<PAGE>
As filed with the Securities and Exchange Commission on September 7, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRECIS SMART CARD SYSTEMS, INC.
(Name of small business issuer in its charter)
OKLAHOMA 73-1494382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5045
(Primary Standard Industrial
Classification Code Number)
11032 QUAIL CREEK ROAD, SUITE 108
OKLAHOMA CITY, OKLAHOMA 73120
(405) 752-5550
(Address and telephone number, including area code, of
registrant's principal executive offices)
Larry E. Howell
Chief Executive Officer
Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, Oklahoma 73120
(405) 752-5550
(Name, address and telephone number,
of agent for service)
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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
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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. / /
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CALCULATION OF REGISTRATION FEE
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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
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<S> <C> <C> <C> <C>
Common Stock(2)............................... 1,150,000 $6.00 $6,900,000 $1,919
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Underwriter's Warrants 115,000 $ -- $ -- $ --
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Common Stock Underlying
Underwriter's Warrants(3)................. 115,000 $9.00 $1,035,000 $ 288
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Total................................... $7,935,000 $2,207
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</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.
<PAGE>
(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.
<PAGE>
PRELIMINARY PROSPECTUS
SEPTEMBER 7, 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. The proposed trading symbol of our common tock
is " ."
<TABLE>
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PER SHARE TOTAL
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<S> <C> <C>
Public offering price $6.00 $6,000,000
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Underwriting Discounts and Commissions $ .60 $ 600,000
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Proceeds to Precis $5.40 $5,400,000
</TABLE>
The underwriter is offering 1,000,000 shares of our common stock on a firm
commitment basis. The price per share is expected to be $6.00.
We have granted the underwriter a 45-day option to purchase up to an
additional 150,000 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.
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 3.
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
SECURITIES
<PAGE>
CAUTIONARY STATEMENT
RELATING TO FORWARD LOOKING INFORMATION
We want to point out to you that certain statements under the
captions "Prospectus Summary," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business"
and elsewhere in this Prospectus and the documents incorporated herein by
reference are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology such as "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. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
levels of activity, performance or achievements of the Company, or industry
results, to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. See "Risk Factors." As a result of the foregoing
and other factors, we provide no assurance of our future operating results,
levels of activity and achievements. We nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements contained in this Prospectus.
------------------------
"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
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PAGE
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<S> <C>
Prospectus Summary......................................................... 1
Precis Smart Card Systems, Inc..................................... 1
The Offering....................................................... 1
Summary Financial Information...................................... 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 12
Dividend Policy............................................................ 12
Dilution................................................................... 12
Capitalization............................................................. 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 14
Results of Operations.............................................. 14
Liquidity and Capital Resources.................................... 16
Business................................................................... 17
Management................................................................. 27
Directors and Executive Officers................................... 27
Executive Officer Compensation..................................... 28
Stock Option Plan.................................................. 29
Director Liability and Indemnification............................. 30
Lack of Employment Arrangements
and Keyman Insurance........................................... 30
Certain Transactions....................................................... 30
Security Ownership of Certain Beneficial
Owners and Management.................................................. 31
Description of Securities.................................................. 31
Common Stock....................................................... 31
Preferred Stock.................................................... 32
Transfer Agent and Registrar....................................... 32
Outstanding Stock Options.......................................... 32
Shareholder Action................................................. 32
Anti-Takeover Provisions........................................... 33
Shares Eligible for Future Sale............................................ 34
Lock-Up Agreements................................................. 35
State Imposed Escrow Arrangement.....................................35
Underwriting............................................................... 35
Legal Matters.............................................................. 38
Experts.................................................................... 38
Where You Can Find Additional Information.................................. 38
Index to Financial Statements...............................................F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION APPEARING ELSEWHERE IN
THIS DOCUMENT. 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" (PAGE
3).
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 PURSUANT TO 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 SET FORTH IN "RISK
FACTORS" (PAGE 3). ALL REFERENCES IN THIS PROSPECTUS TO FISCAL YEARS ARE TO
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 began our operations in 1993 as a limited liability company, all
of the assets of which were acquired in April 1994 by a partnership owned by
a majority of the owners of the limited liability company. Effective July 1,
1996, we became a corporation by merger of the limited partnership with us.
We develop and market commercial software products used with a
technology commonly referred to as "smart cards." 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. The
smart card contains an embedded integrated circuit or microchip that serves
as a programable storage device that performs specifically limited computer
functions.
Our products include the Precis Health Card System, a health care
smart card system; PrecisCache, a fixed-value smart card system;
PrecisReserve, a reloadable stored-value smart card system; and
PrecisPersona, a smart-card based customer loyalty and rewards system. These
products are in various stages of development.
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.
THE OFFERING
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<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:
- $654,000 reduction of indebtedness;
- $700,000 for further development
and marketing of our smart card
products and systems, and
- working capital.
Nasdaq symbol of common stock:
</TABLE>
-1-
<PAGE>
SUMMARY FINANCIAL INFORMATION
You should read the following selected financial data in
conjunction with our financial statements and related notes of Precis,
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 six
months ended June 30, 1999 and 1998, are derived from our unaudited financial
statements. In our opinion, the financial information presented for the six
months ended June 30, 1999 and 1998, reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such
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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1999 1998
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<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Product and service revenue $ 322,483 $ 40,856 $ 25,000 $ 34,404
----------- ----------- ----------- -----------
Operating expenses--
Product deployment and
research and development 389,586 542,203 134,462 193,799
Sales and marketing 147,411 148,885 79,321 74,418
General and administrative 399,756 472,320 217,124 163,544
----------- ----------- ----------- -----------
Total expenses 936,753 1,163,408 430,907 431,761
----------- ----------- ----------- -----------
Operating loss (614,270) (1,122,552) (405,907) (397,357)
----------- ----------- ----------- -----------
Other expense (income)--
Interest expense 59,196 29,890 42,834 24,079
Interest income (2,136) (2,282) -- (1,364)
----------- ----------- ----------- -----------
57,060 27,608 42,834 22,715
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Net loss -- Deficit accumulated
during development state $ (671,330) $(1,150,160) $ (448,741) $ (420,072)
----------- ----------- ----------- -----------
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Weighted average number of common
shares outstanding 900,000 900,000 1,002,083 900,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Per share $ (0.75) (1.28) (0.45) $ (0.47)
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DECEMBER 31, JUNE 30, 1999
--------------------------------- -----------------------------------
1998 1997 ACTUAL AS ADJUSTED(1)
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<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $ 10,035 45,864 $ 374,672 $ 4,901,622
Working capital (deficit) (757,441) (551,188) (716,844) 4,398,163
Total assets 74,253 206,139 389,734 4,916,684
Total current liabilities 767,476 597,052 1,091,516 503,459
Long-term debt, net of current portion 41,570 273,669 4,558 4,558
Stockholders' equity (deficit) (734,793) (664,582) (706,340) 4,340,660
</TABLE>
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(1) Adjusted to give effect to the sale of (i) 75,000 shares of our common
stock for net proceeds of $130,500 and (ii) the sale of 1,000,000
shares of our common stock pursuant to the offering, receipt of
estimated net proceeds of $5,050,000 and the application of such
proceeds as anticipated.
-2-
<PAGE>
RISK FACTORS
THE PURCHASE OF THE SHARES OF OUR COMMON STOCK INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION SET FORTH 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 SUCH FACTORS WILL NOT HAVE A
MATERIAL ADVERSE EFFECT ON OUR FUTURE OPERATIONS AND, CONSEQUENTLY, ON OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS OR THE MARKET PRICE OF
OUR COMMON STOCK.
WE HAVE A SHORT HISTORY OF OPERATIONS.
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. We are engaged principally in research
and development of our proprietary smart card technology and software and
development of pilot programs for our products. Our operating activities have
been focused on the development of the smart card technology and products.
Accordingly, we have incurred substantial operating losses. Our prospects and
the potential value of our common stock must be considered risky. We face the
uncertainties, expenses, delays and difficulties associated with establishing
a new business in the rapidly evolving smart card industry, plus the risks of
shifting from development to commercialization and marketing of our smart
card products and technologies.
WE HAVE HAD LIMITED REVENUES, INCURRED SIGNIFICANT LOSSES AND HAVE AN
ACCUMULATED DEFICIT.
During the six months ended June 30, 1999, and the year ended
December 31, 1998, we had total revenues of $25,000 and $322,483,
respectively. We have generated limited revenues to date. Substantial
increases in our revenues is dependent upon market acceptance of our smart
card products and systems. We incurred significant losses in each period of
our operating history resulting in an accumulated deficit at June 30, 1999 of
$3,418,985. We will continue to have a high level of operating expenses. We
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 such time, if ever, that we are able to generate sufficient
revenues to support our development and marketing activities. We cannot
assure you that our smart card products and systems will gain market
acceptance, or that we will be able to successfully implement our business
strategy, 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
pursuant to the offering.
WE HAVE A SUBSTANTIAL DEFICIT WORKING CAPITAL AND DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
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. The report indicated that
these factors raised substantial doubt regarding our ability to continue as a
going concern.
WE DO NOT HAVE PRODUCT DIVERSIFICATION.
Our smart card products and technology are expected to provide most
if not all of our sales 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 have a material adverse effect on our financial condition and
results of operations.
WE ARE DEPENDENT ON OUR EXECUTIVE OFFICERS AND KEY
PERSONNEL.
Our success to date has been largely dependent upon the skills and
efforts of the current executive officers and other key employees. We do not
have employment agreements with our executive officers and other key
employees. The loss of services of any of our executive officers or other key
personnel could have an adverse effect on our operations.
-3-
<PAGE>
THERE IS A LOT OF UNCERTAINTIES RELATED TO OUR BUSINESS PLAN.
The successful implementation of our business plan will be largely
dependent upon market acceptance of our smart card technology. This will
depend in part on our ability to market or continue to market successfully
our smart card systems. This marketing will involve persuading potential
customers or clients of the perceived benefits of our products and services,
and to develop and commercialize further applications of our smart card
technology. Successful marketing of the smart card technology will depend on,
among other things, 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.
We have limited experience in developing new products based on innovative
technology. 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
- - 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 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 repayment of shareholder loans and working
capital for general corporate purposes. The application of such proceeds will be
in the sole discretion of our management. You and our other shareholders will
have no input or control over decisions regarding application or use of the net
proceeds. For more information regarding our proposed uses of the proceeds, you
should see "Use of Proceeds" (page12).
FOLLOWING THE OFFERING, WE MAY HAVE A NEED FOR ADDITIONAL CAPITAL RESOURCES.
Our capital requirements have been and will continue to be
significant. Our future capital requirements will depend on many factors.
These factors include
- - 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 such installation.
We anticipate that our existing capital resources and revenues from
operations, together with the net proceeds of the offering, will be adequate
to satisfy our capital requirements for at least 12 months following
completion of the offering. Because our capital requirements cannot be
accurately predicted, however, we may require additional financing prior to
expiration of the 12 months. Also, we may require additional financing after
expiration of the 12 months. If and when needed, we may not be able to obtain
additional financing or if available such financing may be on terms not
satisfactory or advantageous to our shareholders, including those purchasing
our common stock in the offering. Our inability to obtain needed financing
could have a material adverse effect on our financial condition or results of
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 pursuant to the offering.
-4-
<PAGE>
THE PERIOD FROM INITIATION TO COMPLETION OF A SALE IS LENGTHY, AND WE HAVE
FLUCTUATIONS IN THE RESULTS OF OUR OPERATIONS.
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, depending upon, among other things, the
time required by the customer to
- - complete a pilot test of the smart card system,
- - make a determination regarding purchase of the system,
- - negotiate payment terms, and
- - complete the installation.
The sales cycle associated with the purchase of our smart card systems
is typically lengthy and subject to a number of significant risks. These risk
include
- - customers' or clients' budgetary constraints,
- - internal acceptance reviews,
- - 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,
operating results would be adversely affected if projected revenues for a given
quarter are not achieved. Due to the foregoing and because of the relatively
fixed nature of certain of our costs,
- - 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, such 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.
WE DO NOT MANUFACTURE SMART CARD HARDWARE.
We obtain all of the hardware components utilized in conjunction with
our smart card technology form manufacturers and suppliers. We believe that
these components are generally available from several suppliers. We do not,
however, have any long-term supply contracts with any vendors. Also, although a
component may be available from more than one supplier, we could incur delays in
switching suppliers, which could have a material adverse effect on our sales and
results of operations. Accordingly, the inability or unwillingness of a vendor
to continue to supply components to us, whether because of labor unrest, natural
disaster or the vendor's production constraints or desire to favor other
customers, could have a material adverse effect on our results of operations.
AS WE GROW, WE MAY NOT BE ABLE SUCCESSFULLY TO MANAGE OUR GROWTH.
In the event we experience substantial growth,
such 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, our business and results of
operations could be materially and adversely affected.
We intend to market our smart card technology outside the United
States. We are currently
-5-
<PAGE>
engaged in discussions and negotiations with customers for the sale and
installation of smart card systems in Mexico and Canada. However, we provide
no assurance that such systems will be sold and installed. In order to
successfully expand internationally, we may 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. International sales and
operations are subject to numerous risks, including the following:
- - unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers,
- - 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 such factors will not have a
material adverse effect on our future international operations and,
consequently, on our business, financial condition and results of operations.
THE COMPETITION FOR QUALIFIED EMPLOYEES IS INTENSE.
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. Our inability to recruit additional qualified personnel could have a
material adverse effect on our business, financial condition and results of
operations. We provide no assurance that we will be able to attract, motivate
and retain personnel with the skills and experience needed to successfully
manage our business and operations.
THERE ARE UNCERTAINTIES REGARDING PREPAREDNESS FOR
THE YEAR 2000.
There has been significant awareness raised regarding the potential
disruption to business operations worldwide resulting from the inability of
current technology to process the change in the year 1999 to 2000. We do not
currently believe that we will experience any significant adverse effects or
material unbudgeted costs resulting therefrom. Nevertheless, we cannot provide
any assurance in this regard, and any such significant costs or effect could
materially and adversely affect our operations and financial condition.
WE MAY BECOME DEPENDENT ON GOVERNMENT
CONTRACTS.
As part of our strategy, we may market our smart card systems to
government agencies in the United States and internationally. In such event, we
will become subject to the special risks involving government contracts. These
risks include
- - 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 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. There can be no assurance
that we would be successful in having our bids accepted or, if accepted, that
awarded contracts will generate sufficient revenues to result in profitable
operations. 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. Additionally, inherent in the competitive bidding
process is the risk that actual performance costs may exceed projected costs
upon which a submitted bid or contract price is based. To the extent that actual
costs exceed projected costs, we would incur losses, which would adversely
affect our
-6-
<PAGE>
operating margins and results of operations. Moreover, in most instances, we
would be required to post bid or performance bonds in connection with
contracts with government agencies. Our inability to obtain bonding coverage
in sufficient amounts could have a material adverse effect on our results of
operations.
THE COMPETITION WITHIN THE SMART CARD INDUSTRY IS INTENSE.
The smart card industry in the United States is an emerging business
characterized by an increasing and substantial number of new market entrants.
These market entrants have introduced or are developing an array of new products
and services relating to electronic transactions and information processing.
Each of these entrants is positioning its products and services as the preferred
method of effectuating highly individualized, easy-to-use electronic transaction
and information processing.
This market is therefore characterized by intense competition. More
specifically, we compete with numerous well-established companies. These
companies include 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., and Visa, which design, manufacture and/or
market smart card systems. We believe that our smart card products compete on
the basis of enhanced security, flexibility, salability, cost-effectiveness and
quality. Although, our smart card systems incorporate new concepts, they may be
unsuccessfully marketed even if they are superior to those of our competitors.
Certain competitors may be developing technologies or products which we
are unaware. These products may be 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.
As the market for smart card systems grows, new competitors are likely
to emerge. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business and results of operations. There can be no
assurance that
- - we will be able to compete successfully,
- - competitors will not develop technologies or products that render our
systems obsolete or less marketable, or
- - we will be able to successfully enhance our products or develop new
products when necessary.
THE MARKET FOR SMART CARD TECHNOLOGY IS DEVELOPING AND WE ARE NOT SURE OF THE
MARKET ACCEPTANCE OF SUCH TECHNOLOGY.
The smart card industry in the United States is an emerging business.
The use of smart cards in many other countries is much more progressed. The
success of the smart card industry domestically depends, in large part, on the
ability of market participants, including us, to convince governmental
authorities, commercial enterprises and other potential system sponsors or users
to adopt a smart card system. The smart card system would replace existing or
alternative systems such as magnetic stripe card and paper-based systems, and
would change the way certain 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
prove to be economically viable for a sufficient number of sponsors and users.
In such event, many potential system sponsors or users may be reluctant to
convert to smart card technology. Accordingly, there can be no assurance that
there will be significant market opportunities for smart card systems in the
United States or that the acceptance of smart card-based systems in other
countries will be sustained. As such, demand for and market acceptance of our
smart card systems are subject to a high level of uncertainty.
Also, because the software products incorporated in our smart card
products and systems are complex, our software products may contain errors or
failures when installed, updated or enhanced. There can be no assurance that,
despite testing, errors will not be found in our products after the delivery,
resulting in loss of or delay in market acceptance.
-7-
<PAGE>
WE HAVE JUST RECENTLY BEGUN TO MARKET OUR SMART CARD TECHNOLOGY; THEREFORE,
WE HAVE LIMITED MARKETING EXPERIENCE.
We may rely on unrelated third parties to assist in marketing our smart
card technology and applications. However, we anticipate that companies with
smart card marketing experience are very limited. Following the offering, we
will have limited financial, personnel and other resources to undertake
extensive worldwide marketing activities. Potential system sponsors or users of
our smart card systems must be persuaded that the costs of adopting and
implementing smart card systems are justified by the benefits to be derived
therefrom. Achieving market acceptance of our products and systems will require
significant efforts and expenditures to create awareness, demand and interest by
potential system sponsors and users, and others regarding the perceived benefits
of our smart card technologies. There is no assurance that we will be able to
- - meet our current objectives,
- - succeed in positioning our cards and systems as a preferred method of
delivering electronic transaction and information processing, or
- - achieve significant market acceptance of our products.
LIKE MOST TECHNOLOGY, SMART CARD TECHNOLOGY IS SUBJECT TO SWIFT CHANGE AND
OBSOLESCENCE.
The computer application software market is subject to
- - rapid technological change,
- - frequent new product introductions, and
- - evolving technologies and industry standards
that may render existing products and services obsolete. We can not provide any
assurance that our products and systems will not suffer such obsolescence.
Furthermore, our research and development efforts are subject to all of
the risks inherent in the development of new products and technology, including
unanticipated delays, expenses and difficulties. There is no assurance
- - 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 such 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.
Such developments may require substantial additional capital investments by us
in product development and testing. We can not provide any assurance that we
will have sufficient resources to make the necessary research and development
investments. Also, there can be no assurance that
- - 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
- - that our current or future products will conform to industry
requirements.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our success in the smart card industry is largely dependent upon our
software technology. Our products and systems are licensed to customers and
sponsors. These license agreements contain provisions protecting against the
unauthorized use, copying and transfer of the licensed program. We also rely on
a combination of trade secret, copyright and trademark laws, and non-disclosure
agreements to protect our proprietary rights in our products and technology.
There is no assurance that such measures are adequate
-8-
<PAGE>
to protect our proprietary technology. There is also no assurance that our
competitors will not independently develop technologies that are
substantially equivalent or superior to our software technologies.
We believe that our services and products do not infringe on the
intellectual property rights of others and are not aware of any asserted claims.
However, there is no assurance that a person will not assert a claim against us
for violating such person's technology property rights. It is also possible that
any such assertion may require us to enter into royalty arrangements, resulting
in possible extensive and costly litigation, or possibly even prohibit us from
marketing our products. Furthermore, the intellectual property issues relating
to our products in general have not been addressed by judicial authorities in
many instances. Such adverse actions or decisions made by such authorities could
create uncertainty, and our business, financial condition and results of
operations could be materially and adversely affected.
IF YOU PURCHASE OUR COMMON STOCK, YOU WILL SUFFER AN IMMEDIATE AND SUBSTANTIAL
DILUTION IN THE BOOK VALUE OF YOUR SHARES OF COMMON STOCK.
The $6.00 initial offering price of our common stock is substantially
in excess of our $1.97 pro forma net tangible book value at June 30, 1999. Based
upon our pro forma net tangible book value at June 30, 1999, you and the other
purchasers of our common stock pursuant to this offering will suffer an
immediate and substantial dilution of your investment in our common stock. On a
per share basis, you will suffer dilution of $4.03 per share or 67% of the
initial public offering price of our common stock. The dilution amount
represents initial public offering price and the pro forma net tangible book
value.
PRIOR TO THE OFFERING THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK; THE
OFFERING PRICE OF OUR COMMON STOCK MAY NOT REPRESENT ITS VALUE; IF A MARKET
DEVELOPS, THE MARKET PRICE MAY BE SUBJECT TO WIDE FLUCTUATIONS.
Prior to the offering there has been no public market for our common
stock. We provide no assurance that after the offering
- - an active trading market for our common stock will develop or be
sustained or
- - the market price of our common stock will not decline below the
offering price to the public.
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 based upon several factors,
- - 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, a
number of factors, including
- - 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.
In addition, the stock market has experienced extreme price and volume
fluctuations from time to time which have, in certain circumstances, borne no
meaningful relationship to company performance.
FUTURE SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK MAY ADVERSELY AFFECT THE
SALES PRICE THAT YOU RECEIVE FOR YOUR SHARES OF OUR COMMON STOCK.
Sales of substantial amounts of our common stock in the public market
could adversely affect its market price. Immediately following completion of the
offering, we anticipate that there will be 2,200,000 shares of our common stock
outstanding (without giving effect to exercise of outstanding stock options and
exercise of Barron Chase Securities, Inc. option to sell an additional 150,000
pursuant to the offering). Of these shares, 1,456,884 shares of our common stock
will be freely tradable without regard to volume or other limitations pursuant
to Rule 144 or Rule 701 promulgated under the Securities Act of 1933, unless
held by one of our officers, directors, or 10% or greater shareholders.
-9-
<PAGE>
Our executive officers, directors, and certain shareholders have
entered into lock-up agreements with Barron Chase Securities, Inc. Under
these agreements our officers, directors and shareholders have agreed not to
sell or otherwise dispose of 443,116 shares of our common stock beneficially
owned by them for a period of two years from the date on the front cover of
this prospectus. In addition, shareholders who purchased shares of our common
stock in the private offering completed in June 1999 have similarly agreed
not to sell or otherwise transfer the 300,000 shares of our common stock for
the two-year period. We anticipate that pursuant to such lock-up agreements,
Barron Chase Securities, Inc., in its sole discretion at any time without
notice, may release all or a portion of the shares and stock options subject
to lock-up agreements.
IF WE FAIL TO MEET CERTAIN MINIMUM REQUIREMENTS, OUR COMMON STOCK WILL BE
DELISTED BY NASDAQ AND BECOME TRADABLE ON THE OVER-THE-COUNTER MARKET. SUCH
EVENTS WILL NEGATIVELY AFFECT THE SALE PRICE OF OUR COMMON STOCK.
We have made application for inclusion of our common stock on the
Nasdaq SmallCap Market following completion of the offering. Continued
inclusion of our common stock on Nasdaq will be subject to certain
conditions, generally including
- - our common stock having a $1.00 or higher bid price per share,
- - net tangible assets of at least $2 million, market capitalization of at
least $35 million or net income of at least $500,000,
- - two or more market makers (a dealer holding itself out as ready to buy
and sell our common stock on a regular basis),
- - market value of public float of at least $1 million, and
- - at least 300 shareholders.
In the event such minimum requirements for inclusion
are not met,
- - our common stock will be delisted and no longer included on the Nasdaq
SmallCap Market,
- - would 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 such 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.
OUR COMMON STOCK MAY BECOME SUBJECT TO "PENNY STOCK" RULES WHICH IMPOSE
SIGNIFICANT RESTRICTIONS ON BROKER-DEALERS WHO EFFECT TRANSACTIONS IN OUR COMMON
STOCK.
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 not listed on a national securities exchange or Nasdaq,
- - is 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 (by
a purchaser that is not an accredited investor as defined by Rule 501(a)
promulgated under the Securities Act of 1933) or the sale of a penny stock.
These responsibilities and duties include
- - determination of the purchaser's investment suitability,
- - delivery of certain information and disclosures to the purchaser, and
- - receipt of a specific purchase agreement from the purchaser prior to
effecting the purchase transaction.
In the event penny stock trading rules become applicable, compliance with such
trading rules may
-10-
<PAGE>
affect the ability to resell our common stock because of the additional
duties and responsibilities imposed upon the broker-dealers and salespersons
recommending and effecting sale and purchase transactions in our common
stock. Also, many broker-dealers will not effect transactions in penny
stocks, except on an unsolicited basis, in order to avoid compliance with the
penny stock trading regulations. In the event our common stock becomes
subject to the penny stock trading rules,
- - such rules may materially limit or restrict the ability of a holder to
resell our equity securities, and
- - the liquidity typically associated with other publicly traded equity
securities may not exist.
WE MAY ISSUE ADDITIONAL COMMON STOCK ON TERMS DETERMINED BY OUR BOARD OF
DIRECTORS WITHOUT YOUR CONSENT OR APPROVAL.
We are authorized to issue 8,000,000 shares of common stock and
2,000,000 shares of preferred stock. 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 any authorized and not
outstanding shares of our capital stock at an offering price to be determined in
sole discretion of our board of directors, including the shares of our common
stock not sold pursuant to the offering. We have agreed not to issue any
preferred stock for a period of three years from the date of this prospectus
without the consent of Barron Chase Securities.
The sale of such additional shares of capital stock may result in
substantial dilution, and the preferred stock may have rights superior to those
of our common stock.
IT IS DIFFICULT FOR A THIRD PARTY TO ACQUIRE US DUE TO PROVISIONS IN OUR
CHARTER, BYLAWS AND THE LAWS OF OUR STATE OF INCORPORATION.
Provisions of our certificate of incorporation and the Oklahoma General
Corporation Act may make it difficult to effect a change in shareholder control
and to replace our incumbent management. Such provisions could limit the price
that a person would be willing to pay in the future for shares of 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 such class or series 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 that our board of directors opposes.
At some time in the future, we may also become subject to the
anti-takeover provisions of the Oklahoma General Corporation Act, which in such
case and in some circumstances may discourage a person from making a control
share acquisition (generally an acquisition of voting stock having more than 20
percent of all voting power in the election of directors) without shareholder
approval.
WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS.
It is anticipated that we will not pay any dividends on our common
stock in the foreseeable future.
-11-
<PAGE>
USE OF PROCEEDS
From sale of the 1,000,000 shares of our common stock pursuant 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>
Payment of accounts payable as of June 30, 1999 .................... $ 323,900 6.4%
Enhancement and further development of smart card products and
technology.......................................................... 700,000 13.9
Marketing development costs ........................................ 3,196,450 63.3
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
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 such products, and changes in economic
climate. The occurrence of these conditions is unpredicted with any degree of
certainty. Any such 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.
DILUTION
The pro forma net tangible book value of our common stock, at June
30, 1999, was $(686,534), or $(.58) per share. This pro forma net tangible
book value gives effect to completion of our private placement of 300,000
shares of our common stock in July 1999 and receipt of estimated net proceeds
of $497,000. Without taking into account changes in pro forma net tangible
book value after June 30, 1999, other than completion of the private
placement and to assume 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 pursuant to the offering, our pro forma net
tangible book value at June 30, 1999, would have been $4,363,466, or $1.97
per share. This represents an immediate increase in the pro forma net
tangible book value of $2.55 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $4.03 per share of
common stock to the purchasers of our common stock pursuant to 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
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<PAGE>
date on a pro forma basis. The following table illustrates the pro forma per
share dilution to purchasers of our common stock pursuant to the offering as
of June 30, 1999:
<TABLE>
<CAPTION>
PERCENTAGE
OF PUBLIC
OFFERING PRICE
--------------
<S> <C> <C> <C>
Public offering price ............................................ $ 6.00 100.0%
Pro forma net tangible book value per share as of June 30, 1999.. $ (0.58)
Increase in pro forma net tangible book value attributable
to existing shareholders 2.55
-------
Pro forma net tangible book value per share after the offering ...... 1.97 33.0
------- ----
Dilution to new investors ........................................... $ 4.03 67.0%
------- ----
------- ----
</TABLE>
The following table sets forth, on a pro forma basis as of June 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 pursuant to 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> <C>
Our current shareholders ............... 1,200,000(1) 59.5% $2,732,451 (1) 31.2% $ 2.27
The purchasers of our common stock ..... 1,000,000 45.5% 6,000,000 68.8% $ 6.00(2)
--------- ------ ---------- -------
Total 2,200,000 100.0% $8,719,645 100.0%
--------- ------ ---------- -------
--------- ------ ---------- -------
</TABLE>
- ---------------
(1) The amount is based upon total stockholders' equity plus the
accumulated deficit as set forth in our financial statements included
elsewhere in this prospectus, adjusted to give effect to completion of
our private placement of 300,000 shares of our common stock in July
1999 and receipt of estimated net proceeds of $497,000.
(2) The average price per share is the $6.00 public offering price of our
common stock.
CAPITALIZATION
The following table sets forth our capitalization as of June 30,
1999 and as adjusted to give effect to the offering and completion of our
private placement of 300,000 shares of our common stock in July 1999. 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
JUNE 30,
1999 AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
Mezzanine debt ....................................... $ 329,643 $ --
Current portion of long-term debt .................... 340,026 340,026
Long-term debt, net of current portion ............... 4,558 4,558
----------- -----------
Stockholders' equity:
Common Stock ....................................... 11,757 22,000
Additional paid-in capital ......................... 2,701,070 7 760,451
Deficit accumulated during development stage ....... (3,418,985) (3,418,985)
----------- -----------
Total stockholders' equity ....................... (706,340) 4,363,466
----------- -----------
Total capitalization (deficit) ....................... $ (32,113) $4,708,050
----------- -----------
----------- -----------
</TABLE>
- ------------------
(1) Adjusted to give effect to completion of (i) our private placement of
300,000 shares of our common stock in July 1999 and receipt of
estimated net proceeds of $497,000, (ii) the sale of 1,000,000 shares
of our common stock pursuant to the offering and receipt of estimated
net proceeds of $5,050,000, and (iii) the repayment of our mezzanine
debt.
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<PAGE>
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 six months ended
June 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 SIX MONTHS ENDED JUNE 30,
------------------------------------------ --------------------------------------------
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% $ 25,000 100% $ 34,404 100%
----------- ----- ----------- ------- --------- ------ ----------- ------
Operating expenses:
Product deployment and research
and development ................... 389,586 121 542,203 1327 134,462 538 193,799 563
Sales and marketing ................. 147,411 46 148,885 364 79,321 317 74,418 216
General and administrativ ........... 399,756 124 472,320 1159 217,124 868 163,544 475
----------- ----- ----------- ------- --------- ------ ----------- ------
Total expenses .................... 936,753 290 1,163,408 2847 430,907 1723 431,761 1255
----------- ----- ----------- ------- --------- ------ ----------- ------
Operating loss .................... (614,270) (190) (1,122,552) (2747) (405,907) (1624) (397,357) (1155)
----------- ----- ----------- ------- --------- ------ ----------- ------
Other expenses (income)
Interest expense .................... 59,196 18 29,890 73 42,834 171 24,079 70
Interest income ..................... (2,136) (1) (2,282) (5) -- -- (1,364) (4)
----------- ----- ----------- ------- --------- ------ ----------- ------
57,060 18 27,608 68 42,834 171 22,715 66
----------- ----- ----------- ------- --------- ------ ----------- ------
Net loss - deficit accumulated during
development stage ................... $ (671,330) (208)% $(1,150,160) (2815)% $ (448,741) (1795)% $(420,072) (1221)%
----------- ----- ----------- ------- --------- ------ ----------- ------
----------- ----- ----------- ------- --------- ------ ----------- ------
</TABLE>
COMPARISON OF SIX-MONTH PERIODS
ENDED JUNE 30, 1999 AND 1998
Net sales during the six months ended June 30, 1999, decreased
$9,404, a 27.3% decrease, to $25,000 from $34,404 during the six months
ended June 30, 1998. The decrease was principally attributable to
implementation of the PrecisCache-TM- system for the 1998 PGA Championship
and for the Kiel Center Arena, home of the National Hockey League's St. Louis
Blues, during the 1998 six-month period.
Operating expenses during the 1999 six-month period decreased $854
to $430,907 from $431,761 during the 1998 six-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
$53,580 increase in general and administrative expenses to $217,124 during
the 1999 six-month period from $163,544 during the 1998 six-month period was
primarily attributable to increase in insurance costs, legal costs and
depreciation expense. Also, sales and marketing expenses increased $4,903 to
$79,321 during the 1999 six-month period from $74,418 during the 1998
six-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
$59,337 to $134,462 during the 1999 six-month period from $193,799 during the
1998 six month period. This decrease was attributable to the maintenance in
1998 of the Chicago White Sox project test that was implemented for the 1997
and 1998 seasons, as well as product deployment and research and development
expenses and sales and marketing expenses associated with the above-mentioned
implementations of the PrecisCache system. We incurred operating losses of
$405,907 and $397,357 during the 1999 six-month period and 1998 six-month
period, respectively. The $8,550 increase in the 1999 six-month period
operating loss was attributable to the decrease in product and service
revenues.
Other expenses (income) increased by $20,119 or 89% to a net
expense of $42,834 during the 1999 six-month period from $22,715 in the 1998
six-month period. This increase was principally due to the increase in
interest expense, which increased from $24,079 during the 1998 six-month
period to $42,834 during the 1999 six-month period. The increase in
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interest expense was attributable to increase in our outstanding debt during
the 1999 six-month period compared to the 1998 six-month period. During the
1999 six-month period we had a $448,741 net loss, while during the 1998
six-month period we had a net loss of $420,072, an increase of $28,669.
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 in
Erisson Stadium (home of the National Footbal 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 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 Whit Sox project test with 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 such 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 such 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, such
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, such as 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.
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Based on progress to date and the limited instances of date sensitive
calculations, we have concluded that there is no need for a contingency plan
therefore such plan has not been developed. The most likely risk to us from year
2000 compliance are external, due to the difficulty of validating all key third
parties' readiness for the year 2000. We have sought and will continue to seek
confirmation of such compliance and seek relationships with subcontractors,
suppliers, vendors, and service providers that interface with our software and
that 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 June 30, 1999, we had a
deficit working capital of $716,844. Other than possible loans from certain of
our principal shareholders and the proceeds of the offering, we do not have any
capital resources other those provided by operations. At June 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.
Operating activities for the six months ended June 30, 1999, used net
cash of $281,024 as the result of a net loss of $448,741, reduced by
depreciation of $56,992 and increased by changes in accounts payable and accrued
liabilities of $110,725. In 1998, our operating activities used net cash of
$420,674 as the result of the net loss of $671,330, 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 six months ended June
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 six months ended June 30, 1999 and the year ended December
31, 1998, net cash provided by financing activities was $653,497 and $426,505,
respectively. During the 1999 six-month period we sold our common stock for
gross proceeds of $515,000 ($477,194 net) and borrowed $226,643 on a short-term
basis. During this period, we paid overdraft and long-term debt of $50,340.
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. In July 1999 we completed a private offering of 300,000
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shares of our common stock and received gross proceeds of $600,000 ($515,000
was received during the six months ended June 30, 1999) and net proceeds of
approximately $497,000. 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 prior to expiration of the
above-referenced 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.
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 unique 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 health care 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.
Because of our early success in several key market niches, we believe
we are positioned as a market leader in the further development of the smart
card market. Our near-term marketing efforts are focused on further solidifying
our market position and using such position as the foundation for expansion into
additional markets.
Our products and services include full service hardware integration and
software development and implementation from the point-of-sale to back-end
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, such as 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
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encryption technology, such as 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. Such 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 such 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 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.SCARD WP.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 such technology makes small-value monetary
transactions feasible, faster and more economically processed. Use of smart
cards reduces the need for signature, verification of credit
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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.
It is believed that closed-area smart card systems will dominate as
a transitional or interim phase to widespread smart card utilization and
acceptance. A closed-area system is a limited venue, such as 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 certain kinds of 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 such as 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 such as 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,
- - 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 six months ended
June 30, 1999, we had revenues of $322,483 and $25,000, respectively. Our
smart card technology has focused on health care 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 such programs will lead to the national introduction and
installation of such 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 closed-area
environments such as stadiums, arenas, corporate or educational campuses,
festivals, events, specific retail sites or communities. This protected
memory card stores monetary value or tokens to be used within a
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designated reader infrastructure. This infrastructure can include portable
(stand-alone) computer terminals as well as terminals connected to existing
point-of-sale systems. The stored-value application also includes a
"back-end" processing system to account for transactions, create reports and
provide data-mining functionality.
Use of the PrecisCache-TM- system greatly reduces the cost of
handling cash and decreases the opportunity for theft, 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, the Company customized the PrecisCache-TM- system
for use throughout the hotel/resort hosting the Demo '97 conference. Demo '97
is the leading computer 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. Precis continues to have a solid reputation as an
innovator and market leader in the health care smart card market. The Precis
Health Card System was the first health care 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 health care 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, such as loyalty and security access.
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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.
HOW ARE PRECIS PRODUCTS DEVELOPED AND WHAT COMPETITIVE ADVANTAGES DO
THE PRECIS PRODUCTS OFFER?
Our software products enjoy significant competitive advantage based
on our commitment to innovation, quality, experience and consistent approach
to development. 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 NationsBank. Working
with NationsBank's Strategic Technologies Group, we have 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), the
leading provider of secure electronic payment solutions for financial
institutions, merchants and consumers, as the beta 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
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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 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 that will result in preferred customer, preferred pricing, VAR
status with enhanced access to proprietary information that will be useful in
product development and implementation.
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 commenced research and
development efforts aimed at meeting perceived needs of such industries:
- - HEALTH CARE -- 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 such as 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
-22-
<PAGE>
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.
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 health care 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. 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 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,
such as 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 with the Main Street Fort Worth Arts Festival and the 1998 PGA
Championship (at Sahalee Country Club, Redmond, Washington) 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. Such is the case in the
"Allsports" series of cards for Oklahoma State University that the Bank of
Oklahoma sponsored.
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<PAGE>
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-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.
HEALTH CARE MARKET. Our first market segment focus was in health
care. We believe that every insurance company, HMO, PPO, hospital
association, and independent provider association which serves the United
States health care 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 health care smart card implementation of its kind and the
experience we gained from it. The opportunity to reduce health care costs,
improve the quality of health care 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 health care 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 inquires 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-. Certain features
of the Oklahoma project limited the collection and analysis of data such as
actual reductions in costs and paperwork, rates of decrease of incidents of
harmful drug interactions, increases in the speed and quality of health care
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 health care 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.
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 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,
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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. We have not applied for registration of our
PrecisCache-TM-, PrecisReserve-TM-, and PrecisPersona-TM- trademarks. We have
no patents or patent applications pending. 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 certain portions of our products or reverse engineer or
obtain and use information that we regard as proprietary.
Because the software development industry is characterized by rapid
technological change, we believe that factors, such as
- - 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 June 30, 1999, our product development staff consisted of
three employees. Our total expenses for product development and deployment
during 1998 and the six months ended June 30, 1999, were $389,586 and
$134,462, respectively. 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."
ARE THE OPERATIONS OF PRECIS SUBJECT TO GOVERNMENT REGULATION?
Our operations are subject to various federal, state and local
requirements which affect businesses generally, such as taxes, postal
regulations, labor laws, and environment and zoning regulations and
ordinances.
Furthermore, although certain aspects of our services may be 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
certain electronic funds transfers
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<PAGE>
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 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 June 30, 1999, at Precis we had a total of eight employees, of
which two were employed in sales and marketing, three were employed in
product development, one was employed in professional services and customer
support, one was employed in internal operations support, and one was
employed in administration and finance. 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 such 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.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain 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 such number as our board of directors may determine by
resolution or election. Our board of directors currently consists of four
members.
<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) .................. Chief Financial Officer
Michael E. Dunn(2) .............. 53 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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
pursuant to 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. Prior to 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 health care 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. Prior to 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 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
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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.
MICHAEL E. DUNN became a Director of the Company 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 certain information with respect to
the total cash compensation, paid or accrued, of the President and Chief
Executive Officer of Precis. None of our executive officers received
compensation in excess of $100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 .................................... 1998 $64,000 $ -- 17,241
President and Chief Executive Officer 1997 $74,000 $ -- --
1996 $48,667 $ -- 45,977
</TABLE>
(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.
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.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
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 31, 2008 $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 prior to the 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
certain assumed rates of appreciation only. Actual gains on stock
option exercises are dependent on the future operating
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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 IN-THE-MONEY OPTIONS(1)
------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James Lout ....... 36,399 26,819 $ -- $ --
</TABLE>
- ------------------------
(1) A market for our common stock does not exit. 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 300,000. 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 75% of the fair
market value of our common stock onthe 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, 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 a period of 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 pursuant to the Plan will become
fully vested and immediately exercisable in the event that (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 prior to such
12-month period or (ii) a "change of control" occurs. For
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<PAGE>
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 in certain circumstances the
monetary liability of our directors for a breach of their fiduciary duty as
directors. 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 such as injunctive or other forms
of non-monetary relief. Such remedies may not be effective in all cases.
Our bylaws require us to indemnify all of our directors and
officers. Under such 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, such 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 such indemnification is not
exclusive of any other rights to which such 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 such
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.
CERTAIN TRANSACTIONS
Set forth below is a description of transactions entered into
between us and certain of our officers, directors, and shareholders during
1997, 1998 and 1999 to the date of this prospectus. Certain of these
transactions will continue in effect and may result in conflicts of interest
between us and such 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.
Pursuant to 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. 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 six months ended June 30, 1999,
and the year ended December 31, 1998, the interest accrued for payment to Dr.
Webb was $6,113 and $14,899, respectively.
Our board of directors believes that the terms of the transactions
described above 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 our disinterested independent directors and that
further transactions with affiliates will be on terms no less favorable than
could be obtained from unaffiliated parties and approved by a majority of our
disinterested independent directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as to the
beneficial ownership of our common stock as of the date of this Prospectus,
and the beneficial ownership of the 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 such person has the right to acquire within 60 days of the
date of this prospectus pursuant to 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.
<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)
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 (four 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 such 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
Pursuant to 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
pursuant to the offering.
The following description of certain matters relating to 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:
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- - the right to receive ratably such 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 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 pursuant to 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 believe that having such 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 such preferred stock. Issuance of preferred
stock could adversely affect
- - the voting power of the holders of our then outstanding common stock,
- - the likelihood that such 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 86,398 shares of our common stock during
various periods which expire commencing in July 1, 2006 through January 1,
2008, 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 122,031 shares of our
common stock for issuance upon the vesting and exercise of certain stock
options. Our board of directors is also authorized to issue additional stock
options exercisable for the purchase of 300,000 shares of our common stock
pursuant to our stock option plan.
SHAREHOLDER ACTION
Pursuant to 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.
Pursuant to the Oklahoma General Corporation Act, our shareholders
may take actions without the holding of a meeting by written consent. Such
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
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meeting. In such 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 such act or action. 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
pursuant to 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 such
proposals because, among other things, negotiation of such 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 such 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. We have agreed not to issue any preferred
stock for a period of three years from the date of this prospectus without
the consent of Barron Chase Securities.
OKLAHOMA ANTI-TAKEOVER STATUTES.
Following the offering, we may be subject to Section 1090.3and
Sections 1145 through 1155 of the Oklahoma General Corporation Act.
Subject to certain exceptions, 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 such person became an interested shareholder. This prohibition does
not apply to a transaction if the interested shareholder attained such status
with approval of our board of directors or the business combination is
approved in a prescribed manner, or certain other conditions are satisfied. A
"business combination" includes mergers, asset sales, and other transactions
resulting in a financial benefit to the interested shareholder. Subject to
certain exceptions, 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 such 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 such shares had before
such 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 certain 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 such
purpose; however, the acquiring person must undertake to pay the costs and
expenses of such 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 such 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 certain exceptions including
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- - an acquisition pursuant to an agreement of merger, consolidation, or
share acquisition to which we are a party and is effected in
compliance with certain provisions of the Oklahoma General Corporation
Act,
- - an acquisition by a person of additional shares within the range of
voting power for which such person has received approval pursuant to a
resolution 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 pursuant to 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 such an attempt might be beneficial to us and our
shareholders. Accordingly, you and our other shareholders could be deprived
of certain 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
such shares during the four calendar weeks preceding the date on which
notice of such sale is filed with the U.S. Securities and Exchange
Commission.
Sales under Rule 144 are also subject to certain 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 (such as shares of common stock acquired by our
affiliates in the offering). As defined in Rule 144, an "affiliate" is a
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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 subsequent holder thereof is deemed not to have been our
affiliate at any time during the 90 days preceding the sale, such person
would be entitled to sell such shares in the public market pursuant to Rule
144(k). Under Rule 144(k) unregistered shares of common stock may be sold
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 pursuant to Rule 144(k).
LOCK-UP AGREEMENTS
During the two-year period following the date of this prospectus,
our executive officers, directors, and certain shareholders have agreed not
to sell or otherwise dispose of the shares of common stock the beneficially
own by them on the date of this prospectus. This agreement is with Barron
Chase Securities. The agreement covers in the aggregate 743,116 shares of our
common stock.
STATE IMPOSED ESCROW 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) deposited 443,116 shares of our common stock
in escrow with UMB Oklahoma Bank, pursuant to a promotional shares escrow
agreement (the "escrow agreement"). The escrow 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 pursuant to the offering (the "public shareholders").
Under the terms of the escrow agreement, the owners (the
"depositors") of the common stock and stock options (the "subject
securities") agreed that in event of a "distribution" (as defined below)
respecting the subject securities, the public shareholders will initially
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 proceed 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 vote, or consent by
consent procedure, to approve the lesser terms and conditions. A
"distribution" means a distribution of our assets or securities to our
shareholders including the depositors 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 connection with the offering will cease to be
entitled to the distribution benefits of the escrow agreement.
The shares of common stock and stock options, as well as any shares
of common stock received upon exercise of the stock options, will remain
subject to the escrow agreements for the three-year period following the date
of this prospectus. Other than as mentioned, the shares of common stock and
stock options subject to the escrow agreement may not be sold, transferred,
pledged, assigned, hypothecated or otherwise disposed of, except under
limited circumstances.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement,
Barron Chase Securities, Inc. has agreed to purchase from us an aggregate of
1,000,000 shares of our common stock (the "common shares"). The common shares
are offered by the underwriter subject to prior sale, when, as and if
delivered to and accepted by the underwriter and subject to approval of
certain legal matters by counsel and certain other conditions. The
underwriter is committed to purchase all of the common shares, if any are
purchased (other than those shares of our common stock covered by the
over-allotment option described below).
Barron Chase Securities has advised us that it proposes to offer the
common shares offered hereby to the public at the offering price set forth on
the cover page of this prospectus through members of the National Association
of Securities Dealers, Inc. (the
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"NASD") who agree to sell the common shares in conformity with the NASD
Conduct Rules. Barron Chase Securities may allow a concession, in its
discretion, to certain NASD members. Such concessions will not exceed the
amount of the underwriting discount that Barron Chase Securities is to
receive.
We have granted to Barron Chase Securities the option, exercisable
for 45 days from the date of this prospectus, to purchase up to an additional
150,000 shares of our common stock at the public offering price less the
underwriting discount set forth on the cover page of this prospectus (the
"over-allotment option"). Barron Chase Securities may exercise this option
solely to cover over-allotments in the sale of the Securities being offered
by this Prospectus.
Pursuant to the underwriting agreement, Barron Chase Securities will
purchase from us the shares of our common stock at a price of $5.40 per share
(including the common stock subject to the over-allotment option, if
exercised), which represents a discount of 10% of the public offering prices
(the "underwriting discount"). In addition, we have agreed to pay Barron
Chase Securities a non-accountable expense allowance of 3% of the gross
proceeds of the offering (including proceeds from any shares of common stock
purchased pursuant to the over-allotment option). The expenses of Barron
Chase Securities in excess of the non-accountable expense allowance will be
paid by it without reimbursement by us. To the extent that the expenses of
Barron Chase Securities are less than the amount of the non-accountable
expense allowance received, such excess shall be deemed to be additional
compensation. Barron Chase Securities has informed us that it does not expect
sales to discretionary accounts to exceed 5% of the total number of shares of
common stock offered pursuant to the offering.
Prior to the offering, there has been no public market for our
common stock. Consequently, the initial public offering price for 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. Such 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 such public market will be
sustained, or
- - that the shares of common stock you purchase pursuant to the offering
can be resold at any time at the offering or any other price.
At the closing of the offering, we will issue to Barron Chase
Securities and/or persons related to Barron Chase Securities, for nominal
consideration, Common Stock Underwriter Warrants (the "underwriter's
warrants") to purchase up to 100,000 shares of common stock. The
underwriter's warrants and the common stock underlying the underwriter
warrants are registered pursuant to the registration statement of which this
prospectus is a part. The underwriter's warrants will be exercisable for a
five-year period commencing on the date of this prospectus. The initial
exercise price of each underwriter's warrants will be $9.00 per share of
common stock (150% of the public offering price). The underwriter's warrants
will not be transferable by the holder for one year from the date of this
prospectus, except
- - to officers of Barron Chase Securities and members of the selling group
and officers and partners thereof,
- - by will, or
- - by operation of law.
The underwriter's warrants contain provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The underwriter's warrants contain net issuance provisions.
These provisions permit the holder of the underwriter warrants to elect to
exercise the underwriter's warrants in whole or in part and instruct us to
withhold from the securities issuable upon exercise, a number of securities,
valued at the current fair market value on the date of exercise, to pay the
exercise price. Such net exercise provision 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
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will have the same dilutive effect on the shareholders' interests as will a
cash exercise.
The underwriter's warrants and the securities issuable thereunder
may not be offered for sale except in compliance with the applicable
provisions of the Securities Act of 1933. We have agreed that if we shall
cause a post-effective amendment to the registration statement of which this
prospectus (the "registration statement") is a part, a new registration
statement, or similar offering document to be filed with the U.S. Securities
and Exchange Commission, the holders shall have the right, for seven years
from the date of this prospectus, to include in such registration statement
or offering statement the underwriter's warrants and/or the securities
issuable upon their exercise (the "registrable securities") at no expense to
the holders. Additionally, we have agreed that, upon request by the holders
of 50% or more of the underwriter's warrants and registrable securities
during the period commencing one year from the date of this Prospectus and
expiring four years thereafter, we will, under certain circumstances,
register the underwriter's warrants and/or any of the registrable securities.
We have agreed to engage Barron Chase Securities as our financial
advisor for a fee of $108,000, which is payable at closing of the offering.
Pursuant to this agreement, Barron Chase Securities is to provide, at our
request, advice concerning potential merger and acquisition and financing
proposals, whether by public financing or otherwise. We have also agreed to
pay Barron Chase Securities a fee for services rendered in connection with
certain corporate transactions we complete. The fee is based upon the value
paid or received by us in the transaction. The amount of the fee will be 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 such value, 2% of the
next $1 million of value, and 1% of all such value in excess of $4 million.
The fee will be payable only in the event
- - we participate in any merger, consolidation or other such transactions
which Barron Chase Securities has brought to us during a five-year
period following the closing of the offering, and which is completed
(including an acquisition of assets or stock for which we pay, in whole
or in part, with shares of our common stock or other securities), or
- - we retain the services of Barron Chase Securities in connection with
any merger, consolidation or other such transaction.
In order 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. Specifically, Barron
Chase Securities may over-allot in connection with the offering, creating a
short position in our common stock for its own account. In addition, to
covering over-allotments or to stabilize the price of our common stock, the
underwriter may also bid for, and purchase, shares of our common stock in the
open market. Finally, Barron Chase Securities 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 any of
these activities at any time.
We have agreed to 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 statements made in this
prospectus and the registration statement of which this prospectus is a part.
Barron Chase Securities has in turn agreed to indemnify 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. To the extent that this section may purport to provide exculpation from
possible liabilities arising from the federal securities laws, in the opinion
of the Securities and Exchange Commission, such indemnification is contrary
to public policy and therefore unenforceable.
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 such agreement which are filed as exhibits to the registration
statement. See "Where You Can Find Additional Information."
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LEGAL MATTERS
The validity of issuance of the shares of the common stock offered
hereby and certain other legal matters in connection with the offering will
be passed upon for us by our counsel, Dunn Swan & Cunningham, A Professional
Corporation, of Oklahoma City, Oklahoma. Certain legal matters 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.
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 set forth 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 such
statement is qualified in all respects by such 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 such 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 such 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 such reports and other information can be inspected and
copied at, and copies of such 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.
-38-
<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 June 30, 1999
and 1998 (Unaudited)........................................... F-3
Statements of Operations and Accumulated Deficit for the Years Ended
December 31, 1998 and 1997, and for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)............................. F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997, and for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)............................. F-5
Statements of Cash Flows for the Years Ended December 31, 1998 and
1997, and for the Six Months Ended June 30, 1999 and 1998
(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, JUNE 30,
----------------------------- ------------------------------
1998 1997 1999 1998
----------- ---------- ----------- -----------
ASSETS (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets:
Cash.................................................. $ -- $ 1,706 $ 364,637 $ 12,012
Inventory............................................. 10,035 44,158 10,035 63,748
----------- ---------- ----------- -----------
Total Current Assets.............................. 10,035 45,864 374,672 75,760
----------- ---------- ----------- -----------
Property and Equipment:
Office Equipment...................................... 48,219 48,219 48,219 48,219
Computer Equipment.................................... 263,499 256,178 270,489 263,499
Furniture and Fixtures................................ 6,890 6,674 7,736 6,890
----------- ---------- ----------- -----------
318,608 311,071 326,444 318,608
Less Accumulated Depreciation......................... (254,390) (150,796) (311,382) (203,211)
----------- ---------- ----------- -----------
64,218 160,275 15,062 115,397
----------- ---------- ----------- -----------
Total Assets ............................................. $ 74,253 $ 206,139 $ 389,734 $ 191,157
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Book Overdraft ....................................... $ 27,513 $ -- $ -- $ --
Accounts Payable ..................................... 265,012 186,933 323,862 216,445
Accrued Liabilities .................................. 46,110 11,250 97,985 20,572
Mezzanine Debt ....................................... 103,000 25,000 329,643 50,000
Current Portion of Capital Leases .................... 48,319 32,649 62,504 59,758
Current Portion of Long-Term Debt .................... 277,522 341,220 277,522 277,522
----------- ---------- ----------- -----------
Total Current Liabilities ........................ 767,476 597,052 1,091,516 624,297
----------- ---------- ----------- -----------
Long-Term Liabilities:
Capital Leases, Net of Current Portion ............... 41,570 89,889 4,558 50,394
Long-Term Debt, Net of Current Portion ............... -- 183,780 -- --
----------- ---------- ----------- -----------
Total Long-Term Liabilities ...................... 41,570 273,669 4,558 50,394
----------- ---------- ----------- -----------
Total Liabilities ................................ 809,046 870,721 1,096,074 674,691
----------- ---------- ----------- -----------
Stockholders' Deficit:
Preferred Stock, $1 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 ..................................... 9,000 20,404 11,575 20,429
Additional Paid-In Capital ........................... 2,226,451 1,613,928 2,701,070 2,210,055
Deficit Accumulated During Development Stage ......... (2,970,244) (2,298,914) (3,418,985) (2,718,986)
----------- ---------- ----------- -----------
Total Stockholders' Deficit ...................... (734,793) (664,582) (706,340) (483,534)
----------- ---------- ----------- -----------
Total Liabilities and Stockholders' Deficit .............. $ 74,253 $ 206,139 $ 389,734 $ 191,157
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</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>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
------------------------------ ------------------------------
DECEMBER 31, JUNE 30,
------------------------------ ------------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Product and Service Revenues ............. $ 322,483 $ 40,856 $ 25,000 $ 34,404
----------- ----------- ----------- -----------
Operating Expenses:
Product Deployment and Research
and Development .................. 389,586 542,203 134,462 193,799
Sales and Marketing .................. 147,411 148,885 79,321 74,418
General and Administrative ........... 399,756 472,320 217,124 163,544
----------- ----------- ----------- -----------
Total Expenses ................... 936,753 1,163,408 430,907 431,761
----------- ----------- ----------- -----------
Operating Loss ........................... (614,270) (1,122,552) (405,907) (397,357)
----------- ----------- ----------- -----------
Other Expense (Income):
Interest Expense ..................... 59,196 29,890 42,834 24,079
Interest Income ...................... (2,136) (2,282) -- (1,364)
----------- ----------- ----------- -----------
57,060 27,608 42,834 22,715
----------- ----------- ----------- -----------
Net Loss - Deficit Accumulated During
Development Stage .................... $ (671,330) $(1,150,160) $ (448,741) $ (420,072)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Loss per Share ....................... $ (0.75) $ (1.28) $ (0.45) $ (0.47)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted Average Number of
Common Shares Outstanding ............ 900,000 900,000 1,002,083 900,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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, 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 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) ............. 257,500 2,575 -- -- 512,425 --
Offering Costs (unaudited) ............ -- -- -- -- (37,806) --
Net Loss (unaudited) .................. -- -- -- -- -- (448,741)
---------- -------- -------- ------- ---------- ------------
Balance, June 30, 1999 (unaudited) .... 1,162,500 $ 11,625 -- $ -- $2,701,070 $ (3,418,985)
========== ======== ======== ======= ========== ============
</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 YEAR ENDED FOR THE SIX MONTHS ENDED
------------------------- -------------------------
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss .................................................... $ (671,330) $(1,150,160) $ (448,741) $ (420,072)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operations:
Depreciation ...................................... 103,594 75,502 56,992 52,415
(Increase) Decrease -
Inventory .................................... 34,123 (9,731) -- (19,590)
Other Assets ................................. -- 126,419 -- --
Increase (Decrease) -
Accounts Payable ............................. 78,080 141,625 58,850 29,512
Accrued Liabilities .......................... 34,859 (3,544) 51,875 9,322
----------- ----------- ----------- -----------
Net Cash Used by Operating Activities ..... (420,674) (819,889) (281,024) (348,413)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment .......................... (7,537) (76,322) (7,836) (7,537)
----------- ----------- ----------- -----------
Net Cash Used by Investing Activities ..... (7,537) (76,322) (7,836) (7,537)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Sale of Stock ............................................... 601,119 325,501 477,194 $ 601,120
Book Overdraft .............................................. 27,513 -- (27,513) --
Payments on Long-Term Debt .................................. (280,127) (7,571) (22,827) (259,864)
Proceeds from Long-Term Debt ................................ -- 525,000 -- --
Proceeds from Short-Term Debt ............................... 78,000 25,000 226,643 25,000
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities.. 426,505 867,930 653,497 366,256
----------- ----------- ----------- -----------
Net Decrease in Cash ............................................. (1,706) (28,281) 364,637 10,306
Cash at Beginning of Period ...................................... 1,706 29,987 -- 1,706
----------- ----------- ----------- -----------
Cash at End of Period ............................................ $ -- $ 1,706 $ 364,637 $ 12,012
=========== =========== =========== ===========
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
(JUNE 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 health care smart card
system; PrecisCache-TM-, a fixed-value smart card system; PrecisReserv-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 June
30, 1999 and 1998, and for the six months then ended are unaudited and, in
the opinion of management, reflect all adjustments that are necessary for a
fair presentation of the financial position as of such date and the results
of operations and cash flows for the periods then ended. All such 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 six months ended June 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 such 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.
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)
(JUNE 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.
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 subsequent to 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.
F-8
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(JUNE 30, 1999 AND 1998 INFORMATION IS UNAUDITED)
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 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 1,755,000 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
292,850 shares of common stock. Such shares were issued and subscribed at
$2.00 per share.
PREFERRED STOCK - From November 1997 through April 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 2,345,910
shares of common stock outstanding on October 29, 1998. On October 30, 1998,
the Company affected a reverse split (ratio 1:2.61) 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. Subsequent to 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)
(JUNE 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)
(JUNE 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:
<TABLE>
<CAPTION>
<S> <C>
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
=======
</TABLE>
As of June 30, 1999, 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 to 115,000 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 "registrable 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............................... $ 2,197
*N.A.S.D. Filing Fees................................... 1,200
*State Securities Laws Filing Fees...................... 15,000
*Printing and Engraving................................. 25,000
*Legal Fees............................................. 93,603
*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-1
<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>
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>
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.
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.
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.
II-III
<PAGE>
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.
23.1 Consent of Independent Public Accountants, dated September 3,
1999.
23.2 Consent of Dunn Swan & Cunningham, A Professional Corporation,
dated September 7, 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:
(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
II-IV
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned in the City of Oklahoma
City, State of Oklahoma, on the 7th day of September, 1999.
PRECIS SMART CARD SYSTEMS, INC.
(Registrant)
By: /s/ LARRY B. HOWELL
-------------------------------------
Larry B. Howell, President
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
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 September 7, 1999
- ------------------------------
Kent H. Webb
/s/ LARRY E. HOWELL Chief Executive Officer September 7, 1999
- ------------------------------ and Director
Larry E. Howell
/s/ DONALD A. CUNNINGHAM President, Chief Operating September 7, 1999
- ------------------------------ Officer and Director
Donald (Dan) A. Cunningham
/s/ MARK R. KIDD Chief Financial Officer September 7, 1999
- ------------------------------
Mark R. Kidd
/s/ MICHAEL E. DUNN Director September 7, 1999
- ------------------------------
Michael E. Dunn
</TABLE>
II-VI
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number 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 Underwriters Warrant Agreement............................
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....................
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................................
23.1 Consent of Independent Public Accountants, dated
September 3, 1999.................................................
23.2 Consent of Dunn Swan & Cunningham, A Professional Corporation,
dated September 7, 1999...........................................
27 Financial Data Schedule...........................................
</TABLE>
- ------------------------
* Previously furnished.
** To be furnished by amendment.
<PAGE>
EXHIBIT 1.1
PRECIS SMART CARD SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1999
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
Precis Smart Card Systems, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein,
hereby proposes to issue and sell to Barron Chase Securities, Inc. (the
"Underwriter" or "you") for sale in a proposed public offering (the
"Offering") pursuant to the terms of this Underwriting Agreement (the
"Agreement"), on a "firm commitment" basis, 1,000,000 shares of Common Stock
(the "Shares") at $6.00 per Share. The Shares are also referred to as the
"Securities". The date upon which the Securities and Exchange Commission
("Commission") shall declare the Registration Statement of the Company
effective shall be the "Effective Date". In addition, the Company proposes to
grant to the Underwriter the option referred to in Section 2(b) to purchase
all or any part of an aggregate of 150,000 additional Shares (the "Option
Securities").
You have advised the Company that you desire to purchase the
Securities, and that you are authorized to execute this Agreement. The
Company confirms the agreements made by it with respect to the purchase of
the Securities by the Underwriter, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with the
Underwriter as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined)
that:
(a) A registration statement (File No. ________) on Form SB-2
relating to the public offering of the Securities, including a preliminary
form of the prospectus, copies of which have heretofore been delivered to
you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Commission thereunder, and
has been filed with the Commission under the Act. The Company has prepared in
the same manner and proposes to file, prior to the Effective Date of such
registration statement, an additional amendment or amendments to such
registration statement, including a final form of Prospectus, copies of which
shall be delivered to you. "Preliminary Prospectus" shall mean each
prospectus filed pursuant to the Rules and Regulations under the Act prior to
the Effective Date. The registration statement (including all financial
schedules and exhibits) as amended at the time it becomes effective and the
final prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the
prospectus first filed by the Company pursuant to Rule 424(b) of the Rules
and Regulations shall differ
1
<PAGE>
from said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up
to the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriter or Selected Dealers: (i) the Registration Statement and
Prospectus will in all respects conform to the requirements of the Act and
the Rules and Regulations; and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
statements therein, in light of the circumstances under which they are made,
not misleading; provided, however, that the Company makes no representations,
warranty or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity
with, written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under
the heading "Underwriting" and regarding the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute the only information
furnished in writing by the Underwriter for inclusion in the Registration
Statement and the Prospectus.
(c) Each of the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus and is duly qualified to do business
as a foreign corporation and is in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where failure to so qualify
will not materially affect the Company's business, properties or financial
condition.
(d) The authorized, issued and outstanding securities of the
Company as of the date of the Prospectus is as set forth in the Prospectus
under "Capitalization"; all of the issued and outstanding securities of the
Company have been, or will be when issued as set forth in the Prospectus,
duly authorized, validly issued and fully paid and non-assessable; the
issuances and sales of all such securities complied in all material respect
with, or were exempt from, applicable Federal and state securities laws; the
holders thereof have no rights of rescission against the Company with respect
thereto, and are not subject to personal liability by reason of being such
holders; none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company; except as set forth in the Prospectus, no
options, warrants or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any obligation
into, any securities of the Company have been granted or entered into by the
Company; and all of the securities of the Company, issued and to be issued as
set forth in the Registration Statement, conform to all statements relating
thereto contained in the Registration Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered
and paid for pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive rights of any
security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated in this
Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any securities of the
Company, except as described in the Registration Statement.
The Common Stock Underwriter Warrants and the shares of Common Stock
issuable upon exercise of the Common Stock Underwriter Warrants (as defined
in the Underwriter's Warrant Agreement described in Section 11 herein), have
been duly authorized and, when issued, delivered and paid for, will be
validly issued, fully paid, non-assessable, free of pre-emptive rights and no
personal liability will attach to the ownership thereof, and will constitute
valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the
Underwriter's Warrant Agreement.
2
<PAGE>
(f) This Agreement, the Financial Advisory Agreement, the Merger
and Acquisition Agreement (the "M/A Agreement") and the Underwriter's Warrant
Agreement have been duly and validly authorized, executed and delivered by
the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting the rights
of creditors generally. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be
issued pursuant to the Underwriter's Warrant Agreement, except such as may be
required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company
nor any subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach of,
or constitute a material default under, or result in the creation or
imposition of any material lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary or any of the terms or provisions of
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any subsidiary is a party or
by which the Company or any subsidiary may be bound or to which any of the
property or assets of the Company or any subsidiary is subject, nor will such
action result in any material violation of the provisions of the Articles of
Incorporation or By-Laws of the Company or any subsidiary, as amended, or any
statute or any order, rule or regulation applicable to the Company or
subsidiary of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties
and assets described in the Prospectus as owned by each of them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not material to its business, financial condition or results of operation;
all of the material leases and subleases under which the Company or each
subsidiary is the lessor or sublessor of properties or assets or under which
the Company or each subsidiary holds properties or assets as lessee or
sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, neither the Company nor each
subsidiary is in default in any material respect with respect to any of the
terms or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to rights of the Company or any subsidiary as
lessor, sublessor, lessee, or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company or any
subsidiary to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company and each subsidiary owns or leases all such
properties described in the Prospectus as are necessary to its operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed
to be conducted as set forth in the Prospectus.
(i) Murrell, Hall, McIntosh & Co., PLLP, who has given its report
on certain financial statements filed and to be filed with the Commission as
part of the Registration Statement, and which are included in the Prospectus,
is with respect to the Company, independent public accountants as required by
the Act and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present
fairly the financial condition, results of operations and cash flows of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said financial
statements and related notes and schedules have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved. The Company's internal accounting
controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material
respects with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. During the preceding five
(5) year period, nothing has been brought to the attention of the Company's
management that would result in any material reportable condition relating to
the Company's internal accounting procedures, weaknesses or controls.
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(k) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and the Prospectus and to and
including the Option Closing Date, except as set forth in or contemplated by
the Registration Statement and the Prospectus, (i) neither the Company nor
any subsidiary has incurred and will not have incurred any material
liabilities or obligations, direct or contingent, and has not entered into
and will not have entered into any material transactions other than in the
ordinary course of business and/or as contemplated in the Registration
Statement and the Prospectus; (ii) neither the Company nor any subsidiary has
and will not have paid or declared any dividends or have made any other
distribution on its capital stock; (iii) there has not been any change in the
capital stock of, or any incurrence of long-term debt by, the Company or any
subsidiary; (iv) neither the Company nor any subsidiary has issued any
options, warrants or other rights to purchase the capital stock of the
Company or any subsidiary; and (v) there has not been and will not have been
any material adverse change in the business, financial condition or results
of operations of the Company or any subsidiary, or in the book value of the
assets of the Company or any subsidiary, arising for any reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any
material action, suit, proceeding, inquiry, arbitration or investigation
against the Company or any subsidiary, or any of the officers or directors of
the Company or any subsidiary, or any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might result in any material
adverse change in the condition (financial or other), business prospects, net
worth, or properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company
and each subsidiary has filed all necessary federal, state and foreign income
and franchise tax returns and has paid all taxes shown as due thereon; and
there is no tax deficiency which has been or to the knowledge of the Company
might be asserted against the Company or any subsidiary that has not been
provided for in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company
and each subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all
material respects in compliance therewith and owns or possesses adequate
right to use all material patents, patent applications, trademarks, service
marks, trade-names, trademark registrations, service mark registrations,
copyrights, and licenses necessary for the conduct of such business and has
not received any notice of conflict with the asserted rights of others in
respect thereof. To the best of the Company's knowledge, none of the
activities or business of the Company or any subsidiary are in violation of,
or cause the Company or any subsidiary to violate, any law, rule, regulation
or order of the United States, any state, county or locality, or of any
agency or body of the United States or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of
operations, or net worth of the Company and any subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
of quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other
taxes (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all
laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and
Prospectus, no holders of Common Stock or of any other securities of the
Company have the right to include such Common Stock or other securities in
the Registration Statement and Prospectus.
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(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as
disclosed in the Registration Statement and Prospectus, nor has it any equity
interest in any partnership, joint venture, association or other entity
except as disclosed in the Registration Statement or Prospectus. Except as
described in the Registration Statement and Prospectus, the Company owns all
of the outstanding securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus with respect to the offer
and sale of the Securities and each Preliminary Prospectus, as of its date,
has conformed fully in all material respects with the requirements of the Act
and the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein not misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of
its officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three
year period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions
which were exempt from the registration provisions of the Act and not in
violation of Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has
not entered into any agreement pursuant to which any person is entitled,
either directly or indirectly, to compensation from the Company for services
as a finder in connection with the proposed offering, and the Company agrees
to indemnify and hold harmless the Underwriter against any losses, claims,
damages or liabilities, which shall include, but not be limited to, all costs
to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company,
no officer, director or beneficial owner of five percent (5%) or more of the
securities of the Company or any subsidiary has any direct or indirect
affiliation or association with any member of the National Association of
Securities Dealers, Inc. ("NASD"), except as disclosed to the Underwriter in
writing, and no beneficial owner of the Company's unregistered securities has
any direct or indirect affiliation or association with any NASD member except
as disclosed to the Underwriter in writing. The Company will advise the
Underwriter and the NASD if any five percent (5%) or greater shareholder of
the Company or any subsidiary is or becomes an affiliate or associated person
of an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all
material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms
and conditions of employment and wages and hours relating thereto. There are
no pending investigations involving the Company or any subsidiary by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state or local laws and regulations. There is no
unfair labor practice charge or complaint against the Company or any
subsidiary pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or to the knowledge
of the Company, threatened against or involving the Company or any subsidiary
or any predecessor entity. No question concerning representation exists
respecting the employees of the Company or any subsidiary and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company or any subsidiary. No grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements of the
Company or any subsidiary, if any.
(aa) Except as disclosed in the Prospectus, neither the Company
nor any subsidiary maintains, sponsors nor contributes to, nor is it required
to contribute to, any program or arrangement that is an "employee pension
benefit plan", an "employee welfare benefit plan", or a "multi-employer plan"
as such terms are defined in Sections 3(2), 3(1)
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and 3(37), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") ("ERISA Plans"). Except as disclosed in the
Prospectus, neither the Company nor any subsidiary maintained or contributed
to a defined benefit plan, as defined in Section 3(35) of ERISA.
(ab) Based upon written representations received from the officers
and directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of
the Company or any subsidiary have been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree
not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily
enjoining any of them from, or otherwise limiting, any of the
following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
federal or state securities law or federal
commodity laws.
(4) The subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated of
any federal or state authority barring, suspending or
otherwise limiting for more than sixty (60) days their right
to engage in any activity described in paragraph (3)(i)
above, or be associated with persons engaged in any such
activity;
(5) Found by any court of competent jurisdiction
in a civil action or by the Securities and Exchange
Commission to have violated any federal or state securities
law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended or
vacated; or
(6) Found by a court of competent jurisdiction
in a civil action or by the Commodity Futures Trading
Commission to have violated any federal commodities law, and
the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(ac) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the
Company has reviewed the sections in the Prospectus relating to their
biographical data and equity ownership position in the Company, and all
information contained therein is true and accurate.
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2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and
based upon the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriter an aggregate
of 1,000,000 Shares at $5.40 per Share (the public offering price less ten
percent (10%)) at the place and time hereinafter specified. The price at
which the Underwriter shall sell the Securities to the public shall be $6.00
per Share.
Delivery of the Securities against payment therefor shall take place
at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca
Raton, Florida 33433 (or at such other place as may be designated by the
Underwriter) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Underwriter shall designate, but not
later than ten (10) business days (holidays excepted) following the first
date that any of the Securities are released to you, such time and date of
payment and delivery for the Securities being herein called the "Closing
Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and based upon the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter to
purchase all or any part of an aggregate of an additional 150,000 Shares at
the same price per Share as the Underwriter shall pay for the Securities
being sold pursuant to the provisions of subsection (a) of this Section 2
(such additional Securities being referred to herein as the "Option
Securities"). This option may be exercised within forty-five (45) days after
the Effective Date of the Registration Statement upon notice by the
Underwriter to the Company advising as to the amount of Option Securities as
to which the option is being exercised, the names and denominations in which
the certificates for such Option Securities are to be registered and the time
and date when such certificates are to be delivered. Such time and date shall
be determined by the Underwriter but shall not be later than ten (10) full
business days after the exercise of said option, nor in any event prior to
the Closing Date, and such time and date is referred to herein as the "Option
Closing Date". Delivery of the Option Securities against payment therefor
shall take place at the offices of the Underwriter. The Option granted
hereunder may be exercised only to cover overallotments in the sale by the
Underwriter of the Securities referred to in subsection (a) above. In the
event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to
be sold hereunder available to you or your representative for inspection at
least two (2) full business days prior to the Closing Date at the offices of
the Underwriter, and such certificates shall be registered in such names and
denominations as you may request. Time shall be of the essence and delivery
at the time and place specified in this Agreement is a further condition to
the obligations of the Company to the Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the purchase price
by the Underwriter by wire transfer in New York Clearing House funds to the
account of the Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities
pursuant to the provisions of subsection (b) above, payment for such
Securities shall be made by wire transfer at the time and date of delivery of
such Securities as required by the provisions of subsection (b) above,
against receipt of the certificates for such Securities by the Underwriter
for the account of the Underwriter registered in such names and in such
denominations as the Underwriter may request.
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement is declared effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter that:
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(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the Effective Date, file any amendment
to the Registration Statement or supplement to the Prospectus of which you
shall not previously been advised and furnished with a copy or to which you
or your counsel shall have objected in writing, acting reasonably, or which
is not in compliance with the Act and the Rules and Regulations. At any time
prior to the later of (i) the completion by the Underwriter of the
distribution of the Securities as contemplated hereby; or (ii) 25 days after
the date on which the Registration Statement shall have become or been
declared effective, the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or Prospectus which may be necessary or advisable in connection
with the distribution of the Securities and as mutually agreed by the Company
and the Underwriter.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of
the receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made
by the Commission for amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus, or of the suspension of the qualification of the
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to
prevent the issuance of any such order, and, if issued, to obtain as soon as
possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and Selected
Dealers to use the Prospectus in connection with the sale of the Securities
for such period as in the opinion of counsel to the Underwriter the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in
connection with sales by the Underwriter or Selected Dealers, of any event of
which the Company has knowledge and which in the opinion of counsel for the
Company or counsel for the Underwriter should be set forth in an amendment to
the Registration Statement or a supplement to the Prospectus, in order to
make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered
to a purchaser of the Securities, or in case it shall be necessary to amend
or supplement the Prospectus to comply with law or with the Act and the Rules
and Regulations, the Company will notify you promptly and forthwith prepare
and furnish to you copies of such amended Prospectus or of such supplement to
be attached to the Prospectus, in such quantities as you may reasonably
request, in order that the Prospectus, as so amended or supplemented, will
not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus,
in the light of the circumstances under which they are made, not misleading.
The preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to
the Prospectus shall be without expense to the Underwriter.
The Company will comply with the Act, the Rules and Regulations
thereunder, and the provisions of the Securities Exchange Act of 1934 (the
"1934 Act"), and the rules and regulations thereunder in connection with the
offering and issuance of the Securities.
(b) The Company will act in good faith and use its best efforts
and cooperate with you and your counsel to qualify to register the Securities
for sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to
service of process in any jurisdiction in any action other than one arising
out of the offering or sale of the Securities. The Company will, from time to
time, prepare and file such statements and reports as are or may be required
to continue such qualification in effect for so long a period as the
Underwriter may reasonably request.
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(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not
limited to, all such expenses itemized in Section 8(a) and 8(c) hereof, and
either (i) the out-of-pocket expenses of the Underwriter, not to exceed the
$50,000 previously paid if the Underwriter elects to terminate the offering
for any reason; or (ii) the out-of-pocket expenses of the Underwriter if the
Company elects to terminate the offering for any reason. For the purposes of
this sub-section, the Underwriter shall be deemed to have assumed such
expenses when they are billed or incurred, regardless of whether such
expenses have been paid. The Underwriter shall not be responsible for any
expenses of the Company or others, or for any charges or claims relative to
the proposed public offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date
two signed copies of the Registration Statement, including all financial
statements and exhibits filed therewith, and of each amendment or supplement
thereto. The Company will deliver to or upon the order of the Underwriter,
from time to time until the Effective Date of the Registration Statement, as
many copies of any Preliminary Prospectus filed with the Commission prior to
the Effective Date of the Registration Statement as the Underwriter may
reasonably request. The Company will deliver to the Underwriter on the
Effective Date of the Registration Statement and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Definitive Prospectus, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(e) For so long as the Company is a reporting company under
either Section 12 or 15 of the 1934 Act, the Company, at its expense, will
furnish to the Underwriter during the period ending five (5) years from the
Effective Date, (i) as soon as practicable after the end of each fiscal year,
a balance sheet of the Company and any of its subsidiaries as at the end of
such fiscal year, together with statements of income, surplus and cash flow
of the Company and any subsidiaries for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as
they are available, a copy of all non-confidential documents, including
annual reports, periodic reports and financial statements, furnished to or
filed with the Commission under the Act and the 1934 Act; (iv) copies of each
press release, news item and article with respect to the Company's affairs
released by the Company; and (v) such other information as you may from time
to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will make generally available to its stockholders
and deliver to the Underwriter as soon as it is practicable, but in no event
later than the first day of the sixteenth full calendar month following the
Effective Date, an earnings statement (which need not be audited) covering a
period of at least twelve consecutive months beginning with the Effective
Date of the Registration Statement, which shall satisfy the requirements of
Section 11(a) of the Act or Rule 158 promulgated thereunder.
(h) On the Closing Date, the Company shall have taken the
necessary action to become a reporting company under Section 12 of the 1934
Act, and the Company will make all filings required to and will have obtained
approval for the listing of the Shares on The Nasdaq SmallCap Market System,
and will use its best efforts to maintain such listing for at least seven (7)
years from the date of this Agreement.
(i) For a period of seven (7) years following the Effective Date,
the Company will hold an annual meeting of stockholders for the election of
Directors within 180 days after the end of each of the Company's fiscal years
and, within nine (9) months after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed
prior thereto. Such financial statements shall be those required by Rule
14a-3 under the 1934 Act and shall be included in an annual report pursuant
to the requirements of such Rule.
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(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the
1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriter and the Company
may be reasonably necessary or advisable in connection with the distribution
of the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to
you the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Underwriter's Warrant Agreement filed as an exhibit to the Registration
Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Underwriter's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
warrants, options and Preferred Stock of the Company) as of the Effective
Date shall agree in writing, in a form satisfactory to the Underwriter, not
to sell, transfer or otherwise dispose of any of such securities (or
underlying securities) of the Company for a period of twenty-four (24) months
from the Effective Date or any longer period required by the NASD, Nasdaq or
any State, without the written consent of the Underwriter. For a period of
two (2) years following the Effective Date, all sales of the Company's
securities by officers and/or directors of the Company shall be through the
Underwriter.
(o) The Company will obtain, on or before the Closing Date, key
person life insurance on each of the lives of Dr. Kent Webb and Larry E.
Howell, in an amount of not less than $1,000,000 each, and will use its best
efforts to maintain such insurance for a period of at least five (5) years
from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own
expense, undertake to list the Company's securities in the appropriate
recognized securities manual or manuals published by Standard & Poor's
Corporation and such other manuals as the Underwriter may designate, such
listings to contain the information required by such manuals and the Uniform
Securities Act. The Company hereby agrees to use its best efforts to maintain
such listing for a period of not less than five (5) years. The Company shall
take such action as may be reasonably requested by the Underwriter to obtain
a secondary market trading exemption in such states as may be reasonably
requested by the Underwriter.
(q) During the one (1) year period commencing on the Closing
Date, the Company will not, without the prior written consent of the
Underwriter, grant options or warrants to purchase the Company's Common Stock
at a price less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any
subsidiary will issue, directly or indirectly, without your prior consent,
any press release or other communication or hold any press conference with
respect to the Company or its activities or the offering of the Securities
other than routine customary advertising of the Company's products and
services, and except as required by any applicable law or the directives of
any relevant regulatory authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Underwriter
as a non-exclusive financial advisor to the Company for a period of twelve
(12) months commencing on the first day of the month following the Company's
receipt of the proceeds of this offering, at an aggregate fee of $108,000,
all of which shall be payable to the Underwriter on the Closing Date. The
financial advisory agreement will provide that the Underwriter shall, at the
Company's
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request, provide advice and consulting services to the Company concerning
potential merger and acquisition proposals and the obtaining of short or
long-term financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of
independent certified public accountants in connection with the preparation
of the financial statements to be included in any registration statement or
similar disclosure document to be filed by the Company hereunder, or any
amendment or supplement thereto. For a period of five (5) years from the
Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to review (but not audit)
the Company's financial statements for each of the first three (3) fiscal
quarters prior to the announcement of quarterly financial information, the
filing of the Company's quarterly report and the mailing of quarterly
financial information to stockholders.
(u) The Company shall retain UMB Bank, N.A. as the transfer agent
for the securities of the Company, or such other transfer agent as you may
agree to in writing. In addition, the Company shall direct such transfer
agent to furnish the Underwriter with daily transfer sheets as to each of the
Company's securities as prepared by the Company's transfer agent and copies
of lists of stockholders as reasonably requested by the Underwriter, for a
five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to furnish special security
position reports and special DTC Tracking Reports to the Underwriter on a
daily and weekly basis at the expense of the Company, for a five (5) year
period from the Effective Date. The DTC Tracking Reports will be furnished
for the initial two (2) month period from the Effective Date, after which
time the Company's obligation to furnish such tracking reports will be
reviewed by the Company and the Underwriter.
(w) Following the Effective Date, the Company shall, at its sole
cost and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Underwriter shall designate and the Company may
reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of
five (5) persons, two (2) of whom shall be independent and not otherwise
affiliated with the Company or associated with any of the Company's
affiliates. The Underwriter shall have the opportunity to invite an observer
to attend Board of Directors meetings of the Company at the expense of the
Company.
(y) On the Closing Date, the Company shall execute and deliver to
you a non-exclusive M/A Agreement with the Underwriter in a form satisfactory
to the Underwriter, providing:
(1) that the Underwriter will be paid a finder's fee, of
from five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction
introduced by the Underwriter (including mergers, acquisitions,
joint ventures, and any other business for the Company introduced by
the Underwriter) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Underwriter introduced the
other party to the Company during a period ending five (5) years
from the date of the M/A Agreement; and
(2) that any such finder's fee due to the Underwriter
will be paid in cash or stock as mutually agreed at the closing of
the particular Introduced, Consummated Transaction for which the
finder's fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Underwriter at a total cost not to exceed $15,000.
(aa) Until such time as the securities of the Company are listed
or quoted on either the New York Stock Exchange or the American Stock
Exchange, the Company shall engage the Company's legal counsel to deliver to
the Underwriter a written opinion detailing those states in which the Shares
of the Company may be traded in non-issuer transactions under the Blue Sky
laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary
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Market Trading Opinion shall be delivered to the Underwriter on the Effective
Date, and the Company shall continue to update such opinion and deliver same
to the Underwriter on a timely basis, but in any event at the beginning of
each fiscal quarter, for a five (5) year period, if required.
(ab) As promptly as practicable after the Closing Date, the
Company will prepare, at its own expense, hard cover "bound volumes" relating
to the offering, and will distribute such volumes to the individuals
designated by the Underwriter or counsel to the Underwriter.
4. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligation of
the Underwriter to purchase and pay for the Securities which the Underwriter
has agreed to purchase hereunder from the Company is subject, as of the date
hereof and as of the Closing Date and the Option Closing Date, to the
execution of this Agreement by the Underwriter, to the continuing accuracy
of, and compliance with, the representations and warranties of the Company
herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following additional conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the
Commission; (iii) no stop order suspending the effectiveness of the
qualification or registration of the Securities under the securities or "blue
sky" laws of any jurisdiction (whether or not a jurisdiction which you shall
have specified) shall be threatened or to the knowledge of the Company
contemplated by the authorities of any such jurisdiction or shall have been
issued and in effect; (iv) any request for additional information on the part
of the Commission or any such authorities shall have been complied with to
the satisfaction of the Commission and any such authorities, and to the
satisfaction of counsel to the Underwriter; and (v) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Underwriter
and the Underwriter did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus,
(i) there shall not have been any material change in the capital stock or
other securities of the Company or any subsidiary or any material adverse
change in the long-term debt of the Company or any material subsidiary except
as set forth in or contemplated by the Registration Statement, (ii) there
shall not have been any material adverse change in the general affairs,
business, properties, condition (financial or otherwise), management, or
results of operations of the Company or any subsidiary, whether or not
arising from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration Statement or
Prospectus; (iii) neither the Company nor any subsidiary shall have sustained
any material interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and Prospectus; and (iv) the Registration Statement and the Prospectus and
any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company or any subsidiary, threatened, any
material action, suit, proceeding, inquiry, arbitration or investigation
against the Company or any subsidiary, or any of the officers or directors of
the Company or any subsidiary, or any material action, suit, proceeding,
inquiry, arbitration, or investigation, which might result in any material
adverse change in the condition (financial or other), business prospects, net
worth, or properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
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<PAGE>
contained to be performed on the part of the Company and all conditions
herein contained to be fulfilled or complied with by the Company at or prior
to the Closing Date shall have been duly performed, fulfilled or complied
with.
(e) At the Closing Date, the Underwriter shall have received the
opinion, dated as of the Closing Date, from Dunn Swan & Cunningham, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, which in the aggregate shall state:
(i) the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to own its properties and conduct
its business as described in the Registration Statement and
Prospectus and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each other
jurisdiction in which the ownership or leasing of its properties or
conduct of its business requires such qualification except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and each subsidiary as a
whole;
(ii) the authorized capital of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and
non-assessable and conform to the description thereof contained in
the Prospectus; the outstanding shares of Common Stock of the
Company and other securities have not been issued in violation of
the preemptive rights of any shareholder and the shareholders of
the Company do not have any preemptive rights or, to such counsel's
knowledge, other rights to subscribe for or to purchase securities
of the Company, nor, to such counsel's knowledge, are there any
restrictions upon the voting or transfer of any of the securities
of the Company, except as disclosed in the Prospectus; the Common
Stock, the Shares and the securities contained in the Underwriter's
Warrant Agreement conform to the respective descriptions thereof
contained in the Prospectus; the Common Stock, the Shares and the
securities contained in the Underwriter's Warrant Agreement, have
been duly authorized and, when issued, delivered and paid for, will
be duly authorized, validly issued, fully paid, non-assessable,
free of pre-emptive rights and no personal liability will attach to
the ownership thereof; all prior sales by the Company of the
Company's securities complied in all material respects with, or
were exempt from, applicable federal and state securities laws; no
shareholders of the Company have any rescission rights against the
Company with respect to the Company's securities; a sufficient
number of shares of Common Stock has been reserved for issuance
upon exercise of the Underwriter Warrants, and to the best of such
counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration
rights or other rights, other than those which have been waived or
satisfied or described in the Registration Statement;
(iii) this Agreement, the Underwriter's Warrant Agreement,
the Financial Advisory Agreement, and the M/A Agreement have been
duly and validly authorized, executed and delivered by the Company
and, assuming the due authorization, execution and delivery of this
Agreement by the Underwriter, are the valid and legally binding
obligations of the Company, enforceable in accordance with their
terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which effect creditors'
rights generally; and (b) no opinion is expressed as to the
enforceability of the indemnity provisions or the contribution
provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities
of the Company and the Shares are in valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or threatened any
material action, suit, proceeding, inquiry, arbitration or
investigation against the Company or any subsidiary or any of the
officers of directors of the Company or any subsidiary, nor any
material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
properties of the Company or any subsidiary;
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(vi) the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement, the Financial Advisory Agreement,
and the M/A Agreement, and the incurrence of the obligations herein
and therein set forth and the consummation of the transactions
herein or therein contemplated, will not result in a violation of,
or constitute a default under (a) the Articles of Incorporation or
By-Laws of the Company and each subsidiary; (b) to the best of such
counsel's knowledge, any material obligations, agreement, covenant
or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage,
loan agreement, lease, joint venture or other agreement or
instrument to which the Company or any subsidiary is a party or by
which it or any of its material properties is bound; or (c) to the
best of such counsel's knowledge, any material order, rule,
regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before, or threatened by, the Commission; the
Registration Statement and the Prospectus (except for the financial
statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) comply
as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein,
or the issuance of the Underwriter's Warrants or the Securities
underlying the Underwriter's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials
as to matters of fact; and may rely as to all matters of law, upon opinions
of counsel satisfactory to you and counsel to the Underwriter. The opinion of
such counsel to the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter and
they are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading (except, in the case
of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto and other financial information and statistical data contained
therein, as to which such counsel need express no opinion).
(f) You shall have received on the Closing Date, a certificate
dated as of the Closing Date, signed by the Chief Executive Officer and the
Chief Financial Officer of the Company and such other officers of the Company
as the Underwriter may reasonably request, certifying that:
(i) No Order suspending the effectiveness of the
Registration Statement or stop order regarding the sale of the
Securities is in effect and no proceedings for such purpose are
pending or are, to their knowledge, threatened by the Commission;
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(ii) They do not know of any litigation instituted or, to
their knowledge, threatened against the Company or any subsidiary or
any officer or director of the Company or any subsidiary of a
character required to be disclosed in the Registration Statement
which is not disclosed therein; they do not know of any contracts
which are required to be summarized in the Prospectus which are not
so summarized; and they do not know of any material contracts
required to be filed as exhibits to the Registration Statement which
are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an
untrue statement of any material fact or omits to state any material
fact required to be stated therein or necessary to make the
statement therein, in light of the circumstances under which they
are made, not misleading; and since the Effective Date, to the best
of their knowledge, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so
set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has
not been any material adverse change in the condition of the Company
or any subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the
Registration Statement and the Prospectus;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects, and the
Company has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent
in the filing of any federal, state and other tax return or the
payment of any federal, state or other taxes; they know of no
proposed redetermination or reassessment of taxes, adverse to the
Company or any subsidiary, and the Company and each subsidiary has
paid or provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company, contingent or otherwise, not disclosed in the Registration
Statement and Prospectus;
(viii) This Agreement, the Underwriter's Warrant Agreement,
the Financial Advisory Agreement, and the M/A Agreement, the
consummation of the transactions therein contemplated, and the
fulfillment of the terms thereof, will not result in a breach by the
Company of any terms of, or constitute a default under, the Company's
Articles of Incorporation or By-Laws, any indenture, mortgage, lease,
deed of trust, bank loan or credit agreement or any other material
agreement or undertaking of the Company or any subsidiary including, by
way of specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any
material right and/or obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
except as may otherwise be indicated therein or contemplated
thereby, neither the Company nor any subsidiary has, prior to the
Closing Date, either (i) issued any securities or incurred any
material liability or obligation, direct or contingent, for borrowed
money, or (ii) entered into any material transaction other than in
the ordinary course of business. The Company has not declared, paid
or made any dividend or distribution of any kind on its capital
stock;
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(xi) They have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in
the Company, and all information contained therein is true and
accurate; and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) The subject of a petition under the federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which any of them was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which any of them was
an executive officer at or within two years before the time of
such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
any of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission
merchant, introducing broker, commodity trading
advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person
regulated by the Commodity Futures Trading
Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated
person, director or employee of any investment
company, bank, savings and loan association or
insurance company, or engaging in or continuing any
conduct or practice in connection with any such
activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in
connection with the purchase or sale of any security
or commodity or in connection with any violation of
federal or state securities law or federal commodity
laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any federal or
state authority barring, suspending or otherwise limiting for
more than sixty (60) days their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any federal or state securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed,
suspended or vacated.
(g) The Underwriter shall have received from Murrell, Hall, McIntosh &
Co., PLLP, independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on the
Closing Date, in form and substance satisfactory to the Underwriter, stating
that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
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(ii) the financial statements and the schedules included in
the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their attention
as a result of the foregoing inquiries and procedures that causes them
to believe that:
(a) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriter may
request advice, in each case as compared with amounts shown in
the balance sheet as of the date of the most recent financial
statements in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(b) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to such specified date there was any material
decrease in revenues or in the total or per share amounts of
income or loss before extraordinary items or net income or
loss, or any other material change in such other items
appearing in the Company's financial statements as to which
the Underwriter may request advice, in each case as compared
with the fiscal period ended as of the date of the most recent
financial statements in the Prospectus, except in each case
for increases, changes or decreases which the Prospectus
discloses have occurred or will occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented
in conformity with generally accepted accounting principles
and practices on a basis substantially consistent with the
audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letters and found them to be in agreement; and
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
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Such letters shall also set forth such other information as may be
requested by counsel for the Underwriter. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the
Underwriter, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure
of the Company to comply with the conditions of the obligations to the
Underwriter hereunder.
(h) Upon exercise of the option provided for in Section 2(b)
hereof, the obligation of the Underwriter to purchase and pay for the Option
Securities referred to therein will be subject (as of the date hereof and as
of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriter.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Dunn Swan & Cunningham,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinion
furnished to you at the Closing Date pursuant to Section 4(e) hereof,
except that such opinion, where appropriate, shall cover the Option
Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option Closing Date, in
form and substance satisfactory to counsel to the Underwriter,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Murrell, Hall, McIntosh & Co., PLLP, independent auditors to the
Company, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required
to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriter, and the
Underwriter and counsel to the Underwriter shall have been furnished
with all such documents, certificates, and opinions as you may request
in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants
or conditions contained herein.
(i) No action shall have been taken by the Commission or the
NASD, the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Shares and no proceedings for the taking of such action
shall have been instituted or shall be pending, or, to the knowledge of the
Underwriter or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Underwriter of any NASD affiliations of any of its
officers, directors, or stockholders of the Company's securities or their
affiliates in accordance with Section 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel
to the Company, dated as of the Effective Date, in form and substance
satisfactory to counsel for the Underwriter, a written Secondary Market
Trading Opinion detailing those states in which the Shares may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states
after the Effective Date, in accordance with Section 3(ab) of this Agreement.
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(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the Underwriter, and such counsel shall be furnished with such documents,
certificates and opinions as they may reasonably request to enable them to
pass upon the matters referred to in this sub-section.
(l) Prior to the Effective Date, the Underwriter shall have
received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriter, as described in the Registration Statement.
(m) If any of the conditions provided for in this Section shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be canceled at, or at
any time prior to, the Closing Date and/or the Option Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by
facsimile at or prior to the applicable Closing Date or Option Closing Date.
Any such cancellation shall be without liability of the Underwriter to the
Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to sell and deliver the Securities is subject to the execution
of this Agreement by the Company, and to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Underwriter may agree
in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless
the Underwriter and each person, if any, who controls the Underwriter within
the meaning of the Act against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include
but not be limited to, all reasonable costs of defense and investigation and
all attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed
in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise
out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be
liable in any such cases to the extent, but only to the extent, that any such
losses, claim, damages or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in the Registration Statement
or any amendment or supplement thereof or any Blue Sky Application or any
Preliminary Prospectus or the Prospectus or any such amendment or supplement
thereto. Notwithstanding the foregoing, the Company shall have no liability
under this Section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to
the person or persons alleging the liability upon which indemnification is
being sought. This indemnity will be in addition to any liability which the
Company may otherwise have.
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(b) The Underwriter indemnifies and holds harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of the persons who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the
Act, against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or
any such director, signer of the Registration Statement, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statements or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for use
in such Registration Statement or Prospectus. Notwithstanding the foregoing,
the Underwriter shall have no liability under this section if such untrue
statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is not delivered to the person or persons
alleging the liability upon which indemnification is being sought through no
fault of the Underwriter. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, promptly notify in writing the indemnifying party
of the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section. In case any such action
is brought against any indemnified party, and it promptly notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and
to participate in the defense thereof, but the fees and expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the indemnified party; provided that if the
indemnified party is an Underwriter or a person who controls such Underwriter
within the meaning of the Act, the fees and expenses of such counsel shall be
at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party
or (ii) the named parties to any such action (including any impleaded
parties) include both the Underwriter or such controlling person and the
indemnifying party and in the reasonable judgment of the Underwriter, it is
advisable for the Underwriter or such Underwriter or controlling persons to
be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
the Underwriter or such controlling person). No settlement of any action
against an indemnified party shall be made without the prior written consent
of the indemnifying party, which shall not be unreasonably withheld in light
of all factors of importance to such indemnifying and indemnified parties.
7. CONTRIBUTION.
(a) If the indemnification provided for in this Agreement
is unavailable to any indemnified party in respect to any losses, claims,
damages, liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, will contribute to the
amount paid or payable by such indemnified party, as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand, and by the Underwriter on the other hand, from the Offering, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above, but also the relative
fault of the
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<PAGE>
Company on the one hand, and of the Underwriter on the other hand, in
connection with any statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant
equitable considerations; provided, that any contribution hereunder by the
Underwriter shall not exceed the amount of consideration received by the
Underwriter hereunder. The relative benefits received by the Company on the
one hand, and by the Underwriter on the other hand, shall be deemed to be in
the same proportion as the total proceeds from the Offering (net of sales
commissions, and the non-accountable expense allowance, but before deducting
expenses) received by the Company, bear to the commissions and the
non-accountable expense allowance received by the Underwriter. The relative
fault of the Company on the one hand, and of the Underwriter on the other
hand, will be determined with reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Company, and its
relative intent, knowledge, access or information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriter agree
that it would not be just and equitable if contribution pursuant to this
Section were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in this paragraph.
(b) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any
action, suit, or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party ("Contributing Party"),
notify the Contributing Party of the commencement thereof, but the omission
to so notify the Contributing Party will not relieve it from any liability
which it may have to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party, and
such party notifies a Contributing Party or its representative of the
commencement thereof within the aforesaid fifteen (15) days, the Contributing
Party will be entitled to participate therein with the notifying party and
any other Contributing Party similarly notified. Any such Contributing Party
shall not be liable to any party seeking contribution on account of any
settlement of any claim, action or proceeding which was effected by such
party seeking contribution on account of any settlement of any claim, action
or proceeding effected by such party seeking contribution without the written
consent of such Contributing Party. The contribution provisions contained in
this Section are intended to supersede, to the extent permitted by law, any
right to contribution under the Act, the Exchange Act or otherwise available.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriter is consummated,
the Company will pay all costs and expenses incident to the performance of
this Agreement by the Company including but not limited to the fees and
expenses of counsel to the Company and of the Company's accountants; the
costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented; the
fee of the National Association of Securities Dealers, Inc. ("NASD") in
connection with the filing required by the NASD relating to the offering of
the Securities contemplated hereby; all state filing fees, expenses and
disbursements and legal fees of counsel to the Company who shall serve as
Blue Sky counsel to the Company in connection with the filing of applications
to register the Securities under the state securities or blue sky laws; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the
cost of preparing and delivering to the Underwriter and its counsel bound
volumes containing copies of all documents and appropriate correspondence
filed with or received from the Commission and the NASD and all closing
documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by
any jurisdiction) on sales to the Underwriter hereunder. The Company will
also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus. The Company
shall also engage the Company's counsel to provide the Underwriter with a
written Secondary Market Trading Opinion in accordance with Section 3(ab) and
4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at
the Closing Date pay to the Underwriter a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds received from the sale of
the Securities, of which an advance of $35,000 has been paid to date. In the
event the overallotment option is exercised,
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<PAGE>
the Company shall pay to the Underwriter at the Option Closing Date an
additional amount equal to three percent (3%) of the gross proceeds received
upon exercise of the overallotment option.
(c) Other than as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter against any losses, claims,
damages or liabilities, which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and
all attorneys' fees, to which the Underwriter may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an
employee of the party claiming indemnity) or entity that he or it is entitled
to a finder's fee in connection with the proposed offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
execution of this Agreement; or at such earlier time after the Effective Date
of the Registration Statement as you in your discretion shall first commence
the public offering of any of the Securities. The time of the public offering
shall mean the time after the effectiveness of the Registration Statement
when the Securities are first generally offered by you to the Selected
Dealers and/or the public. This Agreement may be terminated by you at any
time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 12, 13, 14, 15, 16 and 17 shall remain in effect
notwithstanding such termination.
10. TERMINATION. (a) This Agreement, except for Sections 3(c), 6,
7, 8, 12, 13, 14, 15, 16, and 17 hereof, may be terminated at any time prior
to the Closing Date, and the option referred to in Section 2(b) hereof, if
exercised, may be cancelled at any time prior to the Option Closing Date, by
you if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Securities agreed to
be purchased hereunder by reason of: (i) the Company having sustained a
material adverse loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on the New
York Stock Exchange or the American Stock Exchange having been suspended or
limited; (iii) material governmental restrictions having been imposed on
trading in securities generally (not in force and effect on the date hereof);
(iv) a banking moratorium having been declared by Federal or New York or
Florida state authorities; (v) an outbreak of major international hostilities
or other national or international calamity having occurred; (vi) the passage
by the Congress of the United States or by any state legislative body of
similar impact, of any act or measure, or the adoption of any orders, rules
or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is likely to have a
material adverse impact on the business, financial condition or financial
statements of the Company or the market for the Securities offered hereby;
(vii) any material adverse change in the financial or securities markets
beyond normal market fluctuations having occurred since the date of this
Agreement; (viii) any material adverse change having occurred, since the
respective dates as of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in
the ordinary course of business; (ix) a pending or threatened legal or
governmental proceeding or action relating generally to the Company's
business, or a notification having been received by the Company of the threat
of any such proceeding or action, which could materially adversely affect the
Company; (x) except as contemplated by the Prospectus, the Company is merged
or consolidated into or acquired by another company or group or there exists
a binding legal commitment for the foregoing or any other material change of
ownership or control occurs; or (xi) the Company shall not have complied in
all material respects with any term, condition or provisions on its part to
be performed, complied with or fulfilled (including but not limited to those
set forth in this Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company shall be promptly notified by you, by telephone, telegram or
facsimile, confirmed by letter.
11. UNDERWRITER'S WARRANT AGREEMENT. At the Closing Date, the
Company will issue to the Underwriter and/or persons related to the
Underwriter, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Underwriter's Warrant Agreement annexed
as an exhibit to the Registration Statement,
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Underwriter Warrants to purchase up to an aggregate of 100,000 Shares, in
such denominations as the Underwriter shall designate. In the event of
conflict in the terms of this Agreement and the Underwriter's Warrant
Agreement, the language of the form of Underwriter's Warrant Agreement shall
control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the Company and its principal officers, where
appropriate, and the Underwriter set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any of
its officers or directors or any controlling person and will survive delivery
of and payment for the Securities and the termination of this Agreement.
13. NOTICE. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telefaxed, and confirmed:
If to the Underwriter: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Larry E. Howell
Chief Executive Officer
Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
Copy to: Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102-5604
14. PARTIES IN INTEREST. This Agreement herein set forth is made
solely for the benefit of the Underwriter, the Company and, to the extent
expressed, the holders of the Underwriter Warrants, any person controlling
the Company or the Underwriter, and directors of the Company, nominees for
director (if any) named in the Prospectus, each person who has signed the
Registration Statement, and their respective executors, administrators,
successors, assigns and no other person shall acquire or have any right under
or by virtue of this Agreement. The term "successors and assigns" shall not
include any purchaser of the Securities, as such purchaser, from the
Underwriter.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts made and to be performed entirely within the State of Florida. The
parties agree that any action brought by any party against another party in
connection with any rights or obligations arising out of this Agreement shall
be instituted properly in a federal or state court of competent jurisdiction
with venue only in the Fifteenth Judicial Circuit Court in and for Palm Beach
County, Florida or the United States District Court for the Southern District
of Florida, West Palm Beach Division. A party to this Agreement named as a
Defendant in any action brought in connection with this Agreement in any
court outside of the above named designated county or district shall have the
right to have the venue of said action changed to the above designated county
or district or, if necessary, have the case dismissed, requiring the other
party to refile such action in an appropriate court in the above designated
county or federal district.
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16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one
and the same instrument.
17. ENTIRE AGREEMENT. This Agreement and the agreements referred
to within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will
become a binding Agreement between the Company and the Underwriter in
accordance with its terms.
Very truly yours,
PRECIS SMART CARD SYSTEMS, INC.
BY:
--------------------------------
Larry E. Howell
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
BARRON CHASE SECURITIES, INC.
BY:
--------------------------------
Robert T. Kirk, President
24
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EXHIBIT 1.2
PRECIS SMART CARD SYSTEMS, INC.
1,000,000 Shares of Common Stock
SELECTED DEALER AGREEMENT
Boca Raton, Florida
_____________, 1999
Gentlemen:
1. Barron Chase Securities, Inc. (the "Underwriter") is offering
for sale an aggregate of 1,000,000 Shares of Common Stock (the "Shares" or
the "Firm Securities") of Precis Smart Card Systems, Inc. (the "Company"),
which the Underwriter has agreed to purchase from the Company, and which are
more particularly described in the Registration Statement, Underwriting
Agreement and Prospectus. In addition, the Underwriter has been granted an
option to purchase from the Company up to an additional 150,000 Shares (the
"Option Securities") to cover overallotments in connection with the sale of
the Firm Securities. The Firm Securities and any Option Securities purchased
are herein called the "Securities". The Securities and the terms under which
they are to be offered for sale by the Underwriter is more particularly
described in the Prospectus.
2. The Securities are to be offered to the public by the
Underwriter at the price per Share set forth on the cover page of the
Prospectus (the "Public Offering Price"), in accordance with the terms of
offering set forth in the Prospectus.
3. The Underwriter, subject to the terms and conditions hereof,
is offering a portion of the Securities for sale to certain dealers who are
actually engaged in the investment banking or securities business and who are
either (a) members in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of
business located outside the United States, its territories and its
possessions and not registered as brokers or dealers under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), who have agreed not to
make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein (such dealers
who shall agree to sell Securities hereunder being herein called "Selected
Dealers") at the public offering price, less a selling concession (which may
be changed) of not in excess of $____ per Share payable as hereinafter provided,
out of which concession an amount not exceeding $____ per Share may be reallowed
by Selected Dealers to members of the NASD or foreign dealers qualified as
aforesaid. The Selected Dealers who are members of the NASD agree to comply
with all of the provisions of the NASD Conduct Rules. Foreign Selected
Dealers agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and, if any such dealer is a foreign dealer and not a member of the
NASD, such Selected Dealer also agrees to comply with the NASD's
Interpretation with Respect to Free-Riding and Withholding, and to comply, as
though it were a member of the NASD, with the provisions of Rules 2730 and
2750 of the NASD Conduct Rules, and to comply with Rule 2420 thereof as that
Rule applies to non-member foreign dealers. The Underwriter has agreed that,
during the term of this Agreement, it will be governed by the terms and
conditions hereof.
4. Barron Chase Securities, Inc. shall act as Underwriter and
shall have full authority to take such action as it may deem advisable in
respect to all matters pertaining to the public offering of the Securities.
5. If you desire to act as a Selected Dealer and purchase any of
the Securities, your application should reach us promptly by facsimile or
letter at the offices of Barron Chase Securities, Inc., 7700 West Camino
Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the
right to reject subscriptions in whole or in part, to make allotments, and to
close the subscription books at any time without notice. The Securities
allotted to you will be confirmed, subject to the terms and conditions of
this Selected Dealers Agreement (the "Agreement").
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<PAGE>
6. The privilege of subscribing for the Securities is extended
to you only on the condition that the Underwriter may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the account of the Underwriter an
amount equal to the Selected Dealer concession as to any Securities purchased
by you hereunder which, prior to the completion of the public offering as
defined in paragraph 8 below, we may purchase or contract to purchase for our
account and, in addition, we may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Certificates for Securities delivered on such repurchases need not be the
identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the
number of Securities purchased by you hereunder and remaining unsold at the
time of such request, and, if in our opinion any such Securities shall be
needed to make delivery of the Securities sold or overallotted for the
account of the Underwriter, you will, forthwith upon our request, grant to us
for the account of the Underwriter the right, exercisable promptly after
receipt of notice from you that such right has been granted, to purchase, at
the Public Offering Price less the selling concession or such part thereof as
we shall determine, such number of Securities owned by you as shall have been
specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the Underwriter to you
will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give
any information or to make any representation in connection with the sale of
the Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate
when we shall have determined that the public offering of the Securities has
been completed and upon telefax notice to you of such termination, but, if
not theretofore terminated, they will terminate at the close of business on
the 30th full business day after the date hereof; provided, however, that we
shall have the right to extend such provisions for a further period or
periods, not exceeding an additional 30 days in the aggregate upon telefax
notice to you.
9. For the purpose of stabilizing the market in the Securities,
we have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and, in
arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling
the Securities, you agree to comply with all the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act.
You confirm that you are familiar with Rule 15c2-8 under the 1934 Act
relating to the distribution of preliminary and final prospectuses for
securities of an issuer (whether or not the issuer is subject to the
reporting requirements of Section 13 or 15(d) of the 1934 Act) and confirm
that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but we shall not assume any obligation or responsibility
as to the right of any Selected Dealer to sell the Securities in any state or
other jurisdiction or as to the eligibility of the Securities for sale
therein. We will, if
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requested, file a Further State Notice in respect of the Securities pursuant
to Article 23-A of the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as agent for the
Underwriter, or otherwise to act on our behalf, in offering or selling the
Securities to the public or otherwise or to furnish any information or make
any representation except as contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association
or other separate entity or partners with the Underwriter, or with each
other, but you will be responsible for your share of any liability or expense
based on any claim to the contrary. We shall not be under any liability for
or in respect of value, validity or form of the Securities, or the delivery
of the certificates for the Securities, or the performance by anyone of any
agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter
relating to this Agreement, except for lack of good faith and for obligations
expressly assumed by us or by the Underwriter in this Agreement and no
obligation on our part shall be implied herefrom. The foregoing provisions
shall not be deemed a waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be
made at the Public Offering Price less the above-mentioned selling concession
on such time and date as we may advise, at the office of Barron Chase
Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk, by wire transfer to the account of the Underwriter
or by a certified or official bank check in current New York Clearing House
funds, payable to the order of Barron Chase Securities, Inc., as Underwriter,
against delivery of certificates for the Securities so purchased. If such
payment is not made at such time, you agree to pay us interest on such funds
at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of
Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida
33433, Attention: Robert T. Kirk. Notices to you shall be deemed to have been
duly given if telephoned, telefaxed or mailed to you at the address to which
this Agreement or accompanying Selected Dealer Letter is addressed.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to the
choice of law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a
Selected Dealer, please confirm your application by signing and returning to
us your confirmation on the duplicate copy of the Selected Dealer Letter
enclosed herewith, even though you may have previously advised us thereof by
telephone or letter. Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
------------------------------
Authorized Officer
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SELECTED DEALER LETTER
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for______Shares of Precis Smart Card Systems,
Inc. in accordance with the terms and conditions stated in the foregoing
Selected Dealers Agreement and this Selected Dealer letter. We hereby
acknowledge receipt of the Prospectus referred to in the Selected Dealers
Agreement and Selected Dealer letter. We further state that in purchasing
said Shares we have relied upon said Prospectus and upon no other statement
whatsoever, whether written or oral. We confirm that we are a dealer actually
engaged in the investment banking or securities business and that we are
either (i) a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein. As a member of the NASD, we
hereby agree to comply with all of the provisions of NASD Conduct Rules. If
we are a foreign Selected Dealer, we agree to comply with the provisions of
Rule 2740 of the NASD Conduct Rules, and if we are a foreign dealer and not a
member of the NASD, we agree to comply with the NASD's interpretation with
respect to free-riding and withholding, and agree to comply, as though we
were a member of the NASD, with provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
Rule applies to non-member foreign dealers.
Firm:
-----------------------------
By:
------------------------------
(Name and Position)
Address:
-------------------------
-------------------------
Telephone No.:
--------------
Dated:_________, 1999
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PRECIS SMART CARD SYSTEMS, INC.
FIRST. The name of the corporation is :
Precis Smart Card Systems, Inc.
SECOND. The address, including the street, number, city and county, of
the corporation's registered office in this state is 211 North Robinson, 10th
Floor, Two Leadership Square, Oklahoma City, Oklahoma County, Oklahoma 73102;
the name of the corporation's registered agent at such address is McAfee & Taft
A Professional Corporation.
THIRD. The nature of the business and the purpose of the corporation
shall be to engage in any lawful act or activity for which a corporation may be
organized under the general corporation law of Oklahoma.
FOURTH. The total number of shares of capital stock which the
corporation shall have authority to issue is 10,000,000 shares, divided into
8,000,000 shares designated as Common Stock, par value $.10 per share, and
2,000,000 shares designated as Preferred Stock, par value $1.00 per share.
The preferences, qualifications, limitations, restrictions and the
special or relative rights in respect of the shares of each class are as
follows:
PREFERRED
The board of directors is authorized, subject to limitations prescribed
by law and the provisions hereof, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Oklahoma, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the board with respect to each series shall include
but not be limited to, determination of the following:
(a) The number of shares constituting the series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, form which date or dates, and the rights of
priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and if so,
the terms and conditions of such conversion, including provisions for adjustment
of the conversion rate in such events as the board shall determine;
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(e) Whether or not shares shall be redeemable, if so, the terms and
conditions of such redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary with different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of the series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(h) Any other relative rights, preferences or limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or set
apart for payment before any dividends shall be paid or declared or set apart
for payment on the common shares with respect to the same dividend
period.
If upon voluntary or involuntary liquidation, dissolution or winding up
of the corporation the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets hall be
distributed ratable among the shares of all series in accordance with the
respective preferential amounts (including unpaid cumulative dividends, if any)
payable with respect thereto.
COMMON
Each of the shares of the Common Stock of the corporation shall be
equal in all respects to each other share. The holders of shares of Common Stock
shall be entitled to one vote for each share of Common Stock held with respect
to all matters as to which the Common Stock is entitled to be voted.
Subject to the preferential and other dividend rights applicable to
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive such dividends (payable in cash, stock or otherwise) as may be declared
on the Common Stock by the board of directors at any time or from time to time
out of any funds legally available therefor.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the corporation, after distribution in full of the preferential
and/or other amounts to be distributed to the holders of shares of Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive all of
the remaining assets of the corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of Common Stock held
by them.
FIFTH. The name and address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Elizabeth D. Tyrrell 10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
SIXTH. For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation, its directors and its stockholders or any
class thereof, as the case may be, it is further provided that:
(a) Election of directors need not be by written ballot.
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(b) Prior to receipt of any payment for any of the corporation's stock,
the bylaws of the corporation shall be adopted, amended or repealed by the
incorporator. Thereafter, the power to adopt, amend or repeal the
bylaws is conferred on the board of directors.
SEVENTH. To the fullest extent permitted by the Oklahoma General
Corporation Act as the same exists or may hereafter be amended, a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
I, the undersigned, for the purpose of forming a corporation under the
laws of the State of Oklahoma, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly
hereunto set my hand this 16th day of April, 1996.
/s/ Elizabeth D. Tyrrell
---------------------------------------
Elizabeth D. Tyrrell
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EXHIBIT 3.2
BYLAWS
OF
PRECIS SMART CARD SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located within or without the state of
incorporation and as may be determined by the Board of
Directors.
Section 2. REGISTERED OFFICE. The registered office of the Corporation
required by law to be maintained in the state of
incorporation may be, but need not be, identical with the
principal office of the Corporation. The address of the
registered office may be changed from time to time by the
Board of Directors.
Section 3. OTHER OFFICES. The Corporation may have offices at such
other places, either within or without the state of
incorporation as the Board of Directors may designate or as
the business of the Corporation may require from time to
time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on a date designated by the Board of
Directors, which shall be within six (6) months next
following the end of the fiscal year of the Corporation, for
the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the
day fixed for the annual meeting shall be a legal holiday,
such meeting shall be held on the next succeeding business
day.
Section 2. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not
be held on the day designated for the annual meeting of
shareholders, or at any adjournment thereof, the directors
shall cause the meeting to be held as soon thereafter as
convenient. If there be a failure to hold the annual
meeting of shareholders for a period of thirty (30) days
after the date designated therefor, or if no date has been
designated for a period of thirteen (13) months after the
organization of the Corporation or after its last annual
meeting, the district court may summarily order a meeting to
be held upon the application of any shareholder or director.
The shares of stock represented at such meeting either by
person or by proxy, and entitled to vote thereat, shall
constitute a quorum for the purpose of such meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the President, and shall be called by the
President or Secretary at the request in writing of a
majority of the Board of Directors or, at the written
request of the holders owning of record ten percent (10%) or
more of all shares entitled to vote at the meeting. Such
request shall state the purpose or purposes of the proposed
meeting.
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Section 4. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the state of incorporation,
as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver
of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without
the state of incorporation as the place for the holding of
such meeting. If no designation is made or if a special
meeting be otherwise called, the place of meeting shall be
the principal office of the Corporation.
Section 5. NOTICE OF MEETINGS. Written or printed notice stating the
time and place of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the
President, the Secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail
addressed to the shareholder of the Corporation at his
address as it appears on the records of the Corporation,
with postage thereon prepaid. In addition to the foregoing,
notice of a substitute annual meeting shall state that the
annual meeting was not held on the day designated by these
Bylaws and that such substitute annual meeting is being held
in lieu of and is designated as such annual meeting.
When a meeting is adjourned for thirty (30) days or more,
notice of the adjourned meeting shall be given as in the
case of an original meeting. When a meeting is adjourned for
less than thirty (30) days in any one adjournment, no notice
need be given of the time and place of the adjourned meeting
or of the business to be transacted thereat other than by
announcement at the meeting at which the adjournment is
taken.
Section 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be
closed for a stated period but not to exceed, in any case,
sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled
to notice of or to vote at a meeting of shareholders, such
books shall be closed at least ten (10) days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any
case to be not more than sixty (60) days prior to the date
on which the particular action requiring such determination
of shareholders is to be taken.
If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders entitled
to notice of or to vote at a meeting of shareholders, the
date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this
section, such determination shall apply to any
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<PAGE>
adjournment thereof except where the determination has been
made through the closing of the stock transfer books and the
stated period of closing has expired.
Section 7. VOTING LISTS. The Secretary shall make, at least ten (10)
days prior to the convening of any shareholders' meeting, a
list of all persons entitled to represent shares at such
meeting, arranging the names alphabetically, with the number
of shares entitled to be voted by each set opposite their
respective names. Such list shall be open to the
examination of any shareholder during ordinary business
hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where
the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any shareholder
who is present.
Section 8. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of
shareholders.
The shareholders at a meeting at which a quorum is present
may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to
time by a vote of the majority of the shares voting on the
motion to adjourn; and, at any adjourned meeting at which a
quorum is present, any business may be transacted which
might have been transacted at the original meeting.
Section 9. PROXIES. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the
shareholder or by his duly authorized attorney-in-fact. The
appointment of a proxy shall be filed in writing with the
Secretary at, or before, the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the
writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original
writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original
writing or transmission.
A proxy is not valid after the expiration of five years from
the date of its execution, unless the person executing it
specifies thereon the length of time for which it is to
continue in force, or limits its use to a particular
meeting. The termination of a proxy's authority by act of
the shareholder shall, subject to the time limitation set
forth herein, be ineffective until written notice of the
termination has been given to the Secretary. A proxy's
authority shall not be revoked by the death or incapacity of
the maker unless, before the vote is cast or the authority
is exercised, written notice of such death or incapacity is
given to the Corporation.
Section 10. VOTING OF SHARES. Each outstanding share of capital stock
entitled to vote shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders,
subject to the voting rights and privileges, lack thereof,
or limitations thereon, of the class or series of capital
stock.
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At each election for directors, every shareholder entitled
to vote at such election shall have the right to vote, in
person or by proxy, the number of shares standing of record
in his name for each person nominated as a director to be
elected and for whose election he has a right to vote.
Treasury shares, or other shares not at the time
outstanding, shall not, directly or indirectly, be voted at
any shareholders' meeting or counted in calculating the
actual voting power of shareholders at any given time, but
shares of Corporation stock held by the Corporation in a
fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares and the
actual voting power of the shareholders at any given time.
Every stock vote at a meeting of shareholders shall be taken
by written ballots, each of which shall state the name of
the shareholder or proxy voting and such other information
as may be required under the procedure established for the
meeting. The Corporation may, and to the extent permitted
by law, shall, in advance of any meeting of shareholders,
appoint one or more inspectors to act at the meeting and
make a written report thereof. The Corporation may
designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of shareholders, the
person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to
act at the meeting. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
Every vote taken by ballots shall be counted by an inspector
or inspectors appointed by the chairman of the meeting.
Section 11. VOTES REQUIRED. The vote of a majority of the shares voted
at a meeting of shareholders, duly held at which a quorum is
present, shall be sufficient to take or authorize action
upon any matter which may properly come before the meeting
except as otherwise provided by law or by these Bylaws.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action which may be
taken at a meeting of the shareholders may be taken without
a meeting if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation
by delivery to its registered office in Oklahoma, it
principal place of business, or an officer or agent of the
Corporation having custody of the books in which proceedings
of meetings of shareholders are recorded. Delivery made to
the Corporation's registered office shall be made by hand or
by certified or registered mail, return receipt requested.
Each written consent shall bear the date of signature of
each shareholder who signs the consent and no written
consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the
date of the earliest dated consent delivered to the
Corporation, a written consent or consents signed by a
sufficient number of holder to take action are delivered to
the Corporation in the manner prescribed in the first
paragraph of this Section.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
constituting the Board of Directors shall be at least one
and such number as the directors may from time to time
determine by resolution or election.
The directors shall be elected at the annual or adjourned
annual meeting of the shareholders (except as herein
otherwise provided for the filling of vacancies) and each
director shall hold office until his death, resignation,
retirement, removal, disqualification, or his successor
shall have been elected and qualified.
Directors need not be residents of the state of
incorporation nor shareholders of the Corporation.
Section 3. VACANCIES. Any vacancy occurring in the Board of Directors
including any vacancy created by an increase in the
authorized number of directors elected by all of the
shareholders having the right to vote as a single class may
be filled by the affirmative vote of a majority of the
remaining directors even though less than a quorum or by the
sole remaining director.
Any director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. At a
special meeting of shareholders, the shareholders may elect
a director to fill any vacancy not filled by the directors.
Section 4. REMOVAL. The entire Board of Directors, or any individual
director, may be removed at any time, with or without cause,
by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an annual or special
meeting of shareholders. However, unless the entire Board
is removed, an individual director shall not be removed when
the number of shares voting against the proposal for removal
would be sufficient to elect a director.
Section 5. CHAIRMAN OF BOARD. There may be a Chairman of the Board of
Directors elected by the directors from their number at the
annual meeting of the Board of Directors. The Chairman
shall preside at all meetings of the Board of Directors and
perform such other duties as may be directed by the Board.
Section 6. COMPENSATION. The Board of Directors may compensate
directors for their services as such and may provide for the
payment of all expenses incurred by directors in attending
meetings of the Board.
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ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw
immediately after, and at the same place, as the annual
meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or
without the state of incorporation, for the holding of
additional regular meetings without other notice than such
resolution.
Section 2. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President or by a majority of
the directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any
place, either within or without the state of incorporation,
as the place for holding any special meeting of the Board of
Directors called by them.
Section 3. NOTICE. Notice of special meetings of the Board of
Directors shall be given to each director not less than
three (3) days before the date of the meeting by any usual
means of communication. All business to be transacted at,
and all purposes of, any regular or special meeting of the
Board of Directors must be specified in the notice or waiver
of notice of such meeting.
Section 4. WAIVER BY ATTENDANCE. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of
notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the
transaction of any business because the meeting is not
lawfully called or convened.
Section 5. QUORUM. A majority of the number of directors fixed by or
in accordance with these Bylaws shall constitute a quorum
for the transaction of business.
Section 6. MANNER OF ACTING. Except as otherwise provided in these
Bylaws, the act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 7. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his contrary vote
or abstention is recorded or his dissent is otherwise
entered in the minutes of the meeting or unless he shall
file his written dissent of such action with the person
acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by
registered mail to the Secretary promptly after the
adjournment of the meeting. An abstention shall be deemed a
negative vote. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 8. INFORMAL ACTION BY DIRECTORS. Any action which might be
taken at a meeting of the Board of Directors may be taken
without a meeting if a record or memorandum thereof be made
in writing and signed by all of the members of the Board.
Such writing or memorandum shall be filed with the Secretary
as part of the corporate records.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board of Directors, or any committee thereof, may
participate in a meeting of such Board or
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committee by means of conference telephone or similar
communications equipment by means of which persons
participating in the meeting can hear each other and such
participation shall constitute presence in person at such
meeting.
Section 10. COMPENSATION OF DIRECTORS. Directors, a such, may receive,
pursuant to resolution of the Board of Directors, fixed fees
and other compensation for services as directors, including,
without limitation, their services as members of committees
of committees of the Board of Directors.
ARTICLE V
COMMITTEES
Section 1. CREATION. The Board of Directors, by resolution adopted by
a majority of directors, may designate one or more
committees, each committee to consist of one or more of the
directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present
at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified
member. Any such committee shall have and may exercise all
the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee
shall have the power or authority in reference to amending
the articles of incorporation (except that a committee, to
the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the
Board of Directors may fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any
other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the
shares of any series), adopting an agreement of merger or
consolidation, recommending to the shareholders the sale,
lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the
shareholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the
Corporation; and, unless by resolution of the Board of
Directors, no such committee shall have the power or
authority to declare a dividend, authorize the issuance of
stock, or to adopt a certificate of ownership and merger.
Section 2. REMOVAL. Any member of a committee may be removed at any
time with or without cause by a majority of the number of
directors fixed by these Bylaws.
Section 3. MINUTES. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
Section 4. RESPONSIBILITY OF DIRECTORS. The designation of a committee
and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of
any responsibility or liability imposed upon it or him by
law.
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<PAGE>
ARTICLE VI
OFFICERS
Section 1. OFFICERS OF THE CORPORATION. The officers of the
Corporation shall consist of a Chief Executive Officer,
President, a Secretary, a Treasurer and such Vice
Presidents, Assistant Secretaries, Assistant Treasurer, and
other officers as the Board of Directors may from time to
time elect. The same person may at the same time hold any
of the above named offices.
Section 2. ELECTION AND TERM. The officers of the Corporation shall be
elected by the Board of Directors and each officer shall
hold office until his death, resignation, retirement,
removal, disqualification or his successor shall have been
elected and qualified.
Section 3. COMPENSATION OF OFFICERS. The compensation of all officers
of the Corporation shall be fixed by the Board of Directors
and no officer shall serve the Corporation in any other
capacity and receive compensation therefor unless such
additional compensation be authorized by the Board of
Directors.
Section 4. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent
elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever, in its judgment,
the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 5. BONDS. The Board of Directors may, by resolution, require
any officer, agent, or employee of the Corporation to give
bond to the Corporation, with sufficient sureties,
conditioned on the faithful performance of the duties of his
respective office or position, and to comply with such other
conditions as may from time to time be required by the Board
of Directors.
Section 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the principal executive officer of the Corporation and,
subject to the control of the Board of Directors, shall, in
general, supervise and control all of the business and
affairs of the Corporation. He shall, when present, preside
at all meetings of the shareholders. He shall sign, with
the Secretary, an Assistant Secretary, or any other proper
officer of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the Corporation,
any deeds, mortgages, bonds, contracts, or other instruments
which the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise
signed or executed; and, in general, shall perform all
duties incident to the office of Chief Executive Officer and
such other duties as may be prescribed by the Board of
Directors from time to time.
Section 7. PRESIDENT. The President shall be the chief operating
officer of the Corporation and, subject to the control of
the Board of Directors and supervision of the Chief
Executive Officer, shall, in general, supervise and control
all of the business and affairs of the Corporation. He
shall in the absence of the Chief Executive Officer, when
present, preside at all meetings of the shareholders. He
shall sign, with the Secretary, an Assistant Secretary, or
any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for
shares of the Corporation, any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors
has authorized to be executed, except in cases where the
signing and execution thereof shall
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<PAGE>
be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or
shall be required by law to be otherwise signed or executed;
and, in general, shall perform all duties incident to the
office of President chief operating officer and such other
duties as may be prescribed by the Board of Directors from
time to time.
Section 8. VICE PRESIDENTS. In the absence of the Chief Executive
Officer and the President or in the event of their deaths,
inabilities or refusals to act, the Vice Presidents in the
order of their length of service as Vice Presidents, unless
otherwise determined by the Board of Directors, shall
perform the duties of the Chief Executive Officer and the
President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Chief
Executive Officer and President. A Vice President may sign
certificates for shares of the Corporation. Vice Presidents
shall perform such other duties as from time to time may be
assigned to them by the Chief Executive Officer, President,
or Board of Directors.
Section 9. SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of shareholders, of the Board of Directors and of
all executive committees in one or more books provided for
that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as
required by law; (c) be custodian of the corporate records
and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly
authorized; (d) keep a register of the post office address
of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the Chief
Executive Officer and/or President, certificates for shares
of the Corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the
Corporation; and (g) in general, perform all duties as from
time to time may be assigned to him by the Chief Executive
Officer, President or by the Board of Directors.
The Secretary shall keep, or cause to be kept in the state
of incorporation at the Corporation's registered office and
principal place of business, a record of the Corporation's
shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by
each.
Section 10. ASSISTANT SECRETARIES. In the absence of the Secretary or
in the event of the Secretary's death, inability or refusal
to act, the Assistant Secretaries in the order of their
length of service as Assistant Secretary, unless otherwise
determined by the Board of Directors, shall perform the
duties of the Secretary, and when so acting shall have all
the powers of and be subject to all the restrictions upon
the Secretary. They shall perform such other duties as may
be assigned to them by the Secretary, by the Chief Executive
Officer, President, or the Board of Directors.
Any Assistant Secretary may sign, with the Chief Executive
Officer or President, certificates for shares of the
Corporation.
Section 11. TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, and
deposit all such moneys in the name of the Corporation in
such depositories as shall be selected in accordance with
the provisions of Article VII, Section 4 of these Bylaws;
and (b) in general, perform all of the duties as from time
to time may be assigned to him by the Chief Executive
Officer, President or the Board of Directors.
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<PAGE>
The Treasurer shall prepare, or cause to be prepared, a true
statement of the Corporation's assets and liabilities as of
the close of each fiscal year, all in reasonable detail,
which statement shall be made and filed at the Corporation's
registered office or principal place of business in the
state of incorporation within four months after the end of
such fiscal year and thereat kept available for a period of
at least ten years. Such statement shall include, when
applicable, a statement of the then current conversion rate
of any outstanding securities and a statement of the number
of shares covered by any outstanding options and the price
at which the options are exercisable.
Section 12. ASSISTANT TREASURER. In the absence of the Treasurer or in
the event of the Treasurer's death, inability or refusal to
act, the Assistant Treasurer, unless otherwise determined by
the Board of Directors, shall perform the duties of the
Treasurer and when so acting shall have all the powers of
and be subject to all the restrictions upon the Treasurer.
He shall perform such other duties as may be assigned to him
by the Treasurer, the Chief Executive Officer, President, or
by the Board of Directors.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 2. LOANS. No loan shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued
in its name unless authorized by a resolution of the Board
of Directors. Such authority may be general or confined to
specific instances.
Section 3. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, issued in the name of the Corporation,
shall be signed by such officer or officers, agent or agents
of the Corporation and in such manner as shall from time to
time be determined.
Section 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit
of the Corporation in such depositories as the Board of
Directors may select.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form as shall be
determined by the Board of Directors. The Corporation shall
issue and deliver to each shareholder certificates
representing all fully paid shares owned by him.
Certificates shall be signed by the Chairman or Vice
Chairman of the Board of Directors, the Chief Executive
Officer, the President or Vice President and by the
Secretary or an Assistant Secretary. All certificates for
shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the
shares represented thereby are issued, with the number and
class of shares and the date of issue, shall be entered on
the stock transfer books of the Corporation.
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<PAGE>
Section 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made on the stock transfer books of the Corporation
only if:
(a) the share certificate is endorsed by the
appropriate person or persons; and
(b) reasonable assurance is given that those
endorsements are genuine and effective; and
(c) the Corporation has no duty to inquire into adverse
claims in connection with the shares or has discharged any
such duty; and
(d) any applicable law relating to the collection of
taxes has been complied with; and
(e) the transfer is in fact rightful or to a bona fide
purchaser.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
Corporation alleged to have been lost or stolen or
destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost,
stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal
representative, to advertise the same in such manner as the
Corporation shall require and/or to give the Corporation a
bond in such sum as the Corporation may direct as indemnity
against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost,
stolen or destroyed.
Section 4. HOLDER OF RECORD. Prior to due presentment for transfer of
the shares, the Corporation may treat the registered owner
as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and
powers of an owner.
Section 5. TREASURY SHARES. Treasury shares of the Corporation shall
consist of such shares as have been issued and thereafter
acquired but not canceled by the Corporation. Treasury
shares shall not carry voting or dividend rights.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. RIGHT TO INDEMNIFICATION.
(a) The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, excise taxes
and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests
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<PAGE>
of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his
conduct was unlawful ("Indemnitee"). The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its
equivalent shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to
believe that his conduct was unlawful.
(b) The Corporation shall indemnify any Indemnitee who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue
or matter as to which such Indemnitee shall have been
adjudged to be liable to the Corporation 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 Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the
court shall deem proper.
(c) To the extent that an Indemnitee has been
successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) or
(b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
(d) Any indemnification under the provisions of
subsection (a) or (b) of this section (unless ordered by a
court) shall be made by the Corporation only as authorized
in the specific case upon a determination that
indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of
conduct set forth in subsection (a) or (b) of this section.
Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or
proceedings, (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion,
or (iii) by the shareholders.
(e) For purposes of this Article, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation, including any
constituent of a constituent, absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is
or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request
of such constituent corporation, as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect
to the resulting or surviving corporation as he would have
with respect to such constituent corporation of its separate
existence had continued.
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<PAGE>
(f) For purposes of this Article, references to (i)
"other enterprises" shall include, without limitation, an
"employee benefit plan" within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA") or
otherwise, (ii) "fines" shall include any excise taxes or
penalties assessed on a person with respect to an employee
benefit plan under ERISA or otherwise, and (iii) "serving at
the request of the corporation" shall include any service as
a director, officer, employee or agent of the corporation
which imposes duties on, or involves services, by such
director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries.
Furthermore, for purposes of this Article, a person who
acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interest of the
corporation" as referred to in this Article.
(g) The indemnification and advancement of expenses
provided by or granted pursuant to this Article, unless
otherwise provided when authorized or ratified, shall
continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such
Indemnitee.
Section 2. RIGHT TO ADVANCEMENT OF EXPENSES. Expenses incurred by an
Officer or Director in defending a civil or criminal action,
suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding
upon receipt of an undertaking (hereinafter an
"undertaking") by or on behalf of such director or officer
to repay such amount if it shall ultimately be determined by
final judicial decision from which there is not further
right of appeal (hereinafter a "final adjudication") that he
is not entitled to be indemnified by the Corporation as
authorized by the provisions of this Article. Such expenses
incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors
deems appropriate.
Section 3. NON-EXCLUSIVITY OF RIGHTS. The indemnification and
advancement of expenses provided by or granted pursuant to
this Article shall not be deemed exclusive of any other
rights to which an Indemnitee seeking indemnification or
advancement of expenses may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office
or serving as a director.
Section 4. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as
such, whither or not the Corporation would have the power to
indemnify him against such liability under the provisions of
this Article.
Section 5. RIGHT OF INDEMNITEE TO BRING SUIT. In the event a claim
under this Article is not paid in full by the Corporation
within sixty (60) days after a written claim has been
received by the Corporation, the Indemnitee may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in
part in any such suit, the Indemnitee, in addition to
indemnification pursuant to this the other provisions of
this Article, shall be entitled to be paid the expenses of
prosecuting such suit against the Corporation, including
reasonable attorneys' fees and costs. The Corporation shall
be entitled to assert as a defense that the Indemnitee has
not met any applicable standard for indemnification set
forth in the Oklahoma General Corporation
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<PAGE>
Act and the Corporation shall be entitled to recover any
advancement of expenses upon a final adjudication in (i) any
suit brought by the Indemnitee to enforce a right to
indemnification under the Article (but not in a suit brought
by the Indemnitee to enforce a right to an advancement of
expenses), and (ii) in any suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms
of an undertaking by the Indemnitee. Neither the failure of
the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made
a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the
circumstance because the Indemnitee has met the applicable
standard of conduct set forth in the Oklahoma General
Corporation Act, nor an actual determination by the
Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) that the Indemnitee has
not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought
by the Indemnitee, be a defense to such suit. In any suit
brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking by the
Indemnitee, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise shall be on the
Corporation.
ARTICLE X
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its
outstanding shares in cash, property, or its own shares
pursuant to law and subject to the provisions of its
charter.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given to any shareholder or director by law, by the charter
or by these Bylaws, a waiver thereof in writing signed by
the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent
to the giving of such notice.
Section 3. FISCAL YEAR. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Corporation shall be the
fiscal year beginning on the first day of January of each
year and ending on the following thirty-first day of
December.
Section 4. AMENDMENTS. These Bylaws may be altered or repealed at any
regular or special meeting of the shareholders or of the
Board of Directors.
Section 5. CHARTER PROVISIONS. In case of conflict between a provision
in these Bylaws and a provision in the charter of the
Corporation, the charter provision shall govern.
Signed this 13th day of August, 1999.
------------------------------------------
Larry E. Howell, Chief Executive Officer
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<PAGE>
EXHIBIT 4.1
PRECIS SMART CARD, INC.
____________ ____________
NUMBER SHARES
____________ ____________
COMMON STOCK PAR VALUE $.01
PER SHARE
CUSIP
THIS CERTIFICATE IS TRANSFERABLE
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LEGENDS
INCORPORATED UNDER THE LAWS OF THE STATE OF OKLAHOMA
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF PRECIS SMART CARD, INC.
(hereinafter referred to as the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued under and shall be held subject to the provisions
of the State of Oklahoma and all of the provisions of the Certificate of
Incorporation and Bylaws of the Corporation and any amendments thereto (copies
of which are on file at the office of the Corporation), to all of which the
holder, by acceptance hereof, assents. This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar. Witness the
facsimile seal of the Corporation and the facsimile signatures of its duly
authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED
UMB BANK, N.A.
(Kansas City, MO)
TRANSFER AGENT
AND REGISTRAR
BY
/s/ LARRY E. HOWELL /s/
CHIEF EXECUTIVE OFFICER SECRETARY AUTHORIZED OFFICER
<PAGE>
PRECIS SMART CARD, INC.
The Corporation is authorized to issue more than one class of stock and
more than one series of preferred stock. The Corporation will furnish, upon
request and without charge, a full statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions of
the shares of each class of stock authorized to be issued by it, and the
variations in the relative rights and preferences between the shares of each
series of any preferred class so far as the same have been fixed and determined,
and the authority of the Board of Directors to fix and determine the relative
rights and preferences of subsequent series of any preferred class. Such request
may be made to the Secretary of the Corporation, or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -as tenants in common UNIF GIFT
TEN ENT -as tenants by the entireties MIN ACT-________ Custodian__________
JT TEN -as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts to Minors Act_____________
tenants in common (State)
UNIF TRNFR
MIN ACT-________ Custodian__________
(Minor) (Cust)
Under Uniform Transfers to Minors Act_____________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received,______________________________hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________________
______________________________________________________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
______________________________________________________________________________
________________________________________________________________________Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
_____________________________________________________________Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated __________________
NOTICE:
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X__________________________________
(SIGNATURE)
X__________________________________
(SIGNATURE)
<PAGE>
THE SIGNATURE SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
____________________________________________
SIGNATURE(S) GUARANTEED BY:
____________________________________________
<PAGE>
EXHIBIT 4.2
UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement"
or "Agreement"), dated as of __________, 1999, between Precis Smart Card
Systems, Inc. (the "Company") and Barron Chase Securities, Inc. (the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Underwriter, to act as the Underwriter in connection with the
Company's proposed public offering of 1,500,000 shares of the Company's Common
Stock at $6.00 per share (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Underwriter and/or
persons related to the Underwriter as those persons are defined in Rule 2710 of
the NASD Conduct Rules (the "Holder"), 100,000 warrants ("Common Stock
Underwriter Warrants") to purchase 100,000 shares of the Company's Common Stock
(the "Shares"). The "Common Stock Underwriter Warrants" are also referred to as
the "Warrants". The "Shares" are also referred to as the "Warrant Securities";
and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Underwriter acting as Underwriter
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment to the
Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. GRANT AND PERIOD.
The above recitals are true and correct. The Public Offering has been
registered under a Registration Statement on Form SB-2 (File No. _________) and
declared effective by the Securities and Exchange Commission (the "SEC" or
"Commission") on __________, 1999 (the "Effective Date"). This Agreement,
relating to the purchase of the Warrants, is entered into pursuant to the
Underwriting Agreement between the Company and the Underwriter in connection
with the Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 100,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $9.00 per share (150% of the public offering
price) (the "Exercise Price" or "Purchase Price"), subject to the terms and
conditions of this Agreement.
Except as specifically otherwise provided herein, the Shares
constituting the Warrant Securities shall bear the same terms and conditions as
such securities described under the caption "Description of Securities" in the
Registration Statement, and as designated in the Company's Articles of
Incorporation and any amendments thereto, and the Holders shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Warrants and the Shares, as more fully described in paragraph seven (7)
of this Underwriter's Warrant Agreement.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
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3. EXERCISE OF WARRANT.
3.1 FULL EXERCISE.
(i) The Holder may effect a cash exercise of the Common Stock
Underwriter Warrants by surrendering to the Company the Warrant
Certificate, together with a Subscription in the form of Exhibit "A"
attached thereto, duly executed by such Holder, at any time prior to
the Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the
order of the Company in the amount of the aggregate purchase price (the
"Aggregate Price"), subject to any adjustments provided for in this
Agreement. The aggregate price hereunder for each Holder shall be equal
to the exercise price as set forth in Section six (6) hereof multiplied
by the number of Shares that are the subject of each Holder's Warrant
(as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Underwriter Warrants by delivering the Warrant Certificate
to the Company together with a Subscription in the form of Exhibit "B"
attached thereto, duly executed by such Holder, in which case no
payment of cash will be required. Upon such cashless exercise, the
number of Shares to be purchased by each Holder hereof shall be
determined by dividing: (i) the number obtained by multiplying the
number of Shares that are the subject of each Holder's Warrant
Certificate by the amount, if any, by which the then Market Value (as
hereinafter defined) exceeds the Purchase Price; by (ii) the then per
share Market Value or Purchase Price, whichever is greater. In no event
shall the Company be obligated to issue any fractional securities and,
at the time it causes a certificate or certificates to be issued, it
shall pay the Holder in lieu of any fractional securities or shares to
which such Holder would otherwise be entitled, by the Company check, in
an amount equal to such fraction multiplied by the Market Value. The
Market Value shall be determined on a per Share basis as of the close
of the business day preceding the exercise, which determination shall
be made as follows: (a) if the Common Stock is listed for trading on a
national or regional stock exchange or is included on the NASDAQ
National Market or Small-Cap Market, the average closing sale price
quoted on such exchange or the NASDAQ National Market or Small-Cap
Market which is published in THE WALL STREET JOURNAL for the ten (10)
trading days immediately preceding the date of exercise, or if no trade
of the Common Stock shall have been reported during such period, the
last sale price so quoted for the next day prior thereto on which a
trade in the Common Stock was so reported; or (b) if the Common Stock
is not so listed, admitted to trading or included, the average of the
closing highest reported bid and lowest reported ask price as quoted on
the National Association of Securities Dealer's OTC Bulletin Board or
in the "pink sheets" published by the National Daily Quotation Bureau
for the first day immediately preceding the date of exercise on which
the Common Stock is traded.
3.2 PARTIAL EXERCISE. The securities referred to in paragraph 3.1 above
also may be exercised from time to time in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof, except that with
respect to a cash exercise, the Purchase Price payable shall be equal to the
number of securities being purchased hereunder multiplied by the per security
Purchase Price, subject to any adjustments provided for in this Agreement. Upon
any such partial exercise, the Company, at its expense, will forthwith issue to
the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in
the aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised, issued
in the name of the Holder hereof or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants, the issuance of certificates for the
shares of Common Stock and/or other securities shall be made forthwith (and in
any event within three (3) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which
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may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the Underwriter or to officers and partners of the Selected Dealers
participating in the Public Offering; (b) by will; or (c) by operation of law.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICES.
The initial exercise price of each Common Stock Underwriter Warrant
shall be $9.00 per share (150% of the public offering price). The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof.
6.2 EXERCISE PRICE.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933.
The Warrants and the Warrant Securities (collectively the "Registrable
Securities") have been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares shall bear the following legend in the event there is no
current registration statement effective with the Commission at such time as to
such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
7.2 PIGGYBACK REGISTRATION.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
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securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the Underwriter
and to all other Holders of the Registrable Securities of its intention to do
so. If the Underwriter and/or other Holders of the Registrable Securities notify
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such Registrable Securities in such proposed
Registration Documents, the Company shall afford the Underwriter and such
Holders of such Registrable Securities the opportunity to have any Registrable
Securities registered under such Registration Documents or any other available
Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of the
Act, so as to permit a public offering and sale of their respective Registrable
Securities for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by such Holders and any other Holders of any of the
Registrable Securities who notify the Company within twenty (20) days after
receipt of notice by registered or certified mail from the Company of such
request. A Demand Registration shall not be counted as a Demand Registration
hereunder until such Demand Registration has been declared effective by the SEC
and maintained continuously effective for a period of at least nine months or
such shorter period when all Registrable Securities included therein have been
sold in accordance with such Demand Registration, provided that a Demand
Registration shall be counted as a Demand Registration hereunder if the Company
ceases its efforts in respect of such Demand Registration at the request of the
majority Holders making the demand for a reason other than a material and
adverse change in the business, assets, prospects or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice by
registered or certified mail of any registration request under this Section 7.3
by the majority of the Holders to all other registered Holders of any of the
Registrable Securities within ten (10) days from the date of the receipt of any
such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of such
securities; and
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(iv) contain an undertaking on the part of the Holders to
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with the filing of any Registration Document by the
Company, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all special and consequential
damages sustained by the Holder(s) requesting registration of their Registrable
Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other
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governmental agencies or authorities of the United States or any State thereof
as may be reasonably necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter as contained in the Underwriting
Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company, except that the maximum amount
which may be recovered from each Holder pursuant to this paragraph or otherwise
shall be limited to the amount of net proceeds received by the Holder from the
sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the filing of any registration
statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriter copies of all correspondence between the Commission and
the Company, its counsel or auditors and all non-privileged memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
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(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may be sold by it, in the manner proposed by such Holder(s), without
registration under the Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS
OR RECLASSIFICATIONS.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall
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state the Exercise Price resulting from such adjustment, and any increase or
decrease in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION.
In case of any reorganization of the Company or 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), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant Agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant Agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants distribute to its stockholders any assets, property,
rights, evidences of indebtedness, securities (other than a distribution made as
a cash dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdictions of incorporation of
the Company), whether issued by the Company or by another, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such
distribution as if the Warrants had been exercised immediately prior to such
distribution. At the time of any such distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection or an adjustment to the Exercise Price, which shall be effective as
of the day following the record date for such distribution.
8.4 ADJUSTMENT IN NUMBER OF SECURITIES.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant shall be adjusted to the nearest full amount by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of securities issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
8.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
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8.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants, the
Company, at its expense, shall cause independent certified public accountants of
recognized standing selected by the Company (who may be the independent
certified public accountants then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to any Holder of the Warrants at the Holders'
address as shown on the Company's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based including, but not limited to, a statement
of (i) the Exercise Price at the time in effect, and (ii) the number of
additional or fewer securities and the type and amount, if any, of other
property which at the time would be receivable upon exercise of the Warrants.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTEREST.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants, nor shall
it be required to issue script or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests may be eliminated,
at the Company's option, by rounding any fraction up to the nearest whole number
of shares of Common Stock or other securities, properties or rights, or in lieu
thereof paying cash equal to such fractional interest multiplied by the current
value of a share of Common Stock.
11. RESERVATION, VALIDITY AND LISTING.
The Company covenants and agrees that during the exercise period, the
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants, such number of shares of Common Stock or other securities,
properties or rights as shall be issuable upon the exercise under this Warrant
Certificate. The Company covenants and agrees that, upon exercise of the
Warrants, and payment of the Exercise Price therefor, all shares of Common Stock
and other securities issuable upon such exercise shall be duly authorized,
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed and quoted (subject to official
notice of issuance) on all securities exchanges and systems on which the Common
Stock are then listed and/or quoted, including Nasdaq.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
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<PAGE>
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company. If, however, at any time prior to the expiration
of the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when sent by
facsimile and delivered personally or by overnight courier or mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of
the Company; or
(b) If to the Company, to the address set forth below or to such
other address as the Company may designate by notice to the Holders.
Larry E. Howell
Chief Executive Officer
Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
With copies to: Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102-5604
and
David A. Carter, P.A.
-10-
<PAGE>
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
15. ENTIRE AGREEMENT: MODIFICATION.
This Agreement (and the Underwriting Agreement to the extent
applicable) contain the entire understanding between the parties hereto with
respect to the subject matter hereof, and the terms and provisions of this
Agreement may not be modified, waived or amended except in a writing executed by
the Company and the Holders of at least a majority of Registrable Securities
(based on underlying numbers of shares of Common Stock). Notice of any
modification, waiver or amendment shall be promptly provided to any Holder not
consenting to such modification, waiver or amendment.
16. SUCCESSORS.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. TERMINATION.
This Agreement shall terminate at the earlier of (i) the public sale of
all of the Registrable Securities, or (ii) at the close of business on
__________, 2006. Notwithstanding the foregoing, the indemnification provisions
of Section
7 shall survive such termination.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. A party to this Agreement named as
a Defendant in any action brought in connection with this Agreement in any court
outside of the above named designated county or district shall have the right to
have the venue of said action changed to the above designated county or district
or, if necessary, have the case dismissed, requiring the other party to refile
such action in an appropriate court in the above designated county or federal
district.
19. SEVERABILITY.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. CAPTIONS.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT.
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<PAGE>
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
Holder(s) of the Warrant Certificates or Registrable Securities any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Warrant Certificates or Registrable Securities.
22. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
PRECIS SMART CARD SYSTEMS, INC.
BY:
------------------------------------
Larry E. Howell
Chief Executive Officer
Attest:
___________________________________
____________________, Secretary
BARRON CHASE SECURITIES, INC.
BY:
------------------------------------
Robert Kirk, President
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<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON ___________, 2004
NO. W-______ _____ Common Stock
Underwriter
Warrants
This Warrant Certificate certifies that ___________, or registered
assigns, is the registered holder of Common Stock Underwriter Warrants of
PRECIS SMART CARD SYSTEMS, INC. (the "Company"). Each Common Stock
Underwriter Warrant permits the Holder hereof to purchase initially, at any
time from __________, 1999 ("Purchase Date") until 5:30 p.m. Eastern Time on
__________, 2004 ("Expiration Date"), one (1) share of the Company's Common
Stock at the initial exercise price, subject to adjustment in certain events
(the "Exercise Price"), of $9.00 per share (150% of the public offering
price).
Any exercise of Common Stock Underwriter Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Underwriter's Warrant Agreement dated as of ________, 1999, between
the Company and Barron Chase Securities, Inc. (the "Underwriter's Warrant
Agreement"). Payment of the Exercise Price shall be made by certified check or
official bank check in New York Clearing House funds payable to the order of the
Company in the event there is no cashless exercise pursuant to Section 3.1(ii)
of the Underwriter's Warrant Agreement. The Common Stock Underwriter Warrants
are also referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Underwriter's Warrant
Agreement, which Underwriter's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
-13-
<PAGE>
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events, the Exercise Price and the type and/or number of the
Company's securities issuable thereupon may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Underwriter's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not
be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Underwriter's Warrant Agreement shall have
the meanings assigned to them in the Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed.
Dated as of __________, 1999
PRECIS SMART CARD SYSTEMS, INC.
BY:
------------------------------------
Larry E. Howell
Chief Executive Officer
Attest:
_____________________________________
____________________, Secretary
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<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
The undersigned, the Holder of Warrant Certificate number
_____________ (the "Warrant"), representing _____ Common Stock Underwriter
Warrants of PRECIS SMART CARD SYSTEMS, INC. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to
exercise the purchase right provided by the Warrant Certificate for, and to
purchase thereunder, _____ Shares of the Company, and herewith makes payment
of $_____ therefor, and requests that the certificates for such securities be
issued in the name of, and delivered to, _____________________________, whose
address is _________ _____________________________, all in accordance with
the Underwriter's Warrant Agreement and the Warrant Certificate.
Dated: _______________
----------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
----------------------------------------
----------------------------------------
(Address)
----------------------------------------
(Social Security Number or
Tax Identification Number)
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
The undersigned, the Holder of Warrant Certificate number
_____________ (the "Warrant"), representing ____ Common Stock Underwriter
Warrants of PRECIS SMART CARD SYSTEMS, INC. (the "Company"), which Warrant is
being delivered herewith, hereby irrevocably elects the cashless exercise of
the purchase right provided by the Underwriter's Warrant Agreement and the
Warrant Certificate for, and to purchase thereunder, Shares of the Company in
accordance with the formula provided at Section three (3) of the
Underwriter's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to,
________________________, whose address is, ___________________________________,
all in accordance with the Warrant Certificate.
Dated: _______________
----------------------------------------
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant Certificate)
----------------------------------------
----------------------------------------
(Address)
----------------------------------------
(Social Security Number or
Tax Identification Number)
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________ Attorney,
to transfer the within Warrant Certificate on the books of the within- named
Company, with full power of substitution.
Dated: Signature:
----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
fact of the Warrant Certificate)
----------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<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
August 25, 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
Warrants from the
<PAGE>
DUNN SWAN & CUNNINGHAM
A PROFESSIONAL CORPORATION
ATTORNEYS AND COUNSELLORS AT LAW
Board of Directors
Precis Smart Card Systems, Inc.
August 25, 1999
Page 2
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,
DUNN SWAN & CUNNINGHAM
<PAGE>
EXHIBIT 10.1
PRECIS SMART CARD SYSTEMS, INC.
1999 STOCK OPTION PLAN
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 300,000 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.
1.6 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
<PAGE>
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 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
2
<PAGE>
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, 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
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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 January 1, 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
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
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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 10
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 employ ment 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.
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EXHIBIT 10.2
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the ____ day of August
___, 1999, between Precis Smart Card Systems, Inc. (the "Company") and Barron
Chase Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing financial
and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as
follows:
1. PURPOSE. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
However, the advisory will only be rendered if specifically requested in writing
by the Chief Executive Officer of the Company.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The
Financial Advisor represents and warrants to the Company that (i) it is a
member in good standing of the National Association of Securities Dealers,
Inc. ("NASD") and that it is engaged in the securities brokerage business;
(ii) in addition to its securities brokerage business, the Financial Advisor
provides consulting advisory services; and (iii) it is free to enter into
this Agreement and the services to be provided pursuant to this Agreement are
not in conflict with any other contractual or other obligation to which the
Financial Advisor is bound. The Company acknowledges that the Financial
Advisor is in the business of providing financial services and consulting
advice (of the type contemplated by this Agreement) to others and that
nothing herein contained shall be construed to limit or restrict the
Financial Advisor in conducting such business with respect to others, or
rendering such advice to others.
3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this
Agreement, the Financial Advisor will provide the Company with consulting
advice as specified below at the request of the Company, provided that the
Financial Advisor shall not be required to undertake duties not reasonably
within the scope of the consulting advisory service in which the Financial
Advisor is engaged generally. In performance of these duties, the Financial
Advisor shall provide the Company with the benefits of its best judgment and
efforts. It is understood and acknowledged by the parties that the value of
the Financial Advisor's advice is not measurable in any quantitative manner,
and that the amount of time spent rendering such consulting advice shall be
determined according to the Financial Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business operations and
investments;
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3) Advice relating to financial planning; and
4) Advice regarding future financings involving securities of
the Company or any subsidiary.
4. TERM. The term of this Agreement shall be for twelve (12) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. FEE. The Company shall pay the Financial Advisor a fee of $108,000
for the financial services to be rendered pursuant to this Agreement, all of
which shall be payable at the Closing Date of the Company's proposed public
offering.
6. EXPENSES. In addition to the fees payable hereunder, the Company
shall reimburse the Financial Advisor, within five (5) business days of its
request, for any and all reasonable out-of-pocket expenses incurred in
connection with the services performed by the Financial Advisor and its counsel
pursuant to this Agreement, including (i) reasonable hotel, food and associated
expenses; (ii) reasonable charges for travel; (iii) reasonable long-distance
telephone calls; and (iv) other reasonable expenses spent or incurred on the
Company's behalf. All such expenses in excess of $500 shall be pre-approved by
the Company.
7. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S
SECURITIES. The Company acknowledges that all opinions and advice (written or
oral) given by the Financial Advisor to the Company in connection with the
engagement of the Financial Advisor are intended solely for the benefit and use
of the Company in considering the transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be entitled
to make use of or rely upon the advice of the Financial Advisor to be given
hereunder, and no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor may the Company make any public references to the Financial
Advisor, or use the Financial Advisor's name in any annual reports or any other
reports or releases of the Company without the prior written consent of the
Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
personnel of the Financial Advisor.
8. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
9. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject
2
<PAGE>
under the Securities Act of 1933, (the "Act"), the Securities Exchange Act of
1934, as amended (the "1934 Act") or any other federal or state statute, at
common law or otherwise, insofar as said liabilities, claims and lawsuits
(including costs, expenses, awards and/or judgments) arise out of or are in
connection with the services rendered by the Financial Advisor or any
transactions in connection with this Agreement, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of willful
misconduct or willful omissions of the Financial Advisor. In addition, the
Company shall also indemnify and hold harmless the Financial Advisor against any
and all reasonable costs and expenses, including reasonable counsel fees,
incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
10. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
11. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral
or written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered or sent
by facsimile and postage prepaid by certified or registered mail, return receipt
requested, to the respective parties as set forth below, or to such other
address as either party may notify the other in writing:
If to the Company: Larry E. Howell
Chief Executive Officer
Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
3
<PAGE>
Copy to: Michael E. Dunn, Esq.
Dunn Swan & Cunningham
2800 Oklahoma Tower
210 park Avenue
Oklahoma City, OK 73102-5604
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed entirely within the State of Florida. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
(g) This Agreement has been duly authorized, executed and delivered by
and on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
PRECIS SMART CARD SYSTEMS, INC.
BY:
------------------------------------
Larry E. Howell
Chief Executive Officer
BARRON CHASE SECURITIES, INC.
BY:
------------------------------------
Robert T. Kirk, President
4
<PAGE>
EXHIBIT 10.3
____________, 1999
Larry E. Howell
Chief Executive Officer
Precis Smart Card Systems, Inc.
11032 Quail Creek Road, Suite 108
Oklahoma City, OK 73120
RE: MERGER AND ACQUISITION AGREEMENT
Dear Mr. Howell:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant for you in various
transactions in which American Quantum Cycles, Inc. (the "Company") may be
involved, including but not limited to, mergers, acquisitions, business
combinations, joint ventures, debt or equity placements or other on-balance or
off-balance sheet corporate transactions. The Company hereby agrees that in the
event that the Finder shall first introduce to the Company another party or
entity, and that as a result of such introduction, a transaction between such
entity and the Company is consummated ("Consummated Transaction"), then the
Company shall pay to the Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration
paid in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000
and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000
and up to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000 and
up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the consideration to be paid by the Company to the Finder at closing
shall be $150,000.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period, the
Company shall also pay the Finder the fee determined above.
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The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement
with respect to the matters contained herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
--------------------------------
Robert T. Kirk, President
Agreed to and Accepted:
PRECIS SMART CARD SYSTEMS, INC.
BY:
----------------------------
Larry E. Howell
Chief Executive Officer
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<PAGE>
EXHIBIT 10.4
MASTER EQUIPMENT PURCHASE AND MAINTENANCE AGREEMENT
REFERENCE NO. 224fi8
001
By and Between
NationsBanc Services, Inc.
and
Precis Smart Card Systems. Inc.
<PAGE>
MASTER EQUIPMENT PURCHASE AND MAINTENANCE AGREEMENT
REFERENCE NO. 22468
001
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION NO. SECTION HEADING
1.0 Term of Agreement
2.0 Affiliates
3.0 Scope of Agreement
4.0 Mutual Representations and Warranties
5.0 Representations and Warranties of Seller
6.0 Performance Warranties of Seller
7.0 Covenants
8.0 Force Majeure
9.0 Relationship/Personnel
10.0 Subcontracting
11.0 Non-Discrimination
12.0 Ordering of Equipment
13.0 Delivery
14.0 Installation
15.0 Acceptance
16.0 Maintenance
17.0 Confidentiality
18.0 Security
19.0 Indemnification
20.0 Damages
21.0 Insurance
22.0 Minority Business Development Initiative
23.0 Pricing/Fees
24.0 Invoices/Payment/Taxes
25.0 Retention of Records/Audit
26.0 Termination
27.0 Notices
28.0 Assignment
29.0 Arbitration
30.0 Applicable Law
31.0 Miscellaneous
EXHIBIT A EQUIPMENT/INSTALLATION LIST AND PRICING
EXHIBIT B EQUIPMENT PERFORMANCE STANDARDS
EXHIBIT C PERFORMANCE REQUIREMENTS FOR MAINTENANCE
SERVICES
SCHEDULE A EQUIPMENT LISTING AND PREVENTATIVE MAINTENANCE
SCHEDULE
ADDENDUM 1 ESCALATION PROCEDURE
</TABLE>
<PAGE>
MASTER EQUIPMENT PURCHASE AND MAINTENANCE AGREEMENT
REFERENCE NO. 22468-001-001
This Master Equipment Purchase and Maintenance Agreement ("Agreement") is
entered into by and between NationsBanc Services Inc. ("NBSI") and Precis Smart
Card Systems ("Seller").
This Agreement establishes the terms, conditions and consideration under which
Seller will provide NationsBank FANCash equipment and related software and
stored value cards ("Equipment") and, if requested, installation services
("Installation") for such Equipment and maintenance services ("Maintenance")
for the Equipment.
1.0 TERM OF AGREEMENT
1.01. Initial Term. This Agreement shall apply and remain in effect from July 1,
1998 through January 31, 2000 ("Initial Term") unless sooner terminated as
provided herein.
1.02. Extensions. NBSI shall have the right to extend this Agreement for an
additional one (1) year period ("Renewal Term") by giving Seller written notice
of its intent at least thirty (30) calendar days prior to the end of the Initial
Term.
1.03. Continuation of Agreement. In the event NBSI fails to notify Seller of its
intent to renew or terminate this Agreement, the Agreement shall continue in
effect on a month month basis, at the prices last offered for Equipment and
Installation under the Initial Term, until canceled by either party upon thirty
(30) calendar days prior written notice to the other.
2.0 AFFILIATES
2.01. Definition. When used in this Agreement, the term "NBSI Affiliate" shall
mean all entities now or hereafter controlling, controlled by, or under common
control, directly or indirectly, of NBSI or NBSI's parent.
2.02. Rights of NBSI Affiliates. Seller expressly acknowledges and agrees that
(a) NBSI has contracted with Seller under this Agreement in order to satisfy
current or future obligations of NBSI to, or requirements of, one or more NBSI
Affiliates, (b) to the extent that the interests of NBSI Affiliates are affected
by this Agreement, all obligations of Seller under this Agreement shall extend,
and all rights and privileges of NBSI shall accrue, to the NBSI Affiliates to
the same extent as such obligations, rights and privileges extend or accrue to
NBSI under this Agreement, and (c) notwithstanding the foregoing, NBSI shall
solely be responsible to Seller for the performance of NBSI's obligations under
this Agreement.
3.0 SCOPE OF AGREEMENT
3.01. Equipment List. EXHIBIT A specifies the Equipment which Seller offers to
NBSI hereunder. EXHIBIT A may be amended from time to time by mutual written
agreement and additional Equipment incorporated hereunder by execution of an
amendment to EXHIBIT A. The Equipment offered hereunder shall be Seller's
standard products. In addition, Seller agrees to provide to NBSI any special
finishes, hardware or item size, which are within reason, at a mutually agreed
upon price.
3.02. Equipment Deliverables. The Equipment shall include, and Seller shall
deliver to NBSI at no additional cost: (a) all standard accessories which are
required to install any Equipment ordered hereunder in any configuration
communicated by NBSI to Seller prior to the date of delivery, or in the absence
of such communication, in a standard configuration for such Equipment; (b) all
improvements, modifications and updates to the Equipment that are generally made
available to Seller's customers during the term of this Agreement; and, (c)
Installation of the Equipment, unless otherwise specifically excluded in an
Order ( as hereinafter defined).
3.03. Software/Firmware License. Seller hereby represents that it has the right
to grant and does hereby grant to NBSI a nonexclusive and nontransferable
license to use the operating system software and firmware ("License") for use at
events on the premises of Ericsson Stadium, Charlotte, North Carolina,
associated with NBSI's purchase of the Equipment described herein. Seller
acknowledges and agrees that NBSI shall be able
1
<PAGE>
to extend use of the License to NBSI's Affiliates and those third parties who
provide NBSI and NBSI's Affiliates computer processing needs, provided these
NBSI Affiliates and third parties are bound by confidentiality provisions
similar to the terms of this Agreement. NBSI understands that the License is non
transferable except in the event the Equipment shall be sold to any third party.
3.04. New Equipment. Seller warrants that the Equipment sold hereunder shall be
new in all respects and not reworked, refurbished or rebuilt, unless otherwise
approved by NBSI.
3.05. Specifications. For purposes of this Agreement, "Specifications" shal1
mean any attached specifications and drawings (or if no specifications are
attached, the most recent manufacturer's specifications for the Equipment) and
any samples, warranties, models and descriptions, representations and
warranties, including any supplements or modifications published by, furnished
or given by Seller to NBSI.
3.06. Documents Submitted to NBSI. Any written document submitted to NBSI by
Seller as a result of this Agreement, including but not limited to invoices,
packages, shipping notices, instruction manuals, shall reference, as applicable,
Order number, Item number, and Agreement reference number.
3.07. No Obligation to Purchase. This Agreement is not intended nor shall it be
construed to impose or create any obligation upon NBSI to purchase Equipment
hereunder.
3.08. Maintenance Performance Requirements. Seller will provide the Maintenance
as set forth in EXHIBIT C attached hereto in accordance with the Performance
Requirements for Maintenance Services, including Remedial Maintenance Response
and Resolution times, set forth therein.
3.09. Engineering Changes. In the event that Seller is the manufacturer of the
Equipment maintained hereunder, Seller agrees that all engineering changes it
generally adopts on similar equipment hereafter shall be made to the Equipment
to be maintained hereunder. Such engineering changes shall be provided to NBSI
at no additional cost provided, however, that such changes are not an
enhancement which Seller generally markets at extra cost or which by its
addition increases the price of later marketed equipment.
4.0 MUTUAL REPRESENTATIONS AND WARRANTIES
4.01. Each party represents and warrants the following: (a) in performance of
its obligations under this Agreement, each party shall act fairly and in good
faith; (b) its execution, delivery and performance of this Agreement (i) have
been authorized by all necessary corporate action, (ii) do not violate the terms
of any law, regulation, or court order to which such party is subject, or the
terms of any material agreement to which the party or any of its assets may be
subject, and (iii) are not subject to the consent or approval of any third
party; (c) this Agreement is the valid and binding obligation of the
representing party, enforceable against such party in accordance with its terms;
and (d) such party is not subject to any pending or threatened litigation or
governmental action which could interfere with such party's performance of its
obligations hereunder.
5.0 REPRESENTATIONS AND WARRANTIES OF SELLER
5.01. In rendering its obligations under this Agreement, without limiting other
applicable performance warranties, Seller represents and warrants to NBSI as
follows: (a) all work will be performed in a professional and workmanlike
manner; (b) Seller is in good standing in the state of its incorporation and is
qualified to do business as a foreign corporation in each of the states in which
it is providing services hereunder; and (c) Seller shall secure all permits,
licenses, regulatory approvals and registrations required to render services set
forth herein, including without limitation, registration with the appropriate
taxing authorities for remittance of taxes, and (d) Seller does not have and
will not permit any labor or material liens or judgments against Equipment
and/or Installation delivered to NBSI and agrees that this Agreement, Orders
placed hereunder or any interest therein shall not be assigned for the purpose
of financing the Equipment or Installation or any portion thereof without the
prior written approval of NBSI. Prior to final payment(s) by NBSI to Seller for
Equipment or Installation provided under this Agreement, Seller shall provide
NBSI, when applicable, with waiver(s) of lien in a form satisfactory to NBSI.
2
<PAGE>
6.0 PERFORMANCE WARRANTIES OF SELLER
6.01. Equipment Warranties. With respect to the Equipment provided by Seller
under this Agreement, Seller represents, warrants and covenants to NBSI as
follows: (a) Equipment will be free from defects in structural and functional
design, material and workmanship, and will serve the purposes for which it was
designed or provided for the period stated in SCHEDULE A ("Warranty Period");
(b) Equipment provided hereunder will conform in all respects to the
Specifications, and, if none, then such Equipment shall conform with Seller's
most recent specifications; and (c) NBSI shall receive clear title to Equipment
provided to NBSI under this Agreement; and (d) the Equipment will perform in
accordance with Performance Standards as set forth in EXHIBIT B. The Warranty
Period starting date shal1 be the date of Equipment Installation.
6.02. Performance Standards Compliance. Seller shall provide to NBSI a report
which documents the Equipment's performance, as well as such other information
as NBSI may reasonably request from time to time, to verify the Equipment's
compliance with the Performance Standards. The format, content and schedule for
reporting this information shall be mutually agreed to between NBSI and Seller
at the execution of this Agreement. Seller understands that a Termination Event
may be declared by NBSI if the Equipment fails to meet such Performance
Standards, including but not limited to, causing a serious disruption of use
and/or repeated periods of downtime over a continuous period, notwithstanding
Seller's remedial efforts.
6.03. Remedy. During the Warranty Period, Seller shall at its expense, repair,
replace or correct defective Equipment and/or Installation. Such repair,
replacement or correction shall include, but is not limited to, all applicable
labor, materials, transportation, and Installation required to effectuate such
repairs, replacements or corrections.
6.04. Requirements. Seller is fully aware of NBSI's business requirements and
intended uses for the Equipment and the Equipment shall satisfy such
requirements and is fit for such intended uses. Seller acknowledges that NBSI
relied upon Seller's Specifications in its decision to obtain Equipment from
Seller.
6.05. Third Party Warranties. If contractually and legally permitted, all
warranties made by the manufacturer or supplier of goods or services delivered
by Seller under this Agreement are hereby transferred to NBSI. Any transfer of a
warranty on Equipment from a manufacturer will release Seller from any
warranties made hereunder to the extent of the manufacturers warranty.
6.06. Other Warranties. Seller stipulates that the express warranties set forth
in this Agreement shall not constitute an election of remedies or negate any
implied or other warranties as otherwise might exist for NBSI or as provided by
law.
6.07. Year 2000. Seller warrants that the advent of the year 2000 shall not
adversely affect the performance of the Equipment and software/firmware with
respect to date and date dependent data (including, but not limited to
calculating, comparing and sequencing) and that the Equipment and
software/firmware will be capable of creating, storing, and/or processing
records related to and including the year 2000 and thereafter without
deficiencies at no additional cost to NBSI. At NBSI's request, Seller will
provide sufficient evidence to demonstrate adequate testing of the Equipment and
software/firmware to meet the foregoing requirements.
7.0 COVENANTS
7.01. During the term of this Agreement, Seller shall (a) use all reasonable
efforts to avoid the disruption of normal operations of NBSI or any NBSI
Affiliate; (b) at all times maintain capital and other financial resources
sufficient to permit Seller to perform its obligations under this Agreement; (c)
pay its debts generally as they become due; and (d) notify NBSI immediately in
the event there is a material adverse change in the business or financial
condition of Seller.
8.0 FORCE MAJEURE
8.01. Suspension of Operations. Neither party shall be liable for damages for
delay in the services herein arising out of causes beyond its control and
without its fault or negligence, including, but not limited to, act of God or of
the public enemy, acts of the Government, fires, floods, epidemics, strikes,
labor disturbances or freight embargoes (but not including delays caused by
subcontractors or suppliers), provided that, in the case of Seller, Seller shall
within ten (10) days from the beginning of such delay, notify NBSI in writing of
3
<PAGE>
the cause of delay and Seller's contingency plan to cure such delay; however, if
a delay exceeds a total of thirty (30) days, NBSI may terminate this Agreement.
8.02. Contingency Plan. Seller agrees to establish and maintain policies and
procedures relevant to contingency plans, recovery plans, and proper risk
controls to ensure Seller's continued performance under this Agreement. Said
policies and procedures must be in place within ten (10) business days from the
date of execution of this Agreement and shall include, but not be limited to,
testing with respect to reasonable assurance of effectiveness, control functions
with respect to accountability elements and corrective actions to be immediately
implemented, if necessary. Seller agrees to provide copies of said policies and
procedures to NBSI, upon request.
9.0 RELATIONSHIP/PERSONNEL
9.01. Independent Contractor Status. This Agreement shall not be construed as
creating an employee/employer, agency, partnership, or joint venture
relationship between Seller (or any of its agents or employees) and NBSI or NBSI
Affiliates. Each party shall have the obligation to supervise, manage, contract,
direct, procure, perform or cause to be performed, all work to be performed
under this Agreement and shall be liable for the acts or omissions of their
employees and agents in performing their respective obligations hereunder.
9.02. Change In Personnel. Upon the request of NBSI, Seller agrees to
immediately remove any of Seller's employee(s) or agent(s) performing services
under this Agreement and replace such employee(s) or disabled or handicap
status.
11.02. Compliance. Seller is aware of and fully informed of Seller's
responsibilities and agrees to the provisions under the following: (a) Executive
Order 11246, as amended or superseded in whole or in part, and as contained in
Section 202 of said Executive Order as found at 41 C.F.R. Sections
60-1.4(a)(17); (b) Section 503 of the Rehabilitation Act of 1973 as contained in
41 C.F.R. Sections 60-741.4; and (c) The Vietnam Era Veterans' Readjustment
Assistance Act of 1974 as contained in 41 C.F.R. Sections 60-250.4.
12.0 ORDERING OF EQUIPMENT
12.01. Orders. NBSI may from time to time during the term of this Agreement
submit to Seller written orders ("Order(s)") for Equipment, Installation and/or
Maintenance to be purchased in accordance with the terms and conditions set
forth herein. Maintenance shal1 be provided in accordance with the criteria
established in EXHIBIT C. Such Maintenance may be automatically provided to NBSI
by Seller pursuant to a schedule identified at the signing of this Agreement, or
may be dispatched to NBSI upon NBSI's request for Maintenance which may be
provided to Seller.
12.02. Changes. NBSI may require reasonable changes in the Orders for Equipment,
Installation and/or Maintenance consisting of additions, deletions or
modifications. If NBSI requests such changes, then the price of the changed
Equipment, Installation and/or Maintenance and any resulting alteration in the
delivery and Installation and/or Maintenance schedule(s) shall be adjusted as
reasonably agreed by the parties hereto. A change will not be deemed reasonable
if such change negatively impacts installation or implementation deadlines
previously agreed to by the parties.
12.03. Delivery. Each Order shall specify the type and quantity of Equipment
desired, the required date of delivery ("Delivery Schedule") and designated
delivery location ("Destination")
12.04. Representatives. Seller shall designate an employee and NBSI shall
designate employee(s) ("Representative(s)") to act on each respective party's
behalf with regard to matters arising under this Agreement; however, such
authority does not include the authority to alter or amend any term, condition,
or provision of this Agreement. Thereafter, either party may change their
respective Representative by providing the other party prior written notice.
12.05. Construing Documents. All instruments ("Instruments") such as purchase
orders, delivery receipts, plans, drawings, Equipment Specifications and
Installation requirements and the like used in conjunction with Agreement shall
be for the sole purpose of defining quantities, prices and description of the
services or
4
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Equipment to be provided hereunder, and to this extent only are incorporated as
a part of this Agreement. Any terms and conditions included in Instruments
beyond the purposes of Instrument stated above shall not be incorporated and in
no event shall such Instrument be construed to modify, amend, or alter the terms
of this Agreement.
13.0 DELIVERY
13.01. Packaging. All Equipment must be packaged in accordance with industry
standards. Packing lists shall be enclosed in each box or package shipped
pursuant to an Order, indicating the contents therein.
13.02. Shipment. Seller shall ship all Equipment *eight prepaid, F.O.B.,
Destination, unless otherwise stated. Where NBSI has so authorized in writing,
Equipment may be shipped F.O.B. shipping point, but Seller shall prepay all
shipping charges, route the Equipment by the least expensive common carrier
which can guarantee delivery in accordance with mutually agreed upon deadlines,
if a carrier is not specified on the Order.
13.03. Deliveries. NBSI reserves the right to reject C.O.D. shipments and shall
not be held liable for any Seller delivery expenses associated with same.
13.04. Destination Inspection. Seller shall have the opportunity to perform an
inspection of the Destination prior to coordinating delivery with NBSI's
Representative. Any unfavorable conditions discovered at Destination or
additional work recommended by Seller as a result of its inspection shall be
immediately reported to NBSI's Representative, along with Seller's proposed
price for correcting said unfavorable conditions or performing said additional
tasks. Seller shall not be entitled to any consideration for additional services
required as a result of Seller's negligence in or failure to adequately inspect
Destination.
13.05. Scheduling Delivery. Seller shall schedule delivery of the Equipment with
NBSI's Representative, identifying in advance services required from NBSI such
as elevator service, hoist facilities, light and other power necessary for
Seller to complete delivery and Installation. NBSI's Representative shall
coordinate Seller's work with other contractors present at the Destination
during Seller's delivery and Installation activities. Seller agrees that NBSI's
Representative shall have sole authority to resolve any work related dispute
arising between Seller and such other NBSI contractors during delivery and
Installation.
13.06. Unloading Equipment. Unless otherwise agreed prior to delivery, Seller
shall be solely responsible for providing all equipment, tools and labor to
accomplish unloading of the Equipment at the Destination specified by the Order,
unpacking of the Equipment and the performance of Installation as further
defined hereunder.
13.07. Delivery Responsibilities. Delivery responsibilities of Seller include,
but are not limited to, unloading the Equipment at the correct location at
Destination, verification of delivery of the Equipment on packing list,
inspection of the Equipment at the time of delivery and reporting of damage,
defects, missing or incorrect items ("Discrepancies") to NBSI's Representative
within ten (10) calendar days of delivery and in the event any of the
Discrepancies are anticipated to result in a variance in the Delivery Schedule
specified by Order, Seller shall so advise NBSI.
14.0 INSTALLATION
14.01. Installation Responsibilities. Unless otherwise stated in NBSI's Order,
Seller shall be solely responsible for providing all equipment, tools, materials
and labor required for installation of the Equipment at Destination
("Installation"). Seller's Installation responsibilities shall include, but are
not limited to, removal from shipping containers, complete assembly, alignment
and adjustment of the component parts of the Equipment in accordance with the
Specifications, which may also include disassembly, reassembly or removal of
existing NBSI equipment.
14.02. Installation Schedule. Seller shall commence any Installation of
Equipment immediately upon Seller's completion of delivery, unless otherwise
mutually agreed. The amount of time required for Seller's Installation shall be
taken into consideration when scheduling delivery with NBSI's Representative.
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14.03. Testing. Upon completion of Installation, Seller shall conduct such tests
and/or Seller inspections of the Equipment as to reasonably satisfy Seller that
the Equipment is properly installed and operable. Upon satisfactory completion
of such tests and/or inspection, Seller shall promptly notify NBSI that
Installation is complete and the Equipment is functioning as warranted.
14.04. Procedures. Seller shall perform Installation in a manner which keeps
Destination safe and free from accumulation of Seller's debris and waste at all
times. Seller shall remove all debris and waste material from
Destination after completion of Installation.
14.05. Third Party Installation. NBSI reserves the right to Order Equipment from
Seller which NBSI or third parties retained by NBSI may install. In such an
event, Seller shal1 be relieved of its obligations for Installation hereunder,
however, Seller shall not be relieved of any of its other obligations under this
Agreement and shall not limit any of NBSI's rights and remedies with regard to
warranties and representations of the Equipment.
15.0 ACCEPTANCE
15.01. Risk of Loss. Regardless of F.O.B. point, Seller shall bear all risk of
loss, injury, or destruction of the Equipment Ordered pursuant to this Agreement
which occurs prior to Acceptance by NBSI, excluding that which is directly
attributable to NBSI's gross negligence or willful misconduct. Title to the
Equipment will not pass to NBSI until Acceptance by NBSI.
15.02. Acceptance Criteria. Upon Seller's notification to NBSI's Representative
that Installation is complete, Seller shall conduct for the NBSI Representative
such inspections or test of the Equipment which verify that the Equipment is
complete and properly installed and operable in accordance with the
Specifications (the "Inspection"). Seller and NBSI's Representative shall
jointly prepare a list of any Discrepancies discovered during Inspection. NBSI
may then either: (a) reject the Equipment, or (b) accept the Equipment but
obtain a refund of payments, a credit against future payments, or a recovery of
damages sufficient to compensate NBSI for the diminution in the value of
Equipment and other damages resulting from the nonconformity or failure, or (c)
require Seller to correct the Discrepancies within a time frame mutually agreed
upon. Upon Seller's notification of correction of Discrepancies, the Inspection
will be rescheduled and shall begin once again.
15.03. Acceptance Certification. Upon satisfactory completion of the Inspection
and correction of any Discrepancies, the NBSI Representative shall execute and
delivery to Seller a written document certifying NBSI's acceptance of the
Equipment ("Acceptance") and Seller shall provide to NBSI three (3) complete
sets of manuals or other materials, such as operating, maintenance, and
installation documentation available for the Equipment ("Documentation").
15.04. Rejected Equipment. Equipment rejected by NBSI, which rejection shall not
be unreasonable, shall be held, disassembled, packaged, transported, and or
stored at Seller's sole expense. NBSI agrees to use all reasonable means to
mitigate such Seller expenses, and Seller agrees to promptly reimburse NBSI upon
receipt of an invoice for same.
15.05. No Implied Acceptance. There shall be no implied NBSI Acceptance of
Equipment under this Agreement.
16.0 MAINTENANCE
16.01. Warranty Period Maintenance. For the duration of the Warranty Period,
which applies only if NBSI purchases the extended warranty on the Equipment at
the cost set forth on Schedule A to Exhibit C, Seller will provide NBSI with
maintenance services ("Maintenance") as more fully described on the attached
Maintenance Schedule, EXHIBIT C, for the Equipment identified in the Equipment
Schedule, including any customizations provided by Seller to NBSI. Thereafter,
Maintenance may be obtained by NBSI by payment of Seller's then current
maintenance fee for the Equipment ("Maintenance Fee").
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16.02. On Going Maintenance. Upon expiration of the Warranty Period and
payment of the Maintenance Fee, Seller shall provide NBSI with Maintenance in
accordance with the terms and conditions set forth in the Maintenance
Schedule, EXHIBIT C.
17.0 CONFIDENTIALITY
17.01. Definition. When used in this Agreement, the term "Confidential
Information" shall mean this Agreement, all Proprietary Information (as defined
below) and all data, trade secrets, business information and other information
of any kind whatsoever which (a) has been disclosed to either party, or to which
either party has access, in connection with the negotiation and performance of
this Agreement, and (b) relates to (i) the other party, (ii) in the case of
Seller, the NBSI Affiliates and their customers, or (iii) third party vendors or
licensors which have made confidential or proprietary information available to
NBSI or an NBSI Affiliate.
17.02. Proprietary Information. When used in this Agreement, the term
"Proprietary Information" shall mean all work performed under this Agreement and
all work product resulting from such work, including, without limitation, all
data, designs, software, programs, card decks, tapes, ideas, concepts,
techniques, inventions, proprietary rights, modifications and enhancements,
together with all applicable rights to patents, copyrights, trademarks and trade
secrets.
17.03. Non-Disclosure. Each of the parties on behalf of itself and its
employees, officers, directors, affiliates and agents, hereby agrees that
Confidential Information will not be disclosed or made available to any third
party, agent or employee for any reason whatsoever, other than with respect to:
(a) its employees on a "need to know" basis; (b) subcontractors and other third
parties specifically permitted under this Agreement, on a "need to know" basis,
provided that all such parties are subject to a confidentiality agreement which
shall be no less restrictive than the provisions of this Section (in favor of
NBSI and NBSI Affiliates and in form and substance satisfactory to NBSI); (c)
independent contractors, agents, and consultants hired by NBSI, provided that
NBSI uses reasonable efforts to cause such parties to maintain the
confidentiality of Seller's Confidential Information; and (d) as required by law
or as otherwise permitted by this Agreement, either during the term of this
Agreement or after the termination of this Agreement, provided that, prior to
any disclosure of either party's Confidential Information as required by law,
the party subject to the requirement shall (i) notify the other party of all, if
any, actual or threatened legal compulsion of disclosure, and any actual legal
obligation of disclosure immediately upon becoming so obligated, and (ii)
cooperate with the other party's reasonable, lawful efforts to resist, limit or
delay disclosure.
17.04. Exceptions. Nothing in this Section shall prohibit or limit either
party's use of information or data: (a) that can be demonstrated to have been
previously known to it, other than through its relationship with the other
party, without a confidentiality restriction on the use of such information,
(b) independently developed by it, as established by written evidence, (c)
rightfully acquired by it from a third party with full legal right to disclose
such information, (d) disclosed without similar restrictions by the party that
disclosed such Confidential Information pursuant to this Agreement to a third
party, (e) approved for disclosure by the affected party pursuant to this
Agreement, or (f) which becomes part of the public domain through no breach of
this Agreement.
17.05. Return of Confidential Information. Upon the request of the other party
at the termination of this Agreement, or at any other time, each party shall
return all Confidential Information in the possession of such party or in the
possession of a third party (over which such party has or may exercise contro0.
17.06. Injunctive Relief In the event of any breach of the obligations under
this Section, each party acknowledges that the other party would have no
adequate remedy at law, since the harm caused by such a breach would not be
easily measured and compensated for in damages, and that in addition to such
other remedies as may be available to the other party, the other party may
obtain injunctive relief including, but not limited to, specific performance.
17.07. Publicity. All media releases, public announcements and public
disclosures by either party, or their employees or agents, relating to this
Agreement or the name of NBSI, any NBSI Affiliate or Seller, including, without
limitation, promotional or marketing material, but not including any
announcement intended solely for internal distribution by the releasing party or
any disclosure required by legal, accounting or regulatory
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requirements beyond the reasonable control of the releasing party, shall be
coordinated with and approved by the other party in writing prior to the release
thereof.
17.08. Survival. The provisions of this Section shall survive the term or
termination of this Agreement for any reason.
18.0 SECURITY
18.01. Definition. Seller understands that NBSI and NBSI Affiliates operate
under various laws and federal regulatory agencies that are unique to the
security sensitive banking industry. As such, persons engaged by Seller to
provide services under this Agreement are held to a higher standard of conduct
and scrutiny than in other industries or business enterprises. Seller
understands and acknowledges that its employee(s) ("Employee(s)") shall possess
appropriate character, disposition and honesty conducive to the environment
where services are provided under this Agreement. Seller shall, to the extent
permitted by law, exercise reasonable and prudent efforts to comply with the
Security provisions of this Agreement.
18.02. Access. Seller shall not knowingly permit an Employee(s) to have access
to the premises, records or data, or to engage in the conduct of the banking
affairs of NBSI or NBSI Affiliates when such Employee(s): (a) has been convicted
of a crime or has agreed to or entered into a pretrial diversion or similar
program in connection with (i) a dishonest act or a breach of trust, as
stipulated under Section 19 of the Federal Deposit Insurance Act, 12 U.S.C.
1829(a); and/or (ii) a felony; (b) uses illegal drugs.
18.03. Compliance. Upon written request from NBSI, Seller shall provide evidence
of Seller's actions to comply with the above provisions for its Employee(s).
18.04. Notification. NBSI shall notify Seller of any act of dishonesty or breach
of trust committed against NBSI or NBSI Affiliates which may involve an
Employee(s) and Seller shall notify NBSI if it becomes aware of any such
offense. Following such notice, at the request of NBSI and to the extent
permitted by law, Seller shall cooperate with investigations conducted by or on
behalf of NBSI or NBSI Affiliates. Such cooperation may include access to
Seller's Employee(s) for personal interviews related to such investigations. In
addition, at the request of NBSI, Seller shall conduct its own investigations
into the activities of said Employee(s),which may include polygraph examinations
when permitted by law and not specifically prohibited by existing collective
bargaining (Union) agreements or state statutes, with the results of such
investigations and all files and records related thereto being made available to
NBSI.
18.05. Internal Controls. Seller shall cooperate with the internal operating
controls and security processes of NBSI and NBSI Affiliates where products
and/or services are provided under this Agreement.
19.0 INDEMNIFICATION
19.01. Indemnification. Seller shall indemnify, defend, and hold harmless NBSI
and the NBSI Affiliates and their respective officers, directors, employees,
agents, successors and permitted assigns from and against any and all claims
made, or asserted, or threatened by any third party and all related losses,
expenses, damages, costs and liabilities, including reasonable attorneys' fees
and expenses incurred in investigation or defense, arising out of or related to
the following: (a) any act or omission by Seller, its employees and agents or
any Subcontractor engaged by Seller in the performance of Seller's obligations
under this Agreement or otherwise; (b) any material breach in a representation,
covenant or obligation of Seller contained in this Agreement; (c) any claims
that, in using the goods or services provided to NBSI under this Agreement, NBSI
or an NBSI Affiliate has infringed the proprietary rights of any third party; or
(d) Seller's relationship with its employees, agents or Subcontractors or its
capacity as an employer. NBSI and its Affiliates acknowledge that manufacturers
of the Equipment are not subcontractors of Seller.
19.02. Infringement Claims. In the event of a claim for infringement arises from
any Seller supplied software or firmware, Seller agrees to use all reasonable
efforts to obtain for NBSI the right of continued use of such software or
firmware, to modify same to render it non-infringing, or to replace it with
another product of equal or greater speed and functionality acceptable to NBSI.
In the event Seller cannot obtain the right of continued use or find an
acceptable replacement product, Seller shall make a complete refund to NBSI of
all monies paid
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by NBSI for the infringing product, which if it renders the Equipment unusable
by NBSI, shall include all monies paid by NBSI for the affected Equipment,
without regard to the extent of use.
20.0 DAMAGES
20.01. Certain Recoverable Damages. Damages recoverable under this Agreement
shall include, without limitation, costs, expenses, losses and injuries incurred
or suffered by (a) NBSI or an NBSI Affiliate, as a result of an act, omission,
breach, breach of warranty, non-performance or misrepresentation of Seller; or
(b) NBSI, on account of claims made against NBSI by an NBSI Affiliate, or
payment of claims made by NBSI to an NBSI Affiliate, to the extent that such
claims or payments result (directly or indirectly) from an act, omission,
breach, breach of warranty, non-performance or misrepresentation of Seller.
20.02. Consequential Damages. Neither Seller nor NBSI shall be liable for those
consequential damages which consist of lost profits or loss of goodwill;
provided, however, that the limitations set forth in this Section shall not
apply to or in any way limit Seller's indemnity obligations under this
Agreement.
20.03. Enforcement Expenses. If either party employs an attorney or commences
legal or arbitral proceedings to enforce the provisions of this Agreement, the
prevailing party shall be entitled to recover from the other, reasonable costs
incurred in connection with such enforcement, including but not limited to,
attorney's fees and costs of investigation and litigation/arbitration.
21.0 INSURANCE
21.01. Requirements. Seller shall, and shall require its Subcontractors to,
secure and maintain, at its own expense, throughout the entire term of this
Agreement, the following insurance with companies satisfactory and acceptable to
NBSI and shall furnish to NBSI certificates evidencing such insurance prior to
commencing work. Said certificates shall contain a provision whereby the policy
and/or policies shall not be canceled or altered without at least thirty (30)
calendar days prior written notice to NBSI.
a) Worker's Compensation/Employers' Liability. Worker's Compensation Insurance
which shall fully comply with the statutory requirements of all applicable state
and federal laws and Employers' Liability Insurance which limit shall be
$100,000 per accident for Bodily Injury and $100,000 per employee and $500,000
for disease. Seller and its underwriter shall waive subrogation against NBSI.
b) Commercial General Liability. Commercial General Liability Insurance with a
minimum combined single limit of liability of $1,000,000 per occurrence per
location and $1,000,000 aggregate for bodily injury and/or death and/or property
damage and/or personal injury. This shall include products/completed operations
coverage and shall also include Broad Form Contractual specifically covering
this Agreement. Further, NBSI is to be added as an Additional Insured on this
policy with respect to operations covered under this Agreement.
c) Fidelity Bond. Seller shall be responsible for loss to bank property and
customer property, directly or indirectly, and shall maintain Fidelity Bond
coverage for the dishonest acts of its employees in a minimum amount of
$100,000. NBSI shall be named as "Loss Payee, As Their Interest May Appear," on
this Fidelity Bond.
22.0 MINORITY BUSINESS DEVELOPMENT INITIATIVE 22.01. Initiative. Seller
recognizes the NationsBank Minority Business Development Initiative supporting
Minority and Women-Owned Business Enterprises and is committed, to the maximum
extent practicable, participation with minority and women owned business
enterprises in its construction, procurement, and professional services
programs.
22.02. Definitions. For purposes of this Agreement, the following are the
definitions of "Minority-Owned Business Enterprise" and "Women-Owned Business
Enterprise ":
a) "Minority-Owned Business Enterprise" is recognized as a "for profit"
enterprise, regardless of size, physically located in the United States or its
trust territories, which is at least fifty-one percent (51%) owned, operated and
controlled, by one or more member(s) of a "Minority Group" who maintain United
States citizenship.
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"Minority Group" is recognized as Black Americans, Hispanic Americans, Native
Americans (American Indians, Eskimos, Aleuts, and native Hawaiians),
Asian-Pacific Americans, and other minorities as recognized by the United States
Small Business Administration Office of Minority Small Business and Capital
Ownership Development.
b) "Women-Owned Business Enterprise" is recognized as a "for profit" enterprise,
regardless of size, located in the United States or its trust territories, which
is at least fifty-one percent (51%) owned, operated and controlled by a female
of United States citizenship.
c) To qualify as a Minority or Women-Owned Business Enterprise ("M/WBE") under
this Agreement, the M/WBE must be certified by an agency acceptable to NBSI.
23.0 PRICING/FEES 23.01. Prices. The price of the Equipment and the Maintenance
Fees shall be as set forth on EXHIBIT A hereto.
23.02. Installation Prices. The price for Seller's Installation of the Equipment
at Destination shall also be included on EXHIBIT A, either separately or
included in the Equipment prices. Seller acknowledges that the price of the
Installation as included in EXHIBIT A is sufficient to cover all foreseeable
risks, hazards and difficulties inherent in installation work of this nature.
23.03. Prices Not Listed. The price for services and equipment not listed on
EXHIBIT A which are hereafter required as a result of unforeseen events and/or
conditions shall be mutually agreed to in writing between NBSI and Seller prior
to Seller's performance of same.
23.04. Price Reductions. If Quoted Prices for the Equipment and Installation
covered by this Agreement are reduced (whether in the form of price reduction,
close-out, rebate, allowances or additional discounts offered to another
customer of Seller under terms and conditions similar to this Agreement) at or
prior to the time of any delivery of Equipment or Installation pursuant to this
Agreement, the price to NBSI for such products will be reduced, and NBSI shall
be billed accordingly.
23.05. Price Increases. The prices listed on EXHIBIT A (the "Quoted Prices") may
not be increased for a period of twelve (12) months from the date of this
Agreement. Thereafter, Quoted Prices may only be increased by the mutual written
agreement of NBSI and Seller one time only during any twelve (12) month period.
Seller shall provide sixty (60) calendar day prior written notice of any
proposed price increases.
24.0 INVOICES/TAXES/PAYMENT
24.01. Invoices. Invoices are to be submitted by Seller to the address set forth
below. Invoices without reference to this Agreement reference number or Order or
listing Equipment that was not requested in writing by NBSI will not be paid but
will be returned to Seller.
Invoice Address: Patricia Panels
NationsBank Card Services
2 Commercial Place
9th Floor, VA6-03
Norfolk, VA 23510
24.02. Itemized Invoices. Unless otherwise specified, invoices shall include and
list all applicable taxes as a separate item. NBSI shall pay Seller for all
Equipment and/or Installation and applicable taxes invoiced in accordance with
the terms of this Agreement, within thirty (30) calendar days of the date of
receipt of invoice.
24.03. Taxes. NBSI will reimburse Seller for all sales, use or excise taxes
levied on amounts payable by NBSI to Seller pursuant to this Agreement, provided
that NBSI shall not be responsible for remittance of such taxes to applicable
tax authorities. NBSI shall not be responsible for any ad valorem, income,
franchise, privilege, value added or occupational taxes of Seller. Seller shall
cooperate with NBSI's efforts to identify taxable and nontaxable portions of
amounts payable pursuant to this Agreement (including segregation of such
portions
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on invoices) and to obtain refunds of taxes paid, where appropriate. NBSI may
furnish Seller with certificates or other evidence supporting applicable
exemptions from sales, use or excise taxation.
24.04. Completion of Work. NBSI's payments, if any, for Equipment, Installation
and/or Maintenance prior to the completion or delivery of such shall not
diminish Seller's obligations hereunder and shall not constitute a waiver of
NBSI's rights or remedies hereunder.
25.0 RETENTION OF RECORDS/AUDIT
25.01. Record of Maintenance Services. Seller shall maintain appropriate records
to substantiate charges to NBSI for all Maintenance services and parts provided
by Seller. Such records shal1 include a maintenance log for each item of
Equipment, containing at least the following:
a) Equipment Identification. Type and serial number(s) of each item of Equipment
receiving maintenance service.
b) Preventive Maintenance Time. Date and time of arrival and departure of
Seller's personnel for Preventive Maintenance.
c) Equipment Failure Notification. Date and time of notification by NBSI to
Seller of an Equipment failure under which NBSI requests Remedial Maintenance.
d) Maintenance Performed. A description of the Maintenance Services performed.
e) Seller Time. The time spent by Seller personnel on each maintenance call.
f) Charges. Additional charges, if any.
25.02. Logging of Services Performed. Each service performed shal1 be logged and
shall be signed by Company's Representative and, when so required by NBSI, by
NBSI's Representative at the time of completion.
25.03. Retention of Records. For a period of not less than two (2) years after
the termination of this Agreement, Seller shall maintain at no additional cost
to NBSI, in a reasonably accessible location, all material data, files and
records pertaining to its performance under this Agreement and to charges and
costs paid or payable by NBSI under this Agreement.
25.04. Audit. Throughout the term of this Agreement and for two (2) years
thereafter, all of the Seller's data, files and records referenced above may be
inspected, audited and copied by NBSI, its duly authorized agents,
representatives or employees or by federal or state agencies having jurisdiction
over NBSI or an NBSI Affiliate, at such reasonable times as NBSI may determine.
26.0 TERMINATION
26.01. Termination Without Cause. NBSI may terminate this Agreement at any time
by providing Seller with forty-five (45) calendar days prior written notice
indicating an intent to terminate.
26.02. Termination Upon Default. In addition to any other remedies available to
either party in law or equity or under this Agreement, upon the occurrence of a
Termination Event (as defined below) with respect to either party, the other
party may immediately terminate this Agreement by providing written notice of
its intent to terminate.
26.03. Termination Event. A Termination Event shall be deemed to have occurred
if either party: (a) shall commit a material breach of its obligations under
this Agreement, and the breach shall remain uncured for a period of thirty (30)
calendar days after written notice of the breach is provided to the other party;
(b)shall become insolvent, or generally unable to pay its debts as they become
due, or shall become the subject of a bankruptcy, conservatorship, receivership
or similar proceeding, or shall make a general assignment for the benefit of its
creditors;(c) shall commit a fraudulent act against the other party;(d) shall
fail to comply with any material law, statute, rule or regulation applicable to
such party; or (e) in the case of Seller, shall either
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(i) merge with another entity, (ii) suffer a transfer involving fifty percent
(50%) or more of any class of its voting securities, or (iii) transfer all, or
substantially all, of its assets.
26.04. Survival. Sections 6.01, 6.03, 6.06, 16.01 and 16.02 and Articles 16, 17,
19, 20 and 25 shall survive the termination of this Agreement.
27.0 NOTICES
27.01. All material notices or other communications or notices required under
this Agreement shall be given to the parties in writing as follows: (a) by first
class, registered or certified United States mail, return receipt requested and
postage prepaid to the applicable addresses below, or to such other addresses as
the parties may substitute by written notice given in the manner prescribed in
this Section; (b) by hand delivery, including courier service delivery, to such
addresses; or (c) by facsimile machine transmission, to the numbers provided
below:
If to NBSI: If to Seller:
Richard A. McClure Tracey Barnes
127 N. Tryon Street, NC1-01 11032 Quail Creek Road, Suite 108
Charlotte, NC 28266 Oklahoma City, OK 73120
Phone: (704) 386-3043 Phone: (406) 762-6660
Facsimile: (704) 386-8213 Facsimile: (406) 762-6606
27.02. Receipt. Such notices shall be deemed to have been duly given either
three (3) calendar days after the date of mailing as described above, or one (1)
calendar day after being given to an express courier or when sent by facsimile
and receipt confirmed.
28.0 ASSIGNMENT
28.01. Assignment. Neither party may assign this Agreement or any of the rights
or obligations under this Agreement without the prior written consent of the
other party, and any such attempted assignment shall be void. Notwithstanding
the foregoing however, NBSI may assign any of its rights and obligations under
this Agreement to an NBSI Affiliate, the surviving corporation with or into
which NBSI may merge or consolidate, or an entity to which NBSI transfers all,
or substantially all, of its business and assets and Seller may assign any of
Seller's rights and obligations under this Agreement to a Seller subsidiary.
28.02. Third Party Beneficiaries. Subject to this Section, this Agreement shall
be binding upon, and inure to the benefit of, the parties and their respective
successors and assigns. Except as specifically set forth in this Agreement, the
parties do not intend the benefits of this Agreement to inure to any third
party, and nothing contained herein shall be construed as creating any right,
claim or cause of action in favor of any such third party, against either of the
parties hereto.
29.0 ARBITRATION
29.01. Binding Arbitration. Any controversy or claim between or among the
parties hereto shall be determined by binding arbitration in accordance with the
Federal Arbitration Act (or if not applicable, the applicable state law), the
Rules of Practice and Procedure for the Arbitration of Commercial Disputes of
Judicial Arbitration and Mediation Services, Inc./Endispute, Inc.
("J.A.M.S./Endispute"), and if J.A.M.S./Endispute is unable or legally precluded
from administering the arbitration, then the American Arbitration Association
("AAA") will serve.
29.02. Judgments. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Any party to this Agreement may bring an action,
including a summary or expedited proceeding, to compel arbitration of any
controversy or claim to which this Agreement applies in any court having
jurisdiction over such action in the Governing State set forth herein.
29.03. Procedures. Upon receipt of demand for arbitration from either NBSI or
Seller, J.A.M.S./Endispute or AAA as applicable shall use its best efforts to
appoint an arbitrator and notify NBSI and Seller of such appointment within
fifteen (16) calendar days and further to commence arbitration within ninety
(90) calendar
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days. Any NBSI or Seller demand for arbitration shall include detail sufficient
to establish the nature of the dispute and shall be delivered to the other party
concurrent with delivery to J.A.M.S./Endispute or AAA.
29.04. Other Remedies. Nothing in this Section shall limit the right of either
Seller or NBSI to obtain from a court provisional or ancillary remedies such as,
but not limited to, injunctive relief, or the appointment of a receiver, before,
during or after the pendency of any arbitration proceeding brought pursuant to
this Agreement.
30.0 APPLICABLE LAW
30.01. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of North Carolina ("Governing State"). Each party hereby
submits to the jurisdiction of such courts, and waives any objection to venue
with respect to actions brought in such courts in the Governing State.
31.0 MISCELLANEOUS
31.01. Correspondence. Where notice, approval or similar action by either party
is permitted or required by any provision of this Agreement, such action shall
not be unreasonably delayed or withheld.
31.02. Complete Agreement. This Agreement, including EXHIBITs and all materials
attached hereto or referenced herein, constitute the entire agreement of NBSI
and Seller with respect to the subject matter of this Agreement and any
agreement(s) between Seller and NBSI or any NBSI Affiliate with respect to the
subject matter is hereby superseded and shall hereafter have no force or effect.
Other than those remedies specifically disclaimed in this Agreement, all
remedies set forth in this Agreement shall be in addition to all other remedies
available under this Agreement or at law or in equity.
31.03. Amendment and Waivers. This Agreement may not be modified, waived or
amended unless mutually agreed to in writing by the parties hereto.
31.04. Caption References and Headings. All section headings in this Agreement
are for convenience or reference only and are not intended to define or limit
the scope of any provision of this Agreement.
31.05. Severability. If any provision of this Agreement shall be held invalid
for any reason, then such provision shall be severed from the remaining
provisions of this Agreement and shall not affect the validity or enforceability
of the other provisions of this Agreement, unless the invalidity of any such
provision deprives any party of the economic benefit intended to be conferred by
this Agreement.
31.06. Waiver. Any waiver by either party of any provision of this Agreement
shall not imply a subsequent waiver of that or any other provision, and any
failure to enforce strict performance of any provision of this Agreement shall
not be construed as a waiver or relinquishment to enforce strict performance in
respect to such provision on any future occasion.
31.07. Construction. Notwithstanding the general rules of construction, both
NBSI and Seller acknowledge that both parties were given an equal opportunity to
negotiate the terms and conditions contained in this Agreement, and agree that
the identity of the drafter of this Agreement is not relevant to any
interpretation of the terms and conditions of this Agreement.
31.08. Counterparts. This Agreement may be executed in several counterparts,
each of which when so executed shall be deemed to be an original.
EXECUTED this 29th day of June ,1999.
NBSI: NationsBanc Services, Inc. SELLER: Precis Smart Card Systems, Inc.
BY: /s/Richard A. McClure BY: James B. Lout
PRINTED PRINTED
NAME: RICHARD A. McCLURE NAME: JAMES B. LOUT
TITLE: SENIOR VICE PRESIDENT TITLE: PRESIDENT & CEO
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For more information regarding the negotiation and content of this Agreement,
the following persons may be contacted:
FOR NBSI: FOR SELLER:
[ATTACHED EXHIBITS WILL BE PROVIDED UPON REQUEST ADDRESSED TO PRECIS SMART
CARD SYSTEMS, INC.
EXHIBIT A - EQUIPMENT LIST AND PRICING
EXHIBIT B - PERFORMANCE EXPECTATIONS
EXHIBIT C - PERFORMANCE REQUIREMENTS FOR MAINTENANCE SERVICES]
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EXHIBIT 10.5
SMART CARD AGREEMENT
No. 01-1999
Between Precis Smart Card Systems
&
Entertainment Smart Systems
for
Product: PrecisCache-TM-
<PAGE>
SMART CARD SYSTEM AGREEMENT
No. 01-1999
<TABLE>
<CAPTION>
<S> <C>
Section Section Heading
1. Recitals
2. Term of Agreement
3. Precis' Obligations
4. Customers' Obligations
5. Cards
6. Payments
7. Equipment
8. Establishment of Regions
9. Software License
10. Distribution Rights
11. Maintenance and Support
12. Warranties
13. Termination
14. Confidentiality
15. Indemnities and Exceptions
16. Limitation of Liability
17. General
Exhibit A Price List
Exhibit B Destination of Region 1: Orlando
Exhibit B Destination of Region 2: Cancun
Exhibit B DestinationofRegion3: Ixtapa
Exhibit C Equipment Repair for Used Omni 1250 Readers
</TABLE>
<PAGE>
SMART CARD SYSTEM AGREEMENT
No. 01-1999
This Smart Card System Agreement ("Agreement") is entered into by and among
Precis Smart Card Systems, Inc., an Oklahoma corporation ("Precis"), and
Entertainment Smart Systems, Inc., a Florida corporation, ("Customer"), as of
July 8, 1999 (the "Effective Date"). Precis and Customer hereby agree as
follows:
1. RECITALS. Precis is an integrated circuit card or "smart card,"
application development from which has developed applications for smart cards
using a proprietary closed-area stored-value system called PrecisCache-TM-.
Customer coordinates travel and entertainment packages for a variety of resort
areas. Customer desires to have Precis implement a smart card system as a form
of payment for activities, tickets to theme parks, restaurants, and other
entertainment available in specific geographic locations as determined in the
manner set forth herein ("Regions").
2. TERM OF AGREEMENT. This Agreement shall apply and remain in
effect for five (5) years from the Effective Date, unless sooner terminated
as provided herein. Following the initial term, this Agreement shall
automatically renew for annual periods of one (1) year 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
renewal term.
3. PRECIS' OBLIGATIONS. Precis will implement a smart card system
(the "System") using its PrecisCache-TM- stored-value system for Customer
(the "VentureCard"). The VentureCard will serve as a method of payment to
participating vendors in the Regions as they are established from time to
time. Precis will supply the necessary cards, card readers and an
intermediate controller and printer for each Region office, as well as
installation, testing, certification and training. The System will enable
each Region office to obtain summary reporting of merchant transactions
within such Region. Transaction records will be transmitted from each Region
to Precis via the intermediate controller to the back end server which Precis
will install at its offices. Precis will provide Customer with regular
reports and transaction information in accordance with Customer's reasonable
requests. Precis will maintain the System as set forth in this Agreement and
will be available for training, onsite support and service, specialized
System customization and offsite support and service at the prices set forth
in Exhibit A.
4. CUSTOMER'S OBLIGATIONS. Customer will be responsible for
coordinating participating merchants within each Region and for sales and
distribution of VentureCards to Regions and customers. Customer will provide
each Region office with information regarding sales of VentureCards. Customer
shall cause each Region office to transmit data regarding transactions to Precis
at mutually agreed upon intervals. Customer agrees to actively market and
promote the VentureCard. Customer shall be solely responsible for obtaining any
desired corporate sponsorships. Customer shall be solely responsible for making
payments to participating merchants for goods and services redeemed using the
VentureCard, as well as payment of any sales commissions, marketing and
promotion expenses and payments associated with any corporate sponsorships.
Customer will be responsible for providing its own art and for obtaining any
required consents to use such art. Customer must secure any desired corporate
sponsorships, including all necessary sponsor logos and approvals, and transmit
such documentation in connection therewith as Precis may reasonably require in
accordance with deadlines established by Precis with respect to each printing.
5. CARDS.
5.1 Minimum Purchase Requirements. Customer agrees to purchase a
minimum quantity of 200,000 cards within each four consecutive calendar quarter
period. Precis and Customer agree to review the minimum purchase requirements
according to the Terms Review Structure set forth in Section 17.16.
5.2 Card Specifications. Exhibit A specifies prices for cards having
the following specifications (a) one card design; four colors (front) one color
(back); (b) four unit denominations printed on the back of cards. Any changes to
these specifications may result in an increase in card prices. The following
items will be included in a per card price, as designated in Exhibit A, unless
changes are made as specified in this section (a) design, art charges, set up,
and printing; (b) initialization, personalization on back of card to include
serial number and card denomination; (c) test cards for engineering evaluation
of system, testing, etc.; and (d) software license. l
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5.3 Precis Logo. PrecisCache"?logo will be printed on the front of
all cards and on the back of the card (one color).
6. PAYMENTS. An initial payment of $25,000 will be due with a copy
of the signed contract. This payment will be applied to the first quarter card
charges. The remaining balance for the first installment of cards, and
applicable charges for equipment, installation, server and transaction
maintenance fees will be invoiced through August 1999 and be due on June 1,
1999. Applicable charges for the goods and services to be provided here under
are set forth in Exhibit A. Following the first six months of charges, quarterly
payments will be due, m advance,20 days net upon receipt of invoice from Precis.
Invoices will be sent in the following months: August, November, February, May.
Customer must make applicable payments at least two (2) weeks prior to shipment
of each quarterly card order. Goods and services to be invoiced separately are
set forth in Exhibit A, and will be due, 10 (ten) days upon receipt of invoice.
All payments shall be made to Precis in U.S. Dollars. In the event, Customer
fails to order the minimum number of cards as set forth in Section 5.1, Customer
shall pay an additional amount, due one year from the Effective Date, to be
calculated as follows:
Under 100,000 cards, an additional fee per card of $0.85
Between 100,000 and 124,999 cards, an additional fee per card
of $0.72
Between 125,000 and 149,999 cards, an additional fee per card
of $0.38
Between 150,000 and 174,999 cards, an additional fee per card
of $0.15
Between 175,000 and 199,999 cards, an additional fee per card
of $0.01
7. EQUIPMENT.
7.1 Installation. Precis shall install Omni 1250 Readers (as ordered
by Customer but no fewer than 25 per Region), an intermediate controller and
printer for each Region, and one back end server at Precis' offices (all of such
equipment is collectively referred to herein as the "Equipment") as mutually
agreed by the parties. Following initial installation, Customer can purchase
additional card reader devices in minimum quantities of 10 units per Region.
7.2 Ownership. Customer acknowledges that Precis may be leasing the
Equipment from one or more manufacturers, and Precis' provision of such
Equipment will be subject to the terms of the underlying equipment leases
therefor. Precis reserves the right to substitute other items of Equipment of
like capability and quality at any time. If all applicable payments have been
made to Precis for any item of Equipment, as specified in Exhibit A, Precis
shall use its best efforts to cause such item of Equipment to be conveyed to
Customer at no more than nominal cost, provided, however, that Precis shall not
be under obligation to incur more than nominal expenses in connection with such
efforts. In the event this Agreement is terminated prior to the conveyance of
all the Equipment to Customer, Precis shall have the right to enter onto the
premises of Customer to remove any Equipment which has not been conveyed.
8. ESTABLISHMENT OF REGIONS. From time to time, Precis and Customer
shall establish the geographic boundaries of Regions by signing and delivering,
each to the other, a Designation of Region substantially in the form of Exhibit
B attached hereto. In order to establish a Region, Customer must agree to the
installation of at least 25 Omni 1250 Readers and an intermediate controller and
printer, and must pay for the installation, testing, certification and training
(up to 15 man days) as set forth on Exhibit A.
9. SOFTWARE LICENSE. Precis hereby grants to Customer the right
to use one copy of the PrecisCache-TM- Software, Version 3.0 (or higher),
including any "online" documentation, on a single intermediate controller and
the VentureCards and Omni 1250 readers provided by Precis for use within each
properly established Region. Customer shall have no right to use the
PrecisCache-TM- Software other than within a Region which is the properly
established in accordance with the terms of this Agreement. The
PrecisCache-TM- Software is in "use" following installation of the System by
Precis. If the PrecisCache-TM- Software is upgraded, you may use or transfer
the PrecisCache-TM- Software only in conjunction with the terms of this
license. The PrecisCache-TM- Software, including any images, animation,
video, audio and text incorporated in the PrecisCache-TM- Software, is owned
by Precis and is protected by United States copyright
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laws and international treaty provisions. Neither the PrecisCache-TM-
Software nor the printed materialaccompanying the PrecisCache-TM- Software may
be reproduced without the permission of Precis. Customer may not lease or
otherwise assign the PrecisCache-TM- Software to any other person without the
prior written consent of Precis. Any approved transfer must include the most
recent upgrade and all prior versions provided to Customer by Precis. Customer
may not reverse engineer, decompile, or disassemble the Software, except to the
extent such foregoing restriction is expressly prohibited by applicable law.
This license shall expire on the expiration of the Agreement. Upon expiration,
Customer must cease using the PrecisCache-TM- Software and destroy all copies
thereof, including archival or backup copies. Use of the PrecisCache-TM-
Software by the United States Government is subject to restrictions as set forth
in subparagraph (c)(l)(ii) of the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013 or subparagraphs (c)(l) and (2) of the Commercial
Computer Software Restricted Rights at 48 CFR 52.227.19, as applicable. Precis
is the manufacturer of the PrecisCache-TM- Software.
10. DISTRIBUTION RIGHTS.
10.1 OWNERSHIP. Precis shall retain ownership of the Confidential
Information of Precis (as hereinafter defined), the PrecisCache-TM- Software,
the Precis trademarks and service marks and all intellectual property rights
therein.
10.2 DISTRIBUTION. Precis grants to Customer a nonexclusive,
nontransferable right to distribute VentureCards which are activated for use
within each properly established Region. Customer agrees to use the Precis
trademark on Customer's packaging of Precis smart cards and m all advertisements
and printed materials for the Precis smart cards, in accordance with
requirements set forth from time to time by Precis and subject to Precis'
approval. Not withstanding that VentureCards may only be activated for use
within properly established Regions, Customer shall have the right to sell
VentureCards within or outside of the Regions.
10.3 PURCHASE AGREEMENTS. Prior to delivery of any Precis smart cards
to any purchaser, Customer or its subdistributors must enter into an enforceable
written agreement with such purchaser that contains a disclaimer of any and all
warranties by or liabilities of Precis and its suppliers and expressly names
Precis and its suppliers as intended third party beneficiaries with the right to
rely on and directly enforce the terms thereof. Upon Precis' request, Customer
shall provide Precis with a copy of each of Customer's agreements with
subdistributors and purchasers of the Precis smart cards and a copy of standard
forms of such agreements developed by Precis.
10.4 [Deleted]
11. MAINTENANCE AND SUPPORT.
11.1 Program Errors. "Program Error" means a reproducible defect or
combination of defects in the PrecisCache-TM- Software that results in a failure
of such software to substantially function when used in accordance with Precis'
instructions and on the hardware platforms and operating systems specified by
Precis to be compatible with the software. Program Errors do not include any
errors (i) created or introduced by Customer when reproducing the
PrecisCache-TM- Software, (ii) caused by the negligence of Customer, (iii)
occurring in PrecisCache-TM- Software or equipment modified or altered by
persons other than Precis or Precis' authorized subcontractors or agents, (iv)
occurring due to data that does not conform to Precis' specified data format,
(v) occurring upon use of the PrecisCache-TM- Software on any system other than
the hardware platforms or operating systems specified by Precis to be compatible
with the PrecisCache-TM- Software, or (vi) resulting from operator error,
accident or misuse.
11.2 PrecisCache-TM- Software or User Utility Components. Each Program
Error related to use of the "Program Error" means a reproducible defect or
combination of defects in the PrecisCache-TM- Software that results in a failure
of such software to substantially function when used in accordance with Precis'
instructions and on the hardware platforms and operating systems specified by
Precis to be compatible with the software. Program Errors do not include any
errors (i) created or introduced by Customer when
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reproducing the PrecisCache-TM- Software, (ii) caused by the negligence of
Customer, (iii) occurring in PrecisCache-TM- Software or equipment modified or
altered by persons other than Precis or Precis' authorized subcontractors or
agents, (iv) occurring due to data that does not conform to Precis' specified
data format, (v) occurring upon use of the PrecisCache-TM- Software on any
system other than the hardware platforms or operating systems specified by
Precis to be compatible with the PrecisCache-TM- Software, or (vi) resulting
from operator error, accident or misuse.
11.2 PrecisCache-TM- Software or User Utility Components. Each Program
Error related to use of the PrecisCache-TM- Software that is reported by
Customer must be accompanied or followed by sufficient information to enable
Precis to reproduce and verify the Program Error, including but not limited to
the input data that generated the Program Error. Once Precis has received all
such information, Precis will begin using commercially reasonable efforts,
consistent with the severity of the Program Error, to reproduce and verify the
Program Errors and, if Precis is able to reproduce and verify the Program Error,
to remedy it. Remedies may include, without limitation, providing instructions
for Customer to cure the Program Error or delivering an update. In no
circumstances does Precis represent or warrant that any or r all Program Errors
can or will be remedied. Customer will use its best efforts to assist Precis in
reproducing and verifying all reported Program Errors and will be available to
assist Precis in remedying any Program Error. Precis does not warrant that
operation of the PrecisCache-TM- System will be error free, secure or
uninterrupted, and hereby disclaims all liability on account thereof.
11.3 Training & Support. Precis will provide on free, secure or
uninterrupted, and hereby disclaims all liability on account thereof.
11.3 Training & Support. Precis will provide on site training to
Customer employees and designated merchants at the time of installation of the
system at each Region. Precis will provide training documentation for operation
of cards and readers, as well as operation of the intermediate controller,
located at the Region Office. Customer will designate one representative at each
Region to be Customer's primary contact regarding Precis' support of the system.
Precis will supply 160 hours per year of telephone support to Customer (without
regard to the number of Regions established).
12. WARRANTIES.
12.1 Equipment Warranties. Manufacturer warranties for the Equipment
will be transferred to Customer, as contractually permitted. If the manufacturer
warranties are not transferrable, Precis warrants that the Equipment will be
free of defects in materials and workmanship during the applicable Warranty
Period (as hereinafter defined). This warranty is void if any defect is caused
by abuse or misapplication of the Equipment, whether or not by accident.
Customer's sole and exclusive remedy for any breach of this warranty will be for
Precis to replace or correct the defective Equipment. Any replacement or
corrected Equipment will be subject to the same Warranty Period as the Equipment
it replaced or corrected. The warranty shall not extend to cards or to any
equipment that is not purchased by Precis as new prior to installation m Region,
unless specific consideration is authorized in writing and agreed to by the
parties hereto.
12.2 Warranty Period. The "Warranty Period" applies to all new
Equipment, excluding cards. An extended warranty shall be available for an
additional charge as authorized in writing and agreed to by the parties hereto.
12.3 Remedy. During the Warranty Period, Precis shall at its expense
and sole discretion, repair, replace or correct defective Equipment. Precis'
obligations hereunder shall arise only if Precis' examination of the equipment
in question discloses that claimed defect was not caused by any misuse, neglect,
or any act of God, accident, fire or other hazard. Such repair, replacement or
correction shall include labor and materials. Customer will be responsible for
shipment of equipment one way to designated repair site.
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12.4 Program Error Correction. With respect to the PrecisCache-TM-
Software, Customer hereby acknowledges and agrees that Customer's sole remedy
for any Program Errors, and for any damage, loss or injury resulting therefrom,
shall be those support obligations set forth in Section 11. Customer
acknowledges that under no circumstances does Precis represent or warrant that
all Program Errors can or will be remedied. Precis warrants that support
services provided hereunder shall be performed in a workmanlike manner in
accordance with normal industry standards. PRECIS DOES NOT WARRANT THAT
OPERATION OF THE PRECISCACHE-TM- SOFTWARE WILL BE ERROR PRECISCACHE-TM- SOFTWARE
WILL BE ERROR FREE, SECURE OR UNINTERRUPTED, OR THAT APPLICATIONS DEVELOPED
US1NG THE PRECISCACHE-TM- SOFTWARE WILL BE COMPATIBLE WITH FUTURE VERSIONS OF
PRECIS' TECHNOLOGY, AND HEREBY DISCLAIMS ALL LIABILITY ON ACCOUNT THEREOF.
12.5 Disclaimer. THE EXPRESS WARRANTIES OF PRECIS STATED 1N THIS
SECTION 12 ARE 1N 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. PRECIS EXPRESSLY
DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED REGARDING PRODUCTS OR SERVICES
PROVIDED BY ANY THIRD PARTY IN CONNECTION WITH THE PRECISCACHE"?SOFTWARE. THE
EXPRESS WARRANTY OBLIGATIONS OF PRECISCACHE-TM- INCLUDING, WITHIN 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 PRECISCACHE-TM- SOFTWARE.
13. TERMINATION
13.1 Termination by Precis. Precis will have the right to terminate
this Agreement upon written notice to Customer if (a) Customer fails to perform
any of its obligations under this Agreement; (b) Customer fails to pay any
amounts required under this Agreement and such failure continues for thirty (30)
days after payment is due.
13.2 Termination by Customer. Customer will have the right to
terminate this Agreement upon written notice to Precis within ninety (90)
days of one or both of the actions described below in (a) and (b): if (a)
Precis substantially fails to satisfy its obligations under this Agreement
and such failure is not remedied within thirty (30) days after notice from
Customer of such breach; or (b) in the case that more than fifty percent
(50%) of management in place (including the President, Vice Presidents, and
Senior Managers), as of the Effective Date, is directly terminated by Precis
within six months of one of the following actions: (i) the issuance and/or
transfer of voting securities of Precis such that fifty percent (50%) or more
of such securities are held by persons who are not significant (over 10% of
existing common stock) security holders of Precis as of the effective date;
or (ii) a merger or acquisition resulting in a change of control of the board
of directors of Precis.
13.3 Duties Upon Termination. Upon the expiration or termination of
this Agreement:
(a) Each party shall return or destroy all Confidential Information
(as hereinafter defined) of the other party.
(b) Customer shall immediately pay to Precis all amounts due under
this Agreement or otherwise.
(c) Customer shall pay transaction maintenance monthly fees for as
long as Customer utilizes service beyond expiration or termination of this
Agreement.
14. CONFIDENTIALITY.
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14.1 CONFIDENTIAL INFORMATION. "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 m 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.
14.2 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 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 confidential agreement at least as
extensive as the confidentiality provision of this Agreement; and (b) use such
Confidential Information only for the purposes set forth in this Agreement.
14.3 Certain Exceptions. The obligations set forth in this Section 14
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.
14.4 Advertising and Press Release. 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, Precis may also refer to Customer as Precis'
customer and distributor in Precis' sales and marketing materials and
presentation.
14.5 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 party of such party's
business (whether by merger, sale of assets, sale of stock or otherwise).
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15. INDEMNITIES AND EXCEPTIONS
15.1 Precis Indemnity. Subject to the provisions of this Section 15
and Section 16, Precis shall at its expense defend any action against Custom
or to the extent such action is based on a claim that the PrecisCache-TM-
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 Precis shall pay those damages and costs finally
awarded against Customer m 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 Customer notifying Precis promptly in writing of such action,
Customer giving Precis sole control of the defense thereof (and any
negotiations for monetary settlement or compromise thereof), and Customer
cooperating in the defense thereof at Precis' expense. If any version or
component of the PrecisCache-TM- Software becomes, or in Precis' opinion is
likely to become, the subject of a claim of infringement or misappropriation,
then Customer shall permit Precis, at its option and expense, to (a) procure
the right to continue using such PrecisCache-TM- Software; (b) replace or
modify such PrecisCache-TM- Software so that it becomes non-infringing or no
longer misappropriates; or (c) accept return of such PrecisCache-TM- Software
and terminate this Agreement with no further obligations of Customer to make
payments hereunder, in which case Customer's license to such PrecisCache-TM-
Software will terminate in its entirety. Customer shall not incur any costs
or expenses for the account of Precis under or pursuant to this Section 15
5.1 without Precis' express prior written consent. The foregoing states the
entire liability of Precis for infringement and misappropriation claims and
actions.
15.2 Certain Exceptions; Customer Indemnity. Precis shall have no
liability to Customer under Section 15.1 or otherwise for any action or claim
alleging infringement or misappropriation based upon (a) any use of the
PrecisCache-TM- Software in a manner other than as specified by Precis; (b)
Customer's trademarks; or (c) any alteration, modification or customization of
the PrecisCache-TM- Software by any person other than Precis or its authorized
subcontractors or agents. In the event of an infringement or misappropriation
action or claim against Precis that is based on any of the circumstances or
conduct described in the preceding sentence, Customer shall at its own expense
defend such action or claim, and Customer shall pay any and all damages and
costs finally awarded against Precis in connection with such action or claim, or
those damages and costs agreed in any monetary settlement or compromise of such
action, provided that Precis notifies Customer promptly m writing of such action
or claim. Precis shall have no liability to any participating merchants or
purchasers of VentureCard from Customer, and Customer shall at its own expense
defend any action or claim by such parties and pay any and all damages and costs
finally awarded against Precis in connection with such action or claim, or those
damages and costs agreed in any monetary settlement or compromise of such
action, provided that Precis notified Customer promptly in writing of such
action or claim. Precis gives Customer sole control of the defense of any of the
foregoing actions or claims (and any negotiations for settlement or compromise
thereof), and Precis cooperates in the defense thereof at Customer's expense.
Precis shall not incur any costs or expenses for the account of Customer under
or pursuant to this Section 15.2 without Customer's express prior written
consent.
16. LIMITATION OF LIABILITY
Precis' aggregate liability in connection with this Agreement, the
PrecisCache-TM- Software and the Equipment and services provided by Precis
hereunder, regardless of the form of action giving rise to such liability
(whether in contract, tort or otherwise), and including any liability under
Sections 11 and 15, shall not exceed the aggregate fees paid by Customer to
Precis under this Agreement. Precis shall not be liable for any failure of the
PrecisCache"?Software to provide security. Precis shall not be liable for any
consequential, indirect, exemplary, special, or incidental damages of any kind
(including without limitation lost profits), even if Precis has been advised of
the possibility of such damages, except as provided in Section 15 (but only to
the extent of and subject to the limitation in Section 15), Precis shall not be
liable for any claims of third parties relating to the PrecisCache"?Software or
the Equipment and services provided by Precis hereunder; and Customer shall
defend Precis from, and indemnify and hold Precis harmless against, all such
claims. The foregoing states Precis' entire liability with regard to this
Agreement. These limitations of Precis' liability are a fundamental part of the
basis of Precis' bargain, and Precis would not enter into this Agreement absent
such limitations. Except to the extent of manufacturer warranties which are
validly assigned to Customer, Customer disclaims all liability of any kind of
any Precis supplier in connection with this Agreement.
7
<PAGE>
17. GENERAL
17.1 Taxes. In addition to any other payments due under this
Agreement, Customer shall pay, indemnify and hold Precis harmless from, any
sales, use, excise, import or export, value added or similar tax or duty not
based on Precis' net income, including any penalties and interest, as well as
any costs associated with the collection or withholding thereof.
17.2 Governing Law. This Agreement shall for all purposes be
governed by and interpreted in accordance with the laws of the State of
Oklahoma as those laws are applied to contracts entered into and performed
entirely in Oklahoma by Oklahoma residents. The United Nations Convention on
Contracts for the International Sale of Goods does not apply to this
Agreement.
17.3 Export Control. The PrecisCache-TM- Software is subject to the
export control laws of the United States. Customer must, and shall cause all
of its subdistributors to, (i) comply with all applicable export statutes and
regulations, (ii) require each purchaser to use the PrecisCache-TM- Software
in accordance with all applicable export control laws, statutes and
regulations, and (iii) not permit any other third party to use the
PrecisCache-TM- Software in violation of such export control laws, statutes
and regulations. Customer acknowledges that even if Precis consents to the
use of the PrecisCache-TM- Software outside the United States, (a) Customer
may be required to obtain an export license prior to the export or re-export,
directly or indirectly, of the PrecisCache-TM- Software or any direct product
of the use thereof, or (b) export or re-export to certain countries may be
prohibited. Customer agrees to indemnify and hold Precis and its suppliers
harmless from any claims arising from any breach of this Section by Customer
or any of its directors, officers, employees, subdistributors, customers or
any third party to whom Customer provides access to the PrecisCache-TM-
Software.
17.4 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable for any reason, the
remaining provision 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.
17.5 Modifications. Any modification, amendment, supplement, or other
change to this Agreement must be in writing and signed by duly authorized
representatives of Precis and Customer. As used herein, the term "Agreement"
shall include any such future modifications, amendments, supplements or other
changes hereto.
17.6 Assignments. No right or obligation of Customer 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 Precis and any attempt to assign, delegate or otherwise transfer any
Customer'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.
17.7 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.
17.8 Equitable Remedies. The parties agree that any breach of Section
14 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 Section, in addition to all
other remedies available to the parties.
17.9 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.
8
<PAGE>
17.10 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 Precis, despite its reasonable
efforts, to obtain any United States export license or other approval or
authorization of the United States government for the performance by Precis 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.
17.11 Construction. The headings and subheadings contained herein shall not be
considered a party of this Agreement. This Agreement may be executed in several
counterparts, all of which shall constitute one agreement.
17.12 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 17.12. All notices hereunder shall be effective upon receipt.
17.13 Relationship Between Parties. Precis and Customer 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 Precis
and Customer or any of either party's employees, subcontractors or agents.
17.14 Precedence Over Purchase Order Terms. Any additional or different terms of
Customer's purchase order and/or acknowledgment form, whether or not such terms
materially alter this Agreement, shall be deemed objected to by Precis unless
this Agreement is expressly amended by the parties hereto. Execution of
Customer's purchase order shall not operate as an amendment to this Agreement.
Whenever printed, typed, stamped or written provisions of Customer's purchase
order conflict with this Agreement, this Agreement shall control.
17.15 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.
17.16 Terms Review Structure. Precis and Customer agree to meet no more than
once a quarter to review the projects reflected in this agreement and the
relationship between the two parties. If significant changes have occurred in
either case, terms of this agreement, including pricing, may be discussed and
any changes must be mutually approved in writing, signed and delivered, each to
the other. A meeting will consist of a gathering of no less than the chief
executive officer of each party via a teleconference or face-to -face. The
meeting must be noted in writing to be that of a Terms Review Meeting.
17.17 Survival. The provisions of Sections 14, 15, 17.1 and 17.3 shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
representatives, have executed and delivered this Agreement.
For and on behalf of For and on behalf of
Entertainment Smart Systems, Inc. Precis Smart Card Systems, Inc.
/s/ JIM CRAGE 7/8/99 /s/ JIM LOUT
Signature Date Signature
Jim Crage Jim Lout
9
<PAGE>
Vice President President/CEO
Address: Address:
7205 Interstate Drive 11032 Quail Creek Road, Suite 108
Orlando, FL 32819 Oklahoma City, Oklahoma 73120
[THE FOLLOWING EXHIBITS WILL BE PROVIDED UPON REQUEST ADDRESSED TO THE
COMPANY
Exhibit A - PRICE LIST
Exhibit B - Designation of Region: Orlando
- Designation of Region 2: Cancun
- Designation of Region 3: Ixtapa
EXHIBIT C - Equipment Repair for Used Omni 1250 Readers]
10
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this 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."
MURRELL, HALL, McINTOSH & CO., PLLP.
Moore, Oklahoma
September 3, 1999
<PAGE>
EXHIBIT 24.2
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
Registration Statement.
DUNN SWAN & CUNNINGHAM
A Professional Corporation
Oklahoma City, Oklahoma,
September 7, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C> <C> <C> <C>
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