
- $108,000 (2.1% of net proceeds) for prepayment of financial advisory
fee to Barron Chase Securities, and
- $500,000 (9.9% of net proceeds) for working capital.
The allocation of net proceeds to these uses is our best estimate. We have
the discretion to determine the use of a substantial portion of the net
proceeds of the offering.
Proposed Nasdaq SmallCap symbol of
common stock:
</TABLE>
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<PAGE>
SUMMARY FINANCIAL INFORMATION
You should read the following selected financial data in conjunction with
our financial statements and related notes, together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (page
14). The selected financial data as of and for the years ended December 31, 1998
and 1997, are derived from our audited financial statements. The selected
financial data as of and for the nine months ended September 30, 1999 and 1998,
are derived from our unaudited financial statements. In our opinion, the
financial information presented for the nine months ended September 30, 1999 and
1998, reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of this information. All of this financial
information is presented elsewhere in this prospectus The results of operations
during years and periods presented are not necessarily indicative of our future
operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1999 1998
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Product and service revenue....................... $ 322,483 $ 40,856 $ 48,513 $ 295,716
--------- ----------- --------- ---------
Operating expenses--
Product deployment and
research and development.................. 389,586 542,203 188,135 476,666
Sales and marketing........................... 147,411 148,885 131,819 127,564
General and administrative.................... 399,756 472,320 340,870 155,133
--------- ----------- --------- ---------
Total expenses........................ 936,753 1,163,408 660,824 759,363
--------- ----------- --------- ---------
Operating loss........................ (614,270) (1,122,552) (612,311) (463,647)
--------- ----------- --------- ---------
Other expense (income)--
Interest expense.............................. 59,196 29,890 53,287 18,381
Interest income............................... (2,136) (2,282) -- (1,364)
--------- ----------- --------- ---------
57,060 27,608 53,287 17,017
--------- ----------- --------- ---------
Net loss--Deficit accumulated
during development state...................... $(671,330) $(1,150,160) $(665,598) $(480,664)
========= =========== ========= =========
Weighted average number of common
shares outstanding........................ 1,200,000 1,200,000 1,200,000 1,200,000
========= =========== ========= =========
Per share..................................... $ (0.56) $ (0.96) $ (0.55) $ (0.40)
========= =========== ========= =========
DECEMBER 31, SEPTEMBER 30, 1999
--------------------------------------------------------------
1998 1997 ACTUAL AS ADJUSTED(1)
--------- ----------- --------- --------------
BALANCE SHEET DATA:
Current assets..................................... $ 10,035 $ 45,864 $ 174,515 $4,083,512
Working capital (deficit).......................... (757,441) (551,188) (1,011,899) 3,930,101
Total assets....................................... 74,253 206,139 182,510 4,199,507
Total current liabilities.......................... 767,476 597,052 1,186,414 153,411
Long-term debt, net of current portion............. 41,570 273,669 -- --
Stockholders' equity (deficit)..................... (734,793) (664,582) (922,772) 4,127,228
</TABLE>
- ---------------------------------
(1) Adjusted to give effect to the sale of 1,000,000 shares of our common
stock, receipt of estimated net proceeds of $5,050,000 and the application
of the net proceeds as anticipated.
-3-
<PAGE>
RISK FACTORS
THE PURCHASE OF THE SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS, YOU SHOULD CONSIDER THE FOLLOWING FACTORS AND THE MATTERS
DISCUSSED ELSEWHERE IN THIS PROSPECTUS WHEN EVALUATING AN INVESTMENT IN OUR
COMMON STOCK. MANY OF THE FACTORS DISCUSSED BELOW ARE NOT WITHIN OUR CONTROL.
WE PROVIDE NO ASSURANCE THAT ONE OR MORE OF THESE FACTORS
- - WILL NOT ADVERSELY AFFECT
- THE MARKET PRICE OF OUR COMMON STOCK
- OUR FUTURE OPERATIONS AND
- OUR BUSINESS, FINANCIAL CONDITION, OR
- RESULTS OF OPERATIONS
- - REQUIRING SIGNIFICANT REDUCTION OR DISCONTINUANCE OF OUR OPERATIONS,
- - REQUIRING US TO SEEK A MERGER PARTNER OR
- - REQUIRING US TO SELL ADDITIONAL STOCK ON TERMS THAT ARE HIGHLY DILUTIVE TO
OUR SHAREHOLDERS.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
We are a development stage company. We have a limited operating history
upon which you can base your evaluation of our prospects and the potential
value of our common stock. Previously, we have engaged principally in
research and development of our proprietary smart card technology and
software. Accordingly, we have incurred substantial operating losses. Now, we
face the uncertainties, expenses, delays and difficulties associated with
shifting from development to commercialization and marketing of our smart
card products and technologies.
WE HAVE HAD VERY LIMITED REVENUE AND OUR REVENUE GROWTH IS DEPENDENT UPON
MARKET ACCEPTANCE OF OUR SMART CARD PRODUCTS.
During the nine months ended September 30, 1999, and the years ended
December 31, 1998 and 1997, we had total revenues of $48,513, $322,483, and
$40,856, respectively. We have generated limited revenues to date compared to
our expenditures. Significant increases in our revenues to achieve
profitability is dependent upon market acceptance of our smart card products
and systems.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES WHICH WILL
INCREASE OUR ACCUMULATED DEFICIT.
We incurred significant losses from operations resulting in an
accumulated deficit at September 30, 1999, of $3,635,842 and a negative
stockholders' equity of $922,772. We will continue to have a high level of
operating expenses. We also will be required to make significant expenditures
in further development and marketing of our smart card products and systems.
Consequently, we anticipate continuing to incur significant and increasing
losses in the foreseeable future until the time, if ever, that we are able to
generate sufficient revenues to support our development and marketing
activities.
WE MAY NOT OBTAIN PROFITABILITY WHICH MAY REQUIRE SUSPENSION OF OUR
OPERATIONS, SEEK A MERGER PARTNER OR OBTAIN ADDITIONAL EQUITY CAPITAL WHICH
MAY BE DILUTIVE TO OUR SHAREHOLDERS.
We cannot assure you that
- - our smart card products and systems will gain market acceptance,
- - we will be able to successfully implement our business strategy, or
- - we will be able to generate meaningful revenues or achieve profitable
operations.
If we do not achieve or sustain profitable operations, we could be required
to reduce significantly or suspend our operations, including research and
development activities, seek a merger partner or sell additional securities
on terms that are highly dilutive to the purchasers of our common stock under
the offering.
WE HAVE A SUBSTANTIAL DEFICIT WORKING CAPITAL AND DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN, WHICH MAY RESULT IN DISCONTINUANCE OF OUR
OPERATIONS AND LOSS TO OUR SHAREHOLDERS.
Our financial statements included in this prospectus were prepared on
the assumption that we will continue as a going concern. The report of our
independent accountants with respect to our financial statements for 1998 and
1997 notes that we have suffered losses from operations in 1998 and 1997 and
had an accumulated deficit at December 31, 1998.
-4-
<PAGE>
The report indicated that these factors raised substantial doubt regarding
our ability to continue as a going concern. Unless our marketing efforts
successfully result in profitability, our losses will consume our capital
resources and eventually require us to discontinue operations. If this
occurs, our shareholders will lose their investment in our common stock.
BECAUSE OUR PRODUCTS ARE BASED ON SMART CARD TECHNOLOGY, WE LACK PRODUCT AND
REVENUE SOURCE DIVERSIFICATION; THEREFORE, OUR BUSINESS SUCCESS AND
PROFITABILITY ARE TOTALLY DEPENDENT UPON MARKET ACCEPTANCE OF OUR SMART CARD
PRODUCTS.
Our smart card products and technology are expected to provide most if
not all of our sales and revenues in the foreseeable future. Our operating
results will therefore depend on
- - continued and increased market acceptance of our smart card products and
technology and
- - our ability to modify our products and technology to meet the needs of our
customers.
Any reduction in demand for, or increasing competition with respect to, these
products will result in loss of or the potential for revenue from smart card
sales. This lack of revenues will adversely affect potential profitability,
may result in additional losses, increase our accumulated deficit, and
possibly result in discontinuance of our operations.
SO FAR THE MARKETING AND MARKET ACCEPTANCE OF OUR SMART CARD TECHNOLOGY IS
VERY LIMITED; THEREFORE MARKET ACCEPTANCE OF OUR PRODUCTS AND TECHNOLOGY ON A
BROAD BASIS IS UNPROVEN.
Market acceptance of our smart card products and technology requires
convincing governmental authorities, commercial enterprises and other
potential system sponsors or users to adopt a smart card system. It will be
necessary for the smart card system come to be used instead of magnetic
stripe card and paper-based systems, and would change the way traditional
transaction and information processing tasks are accomplished.
Due to the large capital and infrastructure investment made by debit and
credit card issuers and significantly lower costs associated with the use of
magnetic stripe cards, there is no assurance that our smart card technology
will be economically viable for a sufficient number of sponsors and users.
Consequently, potential system sponsors or users may be reluctant to convert
to smart card technology. Accordingly, there is no assurance that significant
market opportunities will develop for smart card systems in the United States
or that the acceptance of smart card-based systems in other countries will be
sustained.
ERRORS IN OUR SOFTWARE PRODUCTS MAY ADVERSELY AFFECT MARKET ACCEPTANCE OF OUR
PRODUCTS.
Our software products may contain errors or failures when installed,
updated or enhanced. There is no assurance that, despite testing, errors will
not be found in our products after the delivery. If errors occur, these
errors or failures may result in loss of or delay in market acceptance.
BECAUSE WE DO NOT MANUFACTURE SMART CARD HARDWARE, WE ARE DEPENDENT UPON
INDEPENDENT THIRD PARTIES FOR THE MANUFACTURE AND SUPPLY OF THE SMART CARD
HARDWARE.
We obtain all of the hardware components utilized in conjunction with
our smart card software technology from manufacturers and suppliers. We
believe that these components are generally available from several suppliers.
We do not, however, have any long-term supply contracts. Also, although a
component may be available from more than one supplier, we could incur delays
in switching suppliers, which could result in loss or delay of sales and
reduced revenues, thus having an adverse effect on results of operations.
IF WE DEVELOP MARKETS FOR OUR PRODUCTS INTERNATIONALLY AS EXPECTED, WE WILL
BE CONFRONTED WITH THE LEGAL, FINANCIAL AND MANAGEMENT CHALLENGES OF FOREIGN
OPERATIONS WHICH MAY BE BEYOND OUR ABILITY TO SUCCESSFULLY MANAGE.
We intend to market our smart card technology in Mexico and Canada. In
order to successfully expand internationally, we will be required to
establish foreign operations and hire additional personnel. This will require
significant management attention and financial resources and could materially
adversely affect our operating margins and profitability, especially if such
operations are not profitable. International sales and operations are subject
to numerous risks, including:
- - unexpected changes in regulatory requirements, export restrictions, tariffs
and other trade barriers,
-5-
<PAGE>
- - difficulties in staffing and managing foreign operations,
- - difficulties in protecting intellectual property rights,
- - longer payment cycles and problems in collecting accounts receivable,
- - political instability,
- - fluctuations in currency exchange rates and implementation of foreign
exchange controls, and
- - potentially adverse tax consequences.
We provide no assurance that one or more of these factors will not have a
material adverse effect on our future international operations which may
affect our ability to sell and distribute our products and, consequently, on
our business, financial condition and results of operations.
AS PART OF OUR MARKETING, WE INTEND TO OBTAIN GOVERNMENT CONTRACTS, WHICH MAY
EXPOSE US TO THE SPECIAL RISKS ASSOCIATED WITH GOVERNMENT CONTRACTS.
As part of our strategy, we may market our smart card systems to
government agencies in the United States and internationally. In this event,
we will become subject to the special risks including
- - delays in funding,
- - lengthy review processes for awarding contracts,
- - non-renewal, delay, termination at the convenience of the government,
- - reduction or modification of contracts in the event of changes in the
governmental policies or as a result of budgetary constraints, and
- - increased or unexpected costs resulting in losses.
Any or all of the foregoing could have a material adverse effect on the
profitability of these contracts and consequently our business, financial
condition and results of operations.
Furthermore, we may also be required to obtain any potential government
contracts through the competitive bidding process. The competitive bidding
process is typically lengthy and often results in the expenditure of
financial and other resources in connection with bids that are not accepted.
BECAUSE THE NUMBER OF MARKETING COMPANIES WITH EXPERIENCE IN MARKETING SMART
CARD PRODUCTS IS VERY LIMITED, WE MAY NOT SUCCESSFULLY FIND THIRD PARTY
MARKETERS TO ASSIST US, WHICH WILL INCREASE THE POSSIBILITY THAT OUR
MARKETING ACTIVITIES WILL NOT BE SUCCESSFUL.
Achieving market acceptance of our products and systems requires
significant efforts and expenditures to create awareness, demand and interest
by potential system sponsors and users, and others. We expect to rely on
unrelated third parties to assist in marketing our smart card products and
technology. We believe that companies with smart card marketing experience
are very limited. Although we are in discussions with a third-party marketing
company, we have not entered into any contractual arrangements for such
assistance. Therefore, we may not be able to find companies to assist us.
Without this assistance, our product marketing will be limited to our
internal marketing staff. This may increase the possibility that our
marketing activities will be unsuccessful.
OUR CAPITAL RESOURCES AVAILABLE FOR PRODUCT MARKETING MAY BE LIMITED TO THIS
OFFERING, UNLESS REVENUE SOURCES DEVELOP FROM SUCH MARKETING ACTIVITIES, AND
IF EXHAUSTED MAY LEAD TO DISCONTINUANCE OF OPERATIONS AND LOSS TO OUR
SHAREHOLDERS.
Following the offering, we will have limited financial, personnel and
other resources to undertake extensive marketing activities. Unless our
initial marketing activities result in revenues and cash flows, we may
exhaust our capital resources before achieving significant levels of revenue
and obtaining profitability. If this occurs, we may be required to
discontinue operations which would result in loss to our shareholders.
BECAUSE OUR SMART CARD PRODUCTS AND TECHNOLOGY ARE OUR SOLE SOURCE OF
REVENUES, OBSOLESCENCE OF OUR TECHNOLOGY AND PRODUCTS WILL RESULT IN LOSS OF
REVENUE SOURCE AND MAY REQUIRE US TO DISCONTINUE OPERATIONS.
The computer application software market is subject to
- - rapid technological change,
- - frequent new product introductions, and
- - evolving technologies and industry standards
that may render our products and technology obsolete.
-6-
<PAGE>
Furthermore, our product research and development efforts are subject to
the risks
- - that our products and systems will satisfactorily perform the functions for
which they are designed,
- - that our products and systems will meet applicable price or performance
objectives, or
- - that unanticipated technical or that other problems will not occur which
would result in increased costs or material delays in development.
Because of the rapid pace of technological change in the application
software industry, any developed market position in the smart card industry
or other markets that we may enter could be eroded rapidly by product
advancements. Our software applications rely primarily on internally
developed software tools and applications. If alternative software
development tools and applications were to be redesigned and generally
accepted in the marketplace, we could be at a competitive disadvantage
relative to companies employing alternative developmental tools and
applications. Our smart card products and systems must keep pace with
- - technological developments,
- - conform to evolving technologies and standards, and
- - must address increasingly sophisticated client needs.
We can not provide any assurance that
- - we will have sufficient resources to make the necessary research and
development investments,
- - we will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products,
- - the new products and product enhancements will meet the requirements of the
marketplace and achieve market acceptance, or
- - our current or future products will conform to industry requirements.
If our products and technology become obsolete, we will required to develop
alternative sources of revenues or discontinue operations which would result
in loss of our shareholders= investment in our common stock.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO RETAIN KEY PERSONNEL.
Our success to date has been largely dependent upon the skills and
efforts of our directors, executive officers and other key employees. In
particular our success depends on the continued efforts of our chairman of
the board Kent H. Webb, our chief executive officer and director Larry E.
Howell, and our president and chief operating officer Donald A. Cunningham,
with whom we do not have employment agreements. The loss of services of any
of our chairman, executive officers or key technology personnel could have an
adverse effect on the management of our operations and our product
development and technology.
BECAUSE OUR MARKETING EXPERIENCE IS VERY LIMITED AND OUR REVENUE GROWTH AND
POSSIBLE PROFITABILITY IS DEPENDENT UPON MARKET ACCEPTANCE OF OUR SMART CARD
TECHNOLOGY, OUR BUSINESS PLAN IS NOT PROVEN AND MAY BE UNSUCCESSFUL.
The successful implementation of our business plan will be largely
dependent on the effectiveness of our efforts to market our smart card
technology. This will on our ability to
- - enter into marketing and licensing or other arrangements on a timely basis
and on favorable terms;
- - establish satisfactory arrangements with sales representatives and
marketing consultants;
- - hire and retain skilled management as well as financial, technical,
marketing and other personnel;
- - manage successfully our growth (including monitoring operations,
controlling costs and maintaining effective quality, inventory and service
controls); and
- - obtain adequate financing when and as needed.
There is limited information available concerning the performance of our
technologies or market acceptance of our products. We provide no assurance
that
- - we will be successful in implementing our business plan or
- - that unanticipated expenses or problems or technical difficulties will not
occur which would result in material implementation delays, or
-7-
<PAGE>
- - we will have sufficient capacity to satisfy any increased demand for our
smart card products and technologies resulting from implementation of our
plan of operation.
OUR EXECUTIVE OFFICERS AND DIRECTORS DO NOT HAVE COMPUTER SOFTWARE AND SMART
CARD DEVELOPMENT TECHNOLOGY EXPERIENCE.
Our smart card software technology has been developed by our engineering
and software technology personnel. Our executive officers and directors have
not written or developed our software technology and lack computer software
and smart card development technology experience.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE COMPLETE DISCRETION OVER THE
APPLICATION OF THE PROCEEDS OF THIS OFFERING.
We anticipate that a substantial portion of the proceeds of this
offering will be allocated to the payment of debts, including repayment of
shareholder loans, and working capital for general corporate purposes. The
application of the net proceeds of the offering will be in the sole
discretion of our management. Our shareholders will have no input or control
over decisions regarding application or use of the net proceeds. Two or our
shareholders, including Kent H. Webb, our chairman of the board, hold notes
in the aggregate amount of $329,643, bearing interest at 15% to 25% per year
(see Note 3 of our financial statements, page F-8). These notes become due 30
days following completion of the offering. We intend to repay the notes from
the proceeds of the offering. If our management elects not to repay these
shareholder notes as anticipated, the holders of the outstanding principal
amounts of these notes will continue to be entitled to receive the interest
on these notes until paid. If not paid within 30 days following completion of
the offering, these notes begin bearing interest at 30% per year until paid.
FOLLOWING THE OFFERING, WE MAY HAVE A NEED FOR ADDITIONAL CAPITAL RESOURCES
TO CONTINUE OUR OPERATIONS AND THE TERMS OF THE ADDITIONAL CAPITAL MAY BE
DETRIMENTAL TO OUR SHAREHOLDERS.
Our capital requirements have been and will continue to be significant.
Our future capital requirements will depend on many factors. These factors
include
- - the our debt repayment history, possibly including our current default in
repayment of our $277,522 long-term debt,
- - the extent and timing of acceptance of our products,
- - the progress of our research and development,
- - the cost of increasing our sales and marketing activities,
- - our operating results, and
- - the status of competing products.
Also, further development of our smart card products to meet the requirements
and specifications of a particular customer may require significant
investment in research and development. This investment may be much in
advance of the actual installation and commencement of revenues from the
installation.
We cannot accurately predict our timing or amount of capital
requirements. If and when needed, we may not be able to obtain additional
capital resources or if available the additional capital will be on terms
satisfactory or advantageous to our shareholders. If needed, our inability to
obtain additional financing could require significant reduction or suspend of
our operations, including our research and development activities, or require
us to seek a merger partner both of which could result in significant losses
to our shareholders. Alternatively, we may sell additional shares of our
stock on terms that are dilutive to our shareholders and superior to the
rights of our shareholders.
BECAUSE THE PERIOD FROM INITIATION TO COMPLETION OF A SALE AND INSTALLATION
IS LENGTHY, WE MAY HAVE FLUCTUATIONS IN REVENUE, WHILE MOST OF OUR OVERHEAD
COST ARE FIXED, WHICH MAY RESULT SIGNIFICANT FLUCTUATIONS IN OF OUR RESULTS
OF OPERATIONS FROM PERIOD TO PERIOD.
The purchase of a smart card system generally involves a significant
commitment of capital with attendant delays frequently associated with large
capital expenditures and implementation procedures within an organization.
Accordingly, our product sales cycle varies by customer and industry, and may
extend for periods of 12 months or more. Also, our sales cycles are subject to
- - customers' or clients' budgetary constraints,
- - internal acceptance reviews,
-8
<PAGE>
- - competition,
- - hardware and software vendors' inability promptly to provide quality
products and services,
- - technological factors, and
- - market acceptance.
We have limited or no control of these risks. Because we determine our
expenditure levels in advance of each quarter, our ability to reduce costs
quickly in response to an unforeseen revenue shortfall is limited. Therefore,
- - our quarterly operating results are likely to vary significantly in the
future,
- - period-to-period comparisons of our results of operations may not
necessarily be meaningful, and
- - in any event, period-to-period comparisons may not be indicative of
future performance.
It is also likely that in some future quarter our operating results will be
below the expectations of public market analysts and investors, which, in
turn, could have a severe adverse effect on the price of our common stock.
BECAUSE WE ARE MOVING FROM DEVELOPMENT INTO MARKETING OF OUR SMART CARD
TECHNOLOGY, AS WE GROW, WE MAY NOT BE ABLE SUCCESSFULLY TO MANAGE OUR GROWTH.
If we experience substantial growth, this growth will
- - challenge our management and operating resources,
- - require us to hire more technical, sales and marketing, support and
administrative personnel,
- - require us to expand customer service capabilities, and
- - require us to expand management information systems.
There can be no assurance that we will
- - attract and retain the necessary personnel to accomplish our growth
strategies or
- - not experience constraints that will adversely affect our ability to
satisfy customer demand in a timely fashion or to satisfactorily support
our customers.
If we are unable to manage growth effectively, expected levels of product
sales and revenues may not be obtained or maintained. If this happens our
results of operations will be materially and adversely affected.
BECAUSE THE COMPETITION FOR QUALIFIED EMPLOYEES IS INTENSE, WE MAY NOT BE
ABLE TO ATTRACT, MOTIVATE AND RETAIN PERSONNEL WITH THE SKILLS AND EXPERIENCE
NEEDED TO SUCCESSFULLY MANAGE AND GROW OUR BUSINESS AND OPERATIONS.
Our success and growth will continue to depend in large part on our
ability to attract and retain talented and qualified employees, including
highly skilled management personnel. Competition in the recruiting of
highly-qualified personnel is intense. We may experience difficulty in
recruiting talented and qualified employees, particularly for further
development of out smart card technology. We provide no assurance that we
will hire, motivate and retain personnel with the skills and experience
needed to successfully manage our business and operations.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
We do not currently believe that we will experience any significant
adverse effects or material unbudgeted costs resulting from the inability of
our current computer technology to change the year 2000. Nevertheless, we
cannot provide assurance that the change to the year 2000 will not result in
computer system failures, delays or miscalculations causing disruptions to
our operations.
WE HAVE MANY COMPETITORS AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY WHICH MAY
LEAD TO LACK OF REVENUES AND DISCONTINUANCE OF OUR OPERATIONS.
We compete with numerous well-established companies that design,
manufacture and/or market smart card systems. Some of our competitors may be
developing technologies or products that are functionally similar or superior
to our products. Most of our competitors possess substantially greater
financial, marketing, personnel and other resources than us. They may also
have established reputations relating to the design, development, marketing
and service of smart card systems.
Due to competitive market forces, we may experience price reductions,
reduced gross margins and loss of market share in the future, any of which
-9-
<PAGE>
will result in decreases in sales and revenues. These decreases in revenues
will adversely affect our business and results of operations and could lead
to discontinuance of operations. There can be no assurance that
- - we will be able to compete successfully,
- - our competitors will not develop technologies or products that render our
products obsolete or less marketable, or
- - we will be able to successfully enhance our products or develop new
products and technologies when necessary.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND MAY BECOME
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Protection of our smart card software technology is critical to our
business. In protection of our software, we rely
- - on our customer and sponsor license agreements which contain provisions
protecting against the unauthorized use, copying and transfer of our
licensed software, and
- - on a combination of trade secret, copyright and trademark laws, and
non-disclosure agreements.
There is no assurance that these measures are adequate to protect our
proprietary technology.
There is no assurance that a claim will not be asserted against us for
violating the person's technology property rights. If properly asserted or
not, we may enter into royalty arrangements, engage in extensive and costly
litigation, or cease in further marketing our products. Furthermore, the
intellectual property issues relating to our products in general have not
been addressed by judicial authorities in many instances.
Our product sales and revenues, and business may be adversely affected
by unauthorized copying or duplication of our software or by infringement
claims. Reduced product sales and revenues or increased expenses will
adversely affect our results of operation and financial condition.
IF YOU PURCHASE OUR COMMON STOCK, YOU WILL SUFFER AN IMMEDIATE AND
SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR SHARES OF COMMON STOCK.
Based upon our pro forma net tangible book value at September 30, 1999,
you and the other purchasers of our common stock will suffer an immediate and
substantial dilution of your investment in our common stock. On a per share
basis, you will suffer dilution of $4.12 per share or 69% of the initial
public offering price of our common stock.
THE OFFERING PRICE OF OUR COMMON STOCK MAY NOT REPRESENT ITS PUBLIC MARKET
VALUE AND THE PUBLIC MARKET PRICE MAY BE FLUCTUATE WIDELY.
The initial public offering price of our common stock
- - was determined solely by negotiations between us and Barron Chase
Securities, the underwriter of the offering,
- - does not necessarily bear any relationship to our assets, book value,
earnings or other established criteria of value, and
- - does not necessarily reflect the market price of the common stock after the
offering.
The market price of our common stock after the offering may be subject to
significant fluctuations in response to, and may be adversely affected by
- - variations in quarterly operating results,
- - changes in earnings estimates by analysts,
- - developments in the computer software industry generally and more
particularly the smart card industry and the industries served thereby,
- - adverse earnings or other financial announcements of our customers or
clients,
- - announcements and introductions of product or service innovations or new
contracts by us or our competitors, and
- - general stock market conditions.
IF WE FAIL TO MEET THE MINIMUM REQUIREMENTS, OUR COMMON STOCK WILL BE
DELISTED BY NASDAQ AND WILL BECOME TRADABLE ON THE OVER-THE-COUNTER MARKET,
WHICH WILL ADVERSELY AFFECT THE SALE PRICE OF OUR COMMON STOCK.
In order to continued inclusion of our common stock on Nasdaq minimum
listing requires must be met. In the event these minimum requirements for
inclusion are not met, our common stock
- - will be delisted and no longer included on the Nasdaq SmallCap Market,
-10-
<PAGE>
- - will then be traded in the over-the-counter market, and
- - may become subject to the "penny stock" trading rules.
The over-the-counter market is volatile and characterized as follows:
- - the over-the-counter securities are subject to substantial and sudden price
increases and decreases,
- - at times the price (bid and ask) information for the securities may not be
available,
- - if there is only one or two market makers, there is a risk that the dealers
or group of dealers may control the market in our common stock and set
prices that are not based on competitive forces, and
- - the available offered price may be substantially below the quoted bid
price.
Consequently, the market price of our common stock will be adversely affected
if it ceases to be included on the Nasdaq SmallCap Market.
IF OUR COMMON STOCK BECOME SUBJECT TO "PENNY STOCK" RULES, THE MARKET PRICE
OF OUR COMMON STOCK WILL BE ADVERSELY AFFECTED.
If our common stock is delisted from the Nasdaq SmallCap Market and does
not trade on another national securities exchange, our common stock may
become subject to the "penny stock" rules. A "penny stock" is generally a
stock that
- - is only listed in "pink sheets" or on the NASD OTC Bulletin Board,
- - has a price per share of less than $5.00 and
- - is issued by a company with net tangible assets less than $2 million.
The penny stock trading rules will impose additional duties and
responsibilities upon broker-dealers and salespersons recommending the
purchase a penny stock or the sale of a penny stock. Required compliance with
these rules will
- - materially limit or restrict the ability to resell our common stock, and
- - the liquidity typically associated with other publicly traded stocks may
not exist.
WE MAY ISSUE ADDITIONAL COMMON STOCK AT PRICES AND ON TERMS DETERMINED BY OUR
BOARD OF DIRECTORS WITHOUT YOUR CONSENT OR APPROVAL.
Following completion of the offering, we will have 5,800,000 shares of
our common stock and 2,000,000 shares of preferred stock available for
issuance. We have the right to offer these shares at an offering price to be
determined in sole discretion of our board of directors. The sale of these
shares may result in substantial dilution. Also the preferred stock may have
rights superior to those of our common stock, which may adversely affect the
market price of our common stock.
IT IS DIFFICULT FOR A THIRD PARTY TO ACQUIRE US DUE TO PROVISIONS IN OUR
CHARTER, BYLAWS AND OKLAHOMA LAWS, WHICH MAY PREVENT OUR COMMON STOCK PRICE
REFLECTING POSSIBLE TAKEOVER.
Provisions of our certificate of incorporation and the Oklahoma
corporate law may make it difficult to effect a change in shareholder control
and to replace our incumbent management. Also, these provisions may limit the
price that a person will pay in the future for our common stock. Furthermore,
our certificate of incorporation authorizes us to issue preferred stock in
classes or series. Our board of directors is authorized to set and determine
voting, redemption and conversion rights and other rights related to the
class or series of preferred stock. In some circumstances, the preferred
stock could be issued to prevent a merger, tender offer or other takeover
attempt that our board of directors opposes.
At some time in the future, we may also become subject to the
anti-takeover provisions of Oklahoma corporate law that discourage a person
from making a control share acquisition (generally an acquisition of voting
stock having more than 20% of all voting power in the election of directors)
without shareholder approval.
All of these things may affect the market price of our common stock
should a takeover rumor develop or an actual takeover attempt occur.
-11-
<PAGE>
USE OF PROCEEDS
From sale of the 1,000,000 shares of our common stock under to the
offering, we will receive estimated net proceeds of $5,050,000 ($5,833,000 if
Barron Chase Securities Inc. elects to sell an additional 150,000 shares of
our common stock). We anticipate that the $5,050,000 estimated net proceeds
will be expended as follows:
<TABLE>
<CAPTION>
USE OF ESTIMATED NET PROCEEDS AMOUNT PERCENT
----------------------------- ---------- -------
<S> <C> <C>
Marketing development costs:
Trade shows and conventions................................................... 500,000 9.9
Travel and entertainment...................................................... 400,000 7.9
Trade journal advertising and promotional materials........................... 1,709,000 33.8
Miscellaneous expenses........................................................ 100,000 2.0
---------- -------
Total.................................................................... 2,709,000 53.6
Enhancement and further development of smart card products and technology.......... 700,000 13.9
Payment of accounts payable as of September 30, 1999............................... $ 425,800 8.4%
Repayment of $329,650 shareholder unsecured loans becoming due 30 days following
completion of the offering:
Bearing interest at 25% per year.......................................... 99,900 2.0
Bearing interest at 15% per year.......................................... 229,750 4.5
Repayment of currently due long-term debt, bearing interest at 10% per year........ 277,550 5.5
Prepayment of the financial advisory fee to Barron Chase Securities................ 108,000 2.1
Working capital.................................................................... 500,000 9.9
---------- -------
Total estimated net proceeds of the offering............................. $5,050,000 100.0%
========== =======
</TABLE>
The foregoing represents our best estimate of the allocation of the
proceeds of the offering based upon the present state of our business,
operations and plans, and current business conditions. We will have broad
discretion to determine the use of a substantial portion of the proceeds of
the offering. Conditions may develop which could cause us to reallocate
proceeds from the categories listed above. These conditions include
difficulties encountered in further development of our smart card products
and technology and marketing of these products, and changes in economic
climate. The occurrence of these conditions is unpredicted with any degree of
certainty. Any reallocation will be at the discretion of our board of
directors.
We believe that the net proceeds of the offering, combined with the cash
and cash equivalents, will be sufficient to fund our budgeted capital and
operating requirements for the next 12 months. Pending use of the net
proceeds, we will invest the net proceeds in federally insured or guaranteed
securities.
DIVIDEND POLICY
We do not intend to pay and you should not expect to receive cash
dividends on our common stock. Our dividend policy is to retain earnings to
support the expansion of our operations. If we were to change this policy,
any future cash dividends will depend on factors deemed relevant by our board
of directors. These factors will generally include future earnings, capital
requirements and our financial condition. No dividends may be paid on our
outstanding common stock until all dividends then due on our outstanding
preferred stock have been paid.
-12-
<PAGE>
DILUTION
The net tangible book value of our common stock, at September 30, 1999,
was $(922,772), or $(0.77) per share. Without taking into account changes in
net tangible book value after September 30, 1999, other than assuming the
sale of 1,000,000 shares of our common stock at the public offering price of
$6.00 per share and our receipt of approximately $5,050,000 in net proceeds
from the offering, our pro forma net tangible book value at September 30,
1999, would have been $4,127,228, or $1.88 per share. This represents an
immediate increase in the pro forma net tangible book value of $2.65 per
share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $4.12 per share of common stock to the purchasers of
our common stock under the offering. Pro forma net tangible book value per
share is determined by dividing the pro forma net tangible book value
(tangible assets less liabilities) by the number of shares of common stock
outstanding at that date on a pro forma basis. The following table
illustrates the pro forma per share dilution to purchasers of our common
stock under the offering as of September 30, 1999:
<TABLE>
<CAPTION>
PERCENTAGE
OF PUBLIC
OFFERING PRICE
--------------
<S> <C> <C> <C>
Public offering price............................................................ $ 6.00 100%
Pro forma net tangible book value per share as of September 30, 1999......... $(0.77)
Increase in pro forma net tangible book value attributable
to existing shareholders................................................. 2.65
------
Pro forma net tangible book value per share after the offering................... 1.88 31%
------ ----
Dilution to new investors........................................................ $ 4.12 69%
====== ====
</TABLE>
In addition, we have outstanding stock options exercisable for the
purchase of 86,397 shares of our common stock and have reserved 95,210 shares
of our common stock for issuance upon vesting and exercise of outstanding
stock options. The exercise price of these stock options is $5.22 per share.
Giving effect to the offering and assuming exercise of these stock options in
full, our pro forma net tangible book value at September 30, 1999, would have
been $5,075,217, or $2.13 per share. On a per share basis, you would suffer
dilution of $3.87 per share or 64.5% of the initial public offering price of
common stock.
The following table sets forth, on a pro forma basis as of September 30,
1999, the number of shares of our common stock purchased for cash, the total
consideration paid and the average cash price per share paid by our current
shareholders and by the purchasers of our common stock under the offering
before deduction of underwriting discounts and other estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Our current shareholders............................... 1,200,000 (1) 59.5% $2,713,070 (1) 31.1% $2.16
The purchasers of our common stock..................... 1,000,000 45.5% 6,000,000 68.9% $6.00
--------- -- ---- -- --------- - ----
Total.......................................... 2,200,000 100.0% $8,713,070 100.0%
========= ===== ========== =====
</TABLE>
- ------------------------
(1) The amount is based upon the amount paid by our current shareholders
for our common stock at September 30, 1999, which is the sum of the
par value of our outstanding common stock and additional paid-in.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999 and as adjusted to give effect to the offering. You should read the
following table in conjunction with our unaudited financial statements and
notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS
1999 ADJUSTED(1)
------------- -----------
<S> <C> <C>
Mezzanine debt.................................................................... $ 329,643 $ --
Current portion of long-term debt................................................. 336,098 58,576
----------- ----------
Stockholders' equity:
Common Stock.................................................................... 12,000 22,000
Additional paid-in capital...................................................... 2,701,070 7,741,070
Deficit accumulated during development stage.................................... (3,635,842) (3,635,842)
----------- ----------
Total stockholders' equity.................................................... (922,772) 4,127,228
----------- ----------
Total capitalization (deficit).................................................... $ (257,031) $4,185,804
=========== ==========
</TABLE>
- -----------------------
(1) Adjusted to give effect to the sale of 1,000,000 shares of our common
stock under the offering and receipt of estimated net proceeds of
$5,050,000, and the repayment of our mezzanine and long-term debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
financial statements and notes thereto appearing elsewhere in this
prospectus. The results of our operations as discussed below are not
necessarily indicative of our operations following completion of the offering.
RESULTS OF OPERATIONS
The following table sets forth selected results of our operations for
(i) the years ended December 31, 1998 and 1997, and (ii) the nine months
ended September 30, 1999 and 1998. We took the information from our financial
statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE NINE MONTHS ENDED SEPTEMBER 31,
-------------------------------------- ---------------------------------------
1998 1997 1999 1998
---------------- ------------------- ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product and service revenues........ $ 322,483 100% $ 40,856 100% $ 48,513 100% $ 295,716 100%
--------- ---- ----------- ----- --------- ----- --------- ----
Operating expenses:
Product deployment and research
and development................. 389,586 121 542,203 1327 188,135 388 476,666 161
Sales and marketing............... 147,411 46 148,885 364 131,819 272 127,564 43
General and administrative........ 399,756 124 472,320 1159 340,870 703 155,133 52
--------- ---- ----------- ----- --------- ----- --------- ----
Total expenses.................. 936,753 290 1,163,408 2847 660,824 1362 759,363 257
--------- ---- ----------- ----- --------- ----- --------- ----
Operating loss.................. (614,270) (190) (1,122,552) (2747) (612,311) (1262) (463,647) (157)
--------- ---- ----------- ----- --------- ----- --------- ----
Other expenses (income)
Interest expense.................. 59,196 18 29,890 73 53,287 110 18,381 6
Interest income................... (2,136) (1) (2,282) (5) -- -- (1,364) (--)
--------- ---- ----------- ----- --------- ----- --------- ----
57,060 18 27,608 68 53,287 110 17,017 6
--------- ---- ----------- ----- --------- ----- --------- ----
Net loss - deficit accumulated during
development stage................. $(671,330) (208)% $(1,150,160) (2815)% $(665,598) (1372)% $(480,664) (163)%
========= ==== =========== ===== ========= ===== ========= ====
</TABLE>
COMPARISON OF NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
Revenue during the nine months ended September 30, 1999, decreased
$247,203 , an 83.6% decrease, to $48,513 from $295,716 during the nine months
ended September 30, 1998. This decrease was attributable to our lack of
financial resources to support marketing of
-14-
<PAGE>
our products during the 1999 nine-month period. Consequently, we did not
replace the revenue from implementation of the PrecisCache-TM- system for the
1998 PGA Championship and the Kiel Center Arena, home of the National Hockey
League's St. Louis Blues, during the 1998 nine-month period. In addition,
during the 1998 nine-month period we completed the initial installation and
implementation of our smart card system in Ericsson Stadium.. Our 1998
nine-month revenue from this installation was $251,483, which included our
cost of smart cards and computer hardware of $86,424. In comparison, during
the 1999 nine-month period we did not have any revenue from this
installation. Typical of a installation like the Ericsson Stadium
installation, we furnish third-party manufactured hardware. Accordingly, our
revenue from these installations include the sales of the installed hardware.
Following initial installation, we may continue to sell additional smart
cards as part of the installation, but we do not typically have continuing
significant hardware sales associated with the installation. During the 1999
nine-month period, we did not complete an installation comparable to that of
the Ericsson Stadium, which we believe was principally due to our inadequate
financial resources to support marketing efforts.
Operating expenses during the 1999 nine-month period decreased $98,539
to $660,824 from $759,363 during the 1998 nine-month period. Increases in
general and administrative and sales and marketing expenses were offset by a
decrease in product deployment and research and development costs. The
$185,737 increase in general and administrative expenses to $340,870 during
the 1999 nine-month period from $155,133 during the 1998 nine-month period
was primarily attributable to increase in insurance costs, legal costs and
depreciation expense. Also, sales and marketing expenses increased $4,255 to
$131,819 during the 1999 nine-month period from $127,564 during the 1998
nine-month period. The increase in sales and marketing expenses was
attributable to the increased focus on marketing activities. Offsetting the
increase in general and administrative expenses and sales and marketing
expenses, product deployment and research and development expenses decreased
$288,531 to $188,135 during the 1999 nine-month period from $476,666 during
the 1998 nine month period. This decrease was attributable to the product and
service revenue decrease during the 1999 nine-month period compared to the
1998 nine month period, principally due to
- - implementation of the PrecisCache-TM- system for the 1998 PGA Championship
and the Kiel Center Arena, home of the National Hockey League's St. Louis
Blues,
- - maintenance in 1998 of the Chicago White Sox project test that was
implemented for the 1997 and 1998 seasons, and
- - acquisition of hardware ($86,424) for resale and implementation of the
PrecisCache-TM- system at Ericsson Stadium during 1998.
We incurred operating losses of $612,311 and $463,647 during the 1999
nine-month period and 1998 nine-month period, respectively. The $148,664
increase in the 1999 nine-month period operating loss was attributable to the
decrease in product and service revenues.
Other expenses (income) increased by $36,270 or 213% to a net expense of
$53,287 during the 1999 nine-month period from $17,017 in the 1998 nine-month
period. This increase was principally due to the increase in interest
expense, which increased from $34,906 during the 1998 nine-month period to
$53,287 during the 1999 nine-month period. The increase in interest expense
was attributable to increase in our outstanding debt during the 1999
nine-month period compared to the 1998 nine-month period. During the 1999
nine-month period we had a $665,598 net loss, while during the 1998 six-month
period we had a net loss of $480,664, an increase of $184,934.
COMPARISON OF 1998 AND 1997
Product and service revenues during the year ended December 31, 1998,
increased by $281,627 (a 689% percent increase) to $322,483 from $40,856
during the year ended December 31, 1997. The increase was principally
attributable to implementation of the PrecisCache system for NationsBank (now
Bank of America) in Ericsson Stadium (home of the National Football League's
Carolina Panthers), National Hockey League's St. Louis Blues, and the 1998
PGA Championship during 1998.
Operating expenses during 1998 decreased $226,655, a 19.5% decrease, to
$936,753 from $1,163,408 during 1997. This decrease was principally
attributable to the decrease of $152,617 decrease, a 28.1% decrease, in
product deployment
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and research and development to $389,586 from $542,203 during 1997 and the
$72,564 decrease (a 15.4% decrease) in general and administrative expense to
$399,756 from $472,320 during 1997. The decrease in product deployment and
research and development was attributable to the decrease in expenses
associated with maintenance and implementation of the Chicago White Sox
project test which was implemented for the 1997 and 1998 seasons. The largest
portion of the costs associated with this project test was incurred in 1997.
The reduction in general and administrative expense was attributable to a
write-off of approximately $126,000 of previously capitalized start-up costs
as a result of our adoption of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities," issued by the American Institute of Certified
Public Accountants. This statement requires that the costs of start-up
activities and organization costs be expensed as incurred. This write-off was
offset by an increase of $28,092 in depreciation expense to $103,594 from
$75,502 during 1997, and a general increase in other office and overhead
expenses associated with our increased activity during 1998 compared to 1997.
Sales and marketing expenses remained constant with a $1,474 decrease to
$147,411 in the 1998 from $148,885 during 1997. We incurred an operating loss
of $614,270, a $508,282 decrease, in 1998 compared to a $1,122,552 operating
loss in 1997.
Other expenses (income) increased by $29,452 or 107% to a net expense of
$57,060 during the 1998 from $27,608 in 1997. This increase was due to the
increase in interest expense to $59,196 during 1998 from $29,890 during 1997.
This increase was due to the increase in outstanding, interest-bearing debt
during 1998 compared to 1997. During 1998 we had a net loss of $671,330,
compared to a net loss of $1,150,160 during 1997.
PRO FORMA EFFECT OF
STOCK-BASED COMPENSATION
We have historically used stock options to retain and compensate its
officers, directors, employees and others. During 1998 and 1997, we granted
stock options for the purchase of our common stock to our officers,
directors, employees and others. In accordance with Accounting Principles
Board Opinion No. 25, the compensation cost of these stock options is not
recognized in our financial statements. The outstanding stock options granted
in 1998 and 1997 had an estimated fair value at the date of grant of the
options of $116,278 and 209,718, respectively, utilizing the methodology
prescribed under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. After
giving effect to the estimated fair value of these options, we had pro forma
net loss of $787,608 ($0.87 per common share) for the year ended December 31,
1998, and had pro forma net loss of $1,359,878 ($1.51 per common share) for
the year ended December 31, 1997.
YEAR 2000 COMPUTER SYSTEM COMPLIANCE
Some of our computer systems were developed employing six digit date
structures. Where date logic requires the year 2000 or beyond, these
structures may produce inaccurate results. We have completed the
implementation of a program to comply with year 2000 requirements on a
system-by-system basis including information technology and non-information
technology systems, including micro controllers. Our information and
non-information technology systems are certified as year 2000 compliant.
Accordingly, we believe that
- - the costs of our year 2000 compliance have not been material to our
financial position or results of operations and
- - the year 2000 compliance issue has not and will not pose significant
operational problems.
If our software were not year 2000 compliant, the customers at Ericsson
Stadium would not be able to use their smart cards to purchase items or the
transaction data reported to Bank of America (formerly NationsBank) would be
inaccurate. Based on progress to date and the limited instances of date
sensitive calculations, we have concluded that development of a contingency
plan is unnecessary.
The most likely risk to us from year 2000 compliance is external, due to
the difficulty of validating all key third parties' readiness for the year
2000. Although our software is year 2000 compliant, our smart card technology
is utilized in conjunction with computer hardware systems and other software
that may not be compliant. We have sought and will continue to seek
confirmation of the compliance and seek relationships with subcontractors,
suppliers, vendors, customers and service providers that interface with our
software and that are year 2000 compliant. Tangent Associates one of the
vendors of the Ericsson Stadium smart card system, has not responded to our
enquires. We have received assurances from our
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subcontractors, suppliers, other vendors, customers and service providers
that they are year 2000 compliant.
RECENTLY ANNOUNCED ACCOUNTING
PRONOUNCEMENTS
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 97-2, Software Revenue Recognition ("SOP 97-2"), which supercedes
Statement of Position 91-1, Software Revenue Recognition. SOP 97-2 focuses on
when and the amount of revenue that should be recognized for licensing,
selling, leasing or otherwise marketing computer software and is effective
for transactions enter into in fiscal years beginning after December 15,
1997. In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-4, Deferral of the Effective Date of Provision of
SOP 97-2, Modification of SOP 97-2, Software Revenue Recognition ("SOP
98-4"). SOP 98-4 defers for one year specific provision of SOP 97-2. In
December 1998, the Accounting Standards Executive Committee issued Position
98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to
Certain Transactions ("SOP 98-9"). SOP 98-9 also amended specific provisions
of SOP 98-4 through fiscal years beginning on or before March 15, 1999. We
believe that the adoption of SOP 97-2, as amended, will not have a material
effect on our financial position and results of operations.
INCOME TAX PROVISION (BENEFIT)
Statement of Financial Accounting Standards 109, Accounting for Income
Taxes, requires the separate recognition, measured at currently enacted tax
rates, of deferred tax assets and deferred tax liabilities for the tax effect
of temporary differences between the financial reporting and tax reporting
bases of assets and liabilities, and net operating loss carryforwards for tax
purposes. A valuation allowance must be established for deferred tax assets
if it is "more likely than not" that all or a portion will not be realized.
At December 31, 1998 and 1997, we had the benefit of net operating loss
carryforwards of $743,300 and $488,100, respectively. The tax benefit was
attributable to the net operating loss carryforwards of approximately
$1,860,000 which if not realized, will expire at various dates through 2013.
The cumulative net deferred tax asset at December 31, 1998, after the
valuation allowance, had no value.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed operations and capital expenditures
through private placements and sales of debt and equity securities together
with cash from operations and loans from shareholders. At September 30, 1999,
we had a deficit working capital of $1,011,899. Other than possible loans
from our shareholders and the proceeds of the offering, we do not have any
capital resources other those provided by operations. At September 30, 1999,
the aggregate outstanding principal balance of the shareholder loans was
$329,643 bearing interest at 15% to 25% per annum, with maturity dates 30
days following completion of the offering. In 1997, 1998 and 1999, we were
unable to borrow funds from lending institutions because of our lack of
revenues and accordingly apparent inability to repay. To obtain funds for
continuing operations during these years, two of our shareholders loaned us
substantial amounts. Based upon our financial condition and results of
operations, these shareholders demanded the 25% per interest rate, which our
board of directors approved, concluding that we did not have any other
capital resources alternative sources. On September 30, 1998, the holder of
$50,000 of these shareholder loans did not agree to reduce the interest rate
from 25% to 15%.
At September 30, 1999, we are in default in the payment of $277,522 of
our long-term debt. This debt bears interest at 10% per annum. We have orally
agreed with the holders to pay this debt in full from the proceeds of the
offering.
Following repayment of the shareholder loans and long-term debt, we may
reborrow amounts but from different lenders. As of the date of this
prospectus, we have not established any banking or institution lending
relations or arrangements for future borrowings. Therefore, there is no
assurance that bank or institutional borrowings will be obtained in the
future, possibly as a result of the default on our long-term debt, or, if
available, that the terms will be acceptable to us.
Operating activities for the nine months ended September 30, 1999, used
net cash of $391,988 as the result of a net loss of $665,598, reduced by
depreciation of $64,059 and increased by changes in accounts payable and
accrued liabilities of $160,826. In 1998, our operating activities used net
cash of $420,674 as the result of the net loss of $671,330,
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offset by depreciation of $103,594, a decrease in inventory of $34,123, and
an increase in accounts payable and accrued liabilities of $112,939. During
the nine months ended September 30, 1999, and the year ended December 31,
1998, we used cash of $7,836 and $7,537, respectively, for investing
activities by purchase of property and equipment. During the nine months
ended September 30, 1999 and the year ended December 31, 1998, net cash
provided by financing activities was $564,304 and $426,505, respectively.
During the 1999 nine-month period we sold 300,000 shares of our common stock
for gross proceeds of $600,000 (net proceeds of approximately $497,000) and
borrowed $226,643 on a short-term basis. During this period, we paid
overdraft and long-term debt of $58,826. During 1998, we sold our preferred
stock for net proceeds of $601,199, borrowed on a short-term basis $78,000
and had a book overdraft of $27,513. Also, during 1998, we made long-term
debt reduction of $280,127.
We currently have no commitments for capital expenditures in material
amounts. We believe that our existing cash and cash from operations, together
with the proceeds of the offering, will be sufficient to fund our operations
for more than the next 12 months. Because our capital requirements cannot be
predicted with certainty, there is no assurance that we will not require
additional financing before expiration of the 12-month period. There is no
assurance that any additional financing will be available on terms
satisfactory to us or advantageous to our shareholders, including those that
purchase shares of our common stock in the offering.
Our business plan is to use more than $2.7 million of the offering net
proceeds to market our products and technology. We believe that through our
marketing efforts we will obtain significant revenue growth and obtain
profitability. Historically, we have devoted our financial resources
principally to development of our smart card technology. We believe that with
the net proceeds of the offering, we will have the financial resources to
develop market acceptance of our smart card technology. However, there is
limited information available concerning the performance of our technologies
or market acceptance of our products. Also, our marketing experience is very
limited. Thus, we provide no assurance that
- - we will be successful in implementing our business plan or
- - that unanticipated expenses or problems or technical difficulties will not
occur which would result in material implementation delays, or
- - we will have sufficient capacity to satisfy any increased demand for our
smart card products and technologies resulting from implementation of our
plan.
Any one of these will adversely affect our ability to become profitable. See
"Business."
BUSINESS
AT PRECIS SMART CARD SYSTEMS, INC. WE DEVELOP AND DESIGN COMPUTER SOFTWARE
APPLICATIONS AND PRODUCTS UTILIZING OUR SMART CARD TECHNOLOGY.
We were organized in 1996 as an Oklahoma corporation and successor to
MediCard Plus-ADS, LLP, an Oklahoma limited partnership which was formed in
March 1994. At Precis, we design, market, implement and service custom memory
and microprocessor card products, known as smart cards, on which information
and software can be stored. This information can be easily, securely and
accurately accessed and manipulated by electronic data processing equipment
Our software offers solutions for creating and processing data and ensuring
secure electronic transactions. Through our research efforts, we have
developed a library of reusable computer software components for a variety of
personal computer and embedded applications all centered on smart card
technology. Our technology enables electronic commerce in closed-system
environments for point-of-sale transactions and other uses. Our products
includes the Precis Health Card System-TM-, a healthcare smart card system;
PrecisCache-TM-, a fixed-value smart card system; PrecisReserve-TM-, a
reloadable stored-value smart card system; and PrecisPersona-TM-, a
smart-card based customer loyalty and rewards system.
Our near-term marketing efforts are focused on using the success of our
initial smart card system installations in several key market niches to
further solidifying our market position in these markets and as the
foundation for expansion additional markets.
Our products and services include full service hardware integration and
software development and implementation from the point-of-sale to back-end
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processing for electronic commerce. We believe that we can become a leading
developer and marketer of integrated smart card software systems and that we
are positioned to provide customers with sophisticated smart card business
solutions across a wide range of applications.
WHAT IS A SMART CARD AND ITS USES?
A smart card is a credit card-sized plastic card in which an integrated
circuit, usually containing a reusable memory chip, is embedded. In their
simplest form, smart cards provide memory storage capabilities, including
fixed-value cash cards, in which the card is discarded after the value stored
on the card is depleted. This microchip acts as a storage device and can be
programmed to perform many of the functions of a computer. The data on the
cards can be read and updated when the card is inserted into a terminal or,
in some cases, simply placed in the proximity of a radio-frequency based
smart card device.
There are two basic types of cards that are often called smart cards and
some are smarter than others. The first is a simple memory card that, like a
magnetic stripe card, stores data. Unlike a 'mag-stripe' card, the smart card
can be over-written with new data many times and can store, depending on the
card, up to 32 Kbytes of information. Because of its versatile nature, our
smart card technology is adaptable for use over a variety of applications.
These applications are generally categorized as payment vehicles, access and
security keys, and information management.
PAYMENT VEHICLE CARDS -- The most familiar of these cards are the
stored-value payment vehicles, commonly known as electronic purse or wallet
cards, credit, debit and automated teller machine cards, which are disposable
or value reloadable. Some library applications use the same structure using
tokens or units instead of a monetary value.
ACCESS AND SECURITY KEY CARDS -- These cards are used to store and
access identification and authentication information, including biometrics
and encryption technology, including digital certificates, for control of
physical access, online access and for facilitating secured commerce on
intranets and the Internet.
INFORMATION MANAGEMENT CARDS -- These cards enable the storage and
manipulation of data of all kinds, including emergency information, medical
history, account management information, expense tracking and various loyalty
programs. These cards may be used to track and cross-reference consumer
purchasing habits to provide marketing information to retailers, distributors
and manufacturers of various products and services.
To provide smart card applications for some clients, we develop
customized software and integrate appropriate hardware technology to adapt
the card to the customer's needs. We believe that our engineers have
sufficient expertise in hardware technology and computer programming
languages necessary for these development efforts.
The manufacturing cost of a card varies from less than $1 to
approximately $10 depending on the amount of information the card holds and
the complexity of the microchip or its operating system. Similarly, the cost
of a reader device can vary from $50 to $2,000, depending on the complexity
and functionality of the terminal.
WHAT IS THE HISTORY OF THE SMART CARD INDUSTRY?
Smart cards were first developed in the late 1960's in France. At
present smart card technology is established and extensively used in Europe
and Asia. According to Ovum Ltd., the market for smart card units will reach
2.7 billion by 2003. The largest markets will be in the prepayment
applications, followed by access control, and electronic cash applications.
According to a recent study from Dataquest, the overall market for memory and
microprocessor-based cards will grow from 544 million units in 1995 to 3.4
billion units by 2001. Of that figure, microprocessor-based smart cards,
which accounted for only 84 million units in 1995 will grow to 1.2 billion
units in 2001. (Source: Microsoft Corporation: HTTP://WWW.MICROSOFT.COM/
WINDOWSCE/SMARTCARD/ BACKGROUND.ASP.) According to research firm, SJB
Research, the smart card market is growing at a rate close to 50% a year,
with three to four billion cards expected to be issued in 2000. (Source:
Smart Card Central: HTTP://WWW. SMARTCARDRESEARCH.COM/ REPORTS/SJB.HTML.)
Furthermore, Killen & Associates, Inc., also a research firm, projects that
the smart card market will grow from a world wide total of 250 million
transactions in 1996 to 25 billion in 2005. (Source: Killen Associates, Inc.,
quoted in the SMART CARD FORUM, HTTP:// WWW.SMARTCRD.COM/
INFO/MORE/FACTOID.HTM.) The smart card market in North America totaled 13
million cards in 1996 and is expected to grow to 273
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million by 2001 and the projection for 2005 is an estimated 543 million cards
in North America. (Source: Schlumberger Public Relations Department,
"Schlumberger Electronic transactions," quoted in SMART CARD FORUM,
HTTP://WWW.SMARTCRD.CWOM/ INFO/MORE/FACTOID.HTM.)
At first mainly installed in pay telephones, smart cards are now being
used for transportation, car parking, arcade games and vending machines. Any
coin operated machine can be converted to a smart card format. Other
applications include automated teller machines, point-of-sale terminals,
personal computers, electronic ticketing and automatic fare collection.
We believe that smart card technology represents the next step in the
evolution of credit/debit instruments and related products and services.
Smart card systems differ from other payment mechanisms in their ability to
store securely large quantities of data on a credit-card sized medium by
means of an integrated circuit chip. The sophisticated encryption algorithms
and other security mechanisms that the chip employs provide information
protection. In January 1999, Microsoft Corporation released a beta version of
its developers' kit to provide a standard model for interfacing smart card
readers and cards with personal computers. (Source: Microsoft Corporation,
HTTP://WWW.MICROSOFT.COM/WINDOWSCE/SMARTCARD.SCARDWP.HTM.) We believe that
with the integration of this technology with future versions of Windows and
Windows NT operating systems, smart card development and utilization for
security and electronic commerce on the Internet will become prevalent.
We believe that widespread acceptance and use of smart card technology
will occur, but only following the transition from magnetic stripe only
infrastructure to one that includes both magnetic stripe and smart cards.
Major credit card companies and large banking institutions have shown an
interest in smart card technology because the technology makes small-value
monetary transactions feasible, faster and more economically processed. Use
of smart cards reduces the need for signature, verification of credit
availability, receipts and paperwork. The 1996 Olympic smart card pilot in
Atlanta, Georgia by several banks in association with Visa demonstrated the
need for considerable consumer education before widespread acceptance and
utilization will occur.
We believe that closed-area smart card systems will serve as a
transitional or interim phase to widespread smart card utilization and
acceptance. A closed-area system is a limited venue, including a sports
arena, a university or college campus, or a limited access entertainment
event. There are several reasons for this.
- - First, open systems require huge investments in both infrastructure and
marketing. As with most technology implementation, especially point-of-sale
and other transaction technology, there is reluctance to invest in the
requisite infrastructure. Also, there is reluctance on the part of
consumers to purchase and use the cards if widespread utilization does not
exist. In a closed-area, the consumer may be required to use a smart card
for purchases or access.
- - Second, the security and monitored-controlled access to a defined area
provided. A closed-area by its nature is a controlled environment where
security issues can be monitored easily and reacted to quickly should the
need arise. Smart card technology is well suited for monitoring and
controlling access for security purposes.
- - Third, the scale of infrastructure required for implementation. Within a
defined area the required scale of infrastructure is limited and
consequently results in more immediate implementation, either mandatory or
voluntary, requiring consumer acceptance and use.
We anticipate that significant short-term opportunities exist in the
development of closed-area systems including stored-value cards for events or
entertainment venues, individual store or franchise-wide loyalty applications
in retail, and access control and security applications for corporations.
Multiple-application systems for groups including hospitals, corporate
campuses, schools, colleges and universities can provide further market
opportunity.
We believe we are well positioned to take advantage of the developing
smart card technology and utilization based upon a number of factors. These
factors include
- - our reputation as a market leader and innovator,
- - our knowledge and understanding of the technology and market,
- - our successful development, implementation and sales of our products,
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- - our commitment to quality and innovation in our product line, and
- - our ability to create applications quickly for a rapidly changing industry.
In addition, a major factor in the rapid growth of smart card usage is
the ability to process small transactions. Smart card technology can
eliminate the need to carry cash and coins for many day-to-day transactions.
By enabling an individual to exchange information and payment through the
smart card microchip technology, we expect that this technology will open up
new opportunities with regard to the way people interact with financial
institutions, healthcare providers, retailers and others. Most
information-based industries are candidates for smart card conversion and
utilization.
We anticipate that significant additional revenue growth opportunities
exist in a variety of markets that we do not at present serve. We believe
that these opportunities include the academic campus, transportation and
telecommunications.
During the year ended December 31, 1998 and the nine months ended
September 30, 1999, we had revenue of $322,483 and $48,513, respectively.
Revenue during the nine months ended September 30, 1999, decreased $247,203,
a 83.6% decrease, to $48,513 from $295,716 during the nine months ended
September 30, 1998. This decrease was attributable to our lack of financial
resources to support marketing of our products during the 1999 nine-month
period. Consequently, during the 1999 nine-month period we did not replace
the revenue from implementation during the 1998 nine-month period of the
PrecisCache-TM- system for the 1998 PGA Championship and the Kiel Center
Arena, home of the National Hockey League's St. Louis Blues, and Ericsson
Stadium, home of the Charlotte Panthers of the National Football League.
Our smart card technology has focused on healthcare and closed-area
sports environments and events. This technology is capable of being
customized for other markets. We are encouraged by the results of these
initial programs, and believes that these programs will lead to the national
introduction and installation of these products.
WHAT PRODUCTS ARE OFFERED BY PRECIS?
PRECISCACHE-TM-. Our fixed stored-value product is known as
PrecisCache-TM-. This product is designed to be used in stadiums, arenas,
corporate or educational campuses, festivals, events, specific retail sites
or communities and other closed-area environments. This protected memory card
stores monetary value or tokens to be used within a designated card reader
system. This reader system can include portable (stand-alone) computer
terminals as well as terminals connected to existing point-of-sale computer
network systems. The stored-value smart card system also includes a
"back-office" processing system to account for transactions, create reports
and provide other data base information.
Use of the PrecisCache-TM- system greatly reduces the cost of handling
cash, while expediting transaction processing. Cards and reader sites can
serve as marketing or advertising media for clients and outside sponsors.
Many of the cards issued will have an intrinsic collectible value based on
their limited distribution, the fan/collector oriented artwork on the card
and the novelty of the new technology.
The smart card systems implemented for Major League Baseball's Chicago
White Sox, the 1998 PGA Championship, the Oklahoma State University Athletic
Department, the Main Street Fort Worth Arts Festival, Demo '97, National
Football League's Carolina Panthers, National Hockey League's St. Louis
Blues, and First Chicago NBO are stored-value systems based on the
PrecisCache-TM- product technology. With respect to each of these
installations, the engineering and managerial approach to implementation
resulted in timely and expeditious installation. The Chicago White Sox system
was developed and installed in five months as compared to 12 to 18 months for
similar installations by our competitors. The Oklahoma State University
project was implemented in 60 days using prototype VeriFone-TM- Omni 1250
readers for which documentation had not yet been printed. The Fort Worth
project was implemented in 75 days. Enormously successful, the 10,000
allocated cards were sold during the four-day festival. More than 34,000
transactions were logged during the event. Finally, in a period of five days,
at the request of VeriFone, we customized the PrecisCache-TM- system for use
throughout the hotel/resort hosting the Demo '97 conference. Demo '97 is the
leading computer
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industry conference focused exclusively on emerging technologies.
The most significant ongoing installation of the PrecisCache-TM- system
was implemented in July of 1998. This project, at Ericsson Stadium in
Charlotte, North Carolina, for the Carolina Panthers of the National Football
League, was completed in cooperation with NationsBank. The Precis system
replaced an earlier smart card system that had been developed by two much
larger competitors.
PRECIS HEALTH CARD SYSTEMS-TM-. The Precis Health Card System (formerly
MediCard) was developed and installed in 1993 by our predecessor Advantage
Data Systems. Currently, there are no hospitals, healthcare organizations and
insurance companies using the Precis Health Card System.
The Precis Health Card System was the first healthcare smart card system
that linked patients with emergency response personnel, physicians, hospitals
and pharmacies. The card stored a patient's personal information and medical
history. It included patient demographics, family and physician contacts,
blood type, last hospital admission, allergies, medications, procedures,
diagnoses, primary and secondary insurance status, along with other pertinent
information. Card readers were located at healthcare facilities, including
hospitals, physician offices, mobile emergency units and pharmacies.
The Precis Health Card System expedites the delivery of medical care
while reducing administrative time and cost because it provides accurate
information, reduces redundant testing and procedures, decreases the
likelihood of harmful drug interactions, improves the provider/patient
relationship and provides a private and secure information storage system.
With the addition of biometrics technology and electronic date interchange
processes, the Precis Health Card System will provide a powerful mechanism to
reduce insurance fraud. We plan to integrate these additional capabilities
into our health card system through customized software development or
interfacing with existing systems.
PRECISRESERVE-TM-. Our reloadable stored-value system is
PrecisReserve-TM-. This product represents a significant modification to the
PrecisCache-TM- technology which, in addition to storing monetary value or
tokens, can be reloaded, facilitating extended use.
The PrecisReserve-TM- product is seen as a second stage product for many
venues that have already implemented the disposable stored-value product. Its
reusability also enables the expansion of our marketing efforts into
corporate campus and community-based applications. The reusability also
allows for the addition of other applications to be added and used on the
same card, including loyalty and security access.
PRECISPERSONA-TM-. Market trends toward loyalty and affinity products
led to the development of PrecisPersona-TM-, our smart card based loyalty
application. Rewarding frequent purchasers encourages repeat business and the
tracking capabilities of smart card technology provide opportunities to
acquire valuable customer preference and purchasing pattern information which
marketers, retailers, distributors and manufacturers can use to improve
service, improve existing products and develop new products.
WHO ARE PRECIS PRINCIPAL CUSTOMERS?
During the nine months ended September 30, 1999, 52% of our revenues
were received from Entertainment Smart Systems and 48% of our revenues were
received from the Bank of America in connection with the Ericsson Stadium
installation. During 1998, Bank of America (then NationsBank) in conjunction
with the Ericsson Stadium installation and Tangent Associates in conjunction
with the St. Louis Blues installation, accounted for 76% and 15% of our total
revenues, respectively. Historically, we have performed agreements with our
customers without execution of the proposed written agreements. Although we
have not had any disagreements, if we continue to perform agreements prior to
execution, disagreements with our customers may occur. A disagreement may
result in reduction of the amount we expected to receive from the customer
under the oral agreement or result in litigation possibly at substantial
expense, and our loss of the customer. During 1997, the Main Street Fort
Worth Arts Festival accounted for all of our revenues. The loss of Bank of
America, Tangent Associates, or Entertainment Smart Systems as a customer
will have a material adverse effect on our revenues and consequently our
operations and financial condition.
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HOW ARE PRECIS PRODUCTS DEVELOPED AND WHAT DO THE PRECIS PRODUCTS OFFER?
PrecisCache-TM-, PrecisReserve-TM-, Precis Health Card System-TM-,
PrecisPersona-TM- and all Precis products in the foreseeable future are
object-oriented programming applications. We have a number of products
currently in development. Physical access, network/intranet/Internet access,
security, identification and recognition applications using smart card
technology are expected to be leading areas of industry growth.
Our products are object-oriented programming computer applications. This
methodology allows our engineers and programmers to create sets of reusable
components, or building blocks, that may be combined to form a complex
system. Our developmental efforts have produced a library of reusable
individual software components for a variety of personal computer and smart
card devices. Using this extensive collection of software components or
building blocks provides:
- - a simpler system design, thus reducing system maintenance costs, as well
as allowing for the reusability of these building blocks across a wide
range of smart card systems;
- - the ability to respond rapidly to customers that have specialized smart
card needs; and
- - the ability to seamlessly integrate our software with all major operating
systems, office-management and point-of-sale systems.
We continue to have a significant commitment to innovation and quality
in the development of our products. We adhere to a stringent set of
development standards in the development of our products. These standards
include the following:
- - COMPATIBILITY WITH OPERATING SYSTEMS -- We design our software products to
be compatible with all major operating systems for the various system
architectures. The compatibility of our products is key to market
acceptance and provides a distinct advantage.
- - MARKET-DRIVEN ENHANCEMENTS AND PRODUCT OFFERINGS -- Our product design and
architecture provide flexibility and adaptability to emerging technologies.
- - SUPPORT FOR INDUSTRY STANDARDS -- Our development standards include
adherence to industry standards as promulgated by the International
Standards Organization. We also follow different operating systems
standards and recommended configurations when developing each product
for those operating systems.
DOES PRECIS HAVE ANY STRATEGIC BUSINESS RELATIONSHIPS?
We have established formal and informal strategic relationships with a
number of companies that are established leaders in their respective
industries to establish and maintain technological leadership, realize
advantageous product pricing structures and expand our marketing and
distribution channels.
One of these strategic relationships is with Bank of America, formerly
NationsBank. Working with NationsBank's Strategic Technologies Group, we
received significant support in our efforts with consistent referrals based
upon this relationship. Most notable was the selection of the PrecisCache
system to replace the stored-value system previously implemented at Ericsson
Stadium in Charlotte, North Carolina. That implementation, known as
FANCash-R-, is a flagship project of NationsBank that illustrates the
strength of its ongoing commitment to smart card technology. We are currently
exploring opportunities to expand NationsBank's FANCash-R- stored-value
program throughout the bank's primary markets.
We were selected by VeriFone (a Hewlett-Packard company), one of the
leading providers of transaction automation systems for the payment
processing for financial institutions, merchants and consumers, as the
testing site for VeriFone's newest smart card point-of-sale device, the Omni
1250 as a part of our Oklahoma State University implementation in February
1997. Additionally, we assisted in the debut of VeriFone's newest smart card
product, the Personal ATM, at Demo '97. We are currently serving as one of
the first developers on VeriFone's VeriSmart-R- system, which will provide
personal ATM access from homes, offices and digital phones throughout the
world.
We are also working closely with Entertainment Smart Systems of Orlando,
Florida, on the development of a PrecisCache-TM- implementation to serve ESS'
tourism-based travel, theme park and resort infrastructures throughout Mexico
and the United States.
We also have long-standing strategic relationships with the two leading
developers and producers of
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smart cards and terminals--Schlumberger and Gemplus. Gemplus has actively
promoted our products, domestically and internationally through sharing
display space at conferences as well as producing and distributing marketing
literature on the Precis Health Card System. We, along with Oracle, Sun
Microsystems, International Business Machines and Apple are referenced in a
Gemplus educational booklet on smart card technology.
We are currently negotiating terms for Schlumberger Associates
agreement. Like other Schlumberger Associates, under this agreement will
become a preferred customer and receive preferred pricing and VAR status with
enhanced access to proprietary information that will be useful in product
development and implementation. Schlumberger Associates has more than 45
associates.
WHAT IS PRECIS' BUSINESS STRATEGY AND PLANS FOR FURTHER PRODUCT
DEVELOPMENT?
Our objective is to become a leading provider of smart card solutions
across a wide range of applications. Our marketing strategy is to focus on
product development and innovation in the area of smart card technology. Our
market focus is on smart card applications for consumer situations that
necessitate card usage on a weekly or more frequent basis or on an event
basis. We have identified the following industries as those best suited to
benefit from smart card technology and have begun research and development
efforts aimed at meeting perceived needs of these industries:
- - HEALTHCARE -- We believe that the healthcare industry, with its millions
of participants and voluminous and individualized information and payment
requirements, can benefit significantly from smart card technology. Smart
cards can be designed to provide patient identification and medical record
storage and retrieval, as well as electronic benefit transfers,
determination of eligibility and drug interaction information. In an
emergency situation, a quick assessment of vital information including
allergies, prescriptions and immunizations is critical for effective
healthcare delivery. Additionally, patient cards can be used to improve and
streamline administrative and billing procedures as well as insurance
reimbursement.
- - TRAVEL AND ENTERTAINMENT -- The travel and entertainment industry holds
great promise with regard to smart card applications. All categories that
comprise this market, including air travel, car rentals, movie theaters,
sporting events, restaurants, casinos, video stores, sports arenas, hotels
and other venues would benefit from a multi-functional card. This is an
enormous global market with strong growth predicted for the near future.
Business travelers in particular are bogged down by paper-based expense
reimbursement. Paper-based reimbursement systems are hampered with the
potential for fraud in addition to being costly to administer. Smart cards
would enable businesses to more effectively monitor travel and
entertainment expenses.
Smart cards offer solutions in terms of their ability to collect and
disseminate data and conduct electronic commerce. Several major airlines
have initiated smart card pilot programs that allow ticketless travel,
store frequent flier miles and process payments. In a resort setting, a
multifunction card allows an individual access to restaurants, shopping,
sports and entertainment activities and lodging while keeping track of
loyalty points.
- - RETAILING -- All types of retailing can be embraced and enhanced with
smart card technology. The retail sector encompasses everything from
locally owned stores to national department stores. Retailers have been
made acutely aware of the value of their contact with the consumer. The
key to repeat business is to accurately identify, and then satisfy,
customer needs. Smart cards would enable retailers to track customer
behavior and base marketing decisions gleaned from this valuable
information. This technology can also reduce the risk of fraud, improve
inventory management and offer the customer convenience and better service.
- - AFFINITY PROGRAMS -- The trend in retail, fund raising and other repeat
customer businesses is the move toward customer rewards. This application
represents a tremendous opportunity and an explosive growth area, which is
virtually untapped. By incorporating a smart card into a traditional
point-of-sale application, the retailer will realize complete tracking of
all aspects of the sales process including the ability to reward repeat
customers with premiums or discounts through the use of a smart card
without the traditional computerized infrastructure. Retailers could use
the data accumulated to target market areas not being penetrated and focus
marketing and advertising costs on those areas.
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WHAT ARE THE CURRENT AND FUTURE MARKETS FOR PRECIS' PRODUCTS?
We believe our early success in several important market niches has
positioned us for growth. Our near-term marketing focus is to solidify our
market position and use that foundation as a basis for expanding into
additional markets. To date our marketing efforts and successes have been
limited to the arena/stadium, event, and the healthcare markets.
ARENA/STADIUM MARKET. Within the arena/stadium market there are more
than 750 major arenas, stadiums, auditoriums and coliseums in the United
States. Aside from professional sports teams associated with those arenas and
stadiums, concerts and events constitute a large potential market for our
products. Our PrecisCache-TM- card systems and technology have been used in
the stadiums and arenas of the Carolina Panthers, Chicago White Sox, the St.
Louis Blues and the Oklahoma State University. For the nine months ended
September 30, 1999 and the year ended December 31, 1998, approximately
$25,000 (52%) and $305,000 (94%), respectively, of our revenues were
attributable to this market.
The PrecisCache-TM- disposable store-value product is an appropriate
solution to the need for a convenient and secure cash handling process that
we believe will be favorably received by customers. For longer-term needs,
enhanced tracking capability and extended identity development potential,
companies may utilize the PrecisReserve-TM- reloadable card system. We
believe our experience with the Carolina Panthers, Chicago White Sox, the St.
Louis Blues and the Oklahoma State University has established our credibility
within this market and will be beneficial in any future discussions with
prospects in this market.
One of our long-term goals is to capitalize on the name recognition and
positive association we achieve through our affiliation with professional
sports. It is reported that the likelihood of attending a baseball game
increases steadily with household income. By 2010 the largest growth area for
attendance in Major League Baseball will be in the 45 to 64 year-old
population. [Source: Shannon Dortch, "The Future of Baseball," AMERICAN
DEMOGRAPHICS, April 1996.] Because baseball is the least expensive game to
attend, the same demographic expectations should hold for other major sports,
including football, basketball and hockey. We believe that through this
marketing channel, we will reach corporate America, our ultimate target
audience.
EVENTS MARKET. There are approximately 10,000 festivals in the
United States each year. [Source: Festivals.com LLC, available from
HTTP://WWW.FESTIVALS.COM.] The scope of these of these festivals ranges from
air shows, art, food and music festivals, to state fairs and sporting events.
Our experience in the events market is limited to the Main Street Fort Worth
Arts Festival and the 1998 PGA Championship (at Sahalee Country Club,
Redmond, Washington). For the years ended December 31, 1998 and 1997,
approximately $17,500 (5%) and $40,800 (100%), respectively, of our revenues
were attributable to this market. Although limited, we believe that our
experience with these events demonstrates the successful application of the
PrecisCache-TM- system.
One of our significant advantages in the festival-fair market is that
the product can be sold profitably and implemented with minimum cost and
development effort. Given the large number of festivals that occur each year,
the opportunity for steady and reliable cash flows form the sale of this
product could be considerable.
ADVERTISING MEDIUM AND CORPORATE SPONSORSHIP. As an adjunct to our
efforts to capture both the arenas-stadiums market and the festivals-fairs
market, we are developing a strategy for securing or assisting in the
securing of card sponsors-advertisers. In addition to its technological
aspects, the uniqueness of the product, the size and personal nature of the
card, and the fact that it is carried in an individual's wallet or purse and
seen often, make smart cards a very suitable advertising medium. Furthermore,
beyond simply the card, sponsor mentions in promotional materials, signage,
advertising for the cards and press reports surrounding an event can greatly
enhance the value of the card as a sponsorship medium. In many cases,
revenues from the sponsorship of the card may simply be used to offset the
expenses incurred in implementing the system. This is the case in the
"Allsports" series of cards for Oklahoma State University that the Bank of
Oklahoma sponsored.
In the sports market, sponsorships are providing new and significant
revenues for franchises and stadiums as well. The smart card may provide
another, possibly significant, vehicle for companies to deliver their
messages to the public. In the festivals-
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fairs market, where the audience is a more mass-market group, the opportunity
for sponsorship-advertising revenues is also very good. Where a sponsor may
spend a significant amount on a single, one-location promotional
presentation, a smart card offers a better opportunity for repeated
impressions when carried and used for purchases at the event. Many festivals
and fairs are financed in part by corporate sponsorships. The smart card
simply provides another sponsorship vehicle. As an example, PrimeCo, a
sponsor of and in connection with the Main Street Fort Worth Arts Festival,
appeared on the smart card. The funds from the sponsorship in part defrayed
the cost of implementation of the smart card system for this festival. We are
currently developing a sponsorship pricing strategy and contact list for the
purpose of enlisting major sponsors in the Company's efforts to approach the
sports and arena markets as well as schools, festivals, fairs, and others.
HEALTHCARE MARKET. Our first market segment focus was in healthcare. We
believe that every insurance company, HMO, PPO, hospital association, and
independent provider association which serves the United States healthcare
market can benefit from the use of a smart card system. Our advantage in this
market is based upon our position as the first to provide a healthcare smart
card implementation of its kind and the experience we gained from it.
Currently, there are no hospital associations, HMOs, PPOs, independent
healthcare provider organizations and insurance companies using the Precis
Health Card System. The opportunity to reduce healthcare costs, improve the
quality of healthcare services, and facilitate the payments process makes the
use of smart card systems very attractive and viable.
We continue to provide consulting to some of the major providers in the
healthcare industry in and out of the United States that are considering
implementation of a smart card system. A number of these companies have shown
an interest in the Precis Health Card System-TM-. These enquires have
provided us with important insight into many of the components that are
necessary to succeed in this market.
We conducted a limited project study in Oklahoma City, Oklahoma of the
potential benefits of the Precis Health Card System-TM-. The features of the
Oklahoma project, however, limited the collection and analysis of data
including actual reductions in costs and paperwork, rates of decrease of
incidents of harmful drug interactions, increases in the speed and quality of
healthcare delivery and payment, and quantifiable improvements in
patient-provider relationship. The best opportunity to gather this data,
which is vital in making the case to the healthcare industry, will come in a
"closed-area-system implementation" of the product which, although expensive,
will provide the best data for selling the system to the broader targeted
market. We are currently pursuing a number of organizations to serve as
strategic alliance partners to conduct the implementation and study.
Although we expect to continue to market smart card systems directly
through our management and employees, we intend to obtain the assistance of
unrelated third parties to assist our product marketing and to establish
strategic marketing alliances and licensing or other arrangements with
systems integrators, value-added resellers and other smart card vendors.
Fulfillment of product orders and installations will continue to be managed
directly by our staff.
Our marketing staff is currently in discussions and contact with a
number healthcare providers. These healthcare providers include 14 insurance
companies, 9 managed healthcare organizations, 7 governmental agencies, 13
hospitals, and 16 other companies providing healthcare services and emergency
medical response services. Following the offering, we expect to have the
financial resources to broaden our marketing efforts within the healthcare
market.
WHAT IS THE NATURE AND EXTENT OF PRECIS' COMPETITION?
The environment within which we operate is intensely competitive and
subject to rapid change in general. To maintain or increase our market share
position in the smart card industry, we will continually need to enhance our
current product offerings, introduce new product features and enhancements,
and expand our professional service capabilities. We currently compete
principally on the basis of the specialized nature of our products and
ability to expeditiously install and implement a smart card system. Our
product features and functions facilitate integration with a wide range of
operating systems and platforms to insure product quality, ease of use and
reliability. We believe we compete favorably in all of these areas.
Our competitors vary in size and in the scope and breadth of the
products and services offered. We may
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encounter competition from a number of sources, including International
Business Machines, Inc., ICL, 3GI, CyberMark, Touch Technology International,
Inc., Sun MicroSystems, Inc., Technology @ Work, Bull, Card Europe, Gemplus,
Innovatron, Philips Electronics, Aladdin Systems, Pathways Group, Inc.,
MONDEX, MasterCard, Microsoft, Motorola, Schlumberger, Siemens, DigiCash,
Leapfrog, Inc. We compete against numerous, smaller, privately-held companies
with fewer resources based on breadth of product features and functionality,
as well as larger, publicly-held companies with greater resources and having
greater product and market diversification.
Many of our current and potential competitors, both privately-held and
publicly-held, have greater financial, technical, marketing and distribution
resources than ours. As a result, they may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or to
devote greater resources to the development and distribution of their
products. In addition, because there are relatively low barriers to entry in
the software marketplace, we expect additional competition from other
established or emerging companies as the smart card market continues to
expand. Increased competition is likely to result in pricing pressures,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations.
We also expect that competition will increase as a result of software
industry consolidations. There can be no assurance that we will be able to
compete successfully against current and future competitors or that
competitive pressures we encounter will not materially adversely affect our
business, financial condition and results of operations.
DOES PRECIS HAVE ANY LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY RIGHTS?
We regard our software as proprietary and license our products generally
under written license agreements executed by licensees. We also employ an
encryption system which restricts a user's access to source codes to further
protect our intellectual property. Because our products allow customers to
customize their applications without altering source codes, the source codes
for our products are typically neither licensed nor provided to customers.
We have applied for registration of our Precis Health Card System-TM-
trademark. Because of inadequate working capital and financial resources, we
have not applied for registration of our PrecisCache-TM-, PrecisReserve-TM-,
and PrecisPersona-TM- trademarks. We have no patents or patent applications
pending. Currently, we rely on a combination of copyright, trademark and
trade secret laws to protect our products. We also require employee and
third-party non-disclosure and confidentiality agreements. Despite these
precautions, it may be possible for unauthorized parties to copy portions of
our products or reverse engineer or obtain and use information that we regard
as proprietary. Following completion of the offering, we intend to take
appropriate measures to register our trademarks.
Because the software development industry is characterized by rapid
technological change, we believe that factors, including
- - the technological and creative skills of our personnel,
- - new product developments,
- - frequent product enhancements,
- - name recognition
- - and reliable product maintenance,
are more important to establishing and maintaining a technology leadership
position, than the various legal protections available for our technology.
HOW MUCH DOES PRECIS SPEND ON RESEARCH AND PRODUCT DEVELOPMENT?
We must continue to make significant investments in research and
development to continue development of our smart card technology. Currently,
the dynamic nature of the smart card technology industry places large
research and development demands on businesses that desire to remain
competitive. Competing with larger firms with substantially greater capital
resources, we have devoted significant portions of available resources to
remain abreast of industry developments and to offer competitive products and
services.
As of September 30, 1999, our product development staff consisted of
three employees. Our total expenses for product development and deployment
during 1998, 1997 and the nine months ended September 30, 1999, were
$389,586, $542,203 and $188,135, respectively. Our customers have not borne
any portion of our product development and deployment expenses. We anticipate
that we will continue to commit substantial resources to product development
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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ARE THE OPERATIONS OF PRECIS SUBJECT TO GOVERNMENT REGULATION?
Our operations are subject to various federal, state and local
requirements which affect businesses generally, including taxes, postal
regulations, labor laws, and environment and zoning regulations and
ordinances.
Furthermore, although there may be aspects of our services subject to
Regulation E promulgated by the Federal Reserve Board, we believe that most
of our services are not subject to Regulation E. Regulation E governs
electronic funds transfers made by regulated financial institutions and
providers of access devices and electronic fund transfer systems. Regulation
E requires written receipt for transactions, monthly statements,
pre-transaction disclosures and error resolution procedures. There can be no
assurance that the Federal Reserve Board will not require all of our services
to comply with Regulation E, or revise Regulation E, or adopt new rules and
regulations for electronic funds transfers that could result in an increase
in our operating costs, reduce the convenience and functionality of our
services and products, possibly resulting in reduced market acceptance and
revenues which would have a material adverse effect on our business,
financial condition or operating results.
We believe that current state and federal regulations concerning
electronic commerce do not apply to our current product line. However, there
is a move towards taxation of Internet use by several states including the
state of Washington. There are some strategic plans under consideration to
conduct commerce on the Internet using our core technology. We have an
ongoing regulatory compliance program pertaining to transactions utilizing
smart card technology and subscribe to industry watch publications that
address regulatory issues.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. The Company
is not currently a party to any legal proceedings.
EMPLOYEES
As of September 30, 1999, we had a total of eight employees, of which
two were employed in sales and marketing, three were employed in product
development and one was employed in professional services and customer
support, one was employed in internal operations support. Our future
performance depends in significant part upon the continued service of our key
technical and management personnel, and our continuing ability to attract and
retain highly qualified and motivated personnel in all areas of our
operations. Competition for qualified personnel is intense. We provide no
assurance that we can retain key managerial and technical employees or that
we can attract, assimilate or retain other highly qualified personnel in the
future. Our employees are not represented by a labor union. We have not
experienced any work stoppages and consider our employee relations to be good.
FACILITIES
The corporate headquarters of Precis are located at 11032 Quail Creek
Road, Suite 108, Oklahoma City, Oklahoma. This office facility consists of
approximately 3,150 square feet and occupied under a month-to-month unwritten
lease requiring monthly rental payments of $2,229.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to each of our
executive officers and directors. Our directors are generally elected at the
annual shareholders' meeting and hold office until the next annual
shareholders' meeting or until their successors are elected and qualified.
Executive officers are elected by our board of directors and serve at its
discretion. Our bylaws authorize the board of directors to be constituted of
not less than one and the number as our board of directors may determine by
resolution or election. Our board of directors currently consists of five
members.
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<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kent H. Webb, M.D.(1)(2)..................................... 42 Chairman of the Board
Larry E. Howell(1)........................................... 53 Chief Executive Officer and Director
Donald (Dan) A. Cunningham................................... 56 President and Chief Operating Officer
and Director
Mark R. Kidd(2).............................................. 33 Chief Financial Officer and Controller
and Secretary
Lyle W. Miller............................................... 56 Director
Michael E. Dunn(2)........................................... 53 Director
- --------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
The following is a brief description of the business background of our
executive officers, directors and nominee directors:
KENT H. WEBB, M.D., a founder of Precis, has served as Chairman of the
Board since June 1996 and was a member or general partner of our predecessors
Advantage Data Systems, Ltd. and Medicard Plus - ADS Limited Partnership. Dr.
Webb is a general and vascular surgeon and is the cofounder and a director of
Surgical Hospital of Oklahoma. He is a Fellow of the American College of
Surgeons and serves as a Clinical Professor for the University of Oklahoma.
Dr. Webb is a past Director of the Smart Card Industry Association, a
nonprofit association. He is a surgical consultant for the Ethicon Division
of Johnson & Johnson Company, a publicly-held pharmaceutical and consumer
products company.
LARRY E. HOWELL became one of our directors in January 1999 and became
Chief Executive Officer in August 1999. Until July 1999, Mr. Howell was
employed by Laboratory Specialists of America, Inc. and served as President
and Chief Operating Officer, and a Director until December 7, 1998.
Laboratory Specialists of America, Inc. is engaged in forensic drug testing
and was formerly publicly-held until acquired by The Kroll-O'Gara Company by
merger. Mr. Howell served as a Director, President and Treasurer of Vantage
Capital Resources, Inc. from March 1996 until its merger with The ViaLink
Company (formerly Applied Intelligence Group, Inc.) and thereafter served as
a Director and Vice President of The ViaLink Company until October 14, 1996.
Since January 1982, Mr. Howell as the sole proprietor of Howell and
Associates provides consulting services principally related to corporate
acquisitions and mergers.
DONALD (DAN) A. CUNNINGHAM became one of our Directors in 1996 and
became President and Chief Operating Officer in August 1999. During 1998 and
1997 Mr. Cunningham served as President and Chief Executive Officer of the
Smart Card Industry Association. Before that position, he served as Senior
Vice President of Business Development of Phoenix Planning & Evaluation, Ltd.
Phoenix is one of the premier consulting firms in the United States providing
strategic planning and technical assistance to the banking industry,
government agencies, and healthcare and transportation industries. Mr.
Cunningham served as President and Chief Executive Officer of Gemplus Card
International Corp., the United States subsidiary of French-owned Gemplus SA,
from 1993 to 1996. Before joining Gemplus, Mr. Cunningham held positions at
Micro Card Technologies, Inc., Recognition Equipment, Inc. and the NCR
Corporation.
MARK R. KIDD became our Chief Financial Officer and Controller and
Secretary in August 1999. Mr. Kidd began serving as President of PaceCo
Financial Services, Inc. and President of UniFin Inc. in March 1998, both are
privately held companies that provide various financial services. From
January 1997 until March 1998, he served as Senior Vice President and Chief
Financial Officer of Republic Bank of Norman. From May 1988 through 1996, Mr.
Kidd was employed by the public accounting firm of Arthur Andersen LLP. Mr.
Kidd is a Certified Public Accountant and holds a B.B.A. in accounting from
Southern Methodist University in accounting.
LYLE W. MILLER, began serving as one of directors on November 29, 1999.
For more than the past five years, Mr. Miller has been the President and a
Director of McMiller Holding Company, Northern Leasing & Sales, Inc., and
Northern Connections, Inc.,
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each a is privately-held company engaged in the real estate business, a
partner of MahMill Acres, a privately-held real estate development
partnership, President and Director of Servco Incorporated, a privately-held
sales company, Lansing Ice & Gymnastic Center, Inc., a privately-held company
operating the Lansing Ice & Gymnastic Center, and Landings Restaurant, Inc.,
a privately-held company operating the Landings Restaurant. In addition, Mr.
Miller is a Director of Capitol Bancorp Limited, a publicly-held bank holding
company. Mr. Miller received a Bachelor of Business Administration from
Michigan State University.
MICHAEL E. DUNN became a one of our Directors in January 1999. Mr. Dunn
has been a member, shareholder and the President of Dunn Swan & Cunningham, A
Professional Corporation, since February 28, 1995. From August 1994 until
December 7, 1998, when acquired by The Kroll-O'Gara Company, Mr. Dunn served
as a Director of Laboratory Specialists of America, Inc., a forensic drug
testing company. From April 1980 to January 1995, he was a member,
shareholder and director of the law firm of Zrenda Dunn & Swan, A
Professional Corporation (formerly Bright Zrenda & Dunn), in Oklahoma City,
Oklahoma, and President from April 1992 until January 1995. He has been the
owner of the Woodlake Racquet Club, a recreational athletic club, since 1981.
Mr. Dunn was graduated from the University of Oklahoma College of Law in
1972, and holds a B.B.S. in accounting and pursued graduate studies at the
University of Oklahoma.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation, paid or accrued, our
President and Chief Executive Officer during 1998, 1997 and1996. None of our
executive officers received compensation in excess of $100,000 during these
years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) COMMON STOCK
------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) OPTIONS
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
James Lout(4).................................. 1998 $64,000 $ - 17,241
President and Chief Executive Officer 1997 $74,000 $ - -
1996 $48,667 $ - 45,977
- ---------------
(1) The named executive officer received additional non-cash compensation,
perquisites and other personal benefits; however, the aggregate amount and
value thereof did not exceed 10% of the total annual salary and bonus paid
to and accrued for the named executive officer during the year.
(2) Dollar value of base salary (both cash and non-cash) earned during the year.
(3) Dollar value of bonus (both cash and non-cash) earned during the year.
(4) Mr. Lout served as our President beginning in June 1996 until mid-August 1999.
</TABLE>
AGGREGATE OPTION GRANTS AND EXERCISES DURING THE YEAR ENDED DECEMBER 31,
1998 AND YEAR-END OPTION VALUES
STOCK OPTIONS AND OPTION VALUES. The following table sets forth
information related to options granted to the executive officers named in the
Summary Compensation Table during the year ended December 31, 1998.
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<TABLE>
<CAPTION>
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------------- ASSUMED RATES OF STOCK
PERCENT OF PRICE APPRECIATION
NUMBER TOTAL OPTIONS EXERCISE OR FOR OPTION TERM(1)
OF OPTIONS GRANTED BASE PRICE --------------------------
NAME GRANTED(2) TO EMPLOYEES PER SHARE EXPIRATION DATE FIVE PERCENT TEN PERCENT
---- ---------- ------------- ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
James Lout............... 17,241 14.9% $5.22 December 20, 1999 $146,597 $233,432
</TABLE>
- --------------
(1) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the options immediately
before expiration of their term, assuming the specified compound rates of
appreciation of the Common Stock over the term of the options. These
amounts do not take into consideration provisions restricting exercise and
transferability, and represent assumed rates of appreciation only. Actual
gains on stock option exercises are dependent on the future operating
results of the Company. There can be no assurance that the potential values
reflected in this table will be achieved. All amounts have been rounded to
the nearest whole dollar amount.
(2) The number of options granted and base price per share give effect to the
adjustment for the reverse split of the Common Stock on October 30, 1998.
AGGREGATE STOCK OPTION EXERCISE AND YEAR-END AND OPTION VALUES. The
following table sets forth information related to the number of options
exercised in the year ended December 31, 1998, and the value realized by each
executive officer named in the Summary Compensation Table, as well as,
information related to the number and value of options held by them at
December 31, 1998. During the year ended December 31, 1998, no outstanding
options were exercised.
OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS(1) IN-THE-MONEY OPTIONS(2)
---------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James Lout......................... 36,399 26,819 $-- $--
</TABLE>
- ------------
(1) As a result of Mr. Lout's employment termination in August 1999, the
exercisable options expire on December 20, 1999 and Mr. Lout's right to
receive the unexercisable options terminated.
(2) A market for our common stock does not exist. The value of unexercised
in-the-money options is based upon the fair market value of the shares of
common stock underlying the options, which was determined by to be less
than $5.22 per share as of December 31, 1998 (after giving effect to and
adjustment for the reverse stock split), minus the exercise price
multiplied by the number of shares of Common Stock underlying the options.
STOCK OPTION PLAN
For the benefit of our employees, directors and consultants, we have
adopted the Precis Smart Card Systems, Inc. 1999 Stock Option Plan (the
"stock option plan" or the "plan"). The plan provides for the issuance of
options intended to qualify as incentive stock options for federal income tax
purposes to our employees and non-employees, including employees who also
serve as our directors. Qualification of the grant of options under the plan
as incentive stock options for federal income tax purposes is not a condition
of the grant and failure to so qualify does not affect the exercisability of
the stock options. The number of shares of common stock authorized and
reserved for issuance under the Plan is 145,000. As of the date of this
prospectus, no options have been granted under the plan.
Our board of directors administers and interprets the plan (unless
delegated to a committee) and has authority to grant options to all eligible
participants and determine the types of options granted, the terms,
restrictions and conditions of the options at the time of grant.
The exercise price of options may not be less than 85% of the fair
market value of our common stock on the date of grant of the option and to
qualify as an incentive stock options may not be less than the fair market
value of common stock on the date of the grant of the incentive stock
options. Upon the exercise of an option, the exercise price must be paid in
full, in cash,
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in our common stock (at the fair market value thereof) or a combination
thereof. During the one-year period following the date of this prospectus, we
have agreed with Barron Chase Securities not to grant options or warrants
having an exercise price of less than $6.00 per share, without the written
consent of Barron Chase Securities.
Options qualifying as incentive stock options are exercisable only by an
optionee during the period ending three months after the optionee ceases to
be our employee, a director, or non-employee service provider. However, in
the event of death or disability of the optionee, the incentive stock options
are exercisable for one year following death or disability. In any event
options may not be exercised beyond the expiration date of the options.
Options may be granted to our key management employees, directors, key
professional employees or key professional non-employee service providers,
although options granted non-employee directors do not qualify as incentive
stock options. No option may be granted after December 31, 2008. Options are
not transferable except by will or by the laws of descent and distribution.
All outstanding options granted under the Plan will become fully vested
and immediately exercisable if (i) within any 12-month period, we sell an
amount of common stock that exceeds 50% of the number of shares of common
stock outstanding immediately before the 12-month period or (ii) a "change of
control" occurs. For purposes of the plan, a "change of control" is defined
as the acquisition in a transaction or series of transactions by any person,
entity or group (two or more persons acting as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring our
securities) of beneficial ownership, of 50% or more (or less than 50% as
determined by a majority of our directors) of either the then outstanding
shares of our common stock or the combined voting power of our then
outstanding voting securities.
DIRECTOR LIABILITY AND INDEMNIFICATION
As permitted by the provisions of the Oklahoma General Corporation Act,
our Certificate of Incorporation eliminates the monetary liability of our
directors for a breach of their fiduciary duty as directors. However, these
provisions do not eliminate our director's liability
- - for a breach of the director's duty of loyalty to us or our shareholders,
- - for acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law,
- - arising under Section 1053 of the Oklahoma General Corporation Act relating
to the declaration of dividends and purchase or redemption of shares in
violation of the Oklahoma General Corporation Act, or
- - for any transaction from which the director derived an improper personal
benefit.
In addition, these provisions do not eliminate liability of a director
for violations of federal securities laws, nor do they limit our rights or
your and our other shareholders rights , in appropriate circumstances, to
seek equitable remedies including injunctive or other forms of non-monetary
relief. These remedies may not be effective in all cases.
Our bylaws require us to indemnify all of our directors and officers.
Under these provisions, when an individual in his or her capacity as an
officer or a director is made or threatened to be made, a party to any suit
or proceeding, the individual may be indemnified if he or she acted in good
faith and in a manner reasonably believed to be in or not opposed to our best
interest. Our bylaws further provide that this indemnification is not
exclusive of any other rights to which the individual may be entitled.
Insofar as indemnification for liabilities arising under our bylaws or
otherwise may be permitted to our directors and officers, we have been
advised that in the opinion of the Securities and Exchange Commission the
indemnification is against public policy and is, therefore, unenforceable.
LACK OF EMPLOYMENT ARRANGEMENTS AND KEYMAN INSURANCE
We do not have employment agreements with our employees. We do not
maintain any keyman insurance on the life or in the event of disability of
our executive officer.
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CERTAIN TRANSACTIONS
Contained below is a description of transactions we entered into with
our officers, directors, and shareholders during 1997, 1998 and 1999 to the
date of this prospectus. These transactions will continue in effect and may
result in conflicts of interest between us and these individuals. Although
these persons have fiduciary duties to us and our shareholders, there can be
no assurance that conflicts of interest will always be resolved in favor of
us and our shareholders.
Under 10 separate promissory notes, Dr. Webb loaned $254,743 to us from
1997 through June 30, 1999. These shareholder loans are evidenced by
promissory notes, currently bearing interest at 15% per annum. The principal
amount of those notes issued before September 30, 1998, accrued interest at
25% per annum until September 30, 1998, and thereafter at the 15% per annum
rate. In January 1998, we repaid one of the promissory notes in the principal
amount of $25,000 and accrued interest of $531. The outstanding promissory
notes will become due 30 days following completion of the offering. We have
not paid any interest on the outstanding loans. During the nine months ended
September 30, 1999, and the year ended December 31, 1998, the interest
accrued for payment to Dr. Webb was $9,170 and $14,899, respectively.
The terms of Dr. Webb's loans made prior to 1999 were approved and
ratified unanimously by our four independent directors, each of whom did not
have an interest in these loans and had access to our independent legal
counsel at our expense. At the time these loans were made in 1999, we did not
have sufficient disinterested independent directors to ratify the terms of
the loans. Because the 1999 loan terms were the same as the earlier loans,
our board of directors believes that the terms of the loans by Dr. Webb were
at least as favorable as could be obtained from unaffiliated third parties.
We have adopted policies that any loans to officers, directors and 5% or
more shareholders ("affiliates") are subject to approval by a majority of not
less than two of our disinterested independent directors and that such loans
and other transactions with affiliates will be on terms no less favorable
than could be obtained from unaffiliated parties and approved by a majority
of not less than two of our disinterested independent directors. As of the
date of this prospectus, our Board of Directors is comprised of five members,
of which Kent H. Webb, Lyle W. Miller and Michael E. Dunn are the only
independent directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents, as of the date of this prospectus,
information related to the beneficial ownership of our common stock of (i)
each person who is known to us to be the beneficial owner of more than 5%
thereof, (ii) each of our directors and executive officers, and (iii) all of
our executive officers and directors as a group, together with their
percentage holdings of the outstanding shares, and, as adjusted to give
effect to the offering. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated, and there are
no family relationships amongst our executive officers and directors. For
purposes of the following table, the number of shares and percent of
ownership of our outstanding common stock that the named person beneficially
owns includes shares of our common stock that the person has the right to
acquire within 60 days of the date of this prospectus from exercise of stock
options and are deemed to be outstanding, but are not deemed to be
outstanding for the purposes of computing the number of shares beneficially
owned and percent of outstanding common stock of any other named person.
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<TABLE>
<CAPTION>
AFTER THE
BEFORE THE OFFERING OFFERING
------------------------ ------------
SHARES PERCENT OF PERCENT OF
BENEFICIALLY OUTSTANDING OUTSTANDING
NAME (AND ADDRESS) OF BENEFICIAL OWNER OWNED(1) SHARES(1)(2) SHARES(1)(2)
- -------------------------------------- -------- ------------ ------------
<S> <C> <C> <C>
Kent H. Webb, M.D.................................................... 72,018 6.0% 3.3%
4221 South Western
Oklahoma City, Oklahoma 73109
Larry E. Howell..................................................... 100,000 8.3% 4.5%
Donald (Dan) A. Cunningham........................................... 697 (3) (3)
Mark R. Kidd........................................................ -- -- % -- %
Lyle W. Miller....................................................... -- -- % -- %
Michael E. Dunn..................................................... -- -- % -- %
Michael R. Morrisett................................................. 270,401 22.5% 12.3%
8626 South Florence Avenue
Tulsa, Oklahoma 74137
Executive Officer and Directors as a group (six persons)(3).......... 172,715 14.4% 7.9%
</TABLE>
- ------------
(1) Shares not outstanding but deemed beneficially owned by virtue of
the right of a person to acquire them within 60 days are treated as
outstanding for determining the amount and percentage of our common
stock owned by the person. To our knowledge, each named person has
sole voting and sole investment power with respect to the shares
shown except as noted, subject to community property laws, where
applicable.
(2) The percentage shown was rounded to the nearest one-tenth of one
percent, based upon 1,200,000 shares of our common stock outstanding
before the offering and 2,200,000 shares of our common stock
outstanding after the offering.
(3) The percentage is less than 1.0%.
DESCRIPTION OF SECURITIES
Under our Certificate of Incorporation, we are authorized to issue up to
10,000,000 shares of capital stock, consisting of 8,000,000 shares of common
stock, $.01 par value per share, and 2,000,000 shares of preferred stock,
$.01 par value per share. As of the date of this prospectus, our issued and
outstanding capital stock consists of 1,200,000 shares of common stock. We
are offering 1,000,000 shares of our common stock under the offering.
The following description of our common stock and preferred stock is a
summary and is qualified in its entirety by the provisions of our Certificate
of Incorporation and bylaws. Our Certificate of Incorporation and bylaws have
been filed as exhibits to the registration statement of which this prospectus
is a part. See "Where You Can Find Additional Information."
COMMON STOCK
As holders of our outstanding shares of the common stock, your rights,
privileges, disabilities and restrictions in general are as follows:
- - the right to receive ratably dividends, if any, as may be declared from
time to time by the board of directors out of assets legally available
therefor, subject to the payment of preferential dividends with respect to
our then outstanding preferred stock;
- - the right to share ratably in all assets available for distribution to the
Common Stock shareholders after payment of our liabilities in the event of
our liquidation, dissolution and winding-up, subject to the prior
distribution rights of the holders of our then outstanding preferred stock;
- - the right to one vote per share on matters submitted to a vote by our
common stock shareholders;
- - no preferential or preemptive right and no subscription, redemption or
conversion privilege with respect to the issuance of additional shares of
our common stock; and
- - no cumulative voting rights, which means that the holders of a majority of
shares voting for the
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election of directors can elect all members of our board of directors
then subject to election.
In general, a majority vote of shares represented at a meeting of common
stock shareholders at which a quorum (a majority of the outstanding shares of
common stock) is present, is sufficient for all actions that require the vote
or concurrence of shareholders, subject to and possibly in connection with
the voting rights of the holders of our then outstanding preferred stock and
entitled to vote with the holders of our common stock. Upon issuance of the
common stock offered under the offering, all of the outstanding shares of our
common stock will be fully paid and non-assessable.
PREFERRED STOCK
Our authorized preferred stock may be issued from time to time in one or
more series. Our board of directors, without further approval of the common
stock shareholders, is authorized to fix the relative rights, preferences,
privileges and restrictions applicable to each series of our preferred stock.
We have agreed not to issue any preferred stock for three years from the date
of this prospectus without the consent of Barron Chase Securities.
Furthermore, in connection with the registration of our common stock in
Oklahoma, we represent that we will not offer preferred stock
- - to our 5% or greater shareholders, officers, and directors except on terms
that the preferred stock is offered to all other shareholders or to new
shareholders, or
- - unless the preferred stock is approved by a majority of our independent
directors who do not have an interest in the transaction and who have
access, at our expense, to our independent legal counsel.
We believe that having this a class of preferred stock provides greater
flexibility in financing, acquisitions and other corporate activities. While
there are no current plans, commitments or understandings, written or oral,
to issue any of our preferred stock, in the event of any issuance, our common
stock shareholders will not have any preemptive or similar rights to acquire
any of the preferred stock. Issuance of preferred stock could adversely affect
- - the voting power of the holders of our then outstanding common stock,
- - the likelihood that the holders will receive dividend payments and payments
upon liquidation and
- - could have the effect of delaying or preventing a change in shareholder and
management control.
TRANSFER AGENT AND REGISTRAR
UMB Bank, N.A. is the registrar and transfer agent of our Common Stock.
The mailing address of UMB Bank, N.A. is Security Trust Division, 28 Grand
Boulevard, 13th Floor, Kansas City, Missouri 64106.
OUTSTANDING STOCK OPTIONS
As of the date of this prospectus, we have outstanding stock options
exercisable for the purchase of 86,397 shares of our common stock during
various periods which expire December 20, 1999 through November 30, 2004, at
an exercise price of $5.22 per share. The exercise prices of the stock
options were equal to the estimated fair market value of the common stock on
the date of the grant of each stock option as determined by our board of
directors. In addition, we have reserved 95,210 shares of our common stock
for issuance upon the vesting and exercise of outstanding stock options. Our
board of directors is also authorized to issue additional stock options
exercisable for the purchase of 145,000 shares of our common stock under our
stock option plan. As a connection of registration of our common stock in
Oklahoma, we will not grant any options or warrants with an exercise price of
less that 85% of the fair market value of our shares of common stock on the
date of grant.
SHAREHOLDER ACTION
Under our bylaws, the affirmative vote of the holders of a majority of
our outstanding shares of the common stock entitled to vote thereon is
sufficient to authorize, affirm, ratify or consent to any act or action
required of or by the holders of the common stock, except as otherwise
provided by the Oklahoma General Corporation Act.
Under the Oklahoma General Corporation Act, our shareholders may take
actions without the holding of a meeting by written consent. The written
consent must be signed by the holders of a sufficient number of shares to
approve the act or action had all of our outstanding shares of capital stock
entitled to vote thereon been present at a meeting. In this event, we are
required to provide prompt notice of any corporate action taken without a
meeting to our shareholders who did not consent in writing to the act or
action.
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However, any time that we have 1,000 or more shareholders of record, any act
or action required of or by the holders of our capital stock entitled to vote
thereon may only be taken by unanimous affirmative written consent of the
shareholders or a shareholder meeting.
ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation and the Oklahoma General Corporation
Act include a number of provisions which may have the effect of encouraging
persons considering unsolicited tender offers or other unilateral takeover
proposals to negotiate with our board of directors rather than pursue
non-negotiated takeover attempts. We believe that the benefits of these
provisions outweigh the potential disadvantages of discouraging the proposals
because, among other things, negotiation of the proposals might result in an
improvement of their terms. The description below related to provisions of
our Certificate of Incorporation is intended as a summary only and is
qualified in its entirety by reference to our Certificate of Incorporation
filed as an exhibit to the registration statement of which this prospectus is
a part. See "Where You Can Find Additional Information."
PREFERRED STOCK. Our Certificate of Incorporation authorizes the
issuance of the preferred stock in classes. Our board of directors is
authorized to set and determine the voting rights, redemption rights,
conversion rights and other rights relating to the class of preferred stock.
In some circumstances, the preferred stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which
our board of directors opposes.
OKLAHOMA ANTI-TAKEOVER STATUTES. Following the offering, we may be
subject to Section 1090.3 and Sections 1145 through 1155 of the Oklahoma
General Corporation Act.
Section 1090.3 of the Oklahoma General Corporation Act prohibits a
publicly-held Oklahoma corporation from engaging in a "business combination"
with an "interested shareholder." This prohibition is for a three-year period
following the date of the transaction in which the person became an
interested shareholder. This prohibition does not apply to a transaction if
the interested shareholder attained this status with approval of our board of
directors or the business combination is approved by our shareholders. A
"business combination" includes mergers, asset sales, and other transactions
resulting in a financial benefit to the interested shareholder. An
"interested shareholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of our common
stock.
In general, Sections 1145 through 1155 of the Oklahoma General
Corporation Act provide that shares ("interested shares") of voting stock
acquired (within the meaning of a "control share acquisition") become
nonvoting stock for the three-year period following the control share
acquisition. This loss of voting rights does not apply if a majority of the
holders of non-interested shares approve a resolution reinstating the
interested shares with the same voting rights that the shares had before the
interested shares became control shares.
Any person ("acquiring person") who proposes to make a control share
acquisition may, at the person's election, and any acquiring person who has
made a control share acquisition is required to deliver an acquiring person
statement to us disclosing prescribed information regarding the acquisition.
We are required to present to the next annual meeting of the shareholders the
reinstatement of voting rights with respect to the control shares that
resulted in the control share acquisition. Alternatively, an acquiring person
may request a special meeting of shareholders for this purpose; however, the
acquiring person must undertake to pay the costs and expenses of the special
meeting. In the event voting rights of control shares acquired in a control
share acquisition are reinstated in full and the acquiring person has
acquired control shares with a majority or more of all voting power, you and
the other shareholders will have dissenters' rights entitling you and the
other shareholders to receive the fair value of the shares of the Common
Stock held. In this case, the fair value will not be less than the highest
price paid per share by the acquiring person in the control share acquisition.
A "control share acquisition" includes the acquisition by any person
(including persons acting as a group) of ownership of, or the power to direct
the exercise of voting power with respect to, control shares (generally
shares having more than 20% of all voting power in the election of directors
of a publicly held corporation), subject to the following exceptions
- - an acquisition under an agreement of merger, consolidation, or share
acquisition to which we are a party and is effected in compliance with the
Oklahoma General Corporation Act,
- - an acquisition by a person of additional shares within the range of voting
power for which the
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person has received approval by the majority of the holders of
non-interested shares,
- - an increase in voting power resulting from any action taken by us, provided
the person whose voting power is thereby affected is not our affiliate,
- - an acquisition by proxy solicitation under and in accordance with the
Securities Exchange Act of 1934, as amended, or the laws of Oklahoma, and
- - an acquisition from any person whose previous acquisition of shares did not
constitute a control share acquisition, provided the acquisition does not
result in the acquiring person holding voting power within a higher range
of voting power than that of the person from whom the control shares were
acquired.
The anti-takeover provisions of the Oklahoma General Corporation Act may
have the effect of discouraging a third party from acquiring large blocks of
the common stock within a short period or attempting to obtain control of us,
even though the attempt might be beneficial to us and our shareholders.
Accordingly, you and our other shareholders could be deprived of the
opportunities to sell the shares of the common stock held at a higher market
price than might otherwise be the case.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, we have 1,200,000 outstanding shares
of our common stock. Upon completion of the offering, we will have 2,200,000
shares of common stock outstanding and outstanding stock options and warrants
exercisable for the purchase of 86,398 shares of common stock. No prediction
can be made as to the effect, if any, that future sales or the availability
of shares for sale will have on the market price of the common stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
our common stock in the public market could adversely affect the prevailing
market price of our common stock and could impair our ability to raise
capital through sales of our equity securities.
The 1,000,000 shares of common stock offered in the offering will be
immediately eligible for resale in the public market without restriction or
further registration under the Securities Act of 1933, except for shares
purchased by an "affiliate" (as that term is defined under the Securities Act
of 1933) of ours. Any sales of our common stock by an affiliate will be
subject to the resale limitations of Rule 144 promulgated under the 1933 Act.
There are 443,116 outstanding shares of our common stock held by our
executive officers, directors and affiliates. These shares are subject to the
resale limitations of Rule 144 promulgated under 1933 Act described below.
Also, there are 300,000 shares of our outstanding common stock that are
subject to the resale limitations of Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned unregistered shares of common stock for at least one year is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of
- - 1% of the then outstanding shares of our Common Stock or
- - an amount equal to the average weekly reported volume of trading in the
shares during the four calendar weeks preceding the date on which notice of
the sale is filed with the U.S. Securities and Exchange Commission.
Sales under Rule 144 are also subject to the manner of sale limitations,
notice requirements and the availability of current public information about
us.
Shares of common stock properly sold in reliance on Rule 144 are
thereafter freely tradable without restrictions or registration under the
Securities Act of 1933, unless thereafter held by an affiliate of ours. In
addition, our affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirement, in order to
sell shares of common stock which are not restricted shares within the
meaning of Rule 144 (including shares of common stock acquired by our
affiliates in the offering). As defined in Rule 144, an "affiliate" is a
person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with us. If two years
have elapsed since the later of the date of any acquisition of unregistered
shares of common stock from us or from any of our affiliates, and the
acquiror or later holder thereof is deemed not to have been our affiliate at
any time during the 90 days preceding the sale, the person would be entitled
to sell the shares in the public market under Rule 144(k). Under Rule 144(k)
unregistered shares of common stock may be sold
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without regard to volume limitations, manner of sale restrictions, or public
information or notice requirements. There are 456,884 outstanding shares of
our common stock that may be sold under Rule 144(k).
LOCK-UP AGREEMENTS
During the two-year period following the date of this prospectus, our
executive officers, directors, and shareholders have agreed not to sell or
otherwise dispose of the shares of common stock beneficially own by them on
the date of this prospectus without the prior written consent of Barron Chase
Securities. The agreement covers in the aggregate 1,200,000 shares of our
common stock.
STATE IMPOSED LOCK-IN ARRANGEMENT
In connection with the registration of the offering in Oklahoma, our
executive officers and directors (and their wives) and Michael R. Morrisett
(a greater than 5% shareholder) have agreed to escrow 443,116 shares of our
common stock under a promotional shares lock-in agreement (the "lock-in
agreement"). The lock-in agreement was imposed by the Administrator of the
Oklahoma Department of Securities as a condition of the registration for the
protection and benefit of the initial purchasers of our common stock sold
under the offering (the "public shareholders").
Under lock-in agreement, the owners (the "depositors") of the common
stock (the "subject securities") agreed that in event of a "distribution" (as
defined below) respecting the subject securities:
- - The public shareholders will share on a pro rata, per share basis in the
distribution to the exclusion of the depositors, in proportion to the
public offering price of our common stock until the public shareholders
have received, or have had irrevocably set aside for them, an amount equal
to the per share $6.00 public offering price of our common stock.
- - Thereafter, the depositors and the other holders of our equity securities
(including the public shareholders) will participate on an equal, per share
basis in the remaining amount of the distribution.
The distribution may be on lesser terms and conditions if a majority of the
holders of our common stock that are not held by the depositors and our
officers and directors or their associates or affiliates approve.
A "distribution" means a distribution of our assets or securities to our
shareholders as a result of our dissolution, liquidation, merger,
consolidation or reorganization or the sale or exchange of our assets or
securities (including by way of tender offer), or any other transaction or
proceeding with a person other than the depositors. In the event a public
shareholder sells or otherwise disposes of the shares of common stock
purchased in the offering will cease to be entitled to the distribution
benefits of the escrow agreement.
The shares of common stock will remain subject to the escrow agreements
for a four-year period following the date of this prospectus. However, after
two years, 2.5% of the shares of common shares subject to the lock-in
agreement will be released and become available for transfer and resale.
UNDERWRITING
In consideration for the purchase of 1,000,000 shares of our common
stock by Barron Chase Securities, Inc., under the our underwriting agreement:
- - Barron Chase Securities purchases the 1,000,000 shares at $5.40 per share
or at 90% of the public offering price (the "underwriting discount").
- - We grant to Barron Chase Securities a 45 day-option to purchase up to
150,000 shares of our common stock for $5.40 each to cover over-allotments
in the sale of our common stock in this offering (the "over-allotment
option").
- - We agree to pay Barron Chase Securities a non-accountable expense allowance
of 3% of the gross proceeds of the offering of which we have paid $50,000.
- - We sell to Barron Chase Securities and/or persons related to Barron Chase
Securities, for nominal consideration, common stock underwriter warrants
(the "underwriter's warrants") exercisable for the purchase of 100,000
shares of our common stock for $9.00 each for a five-year period beginning
on date of this prospectus..
- - We register the underwriter's warrants and the common stock underlying the
underwriter warrants and maintain this registration at our expense for a
maximum period of seven years.
- - We engage Barron Chase Securities for $108,000 to advice us concerning
potential merger and acquisition and financing proposals.
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- - We pay Barron Chase Securities for services rendered in connection with
completed corporate transactions (only if introduced to us by Barron Chase
Securities during the next five years) a fee of
- 5% of up to $1 million of value paid or received in the transaction,
- 4% of the next $1 million of value,
- 3% of the next $1 million of value,
- 2% of the next $1 million of value, and
- 1% of the value in excess of $4 million.
- - We indemnify Barron Chase Securities against any costs or liabilities
incurred by it by reason of misstatements or omissions to state material
facts in connection with the offering.
- - Barron Chase Securities indemnifies us against any liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in this prospectus and the registration statement of which
this prospectus is a part, based on information relating to Barron Chase
Securities and furnished in writing by it.
- - For a seven-year period, we include the underwriter warrants or common
stock underlying these warrants in any amendment to the registration
statement of which this prospectus is a part or any new registration
statement filed with the United States Securities and Exchange Commission
at our expense.
Barron Chase Securities has advised or informed us that:
- - it proposes to offer the common stock to the public at the $6.00 offering
price through members of the National Association of Securities Dealers,
Inc. (the "NASD") who agree to sell the common shares in conformity with
the NASD Conduct Rules.
- - it may discretionarily allow a concession to selected NASD members, but not
in excess of the $.60 per share of the common stock sold.
- - it does not expect sales to discretionary customer accounts to exceed 5% of
the total number of shares of common stock offered under to the offering.
The initial public offering price or our common stock has been determined
by negotiation between us and Barron Chase Securities. Among the factors
considered in determining the public offering price were
- - the history of, and the prospects for, our business,
- - an assessment of our management,
- - our past and present operations and development, and
- - the general condition of the securities market.
The initial public offering price does not necessarily bear any
relationship to our assets, book value, earnings or other established
criterion of value. The price is subject to change as a result of market
conditions and other factors. We provide no assurance that
- - a public market for our common stock will develop after the close of the
offering, or
- - if a public market in fact develops, that the public market will be
sustained, or
- - that the shares of common stock you purchase under the offering can be
resold at any time at the offering or any other price.
Our common stock is offered by Barron Chase Securities subject to prior
sale, when, as and if delivered to and accepted by it. To facilitate the
offering of our common stock, Barron Chase Securities
- - may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock;
- - may over-allot in connection with the offering, creating a short position
in our common stock for its own account;
- - may also bid for, and purchase, shares of our common stock in the open
market to cover over-allotments or to stabilize the price of our common
stock;
- - may reclaim selling concessions allowed to a dealer for distributing our
common stock in the offering, if Barron Chase Securities repurchases
previously distributed common stock in transactions to cover its short
position, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the our
common stock above independent market levels. Barron Chase Securities is not
required to engage in these activities, and may end
-39-
<PAGE>
any of these activities at any time.
To the extent that the indemnification provisions of our underwriting
agreement with Barron Chase Securities purports to provide exculpation from
possible liabilities arising from the federal securities laws, in the opinion
of the Securities and Exchange Commission, these indemnification provisions
are contrary to public policy and therefore unenforceable.
The underwriter's warrants provide the following:
- - although the warrants have been registered under the registration statement
of which this prospectus is a part, the warrants may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for one year from the date of this prospectus, except to
- officers of Barron Chase Securities or members of the selling group
and officers and partners thereof,
- by will, or
- by operation of law; and
- - the warrants are appropriately adjustment in the event of any merger,
consolidation, recapitalization, reclassification, stock dividend, stock
split or similar transaction.
The warrants may be exercised using shares of common stock to be received
upon exercise for payment of the exercise price of the warrants. This type of
exercise is referred to as a cashless exercise or net issuance exercise. This
type of exercise has the effect of requiring us to issue shares of our common
stock without a corresponding increase in capital. A net exercise of the
underwriter's warrants will have the same dilutive effect on our
shareholders' interests as will a cash exercise. The underwriter's warrants
and the securities issuable upon their exercise may not be offered for sale
except in compliance with the applicable provisions of federal securities
laws.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each agreement which is filed as exhibits to the registration
statement. See "Where You Can Find Additional Information."
LEGAL MATTERS
The validity of issuance of the shares of the common stock offered
hereby will be passed upon for us by our counsel, Dunn Swan & Cunningham, A
Professional Corporation, of Oklahoma City, Oklahoma. Legal matters related
to Barron Chase Securities will be passed upon for Barron Chase Securities by
David A. Carter, P.A., Boca Raton, Florida.
EXPERTS
The balance sheets as of December 31, 1998 and 1997, and the statements
of operations and accumulated deficit, stockholders' equity and cash flows
for each of the two years in the period ended December 31, 1998, included in
this prospectus, have been included herein in reliance on the report of
Murrell, Hall, McIntosh & Co., PLLP, independent public accountants, given on
authority of that firm as experts in accounting and auditing.
-40-
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2, of which this
Prospectus constitutes a part, with the Securities and Exchange Commission in
Washington, D.C. under the Securities Act of 1933, as amended, with respect
to the securities offered by this prospectus. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all of the
information included in the registration statement and in the exhibits
thereto. The statements contained in this prospectus as to the contents of
any contract or other document referenced herein are not necessarily
complete, and in each instance, if the contract or document was filed as an
exhibit, reference is hereby made to the copy of the contract or other
document filed as an exhibit to the registration statement and each statement
is qualified in all respects by the reference. The registration statement
(including the exhibits thereto) may be inspected at the office of the SEC,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004, and at
its regional offices at 7 World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the registration statement and the exhibits and schedules thereto
may be obtained from the SEC at these offices, upon payment of prescribed
rates. In addition, the registration statements as filed with the SEC through
its Electronic Data Gathering, Analysis and Retrieval (known as "EDGAR")
system are publicly available through the SEC's site on the World Wide Web on
the Internet, located at HTTP://WWW.SEC.GOV. We will provide without charge
to you, upon written or oral request, a copy of any information incorporated
by reference in this prospectus (excluding exhibits to information
incorporated by reference unless these exhibits are themselves specifically
incorporated by reference).
We have not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Following completion of the
offering, we will be subject to the informational reporting requirements of
the Securities Exchange Act as a "small business issuer" as defined under
Regulation S-B promulgated under the Securities Exchange Act. In accordance
with the Securities Exchange Act, we will file reports and other information
with the SEC, and these reports and other information can be inspected and
copied at, and copies of these materials can be obtained at prescribed rates
from, the Public Reference Section of the SEC in Washington, D.C. We will
distribute to our shareholders annual reports containing financial statements
audited by our independent public accountants and, upon request, quarterly
reports for the first three quarters of each fiscal year containing unaudited
consolidated financial information.
Any requests for copies of information, reports or other filings with
the SEC should be directed to Precis Smart Card Systems, Inc. at 11032 Quail
Creek Road, Suite 108, Oklahoma City, Oklahoma 731120, telephone: (405)
752-5550.
-41-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................................................ F-2
Balance Sheets as of December 31, 1998 and 1997, and as of September 30, 1999
and 1998 (Unaudited)................................................................................ F-3
Statements of Operations and Accumulated Deficit for the Years Ended
December 31, 1998 and 1997, for the Nine Months Ended September 30,
1999 and 1998 (Unaudited) and from Inception (April 1994) to
September 30, 1999 (Unaudited)...................................................................... F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1998
and 1997, and for the Nine Months Ended September 30, 1999 and 1998
(Unaudited) and from Inception (April 1994) to September 30, 1999
(Unaudited)......................................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997,
for the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
and from Inception (April 1994) to September 30, 1999 (Unaudited)................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
of Precis Smart Card Systems, Inc.
We have audited the accompanying consolidated balance sheets of Precis
Smart Card Systems, Inc. (an Oklahoma Corporation in the development stage) as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Precis Smart Card Systems,
Inc. as of December 31, 1998 and 1997, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered losses, has accumulated a
significant deficit, has negative working capital and is dependent on additional
borrowings and stock sales. These conditions raise substantial doubt about its
ability to continue as a going concern. Management=s plans regarding those
matters also are described in Note 8. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
MURRELL HALL MCINTOSH & CO., PLLP
Oklahoma City, Oklahoma
July 19, 1999
F-2
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------------
1998 1997 1999 1998
--------- --------- ---------- ---------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents............................. $ -- $ 1,706 $ 164,480 $ 104,830
Inventory............................................. 10,035 44,158 10,035 10,035
--------- --------- ---------- ---------
Total Current Assets.............................. 10,035 45,864 174,515 114,865
--------- --------- ---------- ---------
Property and Equipment:
Office Equipment...................................... 48,219 48,219 48,219 48,219
Computer Equipment.................................... 263,499 256,178 270,648 267,194
Furniture and Fixtures................................ 6,890 6,674 7,736 6,890
--------- --------- ---------- ---------
318,608 311,071 326,603 322,303
Less Accumulated Depreciation......................... (254,390) (150,796) (318,608) (228,400)
--------- --------- ---------- ---------
64,218 160,275 7,995 93,903
--------- --------- ---------- ---------
Deferred Offering Costs................................... -- -- 81,132 --
--------- --------- ---------- ---------
Total Assets $ 74,253 $ 206,139 $ 263,642 $ 208,768
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Book Overdraft........................................ $ 27,513 $ -- $ -- $ --
Accounts Payable...................................... 265,012 186,933 425,838 270,283
Accrued Liabilities................................... 46,110 11,250 94,835 4,869
Mezzanine Debt - Related Party........................ 103,000 25,000 329,643 100,000
Current Portion of Capital Leases..................... 48,319 32,649 58,576 59,758
Current Portion of Long-Term Debt..................... 277,522 341,220 277,522 277,522
--------- --------- ---------- ---------
Total Current Liabilities......................... 767,476 597,052 1,186,414 712,432
--------- --------- ---------- ---------
Long-Term Liabilities:
Capital Leases, Net of Current Portion................ 41,570 89,889 -- 40,463
Long-Term Debt, Net of Current Portion............... -- 183,780 -- --
--------- --------- ---------- ---------
Total Long-Term Liabilities....................... 41,570 273,669 -- 40,463
--------- --------- ---------- ---------
Total Liabilities................................. 809,046 870,721 1,186,414 752,895
--------- --------- ---------- ---------
Stockholders' Deficit:
Preferred Stock, $.01 Par Value, 2,000,000 Shares
Authorized; No shares Issued and Outstanding at
December 31, 1998 and 1997........................ -- -- -- 4,968
Common Stock, $.01 Par Value, 8,000,000 Shares
Authorized; 900,000 and 2,040,350 Issued and
Outstanding at December 31, 1998 and 1997,
Respectively; 1,200,000 Issued and Outstanding at
September 30, 1999 (Unaudited).................... 9,000 20,404 12,000 20,429
Additional Paid-In Capital............................ 2,226,451 1,613,928 2,701,070 2,210,054
Deficit Accumulated During Development Stage.......... (2,970,244) (2,298,914) (3,635,842) (2,779,578)
--------- --------- ---------- ---------
Total Stockholders' Deficit....................... (734,793) (664,582) (922,722) (544,127)
--------- --------- ---------- ---------
Total Liabilities and Stockholders' Deficit............... $ 74,253 $ 206,139 $ 263,642 $ 208,768
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-3
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
INCEPTION
FOR THE YEAR ENDED FOR THE NINE MONTHS (APRIL 1994)
DECEMBER 31, ENDED SEPTEMBER 30, TO
------------------------ ------------------------ SEPTEMBER 30,
1998 1997 1999 1998 1999
---------- ----------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Product and Service Revenues.............. $ 322,483 $ 40,856 $ 48,513 $ 295,716 $ 428,479
---------- ----------- ---------- ---------- -----------
Operating Expenses:
Product Deployment and Research
and Development................... 389,586 542,203 188,135 476,666 1,572,311
Sales and Marketing................... 147,411 148,885 131,819 127,564 587,481
General and Administrative............ 399,756 472,320 340,870 155,133 1,675,070
---------- ----------- ---------- ---------- -----------
Total Expenses.................... 936,753 1,163,408 660,824 759,363 3,834,862
---------- ----------- ---------- ---------- -----------
Operating Loss............................ (614,270) (1,122,552) (612,311) (463,647) (3,406,383)
---------- ----------- ---------- ---------- -----------
Other Expense (Income):
Interest Expense...................... 59,196 29,890 53,287 18,381 233,878
Interest Income....................... (2,136) (2,282) -- (1,364) (4,419)
---------- ----------- ---------- ---------- -----------
57,060 27,608 53,287 17,017 229,459
---------- ----------- ---------- ---------- -----------
Net Loss - Deficit Accumulated During
Development Stage..................... $ (671,330) $(1,150,160) $ (665,598) $ (480,664) $(3,635,842)
========== =========== ========== ========== ===========
Net Loss per Share........................ $ (0.56) $ (0.96) $ (0.55) $ (0.40) $ (3.03)
========== =========== ========== ========== ===========
Weighted Average Number of
Common Shares Outstanding............. 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000
========== =========== ========== ========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-4
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- ------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, Inception (April 1994)..... -- $ -- -- $ -- $ -- $ --
Sale of Stock (unaudited)........... 1,230,000 12,300 -- -- 693,831 --
Net Loss (unaudited)................ -- -- -- -- -- (417,348)
---------- -------- ------ ------- ---------- -----------
Balance, December 31, 1994
(unaudited)..................... 1,230,000 12,300 -- -- 693,831 (417,348)
Sale of Stock (unaudited)........... 525,000 5,250 -- -- 352,250 --
Net Loss (unaudited)................ -- -- -- -- -- (333,017)
---------- -------- ------ ------- ---------- -----------
Balance, December 31, 1995
(unaudited)..................... 1,755,000 17,550 -- -- 1,046,081 (750,365)
Sale of Stock (unaudited)........... 122,600 1,226 -- -- 243,974 --
Net Loss (unaudited)................ -- -- -- -- -- (398,389)
---------- -------- ------ ------- ---------- -----------
Balance, December 31, 1996.......... 1,877,600 $ 18,776 -- $ -- $1,290,055 $(1,148,754)
Sale of Stock....................... 162,750 1,628 -- -- 323,873 --
Net Loss............................ -- -- -- -- -- (1,150,160)
---------- -------- ------ ------- ---------- -----------
Balance, December 31,1997........... 2,040,350 20,404 -- -- $1,613,928 (2,298,914)
Sale of Stock....................... 2,500 25 4,968 4,968 596,127 --
Conversion of Preferred Stock....... 298,060 2,980 (4,968) (4,968) 1,987 --
Reverse Stock Split................. (1,440,910) (14,409) -- -- 14,409 --
Net Loss............................ -- -- -- -- -- (671,330)
---------- -------- ------ ------- ---------- -----------
Balance, December 31, 1998.......... 900,000 9,000 -- -- 2,226,451 (2,970,244)
Sale of Stock (unaudited)........... 300,000 3,000 -- -- 512,425 --
Offering Costs (unaudited).......... -- -- -- -- (37,806) --
Net Loss (unaudited)................ -- -- -- -- -- (665,598)
---------- -------- ------ ------- ---------- -----------
Balance, September 30, 1999
(unaudited)..................... 1,200,000 $ 12,000 -- $ -- $2,701,070 $(3,635,842)
========== ======== ====== ======= ========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-5
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE INCEPTION
FOR THE YEAR ENDED NINE MONTHS ENDED (APRIL 1994)
DECEMBER 31, SEPTEMBER 30, TO
-------------------------- ------------------------ SEPTEMBER 30,
1998 1997 1999 1998 1999
---------- ------------ ----------- ---------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss.................................... $(671,330) $(1,150,160) $(665,598) $(480,664) $(3,635,842)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operations:
Depreciation............................ 103,594 75,502 64,059 73,909 318,608
(Increase) Decrease -
Inventory............................. 34,123 (9,731) -- 34,123 (10,035)
Other Assets.......................... -- 126,419 -- -- --
Increase (Decrease) -
Accounts Payable.................... 78,080 141,625 160,826 83,349 425,838
Accrued Liabilities................. 34,859 (3,544) 48,725 (6,381) 94,835
--------- ----------- --------- --------- -----------
Net Cash Used by Operating
Activities...................... (420,674) (819,889) (391,988) (295,664) (2,806,596)
--------- ----------- --------- --------- -----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment.......... (7,537) (76,322) (7,836) (7,537) (326,603)
--------- ----------- --------- --------- -----------
Net Cash Used by Investing
Activities...................... (7,537) (76,322) (7,836) (7,537) (326,603)
--------- ----------- --------- --------- -----------
Cash Flows from Financing Activities:
Sale of Stock............................... 601,119 325,501 396,487 601,120 2,631,938
Book Overdraft.............................. 27,513 -- (27,513) -- --
Payments on Long-Term Debt.................. (280,127) (7,571) (31,313) (269,795) (745,759)
Proceeds from Long-Term Debt................ -- 525,000 -- -- 1,081,857
Proceeds from Short-Term Debt............... 78,000 25,000 226,643 75,000 329,643
--------- ----------- --------- --------- -----------
Net Cash Provided by Financing
Activities...................... 426,505 867,930 564,304 406,325 3,297,679
--------- ----------- --------- --------- -----------
Net Increase (Decrease) in Cash............... (1,706) (28,281) 164,480 103,124 164,480
Cash at Beginning of Period................... 1,706 29,987 -- 1,706 --
--------- ----------- --------- --------- -----------
Cash at End of Period......................... $ -- $ 1,706 $ 164,480 $ 104,830 $ 164,480
========= =========== ========= ========= ===========
Supplemental Disclosure:
Interest Paid................................. $ 25,884 $ 29,890
========= ===========
Property and Equipment Purchased with Debt.... $ -- $ 128,497
========= ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-6
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(SEPTEMBER 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
Note 1 - Nature of Business
Precis Smart Card Systems, Inc. (the "Company") is a development stage
company. The Company develops and markets commercial software products used with
a technology referred to as "smart cards". The smart card contains an embedded
integrated circuit or microchip that serves as a programmable storage device
that performs limited computer functions. The Company's products include the
Precis Health Card System-TM-, a healthcare smart card system; PrecisCache-TM-,
a fixed-value smart card system; PrecisReserve-TM-, a reloadable stored-value
smart card system; and PrecisPersona-TM-, a smart card based customer loyalty
and rewards system.
Note 2 - Summary of Significant Accounting Policies
INTERIM FINANCIAL STATEMENTS - The financial statements as of September
30, 1999 and 1998, and for the nine months then ended and the inception (April
1994) to September 30, 1999 are unaudited and, in the opinion of management,
reflect all adjustments that are necessary for a fair presentation of the
financial position as of the date and the results of operations and cash flows
for the periods then ended. All of these adjustments are of a normal and
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The results of operations for the nine
months ended September 30, 1999, and 1998 are not necessarily indicative of the
results that may be expected for the entire years ending December 31, 1999, and
1998.
DEVELOPMENT STAGE OPERATIONS - Precis is a development stage enterprise
engaging in developing and marketing "smart card" technology. The Company has
yet to generate any significant revenue from smart card sales and has no
assurance of future revenues from sales. The Company plans to spend significant
amounts on the development and marketing of its products. These costs require
the Company to raise additional capital through debt or equity financing. Such
additional financing may require the encumbrance of Company assets or agreements
with other parties where some of the costs of development are paid by others in
exchange for an interest in the product or Company.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management of
the Company to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
PROPERTY AND EQUIPMENT - Property and Equipment are carried at cost,
less accumulated depreciation. Depreciation is calculated using the
straight-line method based on useful lives of three to seven years.
INVENTORY - The Company has recorded its inventory held for resale at
its estimated value which is less than its actual cost.
NET LOSS PER SHARE - Net loss per share is calculated based on the
weighted average number of common, and dilutive, common equivalent shares
outstanding. There were no material differences between primary and fully
diluted earnings per share for the periods presented. The computation of net
loss per share gives retroactive effect for all periods presented to reflect the
1998 reverse stock split and nominal issuances of stock sold in contemplation of
a public offering (discussed in Notes 5 and 8).
CONCENTRATION OF CREDIT RISK - The Company maintains its cash in bank
deposit accounts which, at times, may exceed federal insured limits. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant risk.
F-7
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
Note 2 - Summary of Significant Accounting Policies (continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS - The recorded amounts of cash,
inventory, accounts payable, and accrued liabilities approximate fair value
because of the short-term maturity of these items.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company accounts for the impairment
and disposition of ling-lived assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets to be Disposed of" (FAS
121). In accordance with FAS 121, long-lived assets to be held are reviewed for
events or changes in circumstances which indicate that their carrying value may
not be recoverable. As of December 31, 1998, no impairment has been indicated.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist primarily of
cash on deposit or cash investments purchased with original maturities of three
months or less.
REVENUE RECOGNITION - The Company recognizes revenues as the services or
products are provided. Amounts billed and received prior to services or products
being performed or provided are included in deferred revenues.
Note 3 - Debt
Long-term debt consists of unsecured project notes bearing interest at 10%,
due to various investors. Interest only was due and payable beginning September
1, 1997 through December 1, 1997. Amortization of the notes began January 1,
1998. The final payment is due in 1999. The Company is in default on these notes
due to failure to make the required payments. The holders have the right to
declare the notes immediately due and payable. As such the entire balance on
these notes has been classified as current.
The mezzanine debt is unsecured and due to two shareholders, one of
which is Chairman of the Board of Directors. Interest on the mezzanine debt
due the Chairman was 25% per annum through September 30,1998, and 15% per
annum thereafter. The remaining mezzanine debt bears interest at 25% per
annum. All mezzanine debt carried maturity dates as of the later of June 30,
1999, or 30 days after the Company's planned initial public offering
(discussed in Note 9). In the event the debt is not repaid by maturity, all
notes will bear interest at the rate of 30% per annum thereafter.
Note 4 - Adoption of New Accounting Standard
The Company has adopted Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities", issued by the American Institute of Certified Public
Accountants. This statement requires that the costs of start-up activities and
organization costs, as defined, be expensed as incurred.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION ("SOP 97-2"). SOP 97-2 focuses on when and
the amount of revenue that should be recognized for licensing, selling, leasing
or otherwise marketing computer software and is effective for transactions enter
into in fiscal years beginning after December 15, 1997. In March 1998, the
Accounting Standards Executive Committee issued Statement of Position 98-4,
DEFERRAL OF THE EFFECTIVE DATE OF PROVISION OF SOP 97-2, MODIFICATION OF SOP
97-2, SOFTWARE REVENUE RECOGNITION ("SOP 98-4"). SOP 98-4 defers for one year
specific provision of SOP 97-2. In December 1998, the Accounting Standards
Executive Committee issued Position 98-9, Modification of SOP 97-2, SOFTWARE
REVENUE RECOGNITION, with respect to Certain Transactions ("SOP 98-9"). SOP 98-9
also amended specific provisions of SOP 98-4 through fiscal years beginning on
or before March 15, 1999. Management believes that the adoption of SOP 97-2, as
amended, will not have a material effect on the financial position and results
of operations.
Note 5 - Capital Structure and Stock Options
Pursuant to its Certificate of Incorporation, the Company is authorized
to issue up to 10,000,000 shares of capital stock, consisting of 8,000,000
shares of Common Stock, $.01 par value per share (the "Common Stock"), and
F-8
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
2,000,000 shares of preferred stock, $1.00 par value per share (the "Preferred
Stock").
COMMON STOCK - The Company was operated historically (from
approximately April 1994 through June 1996) as a limited partnership (the "LP").
Effective July 1, 1996, the entire business of the LP was merged into the
Company (the "Merger"). The Company issued shares of common stock to the
partners of the LP in consideration of the Merger, thus, the partners of the LP
became the shareholders of the Company. The merger was accounted for as a
"pooling-of-interest." The Company conducted a private placement of common stock
during 1997, during which it issued and subscribed shares of common stock. Such
shares were issued and subscribed at $2.00 per share.
PREFERRED STOCK - During 1998, the Company conducted a private
placement of convertible redeemable, "putable" preferred stock. During this
period, the Company sold 4,967.67 shares of $120.00 face value, no coupon
preferred stock, generating total capital of $596,120. The total capital of
$596,120 was comprised of $406,080 in cash and $196,040 in conversions of
Project Notes. During 1998, and in accordance with their conversion rights, the
preferred shareholders elected to convert their preferred shares into 298,060
shares of common stock ( a conversion ratio of 1 preferred share for 60 shares
of common).
RESTRUCTURING PLAN - As a result of the conversion of the outstanding
preferred shares to common shares, the Company had 2,340,910 shares of common
stock outstanding on October 29, 1998. On October 30, 1998, the Company affected
a reverse split of the common stock such that immediately after the reverse
split there were 900,000 shares of common stock outstanding.
COMMON STOCK OPTIONS - Also, as part of the restructuring plan, the
Company obtained releases from its directors and Project Note holders that
cancelled all common stock options held by directors and Project Note holders.
After the reverse split discussed above and as of December 31, 1998, the Company
had the following common stock options outstanding to certain employees and
ongoing service providers:
<TABLE>
<CAPTION>
Exercise Expiration Vesting
Quantity Price Date Status
-------- -------- ---------- -------
<S> <C> <C> <C>
86,471 $5.22 2006 - 2008 Vested
</TABLE>
The Company also has agreed to issue 122,031 of future stock options
after the Company reaches certain annual earnings levels. These future options
will have an exercise price based on current fair market value at the date the
earnings levels are met. These options expire 10 years from the date granted.
It is expected that the Company will make future stock option grants to
its employees pursuant to the Company's stock option plan established in January
1999. The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no
compensation expense is recognized when the exercise price of stock options
equals the market price of the underlying stock on the date of the grant.
F-9
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
Note 5 - Capital Structure and Stock Options (continued)
If the Company had elected to recognize compensation based on the fair
value of the options granted at the grant date as prescribed by "Statement of
Financial Accounting Standards No. 123, (SFAS 123) Accounting for Stock-Based
Compensation", net loss and net loss per share would have increased to the pro
forma amounts shown below for the years ending December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ------------
<S> <C> <C>
Pro Forma Net Loss.................................. $ (787,608) $ (1,359,878)
Pro Forma Net Loss Per Share........................ $ (0.87) $ (1.51)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants during the year ended December 31, 1998: weighted average risk free
interest rate of 5.50%; no dividend yield; volatility of 40%; and expected life
less than six years. Consequently, the underlying common shares had no historic
volatility prior to October 13, 1998. The fair values of the options granted
prior to October 13, 1998 were based on the difference between the present value
of the exercise price of the option and the estimated fair value price of the
common share.
The intent of the Black-Scholes option valuation model is to provide
estimates of fair values of traded options that have no vesting restrictions and
are fully transferable. Option valuation models require the use of highly
subjective assumptions including expected stock price volatility. The Company
has utilized the Black-Scholes method to produce the pro forma disclosures
required under SFAS 123. In management's opinion, existing valuation models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options because the Company's employee stock options have
significantly different characteristics from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate. The effects of applying SFAS 123 in this pro forma are not indicative
of future amounts.
Note 6 - Income Taxes
There was no current or deferred provision for income taxes for the
years ended December 31, 1998 or 1997. No current provision was required because
tax losses were incurred in those years. Deferred tax assets result from
differences in the basis of assets and liabilities for tax and financial
statement purposes. The tax effects of the net operating loss carry forwards and
the valuation allowance established are summarized below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Benefit of net operating loss carry forward......... $743,300 $488,100
Less: Valuation allowance........................... (743,300) (488,100)
-------- --------
Net deferred tax asset............................ $ -- $ --
======== ========
</TABLE>
The valuation allowance for deferred tax assets at January 1, 1996 was
$86,800. The net change in the valuation allowance for the years ended December
31, 1998 and 1997 were increases of $255,200 and $401,300 respectively. At
December 31, 1998 and 1997 the Company had federal and state net operating loss
carry forwards of approximately $1,860,0000 expiring at various dates through
2013. The Company's ability to use these losses to offset future taxable income
would be subject to limitations under the Internal Revenue Code.
F-10
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(SEPTEMBER 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
Note 7 - Year 2000 Risk
During recent years, there has been significant awareness raised regarding
the potential disruption of business operations worldwide resulting from the
inability of current technology to process properly the change in the year 1999
to 2000. Based on a review of the Company's data processing, operating systems,
software and other technology already in place, we do not currently believe the
Company will experience any significant adverse effects or material unbudgeted
costs resulting therefrom. Nevertheless, we cannot provide any assurance in this
regard, and any such costs or effects could materially and adversely affect the
Company's operations and financial condition.
Note 8 - Operations and Borrowings
As of December 31, 1998, the Company had negative working capital of
$757,411 and accumulated deficit of $2,970,244. During 1999, the Company
completed a private placement of common stock. An initial public offering is
also planned to raise capital necessary to continue development efforts.
Note 9 - Contingencies
The Company operates in leased facilities. Management expects that leases
currently in effect will be renewed or replaced with other leases of a similar
nature and term. Rent expense under operating leases was $23,408 and $19,304 for
the years ended December 31, 1998 and 1997, respectively.
Capital lease obligations consist of non-cancelable equipment leases
expiring through September, 2001. These leases are payable in monthly
installments, aggregating $4,632 including imputed interest at 10.67%. These
leases are secured by certain equipment. The following is a schedule of future
lease payments under capital leases:
YEAR ENDING DECEMBER 31,
------------------------
1999........................................ $55,589
2000........................................ 43,587
-------
Total minimum lease payments.......................... $99,176
Imputed interest...................................... (9,287)
-------
Capital lease obligation (including current portion
$48,319)...................................... $89,889
=======
There has been no market for the Company's common stock. In the event of an
initial public offering, the offering price would not necessarily bear any
relationship to the Company's assets, book value, earnings or other established
criterion of value. Management provides no assurance that a public market for
their common stock will develop after the close of any offering, or if a public
market in fact develops, that such public market will be sustained, or that the
shares of common stock purchased pursuant to the offering can be resold at any
time at the offering price or any other stock price.
If the Company's initial public offering is completed, the Company has
agreed to sell to the underwriter warrants exercisable for the purchase of
100,000 shares of common stock for $9.00 per share during a five-year period.
The holders of these warrants will have the right, for seven years following the
effective date of the initial public offering, to include such warrants and the
shares of common stock issuable upon their exercise (the Aregistrable
securities@) in any registration statement or amendment to a registration
statement of the Company at no expense to such holders. The Company also agreed
that, upon request by the holders of 50% or more of the underwriter's warrants
and registrable securities and expiring four years after the effective date of
the Company's initial public offering and under certain circumstances, the
Company will register the underwriter's warrants and the registrable securities.
F-11
<PAGE>
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF OUR COMMON STOCK ONLY IN THOSE JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THE OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,000,000 SHARES OF
COMMON STOCK
PRECIS SMART
CARD SYSTEMS, INC.
------------
PROSPECTUS
------------
BARRON CHASE
S E C U R I T I E S I N C
7700 W. Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boston, Massachusetts
Brooklyn, New York
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Edison, New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrouk Heights, New Jersey
La Jolla, California
New York, New York
Orlando, Florida
Sarasota, Florida
Tampa, Florida
West Boca Raton, Florida
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the Oklahoma General Corporation Act permits (and
Registrant's Certificate of Incorporation and Bylaws, which are incorporated by
reference herein, authorize) indemnification of directors and officers of
Registrant and officers and directors of another corporation, partnership, joint
venture, trust or other enterprise who serve at the request of Registrant,
against expenses, including attorneys fees, judgments, fines and amount paid in
settlement actually and reasonably incurred by such person in connection with
any action, suit or proceeding in which such person is a party by reason of such
person being or having been a director or officer of Registrant or at the
request of Registrant, if he conducted himself in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Registrant,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. Registrant may not indemnify an officer or
a director with respect to any claim, issue or matter as to which such officer
or director shall have been adjudged to be liable to Registrant, unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper. To
the extent that an officer or director is successful on the merits or otherwise
in defense on the merits or otherwise in defense of any action, suit or
proceeding with respect to which such person is entitled to indemnification, or
in defense of any claim, issue or matter therein, such person is entitled to be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection therewith.
The circumstances under which indemnification is granted with an action
brought on behalf of Registrant are generally the same as those set forth above;
however, expenses incurred by an officer or a director in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
final disposition upon receipt of an undertaking by or on behalf of such officer
or director to repay such amount if it is ultimately determined that such
officer or director is not entitled to indemnification by Registrant.
These provisions may be sufficiently broad to indemnify such persons
for liabilities arising under the Securities Act of 1933, as amended (the
"Act"), in which case such provision is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
S.E.C. Registration Fees.............................................................. $ 2,169
N.A.S.D. Filing Fees.................................................................. 1,232
*State Securities Laws Filing Fees..................................................... 15,000
*Printing and Engraving................................................................ 25,000
*Legal Fees............................................................................ 73,799
*Accounting Fees and Expenses.......................................................... 30,000
*Transfer Agent's Fees and Costs of Certificates....................................... 2,000
*Miscellaneous......................................................................... 1,000
--------
Total.............................................................................. $150,000
========
</TABLE>
- ----------------------------------------
*Estimated
II-I
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has sold and issued the securities described below pursuant
to and in accordance with Regulation D under the Securities Act of 1933, as
amended (the "Act") within the past three years which were not registered under
the Act:
<TABLE>
<CAPTION>
NUMBER OF
PURCHASE SHARES PURCHASED REGULATION
DATE OF PRICE PER ------------------------- D NET
NAME PURCHASE SHARE PREFERRED(1) COMMON(2) RULE PROCEEDS
- ---- -------- --------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Smith, William 9/12/97 $2.00 5,000 506 $10,000
Martin, David 9/12/97 2.00 1,250 506 2,500
Dalton, W. Edward 9/12/97 2.00 5,000 506 10,000
Bowers, John 9/23/97 2.00 2,500 506 5,000
Dalton, Anne 9/23/97 2.00 2,500 506 5,000
Smith, Larry 10/16/97 2.00 5,000 506 10,000
O'Dell, Richard 12/11/97 2.00 2,500 506 5,000
Cunningham, Dan 12/29/97 2.00 5,000 506 10,000
Huffmyer, Joe 1/7/98 2.00 22,500 506 45,000
LaRoche, Richard 1/14/98 120.00 300.00 505 36,000
Sherman, Nolan 1/14/98 120.00 416.67 505 50,000
Sherman, Nolan 1/14/98 120.00 .33 505 40
McClary, David 1/14/98 120.00 416.67 505 50,000
McClary, David 1/14/98 120.00 83.33 505 10,000
Webb, Kent 1/14/98 120.00 416.67 505 50,000
Hale, Ron and Rochelle 1/15/98 120.00 500.00 505 60,000
Liff, Adam 1/15/98 120.00 500.00 505 60,000
Liff, Daniel 1/15/98 120.00 500.00 505 60,000
Austin, John 1/15/98 120.00 250.00 505 30,000
Lynn, C. Stephen 1/15/98 120.00 834.00 505 100,080
Preston, Tom 3/31/98 120.00 250.00 505 30,000
Kelly, James 4/27/98 120.00 500.00 505 60,000
Milton, Walter J. or Margaret 4/1/99 2.00 5,000 506 10,000
Brunner, Dennis or Julie 4/1/99 2.00 5,000 506 10,000
Lestino, John R. 4/1/99 2.00 5,000 506 10,000
Maddux, Jerry 4/1/99 2.00 5,000 506 10,000
Garber, Martin D., Jr. 4/5/99 2.00 5,000 506 10,000
McNitt, Kelly J. 4/5/99 2.00 5,000 506 10,000
Thompson, Steven R. 4/12/99 2.00 5,000 506 10,000
Richards, John M., Jr. 4/12/99 2.00 5,000 506 10,000
Howell, Tom 4/14/99 2.00 5,000 506 10,000
Bell, Terry 4/14/99 2.00 5,000 506 10,000
Kelly Banking Services, Inc. 4/15/99 2.00 32,500 506 65,000
Warren H. Carey IRA 4/15/99 2.00 10,000 506 20,000
Richards, John M., III 4/16/99 2.00 5,000 506 10,000
Plender, Arlin 4/20/99 2.00 5,000 506 10,000
W. Garner & Co. 4/26/99 2.00 10,000 506 20,000
Frechette, Robert 4/28/99 2.00 10,000 506 20,000
Watson, Arch 4/28/99 2.00 5,000 506 10,000
Wimberley, Carl 4/30/99 2.00 5,000 506 10,000
Bird, Phillip 4/30/99 2.00 10,000 506 20,000
Benge, James 4/30/99 2.00 5,000 506 10,000
Lamance Family Trust (Cathy) 5/3/99 2.00 5,000 506 10,000
II-II
<PAGE>
<CAPTION>
NUMBER OF
PURCHASE SHARES PURCHASED REGULATION
DATE OF PRICE PER ------------------------- D NET
NAME PURCHASE SHARE PREFERRED(1) COMMON(2) RULE PROCEEDS
- ---- -------- --------- ------------ --------- ---------- --------
Lamance Family Trust 5/3/99 $2.00 10,000 506 20,000
Lamance Family Trust (Chris) 5/3/99 2.00 5,000 506 10,000
Morris, Walter 5/5/99 2.00 10,000 506 20,000
Fiserv Cor. Ser. Cus. For Roth 5/12/99 2.00 5,000 506 $10,000
IRA-J. Brown
Gronbach, Arthur 5/24/99 2.00 5,000 506 10,000
Hi-Tel Group, Inc. 5/25/99 2.00 15,000 506 30,000
Nowalsky, Leon 5/27/99 2.00 5,000 506 10,000
Lustigman, Andrew 6/2/99 2.00 5,000 506 10,000
Mathews & Associates, Inc. 6/7/99 2.00 5,000 506 10,000
Dumont, Gordon C. 6/7/99 2.00 2,500 506 5,000
Traffas, Francis C. 6/14/99 2.00 5,000 506 10,000
Eric Stein Revocable Trust 6/18/99 2.00 12,500 506 25,000
Hadde, Bill 6/25/99 2.00 10,000 506 20,000
Ozner, David 6/29/99 2.00 10,000 506 20,000
Mathers Associates 7/20/99 2.00 42,500 506 85,000
</TABLE>
- ------------------------
(1) Each share of preferred stock was converted into 60 shares of Registrant's
common stock pursuant to the conversion privilege of such preferred stock.
(2) Each 2.61 outstanding shares of common stock was reverse split one share of
common stock on October 29, 1998.
The shares of common stock sold during 1999 were sold with the
assistance of Barron Chase Securities, Inc. For its services, Registrant paid
Barron Chase Securities, Inc. aggregate sales commissions of $60,000 ($.20
per share) and a non-accountable expense allowance of $18,000 ($.06 per share).
Registrant relied on Rules 505 and 506 of Regulation D and Sections 3(b)
and 4(2) of the Act for exemption from the registration requirements of the
Act. Each purchaser Registrant's common and preferred stock was furnished
information concerning the operations of Registrant, and each had the
opportunity to verify the information supplied. Additionally, Registrant
obtained a signed representation from each of the above named persons in
connection with the offer of Registrant's common and preferred stock of his,
her or its intent to acquire such stock for the purpose of investment only,
and not with a view toward the subsequent distribution thereof; each of the
certificates representing Registrant's common and preferred stock was stamped
with a legend restricting transfer of the securities represented thereby, and
registrant issued stop transfer instructions to UMB Bank, N.A., the transfer
agent and registrant of Registrant's common stock, with respect to all
certificates representing the common stock of Registrant held by the
aforementioned shareholders of Registrant.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
1.1 Form of Underwriting Agreement between Barron Chase Securities, Inc.
and Registrant.*
1.2 Form of Selected Dealer Agreement between Barron Chase Securities,
Inc. and selected dealers.*
3.1 Registrant's Certificate of Incorporation.*
3.2 Registrant's Bylaws.*
4.1 Form of Certificate of Common Stock of Registrant.*
4.2 Form of Underwriter's Warrant and Warrant Certificate.*
II-III
<PAGE>
4.3 Form of Promotional Shares Lock-In Agreement among Kent H. Webb, Larry
E. Howell, Donald A. Cunningham, Michael R. Morrisett and Registrant.
5.1 Opinion of Dunn Swan & Cunningham, A Professional Corporation, counsel
to Registrant, regarding legality of the securities covered by this
Registration Statement.
10.1 Precis Smart Card, Inc. 1999 Stock Option Plan (amended and restated).
10.2 Form of Financial Advisor Agreement.*
10.3 Form of Merger and Acquisition Agreement between Barron Chase
Securities, Inc. and Registrant*.
10.4 Master Equipment Purchase and Maintenance Agreement, dated June 29,
1999, between NationsBanc Services, Inc. and Registrant.*
10.5 Smart Card Agreement, dated July 8, 1999, between Entertainment Smart
Systems, Inc. and Registrant.*
10.6 The unexecuted form of Advertising Agreement between Registrant and
Bank of Oklahoma, N.A.
10.7 Independent Contractor Agreement, dated April 5,1997, between Downtown
Fort Worth, Inc. and Registrant.
10.8 Contract Proposal for Sahalee Country Club Clubhouse Script Cash Card,
Order Number: 80th, dated May 6, 1998, between Anything's Possible!
and Sahalee Country Club.
10.9 The unexecuted draft form of Smart Card System Agreement to be entered
into between Registrant and Chicago White Sox, Ltd.
10.10 The unexecuted draft form of the Agreement between Tangent
Associates, Inc. and Registrant.
10.11 VeriFone VeriSmart Application Developer's Kit License Agreement
between VeriFone, Inc. and Registrant, dated January 27, 1999.
23.1 Consent of Independent Public Accountants, dated December 3, 1999.
23.2 Consent of Dunn Swan & Cunningham, A Professional Corporation, dated
December 3, 1999.
27 Financial Data Schedule.*
</TABLE>
- ------------------------
* Previously furnished.
** To be furnished by amendment.
ITEM 28. UNDERTAKINGS
(a) RULE 415 OFFERING.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to:
II-IV
<PAGE>
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of
the end of the offering.
(d) EQUITY OFFERINGS OF NONREPORTING SMALL BUSINESS ISSUERS.
The Registrant will provide to the underwriter at the
closing specified in the underwriting agreement the certificates in
such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(e) REQUEST FOR ACCELERATION OF EFFECTIVE DATE.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to
directors, officers and controlling persons of Registrant pursuant to
the foregoing provisions, or otherwise, Registrant 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.
In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred
or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(f) RELIANCE ON RULE 430A.
Registrant hereby undertakes that it will (i) for
determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by Registrant under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as a part of
this Registration Statement as of the time the Commission declared
it effective, and (ii) for determining any liability under the
Securities Act, treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that offering
of the securities at that time as the initial bona fide offering of
those securities.
II-V
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and authorized this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned in the City
of Oklahoma City, State of Oklahoma, on the 6th day of December, 1999.
PRECIS SMART CARD SYSTEMS, INC.
(Registrant)
By: /s/ LARRY E. HOWELL
----------------------------------------------
Larry E. Howell, Chief Executive Officer
By: /s/ MARK R. KIDD
----------------------------------------------
Mark R. Kidd, Chief Financial Officer and
Controller and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Larry E. Howell his true and
lawful attorney-in-fact and agent, with all power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto,
and other documents in connection therewith with the Securities and Exchange
Commission, granting unto same attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENT H. WEBB Chairman of the Board December 6, 1999
- ----------------------------
Kent H. Webb
/s/ LARRY E. HOWELL Chief Executive Officer December 6, 1999
- ---------------------------- and Director
Larry E. Howell
/s/ DONALD A. CUNNINGHAM President, Chief Operating December 6, 1999
- ---------------------------- Officer and Director
Donald (Dan) A. Cunningham
/s/ MARK R. KIDD Chief Financial Officer and December 6, 1999
- ---------------------------- Controller, Secretary
Mark R. Kidd
/s/ LYLE W. MILLER Director December 6, 1999
- ----------------------------
Lyle W. Miller
/s/ MICHAEL E. DUNN Director December 6, 1999
- ----------------------------
Michael E. Dunn
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement between Barron Chase Securities, Inc.
and Registrant*
1.2 Selected Dealer Agreement between Barron Chase Securities, Inc. and
selected dealers*
3.1 Registrant's Certificate of Incorporation*
3.2 Registrant's Bylaws*
4.1 Form of Certificate of Common Stock of Registrant*
4.2 Form of Underwriter's Warrant and Warrant Certificate.*
4.3 Form of Promotional Shares Lock-In Agreement among Kent H. Webb, Larry
E. Howell, Donald A. Cunningham, Michael R. Morrisett and
Registrant.
5.1 Opinion of Dunn Swan & Cunningham, A Professional Corporation, counsel
to Registrant, regarding legality of the securities covered by this
Registration Statement.
10.1 Precis Smart Card, Inc. 1999 Stock Option Plan (Amended and
Restated).
10.2 Form of Financial Advisor Agreement*
10.3 Form of Merger and Acquisition Agreement between Barron Chase
Securities, Inc. and Registrant*
10.4 Master Equipment Purchase and Maintenance Agreement, dated June 29,
1999, between NationsBanc Services, Inc. and Registrant*
10.5 Smart Card Agreement, dated July 8, 1999, between Entertainment Smart
Systems, Inc. and Registrant*
10.6 The unexecuted form of Advertising Agreement between Registrant and
Bank of Oklahoma, N.A.
10.7 Independent Contractor Agreement, dated April 5,1997, between Downtown
Fort Worth, Inc. and Registrant.
10.8 Contract Proposal for Sahalee Country Club Clubhouse Script Cash Card,
Order Number: 80th, dated May 6, 1998, between Anything's Possible!
and Sahalee Country Club.
10.9 The unexecuted draft form of Smart Card System Agreement to be entered
into between Registrant and Chicago White Sox, Ltd.
10.10 The unexecuted draft form of the Agreement between Tangent Associates,
Inc. and Registrant.
<PAGE>
10.11 VeriFone VeriSmart Application Developer's Kit License Agreement
between VeriFone, Inc. and Registrant, dated January 27, 1999.
23.1 Consent of Independent Public Accountants, dated December 3, 1999
23.2 Consent of Dunn Swan & Cunningham, A Professional Corporation, dated
December 3, 1999.
27 Financial Data Schedule*
</TABLE>
- ------------------------------
* Previously furnished.
** To be furnished by amendment.
<PAGE>
EXHIBIT 4.3
PROMOTIONAL SHARES LOCK-IN AGREEMENT
(3) This Promotional Shares Lock-In Agreement (this "Agreement"), which was
entered into on the _ day of December, 1999, by and between Precis
Smart Card Systems, Inc. ("Issuer"), whose principal place of business
is located in Oklahoma, Kent W. Webb, Larry E. Howell, Donald A
Cunningham, and Michael R. Morrisett ("Security Holder") witnesses
that:
(1) Issuer has filed an application with the Securities
Administrator of the State of Oklahoma ("Administrator") to
register certain of its Equity Securities for sale to public
investors who are residents of the State of Oklahoma
("Registration");
(2) The Security Holder is the owner of the shares of common stock
or similar securities and/or possesses convertible securities,
warrants, options or rights which may be converted into, or
exercised to purchase shares of common stock or similar
securities of Issuer.
(3) As a condition to Registration, Issuer and Security Holder
("Signatories") agree to be bound by the terms of this
Agreement.
II THEREFORE, the Security Holder agrees not to sell, pledge, hypothecate,
assign, grant any option for the sale of, or otherwise transfer or
dispose of, whether or not for consideration, directly or indirectly,
PROMOTIONAL SHARES as defined in the North American Securities
Administrators Association ("NASAA") Statement of Policy on Corporate
Securities Definitions and all certificates representing stock
dividends, stock splits, recapitalizations, and the like, that are
granted to, or reserved by, the Security Holder while the PROMOTIONAL
SHARES are subject to this Agreement (the "Restricted Securities").
Beginning two years from the completion date of the public offering,
two and one-half percent (2 1/2%) of the Restricted Securities may be
released each quarter pro rata among the Security Holders. All
remaining Restricted Securities shall be released from escrow on the
anniversary of the fourth year from the completion date of the public
offering.
III THEREFORE, the Signatories agree and will cause the following:
A. In the event of a dissolution, liquidation, merger,
consolidation, reorganization, sale or exchange of Issuer's
assets or securities (including by way of tender offer), or
any other transaction or proceeding with a person who is not a
Promoter, which results in the distribution of Issuer's assets
or securities ("Distribution"), while this Agreement remains
in effect that:
1. All holder of Issuer's EQUITY SECURITIES will
initially share on a pro rata, per share basis in the
Distribution, in proportion to the amount of cash or
other consideration that they paid per share for
their EQUITY SECURITIES (provided that Administrator
has accepted the value of the other consideration),
until the shareholders who purchased Issuer's EQUITY
SECURITIES pursuant to the public offering ("Public
Shareholders") have received, or have had irrevocably
set aside fir them, an amount that is equal to one
hundred percent (100%) of the public offering's price
per share times the number of shares of EQUITY
SECURITIES that they purchased pursuant to the public
offering and which they still hold at the time of the
Distribution, adjusted for stock splits, stock
dividends, recapitalizations and the like; and
2. All holder of Issuer's EQUITY SECURITIES shall
thereafter participate on an equal, per share basis
time the number of shares of EQUITY SECURITIES they
hold at the time of the Distribution, adjusted for
stock splits, stock dividends, recapitalization and
the like.
<PAGE>
3. The Distribution may proceed on lesser terms and
conditions than the terms and conditions stated in
paragraphs 1 and 2 above if a majority of the EQUITY
SECURITIES THAT ARE NOT HELD BY SECURITY HOLDERS,
OFFICERS, DIRECTORS OR Promoters of Issuer, or their
associates vote, or consent by consent procedure, to
approve the lesser terms and conditions.
B. In the event of a dissolution, liquidation, merger,
consolidation, reorganization, sale or exchange of Issuer's
assets or securities (including the way of ten offer), or any
other transaction or proceeding with a person who is a
Promoter, which results in a Distribution while this Agreement
remains in effect, the Restricted Securities shall remain
subject to the terms of this Agreement.
C. Restricted Securities may be transferred by will, the laws of
descent and distribution, the operation of law, or by order of
any court of competent jurisdiction and proper venue.
D. Restricted Securities of a deceased Security Holder may be
hypothecated to pay the expenses of the deceased Security
Holder's estate. The hypothecated Restricted Securities shall
remain subject to the terms of this Agreement. Restricted
Securities may not be pledged to secure any other debt.
E. Restricted Securities may be transferred by gift to the
Security Holder's family members, provided the Restricted
Securities shall remain subject to the terms of this
Agreement.
F. With the exception of paragraph A.3 above, the Restricted
Securities shall have the same voting rights as similar EQUITY
SECURITIES not subject to the Agreement.
G. A notice shall be placed on the face of each stock certificate
of the Restricted Securities covered by the terms of the
Agreement stating that the transfer of the stock evidenced by
the certificate is restricted in accordance with the
conditions set forth on the reverse side of the certificate;
and
H. A typed legend shall be placed on the reverse side of each
stock certificate of the Restricted Securities representing
stock covered by this Agreement which stats that the sale or
transfer of the shares evidenced by the certificate is subject
to certain restrictions until December _ , 2003, pursuant to
an agreement between the Security Holder (whether beneficial
or of record) and the Issuer, which agreement is on file with
Issuer and the stock transfer agent from which a copy is
available upon request and without charge.
I. The terms of this Agreement shall begin on the date that the
Registration is declared effective by the Administrator (the
"Effective date") and shall terminate:
1. On the anniversary of the fourth year from the
completion date of the public offering; or
2. On the date the Registration has been terminated if
no securities were sold pursuant thereto; or
3. If the Registration has been terminated, the date
that checks representing all of the gross proceeds
that were derived therefrom and addressed to the
public investors have been placed in the U.S. Postal
Service with first class postage affixed; or
4. On the date the securities subject to this Agreement
become "Covered Securities," as defined under the
National Securities Markets Improvement Act of 1996.
J. This Agreement to be modified only with the written
approval of the Administrator.
2
<PAGE>
IV THEREFORE, Issuer will cause the following:
A. A manually signed copy of the Agreement signed by the
Signatories to be filed with the Administrator prior to the
Effective Date;
B. Copies of the Agreement and a statement of the per share
initial public offering price to be provided to the Issuer's
stock transfer agent;
C. Appropriate stock transfer orders to be placed with Issuer's
stock transfer agent against the sale or transfer of the
shares covered by this Agreement prior to its expiration,
except as may otherwise be provided in this Agreement;
D. The above stock restriction legends to be placed on the
periodic statement sent to the registered owner if the
securities subject to this Agreement are uncertified
securities.
Pursuant to the requirements of this Agreement, the Signatories have entered
into this Agreement, which may be written in multiple counterparts and each of
which shall be considered an original. The Signatories have signed this
Agreement in the capacities and on the dates, indicated.
IN WITNESS WHEREOF, the Signatories have executed this Agreement.
"Issuer" PRECIS SMART SYSTEMS, INC.
By:
---------------------------------
Larry E. Howell
Chief Executive Officer
"Security Holder"
---------------------------------
Kent H. Webb
---------------------------------
Larry E. Howell
---------------------------------
Donald A Cunningham
---------------------------------
Michael R. Morrisett
3
<PAGE>
EXHIBIT 5.1
DUNN SWAN & CUNNINGHAM
A PROFESSIONAL CORPORATION
ATTORNEYS AND COUNSELLORS AT LAW
2800 OKLAHOMA TOWER 405.235.8318
210 PARK AVENUE TELECOPY 405.235.9605
OKLAHOMA CITY, OKLAHOMA 73102-5604
November 28, 1999
Board of Directors
Precis Smart Card Systems, Inc.
11032 Quail Creek Road
Oklahoma City, Oklahoma 73120
Gentlemen:
Reference is made to your Registration Statement on Form SB-2 filed
with the United States Securities and Exchange Commission (the "Commission"), as
declared effective by the Commission (the "Registration Statement"), with
respect to the proposed initial issuance by the Company of 1,265,000 shares of
common stock, $.001 par value (the "Common Stock") and the Underwriter Warrants
to be issued to Barron Chase Securities, Inc. and its designees exercisable for
the purchase of 115,000 shares of Common Stock (the "Underlying Common Stock").
Based upon the Registration Statement (including the Prospectus
contained therein and the exhibits thereto), a certificate of the Secretary of
State of the State of Oklahoma, and the financial statements of the Company, we
are of the opinion that:
1. The Company is duly organized and existing under the laws
of the State of Oklahoma;
2. All of the issued and outstanding shares of the Common Stock
of the Company have been legally issued, are fully paid and
are not liable to further call or assessment;
3. The 1,000,000 shares of Common Stock proposed to be sold by
the Company to Barron Chase Securities, Inc. (the
"Underwriters") for sale to the public against payment
therefore in accordance with the Underwriting Agreement, will
be legally issued, fully paid and not liable for further call
or assessment;
4. In the event the Underwriter exercise its option to purchase
up to 150,000 additional shares of Common Stock from the
Company for sale to the public solely to cover over-allotments
with 45 days of the effective date of the Registration
Statement (the "Over-Allotment Option"), such shares of
Common Stock shall also be legally issued, fully paid and not
liable to further call or assessment against payment therefor
in accordance with the Underwriting Agreement; and
5. The Underwriter's Warrant Agreement is a binding obligation of
the Company and the 100,000 shares of Common Stock (115,000
shares of Common Stock in the event the Over-Allotment Options
is exercised in full) to be issued upon exercise of such
warrants shall be, upon receipt of the payment prescribed by
the terms of the Underwriter's
<PAGE>
DUNN SWAN & CUNNINGHAM
A PROFESSIONAL CORPORATION
ATTORNEYS AND COUNSELLORS AT LAW
Board of Directors
Precis Smart Card Systems, Inc.
November 28, 1999
Page 2
Warrants from the holders thereof, shall also be legally
issued, fully paid and not liable for further call or
assessment.
In arriving at the foregoing opinion, we have relied, among other
things, upon the examination of the corporate records of the Company and
certificates of officers of the Company and of public officials. We hereby
consent to the use of this opinion in the Registration Statement and all
amendments thereto, and to the reference to our firm name under the caption
"Legal Matters" of the Prospectus which is included as a part of the
Registration Statement.
Very truly yours,
/S/DUNN SWAN & CUNNINGHAM
<PAGE>
EXHIBIT 10.1
PRECIS SMART CARD SYSTEMS, INC.
1999 STOCK OPTION PLAN
(AMENDED AND RESTATED NOVEMBER 29, 1999)
ARTICLE 1
GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the PRECIS SMART CARD SYSTEMS, INC. 1999
STOCK OPTION PLAN (this "Plan") shall be to attract, retain and motivate key
employees and independent contractors and consultants (the "Participants") of
Precis Smart Card Systems, Inc. (the "Company") and its subsidiaries, if any, by
way of granting (i) non-qualified stock options ("Stock Options"), (ii)
non-qualified stock options with stock appreciation rights attached ("Stock
Option SARs"), (iii) incentive stock options ("ISO Options") , and (iv) ISO
Options with stock appreciation rights attached ("ISO Option SARs"). For the
purpose of this Plan, Stock Option SARs and ISO Option SARs are sometimes
collectively herein called "SARs;" and Stock Options and ISO Options are
sometimes collectively herein called "Options." The ISO Options to be granted
under this Plan are intended to be qualified pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Stock Options to
be granted are intended to be "non-qualified stock options" as described in
Sections 83 and 421 of the Code. The failure of an ISO Option to qualify under
Section 422 of the Code shall not affect the rights of the holder of the ISO
Option, although the ISO Option shall be automatically converted to a Stock
Option, and under no circumstances shall the Company have any liability as a
result of such failure. Furthermore, under this Plan, the terms "parent" and
"subsidiary" shall have the same meaning as set forth in Subsections (e) and (f)
of Section 425 of the Code unless the context herein clearly indicates to the
contrary.
1.2 GENERAL. The terms and provisions of this Article I shall be
applicable to Stock Options, SARs and ISO Options unless the context herein
clearly indicates to the contrary.
1.3 ADMINISTRATION OF THIS PLAN. This Plan shall be administered by the
Board of Directors (the "Board") of the Company. The Board shall have the power
where consistent with the general purpose and intent of this Plan to (i) modify
the requirements of this Plan to conform with the law or to meet special
circumstances not anticipated or covered in this Plan, (ii) suspend or
discontinue this Plan, (iii) establish policies and (iv) adopt rules and
regulations and prescribe forms for carrying out the purposes and provisions of
this Plan including the form of any "stock option agreements" ("Stock Option
Agreements"). Unless otherwise provided in this Plan, the Board shall have the
authority to interpret and construe this Plan, and determine all questions
arising under this Plan and any agreement made pursuant to this Plan. Any
interpretation, decision or determination made by the Board shall be final,
binding and conclusive. A majority of the Board shall constitute a quorum, and
an act of the majority of the members present at any meeting at which a quorum
is present shall be the act of the Board.
1.4 SHARES SUBJECT TO THIS PLAN. Shares of stock ("Stock") covered by
Stock Options, SARs and ISO Options shall consist of 145,000 shares of the
Common Stock, $.01 par value, of the Company. Either authorized and unissued
shares or treasury shares may be delivered pursuant to this Plan. If any Option
for shares of Stock, granted to a Participant lapses, or is otherwise
terminated, the Board may grant Stock Options, SARs or ISO Options for such
shares of Stock to other Participants. However, neither Stock Options, SARs nor
ISO Options shall be granted again for shares of Stock which have been subject
to SARs which are surrendered in exchange for cash or shares of Stock issued
pursuant to the exercise of SARs as provided in Article II hereof.
1.5 PARTICIPATION IN THIS PLAN. The Board shall determine from time to
time those Participants who are to be granted Stock Options, SARs and ISO
Options and the number of shares of Stock covered thereby. Directors who are not
employees of the Company or of a subsidiary shall not be eligible to be granted
ISO Options under this Plan.
1
<PAGE>
1.6 DETERMINATION OF FAIR MARKET VALUE. As used in this Plan, "fair
market value" shall mean on any particular day (i) if the Stock is listed or
admitted for trading on any national securities exchange or the National Market
System of The Nasdaq Stock Market, Inc., the last sale price, or if no sale
occurred, the mean between the closing high bid and low asked quotations, for
such day of the Stock on the principal securities exchange on which shares of
Stock are listed, (ii) if Stock is not traded on any national securities
exchange but is quoted on The Nasdaq Stock Market, Inc. Automated Quotation
System or any similar system of automated dissemination of quotations or
securities prices in common use, the mean between the closing high bid and low
asked quotations for such day of the Stock on such system, (iii) if neither
clause (i) nor (ii) is applicable, the mean between the high bid and low asked
quotations for the Stock as reported by the National Daily Quotation Bureau,
Incorporated if at least two securities dealers have inserted both bid and asked
quotations for shares of the Stock on at least five (5) of the ten (10)
preceding days, (iv) in lieu of the above, if actual transactions in the shares
of Stock are reported on a consolidated transaction reporting system, the last
sale price of the shares of Stock on such system or, (v) if none of the
conditions set forth above is met, the fair market value of shares of Stock as
determined by the Board. Provided, for purposes of determining "fair market
value" of the Common Stock of the Company, such value shall be determined
without regard to any restriction other than a restriction which will never
lapse.
1.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number of
shares of Stock under Stock Options and ISO Options granted under this Plan, the
Option Price and the ISO Price and the total number of shares of Stock which may
be purchased by a Participant on exercise of a Stock Option and an ISO Option
shall be appropriately adjusted (including appropriate adjustment) by the Board
from time to time upon the occurrence, after the date hereof, of the following
events:
1.7.1 STOCK DIVIDENDS, FORWARD SPLITS AND REVERSE SPLITS. In
case the Company shall (i) pay a dividend in, or make a distribution
of, shares of its common stock or of capital stock convertible into
common stock on its outstanding common stock ("Stock Dividend"), (ii)
subdivide its outstanding shares of common stock into a greater number
of such shares ("Forward Split") or (iii) combine its outstanding
shares of common stock into a smaller number of such shares ("Reverse
Split"), the total number of shares of Stock (and, if applicable, the
capital stock convertible into common stock), the number of shares
Stock purchasable upon the exercise of each Option outstanding
immediately prior thereto shall be adjusted so that the holder of the
Option upon exercise shall be entitled to receive at the same aggregate
Option Price or the ISO Price the number of shares of Stock (and, if
applicable, the capital stock convertible into common stock) which such
holder would have owned or have been entitled to receive immediately
following the happening of any of the event described above had such
Option been exercised in full immediately prior to the happening of
such event. Any adjustment made pursuant to this Subsection shall, in
the case of a Stock Dividend, automatically become effective as of the
record date therefor and, in the case of a Forward Split or Reverse
Split, be made as of the effective date thereof. If, as a result of an
adjustment made pursuant to this Subsection, the holder of any Option
thereafter exercised shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board (whose
determination shall be conclusive and shall be evidenced by a Board
resolution) shall determine the allocation of the Option Price or the
ISO Price between or among shares of such classes of capital stock.
1.7.2 NON-ADJUSTMENT OF EXERCISE PRICE. In the event of any
adjustment of the total number of shares of Stock purchasable upon the
exercise of outstanding Options pursuant to Subsection 1.7.1, the
Option Price or the ISO Price of each such Option shall remain
unchanged, but the number of Shares (and, if applicable, the capital
stock convertible into common stock) purchasable upon exercise of each
such Option shall be adjusted as provided in Subsection 1.7.1.
1.7.3 REORGANIZATION OR RECLASSIFICATION. In the event of a
capital reorganization or a reclassification of the common stock
(except as provided in Subsection 1.7.1 or Subsection 1.7.5), the
holder of Options, upon exercise thereof, shall be entitled to receive,
in lieu of the Stock to which the holder would have become entitled
upon exercise immediately prior to such reorganization or
reclassification, the Stock (of
2
<PAGE>
any class or classes) or other securities or property of the Company
(or cash) that the holder would have been entitled to receive at the
same aggregate Option Price or the ISO Price upon such reorganization
or reclassification if the Options held had been exercised immediately
prior thereto; and in any such case, appropriate provision (as
determined by the Board, whose determination shall be conclusive and
shall be evidenced by a Board resolution) shall be made for the
application of this Section 1.7 with respect to the rights and
interests thereafter of the holders of outstanding Options (including,
but not limited to, the allocation of the Option Price or the ISO Price
between or among shares of classes of capital stock), to the end that
this Section 1.7 (including the adjustments of the number of shares of
Stock or other securities purchasable) shall thereafter be reflected,
as nearly as reasonably practicable, in all subsequent exercises of the
Options for any Stock or securities or other property (or cash)
thereafter deliverable upon the exercise of the Options.
1.7.4 NOTIFICATION OF OPTION HOLDERS. Whenever the number of
shares of Stock or other securities purchasable upon exercise of an
Option is adjusted as provided in this Section 1.7, the Company will
promptly provide the holders of outstanding Options a letter or
certificate signed by the Chairman of the Board, Chief Executive
Officer or the President, or a Vice President of the Company and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth (i) the number and kind of
shares purchasable, as so adjusted, (ii) stating that such adjustments
in the number shares of Stock or kind of shares or other securities
conform to the requirements of this Section 1.7, and (iii) setting
forth a brief statement of the facts accounting for such adjustments.
Such letters or certificates shall be conclusive evidence of the
correctness of such adjustments. Such letters or certificates will be
promptly delivered, by first-class, postage prepaid mail, to the
registered holders of the outstanding Certificates; provided, however,
that failure to deliver such letters or certificates required under
this Subsection, or any defect therein, shall not affect the legality
or validity of any such adjustments under this Section 1.7.
1.7.5 CONSOLIDATION OR MERGER. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the
outstanding Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, the corporation formed by such
consolidation or merger or the corporation which shall have acquired
such assets, as the case may be, shall execute and deliver to each
holder of outstanding Options a supplemental agreement providing that
the holder of each Option then outstanding shall have the right
thereafter (until the expiration of such Options) to receive, upon
exercise of such Options, solely the kind and amount of shares of stock
and other securities and property (or cash) receivable upon such
consolidation, merger, sale or transfer by a holder of the number of
shares of Stock of the Company for which such Options might have been
exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section 1.7. The above provision of this
Subsection 1.7.5 shall similarly apply to successive consolidations,
mergers, sales or transfers.
1.7.6 EFFECTIVE UPON STOCK OPTION AGREEMENTS. Irrespective of
any adjustments in the number or kind of shares issuable upon exercise
of the Options, the Stock Option Agreement theretofore or thereafter
issued may continue to express the same price and number and kind of
shares as are stated in the similar Stock Option Agreements initially
issuable pursuant to this Plan.
1.7.7 RETAIN INDEPENDENT PUBLIC ACCOUNTANTS. The Company may
retain a firm of independent public accountants of recognized standing,
which may be the firm regularly retained by the Company, selected by
the Board to make any computation required under this Section 1.7, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 1.7.
1.7.8 DEFINITION OF STOCK. For the purpose of this Section
1.7, the term "Stock" shall mean (i) the class of stock designated as
common stock in the Certificate of Incorporation of the Company, as
amended,
3
<PAGE>
at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such common
stock consisting solely of changes in par value, or from par value to
no par value, or from no par value to par value. In the event that at
any time as a result of an adjustment made pursuant to this Section
1.7, the holder of any Options thereafter exercised shall become
entitled to receive any shares of capital stock of the Company other
than shares of Stock, thereafter the number of such other shares so
receivable upon exercise of any Options 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 Stock contained in
this Section 1.7, and all other provisions of this Plan, with respect
to the Stock, shall apply on like terms to any such other shares.
1.8 AMENDMENT AND TERMINATION OF THIS PLAN. This Plan shall terminate
at midnight, December 31, 2009, but prior thereto may be altered, changed,
modified, amended or terminated by written amendment approved by the Board.
Provided, that no action of the Board may, without the approval of the
shareholders of the Company, increase the aggregate number of shares of Stock
which may be purchased under Stock Options, SARs or ISO Options granted under
this Plan; withdraw the administration of this Plan from the Board; amend or
alter the Option Price or ISO Price, as applicable; change the manner of
computing the spread upon the exercise of a SAR or amend this Plan in any manner
which would impair the applicability of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, to this Plan. Except as provided in this Article I, no
amendment, modification or termination of this Plan shall in any manner
adversely affect any Stock Option, SAR or ISO Option theretofore granted under
this Plan without the consent of the affected Participant.
1.9 EFFECTIVE DATE. This Plan shall be effective November 30, 1999,
subject to approval by the holders of a majority of the outstanding Common Stock
of the Company present, or represented, and entitled to vote at a meeting called
for such purpose or pursuant to a consent in lieu of meeting executed by a
majority of the holders of the outstanding Common Stock of the Company.
1.10 SECURITIES LAW REQUIREMENTS. The Company shall have the right, but
not the obligation, to cause the shares of Stock issuable upon exercise of the
Options to be registered under the Securities Act of 1933, as amended (the
"Securities Act") or the securities laws of any state or jurisdiction. As a
condition precedent to the grant of any Option or the issuance or transfer of
shares pursuant to the exercise of any Option, the Company may require the
Participant or holder to take any reasonable action to meet such requirements or
to obtain such approvals. The Company shall have the right to restrict the
transferability of shares of Stock issued or transferred upon exercise of the
Options in such manner as it deems necessary or appropriate to insure the
availability of any exemption from registration under the Securities Act and any
other applicable securities laws or regulations that may be available.
1.11 SEPARATE CERTIFICATES. Upon exercise of the Options, separate
certificates representing the Stock or, if applicable, other securities of the
Company to be delivered to a holder upon the exercise will be issued to the
holders of the Options.
1.12 PAYMENT FOR STOCK; RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT.
(a) PAYMENT FOR STOCK. Payment for shares of Stock purchased
under this Plan shall be made (i) in full and in cash or check made
payable to the Company or (ii) may also be made in Common Stock of the
Company but only in the event the Common Stock of the Company has been
held or beneficially owned for six months or more or (iii) a
combination of cash and such Common Stock of the Company. In the event
that Common Stock of the Company is utilized in consideration for the
purchase of Stock upon the exercise of an Option, then, such Common
Stock shall be valued at the "fair market value" as defined in Section
1.6 of this Plan.
(b) RECEIPT OF STOCK OR CASH IN LIEU OF PAYMENT. Furthermore,
a Participant may exercise an Option without payment of the Option
Price or ISO Price in the event that the exercise is pursuant to rights
4
<PAGE>
under an SAR attached to the Option and such SAR is exercisable on the
date of exercise of the Option to which it is attached. In the event an
Option with an SAR attached is exercised without payment of the Option
Price or ISO Price in cash or by check, the Participant shall be
entitled to receive either (i) a cash payment from the Company equal to
the excess of the total fair market value of the shares of Stock on
such date as determined with respect to which the Option is being
exercised over the total cash Option Price or ISO Price of such shares
of Stock as set forth in the Option or (ii) that number of whole shares
of Stock as is determined by dividing (A) an amount equal to the fair
market value per share of Stock on the date of exercise into (B) an
amount equal to the excess of the total fair market value of the shares
of Stock on such date with respect to which the Option is being
exercised over the total cash Option Price or ISO Price of such shares
of Stock as set forth in the Option, and fractional shares will be
rounded to the next lowest number and the Participant will receive cash
in lieu thereof.
1.13 INCURRENCE OF DISABILITY AND RETIREMENT. A Participant shall be
deemed to have terminated his employ ment as an employee, his independent
contractor arrangement or consulting arrangement with the Company and incurred a
disability ("Disability") if such Participant suffers a physical or mental
condition which, in the judgment of the Board, totally and permanently prevents
a Participant from engaging in any substantial gainful employment with or the
providing of services or consulting for the Company or a subsidiary. A
Participant shall be deemed to have terminated employment as an employee,
independent contractor or a consultant due to retirement ("Retirement") if such
Participant ceases to be an employee, independent contractor or a consultant of
the Company or its subsidiary, without cause, after attaining the age of 55.
1.14 STOCK OPTIONS AND ISO OPTIONS GRANTED SEPARATELY. Because the
Board is authorized to grant Stock Options, SARs and ISO Options to
Participants, the grant thereof and Stock Option Agreements relating thereto
will be made separately and totally independent of each other. Except as it
relates to the total number of shares of Stock which may be issued under this
Plan, the grant or exercise of a Stock Option or SARs shall in no manner affect
the grant and exercise of any ISO Options. Similarly, the grant and exercise of
any ISO Option shall in no manner affect the grant and exercise of any Stock
Option or SARs.
1.15 GRANTS OF OPTIONS AND STOCK OPTION AGREEMENT. Each Stock Option,
ISO Option and/or SAR granted under this Plan shall be evidenced by the minutes
of a meeting of the Board or by the written consent of the Board and by a
written Stock Option Agreement effective on the date of grant and executed by
the Company and the Participant. Each Option granted hereunder shall contain
such terms, restrictions and conditions as the Board may determine, which terms,
restrictions and conditions may or may not be the same in each case.
1.16 USE OF PROCEEDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options granted under this Plan shall
be added to the Company's general funds and used for general corporate purposes.
1.17 NON-TRANSFERABILITY OF OPTIONS. Except as otherwise herein
provided, any Option or SAR granted shall not be transferable otherwise than by
will or the laws of descent and distribution, and the Option may be exercised,
during the lifetime of the Participant, only by the Participant. More
particularly (but without limiting the generality of the foregoing), the Option
and/or SAR may not be assigned, transferred (except as provided above), pledged
or hypothecated in any way, shall not be assignable by operation of law and
shall not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
and/or SAR contrary to the provisions hereof shall be null and void and without
effect.
1.18 ADDITIONAL DOCUMENTS ON DEATH OF PARTICIPANT. No transfer of an
Option and/or SAR by the Participant by will or the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice and an unauthenticated copy of the will
and/or such other evidence as the Board may deem necessary to establish the
validity of the transfer and the acceptance by the successor to the Option
and/or SAR of the terms and conditions of such Option and/or SAR.
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1.19 CHANGES IN EMPLOYMENT. So long as the Participant shall continue
to be an employee, independent contractor or consultant of the Company or any
one of its subsidiaries, any Option granted to him shall not be affected by any
change of duties or position. Nothing in this Plan or in any Stock Option
Agreement which relates to this Plan shall confer upon any Participant any right
to continue in the employ as an employee, independent contractor or consultant
of the Company or of any of its subsidiaries, or interfere in any way with the
right of the Company or any of its subsidiaries to terminate his employment or
independent contractor arrangement or consulting arrangement at any time.
1.20 SHAREHOLDER RIGHTS. No Participant shall have a right as a
shareholder with respect to any shares of Stock subject to an Option prior to
the purchase of such shares of Stock by exercise of the Option.
1.21 RIGHT TO EXERCISE UPON COMPANY CEASING TO EXIST. Where dissolution
or liquidation of the Company or any merger consolidation or combination in
which the Company is not the surviving corporation occurs, the Participant shall
have the right immediately prior to such dissolution, liquidation, merger,
consolidation or combination, as the case may be, to exercise, in whole or in
part, the Participant's then remaining Options whether or not then exercisable,
but limited to that number of shares of Stock (and, if applicable, any other
securities of the Company) that can be acquired without causing the Participant
to have an "excess parachute payment" as determined under Section 280G of the
Code determined by taking into account all of Participant's "parachute payments"
determined under Section 280G of the Code. Provided, the foregoing
notwithstanding, after the Participant has been afforded the opportunity to
exercise his or her then remaining Options as provided in this Section 1.21, and
to the extent such Options are not timely exercised as provided in this Section
1.21, then, the terms and provisions of this Plan and any Stock Option Agreement
will thereafter continue in effect, and the Participant will be entitled to
exercise any such remaining and unexercised Options in accordance with the terms
and provisions of this Plan and such Stock Option Agreement as such Options
thereafter become exercisable. Provided further, that for the purposes of this
Section 1.21, if any merger, consolidation or combination occurs in which the
Company is not the surviving corporation and results only in a mere change in
the identity, form, or place of organization of the Company accomplished in
accordance with Section 368(a)(1)(F) of the Code, then, such event shall not
cause an acceleration of the exercisability of any such Options granted under
this Plan.
1.22 ASSUMPTION OF OUTSTANDING OPTIONS AND SARs. To the extent
permitted by the then applicable provisions of the Code, any successor to the
Company succeeding to, or assigned the business of, the Company as the result of
or in connection with a corporate merger, consolidation, combination,
reorganization or liquidation transaction shall assume Options and SARs
outstanding under this Plan or issue new Options and/or SARs in place of
outstanding Options and/or SARs under this Plan.
ARTICLE II
TERMS OF STOCK OPTIONS AND EXERCISE
2.1 GENERAL TERMS.
(a) GRANT AND TERMS FOR STOCK OPTIONS. Stock Options shall be
granted by the Board on the following terms and conditions: No Stock
Option shall be exercisable within six months from the date of grant
(except as specifically provided in Subsection 2.l(c) hereof, with
regard to the death or Disability of a Participant), nor more than five
years after the date of grant. Subject to such limitation, the Board
shall have the discretion to fix the period (the "Option Period")
during which any Stock Option may be exercised. Stock Options granted
shall not be transferable except by will or by the laws of descent and
distribution.
(b) OPTION PRICE. The option price ("Option Price") for shares
of Stock subject to Stock Option shall be determined by the Board, but
in no event shall such Option Price be less than 85 percent of the
"fair market value" of the Stock on the date of grant.
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(c) ACCELERATION OF OTHERWISE UNEXERCISABLE STOCK OPTION ON
RETIREMENT, DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The
Board, in its sole discretion, may permit (i) a Participant who
terminates employment as an employee, an independent contractor or a
consultant due to Retirement, (ii) a Participant who terminates
employment as an employee, an independent contractor or a consultant
due to a Disability, (iii) the personal representative of a deceased
Participant, or (iv) any other Participant who terminates employment as
an employee, independent contractor or a consultant upon the occurrence
of special circumstances (as determined by the Board), to exercise and
purchase all or any part of the shares subject to Stock Option on the
date of the Participant's termination, Retirement, Disability, death,
or as the Board otherwise so determines, notwithstanding that all
installments, if any, with respect to such Stock Option, had not
accrued or vested on such date. Provided, such discretionary authority
of the Board shall not be exercised with respect to any Stock Option
(or portion thereof) if the applicable six-month waiting period for
exercise had not expired, except in the event of the death or
disability of the Participant when the personal representative of the
deceased Participant or the disabled Participant may, with the consent
of the Board, exercise such Stock Option notwithstanding the fact that
the applicable six-month waiting period had not yet expired.
(d) NUMBER OF STOCK OPTIONS GRANTED. Participants may be
granted more than one Stock Option. In making any such determination,
the Board shall obtain the advice and recommendation of the officers of
the Company or a subsidiary which have supervisory authority over such
Participants. The granting of a Stock Option under this Plan shall not
affect any outstanding Stock Option previously granted to a Participant
under this Plan.
(e) NOTICE OF EXERCISE STOCK OPTION. Upon exercise of a Stock
Option, a Participant shall give written notice to the Secretary of the
Company, or other officer designated by the Board, at the Company's
main office in Oklahoma City, Oklahoma. No Stock shall be issued to any
Participant until the Company receives full payment for the Stock
purchased, if applicable, and any required state and federal
withholding taxes.
ARTICLE III
SARs
3.1 GENERAL TERMS.
(a) GRANT AND TERMS OF SARs. The Board may grant SARs to
Participants in connection with Options granted under this Plan. SARs
shall not be exercisable (i) earlier than six months from the date of
grant except as specifically provided in Subsection 3.l(b) hereof in
the case of the death or Disability of a Participant, and (ii) shall
terminate at such time as the Board determines and shall be exercised
only upon surrender of the related Option and only to the extent that
the related Option (or the portion thereof as to which the SAR is
exercisable) is exercised. SARs may be exercised only by the
Participant while actively employed as an employee, an independent
contractor or a consultant by the Company or a subsidiary except that
(i) any SARs previously granted to a Participant which are otherwise
exercisable may be exercised, with the approval of the Board, by the
personal representative of a deceased Participant, even if such death
should occur within six months of the date of grant (but not beyond the
expiration date of such SAR), and (ii) if a Participant terminates his
employment as an employee, his independent contractor arrangement or
his consulting arrangement with the Company or a subsidiary, as the
case may be, on account of Retirement or incurring a Disability, such
Participant may exercise any SARs which are otherwise exercisable, with
the approval of the Board, anytime within three months of the date of
the termination by Retirement or within 12 months of termination by
Disability. If a Participant should die during the applicable
three-month period following the date of such Participant's Retirement
or during the applicable 12 month period following the date of
termination on account of Disability, the rights of the personal
representative of such deceased
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Participant as such relate to any SARs granted to such deceased
Participant shall be governed in accordance with (i) of the second
sentence of this Subsection 3.l(a) of this Article III. The applicable
SAR shall (i) terminate upon the termination of the underlying Option,
(ii) only be transferable at the same time and under the same
conditions as the underlying Option is transferable, (iii) only be
exercised when the underlying Option is exercised, and (iv) may be
exercised only if there is a positive spread between the Option Price
or ISO Price, as applicable and the "fair market value" of the Stock
for which the SAR is exercised.
(b) ACCELERATION OF OTHERWISE UNEXERCISABLE SARs ON
RETIREMENT, DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The
Board, in its sole discretion, may permit (i) a Participant who
terminates employment as an employee, an independent contractor or a
consultant with the Company or a subsidiary due to Retirement, (ii) a
Participant who terminates his employment as an employee, his
independent contractor arrangement or his consulting arrangement with
the Company or a subsidiary due to a Disability, (iii) the personal
representative of such deceased Participant, or (iv) any other
Participant who terminates employment as an employee, his independent
contractor arrangement or his consulting arrangement with the Company
or a subsidiary upon the occurrence of special circumstances (as
determined by the Board) to exercise (within three years of such date
of termination of employment, independent contractor arrangement or
consulting arrangement, or the Participant's Retirement, Disability or
death, as the case may be) all or any part of any such SARs previously
granted to such Participant as of the date of such Participant's
termination, Retirement, Disability, death, or as the Board otherwise
so determines, notwithstanding that all installments, if any with
respect to such SARs, had not accrued on such date. Provided, such
discretionary authority of the Board may not be exercised with respect
to any SAR (or portion thereof if the applicable six-month waiting
period for exercise had not expired as of such date, except (i) in the
event of the Disability of the Participant or (ii) the death of the
Participant, when such disabled Participant or the personal
representative of such deceased Participant may, with the consent of
the Board, exercise such SARs notwithstanding the fact that the
applicable six-month waiting period had not yet expired.
(c) FORM OF PAYMENT OF SARs. The Participant may request the
method and combination of payment upon the exercise of a SAR; however,
the Board has the final authority to determine whether the value of the
SAR shall be paid in cash or shares of Stock or both. Upon exercise of
a SAR, the holder is entitled to receive the excess amount of the "fair
market value" of the Stock (as of the date of exercise) for which the
SAR is exercised over the Option Price or ISO Price, as applicable,
under the related Stock Option or ISO Option, as the case may be. All
applicable federal and state withholding taxes will be paid by the
Participant to the Company upon the exercise of a SAR because the
excess amount described above will be required to be included within
taxable income in accordance with Sections 61 and 83 of the Code.
ARTICLE IV
GRANTING OF ISO OPTIONS
4.1 GENERAL. With respect to ISO Options granted on or after the
effective date of this Plan and intended to qualify as "incentive stock options"
as defined in Section 422 of the Code, the provisions of this Article IV shall
apply.
4.2 GRANT AND TERMS OF ISO OPTIONS. ISO Options may be granted only to
employees of the Company and any of its subsidiaries. No ISO Options shall be
granted to any person who is not eligible to receive "incentive stock options"
as provided in Section 422 of the Code. No ISO Options shall be granted to any
management employee if, immediately before the grant of an ISO Option, such
employee owns more than 10% of the total combined voting power of all classes of
stock of the Company or its subsidiaries (as determined in accordance with the
stock attribution rules contained in Section 425(d) of the Code). Provided, the
preceding sentence shall not apply if, at the time the ISO Option is granted,
the ISO Price is at least 110 percent of the "fair market value" of the Stock
subject to the ISO Option, and such ISO Option by its terms is not exercisable
after the expiration of five years from the date such ISO Option is granted.
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(a) ISO OPTION PRICE. The option price for shares of Stock
subject to an ISO Option ("ISO Price") shall be determined by the
Board, but in no event shall such ISO Price be less than the fair
market value of the Stock on the date of grant.
(b) ANNUAL ISO OPTION LIMITATION. The aggregate "fair market
value" (determined as of the time the ISO Option is granted) of the
Stock with respect to which ISO Options are exercisable for the first
time by any Participant during in any calendar year (under all
"incentive stock option" plans qualified under Section 422 of the Code
sponsored by the Company and its subsidiary corporations) shall not
exceed $100,000.
(c) TERMS OF ISO OPTIONS. ISO Options shall be granted on the
following terms and conditions: (i) no ISO Option shall be exercisable
within six months from the date of grant (except as specifically
provided in Subsection 4.2(d) hereof with regard to the Disability or
death of a Participant), nor more than ten years after the date of
grant; (ii) the Board shall have the discretion to fix the period (the
"ISO Period") during which any ISO Option may be exercised; (iii) ISO
Options granted shall not be transferable except by will or by the laws
of descent and distribution; (iv) ISO Options shall be exercisable only
by the Participant while actively employed by the Company or a
subsidiary, except that (A) any such ISO Option granted and which is
otherwise exercisable, may be exercised by the personal representative
of a deceased Participant within 12 months after the death of such
Participant (but not beyond the expiration date of such ISO Option),
(B) if a Participant terminates his employment as an employee with the
Company or a subsidiary on account of Retirement, such Participant may
exercise any ISO Option which is otherwise exercisable at any time
within three months of such date of termination and (C) if a
Participant terminates his employment with the Company or a subsidiary
on account of incurring a Disability, such Participant may exercise any
ISO Option which is otherwise exercisable at any time within 12 months
of such date of termination. If a Participant should die during the
applicable three-month or 12 month period following the date of such
Participant's Retirement or Disability, then in such event, the rights
of the personal representative of such deceased Participant as such
relate to any ISO Options granted to such deceased Participant shall be
governed in accordance with Subsection 4.1(c) of this Article IV.
(d) ACCELERATION OF OTHERWISE UNEXERCISABLE ISO OPTION ON
RETIREMENT, DEATH, DISABILITY OR OTHER SPECIAL CIRCUMSTANCES. The
Board, in its sole discretion, may permit (i) a Participant who
terminates employment as an employee with the Company or a subsidiary
due to Retirement, (ii) a Participant who terminates employment as an
employee with the Company or a subsidiary due to a Disability, (iii)
the personal representative of a deceased Participant, or (iv) any
other Participant who terminates employment as an employee with the
Company or a subsidiary upon the occurrence of special circumstances
(as determined by the Board) to exercise and purchase (within three
months of such date of termination of employment as an employee or 12
months in the case of a disabled or deceased Participant) all or any
part of the shares of Stock subject to ISO Option on the date of the
Participant's Retirement, Disability, death, or as the Board otherwise
so determines, notwithstanding that all installments, if any, had not
accrued on such date. Provided, such discretionary authority of the
Board may not be exercised with respect to any ISO Option (or portion
thereof) if the applicable six-month waiting period for exercise had
not expired as of such date except in the event of the Disability of
the Participant or death of the Participant, when the disabled
Participant or the personal representative of such deceased
Participant, may, with the consent of the Board, exercise such ISO
Option notwithstanding the fact that the applicable six-month waiting
period had not yet expired.
(e) NUMBER OF ISO OPTIONS GRANTED. Subject to the applicable
limitations contained in this Plan with respect to ISO Options,
Participants may be granted more than one ISO Option. In making any
such determination, the Board shall obtain the advice and
recommendation of the officers of the Company or a subsidiary which
have supervisory authority over such Participants. The granting of an
ISO Option under this Plan shall not affect any outstanding ISO Option
previously granted to a Participant under this Plan.
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(f) NOTICE TO EXERCISE ISO OPTION. Upon exercise of an ISO
Option, a Participant shall give written notice to the Secretary of the
Company, or other officer designated by the Board, at the Company's
main office in Oklahoma City, Oklahoma.
ARTICLE V
OPTIONS NOT QUALIFYING AS
INCENTIVE STOCK OPTIONS
5.1 NON-QUALIFYING OPTIONS. With respect to all or any portion of any
Option granted under this Plan not qualifying as an "incentive stock option"
under Section 422 of the Code, such option or portion thereof shall be
considered a Stock Option granted under this Plan for all purposes. Any Stock
Option granted under this Plan that does not qualify as an "incentive stock
option" under Section 422 of the Code shall be transferrable unless otherwise
limited by the terms to the Stock Option.
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EXHIBIT 10.6
ADVERTISING AGREEMENT
THIS ADVERTISING AGREEMENT is made and entered into this ___ day of
________________, 1997, by and between PRECIS SMART CARD SYSTEMS, INC., an
Oklahoma corporation ("Precis") and BANK OF OKLAHOMA, N.A. ("BOK").
In consideration of the mutual terms and provisions of this
Agreement, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Precis and BOK agree as follows:
1. RECITALS. Precis is an integrated circuit card, or "smart card,"
application development firm, which has developed an application for smart
cards using a proprietary closed-area stored-value system, called
PrecisCache(TM) Precis has designed a PrecisCache(TM) application for
Oklahoma State University ("OSU") under which smart cards are issued
representing "OSU Spirit Cash" which may be redeemed for food, beverages and
merchandise at OSU athletic events (the "Program"). BOK desires to be a
sponsor of the Program, and Precis is willing to permit BOK to sponsor the
Program under the following circumstances.
2. DUTIES OF PRECIS. During the term of this Agreement, Precis shall
perform the following duties:
(a) CARDS. Precis shall produce and initialize 10,500 smart
cards for the Program (the "BOK Program Cards") bearing BOK's corporate logo,
subject to BOK's approval of the logo size, color and placement. The parties
have agreed with respect to size, color and placement of BOK's logo. At its
option, BOK may purchase for resale some or all of the BOK Program Cards
which have been produced and initialized upon payment of the aggregate face
value of denominations on the BOK Program Cards so purchased by BOK. BOK
Program Cards shall have value denominations and shall expire in accordance
with the terms of the Program.
(b) PROMOTION. Precis shall use its reasonable best efforts to
appropriately recognize BOK's sponsorship of the BOK Program Cards. Such
recognition shall include an indication of BOK's sponsorship in promotional
materials and events, if and when the BOK Program Cards are promoted in
materials or at events such as:
- Brochures distributed at athletic events and other OSU
related functions;
- Spirit Cash signage at concession stands;
- Signage at Spirit Cash promotional sites;
- Direct mail brochures in Posse Club packets;
- Press releases to local and national media, with a focus on
technology, banking and local press;
- Inserts in OSU athletic event programs;
- Public address announcements at OSU athletic events;
- Precis' web site on the Internet, with a link to BOK's web
site;
In performing its obligations herein, Precis shall have no obligation to
place any advertising in any media or to pay any license fees to BOK or
others in order to provide the above-described recognition. Precis shall use
the artwork supplied by BOK and shall be under no obligation to design
additional artwork on behalf of BOK.
3. DUTIES OF BOK. BOK shall provide camera ready artwork of the BOK
logo to be included on the BOK Program Cards. In addition, BOK shall
cooperate with Precis in approving the logo size, color and placement on the
BOK Program Cards. BOK shall have no obligation to provide any promotional
materials or to sell any of the BOK Program Cards.
4. COMPENSATION TO PRECIS. Upon the approval by BOK of its logo size,
color and placement on the prospective BOK Program Cards, Precis shall be
entitled to receive a payment of Ten Thousand Dollars ($10,000.00) from BOK
before it shall be obligated to produce the BOK Program Cards and perform its
other obligations hereunder.
<PAGE>
5. SPONSORSHIP OF OTHER PROGRAMS. In the event Precis develops
PrecisCache(TM) applications similar to the Program for Tulsa University or
the University of Oklahoma, and assuming such institutions grant permission,
Precis shall make available to BOK the opportunity to sponsor any of such
applications before offering such opportunity to other potential sponsors.
Such sponsorship shall be on whatever terms and conditions Precis may
prescribe and may or may not be under terms which are similar to those
contained in this Agreement.
6. ARBITRATION. Any claim, controversy or dispute arising out of or
relating to this Agreement, except as set forth herein, shall be settled by
arbitration in Oklahoma City, Oklahoma, in accordance with the rules for
commercial arbitration of the American Arbitration Association. Any
arbitration shall be undertaken pursuant to the Federal Arbitration Act,
where possible, and the decision of the arbitrators shall be final, binding,
and enforceable in any court of competent jurisdiction. In any dispute in
which a party seeks in excess of $50,000 in damages, three arbitrators shall
be employed. Otherwise, a single arbitrator shall be employed. All costs
relating to the arbitration shall be borne equally by the parties, other than
their own attorneys' and experts' fees. The parties will bear their own
attorneys' and experts' fees. The arbitrators will not award punitive,
consequential or indirect damages. Each party hereby waives the right to such
damages and agrees to receive only those actual damages directly resulting
from the claim asserted. In resolving all disputes between the parties, the
arbitrators will apply the laws of the State of Oklahoma. Except as needed
for presentation in lieu of a live appearance, depositions will not be taken.
The parties will be entitled to conduct document discovery by requesting
production of documents. The arbitrators will resolve any discovery disputes
by such prehearing conferences as may be needed. Either party may be entitled
to pursue such remedies for emergency or preliminary injunctive relief in any
court of competent jurisdiction, provided that each party agrees that it will
consent to the stay of such judicial proceedings on the merits of both this
Agreement and the related transactions pending arbitration of all underlying
claims between the parties immediately following the issuance of any such
emergency or injunctive relief.
7. DISCLAIMER OF INTENT TO BECOME PARTNERS. Precis and BOK shall not
by virtue of this Agreement be deemed partners or joint venturers. Neither
party shall pay or withhold any federal or state income or payroll taxes with
respect to compensation payable to the other under this Agreement. Neither
Precis nor BOK shall incur any financial obligation on behalf of the other
party without prior written approval of the other party.
8. NOTICES. Any and all notices, consents or other communications by
one party intended for the other shall be sent as follows:
If to Precis: Precis Smart Card Systems, Inc.
11032 Quail Creek Road
Oklahoma City, Oklahoma 73120
ATTN: Jim Lout
FAX: 405/752-5605
If to BOK: Bank of Oklahoma, N.A.
P.O. Box 2300
Tulsa, Oklahoma 74192
ATTN: Mike Nation
FAX: 918/588-8691
unless a party shall have designated a different address or number by sending
written notice of the change to the other party.
9. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other
provision.
10. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Oklahoma.
11. NO ASSIGNMENT. Neither party may assign its rights or delegate
its duties under this Agreement without the prior written consent of the
other party.
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12. BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties and their respective legal
representatives, successors and assigns.
13. CAPTIONS. The paragraph captions used in this Agreement are for
convenience only and shall not affect the interpretation of this Agreement.
14. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended to confer upon any person, firm or corporation other
than the parties any right, remedy or claim under or by reason of this
Agreement, as third party beneficiaries or otherwise.
15. ENTIRE AGREEMENT; AMENDMENT. This Agreement states the entire
understanding and agreement between the parties with respect to its subject
matter and supersedes any oral or written proposals, statements, discussions,
negotiations or other agreements.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
PRECIS: PRECIS SMART CARD SYSTEMS, INC.
- ------
By________________________
James B. Lout, President
BOK: BANK OF OKLAHOMA FINANCIAL, N.A.
- ----
By_______________________________
Mike Nation, Senior Vice President
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EXHIBIT 10.7
INDEPENDENT CONTRACTOR AGREEMENT
This Independent Contractor Agreement dated April 5,1997 by and between
DOWNTOWN FORT WORTH, INC., a Texas nonprofit Association hereinafter referred to
as DFWI, and Precis Smart Card Systems located at P.O. Box 20703, Oklahoma City,
OK 73156, hereinafter referred to as "Contractor," agree as follows:
1) Contractor will provide the following service and supervisory
Support:
Coordination, implementation and supervision of Smart card
system for the 1997 MAIN ST. Fort Worth Arts Festival.
2) Effective this date, Contractor agrees to provide those services
requested by DFWI in connection with preparations for and the conduct
of the MAIN ST. Fort Worth Arts Festival scheduled for downtown Fort
Worth from the 10th day of April through the 13th day of April, 1997.
3) In the manner services shall be performed on any particular day,
will be entirely within the control of the Contractor. Furthermore, the
methods employed by the Contractor in the rendition of such specialized
services shall be exclusively within the control of the Contractor, and
DFWI's only concern is that the specialized services be rendered in a
reasonable and prudent manner similar to such services as may be
rendered by other persons or parties in Tarrant County, Texas.
4) DFWI will pay Contractor for such specialized services the amount of
$20,000 00 "Fee" for 10,000 functional MAIN ST. Fort Worth Arts
Festival smart cards (equally divided in $10 [18 units], $15 [27
units], $20 [36 units] denominations). In addition, DFWI will pay 50%
of unused balance of aforementioned functional smart cards as affirmed
and verified by both parties, and reasonable travel expenses not to
exceed $1,500.00.
5) DFWI and Contractor agree that this independent Contractor Agreement
shall remain in force for a period commencing April 5, 1997 Until April
14, 1997 or until all related MAIN ST. Fort Worth Arts Festival
responsibilities are completed, whichever is latest.
6) This Independent Contractor Agreement calls for the performance of
the services of Contractor as an independent contractor, and Contractor
will not be considered an employee of DFWI for any purpose.
7) Contractor is solely liable for any federal income and withholding
taxes, unemployment taxes, FICA taxes, and worker's compensation
payments and premiums attributable to Contractor. Contractor shall
indemnify DFWI for any liability resulting from such taxes and sums.
8) Contractor is solely liable for any losses or damages resulting from
Contractor's performance of any services covered by this Agreement.
Contractor shall indemnify DFWI and Downie Productions, Inc. for any
liability, including cost and expenses and reasonable attorneys' fees,
resulting from Contractor's performance of the services contemplated by
this Independent Contractor Agreement.
9) The Contractor expressly understands and agrees that he is an
independent contractor and he is not an employee of the purchaser and
that the purchaser shall not carry any form of insurance covering the
Contractor, or his employees, such as health or accident insurance,
workman's compensation or general liability insurance.
10) This independent Contractor Agreement may not be assigned by
Contractor without the consent of DFWI.
In Witness whereof, the parties have executed this agreement on the date herein
above set forth.
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DOWNTOWN FORT WORTH, INC.
By /S/KENNETH R. DEVERO
--------------------------------------
Kenneth R. Devero
PRECIS SMART CARD SYSTEMS, INC.
By /S/JIM LOUT
--------------------------------------
Jim Lout
Precis Smart Card Systems
P.O. Box 20703
Oklahoma, OK 73156
---------------------------------
Federal ID or Social Security
Number
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EXHIBIT 10.8
CONTRACT PROPOSAL FOR SAHALEE COUNTRY CLUB
CLUBHOUSE SCRIPT CASH CARD
Order Number: 80th
Agreement made May 6, I998, between Anything's Possible!, of 5177 Homestead
Place, Lewiston, New York 14092-1924 ("Seller"), and Sahalee Country Club, of
21200 N.E. Sahalee Country Club Drive, Redmond, Washington 98053 ("Buyer").
1. ITEMS PURCHASED. For value received and other consideration, the Seller
agrees with the Buyer to provide the Buyer the following products and services
in accordance with the terms and conditions of this Contract:
Clubhouse Cash Card System $ 15,260
Includes the following:
* 7,000 Clubhouse Script Cards (four-color graphics on front and
two-color on the back of the card)
* 15 Veri-fone model 1250 Readers
* On site support staff
1-person to assist with Script Card sales and
transaction record keeping from Anything's Possible!
1-person for technical support and program emergency
maintenance from Precis Cache
* On site staff training prior to the tournament week
* Script Card program set-up
* Program initialization specifically for the Sahalee Script
Card
* On site system maintenance
Pricing Detail:
* 7,000 clubhouse cash cards @ $1.68 = $ 11,760
* System software programming, customizing, initializing,
maintenance, technical support, training, staffing,
reader installation, etc. $ 3,500
* There will be 3,000 preprinted and programmed Sahalee
clubhouse cash cards as back-up available for emergency use
during event week. These cards have been purchased by Precis
Cache so that Sahalee could reach the best possible price
bracket and receive the 10,000 card pricing.
* Prices quoted include a single card design plate charge.
Additional card designs will incur a $1,200 plate charge.
Initials:
- ------------------------
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2. PRODUCT STANDARDS: This card will be designed based upon the specifications
of the Sahalee Country Club and will be for use in the clubhouse during the
tournament week of the PGA Championship (August 10-16, 1998). Anything's
Possible! Will guarantee that there will be a sufficient quantity of back-up
cards to assure that there will not be a shortage of cards during tournament
week.
3. PAYMENT: Payment shall be made to Anything's Possible!, 5177 Homestead Place,
Lewiston, New York 14092-1924. Buyer agrees to pay to Seller a deposit of
$5,000 by May 15, 1998 and the balance due no later than August 16, 1998.
4. DELIVERY: Time is of the essence in the performance of this Contract.
Delivery shall be completed by July 24, 1998 and shipped directly to Sahalee
Country Club to the attention of Tom Halsey.
Seller is responsible for proper packaging of Goods so the Goods will arrive at
the destination without damage. Any damage sustained due to improper packaging
will be charged to Seller.
5. APPLICABLE LAW: This Contract shall be governed by the laws of the State
of New York.
Buyer:
Sahalee Country Club
By: /S/TOM HALSEY
------------------------------
Tom Halsey
Manager
Seller:
Anything's Possible!
By: /S/WILLIAM HAVERON
------------------------------
William Haveron
Vice President of Marketing
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EXHIBIT 10.9
DRAFT OF SEPTEMBER 29, 1997
SMART CARD SYSTEM AGREEMENT
THIS SMART CARD SYSTEM AGREEMENT is made and entered into as of the 1st
day of September, 1997, by and between PRECIS SMART CARD SYSTEMS, INC., an
Oklahoma corporation ("Precis") and CHICAGO WHITE SOX, LTD., an Illinois
limited partnership (the "White Sox").
In consideration of the mutual terms and provisions of this Agreement
and other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Precis and the White Sox agree as follows:
1. RECITALS. Precis is an integrated circuit card, or "smart card,"
application development firm which has developed applications for smart cards
using a proprietary closed-area stored-value system called PRECISCACHE-TM-. The
White Sox is the owner of a Major League Baseball team which plays its home
games at Comiskey Park in Chicago, Illinois, which is owned by the Illinois
Sports Facilities Authority, a political subdivision body politic and
municipal corporation ("ISFA"). The White Sox desires to have Precis design
and implement a closed-area stored-value system utilizing the PRECISCACHE-TM-
system and smart cards for the White Sox at Comiskey Park. The smart cards
(the "Cards") will be designed as a form of payment for food and merchandise
at Comiskey Park but may be sold to collectors. The parties acknowledge and
agree that Exhibit A, as amended from time to time by the parties, shall
constitute the description of the intended operation and performance (the
"Application") of the System (as defined in Paragraph 4(b)). In the event of
any inconsistency between the express terms of this Agreement and the
description set forth in Exhibit A, the terms of this Agreement will control.
The parties further acknowledge that while this Agreement is dated as of
September 1, 1997, the parties have, in fact, been working together on the
matters herein described for several months and accordingly this Agreement
sets forth the relative rights and obligations of the parties with respect to
such matters without regard to whether they in fact incurred prior to the
effective date of this Agreement or subsequent thereto.
2. ENGAGEMENT OF PRECIS. The White Sox hereby engages Precis to design,
develop, install, implement, and maintain the System so as to operate and
perform as described in the Application, subject to the terms and conditions
contained in this Agreement. Precis hereby accepts such engagement.
3. TERM. The term of this Agreement shall commence on the date first
above written and shall end on November 30, 2001, unless sooner terminated as
provided herein. The date on which this Agreement terminates is sometimes
referred to as the "Termination Date."
4. DUTIES OF PRECIS. During the term of this Agreement, Precis shall
perform the following duties:
(a) PROCESS AND SYSTEMS ANALYSIS. Precis is currently performing a
process and systems analysis of Comiskey Park and the point-of-sale computer
system previously installed by Tangent Associates, Inc. ("Tangent") and
currently utilized by Illinois Sportservice ("Sportservice") in its
operations at Comiskey Park. In order to perform the process and systems
analysis, representatives of Precis are (i) meeting with representatives of
Tangent in order to determine the appropriate upgrades, enhancements,
additions, and replacements to the existing point-of-sale computer system,
and the possible placement of point-of-sale computer hardware at additional
locations in Comiskey Park; (ii) meeting with representatives of Sportservice
to determine purchase flow, purchase points and other requirements of
Sportservice, and (iii) meeting with representatives of the White Sox to
determine the requirements for the Application, including requirements for
use of the System infrastructure and sales of the smart cards, determination
of smart card vending sites, outside usage locations, if any, smart card
production requirements and other requirements. Precis shall share all of the
results thereof with White Sox. Precis is performing the process and systems
analysis at its sole expense.
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(b) INSTALLATION OF THE SYSTEM. Upon completion of the process and
systems analysis, Precis shall design, develop, and install a System (as
hereinafter defined) at Comiskey Park in accordance with and as necessary to
accomplish the Application, and shall in connection therewith perform such
testing of the System from time to time as the White Sox shall request.
Installation, testing, and start-up of the System shall be substantially in
accordance with the timetable set by the parties. All hardware and
communications equipment necessary or appropriate to implement the
Application, including Card dispenser equipment, is referred to in this
Agreement as the "Hardware," and the software, including the programs,
materials and documentation, to be provided by Precis in order to implement
the Application is referred to herein as the "Software." The parties
acknowledge that while all of the Card dispenser equipment will accept cash,
some of the dispensers now being installed will not accept credit cards.
Precis agrees, at its expense, to use its reasonable best efforts to retrofit
all of the Card dispenser equipment to accept credit cards by no later than
two (2) weeks prior to the start of the 1998 Major League Baseball season.
The "Hardware" and "Software" shall also include all hardware and software
(including necessary reconciliation software interface and software interface
between the point-of-sale system and the balance of the System, the
development, installation and testing of the communication protocol and link
of the point-of-sale system to the balance of the System and the installation
of readers and mounts to the point-of-sale system), necessary or appropriate
to upgrade, enhance, add to and/or replace the point-of-sale system so that
such point-of-sale system will function in conjunction with the balance of
the System as described in the Application. Without limiting the generality
of the foregoing, the Hardware will include the equipment described on
Exhibit B hereto. The "Hardware" and "Software" shall collectively be
referred to as the "System," and the point-of-sale system, as so upgraded,
added to, enhanced, and/or replaced, when separately referred to from the
balance of the System, shall be referred to as the "New Tangent System." In
installing the System and otherwise implementing the Application, Precis'
duties shall include coordination with Sportservice to ensure appropriate
access for installation of the New Tangent System. Prior to the acquisition
of any equipment and/or service from third-party vendors, Precis will provide
a list of such vendors to White Sox and Precis will not deal with any vendors
to whom White Sox object. All of Precis' duties pursuant to this subparagraph
4(b), including, without limitation, the design, development, providing and
installation of the System, shall be at Precis' sole cost, and Precis shall
also be responsible for all sales and use taxes applicable to the purchase
and installation of the System. In connection with the installation of the
System or any part thereof, Precis covenants that it will not disrupt the
current concession and merchandise operations of the White Sox and
Sportservice. Precis shall also provide White Sox with user manuals provided
by manufacturers of the Hardware.
(c) TRAINING. Precis shall at its expense provide training to
employees of the White Sox and Sportservice so that such employees may
operate the System by such time in the 1997 Season as may be acceptable to
White Sox. Thereafter, during the term of this Agreement, Precis shall at its
expense regularly provide training to employees of the White Sox and
Sportservice (or its successor) as necessary to ensure the continuous
operations of the System in accordance with the Application.
(d) MAINTENANCE, SUPPORT AND UPGRADES FOR THE SYSTEM. Until such time
as the System is installed and performing as described in the Application
with accuracy, reliability, timeliness, and stability acceptable to White
Sox, Precis shall at its sole cost provide such personnel and other support,
on location in Comiskey Park and elsewhere, as the White Sox may request.
Thereafter, during the term of this Agreement, Precis shall perform the
following duties (the "Subparagraph 4(d) Duties"): (i) Precis shall provide
help desk services via telephone to the White Sox from 8:00 a.m. to 5:00 p.m.
every day during the period from March 15 to November 1, with response times
of less than one hour per call; (ii) on days when Comiskey Park is open to
the public, Precis shall have at least one employee onsite at Comiskey Park
from three hours before the game or other public event until two hours after
the game or other event for support and maintenance services, provided,
however, that after 1997 other arrangements may be made with the consent of
both parties; (iii) subject to subparagraphs (e) and (f) below, Precis shall
serve as a consultant to and shall assist the White Sox in connection with
the selection and purchase of all hardware to upgrade, add to, or replace the
Hardware including Hardware damaged or destroyed by fans or on account of the
negligence or intentional action of White Sox employees; (iv) Precis shall
replace all Hardware that wears out or otherwise becomes unusable on account
of ordinary usage, including weather-related wear and tear or damages, and if
such replacement Hardware requires additional Software, Precis shall also
develop and supply such additional Software; (v) not less than annually,
Precis shall upgrade the System to insure that the Application's security and
integrity is at the level
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acceptable to White Sox, including reprogramming the Software as it deems
necessary to minimize the possibility of fraudulent use of Cards; (vi) Precis
shall at its cost check and replace batteries (replacement batteries, as
needed, to be at White Sox' cost) and other consumable supplies for the
System as needed; (vii) in advance of the opening of each Major League
Baseball season during the term of this Agreement, Precis shall provide such
personnel and other support as shall be requested by White Sox or
Sportservice (or its successor) in order to get the System up and running and
ready for operation during the upcoming season; (viii) subject to
subparagraph (e) below, Precis shall offer to provide White Sox, free of
charge, all enhancements to the Software developed from time to time; and
(ix) Precis shall provide reasonable additional support and maintenance
services in the ordinary course of business upon request by the White Sox.
During the term of this Agreement, Precis' Subparagraph 4(d) Duties shall be
performed at its sole cost, provided that White Sox shall make Cards
available for purchase by Precis as provided in Paragraphs 7 and 8. The
commissions, if any, earned by Precis on Cards purchased by Precis shall be
its sole compensation for the performance of its Subparagraph 4(d) Duties. If
in respect of any year during the term hereof after 1997, White Sox fails to
make Cards available for purchase by Precis as aforesaid, (and continuing
after the term of this Agreement so long as the License described in
Paragraph 11 is in effect) then the White Sox agrees to pay Precis its
then-current fees for the performance of its Subparagraph 4(d) Duties
provided that such fees are commercially reasonable.
(e) UPGRADES, ADDITIONS, ETC. TO HARDWARE; PURCHASE TERMS. Separate
and apart from its obligation to provide replacement Hardware pursuant to
clause (iv) of subparagraph 4(d), Precis shall offer to White Sox the
opportunity to acquire upgrades, additions, etc. to the Hardware developed
from time to time, including upgrades, additions, etc. necessary to utilize
enhancements to the Software. The cost of acquiring any such upgrades,
additions, etc. shall be borne by White Sox so long as (i) with respect to
upgrades, additions, etc. to the Hardware necessary to utilize enhanced
Software, White Sox have the option of continuing to utilize the old Software
and Precis shall be prepared to provide full support services for the old
Software, and (ii) the System is otherwise operating and performing as
described in the Application to the White Sox' satisfaction without such
upgrades, additions, etc. to the Hardware. If and to the extent the
conditions described in clauses (i) and (ii) are not fulfilled, any such
upgrades, additions, etc. shall be at Precis' cost. When and as any Hardware
is replaced by Precis pursuant to this Agreement, (whether at its cost or
White Sox' cost), Precis shall be entitled to the Hardware being replaced
without any payment to White Sox. Precis shall be responsible for the cost of
removing and shipping such Hardware.
(f) PURCHASE OF HARDWARE. Any Hardware purchased and paid for by
White Sox, whether to replace Hardware damaged or destroyed by fans or White
Sox employees, or as upgrades and/or additions pursuant to Subparagraph 4(e),
shall be acquired directly from the manufacturer(s) thereof, without mark-up
or similar charges by Precis. If and to the extent such manufacturer(s) allow
discounts, allowances, and/or rebates to Precis' customers, Precis shall
require such manufacturer(s) to make such discounts, allowances, and/or
rebates available to White Sox.
(g) PRODUCTION AND INITIALIZATION OF CARDS. Precis shall be
responsible for the production and initialization of all Cards, with value
denominations as determined by the White Sox (except as otherwise
specifically provided herein) and appropriate identifier information. The
general format and specifications of the Cards shall be as described in the
Application and as the parties shall otherwise agree. Precis shall select
such party or parties to produce the Cards as Precis in good faith determines
will assure the best product for each series. The Cards and the packaging
thereof shall contain such terms and conditions regarding the use of the
Cards, as the White Sox shall specify, including the terms of any maintenance
or other fees charged in request of the Cards. Precis shall provide all Cards
to the White Sox fully programmed, packaged and ready for sale to the public.
All Cards shall be identified and programmed in such a manner as to identify
their original distribution source. The cost of producing and initializing
Cards shall be borne as follows:
(i) All costs of production and delivery of the First 90,000 Cards
(as defined in Paragraph 7) shall be paid by Precis.
(ii) Throughout the term of this Agreement and continuing thereafter
so long as the License described in Paragraph 11 is in effect,
the White Sox shall pay for the actual direct costs for the
production and delivery of Additional Cards (as defined in
Paragraph 7) but not including Precis' overhead, staff or other
costs and not including design costs which shall
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be governed by Paragraph 6 hereof. Precis shall select such
unaffiliated party or parties to produce the Additional Cards
as Precis in good faith determines will assure the best
product. Precis will provide White Sox with copies of invoices
from such third-party producers and White Sox may, if it
chooses, pay such producers directly. Precis shall pass along
to the White Sox all discounts, allowances, rebates, and the
like, obtained by Precis from the party(ies) producing the
Additional Cards. The White Sox shall have no obligation to
pay for Additional Cards, and no Additional Cards shall be
ordered by Precis, which are not produced in accordance with
the White Sox' specifications and advance approval.
(iii) The First 90,000 Cards will be initialized by Precis at its
expense.
(iv) White Sox will pay Precis 3 CENTS a Card for initializing the
Additional Cards.
(v) Following the term of this Agreement, and for so long as the
License described in Paragraph 11 is in effect, Precis shall
initialize the Cards and charge White Sox Precis' then-current
fees for such service, provided that such fees shall be
commercially reasonable.
(h) REPLACEMENT CARDS. If directed by White Sox, the
terms and conditions applicable to Cards shall provide that
upon the expiration of a Card, such Card shall no longer be
usable but may be exchanged for a new Card (a "Replacement
Card") with a value equal to the Unused Value (as defined in
Paragraph 8A) of the expired Card. Unless the context clearly
otherwise requires, all references herein to "Cards" shall
include Replacement Cards. Replacement Cards shall be produced
and initialized in this same manner as other Cards, but shall
not have any design features unless White Sox so direct. The
cost of producing, initializing, and delivering Replacement
Cards shall be borne as follows:
(i) Replacement Cards issued in exchange for any of
the First 90,000 Cards which have expired shall be
paid for by Precis.
(ii) Replacement Cards issued in exchange for any
Additional Cards which have expired shall be paid for
50% by Precis and 50% by Chicago White Sox.
The party bearing the cost of producing and initializing
Replacement Cards shall be reimbursed to the extent any amount
is collected from Cardholders as a charge for such Replacement
Cards.
(i) SECURITY MATTERS. The parties recognize that when
initialized, the Cards will be functionally equivalent to
cash. In addition, it is possible that Cards may be subject to
alteration in some manner so as to misstate the amount of
unused credit available or that Cards even may be
counterfeited. The parties agree to cooperate in responding to
these various security concerns including taking those steps
outlined in the Application. Specifically with respect to
security matters, the parties agree as follows:
(i) Until such time as Cards are delivered and
accepted by the White Sox at Comiskey Park, all risk
of loss, alteration and misuse of such Cards shall be
borne by Precis. Once Cards are delivered to and
accepted by White Sox at Comiskey Park, all risk of
loss, alteration and/or misuse shall shift to and be
borne by White Sox. The risk of loss, alteration or
misuse of any Cards delivered by White Sox to Precis
pursuant hereto, including without limitation the
Precis Cards shall be borne by Precis.
(ii) Precis shall be solely responsible for any Usage
accomplished through counterfeit Cards, i.e., Cards
produced and initialized by any party without
authorization from the White Sox.
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(j) REPORTS. Precis shall produce reports relating to the Cards as
necessary which reflect (i) sales and commission data, (ii) purchases at
Sportservice paid for by customers using Cards, with the distribution source
of such Cards identified, and (iii) such other accounting data as the White
Sox and/or Sportservice shall reasonably request, or as are called for in the
Application, and (iv) such other reports as are required by law. Precis shall
maintain records of accounting data at Precis' corporate headquarters for not
less than five years after applicable expiration dates or as otherwise may be
required by law.
(k) SIGN COSTS. Precis shall pay to White Sox, upon request, up to a
total of $500 to reimburse White Sox in part for the costs of signs placed in
Comiskey Park advertising and promoting the Cards.
(l) INSPECTION RIGHTS. At any time during the term of this Agreement,
and for a period of five years after the latest expiration date of any Cards
produced pursuant to this Agreement (or such longer period as may be
necessary in connection with an audit or investigation of White Sox by any
governmental authority), White Sox and its designated representatives shall
have the opportunity, upon prior written notice to Precis and during
reasonable business hours at Precis' home office (if such books and records
are available there, and if not at such other location at which they may be
available), to inspect the books and records of Precis to verify the Card
sales figures, Card production quantities and Card production and
initialization costs passed along to the White Sox and any other financial or
operational matters pertaining to this Agreement.
5. DUTIES OF THE WHITE SOX. During the term of this Agreement, the White
Sox shall perform the following duties:
(a) MARKETING THE CARDS. The White Sox shall actively and in good
faith market the Cards via message boards, public announcements and similar
methods, provided that this paragraph shall not obligate the White Sox to
incur any out-of-pocket expenses in connection with such marketing efforts.
(b) PARKING AND GAME PASSES. The White Sox shall provide to Precis
personnel all parking and game passes necessary to enable Precis to perform
its obligations under this Agreement.
(c) ASSISTANCE AND AFFILIATION. The White Sox shall provide Precis
with reasonable assistance and access to Comiskey Park in connection with
arranging site visits for potential Precis clients. Precis may use the White
Sox name and logo in connection with Precis' marketing and promotional
materials, provided that in each instance Precis must secure the prior
approval of the White Sox (which approval may be withheld by White Sox at its
sole discretion) and, if necessary, Major League Baseball.
(d) SCHEDULING. White Sox shall use its reasonable best efforts to
provide Precis with schedules for all games or other public events to be held
at Comiskey Park as soon as such schedules are available to White Sox
6. DESIGN OF CARDS. Precis shall arrange for the designer or designers
of the Card. Precis and the White Sox shall be jointly responsible for the
design of the Cards, subject to final approval by the White Sox which
approval may be withheld by White Sox at its sole discretion. All of the
costs of designing the Cards will be borne by Precis, PROVIDED that White Sox
shall reimburse Precis for any additional Card production costs incurred to
third parties (i.e., not done by Precis "in-house") solely because of
specific design requests made by White Sox.
7. FIRST 90,000 CARDS. Precis shall arrange for the production and
initialization of a total of 90,000 Cards having a value denomination of
Twenty Dollars ($20), each unless otherwise agreed by the White Sox, (the
"First 90,000 Cards").
(a) PRECIS CARDS. The First 90,000 Cards shall be issued in such
number of series, as the parties shall determine. Precis shall receive 35,000
of the First 90,000 Cards in each series (the "Precis Cards") for sale by
Precis other than at Comiskey Park. The Precis Cards shall include numbers
500 through 2000 of each series,
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if requested by Precis. Precis shall have the right to sell the Precis Cards,
subject to subparagraph 8A(h) below, and Precis shall be entitled to retain
the entire proceeds from such sales; provided, however, that Precis shall pay
to the White Sox an amount equal to the Usage (as defined in subparagraph
8A(i)) from time to time attributable to the Precis Cards as provided in
Paragraph 8A.
(b) REMAINING CARDS. The White Sox (and Precis, if it so desires)
shall sell the remaining 55,000 of the First 90,000 Cards (the "Remaining
First 90,000 Cards"). Remaining Cards to be sold by Precis shall be purchased
and paid for as provided in Paragraph 8A.
8. ADDITIONAL CARD ISSUES. If White Sox decides (in its sole discretion)
to issue any Cards in addition to the First 90,000 Cards ("Additional
Cards"), then Precis shall arrange for the production and initialization of
such Additional Cards, in such series as the parties shall determine. In such
event, Precis shall use its reasonable efforts to sell at least $250,000 in
face value of Additional Cards during each year of the Term. Such Additional
Cards shall be purchased and paid for by Precis, and Precis shall be liable
for any Usage thereof, all as provided in Paragraph 8A. Additional Cards sold
by Precis shall include a representative portion of each year's series of
Additional Cards, as the parties shall determine.
8A. ACCOUNTING AND PAYMENT. The amounts due and owing from the parties
set forth below shall be accounted for and paid as provided in this Paragraph
8A.
(a) PRECIS CARDS. Precis shall not be obligated to make any payment
to White Sox in consideration of receiving the Precis Cards, except that
Precis shall pay to White Sox 50% of Card License Fees (as defined in
subparagraph 8A(g)), if any, attributable to the Precis Cards. If and to the
extent any Usage of the Precis Cards shall occur, White Sox shall invoice
Precis no more frequently than on a monthly basis for 100% of such Usage and
all such invoices shall be payable within 90 days.
(b) REMAINING CARDS.
(i) With respect to any Remaining Cards sold
by the White Sox, White Sox shall pay to
Precis 50% of all "Earned Amounts" collected
by White Sox on such Cards, less 50% of any
Card License Fees, if any, paid by White Sox
attributable to such Cards. Earned Amounts
shall equal any account maintenance or other
administrative fees of any kind charged by
White Sox against such Cards. Precis' share
of Earned Amounts shall be paid to it within
90 days of the date on which White Sox earn
such Amounts.
(ii) If and to the extent Precis wishes to
purchase any of the Remaining Cards, Precis
shall pay to White Sox in cash, concurrently
with the issuance of such Remaining Cards,
100% of the first $25,000 in face amount
thereof (to reimburse Sox for fees relating
to the Chicago Cubs games), and 50% of the
face amount of Remaining Cards in excess of
$25,000, such 50% discount representing
Precis' commission. In addition, Precis
shall pay to White Sox 50% of the Card
License Fees (as defined in subparagraph (g)
below) attributable to such Remaining Cards.
(iii) In the event of any Usage of the
Remaining Cards purchased by Precis as
provided in subparagraph (ii), White Sox
shall invoice Precis for 50% of such Usage
not more frequently than on a monthly basis.
Such invoices will be payable by Precis
within 90 days.
(c) ADDITIONAL CARDS.
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(i) If and to the extent Precis wishes to
purchase any Additional Cards, Precis shall
pay to White Sox in cash 80% of the face
amount thereof concurrently with the
issuance of such Cards, the 20% discount
representing Precis' commission. Any Card
License Fees attributable to such Additional
Cards shall be borne by White Sox.
(ii) In the event of any Usage of the
Additional Cards purchased by Precis as
provided in subparagraph (i), White Sox
shall invoice Precis for 20% of such Usage
not more frequently than on a monthly basis.
Such invoices will be payable by Precis
within 90 days.
(e) PURCHASE ON CONSIGNMENT. Notwithstanding the payment provisions
in Paragraph 8A, Precis may in any year during the term of this Agreement
from time to time purchase up to a maximum amount outstanding of $5,000 in
face amount of Cards on consignment. If such Cards are not sold by Precis,
Precis shall return same to White Sox in their original package not less than
30 days after the end of the applicable season. If such Cards purchased on
consignment are sold by Precis, Precis shall promptly remit to White Sox the
applicable portion of the face amount of such Cards, (I.E., 50% with respect
to Remaining Cards and 20% with respect to Additional Cards) together with
Precis' share of any Card License Fees attributable thereto, and Precis shall
be liable for any Usage thereof as set forth above in subparagraphs (b) and
(c), as applicable.
(f) [This subparagraph intentionally left blank.]
(g) CARD LICENSE FEES. The White Sox shall use reasonable efforts to
negotiate and obtain licenses or approvals for the Cards from Major League
Baseball or others if and to the extent such licenses or approvals may be
required. As referred to in Paragraph 8A, Precis may be required to reimburse
White Sox for a portion of any license fees or expenses ("Card License Fees")
paid to Major League Baseball ("MLB"), or any other party, whose logo,
trademark, trade name or the like appears on any of the First 90,000 Cards.
Card License Fees shall not include royalties and license fees paid to MLB
pursuant to subparagraph 9(b) hereof nor shall Card License Fees include fees
paid to the Chicago Cubs relating to the Cubs/White Sox games, the latter
being reimbursable to White Sox as provided in subparagraph 8A(b)(ii) above.
(h) MANNER OF SALES. Precis shall advise White Sox in advance of
Precis' proposed manner of selling any Cards (including the Precis Cards),
which shall be subject to White Sox' approval. Precis shall sell all Cards at
face value and shall not sell any Cards at Comiskey Park.
(i) DEFINITIONS. "Usage" means the aggregate purchases of food,
beverages, and merchandise at any time for which an applicable Card has been
used for payment and any amounts paid over to any governmental entity
pursuant to escheat, unclaimed property, or similar laws in respect of an
applicable Card. The "Unused Value" of any Card at any time shall be its face
amount less its Usage, less any Earned Amounts charged against such Cards.
(j) RESALE NUMBER. Unless Precis shall present to White Sox a resale
number acceptable to the Illinois Department of Revenue, White Sox shall
charge Precis Illinois Retailers Occupation Tax on all Cards purchased by
Precis.
9. SPONSORSHIP OF CARDS.
(a) SPONSORSHIP FEES. In the event that Precis successfully engages a
sponsor or advertiser who purchases advertising on Cards, the packaging
thereof, or the Hardware, which sponsor or advertiser is not (nor is any
affiliate thereof) then advertising any products or services in conjunction
with the White Sox ("New Advertiser"), the Net Sponsorship Fees (as
hereinafter defined), paid by the New Advertiser shall be apportioned among
the parties as follows: (i) Net Sponsorship Fees attributable to the First
90,000 Cards shall be allocated 75% to Precis and 25% to the White Sox; and
(ii) Net Sponsorship Fees attributable to Additional Cards shall be allocated
40% to Precis and
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60% to the White Sox. Precis shall not be entitled to any sponsorship fees
paid by advertisers generated by the White Sox. The White Sox shall approve
any New Advertiser generated or secured by Precis prior to its acceptance, as
well as the advertising copy to appear on the Cards, which approval may be
withheld by White Sox in its absolute discretion.
(b) NET SPONSORSHIP FEES. All fees from New Advertisers, net of
agency commission, shall either be paid directly to White Sox or remitted to
White Sox by Precis promptly upon receipt. All royalties or license fees
payable to Major League Baseball shall be deducted from such fees, and the
balance remaining shall constitute "Net Sponsorship Fees." Precis' share of
Net Sponsorship Fees, determined in accordance with subparagraph 9(a), shall
be paid by White Sox on a monthly basis.
10. TITLE TO THE SYSTEM. Upon delivery and installation of the System
(and any upgrades, enhancements, and additions thereto), the White Sox will
own the Hardware (and such upgrades and additions), free and clear of any
liens, claims, charges, or other rights of third parties therein or relating
thereto, subject only to Precis' rights pursuant to the last sentence of
subparagraph 4(e). Precis shall provide such lien waivers from suppliers
and/or installers of the System as White Sox may request. The White Sox shall
assume all risk of loss and damage to the System (and such upgrades,
enhancements, and additions), subject to Precis' obligation to provide
maintenance and support as provided herein and to replace Hardware pursuant
to clause (iv) of Subparagraph 4(d).
11. LICENSE TO THE SOFTWARE.
(a) Precis hereby grants to the White Sox a nonexclusive and
nontransferable (except as provided in Paragraph 22 hereof) right and license
to use the Software, including any enhancements provided pursuant to this
Agreement (the "License") during the term of this Agreement and subject to
the payment of fees as provided in subparagraph (b) below in perpetuity
thereafter. The White Sox shall not use or transfer the Software to another
location without prior written consent of Precis. The White Sox shall not
copy or reproduce any part of the Software, except for one back-up copy for
the White Sox' and Sportservice's (or its successor's) use. Subject to
subparagraph (c) below, and the letter agreement therein referred to, this
License includes only binary and/or object code version; the source code is
not included. The White Sox acknowledges that the Software constitutes
proprietary, confidential information of Precis. The White Sox acknowledges
that Precis wishes to protect, by this provision, the confidentiality of the
Software.
(b) During the term of this Agreement, there shall not be any
license fee owed by the White Sox with respect to the License. After
expiration of the term of this Agreement, Precis shall provide upgrades,
enhancements, and/or services to maintain the Software at its then-current
fees for license of the PRECISCACHE-TM- system and upgrades and enhancements,
which fees shall be commercially reasonable.
(c) Concurrently herewith, the parties are entering into a letter
agreement (the "Letter Agreement") setting forth the rights of the parties
with respect to the source code and other documentation and data covered
thereby, in the event Precis fails to perform its obligations under the
Agreement or fails to continue to do business in the ordinary course for any
reason, including bankruptcy.
12. CONSULTATION SERVICES. During the term of this Agreement, Precis
shall consult with the White Sox with respect to smart cards and smart card
applications. In the event that the White Sox desires to enable the smart
cards of another smart card vendor to be accessed via the System, Precis
shall cooperate with such vendor in order to upgrade the System so that they
are compatible with such vendor's application. The White Sox shall reimburse
Precis for all actual out-of-pocket expenses (including travel and direct
incremental personnel costs), but not for overhead expenses, incurred in
connection with the acquisition by White Sox and installation of any hardware
or software necessitated as a result of such services.
13. PAYMENTS TO SPORTSERVICE. Precis is not a party to any agreement
with Sportservice. The White Sox shall be solely responsible for any and all
payments owed to Sportservice in connection with use of the Cards, provided
that if the reports provided by Precis relating to Usage are inaccurate or
incomplete, then without limiting
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White Sox' other remedies hereunder, Precis shall be liable to White Sox for
any damages (including underpayment or overpayment to Sportservice) incurred
by White Sox as a result thereof.
14. INDEMNIFICATION.
(a) BY PRECIS. Precis shall defend, indemnify and hold harmless the
White Sox, ISFA, Sportservice, and their respective employees, officers,
directors, partners, agents, contractors, subcontractors, and affiliates from
and against and promptly reimburse said indemnified parties for all
liabilities, including reasonable attorneys' fees, which may arise in
connection with (i) a failure by Precis to perform any of its obligations in
accordance with this Agreement or (ii) negligent or intentional acts or
omissions of Precis or any officer, director, employee or agent of Precis so
long as such liabilities do not arise because of a breach of this Agreement
by the White Sox or willful misconduct, bad faith or gross negligence of the
said indemnified parties, or (iii) allegations that the System or any part
thereof infringes on the proprietary rights of any third party; provided, in
no event shall Precis or its assigns be liable for any incidental,
consequential or special damages including, without limitation, the White
Sox' lost profits.
(b) BY THE WHITE SOX. The White Sox shall defend, indemnify and
hold harmless Precis and its employees, officers, directors, agents,
contractors, subcontractors, and affiliates from and against and promptly
reimburse Precis for any and all liabilities, including reasonable attorneys'
fees, which may arise in connection with (i) a failure by the White Sox to
perform its obligations in accordance with this Agreement or (ii) negligent
or intentional acts or omissions of the White Sox or any officer, director,
employee or agent of White Sox, so long as such liabilities do not arise
because of a breach of this Agreement by Precis or willful misconduct, bad
faith or gross negligence of Precis; provided, in no event shall the White
Sox or its assigns be liable for any incidental, consequential or special
damages including, without limitation, Precis' lost profits.
(c) INDEMNIFICATION PROCEDURES. Whenever any party entitled to
indemnification (the "Indemnified Party") pursuant to the previous paragraphs
receives notice of any potential claim which may be subject to indemnity,
such party shall promptly notify the other party (the "Indemnifying Party").
The Indemnifying Party shall have the obligation to assume the defense of
such claim by counsel designated by it and acceptable to the Indemnified
Party, provided that the Indemnifying Party shall not settle or compromise
any such claim, or consent to the entry of any judgment, without the written
consent of the Indemnified Party. The Indemnified Party, its affiliates,
employees and representatives, shall fully cooperate with and timely assist
the Indemnifying Party with the defense of such claim. If the Indemnifying
Party fails to assume the defense of such claim as soon as reasonably
possible, in any event prior to the earlier of twenty (20) days after receipt
of notice of the claim or five (5) days before the date an answer to a
complaint or similar initiation of legal proceeding shall be due, the
Indemnified Party shall have the right to undertake, at the Indemnifying
Party's expense, the defense, compromise or settlement of any such claim on
behalf of and at the risk and expense of the Indemnifying Party.
15. TERMINATION.
(a) IN GENERAL. This Agreement may be terminated prior to the
scheduled expiration hereof in any of the following events:
i. By mutual agreement of the parties; or
ii. By reason of material breach, as provided in subparagraph (b)
hereof.
(b) TERMINATION FOR MATERIAL BREACH.
i. If Precis defaults by the failure to
comply in all material respects with the
terms of this Agreement or to substantially
perform in good faith the obligations
required herein, the White Sox, in addition
to all of its other rights in law and in
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equity, may terminate this Agreement upon 90
days prior written notice to Precis, unless
Precis cures such default within the 90-day
period, or, if such cure cannot reasonably
be accomplished within such 90-day period,
unless Precis shall have in good faith
commenced such cure and shall thereafter
diligently proceed to completion.
ii. If the White Sox defaults by the failure
to comply in all material respects with the
terms of this Agreement or to substantially
perform in good faith the obligations
required herein, Precis, in addition to all
of its other rights in law and in equity,
may terminate this Agreement upon 90 days
prior written notice to the White Sox,
unless the White Sox cures such default
within the 90-day period, or, if such cure
cannot reasonably be accomplished within
such 90-day period, unless White Sox shall
have in good faith commenced such cure and
thereafter diligently proceed to completion.
(c) EFFECT OF TERMINATION. In the event of termination of this
Agreement by reason of Paragraph 15(a) above or on account of the expiration
of the term hereof, then, unless the parties shall otherwise agree, and
subject to such further legal and equitable rights which a party may have if
termination results from a material breach by the other party, all rights and
obligations of the parties hereunder shall terminate as of the Termination
Date except as follows:
(i) Each party shall remain obligated to pay
to the other any amounts owing hereunder
attributable to the period prior to the
Termination Date, including, without
limitation, any amounts owing pursuant to
Paragraph 8A on account of Usage or Earned
Amounts in respect of any Cards subsequent
to such Date.
(ii) The obligations of the parties pursuant
to Paragraphs 14 and 17 hereof, shall
continue in effect.
(iii) The License to the Software (as
provided in Paragraph 11) hereof shall (so
long as White Sox make the license payments
required in subparagraph 11(b)) continue in
full force and effect in perpetuity, and the
White Sox shall continue to have such rights
as are set forth in the Letter Agreement.
(iv) Precis shall immediately return to
White Sox all unsold Cards held by it, and
White Sox shall pay to Precis an amount
equal to the amount paid for such Cards by
Precis (as provided in Paragraph 8A), less a
reasonable reserve for Precis' potential
liability for Usage on outstanding Cards,
PROVIDED THAT White Sox shall not be
obligated to pay any amount in respect of
any returned Precis Cards, and PROVIDED
FURTHER that to the extent Precis' potential
liability for Usage is extinguished, any
unused reserve applicable thereto shall be
paid over to Precis.
16. INSURANCE. Precis shall purchase and maintain insurance written in
the occurrence format, at its own expense, as outlined below from the date
hereof until at least two (2) years after the termination of this Agreement.
(a) MINIMUM SCOPE OF INSURANCE.
Coverage shall be at least as broad as:
(i) COMMERCIAL GENERAL LIABILITY. Commercial General
Liability Insurance, including coverage for premises
and operations, products/completed operations,
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contractual liability, independent contractors, broad form
property damage liability, and personal/advertising injury
liability.
(ii) AUTOMOBILE LIABILITY. Automobile liability insurance for
bodily injury and property damage covering any automobile used
in connection with this agreement.
(iii) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY. Workers
Compensation as required by the State of Illinois and
Employer's Liability insurance.
(iv) EMPLOYEE DISHONESTY. Employee Dishonesty Coverage for
employees performing services under this agreement.
(b) MINIMUM LIMITS OF INSURANCE.
(i) COMMERCIAL GENERAL LIABILITY INSURANCE. For bodily injury
including death, personal injury, advertising injury and
property damage. Such blanket contractual liability shall
cover the indemnification and hold harmless provision of this
Agreement. Precis shall maintain limits no less than:
a) General Aggregate Limit $ 1,000,000
b) Products-Completed Operations Aggregate $ 1,000,000
c) Personal Advertising Injury Limit $ 1,000,000
d) Each Occurrence Limit $ 1,000,000
e) Fire Damage Limit (any one fire) $ 50,000
f) Medical Expense Limit (any one person) $ 5,000
(ii) AUTOMOBILE LIABILITY. $1,000,000 combined single limit per
accident for bodily injury and property damage for any owned,
non-owned or hired automobile or any vehicle used in
connection with this Agreement.
(iii) WORKERS COMPENSATION AND EMPLOYER'S LIABILITY. Workers
Compensation insurance in compliance with the Workers
Compensation Act of the State of Illinois. Employer's
liability insurance for occupational accidents or disease, for
limits of not less than $1,000,000 for any one occurrence.
(iv) EMPLOYEE DISHONESTY. Employee dishonesty coverage in such
reasonable amounts as White Sox determine.
(c) ACCEPTABILITY OF INSURERS. Insurance is to be placed with
insurers who have a BESTS INSURANCE REPORTS rating of no less than A- and a
financial size of no less than Class VIII, who are authorized as an admitted
insurance company in the State of Illinois.
(d) ADDITIONAL INSUREDS. The Chicago White Sox, Ltd., Chisox
Corporation, Illinois Sports Facilities Authority, At Your Service LLC, CWS
Maintenance, Chicago White Sox Charities, Inc., and Illinois Sportservice
Inc. and their subsidiaries and affiliates, their directors, officers,
employees and agents shall be named as additional insureds on all Commercial
General Liability, Umbrella, and Excess Liability policies for all liability
arising out of services provided by this Agreement. Such insurance shall be
primary and shall not contribute with any insurance maintained by the
additional insureds.
(e) CERTIFICATE OF INSURANCE. Certificates of Insurance acceptable to
the Chicago White Sox, Ltd. shall be submitted prior to the commencement of
services provided under this Agreement, and annually
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thereafter. These certificates shall contain a provision that coverage afforded
under the insurance policies will not be canceled, non-renewed, or materially
reduced until at least thirty (30) days prior written notice has been provided
to Chicago White Sox, Ltd.
17. CONFIDENTIALITY.
(a) BY PRECIS. Precis shall keep and shall require its employees to
keep confidential all, and shall not divulge to any other party, other than a
Permitted Party (as hereinafter defined), any of the Confidential Information
(as hereinafter defined) of the White Sox and Sportservice, unless such
information (a) is or becomes generally available to the public other than as
a result of a disclosure by Precis or (b) is required to be disclosed by law
or by a judicial, administrative or regulatory authority.
(b) BY THE WHITE SOX. The White Sox shall keep and shall require its
employees to keep confidential all, and shall not divulge to any other party
other than to Sportservice or a Permitted Party (as hereinafter defined) any
of the Confidential Information (as hereinafter defined) of Precis, unless
such information (a) is or becomes generally available to the public other
than as a result of a disclosure by the White Sox, or (b) is required to be
disclosed by law, by League Rules (as hereinafter defined) or by a judicial,
administrative or regulatory authority.
(c) CERTAIN DEFINITIONS. "Permitted Parties" shall mean with respect
to Precis or the White Sox, as the case may be, its attorneys, accountants,
and lenders. "Confidential Information" shall mean all proprietary
information and trade secrets which White Sox, Sportservice or Precis
specifically identifies as such in writing.
(d) EXPIRATION. The obligations set forth in this Paragraph 17 shall
expire three years after the termination of this Agreement.
18. DISCLAIMER OF INTENT TO BECOME PARTNERS. Precis and the White Sox
shall not by virtue of this Agreement be deemed partners or joint venturers.
Precis is retained by the White Sox to provide services under this Agreement
as an independent contractor. Neither party shall pay or withhold any federal
or state income or payroll taxes with respect to compensation payable to the
other under this Agreement. None of the employees of one party shall be
treated as employees of the other party with respect to any services provided
by them under this Agreement. No workers' compensation insurance shall be
obtained by the White Sox concerning any of the employees of Precis. Neither
Precis nor the White Sox shall incur any financial obligation on behalf of
the other party without prior written approval of the other party.
19. NOTICES. Any and all notices, consents or other communications by
one party intended for the other shall be sent either by facsimile
transmission or by bonded air courier, addressed as follows:
If to Precis: Precis Smart Card Systems, Inc.
11032 Quail Creek Road
Oklahoma City, Oklahoma 73120
Attention: Jim Lout
Fax: (405) 752-5605
If to the White Sox: Chicago White Sox
333 West 35th Street
Chicago, Illinois 60616
Attention: Howard Pizer
Fax:(312) 674-5519
unless a party shall have designated a different address or number by sending
written notice of the change to the other party. All notices shall be deemed
given when actually received or when receipt is refused.
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20. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision.
21. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
22. NO ASSIGNMENT. Neither party may assign its rights or delegate its
duties under this Agreement without the prior written consent of the other
party, PROVIDED, HOWEVER, that White Sox shall have the right to transfer all
of its rights and obligations under this Agreement, including, without
limitation, its rights under Paragraph 11 hereof, to any party which shall
acquire the Major League Baseball franchise now owned by the White Sox so
long as such transferee shall continue to play at Comiskey Park.
23. BINDING EFFECT. Subject to Paragraph 22, this Agreement shall be
binding upon, and shall inure to the benefit of, the parties and their
respective legal representatives, successors and assigns.
24. CAPTIONS. The paragraph captions used in this Agreement are for
convenience only and shall not affect the interpretation of this Agreement.
25. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended to confer upon any person, firm or corporation other
than the parties any right, remedy or claim under or by reason of this
Agreement, as third party beneficiaries or otherwise.
26. LATE PAYMENT PROVISION. Any amounts due hereunder which are not paid
on or before the applicable payment date shall bear interest until paid at a
rate equal to four hundred (400) basis points over the "prime rate" as
reported in the "Money Rates" column (or its successor) in THE WALL STREET
JOURNAL on the payment date.
27. APPROVALS, ETC. Whenever a party's approval, permission,
concurrence, consent, satisfaction, or the like is required or provided for
under this Agreement, such approval, permission, concurrence, satisfaction,
or the like shall not be unreasonably withheld, delayed, or conditioned
except as and to the extent it is expressly provided that such party may act
in its sole discretion; provided, however, that neither party shall be
required to waive a material breach hereunder.
28. LEAGUE RULES. This Agreement is subject in all respects to "League
Rules," as they presently exist or as they may from time to time be amended,
whether or not specific reference is made thereto in any paragraph of this
Agreement. "League Rules" shall mean (i) any present or future agreement to
which the American League of Professional Baseball Clubs (the "League") or
the Commissioner of Major League Baseball or any committee thereunder, on
behalf of all of the members of the League or of Major League Baseball, is a
party, or by or among all of the members of the League or of Major League
Baseball, or by Major League Baseball Properties, Inc. or any other entity
owned by all of the members of Major League Baseball; and (ii) all rules and
relations promulgated pursuant to any of the foregoing, including, without
limitation, royalty obligations and licensing requirements; provided,
however, that "League Rules" shall not include any of the foregoing that
violates any present or future judicial decree to which the League, Major
League Baseball, its Commissioner, or its members are subject.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
PRECIS: PRECIS SMART CARD SYSTEMS, INC.
By:_____________________________
James B. Lout, President
WHITE SOX: CHICAGO WHITE SOX, LTD.
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By: CHISOX CORPORATION, its General Partner
By:____________________________________
Howard Pizer,
Executive Vice President
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EXHIBIT 10.10
AGREEMENT
This Agreement is entered into this ___ day of August, 1997 between
Tangent Associates, Inc., a Florida corporation whose principal place of
business is 5000 S.W. 52 Street, Davie, Florida ("Tangent") and Precis Smart
Card Systems whose principal place of business is ________________
_____________________________ ("Precis").
Tangent provides point of sale and inventory control systems for
food and beverage concessions. Tangent is party to an agreement (the "Kiel
Center Agreement") dated as of August ___, 1997 with ___________ ("Kiel")
which is attached hereto as Exhibit A, pursuant to which Tangent has agreed,
among other things, to upgrade the system manufactured by Tangent that is
currently installed at the Kiel Center in St. Louis, Missouri, and to supply
so-called "smart cards" to the Kiel Center for use in food and beverage
concessions. Precis designs, manufactures and sells equipment to read
information from and store information on smart cards. Tangent and Precis
desire to work together to design, manufacture and sell smart card systems
for installation at the Kiel Center (the "Kiel Center Project"), all on the
terms and conditions set forth below.
1. CERTAIN DEFINITIONS.
a. "ADVERTISING SPONSORSHIP SALES" means the revenue
generated pursuant to Section 6.3 of the Kiel Center Agreement.
b. "COLLECTOR SALES" means sales of Smart Cards by Tangent
pursuant to Section of 6.2 the Kiel Center Agreement.
c. "COLLECTOR" means the ultimate purchaser of a Smart Card
sold in a Collector Sale.
d. "HEREOF" "HEREIN" and "HEREUNDER" when used in this
Agreement shall refer to the Agreement as a whole, unless the context
otherwise requires.
e. "SMART CARD" shall mean the card containing microchip
technology permitting the storing, retrieval and restoring of information
(such as an encrypted dollar value) relating to cardholders or card use and
intended for use in the Smart Card Program.
f. "SMART CARD DESIGN" shall mean designs, drawings, and
depictions appearing on Smart Cards used in connection with the Smart Card
Program or otherwise in connection with the Agreement or the Kiel Center
Agreement, including any Third Party Intellectual Property incorporated
therein.
g. "SPECIALTY EQUIPMENT" means the Smart Card-related
equipment and software installed in connection with the Upgrade.
h. "INTELLECTUAL PROPERTY" means all trademarks, service
marks, trade dress, logos, trade names, and corporate names, together with
all translations, adaptations, derivations, and combinations thereof, all
copyrightable works and copyrights, and all mask works and all applications,
registrations, and renewals in connection therewith.
i. "THIRD PARTY INTELLECTUAL PROPERTY" means all
Intellectual Property owned by persons other than Tangent, Precis and Kiel.
j. "TANGENT INTELLECTUAL PROPERTY" means all Intellectual
Property owned by Tangent prior to the date hereof.
k. "PRECIS INTELLECTUAL PROPERTY" means all Intellectual
Property owned by Precis prior to the date hereof.
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l. "JOINT INTELLECTUAL PROPERTY" means all Intellectual
Property that may be developed jointly by the parties hereunder in connection
with the Kiel Center Project.
m. "UPGRADE" means the upgrade described in Section 2.1 of
the Kiel Center Agreement, as the Kiel Center Agreement may be amended from
time to time by Tangent and Kiel.
2. SUPPLY OF EQUIPMENT
a. Precis shall supply such Specialty Equipment as may be
needed to accomplish the Upgrade. In connection therewith, Precis shall,
among other things:
(1) Provide smart card readers (Verifone SC450) with
the appropriate programming to read and devalue cards in conjunction
with the Tangent Model 9310 POS unit;
(2) Provide 20,000 Smart Cards, programmed and
initialized with appropriate values to Kiel in discharge of Tangent's
obligations under Section 3.1 of the Kiel Center Agreement.
(3) Provide up to 50,000 Smart Cards for Collector
Sales.
(4) Provide Tangent with ten completely valued sets
of each card created with a particular Smart Card Design.
(5) Provide appropriate software for use with the
Specialty Equipment that will permit card security, database
functions, accounting functions, all as more particularly described
on Schedule 1 hereto and, in any event, sufficient for Tangent and
Kiel to provide reports and other functions as contemplated by the
Kiel Center Agreement;
(6) Provide test equipment and cards at the request
of Tangent for the purpose of assuring that the Upgraded System
functions as required; and
(7) Provide equipment necessary (in Tangent's
discretion) for sales demonstrations and trade shows and for other
sales and marketing activities.
b. Upon acceptance of delivery of the Specialty Equipment by Tangent
at the Kiel Center, title to an undivided one-half interest in such Specialty
Equipment shall pass to Tangent, free and clear of all liens and encumbrances
other than an undivided one-half interest therein retained by Precis. Precis
acknowledges and agrees that unencumbered title to all Specialty Equipment
shall pass to Kiel under certain circumstances, as provided in the Kiel
Center Agreement, and Precis agrees that it shall sell, transfer and convey
all of its right, title and interest in and to the Specialty Equipment if, in
Tangent's sole determination, passage of such title is appropriate as
provided in the Kiel Center Agreement.
3. Smart Card Design
Upon request of Tangent, Precis shall consult with Tangent
in the development of Smart Card Designs (both for use in the Smart Card
Program and with for use in marketing such cards to card Collectors),
assistance in the development of card issuing and sales strategies, and
training to Kiel management and supervisory personnel on the control and use
of the cards as a means for settling customer transactions.
4. Cost Sharing
a. Against appropriate documentation therefor, within 45
days of the end of each calendar quarter beginning with the quarter ending
December 31, 1997, Tangent shall reimburse Precis for 50% of the costs
incurred by Precis in connection with the Kiel Center Project. These costs
include, without limitation, costs of Specialty Equipment, costs of
development of software, costs of Smart Cards provided pursuant to Section
_________ (hereof, costs of installation
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of Specialty Equipment at the Kiel Center, shipping costs, and labor costs
(but not to include overhead, management labor costs, or capital
expenditures).
b. Against appropriate documentation therefor, within 45
days of the end of each calendar quarter beginning with the quarter ending
December 31, 1997, Precis shall reimburse Tangent for 50% of the costs
incurred by Tangent in connection with the Kiel Center Project. These costs
include, without limitation, costs of design, costs of installation,
consulting costs, costs to train Kiel Center personnel, costs of sales and
marketing of Collector Cards, and costs of creating Smart Card Designs (but
not to include overhead, management labor costs, or capital expenditures).
5. Revenue Sharing
Within 45 days of the end of each calendar quarter
beginning with the quarter ending December 31, 1997, and until the expiration
or earlier termination of this Agreement, Tangent shall pay to Precis a share
of revenues received by Tangent as a result of Advertising Sponsorship Sales
and Collector Sales, all in accordance with the schedule set forth on
SCHEDULE 2 hereof, less amounts remitted to the Kiel Center in accordance
with the Kiel Center Agreement.
6. Smart Card Designs/Intellectual Property Matters.
a. Any Smart Card Designs together with all United States
and foreign copyrights thereto, that are created by Tangent and do not
constitute Third Party Intellectual Property, shall be the sole and exclusive
property of Tangent, its successors and assigns. In this regard:
(1) Tangent, its successors and assigns, shall have the
sole and exclusive right to secure, register and/or otherwise perfect
all claim to copyright(s) on the Smart Card Designs in the United
States and throughout the world in its own name or in the name of its
nominee.
(2) Tangent, its successors and assigns, in their sole
discretion, shall have the absolute and exclusive right to use and/or
license, transfer or otherwise dispose of the Smart Card Designs, any
and all worldwide copyrights therein and/or copies of the Smart Card
Designs and derivative works based thereon throughout the world in any
manner whatsoever without notifying, consulting or accounting to Kiel.
(3) Precis shall execute such documents and, at the expense
of Tangent, its successors and assigns, shall take such actions as may
be reasonably requested by any of them to secure, perfect, enforce
and/or otherwise protect Tangent's right, title and interest in and to
the Smart Card Designs, including but not limited to all worldwide
copyrights in such designs.
(4) Precis does hereby expressly and knowingly relinquish
and waive any and all right(s) to claim authorship of Smart Card,
any portion thereof or any derivative work(s) based thereon.
b. Ownership of Intellectual Property.
(1) All Precis Intellectual Property and Intellectual
Property developed solely by Precis during the term of the Kiel Center
Agreement shall be owned by Precis.
(2) All Tangent Intellectual Property and Intellectual
Property developed by Tangent during the term of the Kiel Center
Agreement shall be owned by Tangent.
(3) All Joint Intellectual Property shall be [jointly owned
by the parties as tenants in common.]
c. Notwithstanding the foregoing, Precis produce for itself
ten completely valued sets of each card created with a particular Smart Card
Design. In no event shall Precis sell or distribute any Smart Cards without
Tangent's prior written consent.
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d. Precis warrants to Tangent that Precis owns or otherwise
holds all rights necessary to make, use, sell, offer for sale, advertise and
distribute products currently made, used, sold offered for sale, advertised
and distributed by Precis, free and clear from all claims, liens and
encumbrances of third parties, except for the obligations under those
agreements and licenses listed on Schedule 3 hereto.
e. Tangent warrants to Precis that Tangent owns or
otherwise holds all rights necessary to make, use, sell, offer for sale,
advertise and distribute products currently made, used, sold offered for
sale, advertised and distributed by Tangent free and clear from all claims,
liens and encumbrances of third parties, except for the obligations under
those agreements and licenses listed on Schedule 4 hereto.
7. Warranty. Each party hereto warrants that under normal use and
service its products are free from defects in design and workmanship. Each
party warrants that the products of each delivered by each for use in
connection with the Kiel Center Project will be complete and in conformity
with the products regularly supplied by each to purchasers and lessees of its
products.
8. Term and Termination. This Agreement shall be for a period of six
years from the date hereof unless sooner terminated in accordance with the
following provisions:
a. Tangent may, at its option, terminate this Agreement at
any time if the Kiel Center Agreement is terminated for any reason.
b. Tangent may terminate this Agreement:
(1) On or before _________, 19__, if Tangent is unable
to obtain licenses for Third Party Intellectual Property as provided in
Section 8.2 of the Kiel Center Agreement; or
(2) On or before __________, 1997 for any reason or for
no reason, in Tangent's sole discretion.
c. Either party may terminate this Agreement if the other
party becomes unable to pay its respective debts, becomes insolvent, and/or
if a receiver is appointed or applied for against such party, or if a
petition in bankruptcy, insolvency or corporate reorganization is filed by or
against such party and such petition is not vacated within sixty days of such
filing;
d. Either party may terminate this Agreement upon written
notice to the other that such party is unable to perform as provided
hereunder due to labor disputes, fire, casualties and accidents, acts of the
elements, acts of a public enemy, sovereign acts or regulations and any other
causes beyond the control of such party, its agents, employees or officers.
e. The provisions of Sections __ and __ shall survive the
expiration or termination of this Agreement.
9. Miscellaneous Provisions
a. ASSIGNMENT. This Agreement shall be binding upon the
parties and their respective successors and assigns. The rights and
obligations of the either may not be assigned without the prior written
consent of the other.
b. INDEMNIFICATION.
(1) Precis shall defend, indemnify and hold Tangent
harmless from and against any material liabilities, damages or losses
(other than loss of potential sales and profits), and from any
claims, suits, proceedings, demands, recoveries or expenses, in
connection with the Smart Card Program arising out of, based on, or
caused by (a) activities conducted by Precis or the failure by Precis
to conduct activities, in connection with the Kiel Center Project or
(b) the material breach of performance by Precis of any of its
obligations hereunder; provided, however, that Tangent shall make no
claims under this provision until and unless the aggregate amount
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of all such claims exceeds the amount of $____________.
(2) Tangent shall defend, indemnify and hold Precis
harmless from and against any material liabilities, damages or losses
(other than loss of potential sales and profits), and from any
claims, suits, proceedings, demands, recoveries or expenses, in
connection with the Kiel Center Project arising out of, based on, or
caused by the material breach of performance by Tangent of any of its
obligations hereunder; PROVIDED, however, that Precis shall make no
claims under this provision until and unless the aggregate amount of
all such claims exceeds the amount of $____________.
c. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITIES.
Except for its express representations, warranties and covenants contained in
this Agreement, Tangent DISCLAIMS ALL WARRANTIES, INCLUDING, WITHOUT
LIMITATION, ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE FOREGOING, TANGENT SHALL NOT
BE LIABLE FOR LOST PROFITS, LOST BUSINESS OR ANY INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES CLAIMED BY PRECIS IN CONNECTION WITH THIS
AGREEMENT OR THE SMART CARD PROGRAM.
d. RELATIONSHIP OF THE PARTIES. The Parties hereto agree
that they are independent contractors under this Agreement, and no agency,
employment, partnership, joint venture or franchise relationship is created
or shall be deemed to be created hereunder. Neither party shall have, and
neither shall represent to have, any power, right or authority to bind the
other or to assume or create any obligation or responsibility, express or
implied, on behalf of the other party or in the other party's name, except as
herein expressly permitted.
e. CONFIDENTIALITY. Tangent and Precis acknowledge that by
reason of their relationship to each other hereunder, each will have access
to certain information and materials concerning the other's business, plans,
customers and products (including but not limited to information and
materials contained in technical data provided from time to time) which is
confidential and of substantial value to the owner, which value would be
impaired if such information were disclosed to third parties. Except for
information that (a) is, at the time of disclosure, a part of the public
domain or thereafter becomes a part of the public domain through no violation
of this Agreement; (b) was available to the receiving party on a
non-confidential basis prior to its disclosure to the other party, (c)
becomes available to the receiving party on a non-confidential basis from a
source other than the disclosing party, provided that such source is not
bound by a confidentiality agreement with the disclosing party, or (d) is
required to be disclosed in a filing required by law or by statutory
regulation, without the prior written consent of the other party, Tangent and
Precis agree that they, and their directors, officers and professional staff,
shall not use in any way, for their own account or the account of any third
party, nor disclose to any third party, any such confidential information
which is revealed to either by the other party. Each will take every
reasonable precaution to protect the confidentiality of such information. On
termination of this Agreement, there shall be no use or disclosure by either
party of any confidential information previously disclosed to such party by
the other for one year from the date of termination of this Agreement.
f. ARBITRATION.
(1) Except for any action seeking equitable relief by
one of the parties hereto for a breach by the other, any dispute,
controversy or claim arising under, out of, in connection with, or
in relation to this Agreement, or the negotiation, execution or breach
thereof, shall be determined and settled by final and binding
arbitration in Broward County, Florida, in accordance with the then
current Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"), and judgment upon the award rendered by the
arbitrator may be entered in the state courts of Broward County,
Florida. The arbitration shall be conducted by a single arbitrator
selected by the parties. If the parties have not selected an
arbitrator within thirty days of written demand for arbitration by
either party, the arbitrator shall be selected by the American
Arbitration Association pursuant to the Rules. The expenses of
arbitration shall initially be shared equally by the parties, but the
share of the prevailing party shall be reimbursed by the party against
whom the award is rendered.
(2) In the event that (a) the arbitrator in an
arbitration proceeding commenced in accordance with this Section _
determines that the matter is not susceptible of arbitration or that
the relief sought is not obtainable in arbitration, (b) the laws of the
State of Florida permit a party to seek certain rights or
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remedies prior to the commencement of an arbitration proceeding, or (c)
any action seeking equitable relief is commenced by one of the parties
hereto for breach, the parties hereto agree and consent to the
exclusive jurisdiction and venue of the state courts of Broward County,
Florida or in the United States District Court for the Southern
District of Florida, for such purpose or purposes.
(3) Should any party to this Agreement institute an
arbitration proceeding as provided in this Section ____ or any other
legal action or proceeding permitted by the immediately preceding
paragraph of this Section _____, to enforce the terms, conditions and
provisions of this Agreement, or to recover damages or obtain any other
relief, including equitable relief, in connection with any matters
arising out of or in connection with this Agreement, the prevailing
party shall be entitled to all arbitration fees, arbitration and/or
court costs and reasonable attorneys' and paralegal fees and expenses,
including in any pre-arbitration or pre-trial, appellate, post- award
or post-judgment and related bankruptcy proceedings.
g. GOVERNING LAW. This Agreement is made in the State of
Florida, United States of America and shall be governed by and construed by
the internal laws of the State of Florida without regard to conflicts of laws
principles.
h. NOTICES. Any notices, consents, approvals or other
communications required or permitted under this Agreement shall be
hand-delivered or sent by U.S. Certified or Registered Mail, postage prepaid
and return receipt requested, or by express or overnight courier service, or
by facsimile (confirmed by telephone), shall be in writing and shall be
deemed given on the date of hand-delivery or confirmed receipt, or if mailed
on the third business day after dispatch, and shall be sent to the addresses
and to the attention of the persons set forth below, or to such other address
or person as a party may specify by notice:
IF TO TANGENT: COPY TO:
Tangent Associates, Inc. Holland & Knight, LLP
Attn: Steve Weiss Attn: Steven Sonberg
5000 SW 52 Street One East Broward Boulevard
Davie, FL 33314 Fort Lauderdale, FL
Fax: 954-797-9887 Fax: 954-463-2030
IF TO PRECIS: COPY TO:
i. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of, and supersedes any prior agreements or understandings between,
the parties hereto regarding the subject matter of this Agreement, and no
amendment, alteration or waiver of this Agreement shall be valid or binding
unless made in writing and signed by both parties.
j. WAIVER. Either party's failure to insist upon strict
performance by the other of any terms or conditions herein shall not be
construed as a permanent waiver of any of the terms or conditions contained
herein.
k. SEVERABILITY. Any provision in this Agreement found to
be void, voidable or unenforceable shall not affect the validity or
enforceability of any other provision in this Agreement. In the event that
any provision of this Agreement shall be declared void, voidable or
unenforceable by a court of competent jurisdiction, said provision shall be
deemed to be amended to provide the party seeking to enforce this Agreement
the greatest protection available under law.
l. WAIVERS/RIGHTS CUMULATIVE. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
m. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties below have executed this Agreement
as of the date first above written.
Tangent Associates, Inc.
By:___________________________________
Steve Weiss, President
Precis Smart Card Systems
By:___________________________________
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EXHIBIT 10.11
VERIFONE VERISMART APPLICATION DEVELOPER'S KIT
LICENSE AGREEMENT
This VeriFone VeriSmart Application Developer's Kit License Agreement
(this "Agreement") is made and entered into between VeriFone, Inc., a Delaware
corporation ("VeriFone"), and Precis Smart Card Systems, Inc. an Oklahoma
corporation ("Licensee"), as of January 27, 1999 (the "Effective Date").
VeriFone and Licensee hereby agree as follows:
1. Definitions.
1.1. CLASS LIBRARIES means machine executable, non-human-readable form
of the VeriFone Software designated as "Class Libraries" on EXHIBIT A attached
hereto.
1.2. CONFIDENTIAL INFORMATION means any and all information related to
a party that such party treats as confidential and any information relating to
third parties that such party has an obligation to treat as confidential, which
is disclosed by such party to the other party in the course of performing the
duties and obligations of this Agreement, whether such information is in oral,
written, graphic or electronic form; provided that (1) if such information is in
writing or other tangible form, it is clearly marked as "proprietary" or
"confidential" when disclosed to the receiving party; or (2) if such information
is not in tangible form, it (i) is identified as "proprietary" or "confidential"
when disclosed and (ii) is summarized in a writing which is marked "proprietary"
or "confidential" and is delivered to the receiving party within thirty (30)
days after the date of disclosure. Confidential Information shall not include
any information, data or material which: (a) the disclosing party expressly
agrees in writing is free of any non-disclosure obligations; (b) is
independently developed by the receiving party (as evidenced by documentation in
the receiving party's possession); (c) is lawfully received by the receiving
party, free of any non-disclosure obligations, from a third party having the
right to so furnish such Confidential Information; or (d) is or becomes
generally available to the public without any breach of this Agreement or
unauthorized disclosure of such Confidential Information by the receiving party.
1.3. END USER means (i) a third party licensed by VeriFone or a
VeriFone-authorized distributor to use or provide access to a VeriSmart system
production server and/or (ii) customers of such third party using a
VeriSmart-compatible terminal device to access such VeriSmart system;
1.4. ENHANCEMENTS means the Java Byte Code (machine executable) and/or
Java Source Code versions, as solely determined by VeriFone, of the VeriFone
Software and all supporting documentation that have been customized, enhanced or
otherwise modified by VeriFone acting in its sole discretion to include
additional functionality and that have been commercially released to VeriFone's
other licensees of the VeriFone Software; typically requiring an additional
license charge.
1.5. JAVA BYTE CODE means the non human readable, binary form of the
VeriFone Software which can be executed on a computer processor.
1.6. MEDIA means the 3 1/2-inch diskette, the CD-ROM, or the other
media on which the VeriFone Software is encoded.
1.7. PROGRAM ERROR means a reproducible defect or combination of
defects in the Class Libraries or the VeriSmart Development Server Software that
results in a failure of such software to function substantially in accordance
with the VeriFone User Documentation when used in accordance with VeriFone's
instructions and on the hardware platforms and operating systems specified by
VeriFone to be compatible with such software. Program Errors do not include any
errors (i) created or introduced by Licensee when reproducing the Class
Libraries, (ii) caused by the negligence of Licensee, any of its subdistributors
or any End User, (iii) occurring in Class Libraries or the VeriSmart Development
Server Software modified or altered by persons other than VeriFone or VeriFone's
authorized subcontractors or agents, (iv) occurring due
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to data that does not conform to VeriFone's specified data format, (v) occurring
upon use of the Class Libraries or the VeriSmart Development Server Software on
any system other than the hardware platforms or operating systems specified by
VeriFone to be compatible with the Class Libraries or (vi) resulting from
operator error, accident or misuse.
1.8. SAMPLE APPLICATIONS means that subset of the Java Source Code
designated on EXHIBIT A attached hereto as "samples of applications developed
using the VeriSmart Application Developer's Kit."
1.9. JAVA SOURCE CODE means the human-readable, Java-programming
version of the VeriFone Software which cannot be executed on a computer
processor without compilation or other conversion into a binary language.
1.10. THIRD-PARTY SOFTWARE means the Java Byte Code (machine
executable) versions of the software licensed by third-parties to VeriFone for
distribution with the VeriFone Software, including, as of the Effective Date:
means the Java Byte Code form of Java Runtime Environment supplied to VeriFone
from Sun Microsystems, Inc. and the Java Byte Code form of software supplied to
VeriFone from Certicom. VeriFone, in its sole discretion, may change the
Third-Party Software from time to time.
1.11. UPDATES means the Java Byte Code (machine executable) and/or the
Java Source Code versions, as solely determined by VeriFone, of the VeriFone
Software, and all supporting documentation, that have been developed by VeriFone
to correct any Program Error in the VeriFone Software and have been commercially
released, at no additional charge, to VeriFone's other licensees of the VeriFone
Software.
1.12. VERIFONE SOFTWARE means all of the software included in the
VeriSmart Application Developer's Kit and VeriSmart Development Server Software
as set forth on, and in the form set forth on Exhibit A attached hereto and, if
any, the Updates and Enhancements delivered by VeriFone to Licensee pursuant to
the terms of this Agreement, provided that VeriFone Software shall not include
any Third-Party Software or VeriSmart Applications.
1.13. VERIFONE TRADEMARKS means the following VeriFone trademarks,
service marks and logos: "VeriFone"(name and logo) and "VeriSmart".
1.14. VERIFONE USER DOCUMENTATION means the End User guides for the
VeriFone Software set forth on Exhibit A attached hereto.
1.15. VERISMART APPLICATION DEVELOPER'S KIT means those items set forth
on EXHIBIT A attached hereto, which include the Class Libraries, Sample
Applications and Application Developer's Tools. Unless otherwise indicated
thereon, all software specified on Exhibit A attached hereto shall be in machine
executable non-human-readable binary form.
1.16. VERISMART APPLICATIONS means software application products that
are (i) developed by Licensee, (ii) contain Class Libraries or are otherwise
developed with the use of or reference to all or any portion of the VeriSmart
Application Developer's Kit, (iii) are compatible and interoperable with
VeriSmart systems, and (iv) not to be designed as development tools or other
application products intended for use in connection with the development of
additional products.
1.17. VERISMART DEVELOPMENT SERVER SOFTWARE means the Java Byte Code
form of the VeriFone software that consists of the following components: the
server platform, which manages appliance connections, launches applets for those
connections and supports reporting and monitoring; card scheme class libraries,
which support the use of particular smart card operating systems; appliance
class libraries, which support the input/output capabilities of particular
appliances; and host protocol class libraries, which support access to financial
service hosts; which operates on an Intel-based Pentium Pro system running
Windows NT.
2. Delivery, Ownership and Licenses.
2.1. Delivery. VeriFone shall deliver to Licensee one (1) copy of the
VeriFone Software within seven (7) days after the Effective Date.
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2.2. Ownership. VeriFone shall retain ownership of the Confidential
Information of VeriFone, the VeriFone Software, including, without limitation,
Class Libraries incorporated into any VeriSmart Application, the VeriFone User
Documentation and the VeriFone Trademarks, and all intellectual property rights
therein. Licensee shall, and shall cause all of its subdistributors to, use
reasonable efforts to preserve such VeriFone rights and shall not do anything to
contest or impair the intellectual property rights of VeriFone. Licensee shall
own the Confidential Information of Licensee, the VeriSmart Applications
(excluding any VeriFone Software incorporated therein) and all intellectual
property rights therein.
2.3. Internal Use. Subject to the terms and conditions of this
Agreement and payment of amounts due pursuant to Section 5.1, VeriFone grants to
Licensee a non-exclusive, non-transferable license to (i) use and reproduce the
VeriFone Software and the VeriFone User Documentation solely for the purposes of
developing VeriSmart Applications and providing technical support to End Users
who have been licensed to use VeriSmart Applications and (ii) use VeriSmart
Applications containing the Class Libraries solely for Licensee's internal
business purposes. Licensee shall use the VeriFone Software pursuant to this
Section 2.3 in accordance with VeriFone's written instructions and only on no
more than ten (10) workstations located within Licensee's facilities at the
address set forth below the signature blocks of this Agreement.
2.4. Sublicensing and Distribution of VeriSmart Applications. Subject
to the terms and conditions of this Agreement and payment of amounts due
pursuant to Section 5.1, VeriFone grants to Licensee a non-exclusive,
non-transferable license to reproduce, have reproduced, demonstrate and
distribute by sublicense, directly or through subdistributors appointed in
accordance with Section 2.7, to End Users for use by such End Users the Class
Libraries solely when embedded within a VeriSmart Application. Licensee shall
distribute the Class Libraries only pursuant to a valid and binding End User
agreement pursuant to Section 2.8. Licensee shall not (i) distribute the
VeriFone Software or any component thereof by mail order, rental or lease, (ii)
distribute or use the VeriFone Software or any component thereof in connection
with any service bureau, or (iii) except with respect to Licensee's distribution
of the Class Libraries or Sample Applications (as defined in Section 2.5) solely
when embedded within VeriSmart Applications provided to End Users pursuant to
Section 2.8 or subdistributors pursuant to Section 2.7, distribute the VeriFone
Software or any component thereof to other resellers, dealers, distributors or
any other third parties.
2.5. Java Source Code. Subject to the terms and conditions of this
Agreement and payment of amounts due pursuant to Section 5.1, VeriFone grants to
Licensee a non-exclusive and non-transferable license to (i) use and reproduce,
solely to create VeriSmart Applications, the Java Source Code of any VeriFone
Software designated by VeriFone as part of the VeriSmart Application Developer's
Kit as set forth on Exhibit A attached hereto and (ii) modify, solely to create
VeriSmart Applications, and distribute Sample Applications (as provided by
VeriFone and/or as modified by Licensee pursuant to this Agreement) solely in
Java Byte Code (machine executable) form when embedded within a VeriSmart
Application. VeriFone Software Java Source Code shall be accessed solely by
Licensee's employees on a strict "need-to- know" basis, and such Java Source
Code shall, anything to the contrary set forth herein notwithstanding, be deemed
to be "Confidential Information" of VeriFone subject to the confidentiality
provisions of this Agreement. Licensee shall not distribute or provide the Java
Source Code of any VeriFone Software to any reseller, dealer, distributor, End
User or any other third party.
2.6. VeriFone Trademarks. Subject to the terms and conditions of this
Agreement, VeriFone grants to Licensee a non-exclusive, limited license to use
the VeriFone Trademarks on, and Licensee agrees to use the VeriFone Trademarks
on, Licensee's packaging for the VeriSmart Applications and in all
advertisements and printed materials for the VeriSmart Applications. Licensee
shall display notices of trademark status (i.e., -R- or -TM- as prescribed by
VeriFone from time to time) adjacent to each use of the VeriFone Trademarks on
each piece of advertising or printed materials in which such VeriFone Trademark
appears. Licensee shall also include as a footnote to the VeriFone Trademarks
along with the first or most prominent use of each VeriFone Trademark in each
piece of advertising or printed materials in which such VeriFone Trademark
appear: "[Mark] is a trademark of VeriFone, Inc., which may be registered in
certain jurisdictions," and such other symbols and notices as may be prescribed
by VeriFone from time to time. Licensee acknowledges that all uses of the
VeriFone Trademarks by Licensee shall inure to the benefit of and be on behalf
of VeriFone. Licensee further acknowledges that the VeriFone Trademarks are
valid under applicable law and that Licensee's utilization of the VeriFone
Trademarks will not create any right, title or interest in or to such
trademarks.
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2.7. Subdistributors. Subject to the terms and conditions of this
Agreement, Licensee will be entitled to grant to its subdistributors the right
to distribute copies of the Class Libraries by sublicense directly to End Users
for use by such End Users solely when embedded within a VeriSmart Application.
Prior to the distribution of any VeriSmart Application to a subdistributor,
Licensee must enter into an enforceable written agreement with such
subdistributor that (a) contains terms no less restrictive than those terms set
forth in Sections 2.4 ("Sublicensing and Distribution of VeriSmart
Applications"), 2.8 ("End User Agreements"), 3 ("Restrictions and Limitations"),
5.2 ("Records and Audits"), 7 ("Confidentiality"), 10 ("Term and Termination"),
and 11.2 ("Export Control") herein, (b) contains covenants and restrictions as
applicable to such subdistributor, to enable Licensee to fulfill its
requirements under Sections 2.2 ("Ownership"), 2.9 ("Enforcement"), 4.1
("Support to End Users"), 5 ("Fees, Payments, Reports and Audits"), 7
("Confidentiality"), 10.4 ("Effect of Termination"), and 11.2 ("Export Control")
herein, (c) contains a disclaimer of any and all warranties by VeriFone and its
suppliers and a disclaimer of any and all liabilities of VeriFone and its
suppliers; and (d) expressly names VeriFone and its suppliers as intended third
party beneficiaries with the right to rely on and directly enforce the terms
thereof.
2.8. End User Agreements. Prior to the delivery of any VeriSmart
Application to any End User, Licensee or its subdistributors must enter into an
enforceable written agreement with such End User that contains terms no less
restrictive than those terms set forth in Sections 3.3 ("General Limitations and
Restrictions") and 11.2 ("Export Control") herein, (b) contains a disclaimer of
any and all warranties by VeriFone and its suppliers and a disclaimer of any and
all liabilities of VeriFone and its suppliers; and (c) expressly names VeriFone
and its suppliers as intended third party beneficiaries with the right to rely
on and directly enforce the terms thereof.
2.9. Enforcement. Upon VeriFone's request, Licensee shall provide
VeriFone with a copy of each of Licensee's agreements with Licensee's
subdistributors of the VeriSmart Applications and a copy of the standard End
User agreement(s) used by Licensee or Licensee's subdistributors to sublicense
the VeriSmart Applications to End Users. Licensee shall use, and shall require
each subdistributor to use, the same degree of diligence which Licensee uses to
enforce similar agreements for its own products to enforce each subdistributor
agreement and each End User agreement used by Licensee or Licensee's
subdistributors to sublicense the VeriSmart Applications to End Users, but in no
event shall Licensee use less than commercially reasonable efforts. Licensee
shall notify VeriFone of any breach of a material obligation under any such
subdistribution agreement or End User agreement. Upon the termination or breach
of any subdistribution agreement or End User agreement, Licensee shall use all
reasonable efforts (including litigation) to ensure the return or destruction of
all copies of the VeriSmart Applications licensed pursuant to such agreement,
and all reproductions thereof. Licensee will cooperate with VeriFone in any
legal action to prevent or stop unauthorized use, reproduction, modification,
distribution or sublicensing of the VeriSmart Applications. Licensee shall
indemnify and hold VeriFone harmless against any loss resulting from Licensee's
failure to perform its duties under this Section 2.9.
2.10. Third-Party Software. VeriFone grants Licensee a sublicense to
use the Third Party Software solely as a part of and for the sole purpose of
using the VeriFone Software. As of the Effective Date, VeriFone represents that
all of the terms for Licensee's use of the VeriFone Software are set forth in
this Agreement. However, VeriFone reserves the right to include additional or
alternative third-party software in the VeriFone Software, which may require
Licensee to agree to additional terms in order to accept delivery of such other
software. In addition, some VeriFone suppliers have reserved the right to
require VeriFone and VeriFone's subdistributors to comply with new terms and
conditions in addition to those set forth in this Agreement. In either case,
Licensee may elect to terminate this Agreement by giving VeriFone written notice
within fifteen (15) days after receipt of VeriFone's proposed amendment to the
Agreement to incorporate such terms. Licensee shall obtain a license for Java
Development Kits, and any support and maintenance therefor, directly from Sun
Microsystems, Inc.
2.11. License to VeriSmart Applications. Upon the general commercial
release by Licensee of each VeriSmart Application, either on a standalone basis
or as incorporated into one or more other products, Licensee shall deliver to
VeriFone one (1) copy of such VeriSmart Application and related documentation.
Licensee hereby grants to VeriFone a non-exclusive, non-transferable license (a)
to use and reproduce such VeriSmart Application solely for the purposes of (i)
providing technical support to Licensee for VeriSmart Development Server
Software ordered hereunder, (ii) demonstrating such VeriSmart Application to
prospective End Users of VeriFone technology, (iii) testing such
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VeriSmart Application for compatibility with VeriFone's VeriSmart technology and
(iv) maintaining a library of VeriSmart technology-related software
applications; and (b) subject to the terms of a distribution agreement to be
negotiated in good faith by VeriFone and Licensee, to distribute such VeriSmart
Application; provided that the terms of such distribution agreement, including,
without limitation, amounts payable thereunder, shall be no less favorable to
VeriFone than to any other distributor of such VeriSmart Application.
3. Restrictions and Limitations.
3.1. Conveyance of License Only. This Agreement grants Licensee a
license only, and only such license rights as are specifically enumerated in
this Agreement. No other right, title or interest in the VeriFone Software or
any components thereof, VeriFone Trademarks or Confidential Information of
VeriFone is hereby conveyed to Licensee, provided that Licensee will own the 3
1/2-inch diskette, the CD-ROM, or the other media on which the VeriFone Software
is encoded (collectively, the "Media"). VeriFone may from time to time choose to
register its copyright interests in the VeriFone Software or any components
thereof, but such acts shall not cause or be construed as causing any part
thereof to become part of the public domain.
3.2. No Governmental Sublicensees. The license granted in Section 2.4
hereof notwithstanding, Licensee shall not distribute any VeriSmart Application
to any federal, state and/or municipal government, or any contractor therefor,
without VeriFone's prior written consent.
3.3. General Limitations and Restrictions. Except as expressly
authorized in this Agreement, Licensee shall not use or reproduce the VeriFone
Software or Third Party Software, or any portion thereof, without the express
prior written consent of VeriFone. Licensee shall not (i) except as expressly
authorized in this Agreement, adapt, alter, modify, translate or create
derivative works of the VeriFone Software or Third Party Software, (ii) reverse
compile, disassemble or otherwise attempt to reconstruct (a) the Third-Party
Software or (b) the Java Source Code for the VeriFone Software for which Java
Source Code is not provided to Licensee by VeriFone hereunder, (iii)
electronically transfer the VeriFone Software or Third Party Software from one
computer to another over a local- or wide-area network that is not password
protected or enable any timesharing of the VeriFone Software or Third Party
Software by any third party, (iv) assign, pledge, rent, lease or loan the
VeriFone Software or Third Party Software, (v) obfuscate, remove or alter any of
the trademarks, trade names, logos, patent or copyright notices, confidential or
proprietary legends or other notices or markings on or in the VeriFone Software
or Third Party Software, and all such markings shall be included in all copies
thereof made by Licensee (to the extent any copies are authorized), (vi) add, or
permit any third party to add, any markings, notices or legends to the VeriFone
Software without VeriFone's express written consent, (vii) without VeriFone's
prior written consent, publish or otherwise disclose to any third party the
results of any benchmark tests run on the VeriFone Software , (viii) use the
VeriFone Software or Third Party Software for any purpose not authorized in the
documentation provided by VeriFone for such VeriFone Software or Third-Party
Software, including, without limitation, the VeriFone User Documentation, or in
any manner designed to access the functionality of any portion of the VeriFone
Software or Third Party Software other than as permitted in the form delivered
to Licensee by VeriFone, (ix) create any VeriSmart Application or application
development tool that may be used by an End User to create other
VeriSmart-compatible applications or applications containing any component of
the VeriFone Software , or (x) permit any third party to perform any of the
foregoing prohibited activities. Licensee's use of the Third Party Software
shall also be subject to the restrictions specified in Exhibit C.
3.4. Trademark Restrictions. Licensee shall not use the trademark
"VeriFone," any mark beginning with the letters "Veri," or any other mark likely
to cause confusion with the trademark "VeriFone" as any portion of Licensee's
trade name, or any trademark or service mark for any products or services of
Licensee. Licensee shall use the VeriFone Trademarks solely to refer to the
VeriSmart Applications. Licensee shall not use any other trademark or service
mark in close proximity to any of the VeriFone Trademarks or combine the marks
so as to effectively create a unitary composite mark without the prior written
approval of VeriFone.
3.5. Limitations and Restrictions on Use of VeriSmart Development
Server Software. If the VeriSmart Application Developer's Kit includes a copy of
the VeriSmart Development Server Software as set forth on Exhibit A attached
hereto, in addition to and subject to all other restrictions and limitations set
forth in this Section 3, Licensee may
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use the VeriSmart Development Server Software solely for the purposes enumerated
in Section 2.3, and Licensee shall not use the VeriSmart Development Server
Software in such a manner that (i) actual commercial transactions are effected
by means of the VeriSmart Development Server Software, (ii) any parties other
than Licensee may access the VeriSmart Development Server Software or (iii) any
parties, including Licensee, may access the VeriSmart Development Server
Software from outside of Licensee's facilities. Licensee acknowledges and agrees
that the provision of the VeriSmart Development Server Software pursuant to this
Agreement is solely for the purposes set forth in Section 2.3 and that any other
use by Licensee of VeriSmart Development Server Software shall be only pursuant
to a license agreement between VeriFone and Licensee expressly setting forth
licenses necessary for such use.
3.6. Marketing Practices. In marketing and distributing the VeriFone
Software as incorporated in the VeriSmart Applications, Licensee shall and shall
cause all subdistributors to: (i) not engage in any deceptive, misleading,
illegal or unethical practices; (ii) not make any representations, warranties or
guarantees concerning the VeriFone Software on behalf of VeriFone; (iii) require
all End Users to disclaim all liability of any kind on behalf of VeriFone; and
(iv) comply with all applicable laws and regulations.
4. Maintenance and Support.
4.1. Support to End Users. Unless otherwise agreed to in writing by
VeriFone, VeriFone shall not be responsible for supporting any End Users of the
VeriSmart Applications. Licensee shall ensure that it and/or its designee
(including subdistributors) support all End Users of the VeriSmart Applications,
including, at a minimum, answering and responding to telephone calls and email,
logging calls and messages, problem determination, providing known work-arounds
and solutions to problems, tracking problem resolution and providing technical
bulletins and other information to End Users. Licensee shall use reasonable
efforts to ensure all End Users contact Licensee and/or its designee directly
for support. If, notwithstanding such efforts, VeriFone is being contacted by a
significant number of End Users, Licensee and VeriFone will cooperate to develop
procedures and practices to minimize such contact.
4.2. Support to Licensee. VeriFone or its designee will provide
maintenance and support services for the VeriFone Software for each annual
period for which Licensee has paid the associated maintenance and support fees.
VeriFone will not provide any support to any subdistributor or any of Licensee's
or subdistributor's End Users.
4.2.1. Help Line. Licensee shall designate one of its
employees to be Licensee's primary contact regarding VeriFone's support of the
VeriFone Software ("Licensee Support Representative") and inform VeriFone of the
identity of such Licensee Support Representative and any changes thereto.
VeriFone will maintain a telephone help line that may be accessed by the
Licensee Support Representative to report Program Errors from Monday through
Friday (except on standard VeriFone holidays), during normal business hours
(9 a.m. - 5 p.m., Pacific Time) via telephone and electronic mail, at numbers
and addresses made known by VeriFone to Licensee on the Effective Date as may
be changed by VeriFone from time to time. Licensee shall ensure that the
Licensee Support Representative will attend or has attended any training
classes that VeriFone may from time to time offer in connection with the
VeriFone Software.
4.2.2. Program Errors - Class Libraries and VeriSmart
Development Server Software. Each Program Error related to use of the Class
Libraries and/or the VeriSmart Development Server Software that is reported by
Licensee via the help line must be accompanied or followed by sufficient
information to enable VeriFone to reproduce and verify the Program Error,
including but not limited to the input data that generated the Program Error.
Once VeriFone has received all such information, VeriFone will begin using
commercially reasonable efforts, consistent with the severity of the Program
Error, to reproduce and verify the Program Error and, if VeriFone is able to
reproduce and verify the Program Error, to remedy it. Remedies may include,
without limitation, providing instructions for Licensee to cure the Program
Error or delivering an Update. In no circumstances does VeriFone represent or
warrant that any or all Program Errors can or will be remedied. Licensee Support
Representative will use its best efforts to assist VeriFone in reproducing and
verifying all reported Program Errors and will be available to assist VeriFone
in remedying any Program Error.
4.2.3. Sample Applications, Application Development Tools
and VeriFone User Documentation. VeriFone shall use commercially reasonable
efforts to respond to Licensee's questions regarding use of the Sample
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Applications, Application Development Tools and VeriFone User Documentation that
is reported by Licensee via the help line at no additional charge to Licensee.
In no circumstances does VeriFone represent or warrant that any or all such
questions can or will be answered.
4.2.4. Enhancements and Updates. VeriFone may, from time to
time, release Enhancements or Updates. VeriFone will promptly notify Licensee
when an Enhancement or Update has been issued. Enhancements will be available in
accordance with VeriFone's standard charges therefor; there are no additional
charges for Updates. Following such notification by VeriFone, Licensee may send
a written request to VeriFone for such an Update or Enhancement (together with
payment of the standard charges therefor). Upon receipt of such request,
VeriFone will provide such Update or Enhancement to Licensee. Licensee shall use
commercially reasonable efforts to request and implement each Update and
Enhancement. If Licensee does not request and implement an Update or an
Enhancement, VeriFone's obligations to provide maintenance services pursuant to
Section 4.2.1 and 4.2.2 of this Agreement for the prior version of the subject
VeriFone Software shall terminate upon the expiration of a six (6) month period
after general public release of such Update or Enhancement. If Licensee requests
VeriFone to provide any assistance to install, certify or otherwise implement
any such Update or Enhancement and VeriFone provides such services, Licensee
shall pay VeriFone on a time and material basis in accordance with VeriFone's
then standard charges for such services and all reasonable expenses incurred by
VeriFone in connection with such services (airfare, lodging, meals and ground
transportation). Licensee acknowledges and agrees that VeriFone is under no
obligation to issue Updates or Enhancements under this Agreement and that the
obligation to provide any Updates or Enhancements applies only to those Updates
or Enhancements which have been commercially released by VeriFone to its other
users of the VeriFone Software.
5. Fees, Payments, Reports and Audits.
5.1. Fees. All payments made under this Agreement shall be in U.S.
currency. Licensee shall pay VeriFone fees as set forth in Exhibit B attached
hereto. Licensee shall be responsible for the payment of all such license fees
and royalties and such amounts shall not be subject to offset or reduction in
the event Licensee fails to receive such license fees or royalties from its
subdistributors or End Users.
5.2. Reports. Within thirty (30) days after the end of each quarter,
Licensee shall provide a written report to VeriFone stating the name, version
number and number of copies of VeriSmart Applications distributed to End Users
by Licensee and each subdistributor during such quarter; the maximum number of
user devices licensed to use each copy of the VeriSmart Applications, either
internally by Licensee or by other End Users during such quarter; each End
User's postal zip code location, city, country and date of shipment or
electronic transmission; and generally any other information that may be
required to determine whether Licensee is complying with this Agreement.
5.3. Records and Audit Rights. Licensee shall retain complete, clear
and accurate records regarding the distribution of the VeriSmart Applications.
VeriFone shall have the right to inspect and audit Licensee's facilities,
business practices and procedures, and relevant books and records conducted by
an independent audit professional selected and paid by VeriFone no more than
once every twelve (12) months during regular business hours at Licensee's
offices and in a manner that does not unreasonably interfere with Licensee's
normal business activities. If any audit discloses underpayments of five percent
(5%) or more of the amount actually due, Licensee shall bear all of the costs of
the audit. VeriFone's audit rights shall not terminate until three (3) years
after termination or expiration of this Agreement.
5.4. Taxes. In addition to any other payments due under this Agreement,
Licensee shall pay, indemnify and hold VeriFone harmless from, any sales, use,
excise, import or export, value-added or similar tax or duty not based on
VeriFone's net income, including any penalties and interest, as well as any
costs associated with the collection or withholding thereof, and all government
permit fees, license fees and customs and similar fees levied on the delivery of
any services or the VeriFone Software by VeriFone to Licensee. All payments due
under this Agreement shall be made without any deduction or withholding, unless
such deduction or withholding is required by any applicable law of any relevant
governmental revenue authority then in effect. If Licensee is required to deduct
or withhold, Licensee will promptly notify VeriFone of such requirement, pay the
required amount to the relevant governmental authority, provide VeriFone with an
official receipt or certified copy or other documentation acceptable to VeriFone
evidencing the payment, and pay to
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VeriFone, in addition to the payment to which VeriFone is otherwise entitled
under this Agreement, the additional amount necessary to ensure that the net
amount actually received by VeriFone free and clear of all taxes equals the full
amount VeriFone would have received had no such deduction or withholding been
required.
5.5. Payment Terms. All payments due under this Agreement must be made
in U.S. dollars. Any payment due under this Agreement that is not paid when due
shall bear a late fee at the rate of eighteen percent (18%) per annum or the
maximum rate permitted by local law, whichever is less.
6. Limited Warranties.
6.1. Media Warranty. Subject to the provisions of this Section 6 and
Section 9, VeriFone warrants that the Media will be free of defects in materials
and workmanship for thirty (30) days after the delivery of the Media to
Licensee. This warranty is void if any defect is caused by abuse or
misapplication of the VeriFone Software, whether or not by accident. Licensee's
sole and exclusive remedy for any breach of this warranty will be for VeriFone
to replace or correct the defective Media. Any replacement Media or corrected
Media will be subject to this same thirty (30) day warranty.
6.2. Program Error Correction. VeriFone warrants that for ninety (90)
days after delivery to Licensee of any VeriFone Software licensed hereunder, the
VeriFone Software will perform substantially in accordance with the then current
VeriFone Documentation and the specifications annexed hereto as Exhibit D;
provided, however, that to the extent Licensee makes any modification to the
VeriFone Software, then this warranty shall not extend to such modification.
With respect to the VeriFone Software and the Third-Party Software, Licensee
hereby acknowledges and agrees that Licensee's sole remedy for any
nonconformance to the technical documentation contained in Exhibit D and/or
Program Errors, and for any damage, loss or injury resulting therefrom, shall be
those support obligations set forth in Section 4. Licensee acknowledges that
under no circumstances does VeriFone represent or warrant that all Program
Errors can or will be remedied. VeriFone warrants that support services provided
hereunder shall be performed in a workmanlike manner in accordance with normal
industry standards. VERIFONE DOES NOT WARRANT THAT OPERATION OF THE VERIFONE
SOFTWARE OR THE THIRD-PARTY SOFTWARE WILL BE ERROR-FREE, SECURE OR
UNINTERRUPTED, OR THAT APPLICATIONS DEVELOPED USING THE VERIFONE SOFTWARE WILL
BE COMPATIBLE WITH FUTURE VERSIONS OF VERIFONE'S TECHNOLOGY, AND HEREBY
DISCLAIMS ALL LIABILITY ON ACCOUNT THEREOF.
6.3. Disclaimer. THE EXPRESS WARRANTIES OF VERIFONE STATED IN THIS
SECTION 6.3 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. VERIFONE
EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, REGARDING PRODUCTS OR
SERVICES PROVIDED BY ANY THIRD PARTY IN CONNECTION WITH THE VERIFONE SOFTWARE OR
THE THIRD-PARTY SOFTWARE. THE EXPRESS WARRANTY OBLIGATIONS OF VERIFONE STATED IN
THIS SECTION 6.3 ARE IN LIEU OF ANY OTHER LIABILITY OR OBLIGATION OF VERIFONE,
INCLUDING WITHOUT LIMITATION ANY LIABILITY OR OBLIGATION FOR DAMAGE, LOSS OR
INJURY (WHETHER DIRECT, INDIRECT, EXEMPLARY, SPECIAL, CONSEQUENTIAL OR
INCIDENTAL), ARISING FROM OR IN CONNECTION WITH THE VERIFONE SOFTWARE.
6.4. No Third Party Warranties. VERIFONE HEREBY DISCLAIMS ANY
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, BY ANY VERIFONE SUPPLIER,
AND LICENSEE ACKNOWLEDGES AND AGREES THAT NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, HAS BEEN MADE BY ANY VERIFONE SUPPLIER UNDER THIS AGREEMENT.
7. Confidentiality.
7.1. Non-disclosure and Non-use. Each party receiving Confidential
Information shall treat such information as strictly confidential, and shall use
the same care to prevent disclosure of such information as such
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party uses with respect to its own confidential and proprietary information,
which shall not be less than the care a reasonable person would use under
similar circumstances. In any event, each party receiving Confidential
Information shall (a) disclose such Confidential Information to (i) only those
authorized employees and directors of such party whose duties justify their need
to know such information and who have been clearly informed of their obligation
to maintain the confidential and/or proprietary status of such Confidential
Information; or (ii) only those third parties required for the performance of
the receiving party's obligations under this Agreement pursuant to a written
confidentiality agreement as least as extensive as the confidentiality
provisions of this Agreement; and (b) use such Confidential Information only for
the purposes set forth in this Agreement.
7.2. Certain Exceptions. The obligations set forth in this Section 7
shall not apply to any Confidential Information which must be disclosed pursuant
to applicable federal, state or local law, regulation, court order, or other
legal process, provided the receiving party has given the disclosing party prior
written notice of such required disclosure and, to the extent reasonably
possible, has given the disclosing party an opportunity to contest such required
disclosure at the disclosing party's expense.
7.3. Advertising and Press Releases. Neither party shall advertise,
issue any press release, or otherwise publish the fact that the parties have
entered into this Agreement, without the prior written consent of the other
party, except as may be required by law. The parties shall use their best
efforts to draft and issue a press release announcing the signing of this
Agreement after the Effective Date and each party may include the information
included in such press release in subsequent advertisements, press releases or
other publications without the other party's prior written consent, provided
that such party includes proper attribution of the other party's name. Following
the issuance of such press release, VeriFone may also refer to Licensee as
VeriFone's licensee and distributor in VeriFone's sales and marketing materials
and presentations.
7.4. Terms of This Agreement. Notwithstanding anything to the contrary
in this Agreement, neither party may disclose the terms of this Agreement
(including the fees) to any third party without the express prior written
consent of the other party; provided, however, that either party may disclose
the terms of this Agreement to its affiliates, attorneys and accountants, or to
any potential investor or acquiror of a substantial part of such party's
business (whether by merger, sale of assets, sale of stock or otherwise), or as
may be required by law and provided further that VeriFone may disclose the terms
of this Agreement to its suppliers of the Third Party Software under
confidentiality restrictions no less restrictive than those contained herein.
8. Indemnities and Exceptions.
8.1. VeriFone Indemnity. Subject to the provisions of this Section 8
and Section 9, VeriFone shall at its expense defend any action against Licensee
to the extent such action is based on a claim that the VeriFone Software
infringes any Berne Convention copyright or U.S. registered trademark or
misappropriates a trade secret as defined under the Uniform Trade Secret Law,
and VeriFone shall pay those damages and costs finally awarded against Licensee
in any such action which are specifically attributable to such claim, or those
damages and costs agreed in any monetary settlement or compromise of such
action. The foregoing obligations are conditioned on Licensee notifying VeriFone
promptly in writing of such action, Licensee giving VeriFone sole control of the
defense thereof (and any negotiations for monetary settlement or compromise
thereof), and Licensee cooperating in the defense thereof at VeriFone's expense.
If any version or component of the VeriFone Software becomes, or in VeriFone's
opinion is likely to become, the subject of a claim of infringement or
misappropriation, then Licensee shall permit VeriFone, at its option and
expense, to (a) procure the right to continue using such VeriFone Software; (b)
replace or modify such VeriFone Software so that it becomes non-infringing or no
longer misappropriates; or (c) accept return of such VeriFone Software and give
Licensee a credit for any license fees or royalties paid by Licensee for such
VeriFone Software less depreciation calculated as an equal amount per year over
a period of five (5) years from the date of initial delivery of such VeriFone
Software to Licensee, in which case Licensee's license to such VeriFone Software
will terminate in its entirety. Licensee shall not incur any costs or expenses
for the account of VeriFone under or pursuant to this Section 8.1 without
VeriFone's express prior written consent. THE FOREGOING STATES THE ENTIRE
LIABILITY OF VERIFONE FOR INFRINGEMENT AND MISAPPROPRIATION CLAIMS AND
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ACTIONS.
8.2. Certain Exceptions; Licensee Indemnity. VeriFone shall have no
liability to Licensee under Section 8.1 or otherwise for any action or claim
alleging infringement or misappropriation based upon (a) any use of the VeriFone
Software or the Third-Party Software in a manner other than as specified by
VeriFone; (b) any use of the VeriFone Software as embedded in the VeriSmart
Application(s) or in combination with any other products, equipment, devices,
software, systems or data not supplied by VeriFone; (c) the VeriSmart
Applications, (d) Licensee's trademarks; or (e) any alteration, modification or
customization of the VeriFone Software or the Third- Party Software by any
person other than VeriFone or its authorized subcontractors or agents. In the
event of an infringement or misappropriation action or claim against VeriFone
that is based on any of the circumstances or conduct described in the preceding
sentence, Licensee shall at its own expense defend such action or claim, and
Licensee shall pay any and all damages and costs finally awarded against
VeriFone in connection with such action or claim, or those damages and costs
agreed in any monetary settlement or compromise of such action, provided that
VeriFone notifies Licensee promptly in writing of such action or claim, VeriFone
gives Licensee sole control of the defense thereof (and any negotiations for
settlement or compromise thereof), and VeriFone cooperates in the defense
thereof at Licensee's expense. VeriFone shall not incur any costs or expenses
for the account of Licensee under or pursuant to this Section 8.2 without
Licensee's express prior written consent.
9. LIMITATION OF LIABILITY.
VERIFONE'S AGGREGATE LIABILITY IN CONNECTION WITH THIS AGREEMENT, THE
VERIFONE SOFTWARE AND THE SERVICES PROVIDED BY VERIFONE HEREUNDER, REGARDLESS OF
THE FORM OF ACTION GIVING RISE TO SUCH LIABILITY (WHETHER IN CONTRACT, TORT OR
OTHERWISE), AND INCLUDING ANY LIABILITY UNDER SECTION 6 AND SECTION 8, SHALL NOT
EXCEED THE AGGREGATE FEES PAID BY LICENSEE TO VERIFONE UNDER THIS AGREEMENT.
VERIFONE SHALL NOT BE LIABLE FOR ANY FAILURE OF THE VERIFONE SOFTWARE OR THE
THIRD- PARTY SOFTWARE TO PROVIDE SECURITY. VERIFONE SHALL NOT BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, EXEMPLARY, SPECIAL, OR INCIDENTAL DAMAGES OF ANY KIND
(INCLUDING WITHOUT LIMITATION LOST PROFITS), EVEN IF VERIFONE HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT AS PROVIDED IN SECTION 8 (BUT ONLY TO
THE EXTENT OF AND SUBJECT TO THE LIMITATIONS IN SECTION 8), VERIFONE SHALL NOT
BE LIABLE FOR ANY CLAIMS OF THIRD PARTIES RELATING TO THE VERIFONE SOFTWARE,
THIRD PARTY SOFTWARE OR THE SERVICES PROVIDED BY VERIFONE HEREUNDER; AND
LICENSEE SHALL DEFEND VERIFONE FROM, AND INDEMNIFY AND HOLD VERIFONE HARMLESS
AGAINST, ALL SUCH CLAIMS. THE FOREGOING STATES VERIFONE'S ENTIRE LIABILITY WITH
REGARD TO THIS AGREEMENT. THESE LIMITATIONS OF VERIFONE'S LIABILITY ARE A
FUNDAMENTAL PART OF THE BASIS OF VERIFONE'S BARGAIN, AND VERIFONE WOULD NOT
ENTER INTO THIS AGREEMENT ABSENT SUCH LIMITATIONS. LICENSEE DISCLAIMS ALL
LIABILITY OF ANY KIND OF ANY VERIFONE SUPPLIER IN CONNECTION WITH THIS
AGREEMENT.
10. Term and Termination.
10.1. Term. Unless terminated earlier pursuant to the termination
provisions in this Section 10, this Agreement shall remain in effect for three
(3) years from the Effective Date, and shall automatically renew for annual
periods thereafter unless voluntarily terminated by either party, in its sole
discretion, at the end of the initial term or any renewal term by giving the
other party at least ninety (90) days written notice before the expiration of
the initial or any renewal term.
10.2. Termination by VeriFone. VeriFone will have the right to
terminate this Agreement upon written notice to Licensee if (a) Licensee fails
to perform any of its obligations under or otherwise breaches Section 2; (b)
Licensee fails to pay any amounts as required under Section 5 and such failure
continues for ten (10) days after receipt of written notice from VeriFone; or
(c) Licensee fails to perform any of its other obligations under this
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Agreement and such failure continues for thirty (30) days after receipt of
written notice from VeriFone.
10.3. Termination by Licensee. Licensee will have the right to
terminate this Agreement upon written notice to VeriFone if VeriFone fails to
(a) perform any of its obligations under or otherwise breaches Section 4, (b)
promptly replace Third-Party Software within a commercially reasonable period in
accordance with Section 10.5, or (c) perform any of its obligations under this
Agreement and any such failures continue for thirty (30) days after receipt by
VeriFone of written notice from Licensee specifying such default.
10.4. Effect of Termination. If this Agreement expires or terminates or
if either party terminates the Agreement under Sections 10.2 or 10.3:
(a) Each party shall return or destroy all Confidential
Information of the other party (and copies thereof);
(b) Licensee shall immediately cease using the VeriFone
Trademarks and, except as provided in
Section 10.4(f), below, the VeriFone Software and
discontinue all representations that it is a VeriFone
distributor;
(c) Licensee shall immediately cease distribution, and
cause its subdistributors to cease distribution, of
the VeriSmart Applications;
(d) If Licensee is a participant in the "Easy Entry"
program as indicated in Exhibit B attached hereto,
Licensee shall immediately, and without further
action by VeriFone, pay the balance of the Easy Entry
fees indicated on such Exhibit B;
(e) End users shall be permitted the continued and
uninterrupted use of the VeriSmart Applications
subject to and for the balance of their End User
agreements, provided that such license agreements
comply with all of the requirements of this Agreement
and are terminable in accordance with their terms;
and
(f) Licensee may, for the period of one (1) year from
the date of termination of this Agreement ("Wind-Down
Period"), continue to use only those portions of the
VeriSmart Application Developer's Kit necessary to
support Licensee's and Licensee's subdistributor's
End Users of VeriSmart Applications distributed in
accordance with Section 2.4 as of such date of
termination. At the end of the Wind-Down Period,
Licensee shall, at VeriFone's instructions,
immediately cease using such portions of the
VeriSmart Application Developer's Kit and either
destroy or return those portions of the VeriSmart
Application Developer's Kit and all copies thereof or
any components thereof created by Licensee thereof.
Each party shall deliver to the other party a certificate
signed by an officer of such party acknowledging that such party's obligations
under this Section 10.4 have been fully satisfied.
10.5. Termination by Licensee - VeriFone Assignment of Agreement to
Competitor of Licensee. Licensee will also have the right to terminate this
Agreement upon written notice to VeriFone if VeriFone assigns this Agreement to
a third party that is a direct competitor of Licensee. If this Agreement is
terminated by Licensee under this Section 10.5:
(a) Each party shall return or destroy all Confidential
Information of the other party (and copies thereof);
(b) Licensee shall immediately cease using the VeriFone
Trademarks and, except as provided
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in Section 10.5(f), below, the VeriFone Software and
discontinue all representations that it is a VeriFone
distributor;
(c) Licensee shall immediately cease distribution, and
cause its subdistributors to cease distribution, of
the VeriSmart Applications;
(d) If Licensee is a participant in the "Easy Entry"
program as indicated in Exhibit B attached hereto,
Licensee shall immediately, and without further
action by VeriFone, pay VeriFone only those fees
already incurred under the Easy Entry program as of
the date of termination;
(e) End users shall be permitted the continued and
uninterrupted use of the VeriSmart Applications
subject to and for the balance of their End User
agreements, provided that such license agreements
comply with all of the requirements of this Agreement
and are terminable in accordance with their terms;
(f) Licensee may, for the period of one (1) year from
the date of termination of this Agreement ("Wind-Down
Period"), continue to use only those portions of the
VeriSmart Application Developer's Kit necessary to
support Licensee's and Licensee's subdistributor's
End Users of VeriSmart Applications distributed in
accordance with Section 2.4 as of such date of
termination. At the end of the Wind-Down Period,
Licensee shall, at VeriFone's instructions,
immediately cease using such portions of the
VeriSmart Application Developer's Kit and either
destroy or return those portions of the VeriSmart
Application Developer's Kit and all copies thereof or
any components thereof created by Licensee thereof;
and
(g) VeriFone and/or VeriFone's assignee shall
immediately return all copies of Licensee's VeriSmart
Applications provided to VeriFone pursuant to Section
2.11(a).
Each party shall deliver to the other party a certificate
signed by an officer of such party acknowledging that such party's obligations
under this Section 10.5 have been fully satisfied.
10.6. Termination of Licenses to Third-Party Software. VeriFone
reserves the right to terminate immediately, upon written notice, Licensee's
right to use internally the Third-Party Software in the event VeriFone's
sublicensing and distribution rights with respect thereto are terminated by the
relevant supplier. VeriFone will use reasonable commercial efforts to promptly
replace such Third-Party Software with other software with substantially similar
functionality.
10.7. Survival. Section 1 ("Definitions") Section 2.2 ("Ownership"),
Section 2.9 ("Enforcement of Subdistributor Agreements and End User
Agreements"), Section 2.11 ("License to VeriSmart Applications"), Section 3
("Restrictions and Limitations"), Section 4.1 ("Support to End Users"),
Section 5 ("Fees, Payments, Reports and Audits"), Section 6.3 ("Disclaimer"),
Section 6.4 ("No Third Party Warranties"), Section 7 ("Confidentiality"),
Section 8 ("Indemnities and Exceptions"), Section 9 ("Limitation of
Liability"), Section 10.4 ("Effect of Termination"), Section 10.5
("Termination by Licensee -VeriFone Assignment of Agreement to Competitor of
Licensee "), Section 10.6 ("Termination of Licenses to Third-Party
Software"), this Section 10.7 ("Survival"), and Section 11 ("General") of
this Agreement shall survive any expiration or termination of this Agreement.
11. General.
11.1. Governing Law. This Agreement shall for all purposes be governed
by and interpreted in accordance with the laws of the State of California as
those laws are applied to contracts entered into and performed entirely in
California by California residents. The United Nations Convention on Contracts
for the International Sale of Goods
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does not apply to this Agreement.
11.2. Export Control. The VeriFone Software and the Third-Party
Software is subject to the export control laws of the United States. Licensee
must, and shall cause all of its subdistributors to, (i) comply with all
applicable export statutes and regulations, (ii) require each End User to use
the VeriFone Software in accordance with all applicable export control laws,
statutes and regulations, and (iii) not permit any other third party to use the
VeriFone Software in violation of such export control laws, statutes and
regulations. Licensee acknowledges that even if VeriFone consents to the use of
the VeriFone Software or the Third-Party Software outside the United States, (a)
Licensee may be required to obtain an export license prior to the export or
re-export, directly or indirectly, of the VeriFone Software or the Third-Party
Software, or any direct product of the use thereof, or (b) export or re-export
to certain countries may be prohibited. Licensee agrees to indemnify and hold
VeriFone and its suppliers harmless from any claims arising from any breach of
this Section by Licensee or any of its directors, officers, employees,
subdistributors, customers or any third party to whom Licensee provides access
to the VeriFone Software or the Third-Party Software.
11.3. Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable for any reason, the
remaining provisions hereof shall be unaffected and remain in full force and
effect, unless the unenforceable provisions are of such essential importance to
this Agreement that it is to be reasonably assumed that the parties would not
have entered into this Agreement without such provisions.
11.4. Modifications. Any modification, amendment, supplement, or other
change to this Agreement must be in writing and signed by duly authorized
representatives of VeriFone and Licensee. As used herein, the term "Agreement"
shall include any such future modifications, amendments, supplements or other
changes hereto.
11.5. Assignments. No right or obligation of Licensee under this
Agreement shall be assigned, delegated or otherwise transferred, whether by
agreement, operation of law or otherwise without the express prior written
consent of VeriFone and any attempt to assign, delegate or otherwise transfer
any of Licensee's rights or obligations hereunder, without such consent, shall
be void. Subject to the preceding sentence, this Agreement shall bind each party
and its permitted successors and assigns.
11.6. Waivers. All waivers must be in writing. The failure of either
party to insist upon strict performance of any provision of this Agreement, or
to exercise any right provided for herein, shall not be deemed to be a waiver
for the future of such provision or right, and no waiver of any provision or
right shall affect the right of the waiving party to enforce any other provision
or right herein.
11.7. Equitable Remedies. The parties agree that any breach of Sections
1, 3 or 7 would cause irreparable injury for which no adequate remedy at law
exists; therefore, the parties agree that equitable remedies, including without
limitation injunctive relief and specific performance, are appropriate remedies
to redress any breach or threatened breach of such Sections, in addition to all
other remedies available to the parties.
11.8. Rights and Remedies. All rights and remedies hereunder shall be
cumulative, may be exercised singularly or concurrently, and shall not be deemed
exclusive except as provided above. If any legal action is brought to enforce
any obligations hereunder, the prevailing party shall be entitled to receive its
attorneys' fees, court costs and other collection expenses, in addition to any
other relief it may receive.
11.9. Force Majeure. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement to the extent, and for so long as, such failure or delay is caused by
or results from causes beyond the reasonable control of the affected party
including, but not limited, to any act of God, fire, natural disaster, accident,
war, insurrections, riots, civil commotion, strikes, lockouts or other labor
disturbances, or any acts, omissions, delays in acting by any government
authority or the other party, or the inability of VeriFone, despite its
reasonable efforts, to obtain any United States export license or other approval
or authorization of the United States government for the
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performance by VeriFone of its obligations hereunder. The preceding sentence
shall not apply when the outstanding obligation by either party is payment for
any money due to the other party.
11.10. Construction. The headings and subheadings contained herein
shall not be considered a part of this Agreement. This Agreement may be executed
in several counterparts, all of which shall constitute one agreement.
11.11. Notices. Any notice or communication permitted or required
hereunder shall be in writing and shall be delivered in person or by courier or
sent by electronic facsimile (fax), and addressed as set forth after the
signatures to this Agreement or to such other address as shall be given in
accordance with this Section 11.11. All notices hereunder shall be effective
upon receipt.
11.12. Relationship Between Parties. VeriFone and Licensee shall at all
times and for all purposes be deemed to be independent contractors and neither
party, nor either party's employees, subcontractors or agents, shall have the
right or power to bind the other party. This Agreement shall not create or be
deemed to create a joint venture, partnership or other similar association
between VeriFone and Licensee or any of either party's employees, subcontractors
or agents.
11.13. Precedence Over Purchase Order Terms. Any additional or
different terms of Licensee's purchase order and/or acknowledgment form, whether
or not such terms materially alter this Agreement, shall be deemed objected to
by VeriFone unless this Agreement is expressly amended by the parties hereto.
Execution of Licensee's purchase order shall not operate as an amendment to this
Agreement. Whenever printed, typed, stamped or written provisions of Licensee's
purchase order conflict with this Agreement, this Agreement shall control.
11.14. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes all prior agreements between the parties, whether written or oral,
relating to the same subject matter.
In Witness Whereof, the parties hereto, by their duly authorized
representatives, have executed and delivered this Agreement.
<TABLE>
<CAPTION>
VERIFONE, INC. LICENSEE: Precis Smart Card Systems, Inc.
<S> <C>
By: /S/QUOG k. VENNE By: /S/JAMES B. LOUT
--------------------------------------------------- --------------------------------------------------
Print Name: Print Name: James B. Lout
-------------------------------------------
Print Title: Print Title: President and CEO
------------------------------------------
Address: 4988 Great America Parkway Address: 11032 Quail Creek Road, Suite 108
Santa Clara, California 95054 Oklahoma City, Oklahoma 73120
U.S.A.
Attn: Attn: Ms. Tracey Barnes
-----------------------------
Telephone: (408) 496-0444 Telephone: (405) 752-5550
Fax: (408) 919-4516 Fax: (405) 752-5605
</TABLE>
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[THE FOLLOWING EXHIBITS WILL BE PROVIDED UPON REQUEST ADDRESSED TO THE COMPANY]
EXHIBIT A - Verismart Application Developer's Kit
EXHIBIT B - Fees and Payments
EXHIBIT C - Third Party Software Terms
EXHIBIT D - Third Party Software Terms
15
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form SB-2 of our report dated July 19, 1999, on our audits of the
financial statements of Precis Smart Card Systems, Inc. We also consent to the
reference to our firm under the caption "Experts."
/S/MURRELL, HALL , McINTOSH & CO., PLLP.
Moore, Oklahoma
December 3, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF DUNN SWAN & CUNNINGHAM
Dunn Swan & Cunningham, A Professional Corporation, hereby consents to
the use of its name under the headings "Management--Executive Officers and
Directors" and "Legal Matters" in the Prospectus constituting a part of this
Amendment No. 2 to the Registration Statement.
/S/DUNN SWAN & CUNNINGHAM
A Professional Corporation
Oklahoma City, Oklahoma,
December 3, 1999
