<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-10649
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
VIISAGE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7373 04-3320515
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE)
INCORPORATION OR
ORGANIZATION)
531 MAIN STREET
ACTON, MASSACHUSETTS 01720
(508) 263-8365
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT C. HUGHES
CHIEF EXECUTIVE OFFICER
VIISAGE TECHNOLOGY, INC.
531 MAIN STREET
ACTON, MASSACHUSETTS 01720
(508) 263-8365
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
CHARLES J. JOHNSON, ESQ. MARK H. BURNETT, ESQ.
FINNEGAN, HICKEY, DINSMOOR TESTA, HURWITZ & THIBEAULT, LLP
& JOHNSON, P.C. HIGH STREET TOWER
20 BEACON STREET 125 HIGH STREET
BOSTON, MASSACHUSETTS 02108 BOSTON, MASSACHUSETTS 02110
(617) 523-2500 (617) 248-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, as amended, 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, as amended, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------------
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 SUCH
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated October 9, 1996
2,500,000 SHARES
[VIISAGE LOGO APPEARS HERE]
COMMON STOCK
-----------
Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Viisage Technology, Inc. ("Viisage" or the "Company") and 500,000
shares are being sold by the selling stockholder (the "Selling Stockholder").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholder.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. Application has been made to have the Common Stock
approved for quotation on the Nasdaq National Market under the symbol "VISG."
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholder
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses, estimated to be $825,000, payable by the
Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 375,000 shares
at the Price to Public less the Underwriting Discount to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of certificates for the shares will be made at the offices of
Cowen & Company, New York, New York on or about , 1996.
COWEN & COMPANY NEEDHAM & COMPANY, INC.
, 1996.
<PAGE>
[Photograph of the Image Workstation and SensorMast being used by an operator
to capture the image of a card applicant.]
[Photographs or depictions of representative tamper-resistant identification
cards capable of being produced by the Company's systems. Representative cards
are: a driver's license; a law enforcement identification card; a corporate
identification card; and an entitlement program identification card.]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[Picture of the card production facility at Viisage.]
[Diagram of representative work flow for a typical client server-based
identification card installation. There will be a brief description of each
step as part of the overall schematic.]
<TABLE>
<S> <C> <C>
[PICTURE] [PICTURE] [PICTURE]
Capture Station Central Computer Card Production System
Image Server
</TABLE>
[PICTURE]
Capture Station
[PICTURE]
Capture/Instant
Issue Station
<PAGE>
[Picture and descriptive captions of Viisage hardware products. They will
include:
A workstation displaying an image capture screen;
A SensorMast (camera, light source, signature input);
A "RAID" storage cabinet representing the Image Server technology;
A production printer used by Viisage for card creation; and
A picture of the Viisage Visual Inspection System.]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the information set forth under the heading "Risk Factors." Unless otherwise
indicated, all information contained in this Prospectus (i) gives effect to the
transfer to the Company from Lau Acquisition Corp., a corporation doing
business as Lau Technologies ("Lau" or "Lau Technologies"), of substantially
all of the assets of Lau's facial imaging and identification systems and
services business (the "Viisage Technology Division") in exchange for the
assumption by the Company of the liabilities of the Viisage Technology Division
and the issuance to Lau of 5,680,000 shares of Common Stock, which will be
completed on the effective date of the registration statement relating to this
offering, and (ii) assumes no exercise of the Underwriters' over-allotment
option. Unless the context otherwise requires, all references to the "Company"
or "Viisage" in this Prospectus refer to Viisage Technology, Inc. and the
Viisage Technology Division.
THE COMPANY
The Company designs, sells and implements turnkey digital identification
systems intended to deter fraud and to reduce customers' identification program
costs. These systems capture facial images, demographic information and other
biological identifiers, produce identification cards, and create relational
databases containing this information. Using its software design and systems
integration capabilities, the Company is able to combine its proprietary
software and hardware products with commercially available components and
customers' existing systems, creating a complete customized solution. In
addition, the Company is developing proprietary facial recognition software
designed to identify individuals in a large database of faces on a real-time
basis.
Historically, identification cards have been produced by enclosing a
photograph and paper product in a laminated pouch. However, since
identification cards are often used to administer rights and benefits, control
access, and serve as a primary means of personal identification, these
laminated cards have been a target for fraud and tampering. The use of
fraudulent driver's licenses, credit cards or other identification cards has
significant financial and societal implications. As a result, both the public
and private sectors are increasing their use of tamper-resistant digital
identification systems. Digital systems enable information and images to be
imbedded within the fabric of the card itself, making the card more resistant
to tampering than laminated pouches.
In addition to deterring fraud, digital identification systems are efficient,
cost-effective and flexible. They facilitate the storage of information in
computer databases, thereby increasing record-keeping efficiency and enabling
information to be shared and distributed across geographic and organizational
boundaries. Digital systems also enable biological identifiers (biometrics),
such as facial images, fingerprints, voice data, or hand geometry, to be stored
in the card itself and in databases as an additional means of reducing fraud
and for other applications.
The Company offers a range of identification card delivery systems to address
a customer's specific needs. The Company provides "instant issue" systems which
produce identification cards on location that can be delivered to recipients in
minutes. Alternatively, the Company offers central processing systems, which
electronically receive information from the point of data capture and produce
cards at a secure off-site processing location for later mailing. The Company's
systems incorporate the Company's proprietary SensorMast workstation, which is
a fully-integrated, secure tower unit for computer-controlled image capture.
Central production systems also include the Company's proprietary Visual
Inspection System, which is used for automated quality assurance. Viisage's
proprietary software and services integrate the various components of its own
SensorMast and Visual Inspection System as well as integrate the Company's
products with a variety of third-party components and technologies used by its
customers. The facial images captured by the Company's identification systems
provide the content for a variety of public and private sector applications of
the Company's facial recognition technologies.
3
<PAGE>
The Company has three proprietary facial recognition products which it
currently is testing in pilot programs and plans to make generally available in
the first quarter of 1997. These products are designed to determine whether a
face appears in a database more than once, or to perform one-to-one face
verification at, for example, a point-of-sale or an automated teller machine
("ATM").
The Company's strategy is to continue to provide complete identification
systems tailored to address specific customer requirements. While the Company
will continue to focus on providing solutions to public sector customers
worldwide, it also believes that there are significant opportunities to
leverage its public sector expertise into a variety of commercial applications.
The Company will continue its commitment to product development with a focus on
facial recognition technologies for a large number of public and private sector
applications.
The Company's proprietary digital identification system products are
currently operating at over 365 locations under multi-year contracts with
twelve public sector agencies (either via contract or, in certain
circumstances, as a subcontractor). These systems produce driver's licenses,
welfare cards, pistol permits, prison cards, electronic benefits transfer cards
and immigration cards. The Company believes there is a large demand in the
public sector for identification systems that not only incorporate digital
technology to deter fraud and reduce costs, but also store data for convenient
access and dissemination. The Company also believes its technology is well
suited for a variety of commercial applications including access to ATMs,
networks, databases, and facilities, as well as for retail point-of-sale
transaction processing and benefits administration.
Prior to this offering, the Company has operated as the Viisage Technology
Division of Lau Technologies, a provider of systems integration services and
products for sophisticated electronic systems. Upon the completion of this
offering, Lau Technologies will own approximately 67% (approximately 64% if the
over-allotment option is exercised in full) of the Company's outstanding Common
Stock.
The Company's principal executive offices are located at 531 Main Street,
Acton, Massachusetts 01720, and the Company's telephone number is (508) 263-
8365.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company............... 2,000,000 shares
By Selling Stockholder....... 500,000 shares
Common Stock to be outstanding
after the offering............ 7,680,000 shares(1)
Use of proceeds................ To repay certain indebtedness and for general
corporate purposes, including working capital
Proposed Nasdaq National Market
symbol........................ VISG
</TABLE>
- --------
(1) Excludes 1,427,100 shares of Common Stock reserved for issuance upon the
exercise of options which have been granted, with a weighted average
exercise price of $3.20 per share, under the Company's 1996 Management
Stock Option Plan and 1996 Director Stock Option Plan. See "Management--
Incentive and Stock Plans."
4
<PAGE>
SUMMARY FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------- --------------------------
1993 1994 1995 JULY 2, 1995 JUNE 30, 1996
-------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 505 $ 1,257 $ 11,221 $ 5,395 $11,870
Operating income
(loss)................ (1,472) (2,361) (2,432) (1,118) 464
Net income (loss)...... (1,472) (2,401) (2,947) (1,251) 74
Net income (loss) per
share(2).............. $ (0.24) $ (0.39) $ (0.47) $ (0.20) $ 0.01
Weighted average number
of common shares(2)... 6,225 6,225 6,225 6,225 6,225
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
PRO FORMA
PRO FORMA(3) AS ADJUSTED(3)(4)
------------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ -- $ 8,966
Working capital................................. 9,077 18,043
Total assets.................................... 14,959 23,925
Long-term obligations........................... 10,203 1,394
Net assets(5)................................... 802 --
Stockholders' equity............................ -- 18,577
</TABLE>
- --------
(1) The summary financial data are derived from the financial statements of the
Viisage Technology Division and cover the period from the Viisage
Technology Division's inception through June 30, 1996.
(2) See Note 2 of the Notes to the Financial Statements for information
concerning the computation of net income (loss) per share.
(3) Pro forma amounts reflect the estimated net deferred income tax liability
that will be recorded as a result of the transfer by Lau of the assets and
liabilities of the Viisage Technology Division to the Company as discussed
in "Relationship and Certain Transactions with Lau Technologies" and Notes
1 and 2 of the Notes to Financial Statements.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $10.00 per share, after deducting the estimated underwriting discount
and offering expenses payable by the Company, and the application of the
net proceeds thereof. See "Use of Proceeds" and "Capitalization."
(5) Net assets represent Lau's net investment in the Company during the time
the Company operated as the Viisage Technology Division.
----------------
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
Viisage, Viisage Technology, SensorMast, Visual Inspection System and
Electronic Facial Identification Systems are trademarks of the Company. All
other trademarks or trade names referred to in this Prospectus are the property
of their respective owners.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. This Prospectus contains certain forward-looking statements.
Actual results could differ materially from those projected in the forward-
looking statements as a result of certain of the risk factors set forth below
and elsewhere in this Prospectus. In addition to the other information in this
Prospectus, prospective investors should carefully consider the following risk
factors in evaluating an investment in the Company and its business before
purchasing any shares of Common Stock offered hereby.
HISTORY OF LOSSES; POTENTIAL ADDITIONAL CAPITAL REQUIREMENTS
The business operations of the Company commenced in 1993 and have resulted
in losses from inception through December 31, 1995. As of June 30, 1996, the
Company had a cumulative net loss of approximately $6.8 million. Although the
Company was profitable during the first two quarters of 1996, there can be no
assurance that the Company will be profitable for the remainder of 1996 or
that it will sustain profitability on either a quarterly or annual basis.
Further, no assurance can be given that the Company will not need to raise
additional funds through public or private financings. Expansion of the
Company's business, including the financing of the development, production and
installation of its digital identification systems, will require the Company
to make significant project expenditures. If the net proceeds of this offering
and its other available cash resources prove to be insufficient (due to
unanticipated expenses or otherwise), the Company may be required to seek
additional financing or curtail its expansion activities. The Company may
determine, depending upon the opportunities available to it, to seek
additional debt or equity financing to fund the cost of continuing expansion.
To the extent that the Company obtains equity financing or finances an
acquisition with equity securities, such issuances of equity securities could
result in dilution to the interests of the Company's stockholders. There can
be no assurance that additional financing will be available to the Company on
acceptable terms, or at all. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY RESULTS MAY ADVERSELY AFFECT MARKET PRICE OF COMMON
STOCK
The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results are affected by a number of factors that
could materially and adversely affect revenues and profitability, including
the size of customer contracts, the timing of contract awards and the timing
of the Company's performance on contracts; competitive conditions including
pressures inherent in the competitive bidding process; the availability and
cost of key components; modifications to contracts after their award;
financing costs related to large project expenditures which are often
necessary at the outset of a customer contract; changes in management
estimates incident to accounting for contracts; the timing of the introduction
or market acceptance of new or enhanced products and services offered by the
Company or its competitors; variations in the mix of products and services
sold by the Company; and general economic and political conditions and other
factors affecting project spending by customers. Further, the sales cycles for
the Company's products typically involve lengthy marketing and procurement
processes. After a contract is awarded, delays in the design and start-up of a
system may require that revenues associated with such implementation be
recognized later than originally anticipated. Such delays have caused, and may
in the future cause, material fluctuations in the Company's operating results.
The Company's revenues in any period are generally derived from large orders
from a limited number of customers. As the Company's project margin on such
orders can differ significantly, the Company's overall margin may vary
significantly from period to period. In addition, project margin may be
adversely affected by competitive pressures, or customer requirements.
Accordingly, there can be no assurance that the Company will be able to
sustain satisfactory project margins. The Company also may choose to reduce
prices or increase spending in response to competition or to pursue new market
opportunities, all of which may adversely affect the Company's business,
operating results and financial condition.
6
<PAGE>
Due to the foregoing factors, and the risks associated with the timing of
revenue recognition discussed below, it is possible that the Company's results
of operations could fail to meet the expectations of securities analysts or
investors. In such event, or in the event that adverse conditions prevail or
are perceived to prevail, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results."
RISKS ASSOCIATED WITH THE TIMING OF REVENUE RECOGNITION
The Company expects to continue investing in the research, development and
engineering of its systems, software and products, as well as in the Company's
sales and marketing efforts. Given these and other fixed costs that the
Company will incur, a small variation in the timing of revenue recognition
could cause material variations in operating results from quarter to quarter
and may result in losses or have a material adverse effect on the Company's
business, results of operations or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON LARGE ORDERS AND CUSTOMER CONCENTRATION
The Company's revenues have primarily been, and are expected to be, derived
from large orders from a limited number of customers.
The Company provides systems and services principally under contracts that
have five-year terms, with several annual renewals after the initial contract
term and include an implementation period of up to twelve months after the
contract has been awarded. Contracts generally provide for a fixed price for
the system and/or for each card produced. Contract prices vary depending on,
among other things, design and integration complexities, the nature and number
of workstations and sites, the projected number of cards to be produced, the
level of post-installation support and the competitive environment. The
Company recognizes revenues and project costs using the percentage of
completion method based on labor costs incurred and/or cards produced. These
amounts are typically higher during the implementation phase of a contract due
to the higher level of labor costs incurred during this period. Contract
losses, if any, and changes in management estimates incident to accounting for
contracts are recognized in the period in which they become determinable.
Generally, contracts provide for billing when contract milestones are met
and/or cards are produced.
Revenues from a single customer accounted for all of the Company's 1993 and
1994 revenues. Three customers each accounted for greater than 10% of the
Company's revenues in 1995; in the aggregate, these three customers accounted
for approximately 85% of the Company's 1995 revenues. Four customers each
accounted for greater than 10% of the Company's revenues during the six months
ended June 30, 1996; in the aggregate, these four customers accounted for
approximately 81% of the Company's revenues during the first six months of
1996. The loss of any large customer could have a material adverse impact on
the Company's business, operating results and financial condition. See
"Business--Customers and End Users." As of June 30, 1996, 77% of the Company's
accounts receivable and costs and estimated earnings in excess of billings
related to four customers.
There can be no assurance that the Company will continue to obtain large
orders on a consistent basis. The Company's inability to obtain sufficient
large orders would have a material adverse effect on the Company's business,
operating results and financial condition. Moreover, the timing of the award
of and performance on such orders may cause the operating results of the
Company in any given quarter to differ from operating results in other
quarters and from estimates of securities analysts or investors, which could
adversely affect the trading price of the Company's Common Stock. Customer
disputes regarding contract performance, or the Company's inability to
collect, or delays in collecting, accounts receivable from any major customer
could also have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Quarterly
Results."
RISKS ASSOCIATED WITH LENGTHY SALES AND IMPLEMENTATION CYCLES
Historically, the Company's revenues have depended upon the decision of a
public sector agency to install a digital identification system and to procure
such a system from the Company. Such purchasing decisions are
7
<PAGE>
often subject to delays associated with the lengthy procurement processes that
typically accompany large public sector capital expenditures. The Company's
systems therefore often have a lengthy sales cycle while the customer prepares
system specifications and requests for proposals, evaluates all aspects of bid
proposals and obtains approvals for the selection of the Company's systems.
Typically, six to twelve months may elapse between a new customer's initial
evaluation of the Company's system and bid proposal and the execution of a
contract. Another six to twelve months may elapse before final implementation
of the system while the system is being designed and products are being
integrated. Further, customers may seek to modify the system either during or
after the implementation of the system. During the sales and implementation
cycles, the Company expends substantial funds and management effort yet often
has to defer billing because of contractual terms. Any significant failure by
the Company to execute a contract or successfully implement a system after
expending such funds and effort or interruptions in the operation of a system
could have a material adverse effect on its business, operating results and
financial condition. It may be difficult to predict accurately the sales cycle
of any large order. If one or more large orders fail to be implemented as
forecasted for a quarter, the Company's revenues and operating results for
such quarter could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "--Quarterly Results."
BURDENS IMPOSED BY PUBLIC SECTOR CUSTOMERS
The Company currently derives substantially all of its revenues from public
sector customers or contractors for such customers. There are significant
risks inherent in depending on such customers which may cause material
fluctuations in the Company's operating results. For each contract with a
public sector customer, the Company is typically subject to a protracted
procurement process which includes a detailed written response to the
customer's request for proposal, sealed competitive bids, system
demonstrations, the design of software which addresses customer-specified
needs and the integration of Company and third-party products. The process can
also include political influences, award protests initiated by unsuccessful
bidders and changes in budgets or appropriations which are beyond the
Company's control. Contracts with public sector customers are typically
subject to procurement policies which may be onerous and may include profit
limitations and rights of the agency to terminate for convenience or if funds
are unavailable. Contracts typically provide for a fixed price for the system
and/or for each card produced, in which case the Company bears the risk of
cost overruns. Some public sector customers require liquidated damages for
defective products and/or for delays or interruptions caused by system
failures. Payments under some public sector contracts are subject to achieving
implementation milestones, and the Company has had, and may in the future
have, differences with customers as to whether milestones have been achieved.
Although these risks also generally apply to the Company's competitors, there
can be no assurance that the Company will continue to be successful in
marketing and selling its systems and products to public sector customers.
Because increased penetration of the public sector market is important to the
Company's future success, the failure of the Company to achieve such market
penetration due to these or other factors could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Customers and End Users" and "--Sales and Marketing."
LIMITED HISTORY OF OPERATIONS; NO HISTORY AS A SEPARATE COMPANY
The Company has been operated as a division of Lau Technologies since its
inception in 1993 and has no operating history as a separate concern. The
Company's historical financial statements reflect the period when the Company
was a division of Lau. Since its inception, the Viisage Technology Division
received certain financial, accounting, marketing and other services from Lau.
While the Company will continue to receive certain services from Lau after the
completion of this offering, there can be no assurance that the Company's
operating results will not be adversely affected as a result of the reduction
of general service assistance from Lau. See "Relationship and Certain
Transactions with Lau Technologies--Administration and Services Agreement."
EXPOSURE TO RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON TECHNOLOGICAL
DEVELOPMENT
The markets for the Company's products and services are characterized by
rapidly changing technologies, the increasingly sophisticated needs of
customers, and evolving industry standards. The introduction of products
8
<PAGE>
and services by either the Company or its competitors that embody new
technologies or the emergence of new industry standards could render the
Company's existing or future products and services obsolete. The Company's
future performance will depend upon its ability to address the increasingly
sophisticated needs of its customers by enhancing its products and services
and by developing, introducing and integrating on a timely basis new products
and services that are compatible with emerging industry standards and are
responsive to evolving end-user requirements. The development and integration
of new, technologically-advanced products, services and enhancements are
complex and uncertain processes requiring high levels of innovation, as well
as the accurate anticipation of technological and market trends. Any failure
by the Company to anticipate or respond adequately to technological
developments or end-user requirements, or any significant delays in product
and service development, introduction or integration, could result in a loss
of competitiveness or revenue.
There can be no assurance that the Company will be successful in developing
and marketing new or enhanced products and services on a timely basis (if at
all), that the Company will not experience difficulties that could delay or
prevent the successful development, introduction, sale and integration of
these products and services, or that any of its new products and services will
adequately meet the requirements of the marketplace and achieve or sustain
market acceptance. If the Company is unable, for any technological or other
reason, to develop, introduce and sell its products and services in a timely
manner, the Company's business, operating results and financial condition
could be materially adversely affected. From time to time, the Company or its
present or future competitors may announce new or enhanced products and
services, capabilities, or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products and services. There
can be no assurance that the announcement of new or enhanced products and
services will not cause customers to delay or alter their purchasing decisions
in anticipation of such products and services, which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Products and Services," "--
Competition" and "--Intellectual Property and Proprietary Rights."
A significant aspect of the Company's strategy is to introduce systems and
products which use its facial recognition technologies. The Company's facial
recognition products have not yet been fully deployed for any customer.
Moreover, there can be no assurance that the Company's facial recognition
technologies will be able to operate with databases that are large enough to
satisfy customer needs or that the Company's competitors will not develop the
ability to provide a similar or better system. See "Business--The Viisage
Solution" and "--Strategy."
RISKS ASSOCIATED WITH MANAGING EXPANSION OF OPERATIONS
Since its inception in 1993, the Company has experienced substantial growth
in its revenues and operations, and has undergone substantial changes in its
business that have placed significant demands on the Company's management,
working capital and financial and management control systems. Failure to
upgrade the Company's operating, management and financial control systems or
difficulties encountered during such upgrades could adversely affect the
Company's business, financial condition and results of operations. Although
the Company believes that its systems and controls are adequate to address its
current needs, there can be no assurance that such systems will be adequate to
address any future expansion of the Company's business. The Company's results
of operations will be adversely affected if revenues do not increase
sufficiently to compensate for the increase in operating expenses resulting
from expansion and there can be no assurance that expansion will be profitable
or that it will not adversely affect the Company's business, results of
operations and financial condition. In addition, the success of any future
expansion plans will depend in part upon the Company's ability to continue to
improve and expand management and financial control systems and to attract,
retain and motivate key personnel. There can be no assurance that the Company
will be successful in these regards. See "Business--Sales and Marketing" and
"--Employees," and "Management--Executive Officers and Directors."
INTENSE COMPETITION
The market for the Company's products and services is extremely competitive
and management expects this competition to intensify as the markets in which
the Company's products and services are sold continue to develop.
9
<PAGE>
The Company faces competition in the identification systems market (for both
digital and conventional systems) from technologically sophisticated
companies, including Polaroid Corporation, Unisys Corporation, DataCard
Corporation, and NBS Imaging Systems, Inc., all of which have substantially
greater technical, financial, and marketing resources than the Company. In
some cases, the Company may be competing with an entity which has a pre-
existing relationship with a potential customer which could put the Company at
a significant competitive disadvantage. As the digital identification market
expands, additional competitors may seek to enter the market.
In the field of biometric identification, the Company competes with other
facial recognition providers as well as other providers of biometric
solutions. Fingerprint recognition solutions have a long history of use,
particularly in law enforcement applications. Other current suppliers of
facial recognition solutions are software development firms. The Company
expects that as the market for biometric solutions develops, larger companies
with greater resources will enter the market and competition will intensify.
To be successful in the future, the Company must continue to respond
promptly and effectively to the challenges of technological change and its
competitors' innovations by continually enhancing its own product and service
offerings. There can be no assurance, however, that the Company will continue
to compete favorably or that the Company will be successful in the face of
increasing competition from new products and enhancements introduced by
existing competitors or new companies entering the market. See "Business--
Competition."
RISK OF SYSTEM FAILURES; FAILURE TO MEET PERFORMANCE CRITERIA
The success of the Company is largely dependent upon its ability to provide
complex systems which can operate on an "as needed" basis. Customer contracts
typically specify quality standards and include liquidated damage obligations
for product or system failures. Although the Company attempts to mitigate the
risk of system failure by, in some cases, deploying back-up systems and having
skilled maintenance personnel on call, product or system failures could result
in increased costs, lower margins, liquidated damage payment obligations and
damage to the Company's reputation. Such damage could result in contract
terminations and have a material adverse effect on the Company's business,
operating results and financial condition and on its ability to attract new
customers.
Systems and products as complex as those offered by the Company can contain
undetected errors. There can be no assurance that errors will not be found in
systems after implementation, resulting in loss or delay in market acceptance,
increased service and maintenance costs, or damage to the Company's standing
in its industry. Such loss or delay may have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company's contracts typically require that identification cards that
become defective within a specified number of years be replaced without
additional charge. Historically, the digital identification card industry has
experienced problems with color dye-migration. Although the Company has
subjected its cards to tests that are designed to assess their durability, the
Company's cards have not been subject to actual use over an extended number of
years. A substantial failure of the Company's cards to meet performance
requirements could have a material adverse effect upon the Company's business,
operating results and financial condition. See "Business--Products and
Services."
RISK OF TAMPERING
The Company's systems produce identification cards which can have
significant value to those intent on committing fraud. Accordingly, the
Company's systems or the cards produced by those systems may be susceptible to
tampering attempts. If the Company's systems or cards do not prove to be
sufficiently tamper-resistant, relations with customers could be strained,
customer contracts could be cancelled or not renewed and, as a result, there
could be a material adverse effect on the Company's business, operating
results, financial condition and reputation.
10
<PAGE>
RISK OF MISIDENTIFICATION OR FAILURE TO MAKE ACCURATE IDENTIFICATIONS
The Company's facial recognition technologies are being designed to, among
other things, detect fraud, control access and provide point-of-sale
verification. Although the Company's customers will be responsible for the
application of the Company's systems, the Company could be susceptible to
claims from individuals who are wrongly accused of fraud, denied access or
denied the opportunity to make a purchase. Moreover, the Company could be
liable if its facial recognition technologies fail to detect such fraud and
material damage results. Such liability could have a material adverse effect
on the Company's business, operating results, financial condition and
reputation. See "Business--Products and Services."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; POTENTIAL
COSTS OF ENFORCEMENT OR DEFENSE
The Company's business is substantially dependent on intellectual property
which it licenses from Lau Technologies and Facia Reco Associates, Limited
Partnership ("Facia Reco"). See "Business--Intellectual Property and
Proprietary Rights" and "Relationship and Certain Transactions with Lau
Technologies--License Agreement." Lau currently has four U.S. patent
applications outstanding and has made corresponding copyright filings which
relate to the Company's SensorMast, Visual Inspection System and proprietary
software. Lau has filed foreign patent applications which correspond to three
of these domestic applications. The Company's license agreement with Facia
Reco includes the right to use and sublicense certain U.S. patents and
registered copyrights for facial recognition systems which Facia Reco licenses
from the Massachusetts Institute of Technology and Intelligent Vision Systems,
Inc. The Massachusetts Institute of Technology has applied to extend its
patent rights to certain jurisdictions in Europe and in Singapore. One of
Lau's four filed patent applications is directed to an enhancement of one of
the patents licensed to Lau by Facia Reco. At Lau's request and expense, the
Massachusetts Institute of Technology has filed for a broadening reissue
patent. Any broadening reissue patent will be licensed through Facia Reco.
There can be no assurance that any of the U.S. or foreign patents applied
for by Lau or the foreign patents applied for by the Massachusetts Institute
of Technology will be issued or that, if issued, they will provide protection
against competitive technologies or will be held valid and enforceable if
challenged. Moreover, there can be no assurance that the Company's competitors
would not be able to design around any such proprietary right or obtain rights
that the Company would need to license or circumvent in order to practice
under these patents and copyrights. See "Business--Intellectual Property and
Proprietary Rights."
The Company may be notified, from time to time, that it is infringing
certain patents and other intellectual property rights of others. The Company
has been subject to such claims in the past. For example, the Company recently
received a letter from an attorney on behalf of the holder of a patent on a
system for scanning and encoding images from a personal identification card.
Although the Company believes that its products and systems do not infringe
such patent, there can be no assurance that this or other patent holders will
not initiate patent litigation. Litigation, which could result in substantial
cost to and diversion of resources of the Company, may be necessary to enforce
patents or other intellectual property rights of the Company or to defend the
Company against claimed infringement of the rights of others. In the event of
an adverse ruling in such litigation, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale
of infringing products and services, expend significant resources to develop
non-infringing technology or obtain licenses to the competing technology. No
assurance can be given that licenses will be obtainable on acceptable terms or
at all, that the damages for infringement will not be assessed or that
litigation will not occur. The failure to obtain necessary licenses or other
rights or adverse or protracted litigation arising out of any such claims
could have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Intellectual Property and
Proprietary Rights."
In addition, the Company's ability to develop new technologies will depend
on the continued innovation, technical expertise and know-how of its employees
and consultants. Although the Company has a policy of requiring its employees
and consultants to execute confidentiality agreements, there can be no
assurance that this procedure will be adequate to prevent misappropriation of
the Company's technology, nor can the Company be
11
<PAGE>
assured that its competitors will not independently develop technologies that
are substantially equivalent or superior to those of the Company. See
"Business--Intellectual Property and Proprietary Rights."
DEPENDENCE ON SOLE OR LIMITED SOURCES OF SUPPLY
The Company relies to a substantial extent on outside vendors to manufacture
or develop certain components and software which are integrated with the
Company's systems, some of which are obtained from a single supplier or a
limited group of suppliers. The Company's reliance on outside vendors
generally, and a sole or a limited group of suppliers in particular, involves
several risks, including a potential inability to obtain an adequate supply of
required components and reduced control over quality, pricing and timing of
delivery of components. Because the production of certain of these components
is specialized and requires long lead times, there can be no assurance that
delays or shortages caused by vendors will not occur. Any inability to obtain
adequate deliveries, or any other circumstance that would require the Company
to seek alternative sources of supply, could delay implementation of the
Company's systems, increase its project costs and materially adversely affect
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends to a significant extent upon a number of
senior management and technical personnel. The loss of the services of one or
more key employees could have a material adverse effect on the Company. The
Company does not maintain key-person life insurance on any of its key
employees. The Company's future financial results will depend in large part
upon its ability to attract and retain highly skilled technical, managerial
and marketing personnel and the ability of its officers and key employees to
manage growth successfully, to implement appropriate management information
systems and controls and to continue successful development of new products
and services and enhancements to existing products and services. Competition
for such personnel is intense, and there can be no assurance that the Company
will continue to be successful in attracting and retaining the personnel it
requires to develop successfully new and enhanced products. In addition, the
Company has long-standing relationships with certain independent consultants
which are important to the Company's ability to develop its products in a
timely manner. The disruption of any of these relationships could have a
material adverse effect on the Company. See "Business--Employees" and
"Management."
RISKS ASSOCIATED WITH INTERNATIONAL ACTIVITIES
The Company expects sales to customers located outside the United States to
increase in significance as it expands its international marketing efforts.
Risks inherent in the Company's international business activities include
difficulties in staffing and managing international operations, difficulties
in enforcing intellectual property rights, currency fluctuations and currency
management issues, imposition of public sector controls, trade restrictions,
political and economic instability and the burdens of complying with a wide
variety of foreign laws and regulations. To the extent that the Company is
unable to expand international sales in a timely and cost-effective manner,
the Company's business could be materially adversely affected. See "Business--
Strategy."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price for the Common Stock to be sold in this offering will be determined by
agreement between the Company and the Representatives of the Underwriters and
may not be indicative of future market prices. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The market price of the Common Stock could be subject to
significant fluctuations in response to the Company's operating results and
other factors, including announcements of developments related to the
Company's business, general industry conditions or the worldwide economy,
announcements of technological innovations, new products, product enhancements
or
12
<PAGE>
services by the Company or its competitors, developments in patents or other
intellectual property rights and developments in the Company's relationships
with customers and suppliers. In addition, in recent years the stock market
has experienced large price and volume fluctuations that have often been
unrelated to the operating performance of specific companies or market
sectors. Such fluctuations, as well as general economic and market conditions,
could have a material adverse effect on the market price of the Company's
Common Stock.
RISKS ASSOCIATED WITH CONTROL BY LAU TECHNOLOGIES
Following the completion of this offering, Lau will own approximately 67% of
the Company's outstanding Common Stock (approximately 64% if the Underwriters'
over-allotment option is exercised). As a result, Lau will be able to control
matters requiring approval by the stockholders of the Company, including the
election of all of the directors and most corporate actions. The voting power
of Lau could have the effect of causing, delaying or preventing a change in
control of the Company. There can be no assurance that Lau's ability to
prevent or cause a change in control of the Company will not have a material
adverse effect on the price of the Common Stock. See "Principal and Selling
Stockholders."
POTENTIAL CONFLICTS OF INTEREST
The Company has entered into certain agreements with Lau which govern
certain aspects of the parties' relationship on an ongoing basis, including
the licensing of certain technologies and the provision of certain
administrative services and facilities. Under the terms of such agreements,
Lau has reserved the right to use such technologies in a certain field. See
"Business--Intellectual Property and Proprietary Rights." In addition, the
Company and Lau have covenanted not to compete with each other for ten years.
Further, the Company's Chairman of the Board of Directors is an employee of
Lau and is married to Lau's majority stockholder. There can be no assurance
that conflicts of interest between Lau and the Company will not arise with
respect to the contractual arrangements, any services which might be provided
by Lau in the future or other matters. Any adverse change in the Company's
relationship with Lau could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Relationship and
Certain Transactions with Lau Technologies."
POTENTIAL ADVERSE IMPACT OF ANTITAKEOVER PROVISIONS ON MARKET PRICE OF SHARES
The Company's Certificate of Incorporation and By-laws contain provisions
that could discourage a proxy contest or make more difficult the acquisition
of a substantial block of the Company's Common Stock. For example, the
Company's Certificate of Incorporation requires that any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and, unless approved in
advance by the Board, may not be effected by any consent in writing. The By-
laws require specified advance notice by a stockholder of a proposal or
director nomination which such stockholder desires to present to any annual or
special meeting of stockholders. The Certificate of Incorporation and By-laws
also provide for a classified Board of Directors, and members of the Board may
be removed only for cause upon the affirmative vote of holders of at least
two-thirds of the shares of capital stock of the Company issued and
outstanding and entitled to vote. Furthermore, the affirmative vote of the
holders of at least two-thirds of the capital stock issued and outstanding and
entitled to vote is required to amend or repeal these provisions. In addition,
the Board of Directors, without further approval, may issue preferred or
common stock that could have the effect of delaying, deterring or preventing a
change in control of the Company. The issuance of preferred stock could also
adversely effect the voting power of the holders of Common Stock, including
the loss of voting control to others. The Company has no present plans to
issue any preferred or additional shares of Common Stock. See "Description of
Capital Stock."
Following this offering, the Company will become subject to the antitakeover
provisions of Section 203 of the Delaware General Corporation Law, which will
prohibit the Company from engaging in a "business
13
<PAGE>
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 may limit the ability of stockholders
to approve a transaction that they deem to be in their best interests. The
foregoing and other provisions of the Certificate of Incorporation and By-laws
and the application of Section 203 could have the effect of deterring certain
takeovers or delaying or preventing certain changes in control or management
of the Company, including transactions in which the stockholders might
otherwise receive a premium for their shares over then current market prices.
See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 7,680,000
shares of Common Stock outstanding, of which the 2,500,000 shares offered
hereby will be freely tradable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), by persons other than "affiliates" of
the Company, as defined under the Securities Act. The remaining 5,180,000
shares of Common Stock outstanding are "restricted securities" as that term is
defined by Rule 144 and Rule 701 as promulgated under the Securities Act (the
"Restricted Shares"). All 5,180,000 Restricted Shares will be eligible for
sale upon the expiration of the respective two-year holding periods subject to
the conditions of Rule 144, such holding periods to expire on or around the
second anniversary of the date of this Prospectus. The Securities and Exchange
Commission (the "Commission") has proposed certain amendments to Rule 144 that
would reduce by one year the holding periods required for shares subject to
Rule 144 to become eligible for resale in the public market. This proposal, if
adopted, would permit earlier resale of shares of Common Stock currently
subject to holding periods under Rule 144. No assurance can be given
concerning whether or when the proposal will be adopted by the Commission.
Furthermore, all 5,180,000 Restricted Shares are subject to a lock-up
agreement expiring 180 days following the date of this Prospectus. Such
agreements provide that Cowen & Company may, in its sole discretion and at any
time without notice, release all or a portion of the shares subject to these
lock-up agreements. Following the date of this Prospectus, the Company intends
to register on one or more registration statements on Form S-8 approximately
1,437,750 shares of Common Stock issuable under its stock option plans. Of the
shares issuable under its option plans, 1,427,100 shares were subject to
outstanding options as of October 8, 1996, of which 255,600 options were
exercisable within 180 days following the date of this Prospectus. These
255,600 options and the shares of Common Stock issuable upon the exercise
thereof are subject to lock-up agreements described above. Shares covered by
such registration statements will be eligible for sale in the public market
after the effective date of such registration. See "Management--Incentive and
Stock Plans" and "Shares Eligible for Future Sale."
IMMEDIATE AND FUTURE DILUTION
Purchasers of Common Stock offered hereby will incur immediate and
substantial dilution from the initial public offering price. Additional
dilution will occur upon the exercise of outstanding stock options. See
"Dilution."
LACK OF DIVIDENDS
The Board of Directors anticipates that for the foreseeable future the
Company's earnings, if any, will be retained for use in the business and that
no cash dividends will be paid on the Common Stock. In addition, the payment
of cash dividends by the Company is expected to be restricted under the
Company's financing facilities, prohibiting the Company from paying any cash
dividends without lenders' prior approvals. See "Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by it hereby are estimated to be $17,775,000 ($21,262,500
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discount and offering expenses payable by the Company.
Viisage will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholder. The primary purposes of this offering are to repay
certain indebtedness, increase the Company's equity capital and financial
flexibility, create a public market for the Common Stock, facilitate future
access by the Company to public capital markets and provide working capital to
fund the Company's growth.
The Company intends to use a portion of the net proceeds to repay all of the
Company's indebtedness under a bank line of credit maintained by Lau, of which
approximately $8.8 million was outstanding as of June 30, 1996. Lau's credit
facility provides a line of credit of up to $15.0 million, bears interest at
the lender's base rate or LIBOR-based options (7.6% as of June 30, 1996) and
matures on June 30, 1998. The Company has used the proceeds from the line of
credit for working capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The Company is negotiating its own credit facility to take effect
after completion of this offering.
The Company expects to use the remainder of the net proceeds from this
offering for general corporate purposes, including working capital. The
Company may also use a portion of such net proceeds for acquisitions of
businesses, products or technologies that are complementary to those of the
Company. While the Company from time to time evaluates such potential
acquisitions, the Company currently has no understandings, commitments or
agreements with respect to any acquisitions. Except as stated above, the
Company has not determined the amounts it plans to expend with respect to each
of the expected uses or the timing of such expenditures. As a consequence,
management will have the discretion to allocate the net proceeds from this
offering. The amounts actually expended for each use may vary significantly
depending on a number of factors, including the amount of future revenues, the
amount of cash generated or used by the Company's operations, the progress of
the Company's product development efforts, technological advances, the status
of competitive products and services and acquisition opportunities presented
to the Company. Pending such uses, the net proceeds of this offering will be
invested in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain
future earnings to fund the development and growth of its business. See "Risk
Factors--Lack of Dividends."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis, (ii) on a pro forma basis, reflecting the
estimated net deferred income tax liability that will be recorded as a result
of the transfer by Lau of its Viisage Technology Division to Viisage as
discussed in "Relationship and Certain Transactions with Lau Technologies" and
Notes 1 and 2 of the Notes to Financial Statements and (iii) as adjusted to
reflect the transactions with respect to the transfer by Lau of the Viisage
Technology Division to the Company as discussed in "Relationship and Certain
Transactions with Lau Technologies," which transfer shall be completed on the
effective date of the registration statement relating to this offering, and
the sale by the Company of the Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share and the application of the
net proceeds therefrom. The table should be read in conjunction with the
Financial Statements of the Company and related notes thereto. See also "Use
of Proceeds," "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations......... $ 512 $ 512 $ 512
======= ======= =======
Long-term debt................................... 8,809 8,809 --
Capital lease obligations........................ 1,394 1,394 1,394
Net assets....................................... 902 802 --
Shareholders' equity:
Preferred Stock, $.001 par value, 2,000,000
shares authorized, no shares outstanding actu-
al, pro forma and as adjusted................. -- -- --
Common Stock, $.001 par value, 20,000,000
shares authorized, no shares issued and out-
standing actual and pro forma; 7,680,000
shares issued and outstanding as adjusted(1).. -- -- 8
Additional paid-in capital..................... -- -- 18,569
Retained earnings.............................. -- -- --
------- ------- -------
Total stockholders' equity..................... -- -- 18,577
------- ------- -------
Total capitalization......................... $11,105 $11,005 $19,971
======= ======= =======
</TABLE>
- --------
(1) Excludes 1,437,750 shares of Common Stock reserved for issuance upon the
exercise of options, of which 1,427,100 have been granted under the
Company's 1996 Management Stock Option Plan and 1996 Director Stock Option
Plan. See "Management--Incentive and Stock Plans."
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
$802,000, or $0.14 per share. Pro forma net tangible book value per share is
determined by dividing the number of shares of Common Stock outstanding into
the tangible net worth (tangible assets less total liabilities) of the Company
after giving effect to the transactions with Lau that are incident to the
formation of the Company. See "Relationship and Certain Transactions with Lau
Technologies." After giving effect to the sale by the Company of the 2,000,000
shares of Common Stock offered by it hereby, at an assumed initial public
offering price of $10.00 per share, and the application of the net proceeds
thereof (after deducting estimated underwriting discount and offering
expenses), the pro forma net tangible book value of the Company at June 30,
1996 would have been $18,577,000, or $2.42 per share. This represents an
immediate increase in the net tangible book value of $2.28 per share to Lau
and an immediate dilution of $7.58 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value........................... $ .14
Increase in net tangible book value attributable to new in-
vestors.................................................... 2.28
-----
Pro forma net tangible book value after this offering......... 2.42
------
Pro forma dilution to new investors........................... $ 7.58
======
</TABLE>
The following table sets forth, on a pro forma basis at June 30, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by Lau, and by
purchasers of the shares of Common Stock offered hereby (at an assumed initial
public offering price of $10.00 per share), before deducting the estimated
underwriting discount and offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION (1)
----------------------- ------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholder.... 5,680,000 74.0% $ 902,000(2) 4.3% $ 0.16
New investors........... 2,000,000 26.0 20,000,000 95.7 10.00
------------ -------- -------------- --------
Total................. 7,680,000 100.0% $ 20,902,000 100.0%
============ ======== ============== ========
</TABLE>
- --------
(1) Sales by Lau in this offering will reduce the number of shares held by Lau
to 5,180,000 shares, or 67% (approximately 64% if the over-allotment
option is exercised in full) of the total number of shares to be
outstanding after this offering, and will increase the number of shares
held by new investors to 2,500,000 shares, or 33% of the total shares of
Common Stock outstanding after this Offering. See "Principal and Selling
Stockholders."
(2) The investment by the existing stockholder represents the net assets of
the Company as of June 30, 1996.
The foregoing calculations assume no exercise of stock options after June
30, 1996. At June 30, 1996, 1,427,100 shares of Common Stock were subject to
options at a weighted average exercise price of $3.20 per share under the 1996
Management Stock Option Plan and the 1996 Director Stock Option Plan. To the
extent options are exercised, there will be further dilution to new investors.
See "Risk Factors--Immediate and Future Dilution," "Management--Incentive and
Stock Plans" and Note 9 of Notes to Financial Statements.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for all periods and dates
indicated, except the period ended July 2, 1995, are derived from financial
statements that have been audited by Arthur Andersen LLP, independent public
accountants. Except for the balance sheet as of December 31, 1993, these
financial statements are included elsewhere in this Prospectus. The selected
financial data for the six months ended July 2, 1995 were derived from the
unaudited Statement of Operations of the Company which is included elsewhere
in this Prospectus. In the opinion of management, the unaudited Statement of
Operations has been prepared on the same basis as the audited financial
statements referred to above and includes all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the Company's
results of operations for the period indicated. The financial data set forth
below covers the period from inception of the business that will comprise the
Company through June 30, 1996. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected
for any future period. The financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements of the Company and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
-------------------------- -----------------
JULY 2, JUNE 30,
1993 1994 1995 1995 1996
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 505 $ 1,257 $ 11,221 $ 5,395 $11,870
Project costs................... 456 1,140 10,361 4,972 9,653
------- ------- -------- ------- -------
Project margin.................. 49 117 860 423 2,217
------- ------- -------- ------- -------
Operating expenses:
Sales and marketing........... 1,185 1,596 999 431 735
Research and development...... 47 201 1,089 597 128
General and administrative.... 289 681 1,204 513 890
------- ------- -------- ------- -------
Total operating expenses.... 1,521 2,478 3,292 1,541 1,753
------- ------- -------- ------- -------
Operating income (loss)......... (1,472) (2,361) (2,432) (1,118) 464
Interest expense................ -- 40 515 133 387
------- ------- -------- ------- -------
Income (loss) before income
taxes.......................... (1,472) (2,401) (2,947) (1,251) 77
Income taxes.................... -- -- -- -- 3
------- ------- -------- ------- -------
Net income (loss)............... $(1,472) $(2,401) $ (2,947) $(1,251) $ 74
======= ======= ======== ======= =======
Net income (loss) per share(1).. $( 0.24) $ (0.39) $ (0.47) $ (0.20) $ 0.01
======= ======= ======== ======= =======
Weighted average number of
common shares (1).............. 6,225 6,225 6,225 6,225 6,225
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------- --------------------
1993 1994 1995 ACTUAL PRO FORMA(2)
---- ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $368 $2,509 $ 7,413 $ 9,077 $ 9,077
Total assets........................... 914 3,999 11,285 14,959 14,959
Long-term obligations.................. -- 955 8,319 10,203 10,203
Net assets(3).......................... 368 1,554 1,323 902 802
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net income (loss) per share.
(2) Pro forma amounts reflect the estimated net deferred income tax liability
that will be recorded as a result of the transfer by Lau of its Viisage
Technology Division to Viisage as discussed in "Relationship and Certain
Transactions with Lau Technologies" and Notes 1 and 2 of the Notes to
Financial Statements.
(3) Net assets represent Lau's net investment in the Company during the time
the Company operated as a division of Lau.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and notes
thereto included elsewhere in this Prospectus. The discussion in this
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
whenever they appear in this Prospectus. This Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" as
well as those discussed elsewhere herein.
OVERVIEW
Viisage's objective is to become a leading worldwide provider of digital
identification systems and solutions. The Company designs, sells and
implements turnkey digital identification systems intended to deter fraud and
to reduce customers' identification program costs. These systems capture
facial images, demographic information and other biological identifiers,
produce identification cards, and create relational databases containing this
information. Using its software design and systems integration capabilities,
the Company is able to combine its proprietary software and hardware products
with commercially available components and customers' existing systems,
creating a complete customized solution. In addition, the Company is
developing proprietary facial recognition software designed to identify
individuals in a large database of faces on a real-time basis.
The Company began operations in 1993 as a division of Lau Technologies, a
provider of systems integration services and products for sophisticated
electronic systems. The Viisage Technology Division was formed as part of
Lau's strategy to leverage its capabilities into emerging markets. Prior to
the effective date of this offering, Lau will transfer substantially all of
the assets, liabilities and operations of its Viisage Technology Division to
the Company in exchange for 5,680,000 shares of the Company's Common Stock.
See "Relationship and Certain Transactions with Lau Technologies." Following
these transactions, Lau will own approximately 67% of the Company's Common
Stock (approximately 64% if the over-allotment option is exercised in full).
Viisage's revenues increased from $505,000 in 1993 to $11.2 million in 1995
and $11.9 million for the six months ended June 30, 1996. This growth was due
primarily to an increase in the number of large competitively bid contracts
for card-based digital identification systems awarded to the Company and, to a
lesser extent, contract modifications from these customers. The Company
believes that the increasing acceptance of digital identification technology
in recent years, its commitment to providing customized solutions for its
customers needs, its expertise in facial imaging and its proprietary software
and hardware products have contributed to its growth and will be important to
its future success.
Substantially all of the Company's revenues are currently derived from
public sector customers and contractors to such customers. The Company
believes for the foreseeable future that it will continue to derive a
significant portion of its revenues from a limited number of large contracts.
During 1993 and 1994 one contract accounted for all of the Company's revenues.
For the year ended December 31, 1995 and the six months ended June 30, 1996,
three customers and four customers, respectively, each accounted for more than
10% of the Company's revenues, representing an aggregate of 85% and 81% of
revenues in those periods, respectively.
The Company provides systems and services principally under contracts that
have five-year terms, provide for several annual renewals after the initial
contract term and include an implementation period of up to twelve months
after the contract has been awarded. Contracts generally provide for a fixed
price for the system and/or for each card produced. Contract prices vary
depending on, among other things, design and integration complexities, the
nature and number of workstations and sites, the projected number of cards to
be produced, the level of post-installation support and the competitive
environment.
The Company recognizes revenues and project costs using the percentage of
completion method based on labor costs incurred and/or cards produced. These
amounts are typically higher during the implementation phase
19
<PAGE>
of a contract due to the higher level of labor costs incurred during this
period. Contract losses, if any, are recognized in the period in which they
become determinable. Generally, contracts provide for billing when contract
milestones are met and/or cards are produced.
Project margin improved significantly during the first six months of 1996
due to the Company's ability to reduce project costs by leveraging its
experience with the design, development and implementation of large digital
identification solutions. The Company believes that it will experience further
improvements in project margin principally from cost savings for design,
development and implementation. However, there can be no assurance that such
improvements will be achieved.
The Company's ability to achieve revenue growth and profitability is
dependent upon its ability to add new customers and retain existing customers.
Accordingly, the Company anticipates that it will continue to make significant
expenditures for sales and marketing as the Company adds resources and
initiates operations in additional markets.
In response to customer needs during 1993, 1994 and 1995, the Company
developed proprietary software that supports all current industry standard
operating systems, networking environments and proprietary image capture and
inspection products. Development costs that benefited specific projects were
recorded as project costs and costs that did not benefit specific projects
were recorded as research and development expenses. The Company has not
capitalized any software development costs because costs incurred subsequent
to achieving technological feasibility have not been material. The Company
believes that the software and hardware products developed in prior periods
will support its card-based identification system offerings for the
foreseeable future. In addition to its own development efforts, Viisage has
also benefited from research and development conducted by Lau for projects
that were not related to Viisage and, through Lau's license with Facia Reco
Associates, Limited Partnership ("Facia Reco"), from certain research
activities at the Massachusetts Institute of Technology. Following the
transfer discussed above, the Company believes that it will continue to
benefit from such activities under license arrangements with Lau and Facia
Reco. The Company's ongoing development activities are expected to focus
primarily on facial recognition products and services.
The Company's operations prior to the transfer discussed above were included
in the income tax returns of Lau, an S corporation. After the transfer, the
Company will be subject to federal and state income taxation at the corporate
level and will be required to file its own separate tax returns. The Company
anticipates that it will recognize a non-recurring charge relating to a net
deferred tax liability of approximately $100,000 arising from the change in
its tax status in the quarter in which the transfer occurs.
The Company's results of operations are significantly affected by, among
other things, the timing of award and performance on contracts. As a result,
the Company's revenues and income may fluctuate from quarter to quarter, and
comparisons over longer periods of time may be more meaningful. The Company's
results of operations are not seasonal since contracts are awarded and
performed throughout the year.
RECENT DEVELOPMENTS
The following table shows certain financial information for the periods
ended October 1, 1995 and September 29, 1996. This information is derived from
unaudited financial statements that include, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the information for the periods presented. The operating
results for any period are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
OCTOBER 1, SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29,
1995 1996 1995 1996
---------- ------------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................... $2,711 $6,258 $8,106 $18,128
Project margin.............. 223 1,542 646 3,759
Operating income (loss)..... (560) 507 (1,678) 971
Net income (loss)........... (748) 285 (1,999) 359
Net income (loss) per
share...................... (0.12) 0.05 (0.32) 0.06
====== ====== ====== =======
Weighted average number of
common shares.............. 6,225 6,225 6,225 6,225
====== ====== ====== =======
</TABLE>
20
<PAGE>
For the three months and nine months ended September 29, 1996, as compared to
the comparable periods for 1995, revenues increased 131% and 124%,
respectively. Project margin increased 592% and 482%, respectively, and as a
percentage of revenues, project margin increased to 25% and 21% for the 1996
periods, from 8% for the 1995 periods. Operating income and net income also
increased significantly. These increases are due primarily to the same factors
discussed in the "--Results of Operations" section below for the six months
ended June 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth certain financial information as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------ ----------------
JULY 2, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................... 100 % 100 % 100 % 100 % 100%
Project costs............... 90 91 92 92 81
-------- -------- ------- --- ---
Project margin.............. 10 9 8 8 19
Operating expenses:
Sales and marketing....... 235 127 9 8 6
Research and development.. 9 16 10 11 1
General and
administrative........... 57 54 11 10 8
-------- -------- ------- --- ---
Total operating
expenses............... 301 197 30 29 15
-------- -------- ------- --- ---
Operating income (loss)..... (291) (188) (22) (21) 4
Interest expense............ -- 3 4 2 3
-------- -------- ------- --- ---
Income (loss) before income
taxes...................... (291) (191) (26) (23) 1
Income taxes................ -- -- -- -- --
-------- -------- ------- --- ---
Net income (loss)........... (291)% (191)% (26)% (23)% 1%
======== ======== ======= === ===
</TABLE>
Six Months Ended June 30, 1996 and July 2, 1995
Revenues. Revenues are derived principally from systems implementation, card
production and related services under multi-year contracts. Revenues increased
120% to $11.9 million for the six months ended June 30, 1996 from $5.4 million
for the six months ended July 2, 1995. The increase was due to an increase in
the number of contracts being performed during the six months ended June 30,
1996.
Project Costs and Margin. Project costs consist primarily of hardware,
consumables (printer ribbons, cards, holographic overlays, etc.), system
design, software development and implementation labor, maintenance and
overhead. Project costs increased 94% to $9.7 million for the six months ended
June 30, 1996 from $5.0 million for the six months ended July 2, 1995. This
increase was due to the Company's increased level of contract performance
during the 1996 period. As a percentage of revenues, project costs decreased to
81% for the 1996 period from 92% for the 1995 period. This decrease reflects
cost savings on design, development and implementation activities resulting
from the Company's increased experience with and resources for digital
identification solutions. Project margin increased 424% to $2.2 million for the
six months ended June 30, 1996 from $423,000 for the six months ended July 2,
1995, reflecting the increase in revenues and cost savings discussed above. As
a percentage of revenues, project margin increased to 19% for the 1996 period
from 8% for the 1995 period.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and professional service fees for marketing, bid and proposal and
customer support activities. Sales and marketing expenses increased 71% to
$735,000 for the six months ended June 30, 1996 from $431,000 for the six
months ended July 2, 1995. This increase principally reflects an increase in
proposal activity and the addition of marketing personnel during the first six
months of 1996. As a percentage of revenues, sales and marketing expenses
decreased to 6% for the 1996 period from 8% for the 1995 period due to revenues
increasing at a greater rate than such expenses during the 1996 period.
21
<PAGE>
Research and Development. Research and development expenses consist
principally of compensation, outside services and materials utilized for
product and software development activities that are not related to specific
projects. Research and development expenses decreased 79% to $128,000 for the
six months ended June 30, 1996 from $597,000 for the six months ended July 2,
1995, and decreased as a percentage of revenues to 1% for the 1996 period from
11% for the 1995 period. These decreases reflect the completion in 1995 of the
development of certain proprietary software to support industry standard
computing environments and proprietary hardware products for the Company's
card-based systems and the increase in revenues in the 1996 period described
above. Expenditures for the six months ended June 30, 1996 relate primarily to
the Company's facial recognition products and do not reflect the benefits to
the Company from the efforts of Lau and the Massachusetts Institute of
Technology discussed in the "--Overview" section above.
General and Administrative. General and administrative expenses consist
principally of compensation for executive management, finance and
administrative personnel and outside professional fees. General and
administrative expenses increased 74% to $890,000 for the six months ended June
30, 1996 from $513,000 for the six months ended July 2, 1995. The increase in
expenses was due primarily to the addition of management personnel during the
fourth quarter of 1995 and increased management activities related to the
growth in the Company's business. As a percentage of revenues, general and
administrative expenses decreased to 8% for the 1996 period from 10% for the
1995 period due to revenues increasing at a greater rate than such expenses in
the 1996 period. The Company has employment and noncompetition agreements with
certain officers. See "Management--Employment Agreements."
Interest Expense. The increase in interest expense to $387,000 for the six
months ended June 30, 1996 from $133,000 for the six months ended July 2, 1995
principally reflects the increase in the level of borrowings during the six
months ended June 30, 1996.
Years Ended December 31, 1995, 1994, and 1993
Revenues. Revenues increased 793% to $11.2 million in 1995 from $1.3 million
in 1994 and 149% in 1994 from $505,000 in 1993. The increase in 1995 was due
primarily to performance on several contracts awarded during the fourth quarter
of 1994 and the first quarter of 1995. The Company began operations in 1993 and
its first contract was awarded late that year. Revenues for 1994 and 1993 were
derived solely from this contract and the increase in revenue for 1994 was due
to a full year of performance on the aforementioned contract.
Project Costs and Margin. Project costs increased 809% to $10.4 million in
1995 from $1.1 million in 1994 and 150% in 1994 from $456,000 in 1993. These
increases reflect the increased level of contract performance each year. As a
percentage of revenues, project costs increased to 92% in 1995 from 91% in 1994
and 90% in 1993. These percentages reflect additional development costs
incurred to design, develop, and integrate system components and industry
standard software for the first time. Project margin increased 635% to $860,000
in 1995 from $117,000 in 1994 and 139% in 1994 from $49,000 in 1993 reflecting
the increases in revenues and development costs discussed above. As a
percentage of revenues, project margin decreased to 8% in 1995 from 9% in 1994
and 10% in 1993.
Sales and Marketing. Sales and marketing expenses decreased 37% to $1.0
million in 1995 from $1.6 million in 1994 and increased 35% in 1994 from $1.2
million in 1993. The decrease in 1995 reflects improved controls over bid and
proposal costs and the Company's decision not to pursue certain opportunities
due to funding constraints. The increase in expenses for 1994 reflects an
increase in proposal activity. As a percentage of revenues, sales and marketing
expenses decreased to 9% in 1995 from 127% in 1994 and 235% in 1993 due
primarily to revenues increasing at a greater rate than such expenses in the
1996 period.
Research and Development. Research and development expenses increased 442% to
$1.1 million in 1995 from $201,000 in 1994 and increased 328% in 1994 from
$47,000 in 1993. The significant increase in expenses during 1995 reflects the
completion of the development of certain proprietary software to support
industry
22
<PAGE>
standard computing environments and the development of proprietary hardware
products for the Company's card-based systems. As a percentage of revenues,
these expenses decreased to 10% in 1995 from 16% in 1994 and increased in 1994
from 9% in 1993. These fluctuations were due to the increase in revenues each
period at a greater or lesser rate than such expenses.
General and Administrative. General and administrative expenses increased 77%
to $1.2 million in 1995 from $681,000 in 1994 and 136% in 1994 from $289,000 in
1993. These increases reflect the increased level of management activity due to
the growth in the Company's business and the addition of certain management
personnel during the fourth quarter of 1995. As a percentage of revenues,
general and administrative expenses decreased to 11% in 1995 from 54% in 1994
and 57% in 1993 due primarily to revenues increasing at a greater rate than
such expenses during the 1996 period.
Interest Expense. Interest expense increased to $515,000 in 1995 from $40,000
in 1994 and none in 1993. These increases were due principally to the increase
in borrowings to fund operations.
QUARTERLY RESULTS
The following table sets forth certain quarterly financial information for
1995 and the first two quarters of 1996. This information is derived from
unaudited financial statements that include, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- ------- ---------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $2,549 $2,846 $2,711 $3,115 $5,737 $6,133
Project costs........... 2,313 2,659 2,488 2,901 4,711 4,942
------ ------ ------ ------ ------ ------
Project margin.......... 236 187 223 214 1,026 1,191
------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing... 164 267 285 283 356 379
Research and
development.......... 380 217 198 294 85 43
General and
administrative....... 243 270 300 391 392 498
------ ------ ------ ------ ------ ------
Total operating
expenses........... 787 754 783 968 833 920
------ ------ ------ ------ ------ ------
Operating income
(loss)................. (551) (567) (560) (754) 193 271
Interest expense........ 29 104 188 194 187 200
------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (580) (671) (748) (948) 6 71
Income taxes............ -- -- -- -- -- 3
------ ------ ------ ------ ------ ------
Net income (loss)....... $ (580) $ (671) $ (748) $ (948) $ 6 $ 68
====== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
The following table sets forth, as a percentage of revenues, certain
quarterly financial information for 1995 and the first two quarters of 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
-------- ------- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100 % 100 % 100 % 100 % 100 % 100%
Project costs........... 91 93 92 93 82 81
--- --- --- --- --- ---
Project margin.......... 9 7 8 7 18 19
--- --- --- --- --- ---
Operating expenses:
Sales and marketing... 6 9 11 9 6 6
Research and develop-
ment................. 15 8 7 9 2 1
General and adminis-
trative.............. 10 10 11 13 7 8
--- --- --- --- --- ---
Total operating ex-
penses............. 31 27 29 31 15 15
--- --- --- --- --- ---
Operating income
(loss)................. (22) (20) (21) (24) 3 4
Interest expense........ 1 4 7 6 3 3
--- --- --- --- --- ---
Income (loss) before in-
come taxes............. (23) (24) (28) (30) -- 1
Income taxes............ -- -- -- -- -- --
--- --- --- --- --- ---
Net income (loss)....... (23)% (24)% (28)% (30)% -- 1%
=== === === === === ===
</TABLE>
The Company's quarterly results reflect the factors discussed in the "--
Overview" and "--Results of Operations" sections above. Project margin, as a
percentage of revenues, increased in each of the first two quarters of 1996
due to cost savings on design, development and implementation activities for
new contracts.
The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results are affected by a number of factors that
could materially and adversely affect revenues and profitability, including
the size of customer contracts, the timing of contract awards and the timing
of the Company's performance on contracts; competitive conditions including
pressures inherent in the competitive bidding process; the availability and
cost of key components; modifications to contracts after their award;
financing costs related to large project expenditures which are often
necessary at the outset of a customer contract; changes in management
estimates incident to accounting for contracts; the timing of the introduction
or market acceptance of new or enhanced products and services offered by the
Company or its competitors; variations in the mix of products and services
sold by the Company; and general economic and political conditions and other
factors affecting project spending by customers. Further, the sales cycles for
the Company's products typically involve lengthy marketing and procurement
processes. After a contract is awarded, delays in the design and start-up of a
system may require that revenues associated with such implementation be
recognized later than originally anticipated. Such delays have caused, and may
in the future cause, material fluctuations in the Company's operating results.
The Company's revenues in any period are generally derived from large orders
from a limited number of customers. As the Company's project margin on such
orders can differ significantly, the Company's overall margin may vary
significantly from period to period. In addition, project margin may be
adversely affected by competitive pressures, or customer requirements.
Accordingly, there can be no assurance that the Company will be able to
sustain satisfactory project margins. The Company may also choose to reduce
prices or increase spending in response to competition or to pursue new market
opportunities, all of which may adversely affect the Company's business,
operating results and financial condition.
The Company expects to make continued investments in the research,
development and engineering of its systems, software and products, as well as
in the Company's sales and marketing efforts. Given these and other fixed
costs that the Company will incur, a small variation in the timing of revenue
recognition can cause material variations in operating results from quarter to
quarter and may result in losses or have a material adverse effect on the
Company's business, results of operations or financial condition.
24
<PAGE>
Due to the foregoing factors, it is possible that the Company's results of
operations could fail to meet the expectations of securities analysts or
investors. In such event, or in the event that adverse conditions prevail or
are perceived to prevail, the price of the Company's Common Stock would likely
be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and projects
principally through borrowings under Lau's line of credit facility,
investments by Lau and capital lease financing. The Company has not made
substantial capital expenditures for facilities, office and computer equipment
and has satisfied its needs in these areas principally through leasing.
Cash flows from operations have been negative since inception due to losses
from operations through December 31, 1995 and increases in accounts receivable
and costs and estimated earnings in excess of billings, net of increases in
accounts payable and accrued expenses. Cash flows from financing activities
reflect borrowings under Lau's line of credit facility and investments by Lau
that provided $1.3 million in the first six months of 1996 and $17.0 million
from inception through December 31, 1995 to fund operations.
At June 30, 1996, working capital was $9.1 million compared to $7.4 million
at December 31, 1995. The increase in working capital was due primarily to
increases in accounts receivable and costs and estimated earnings in excess of
billings, net of increases in accounts payable and accrued expenses. Working
capital does not include any cash or cash equivalents and the Company will not
receive any cash or cash equivalents in connection with Lau's transfer of the
Viisage Technology Division to the Company. As part of the transfer, the
Company will also assume certain obligations under Lau's line of credit
facility, approximately $8.8 million at June 30, 1996, and will use a portion
of the proceeds from this offering to repay such borrowings.
The Company is currently negotiating a line of credit arrangement, separate
from that of Lau, that will take effect after the issuance of the shares
offered hereby and the repayment of sums assumed under Lau's credit facility.
The line of credit is expected to provide for borrowings of up to $10.0
million, have a term of two years, provide for interest at prime rate or
LIBOR-based options, include customary financial and other covenants relating
to the maintenance of certain financial ratios (such as leverage and debt
service coverage ratios) and restrict the Company's ability to incur
additional indebtedness (except for the project lease facility described
below).
Lau has a system project lease arrangement, which will be assumed by Viisage
at the time of the transfer, with a commercial leasing organization providing
for system project leases of up to $15.0 million. Pursuant to this
arrangement, the lessor will purchase certain of the Company's digital
identification systems and lease them back to Viisage for deployment with
identified and contracted customers approved by the lessor. The lessor will
retain title to systems and will have an assignment of Viisage's rights under
the related customer contracts, including rights to use the software and
technology underlying the related systems. Under this arrangement, the lessor
will bear the credit risk associated with payments by Viisage's customers, but
Viisage will bear performance and appropriation risk and will generally be
required to repurchase a system in the event of a termination by a customer
for any reason except credit default.
The Company believes that the net proceeds from this offering, together with
cash flow from operations, available borrowings and project leasing, will be
sufficient to meet the Company's working capital and capital expenditure needs
for at least the next 12 months. There can be no assurance, however, that the
Company will be able to obtain such financing on favorable terms or at all. If
the Company is unable to finalize its credit arrangement or is otherwise
unable to obtain additional capital, the Company may be required to reduce the
scope of its presently anticipated expansion, which could adversely affect the
Company's business, financial condition and results of operations.
INFLATION
Although certain of the Company's expenses increase with general inflation
in the economy, inflation has not had a material impact on the Company's
financial results to date.
25
<PAGE>
BUSINESS
OVERVIEW
The Company designs, sells and implements turnkey digital identification
systems intended to deter fraud and to reduce customers' identification
program costs. These systems capture facial images, demographic information
and other biological identifiers, produce identification cards, and create
relational databases containing this information. Using its software design
and systems integration capabilities, the Company is able to combine its
proprietary software and hardware products with commercially available
components and customers' existing systems, creating a complete customized
solution. In addition, the Company is developing proprietary facial
recognition software designed to identify individuals in a large database of
faces on a real-time basis.
The Company's proprietary digital identification system products are
currently operating at over 365 locations under multi-year contracts with
twelve public sector agencies (either via contract or, in certain
circumstances, as a subcontractor). These systems produce driver's licenses,
welfare cards, pistol permits, prison cards, electronic benefits transfer
cards and immigration cards. The Company believes there is a large demand in
the public sector for identification systems that not only incorporate digital
technology to deter fraud and reduce costs, but also store data for convenient
access and dissemination. The Company also believes its technology is well
suited for a variety of commercial applications including access to ATMs,
networks, databases, and facilities, as well as for retail point-of-sale
transaction processing and benefits administration.
INDUSTRY BACKGROUND
Properly identifying individuals entitled to special rights and benefits has
presented problems for both the public and private sectors. Today, various
forms of personal identification cards, often bearing a picture of the proper
owner together with other demographic information, serve as the primary means
of personal identification, providing the owner with the ability to exercise
special rights, obtain benefits and process transactions. As a result of their
importance, identification cards are often the target of fraud and tampering.
The use of false identification cards can have significant financial and
societal implications. A person may use a number of false cards to create
multiple identities or use a single fake card as a basis for fraudulently
obtaining other credentials. For example, a fake driver's license can enable a
person to improperly open or access bank accounts, forge checks, obtain
welfare or other benefits, or buy alcohol while underage. In addition to the
direct costs and effects of improper identification, the indirect costs
associated with the investigation, prosecution and incarceration of offenders
are substantial. Public concern about security has also increased the demand
for identification systems for controlling access to both secure and public
facilities.
In an effort to combat fraud and tampering, photographic identification
cards encapsulated within laminated pouches were developed. However,
photographic identification cards can be replicated using widely available
advanced color copiers and printers, and laminated pouches have proven easy to
delaminate. Further, records of these cards consist primarily of retained
copies, which often require significant amounts of space and are inefficient
to maintain and access.
Advances in and the growing acceptance of digital technology has led to an
increasing demand for digital identification systems to replace existing
systems. Digital systems enable information and images to be captured and
imbedded within the fabric of the card through the use of dye-sublimation
techniques, making digital cards more resistant to tampering than laminated
pouches. Information can be stored in and later accessed from the card itself
through the use of bar codes, magnetic stripes and "smart" cards (cards which
contain computer chips). Digital systems also facilitate the storage of
information in computer databases, thereby reducing the need for manual
record-keeping, file cabinets, and cumbersome indexing systems. Finally,
digital systems can be networked to enable up-to-date information to be shared
and distributed across geographic and organizational boundaries.
26
<PAGE>
As an additional means of deterring fraud, identification systems have
increasingly used biometrics (unique biological characteristics) to verify
personal identities. The most prevalent biometric identifiers include
fingerprints, facial images, voice data or hand geometry, with fingerprints
enjoying wide usage in law enforcement. However, unlike a fingerprint, a
facial image can be easily verified visually and can be captured in an
unobtrusive manner via a single photograph, making it a practical means of
identification. When two or more biometric identifiers are used together, the
statistical probability of properly identifying an individual increases.
Applications for digital identification systems are increasing as they
become more sophisticated and easier to use. For example, the typical U.S.
state has multiple licensing or other agencies, including its department of
motor vehicles, which require the verification of personal identity. The
public sector is focusing on the value of sharing databases to avoid redundant
data gathering efforts, distribute information in a timely manner, increase
efficiency and deter fraud. In the private sector, the Company envisions that
applications for digital identification systems will extend to ATMs, retail
point-of-sale transaction processing, the administration of health care
benefits and access to telecommunications services, personal computer networks
and facilities.
The emergence of digital identification systems also presents significant
challenges for integrating these systems with customers' existing software,
hardware and computing environments. Consequently, customers are seeking
complete, integrated solutions to overcome these integration issues.
THE VIISAGE SOLUTION
The Company designs, sells and installs digital identification systems which
provide complete integrated solutions for capturing images and data, producing
and delivering identification cards, and creating and managing relational
databases containing the captured information. These systems can utilize
unique biological identifiers such as facial images, fingerprints, voice data
or hand geometry to help deter fraud and to identify individuals for access
control and transaction authorization purposes.
The Company's systems integration and software design capabilities enable it
to provide complete solutions to customer-specified needs. The Company
provides customized systems integration software and services which link the
Company's proprietary software and hardware products with a wide variety of
commercially available computers, printers, and networks, as well as the
customer's existing systems. The Company believes that its ability to support
all current industry standard platforms, operating systems, databases, and
networks provides it with a significant competitive advantage.
While cards generated by the Company's systems can store and display a
variety of biometrics, the Company has found that the image of a human face is
a biological identifier that is prominent and easy to capture. The Company is
developing proprietary facial recognition software that enables databases of
facial images to be searched quickly and accurately for use in a variety of
fraud deterrence and security applications.
STRATEGY
The Company's objective is to be a leading worldwide provider of digital
identification systems and solutions. The Company intends to enhance these
systems and solutions with its facial recognition products and technologies
under development. Key elements of the Company's strategy are:
. Deliver Complete Integrated Digital Identification Systems. The Company
designs, sells and implements digital identification systems which provide
complete integrated solutions. Consistent with the Company's commitment to
provide customized solutions to meet its customers' specific requirements,
the Company intends to preserve its configurable system architecture to
enable it to integrate a wide variety of commercially available third party
products and to continue to adapt quickly to emerging technologies.
. Establish Leading Public Sector Market Share Worldwide. The Company intends
to focus on providing solutions to public sector customers worldwide, with
a particular current emphasis on domestic sales of solutions which produce
drivers' licenses. State departments of motor vehicles provide major
contract opportunities for the Company because of the large number of
licensed drivers and multiple branch
27
<PAGE>
locations. The complex systems purchased by these entities also provide
ongoing revenue-generating opportunities from product upgrades,
enhancements, and maintenance services. In addition, other state agencies
may desire to access the motor vehicle department's databases to satisfy
their own licensing requirements, potentially leading to incremental
revenues for the Company. Further, the Company plans to leverage its
domestic public sector expertise into government applications worldwide,
such as systems for the delivery of national identification, voting, and
government assistance cards.
. Leverage Public Sector Expertise Into Commercial Applications. The Company
believes significant commercial applications exist for the Company's
digital identification systems and facial recognition capabilities. The
private sector has many of the same technological needs and security
concerns as the public sector, and the Company believes commercial
applications may involve ATMs, networks, databases, and facilities, as well
as retail point-of-sale transaction processing and benefits administration.
. Extend Technological Leadership. The Company believes that its customized
systems and products, proprietary software and hardware, and integration
capabilities make it a technological leader in the digital identification
system market and constitute a competitive advantage. Viisage is committed
to maintaining its technological leadership, developing new systems,
solutions and enhancements, and responding to changes in market demands and
technologies.
. Extend Leadership in Facial Recognition Technologies. The Company believes
that it is among the leaders in facial recognition technologies, and that
facial recognition products could significantly enhance the Company's
digital identification systems and provide it with a competitive advantage.
The Company expects that in the future its facial recognition products will
be used with other vendors' identification systems and as stand-alone
products. The Company believes that its focus on and its presence in the
public sector will enable it to access an extensive database of facial
images (facebase). Furthermore, the Company believes that an extensive
facebase will become increasingly important to a variety of public and
commercial organizations which wish to utilize the Company's proprietary
facial recognition software to perform identification searches.
. Establish Strategic Relationships. An important part of Viisage's strategy
is to establish strong working relationships with strategic partners,
particularly as the Company seeks to expand its international presence. The
Company intends to align itself with firms which have existing
relationships, established distribution channels, or marketing resources in
new markets. Potential partners could include entities which are renowned
in a particular vertical market or firms with an established worldwide
presence. These may include component manufacturers, health care providers,
financial institutions, or computer networking firms.
PRODUCTS AND SERVICES
Viisage provides fully-integrated, turnkey digital identification systems
intended to deter fraud and to reduce customers' identification program costs.
These systems capture facial images, demographic information and other
biological identifiers, produce identification cards and create relational
databases containing this information. Using its design and systems
integration capabilities, the Company combines its proprietary software and
hardware products with commercially available components and customers'
existing systems. In addition, the Company is developing proprietary facial
recognition software designed to identify individuals in a large database of
facial images on a real time basis.
Digital Identification Systems
The Company's digital identification systems provide complete integrated
solutions for recording images and data, producing and delivering tamper-
resistant identification cards, and creating and managing relational databases
containing the recorded information. Depending on the customer's needs, the
Company offers "instant issue" systems which produce identification cards on
location that can be delivered to recipients in minutes, and central
processing systems which receive the information to appear on the cards
electronically from the point of capture and produce cards from a secure off-
site processing location which are later mailed to recipients. The facial
images captured by the Company's systems can provide the content for the
identification and verification applications of the Company's facial
recognition technologies.
28
<PAGE>
Operations. The following diagram illustrates the card-production operations
of the Company's systems:
[SCHEMATIC DEPICTION OF VIISAGE'S DIGITAL IDENTIFICATION SYSTEM IN OPERATION.
CLIP ART ACCOMPANIED BY FOLLOWING CAPTIONS]
<TABLE>
<S> <C> <C> <C> <C>
Over The
Counter Printer
Demographic Data
YES
Central
Face Base Instant Production
Image Server Card Issue Facility
NO
Captured Image Viisage
Quality
Inspection
</TABLE>
For both instant issue and central processing systems, Viisage's digital
identification systems utilize an image workstation which incorporates the
Company's proprietary SensorMast. The image workstation captures, inputs, and
retrieves images and biometric and demographic information. With an instant
issue system, a commercially available dye-sublimation printer produces
single-piece, tamper-resistant identification cards on site in minutes.
Alternatively, with a central production system, images are electronically
transmitted to a secure processing location where a high speed manufacturing
unit produces the cards, and an integrated card delivery unit prepares the
cards for mailing. The Company's proprietary Visual Inspection System applies
quality control to all of the cards produced in central processing systems.
Under either process, the systems produce cards with holographic overlays and
digitized images and other biometric and demographic information. Finally, all
such digitized images and biometric and demographic information are stored in
a central database for easy and efficient access and retrieval.
Proprietary Company Products. All of the Company's systems incorporate the
Company's proprietary SensorMast product within the image workstations.
Central production systems also typically include the Company's proprietary
Visual Inspection System for quality assurance. These proprietary products and
related software are described below:
. SensorMast. The SensorMast is a fully-integrated, secure tower unit
developed by the Company which incorporates computer-controlled image
capture equipment. This equipment includes commercially available digital
cameras, adjustable lighting, frame grabbers, step motors, fingerprint and
signature capture devices and barcode readers. These are integrated into
the SensorMast, which in turn is incorporated by the Company into a
specially configured operator's workstation. This integrated workstation
provides operators with a durable and transportable apparatus with which to
capture images and data and initiate the card production process. The
Company's proprietary software controls and integrates the elements within
the SensorMast and links the SensorMast with the rest of the system.
29
<PAGE>
. Visual Inspection System. The Visual Inspection System automatically
evaluates cards produced by the Company's central production systems to
determine whether the image and data on a person's identification card
correspond to the information about that person in the system database. If
the information does not match, the Visual Inspection System rejects the
printed card and identifies the defect for immediate corrective action.
This system, which incorporates robotics and high-definition inspection
cameras, automates an activity which is otherwise performed manually and is
a potential source of cost savings for customers. The Company's proprietary
software controls and integrates the various elements of the Visual
Inspection System and audits the central production manufacturing and
delivery systems.
Integration Software and Capabilities. An important aspect of the Company's
services and ability to deliver solutions for its customers involves the
design of customized software. Viisage's proprietary software and services
integrate the various components of its own SensorMast and Visual Inspection
System as well as integrate the Company's products with the variety of third
party components and technologies used by its customers. The Company has
designed software to support all current industry standard operating systems
(e.g., Unix, Windows NT, Windows 95 and OS/2), network protocols (e.g., Novell
Netware, TCP/IP and SNA), database products (e.g., Sybase or Oracle) and
client/server architectures. The Company's software design and systems
integration capabilities enable it to accommodate most computing environments
and customers with special requirements.
Customer Service and Support. The Company believes that customer service and
support are critical to its success and has committed significant resources to
these efforts. Following the installation of its digital identification
systems, the Company offers extensive customer training and help desk
telephone support as well as ongoing maintenance services. The Company's
service and support teams, which vary depending on the customer and contract,
are able to draw extensively upon the expertise of the Company's software and
hardware engineers. For some contracts, particularly when there are a large
number of installations, the Company has contracted with third party service
organizations for maintenance support, a practice the Company intends to
continue.
Contracts and Pricing of Systems and Services. The Company typically
provides its digital identification systems and solutions pursuant to
contracts which generally have five-year terms, provide for renewal options
and have an implementation phase of six-to-twelve months. Particular system
elements, products and services are not separately priced, but are instead
included within an overall contract price that varies depending on, among
other factors, design and integration complexities, the number of sites and
installations, the projected number of cards to be produced, the level of
desired post-installation support and the competitive environment. Depending
on the contract, the Company may also be responsible for the provision of
consumables (printer ribbons, cards, holographic overlays, etc.) required for
the production of cards, in which case the Company builds such costs into its
overall contract price. Consulting services are also available separately. The
Company's contracts are typically awarded pursuant to a formal bid process.
See "--Sales and Marketing" and "Risk Factors--Burdens Imposed by Public
Sector Customers." As of June 30, 1996, the estimated total amount of revenue
under the Company's contracts generally ranges up to $10 million per contract.
Facial Recognition Technologies
Background. The Company is working to improve the technology used in
security and fraud control through the development of facial recognition
technologies. The Company has three facial recognition products which it is
currently testing in pilot programs and plans to make generally available in
the first quarter of 1997. The Company has focused on the facial image as a
key biometric because the human face is a unique and prominent feature that
can be easily captured (in image) by a digital camera and verified visually.
The Company's technologies enable facial databases to be searched quickly and
accurately for identification and verification purposes.
The Company's facial recognition software is based on technology developed
by Professor Alex Pentland of the Massachusetts Institute of Technology. The
Company licenses that technology through Facia Reco, an entity formed by Dr.
Pentland. See "--Intellectual Property and Proprietary Rights." While Dr.
Pentland's software forms the basis of the Company's facial recognition
technologies, the Company believes that the proprietary software it has
developed is integral to making these technologies commercially viable.
30
<PAGE>
The Company's facial recognition technologies are based on the premise that
certain facial features tend to be associated with each other. For example,
the combination of a thin nose and high forehead could constitute a face type.
As a person is added to the database, his or her face types--known as
"eigenfaces"--are measured against the eigenfaces of the "average" face
created by the software through its compilation of all the faces in the
database. This average face appears as an androgynous image. The difference
between the eigenfaces of the person being enrolled and the eigenfaces of the
average face is depicted numerically and becomes a unique identifier. The
Company's software calculates that numeric depiction, indexes the data and
stores it in a computer database and allows for searches using the numeric
identifier rather than facial images or other depictions. This numeric
depiction requires less database space and a smaller amount of bandwidth for
electronic communication than a visual image. The Company believes that these
features significantly increase the speed and cost effectiveness of its
products as compared to competing facial recognition technologies based on
neural networks.
The Company's facial recognition technologies are designed to compare one
face to many faces stored in a database ("identification") or to compare one
face to a particular face stored in a database ("verification"). Verification
is less complex than identification because only a single comparison is
necessary, while identification requires many more comparisons. The Company
has recently announced facial recognition products that perform real-time
identification, which the Company believes will be necessary for such products
to achieve market acceptance.
[SCHEMATIC DEPICTION OF FUNCTIONS PERFORMED BY THE COMPANY'S FACIAL
RECOGNITION PRODUCTS]
Facial Recognition Process Flow
Capture Take digital image
Eye-Find Mark eyes electronically
as a reference point
Mask Capture only facial
features
Compare Compare eigenfaces or
"average" face
Identify Create a unique
numerical identifier
Search Face Base Verify or identify
31
<PAGE>
For identification searches, the computer constructs the numeric depiction
of the person being enrolled and searches for the closest measurement of a
face already in the database. The software performs a numeric table look-up
and completes the search within seconds. The system then displays images of
the persons in the database which most closely resemble the enrollee's image.
The Company's software can also determine whether a face appears in the
database more than once. This can be used to determine, for example, whether a
person is applying for multiple driver's licenses or welfare benefits. This
approach could also be used to identify an unknown person by comparing his or
her photo image to those of individuals stored in databases.
For verification searches, the software compares the target face to a
particular facial image stored in the database to determine whether there is a
match. Since eigenface measurements can be included in a smart card or on a
barcode, a comparison of the facial data stored on an identification card with
the actual face of the card holder can be used for verification purposes. This
can be used to control access to both secure and public facilities, ATMs and
networks and databases. Verification can also have applications for identity
confirmation at the point of sale or service.
Facial Recognition Products and Services. The Company has three facial
recognition products which it is currently testing in pilot programs and plans
to make generally available in the first quarter of 1997. There can be no
assurance, however, that the pilot programs will be successful or that the
Company will not experience delays or difficulties in the introduction, sale
and integration of these facial recognition products. Nor can there be any
assurance that any of its facial recognition products will adequately meet the
requirements of the marketplace and achieve or sustain market acceptance.
. Viisage Quality Advisor. This software product enables the analysis of the
quality of digital images in a database. Image quality can be measured
against pass/fail criteria set by the customer to identify both substandard
images and more systemic problems or patterns (e.g., that a large
percentage of the images captured at a particular branch are defective).
Viisage Quality Advisor is currently being tested by a state welfare
department.
. Viisage Registry. This software product can be used to enable database
search capabilities by enrolling faces in a database and searching the
database to determine whether a face appears more than once. This search is
used for one-to-many identifications. This product is currently undergoing
testing by a state welfare department.
. Viisage Gallery. This software product is designed to perform one-to-one
face verification at a point-of-sale or transaction device, such as an ATM.
The Company has entered into a letter of intent with a major international
bank for the use of the Viisage Gallery, as well as Viisage's Quality
Advisor and Registry products, in one of its branches.
The Company intends to offer its facial recognition software products as
enhancements to its digital identification systems. The Company also plans to
offer its facial recognition software to customers using other providers'
identification systems and to the users of such third party databases.
PRODUCT DEVELOPMENT
The Company has made research and development an important part of its
operating discipline. The Company's research efforts during its first three
years of operations centered on making its systems capable of supporting a
wide range of computing environments. The Company's current development
activities are focused on its facial recognition products and the further
commercialization of its facial recognition technology. In addition, among
other projects, the Company continues its development activities in the area
of platform engineering and is developing enhancements to the SensorMast as
well as point-of-sale device prototypes.
In addition to its own development efforts, the Viisage Technology Division
has also benefited from research and development conducted by Lau for projects
that were not related to the Viisage Technology Division and, through Lau's
license with Facia Reco, from certain research activities at the Massachusetts
Institute of Technology. Following the transfer discussed above, the Company
believes that it will continue to benefit from such activities under license
arrangements with Lau and Facia Reco. See "Relationships and Certain
Transactions with Lau Technologies--License Agreement."
During the fiscal years ended December 31, 1993, 1994 and 1995, the Company
spent $47,000, $201,000 and $1.1 million respectively, on research and
development; the corresponding figures for the six months ended
32
<PAGE>
July 2, 1995 and June 30, 1996 were $597,000 and $128,000, respectively. Such
figures do not include amounts for specific projects that are allocated to
project costs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CUSTOMERS AND END USERS
The Company's solutions are marketed to public and private sector customers
who are concerned about maintaining or increasing security, reducing fraud and
controlling costs. The Company currently has contracts with several state
departments of motor vehicles for the production of drivers' licenses as well
as with other public sector customers to produce welfare cards, pistol
permits, prison cards, electronic benefits transfer cards and immigration
cards. The Company envisions that public sector databases will ultimately have
applications for the private sector. Commercial applications may involve
access to ATMs, computer networks and databases, and facilities, as well as
retail point-of-sale transaction processing and benefits administration.
As of October 8, 1996, the Company's proprietary digital identification
system products were operating at over 365 locations under multi-year
contracts with twelve public sector agencies (either via contract or, in
certain circumstances, as a subcontractor). The following lists and
categorizes those customers and end users:
STATE DEPARTMENTS OF MOTOR VEHICLES
Arizona Department of Transportation
Massachusetts Registry of Motor Vehicles
North Carolina Department of Transportation
Ohio Bureau of Motor Vehicles
OTHER STATE AND LOCAL AGENCIES
Auburn (Massachusetts) Police Department
Connecticut Department of Public Safety
Connecticut Department of Social Services
Massachusetts Department of Transitional Assistance
New York Department of Social Services *
Ohio Department of Public Safety
FEDERAL AGENCIES
U.S. Immigration and Naturalization Service *
FOREIGN CONTRACTS
Electoral Office of Jamaica*
First National Bank of Southern Africa, Limited+
* By subcontract.
+ Letter of intent.
Revenues from the Massachusetts Registry of Motor Vehicles accounted for all
of the Company's 1993 and 1994 revenues. Three customers (Ohio Bureau of Motor
Vehicles, Arizona Department of Transportation and the Massachusetts Registry
of Motor Vehicles) each accounted for over 10% of revenues in 1995. For the
six months ended June 30, 1996, four customers (New York Department of Social
Services, Massachusetts Registry of Motor Vehicles, U.S. Immigration and
Naturalization Service (by subcontract) and Massachusetts Department of
Transitional Assistance) each accounted for over 10% of Company revenues. The
loss of any such customers could have a material adverse impact on the
Company's business, operating results and financial condition. See "Risk
Factors--Dependence on Large Orders and Customer Concentration" and "--Risks
Associated With Lengthy Sales and Implementation Cycles."
33
<PAGE>
SALES AND MARKETING
The Company markets its products directly through its internal sales force,
which consisted of six individuals as of June 30, 1996. As it continues to
increase its bid activity, the Company anticipates that it will increase the
number of its sales and marketing personnel. In addition, the Company intends
to ally strategically with prominent vendors, systems integrators and service
organizations, particularly in international markets, in order to gain access
to such organizations' existing relationships, marketing resources and
credibility in new markets.
The Company's engineering department supports the direct sales staff by
providing pre- and post-sale technical support. This support entails
travelling with sales representatives to help explain the systems, defining
solutions for customers, designing systems for proposal activity, supporting
the implementation process and providing post-implementation support.
The Company's systems are generally provided to public sector customers
through a formal bidding process. The Company's sales and marketing personnel
regularly conduct visits and attend industry trade shows to identify bid
opportunities and particular customer preferences and to establish and
cultivate relationships in advance of any bid. Once a request for proposals is
issued, a six-to-twelve month proposal and award process ensues, followed by
(if the bid is successful) a six-to-twelve month implementation and
installation phase. In the aggregate, the time needed for agencies to secure
funding for systems, the request for proposal and bid process, the execution
of actual contracts and the installation of a system can extend over several
years. Further, customers may seek to modify the system either during or after
the implementation of the system. While this long sales and implementation
cycle requires the commitment of marketing resources and investments of
working capital, the Company believes that it also serves as a barrier to
entry for smaller companies and as an early indicator of potential competitors
for particular projects. For existing customers, a considerably shorter sales
and implementation cycle may be involved. See "Risk Factors--Dependence on
Large Orders and Customer Concentration" and "--Risks Associated With Lengthy
Sales and Implementation Cycles."
BACKLOG
The Company measures backlog based on signed contracts, subcontracts and
customer commitments for which revenue has not yet been recognized. However,
backlog is not necessarily indicative of future revenue. A substantial amount
of the Company's backlog can be cancelled at any time without penalty, except,
in some cases, for the recovery of the Company's actual committed costs and
profit on work performed through the date of cancellation. Any failure of the
Company to meet an agreed-upon schedule could lead to the cancellation of the
related order. The timing of award and performance on contracts as well as
variations in size, complexity and requirements of the customer and
modifications to contract awards may result in substantial fluctuations in
backlog from period to period. Accordingly, the Company believes that backlog
cannot be considered a meaningful indicator of future financial performance.
The Company recognizes revenue on a percentage-of-completion basis. Revenue
recognition may be delayed by the delivery of components, special software
requirements of the customer, or by delays in integration with the customer's
systems. At June 30, 1996, the Company's backlog was approximately $37.0
million, compared to $26.0 million at July 2, 1995. Approximately 30% of the
Company's backlog as of June 30, 1996, is expected to be earned during the
current fiscal year.
MANUFACTURING
Substantially all proprietary subsystems and assemblies are made to the
Company's specifications by contract manufacturers, including Lau. See
"Relationship and Certain Transactions with Lau Technologies." Other non-
proprietary system components, such as personal computers, printers and
related components, are purchased from third-party vendors. The Company's
manufacturing operations consist solely of integration and testing. Systems go
through several levels of testing, including configuration to customer
specifications, prior to installation.
34
<PAGE>
The Company generally purchases major contracted assemblies from single
vendors to help ensure high quality, prompt delivery and low cost. The Company
does, however, qualify second sources for most components, contracted
assemblies and purchased subsystems, or at least identifies alternative
sources of supply. The Company believes that the open architecture of its
systems facilitates substitution of components or software when this becomes
necessary or desirable. The Company has from time to time experienced delays
as a result of the availability of component parts and assemblies, although
the Company has never failed to meet a contractual requirement as a result of
such delays. There can be no assurance that the Company will not experience
such problems in the future, or that such problems will not have a material
adverse effect on the Company's operations. See "Risk Factors--Dependence on
Sole or Limited Sources of Supply."
COMPETITION
The market for the Company's products and services is extremely competitive
and management expects this competition to intensify as the markets in which
the Company's products and services are sold continue to develop.
The Company faces competition in the identification systems market (for both
digital and conventional systems) from technologically sophisticated
companies, including Polaroid Corporation, Unisys Corporation, DataCard
Corporation, and NBS Imaging Systems, Inc., all of which have substantially
greater technical, financial, and marketing resources than the Company. In
some cases, the Company may be competing with an entity which has a pre-
existing relationship with a potential customer which could put the Company at
a significant competitive disadvantage. As the digital identification market
expands, additional competitors may seek to enter the market.
The Company believes that competition in the digital identification systems
market is based primarily upon the following factors: systems and product
performance; price; flexibility in terms of accommodating customer needs,
architectures, platforms, systems and networks; and service support. The
relative importance of each of these and other factors depends upon the
specific customer and situation involved. Substantially all of the Company's
sales to new customers have been the result of competitive bidding for
contracts pursuant to public sector procurement rules, which generally
increases the importance of price as a competitive factor. The Company
believes that its competitive strength lies primarily in its systems
integration and software design capabilities, with additional strengths
including system performance and proprietary technologies, system
configuration flexibility, price, and relative ease of use. Nevertheless,
there can be no assurance that the Company will be able to compete
successfully with the companies mentioned above, or that new entrants, which
may include foreign companies which may have substantially greater resources
than the Company, will not seek to enter the digital identification systems.
In the field of biometric identification technology, the Company competes
with other facial recognition providers as well as other providers of
biometric solutions. Fingerprint recognition solutions have a long history of
use, particularly in law enforcement applications. Other current suppliers of
facial recognition solutions are software development firms. The Company
expects that as the market for biometric solutions develops, companies with
significant resources and capabilities may enter the market and competition
will intensify.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's business is substantially dependent on intellectual property
which it licenses from Lau Technologies under an exclusive, perpetual,
irrevocable, paid-up, royalty-free, worldwide license to use all of the
technology relating to the Viisage Technology Division except for controlling
human entry through doorways, gates, turnstiles, or similar thresholds in and
to buildings or facilities located on properties owned or controlled by the
United States federal government, or any other national government, using
apparatus at the entry point ("federal access control"). See "Relationship and
Certain Transactions with Lau Technologies--License Agreement" for a
description of the license with Lau. The Company is also dependent on
technology it licenses from Facia Reco. This license is exclusive in the field
that relates to de-duplicating or querying databases created, controlled
and/or managed by the Company or its sublicensees and/or utilizing, directly
or indirectly, personal identification cards but does not extend to federal
access control. This license includes rights in that same field to Facia
Reco's exclusive license of patented technology from the Massachusetts
Institute of
35
<PAGE>
Technology (except for certain rights granted to sponsors of the Massachusetts
Institute of Technology Media Lab and certain research rights). The Company's
license agreement with Facia Reco terminates upon the expiration of the final
patent covered under or through the license, and provides for a royalty of
$350 per machine copy incorporating the licensed technology. Until the year
2002, a minimum annual royalty applies of, generally, $21,000 for the U.S.
rights and a figure ranging from $21,000 to $42,000 for the non-U.S. rights.
Lau currently has four U.S. patent applications outstanding and has made
copyright filings which relate to the Company's SensorMast, Visual Inspection
System and proprietary software. Lau has filed foreign patent applications
which correspond to three of these domestic applications. The Company's
license agreement with Facia Reco includes the right to use and sublicense
certain U.S. patents and registered copyrights for facial recognition systems
which Facia Reco, licenses from the Massachusetts Institute of Technology and
Intelligent Vision Systems, Inc. The Massachusetts Institute of Technology has
applied to extend its patent rights to certain jurisdictions in Europe and in
Singapore. One of Lau's four filed patent application is directed to an
enhancement of one of the patents licensed to Lau by Facia Reco. At Lau's
request and expense, MIT has filed for a broadening reissue patent. Any
broadening reissue patent will be licensed through Facia Reco.
There can be no assurance that any of the U.S. or foreign patents applied
for by Lau or the foreign patents applied for by the Massachusetts Institute
of Technology will be issued or that, if issued, they will provide protection
against competitive technologies or will be held valid and enforceable if
challenged. Moreover, there can be no assurance that the Company's competitors
would not be able to design around any such proprietary right or obtain rights
that the Company would need to license or circumvent in order to practice
under these patents and copyrights. See "Risk Factors--Limited Protection of
Intellectual Property and Proprietary Rights."
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights,
the Company recently received a letter from an attorney on behalf of the
holder of a patent on a system for scanning and encoding images from a
personal identification card. Although the Company believes that its product
does not infringe such patent, there can be no assurance that such patent
holder will not initiate litigation with respect to this patent or allege
additional claims. There can be no assurance that the Company would prevail in
any litigation seeking damages or expenses from the Company or to enjoin the
Company from selling its products on the basis of any alleged infringement.
See "--Legal Proceedings."
In some cases, litigation or other proceedings may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or its licensors, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope
and validity of the proprietary rights of third parties. Such litigation could
result in substantial costs to and diversion of resources by the Company. An
adverse outcome in any such litigation or proceeding could subject the Company
to significant liabilities, require the Company to cease using the subject
technology or require the Company to license the competing technology from the
third party, all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. If any such
licenses are required, there can be no assurance that the Company will be able
to obtain any such license on commercially favorable terms, if at all. See "--
Legal Proceedings."
EMPLOYEES
As of July 12, 1996, the Company had 42 employees, including 9 in
engineering, 21 in operations, 7 in sales and marketing and 5 in general and
administrative positions. The Company from time-to-time supplements its
employee forces with independent contractors. As of July 12, 1996, the Company
had 11 such contractors, mostly in the area of engineering and operations.
The Company believes that its future success will depend in large part upon
its continued ability to recruit and retain highly qualified technical,
managerial and marketing personnel. To date, the Company has been successful
in attracting and retaining skilled employees. None of the Company's employees
is represented by a labor union, and the Company considers its relationship
with its employees to be good.
36
<PAGE>
FACILITIES
The Company's facilities are located in Acton, Massachusetts. The Company
occupies approximately 15,000 square feet of space and has access to common
areas under the terms of a Use and Occupancy Agreement with Lau Technologies.
The term of the Use and Occupancy Agreement extends to the end of Lau's lease
for the premises which expires on February 23, 1997, but may be terminated by
the Company on 30 days' prior written notice to Lau. See "Relationship and
Certain Transactions with Lau Technologies--Use and Occupancy Agreement."
LEGAL PROCEEDINGS
The Company recently received a letter from an attorney on behalf of the
holder of a patent on a system for scanning and encoding images from a
personal identification card. Although the Company believes that its product
does not infringe such patent, there can be no assurance that such patent
holder will not initiate litigation with respect to this patent or allege
additional claims. There can be no assurance that the Company would prevail in
any litigation seeking damages or expenses from the Company or to enjoin the
Company from selling its products on the basis of any alleged infringement.
See "Risk Factors--Limited Protection of Intellectual Property and Proprietary
Rights."
On September 23, 1996, three minority shareholders of Lau filed suit against
Lau, the Company and others in Superior Court in Berkshire County,
Massachusetts, alleging that certain defendants breached the fiduciary duty
owed the plaintiffs as shareholders of Lau. The plaintiffs requested, among
other things, an injunction to delay this offering in an effort to obtain a
direct, rather than an indirect, ownership interest in the Company. On October
4, 1996, the Superior Court denied plaintiffs' request for such relief,
although plaintiffs' claims for unspecified money damages remain pending. Lau
has agreed to indemnify and hold the Company harmless for any liabilities
incurred by the Company as a result of judgments, settlements or litigation
expenses arising out of this suit. Accordingly, the Company does not believe
that the resolution of this matter would have a material adverse effect on its
business, financial condition or results of operations.
RELATIONSHIP AND CERTAIN TRANSACTIONS WITH LAU TECHNOLOGIES
Prior to this offering, the Company has operated as the Viisage Technology
Division of Lau Technologies. Viisage Technology, Inc. was incorporated in
Delaware on May 23, 1996. Pursuant to a series of agreements described below,
on the effective date of the registration statement relating to this offering,
Lau will transfer substantially all of the assets and liabilities of its
Viisage Technology Division to Viisage.
Lau Technologies is an integrator of sophisticated electronic systems based
in Acton, Massachusetts. Lau was founded in 1990 and employs approximately 205
people (excluding the employees of the Viisage Technology Division). Its
Chairman, Chief Executive Officer and majority stockholder is Joanna T. Lau.
Denis K. Berube, the Chairman of the Board of Directors of the Company, serves
as the Executive Vice-President and General Manager of Lau and is married to
Ms. Lau. See "Risk Factors--Potential Conflicts of Interest."
ASSET TRANSFER AGREEMENT WITH LAU
The Company and Lau are parties to an Asset Transfer Agreement, which was
amended and restated as of August 20, 1996 (the "Asset Transfer Agreement").
Under the terms of the Asset Transfer Agreement, the Company will, on the
effective date of the registration statement relating to this offering, issue
to Lau 5,680,000 shares of Common Stock (which will comprise all of the
outstanding Common Stock other than the shares being sold in this offering) in
exchange for substantially all of the assets, properties and business formerly
constituting the Viisage Technology Division of Lau. In connection with this
transaction, the Company agreed to assume substantially all the obligations
and liabilities of Lau relating to the Viisage Technology Division. Each party
has covenanted not to compete with the other for ten years. The Company's
obligation not to compete with Lau is limited to the field of federal access
control. The Asset Transfer Agreement, which includes representations and
warranties from each party and indemnification provisions customary for an
agreement of this nature, is conditioned upon the parties' entering into the
Administration and Services Agreement and Use and Occupancy Agreement between
the parties described below.
37
<PAGE>
TAX ALLOCATION BETWEEN LAU AND VIISAGE
Prior to the closing of the Asset Transfer Agreement, the Company was
included in Lau's tax returns, but, for accounting purposes, income taxes were
recorded as if the Company had filed its own separate tax returns. After the
closing of the Asset Transfer Agreement, the Company will file its own
separate tax returns. Any tax liability or refund that may arise relating to
periods when the Company was a division of Lau is covered by a tax
indemnification arrangement contained in the Asset Transfer Agreement. The
indemnification provides for Lau to pay or receive reimbursement from the
Company for any tax adjustment relating to the Viisage Technology Division for
all periods prior to the consummation of the asset transfer if such
adjustments will result in tax expense or tax benefit, as the case may be, to
the Company.
LICENSE AGREEMENT
Prior to this offering, the Company operated as a division of Lau and had
broad access to the proprietary and licensed technology of Lau. The Company
has entered into a License Agreement with Lau (the "License Agreement"), to
become effective on the effective date of the registration statement relating
to this offering, pursuant to which Lau has granted Viisage an exclusive,
perpetual, irrevocable, paid-up, royalty-free, worldwide license (with
sublicensing rights) for all of the technology relating to the Viisage
Technology Division. Such license does not allow the Company to use the
technology in the federal access control field. Lau has retained the right to
use such technology solely in the federal access control field. The licensed
rights include all of Lau's technologies relating to SensorMast, the Visual
Inspection System and facial recognition technology developed by Lau. See
"Business--Intellectual Property and Proprietary Rights." In addition, under
the terms of the License Agreement, Lau must disclose and provide to Viisage
improvements to the licensed technology and Viisage must disclose and provide
to Lau modifications it makes to the licensed technology for use in federal
access control without any additional charge. See "Business--Intellectual
Property and Proprietary Rights."
ADMINISTRATION AND SERVICES AGREEMENT
Lau has provided various services to its Viisage Technology Division since
its inception, including, but not limited to, general accounting, data
processing, payroll, human resources, employee benefits administration and
certain executive services. Amounts reflected in the Company's financial
statements as fees charged by Lau reflect the costs of these services, and
amounted to approximately $280,000, $710,000, and $1.1 million, in 1993, 1994,
and 1995, respectively, and $540,000 and $330,000 in the first six months of
1995 and 1996, respectively. The Company does not believe that there would
have been a material impact on its operations if the Company had obtained such
services independent of Lau. See Note 3 of Notes to Financial Statements.
In connection with this offering, the Company and Lau will enter into an
Administration and Services Agreement (the "Services Agreement") for the
purpose of defining their ongoing relationships. Under the Services Agreement,
Lau will make available to the Company for so long as the Use and Occupancy
Agreement between the parties described below remains in effect (February 23,
1997, unless extended by the parties or earlier terminated by Viisage on 30
days' notice) many of the same services currently provided to the Company, and
will be paid for those services a fee of $55,000 per month, subject to
adjustment as described below. This fee, payable in advance on the first day
of each month, has been determined by Lau and the Company to be consistent
with the historical cost for providing these services. Either party may reduce
or modify the level of services to be provided, in which event the fee payable
by the Company will be appropriately reduced or modified. The Services
Agreement provides that Lau will not be liable for any loss or damage suffered
by the Company in connection with Lau's provision of services except to the
extent of the amounts billed or billable. To compensate Lau for fixed costs in
making services available, the Company shall be required to pay fees for such
services whether or not the Company elects to utilize such services until the
Services Agreement is terminated as to those services. The Company believes
that these fees are substantially equivalent to those that would be charged by
such third parties or the cost that would be incurred in providing such
services internally.
38
<PAGE>
USE AND OCCUPANCY AGREEMENT
The Company and Lau will enter into a Use and Occupancy Agreement which
contains the terms and conditions relating to the Company's continued use and
occupancy of certain office space for its corporate headquarters, which is
part of the office space currently occupied by Lau. The terms of this
Agreement provide that the Company will have initially the right to occupy the
space at Lau's premises formerly occupied by Viisage Technology Division until
February 23, 1997. The Company will be required to pay Lau an occupancy fee
equal to a percentage of the rent, property taxes, utilities, insurance and
other charges payable by Lau with respect to the premises, based on the
portion of the total area of the premises occupied and related services used
by the Company. The Use and Occupancy Agreement may be terminated by either
Lau on six (6) months' notice or by Viisage on thirty (30) days' notice. The
monthly occupancy fee initially payable by the Company is estimated to be
$18,333 in 1996. Amounts charged by Lau to Viisage for occupancy costs in
prior periods consisted of $40,000, $90,000 and $140,000 in 1993, 1994 and
1995, respectively, and $70,000 and $110,000 for the six months ended July 2,
1995 and June 30, 1996, respectively.
ADDITIONAL TRANSACTIONS
The Company from time to time has purchased or contracted for, and will
likely continue to purchase or contract for from time to time, certain system
components and technical personnel from Lau. The amounts for such components
and services were approximately $282,000 in 1993, $1.4 million in 1994 and
$2.8 million in 1995, and $2.0 million and $1.0 million for the first six
months of 1995 and 1996, respectively.
From the inception of the Viisage Technology Division until July 1, 1996,
entities controlled by Yona Wieder, Vice President Marketing & Sales,
Worldwide Public Sector of the Viisage Technology Division, provided
consulting services to the Division. Amounts paid by Lau (and allocated to the
Viisage Technology Division) to such entities were $199,000, $313,000 and
$519,000 during 1993, 1994 and 1995, respectively, and $221,000 and $289,000
during the first six months of 1995 and 1996, respectively. Until October
1994, such services were provided by Novatech, Inc., a corporation one-third
owned by Mr. Wieder and which he served as President. From October 1994
through June 1996, such services were provided by YW Technologies, Mr.
Wieder's sole proprietorship.
POLICY ON AFFILIATE TRANSACTIONS
The Company has adopted a policy, included in its By-Laws, that all material
transactions between the Company and its officers, directors, and other
affiliates (including Lau and its affiliates) must (i) be disclosed by the
officer, director or affiliate and approved by a majority of the disinterested
members of the Company's Board of Directors; (ii) be disclosed by the officer,
director or affiliate and approved by vote of the stockholders; or (iii) be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties and determined as fair to the Company by its
directors or the stockholders in accordance with the Delaware General
Corporation Law.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Denis K. Berube....................... 54 Chairman of the Board
Robert C. Hughes...................... 56 President and Chief Executive Officer
William A. Marshall................... 44 Chief Financial Officer and Treasurer
Yona Wieder........................... 48 Vice President Marketing & Sales,
Worldwide Public Sector
Robert J. Schmitt, Jr................. 53 Vice President Marketing & Sales,
Worldwide Private Sector
Charles J. Johnson.................... 41 Director and Secretary
Harriet Mouchly-Weiss(1).............. 54 Director
Peter Nessen(1)(2).................... 60 Director
Thomas J. Reilly(1)(2)................ 57 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DENIS K. BERUBE has served as Executive Vice President and General Manager
of Lau Technologies since co-founding it in 1990 and has chaired the Viisage
Technology Division Advisory Board since the Board's formation in October
1995. Since the Company's incorporation in May 1996, Mr. Berube has served as
Chairman of its Board of Directors. Mr. Berube is married to Joanna T. Lau,
the Chairman, Chief Executive Officer and majority stockholder of Lau
Technologies.
ROBERT C. HUGHES has served as President and Chief Executive Officer of the
Viisage Technology Division of Lau since August 1995 and holds the same
position with the Company. Mr. Hughes was Vice President, Worldwide Sales and
Service, at Data General Corporation, a computer systems vendor, from April
1993 through March 1995. Mr. Hughes was Chief Operating Officer at Bachman
Information Systems, a provider of software engineering products and services,
from April 1992 to April 1993. He was a senior manager at Digital Equipment
Corporation, a computer systems and services vendor, from December 1976 to May
1992, serving as Corporate Officer and Vice President from 1984 to 1992.
WILLIAM A. MARSHALL has served as Chief Financial Officer of the Viisage
Technology Division of Lau since December 1995 and serves as Chief Financial
Officer and Treasurer of the Company. From September 1994 through November
1995, Mr. Marshall was an independent consultant, providing general management
and financial consulting services. Mr. Marshall was a partner with KPMG Peat
Marwick LLP, a public accounting firm, from July 1987 through August 1994. Mr.
Marshall is a certified public accountant.
YONA WIEDER served as a consultant to the Viisage Technology Division from
its inception through June 1996 and joined the division as its Vice President
of Marketing & Sales, Worldwide Public Sector in July 1996. He holds the same
position with the Company. Mr. Wieder was President and a principal of YW
Technologies, a management consulting and marketing organization, from
September 1994 through June 1996. He was President of Novatech, Inc., a
management consulting organization, from May 1991 to September 1994.
ROBERT J. SCHMITT, JR. has served as Vice President of Marketing & Sales,
Worldwide Private Sector of the Viisage Technology Division since June 1996
and will hold the same position with the Company. Mr. Schmitt was employed by
Digital Equipment Corporation from 1977 through May 1996, serving as Manager
of Technical Support from June 1991 to February 1993 and as Vice President of
Marketing from February 1993 through May 1996.
40
<PAGE>
CHARLES J. JOHNSON has served as a Director of Viisage since its
incorporation in May 1996 and earlier served on the Advisory Board of the
Viisage Technology Division. Mr. Johnson is a member of the law firm,
Finnegan, Hickey, Dinsmoor & Johnson, P.C., in Boston, Massachusetts, which
serves as counsel to the Company and Lau.
HARRIET MOUCHLY-WEISS has served as a Director of Viisage since its
incorporation in May 1996, and earlier served on Viisage's Advisory Board. Ms.
Mouchly-Weiss founded Strategy XXI Group, an international communications and
consulting firm in January 1993 and has served as managing partner since that
time. From 1986 to December 1992, Ms. Mouchly-Weiss was President of GCI
International, an international public relations and marketing agency.
PETER NESSEN has served as a Director of Viisage since its incorporation in
May 1996 and earlier served on its Advisory Board. Mr. Nessen has been
Chairman of the Board of NCN Financial Corporation, a private banking firm,
since January 1995. From June 1993 through December 1994, Mr. Nessen was a
Dean at Harvard Medical School, responsible for special projects. Mr. Nessen
was Secretary of Administration and Finance for the Commonwealth of
Massachusetts from January 1991 through May 1993 and managing partner of the
consulting practice in the Boston office BDO Seidman LLP, an accounting firm,
from February 1990 through December 1990.
THOMAS J. REILLY has served as a Director of Viisage since its incorporation
in May 1996 and earlier served on its Advisory Board. Mr. Reilly has been a
self-employed financial consultant since December 1994. From June 1966 through
November 1994, Mr. Reilly was with Arthur Andersen LLP, a public accounting
firm, and became a partner in 1975.
Under the Company's Certificate of Incorporation and By-Laws, the Company's
Board of Directors is divided into three classes. The members of each class of
directors serve for staggered three-year terms. Denis K. Berube is the sole
Class I director (whose term expires in 1997); the Class II directors (whose
term expires in 1998) are Charles J. Johnson and Harriet Mouchly-Weiss; and
the Class III directors (whose term expires in 1999) are Peter Nessen and
Thomas J. Reilly. All directors hold office until the annual meeting of
stockholders at which their term expires and until their successors have been
duly elected and qualified. There are no family relationships between any of
the directors or executive officers of the Company.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and, subject to employment agreements with Messrs. Hughes,
Marshall and Wieder, serve until their successors have been duly elected and
qualified.
DIRECTOR COMPENSATION
From October 1995 to June 1996, each director served on the Advisory Board
to the Viisage Technology Division and in such capacity received $1,000 per
meeting of the Advisory Board. For their service as directors, each director
receives $1,000 per month. The Board has previously met on a monthly basis,
although meetings in the future may be held less frequently. In addition,
directors are reimbursed by the Company for their out-of-pocket expenses in
connection with attending any Board or committee meeting. Directors do not
currently receive any fees for service on any committee of the Board.
Directors also received option grants under the Company's 1996 Directors'
Plan (the "Director Plan"). Under the Director Plan, each director has been
granted an option to purchase 16,330 shares of Common Stock (subject to
adjustment as provided in the Director Plan) at an exercise price equal to
$2.96 per share. Of each director's options, 1,420 shares vest upon the date
of issuance of the shares offered hereby, and 4,970 shares vest upon each of
the first, second and third anniversaries of the issuance of the options. See
"--Incentive and Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation for the year ended December 31, 1995 of Robert C. Hughes,
President and Chief Executive Officer of the Company.
41
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- ------------------- ------------
<S> <C> <C> <C>
Robert C. Hughes............................... $67,692 $16,000 $10,139
President and Chief Executive Officer
</TABLE>
- --------
(1) No executive officer of the Company (including Mr. Hughes) earned in
excess of $100,000 in the fiscal year ended December 31, 1995; nor did any
executive officer of the Company receive or hold any restricted stock or
options or benefit from any other long-term compensation plan or program
during such year.
EMPLOYMENT AGREEMENTS
During 1996, Lau Technologies entered into employment agreements with
Messrs. Hughes, Marshall and Wieder which by their terms will become
agreements between the individuals and the Company upon the transfer of the
assets, properties and business of Lau's Visage Technology Division to the
Company. The agreements are substantially similar, varying principally in each
executive's respective title and position and in his respective compensation
level, which in each case includes salary ($220,000 for Mr. Hughes, $140,000
for Mr. Marshall and $165,000 for Mr. Wieder), a discretionary bonus pursuant
to the Company's Executive Incentive Compensation Plan (and, in the case of
Mr. Marshall, a minimum non-discretionary bonus of $35,000 in 1996 and
reimbursement of relocation costs) and certain health, pension and other
benefits (including the stock option awards described below). The employment
agreements expire on February 1, 2001, subject to early termination in the
event of death or disability of the executive or as otherwise provided
therein. The employment agreements also have a two year renewal term. The
Company may terminate the executive's employment with or without "cause" (as
defined therein), but in the event such termination is without "cause" the
executive will be entitled to receive severance pay at the current salary and
bonus levels for two years, in the case of Mr. Hughes, and one year in the
cases of Messrs. Marshall and Wieder. In addition, the executive may terminate
his employment in the event of the Company's "non-performance" (as defined in
the agreements), and will be entitled to the severance described above in the
event of such a termination. The agreements also contain non-competition
provisions which generally survive two years beyond the executive's
termination.
INCENTIVE AND STOCK PLANS
Executive Incentive Compensation Plan
The Company currently maintains an Executive Incentive Compensation Plan for
its executive officers and other key employees of the Company in order to
motivate members of the Company's executive team. Each participant in the
Executive Incentive Compensation Plan may receive a percentage of his or her
base salary based upon the Company's and each participant's individual
performance, as determined by success in meeting established goals approved by
the Chief Executive Officer or the Board of Directors. The Compensation
Committee administers the Plan.
1996 Management Stock Option Plan
On February 1, 1996, Lau Technologies granted nonqualified options to
acquire up to an aggregate 1,167,950 shares of Common Stock of Viisage, at an
exercise price of $2.96 per share, to eight key employees in its Viisage
Technology Division. Robert C. Hughes, the Company's President and Chief
Executive Officer, received options to acquire 639,000 shares. On April 15,
1996, Lau Technologies granted nonqualified options to acquire up to an
additional 177,500 shares of Company Common Stock, at an exercise price of
$4.86 per share, to a ninth key employee of its Viisage Technology Division.
All of these options were ratified by the Board of Directors of the Company
following its incorporation in connection with the adoption of the 1996
Management Stock Option Plan described below (the "Option Plan"). Depending on
the recipient, the options will be vested upon issuance for as few as none or
as much as one-third of the total number of option shares; with respect to Mr.
Hughes' options to purchase 639,000 shares, options to purchase 71,000 of such
shares will vest upon the issuance of the shares of
42
<PAGE>
Common Stock being offered hereby. The balance of option shares will vest in
seven years, subject to acceleration in benchmark increments based on each $1.0
million increase in the current value of the Company's Common Stock over a base
value of $21.0 million (or, with respect to the options granted April 15, 1996,
$34.5 million), as measured (i) at each fiscal year end, (ii) upon a sale or
change in control of the Company, or (iii) in the event of a termination (or
constructive termination) of the option holder as an employee without cause, as
of the end of the Company's most recent fiscal quarter immediately before such
termination.
Once a benchmark vesting increment of these nonqualified options has
occurred, the shares so vested will remain vested even if the value of the
Company's Common Stock thereafter declines. Achievement of future benchmarks
will be measured cumulatively based on the highest Common Stock value at which
the last benchmark incremental acceleration of vesting has occurred, without
downward adjustment for intervening declines in Common Stock value. With
limited exceptions (such as continuation of employment by a successor
corporation that assumes the option, or in the case of one employee, the
employee's termination without cause or simultaneous hiring, at the request of
the Company's predecessor, by such predecessor or an affiliate thereof),
vesting ceases and options for vested shares terminate upon termination of
employment.
The Option Plan was adopted by the Board of Directors in June 1996 to
effectuate the option grants agreed to by Lau described above and for the
purpose of providing executive officers and key personnel an opportunity to
have an ownership interest in the Company. The Option Plan is expected to be
approved by Lau in its capacity as the Company's sole stockholder following the
issuance of the common shares to Lau and prior to the issuance of the Common
Stock offered hereby. The Option Plan is administered by the Compensation
Committee of the Board of Directors, which currently consists of Ms. Mouchly-
Weiss and Messrs. Nessen and Reilly. A total of 1,356,100 shares of Common
Stock are reserved for issuance under the Option Plan. Options under the Plan
may be either (a) "incentive options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), but only if the Plan is approved by the
Company's stockholders within one year of its adoption by the Board of
Directors, or (b) options that do not qualify under Section 422 of the Code
("nonqualified options"). The Option Plan will remain in effect indefinitely
(except in the case of incentive options, for which the Plan will expire in ten
years), unless earlier terminated by the Board of Directors in accordance with
the Option Plan's terms.
Officers and key employees of the Company, but not directors, are eligible to
receive options under the Option Plan. The exercise price of incentive options
under the Option Plan may not be less than the fair market value of the
underlying shares on the date of grant, except in the case of incentive options
granted to holders of 10% or more of the total combined voting power of the
Company, in which case the exercise price may not be less than 110% of such
fair market value. The exercise price of nonqualified options is to be
determined by the Stock Option Committee at the time of option issuance.
Each option under the Option Plan will have a term not to exceed ten years,
except in the case of incentive options granted to holders of 10% or more of
the total combined voting power of the Company, with respect to which the term
may not exceed five years. The Stock Option Committee will determine the
vesting schedule with respect to any grant of options. All options are subject
to adjustment in certain events, including any merger, consolidation,
reorganization or recapitalization of the Company, and may not be exercised
later than ten years after grant (five years with respect to incentive options
granted to holders of 10% or more of the total combined voting power of the
Company). In the event of a change in control of the Company, the Stock Option
Committee may, in its discretion, (a) terminate all outstanding options with at
least ten days' (and if circumstances permit, up to 30 days') notice, (b)
continue application of the options to the securities of the successor
corporation (with appropriate adjustments), or (c) cause the outstanding
options to be purchased at a price equal to the difference between the exercise
price and the current fair value of the shares then vested under such options.
The Option Plan may be amended from time to time by the Board of Directors,
subject to the rights of previously issued options, except that any such
amendment will require a stockholder approval: (i) if affecting incentive
options in a manner requiring stockholder approval under the Code at a time, if
any, after the Option Plan has been approved by the Company's stockholders, or
(ii) if stockholder approval is required under any
43
<PAGE>
applicable federal securities law, the Code, or rules of NASDAQ or any stock
exchange on which the Company's stock is listed. If options intended to be
incentive options are issued under the Option Plan and stockholder approval is
not obtained, such options will be treated as nonqualified options.
Shares reserved for issuance under an option that is cancelled or terminated,
and shares that are used in payment of option exercise prices, will be restored
and made available for reissuance of additional options under the Option Plan.
The Option Plan permits reload options. With the reload option feature, if an
option holder pays an option exercise price or option withholding tax
obligation by assignment and delivery of Company shares that have been owned
for more than six months, the option holder automatically will be issued a new
nonqualified option for the number of shares so assigned, with an exercise
price equal to the fair market value on the date of such exercise and a term
equal to the then-remaining term of the underlying pre-existing option with
respect to which such exercise occurred. The existing options will contain
reload option features.
1996 DIRECTOR STOCK OPTION PLAN
On February 1, 1996, Lau Technologies granted nonqualified options to acquire
up to an aggregate of 81,650 shares of Common Stock in the Company to the
members of the Viisage Technology Division Advisory Board who now comprise the
Company's Board of Directors. These options have an exercise price of $2.96 per
share. These options were ratified by the Board of Directors of the Company
following its incorporation and comprise the 1996 Director Stock Option Plan
(the "Director Plan"). The Director Plan expires on December 31, 1998 (unless
terminated earlier in accordance with its terms) and will be administered by
the Board of Directors. The options to purchase 16,330 shares granted to each
Director will vest as follows: upon issuance, 1,420 shares, and upon each of
the first, second and third anniversaries of issuance, 4,970 shares. Vesting
ceases when an option holder ceases to serve on the Company's Board of
Directors.
Any additional options issued under the Director Plan after this offering
will have an exercise price equal to the current fair market value of shares of
Common Stock on the date of option issuance.
Shares reserved for issuance under an option that is cancelled or terminated,
and shares that are used in payment of option exercise prices, will be restored
and made available for reissuance of additional options under the Director
Plan. The Director Plan does not permit reload options.
401(K) PLAN
The Company will be a participating employer with respect to Lau's existing
401(k) Plan (the "401(k) Plan"), thereby covering the Company's employees who
are at least 21 and who have worked at least three months for the Company or
its predecessor division of Lau. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by the lesser of up to 15% of base
compensation or the statutorily prescribed annual limit ($9,500 in 1996) and to
have the amount of such deduction contributed to the 401(k) plan. The 401(k)
Plan permits, but does not require, additional matching and profit sharing
contributions to the 401(k) Plan by the Company on behalf of all participants
in the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401(k)
of the Code so that deferrals to the 401(k) Plan by employees or contributions
by the Company, and the investment earnings thereon, are not taxable to
employees until withdrawn from the 401(k) Plan and so that contributions by the
Company, if any, will be deductible by the Company when made. The Company's
allocation of costs for all periods was not material.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has heretofore been operated as a division of Lau Technologies.
Accordingly, during the fiscal year ended December 31, 1995, Lau's Board of
Directors (none of whom serve as directors, officers or employees of Viisage)
determined executive officer compensation. Joanna T. Lau, who is a member of
Lau's Board of Directors, is married to the Company's Chairman, Denis K.
Berube. The Company's Board of Directors has established a Compensation
Committee to determine and monitor executive compensation going forward. The
Compensation Committee consists of Ms. Mouchly-Weiss and Messrs. Nessen and
Reilly, none of whom are officers or employees of the Company and none of whom
are directors, officers or employees of Lau.
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus (i)
assuming the completion of the transactions contemplated in the Asset Transfer
Agreement between the Company and Lau (see "Relationship and Certain
Transactions with Lau Technologies") and (ii) as adjusted to reflect the sale
of 2,000,000 shares by the Company and 500,000 shares by Lau pursuant to this
offering, by (a) each stockholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (b) each director of the
Company, (c) each of the executive officers, (d) all directors and executive
officers as a group, and (e) Lau Technologies. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. Shares not outstanding but deemed beneficially owned by
virtue of the right of a person or group to acquire them within 60 days of the
date of this Prospectus are treated as outstanding only for purposes of
determining the amount and percent owned by such person or group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
-------------------------------- --------------------------
NUMBER OF
SHARES
BEING
NAME AND ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
------------------- ------------- --------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Joanna T. Lau........... 5,681,420(2) 100.0% -- 5,181,420(2) 67.5%
c/o Lau Technologies
531 Main Street
Acton, MA 01720
Denis K. Berube......... 5,681,420(3) 100.0% -- 5,181,420(3) 67.5%
Lau Technologies........ 5,680,000(4)(5) 100.0% 500,000 5,180,000(5) 67.4%
531 Main Street
Acton, MA 01720
Robert C. Hughes........ 71,000(6) 1.2% -- 71,000(6) *
William A. Marshall..... 71,000(6) 1.2% -- 71,000(6) *
Yona Wieder............. 71,000(6) 1.2% -- 71,000(6) *
Robert J. Schmitt, Jr... 35,500(6) * -- 35,500(6) *
Charles J. Johnson...... 1,420(6) * -- 1,420(6) *
Harriet Mouchly-Weiss... 1,420(6) * -- 1,420(6) *
Peter Nessen............ 1,420(6) * -- 1,420(6) *
Thomas J. Reilly........ 1,420(6) * -- 1,420(6) *
All directors and
executive officers as a
group
(9 persons)............ 5,935,600(7) 100.0% -- 5,435,600(7) 68.5%
</TABLE>
- -------
* Less than one percent.
(1) The address of all persons who are directors or executive officers of the
Company is in care of the Company, 531 Main Street, Acton, Massachusetts
01720.
(2) Consists of the shares held by Lau Technologies, of which Ms. Lau owns
approximately 56.0% of the outstanding capital stock, and 1,420 shares
issuable to Denis K. Berube, the spouse of Ms. Lau, pursuant to stock
options exercisable immediately upon the issuance of the shares of Common
Stock being offered hereby. Ms. Lau disclaims beneficial ownership of those
1,420 shares.
(3) Consists of the shares held by Lau Technologies, of which Mr. Berube's
spouse owns approximately 56.0% of the outstanding capital stock, and 1,420
shares issuable to Mr. Berube pursuant to stock options exercisable
immediately upon the issuance of the shares of Common Stock being offered
hereby. Mr. Berube disclaims beneficial ownership of the shares of Common
Stock held by Lau Technologies.
(4) Represents shares of Common Stock issuable by the Company upon the
completion of the transactions contemplated in the Asset Transfer Agreement
between Lau and the Company, to occur on the effective date of the
registration statement relating to this offering. See "Relationship and
Certain Transactions with Lau Technologies."
(5) Includes shares of Common Stock of the Company held or to be held by Lau
which are subject to certain option rights granted by Lau to the lenders
under its revolving credit facility. See "Shares Eligible for Future Sale."
(6) Represents shares of Common Stock issuable pursuant to stock options
exercisable immediately upon the issuance of the shares of Common Stock
being offered hereby. The total number of shares issuable under options
granted to Messrs. Hughes, Marshall, Wieder, Schmitt, each director and all
directors and executive officers as a group are 639,000, 213,000, 284,000,
177,500, 16,330 and 1,395,150, respectively.
(7) Represents shares described in Notes 3 and 6.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.001 par value per share, and 2,000,000 shares of Preferred
Stock, $.001 par value per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to the rights of holders of
outstanding Preferred Stock, if any, the holders of Common Stock are entitled
to receive such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of the Company, holders of Common
Stock have the right to a ratable portion of the assets remaining after
payment of liabilities. Holders of Common Stock do not have cumulative voting,
preemptive, redemption, or conversion rights. All outstanding shares of Common
Stock are, and the shares to be sold in this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
The Company's Certificate of Incorporation provides, among other things, for
the authorization of 2,000,000 shares of Preferred Stock, $.001 par value per
share (the "Preferred Stock"). The Board of Directors has the authority,
without further stockholder approval, to issue these shares of Preferred Stock
in one or more series from time to time, and to fix the designations, relative
rights, priorities, preferences, qualifications, limitations and restrictions
thereof. The Company has no immediate plans to issue any Preferred Stock.
While issuance of Preferred Stock could provide needed flexibility in
connection with possible acquisitions and other corporate purposes, such
issuance could also make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company or discourage an
attempt to gain control of the Company. In addition, the Board of Directors,
without stockholder approval, can issue shares of Preferred Stock with voting
and conversion rights which could adversely affect the voting power and other
rights of the holders of Common Stock. See "--Anti-Takeover Effects of
Provisions of the Company's Charter And By-Laws."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's By-laws provide that the Company, subject to limited
exceptions, will indemnify its directors and officers and may indemnify its
other employees and other agents to the fullest extent permitted by Delaware
law.
In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. The provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of non-
monetary relief would remain available under Delaware law. Each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions
that the director believes to be contrary to the best interests of the Company
or its stockholders, for any transaction from which the director derived an
improper personal benefit, for acts or omissions involving a reckless
disregard for the director's duty to the Company or its stockholders when the
director was aware or should have been aware of a risk of serious injury to
the Company or its stockholders, for acts or omissions that constitute an
unexcused pattern of inattention that amounts to be abdication of the
director's duty to the Company or its stockholders, for improper transactions
between the director and the Company and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
46
<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BY-LAWS
The Company's Certificate of Incorporation and By-Laws contain several
features that could render it more difficult for a third party to acquire a
controlling interest in Viisage. As discussed above, the Certificate of
Incorporation grants the Board of Directors authority, without stockholder
approval, to issue in one or more series up to 2,000,000 shares of Preferred
Stock. Each series will have the number of shares, designations, preferences,
voting powers, relative rights or privileges that the Board determines, and
the rights of holders of Common Stock will be subject to the rights of holders
of any Preferred Stock issued. Although the issuance of Preferred Stock may
provide the Company flexibility in connection with possible acquisitions and
other purposes, it could also have the effect of making it more difficult for
a third party to acquire a controlling interest in the Company.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes with staggered three-year terms. See
"Management." Directors may be removed only for cause by the affirmative vote
of the holders of two-thirds of the shares of the Company's voting stock. Any
vacancy on the Board, including a vacancy resulting from an enlargement of the
Board, may only be filled by vote of a majority of the directors then in
office. The classification of the Board and the limitations on the removal of
directors and filling of vacancies make it more difficult for a third party to
acquire control of the Company.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company may only be taken if
it is "properly brought" before an annual or special stockholders' meeting and
may not be taken by written consent in lieu of a meeting unless the action and
taking of action by consent have expressly been approved in advance by the
Board. The Certificate further provides that special meetings of the
stockholders may only be called by the Board, the Chairman of the Board or the
Chief Executive Officer. Under the Company's By-Laws, in order for any matter
to be considered "properly brought" before a meeting, a stockholder must
comply with rigorous requirements regarding advance notice to the Company.
These corporate governance provisions could delay consideration of actions
which may be popular with stockholders until the next stockholders meeting,
unless the Board determines to override the action-by-consent prohibition.
These provisions may also discourage tender offers for the Company's Common
Stock, including tender offers at a price above the then-current market value
of the Common Stock, because an offeror, even if it acquired a majority of the
voting securities, would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders meeting.
Finally, the Company's Certificate and By-Laws require the affirmative vote
of the holders of at least two-thirds of the voting stock to amend or repeal
any of the protective governance provisions described above. See "Risk
Factors--Potential Adverse Impact of Antitakeover Provisions on Market Price
of Shares."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that
a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is
an "interested stockholder" for a period of three years from the date that
such person became an interested stockholder unless: (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before
the person becomes an interested stockholder; (ii) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans); or (iii) on or after
the date the person becomes an interested stockholder, the business
combination is approved by the corporations board of directors and by the
holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (i)
the owner of 15% or more of the outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
47
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Company has appointed Boston EquiServe Limited Partnership, an affiliate
of BankBoston, as transfer agent and registrar of the Common Stock.
NASDAQ NATIONAL MARKET LISTING
The Company anticipates that the shares of Common Stock will be listed on the
Nasdaq National Market under the symbol "VISG" upon notice of issuance.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,680,000 shares of
Common Stock outstanding. Of these 7,680,000 shares, the 2,500,000 shares to
be sold in this offering will be freely tradable in the public market without
restriction under the Securities Act, unless they are purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act.
SALES OF RESTRICTED SHARES
The remaining 5,180,000 shares, all of which will be held by Lau, are
"restricted securities" as defined by Rules 144 or 701 (the "Restricted
Shares"). Restricted securities may be sold in the public market only if they
are registered under the Securities Act or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 under the Securities Act. In
addition, all Restricted Shares are "locked up," or subject to the lock-up
agreements described below. Subject to Rules 144, 144(k) and 701 and to the
lock-up agreements, 5,180,000 shares will be eligible for sale upon expiration
of their respective two-year holding periods, subject to the restrictions and
conditions of Rule 144, such holding periods to expire on or around the second
anniversary of the date of this Prospectus.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
for at least two years is entitled to sell, within any three-month period, a
number of such securities that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock (approximately 76,800 shares, based on
the number of shares to be outstanding after this offering) or the average
weekly trading volume in the public market during the four calendar weeks
preceding the filing of the seller's Form 144, provided certain requirements
concerning availability of public information concerning the Company, manner
of sale and notice of sale are satisfied. A person who is not an affiliate,
has not been an affiliate within three months prior to the sale and has
beneficially owned the restricted securities for at least three years is
entitled to sell such shares under Rule 144(k) without regard to any of the
limitations described above. Rule 144 also provides that affiliates who are
selling shares that are not restricted securities must nonetheless comply with
the same restrictions applicable to restricted securities with the exception
of the holding period requirement. The two- and three-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the restricted securities from
the issuer or an affiliate of the issuer and may include the holding period of
a prior owner who is not an affiliate of the issuer. The Commission has
proposed certain amendments to Rule 144 that would reduce by one year the
holding periods required for shares subject to Rule 144 to become eligible for
resale in the public market.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
issued before the closing of this offering upon the exercise of options
granted under the Option Plan or the Director Plan, if any) are also
Restricted Shares and, beginning approximately 90 days after the date of this
Prospectus, may be resold by persons other than affiliates of the Company
subject only to the manner of sale provisions of Rule 144 and may be resold by
affiliates under Rule 144 without compliance with its two-year holding period
requirement. Outstanding options to purchase 255,600 shares of Common Stock
were fully vested as of October 8, 1996, all of which are subject to 180-day
lock-up agreements.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock issued or
issuable under the Option Plan and the Director Plan. See "Management--
Incentive and Stock Plans." The registration statements are expected to be
filed as soon as practicable after the date of this Prospectus and will become
effective immediately upon filing. Shares covered by the registration
statements will be eligible for resale in the public market after the
effective date of the registration statements, subject to the lock-up
agreements described below.
49
<PAGE>
Prior to this offering there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales or the availability for sale of such shares will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through a sale of its equity securities. See "Risk
Factors--No Prior Trading Market; Potential Volatility of Stock Price."
LOCK-UP AGREEMENTS
The executive officers and directors of the Company and the Selling
Stockholder, who upon the closing of this offering will beneficially own an
aggregate of 255,600 fully vested options to purchase shares of Common Stock
and 5,180,000 shares of Common Stock, respectively, have agreed that they will
not, without the prior written consent of Cowen & Company, sell, offer,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for
a period of 180 days after the date of this Prospectus.
REGISTRATION RIGHTS
In fulfillment of a requirement in its revolving credit facility agreement,
Lau has issued to affiliates of its lender and a participating lender two
options to acquire an aggregate of 71,000 of the 5,180,000 shares of Common
Stock of the Company to be held by Lau following this offering. These options
have an exercise price equal to 95% of the initial public offering price
(after deduction of underwriting commissions and discounts), and are
exercisable only if the principal outstanding under Lau's revolving credit
facility has reached or exceeded $12.0 million prior to the issuance of the
Common Stock offered hereby. Lau has also issued to the same parties two
options to acquire an aggregate of 49,700 shares of the Company's Common Stock
to be held by Lau, with an exercise price equal to 95% of the offering price
to the public (after deduction of underwriting commissions and discounts)
contained in the registration statement for the Company's second underwritten
public offering, if any. These options are only exercisable if the principal
outstanding under Lau's facility has reached or exceeded $12.0 million at the
time of any such offering. In addition, Lau has granted the holders of such
options certain registration rights which apply under certain circumstances in
the event any of such options have become eligible for exercise and have been
exercised. First, if the Company has qualified to register securities on Form
S-3 under the Securities Act, holders of more than 50% of the shares under
each of the two lenders' sets of options may request, on one occasion, that
the Company file a registration statement on such form for a public offering
of all or a portion of such shares. Second, the holders of such option shares
have incidental ("piggyback") registration rights with respect to
registrations of the Company's securities, pursuant to which holders may
request that all or any portion of their option shares be included in a
registration statement (other than a registration statement on Form S-4 or S-8
or certain other forms) being filed by the Company for its own account or
otherwise. Lau will pay certain expenses incurred by the Company and the
holders of option shares in exercising the foregoing registration rights. The
lenders' options and attendant registration rights have terms of five years
following the expiration of the lock-up period after the public offering on
which such options' exercise price is based.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholder have agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Cowen &
Company and Needham & Company, Inc. are acting as Representatives (the
"Representatives"), has severally agreed to purchase from the Company and the
Selling Stockholder, the respective number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Cowen & Company.................................................
Needham & Company, Inc..........................................
---------
Total......................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
closing certificates, opinions and letters from the Company and its counsel
and independent auditors. The nature of the Underwriters' obligations is such
that they are committed to purchase all of the shares of Common Stock being
offered hereby (other than those covered by the over-allotment option
described below) if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may re-allow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for up to 30
days after the date of this Prospectus to purchase up to an aggregate of
375,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table bears to the 2,500,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments the Underwriters may be required
to make in respect thereof.
51
<PAGE>
The Company, the Company's executive officers and directors, the Selling
Stockholder and all option holders of the Company have agreed that they will
not, without the prior written consent of Cowen & Company, sell, offer,
contract to sell, or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for
a period of 180 days after the date of this Prospectus. See "Shares Eligible
for Future Sale--Lock-up Agreements."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales of the shares offered
hereby to any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiation among the Company, the Selling Stockholder and the
Representatives. Among the factors to be considered in such negotiations are
the prevailing market conditions, the market prices of securities of publicly
traded companies engaged in activities similar to those of the Company, the
Company's financial and operating history and condition, estimates of the
business potential of the Company, the present state of the Company's
development, and other factors deemed relevant. The estimated initial public
offering range set forth on the cover hereof is subject to change as a result
of market conditions and other factors.
LEGAL MATTERS
Certain legal matters in connection with the shares being offered hereby
will be passed upon for the Company by Finnegan, Hickey, Dinsmoor & Johnson,
P.C., Boston, Massachusetts. Charles J. Johnson, who is a Director of the
Company, is a member of the firm of Finnegan, Hickey, Dinsmoor & Johnson, P.C.
Effective upon the issuance and sale of the shares being offered hereby, Mr.
Johnson will hold options to purchase 16,330 shares of Common Stock of the
Company at $2.96 per share, of which options to purchase 1,420 shares shall be
immediately exercisable. See "Management." Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Testa, Hurwitz
& Thibeault, llp, Boston, Massachusetts.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement under the
Securities Act with respect to the shares of Common Stock offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and in the schedules and exhibits thereto. For
further information about the Company and the securities offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules thereto, which may be inspected without charge at the principal
office of the Commission in Washington, D.C. and copies of all or any part of
which may be obtained from the Commission upon payment of the prescribed fees.
Statements made in this Prospectus as to the contents of any contract or other
document are not necessarily complete and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
52
<PAGE>
After consummation of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file reports, proxy and information statements, and
other information with the Commission. Such reports, proxy and information
statements and other information, and the Registration Statement and exhibits
and schedules thereto filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
the Company is required to file electronic versions of these documents with
the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its stockholders annual reports containing
financial statements audited by independent public accountants. In addition,
the Company intends to furnish stockholders quarterly reports containing
unaudited financial information for each of the first three quarters of each
fiscal year.
53
<PAGE>
VIISAGE TECHNOLOGY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 and Pro
Forma as of June 30, 1996................................................ F-3
Statements of Operations and Net Assets for Each of the Three Years Ended
December 31, 1995 and for the Six Months Ended July 2, 1995 and June 30,
1996..................................................................... F-4
Statements of Cash Flows for Each of the Three Years Ended December 31,
1995 and for the Six Months Ended July 2, 1995 and June 30, 1996......... F-5
Notes to Financial Statements............................................. F-6
</TABLE>
F-1
<PAGE>
After the reorganization transaction discussed in Note 1 to Viisage
Technology, Inc.'s financial statements is effected, we expect to be in a
position to render the following audit report.
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viisage Technology, Inc.:
We have audited the accompanying balance sheets of Viisage Technology, Inc.
(a Delaware corporation and a majority-owned subsidiary of Lau Acquisition
Corp.) as of June 30, 1996, December 31, 1995 and 1994, and the related
statements of operations and net assets and cash flows for the six-month
period ended June 30, 1996 and for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 Viisage Technology, Inc.
as of June 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the six-month period ended June 30, 1996 and
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Boston, Massachusetts August 13, 1996 (except for
Notes 1 and 10 for which the date is
October 8, 1996)
F-2
<PAGE>
VIISAGE TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
------ ------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable...................... $ -- $ 378 $ 2,321 $ 2,321
Costs and estimated earnings in excess of
billings................................ 3,999 8,678 10,606 10,606
Other current assets..................... -- -- 4 4
------ ------- ------- -------
Total current assets................... 3,999 9,056 12,931 12,931
Property and equipment, net (Note 4)....... -- 2,229 2,028 2,028
------ ------- ------- -------
$3,999 $11,285 $14,959 $14,959
====== ======= ======= =======
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and accrued expenses
(Note 5)................................ $1,178 $ 1,153 $ 3,342 $ 3,342
Current maturities of long-term debt..... 312 -- -- --
Obligations under capital leases
(Note 7)................................ -- 490 512 512
------ ------- ------- -------
Total current liabilities.............. 1,490 1,643 3,854 3,854
Long-term debt (Note 6).................... 955 6,656 8,809 8,809
Obligations under capital leases (Note 7).. -- 1,663 1,394 1,394
Deferred income taxes...................... -- -- -- 100
------ ------- ------- -------
2,445 9,962 14,057 14,157
Commitments and contingencies (Note 7)
Net assets (Note 9)........................ 1,554 1,323 902 802
------ ------- ------- -------
$3,999 $11,285 $14,959 $14,959
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VIISAGE TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS AND NET ASSETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------- --------------------
JULY 2, JUNE 30,
1993 1994 1995 1995 1996
------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 505 $ 1,257 $11,221 $ 5,395 $11,870
Project costs.................. 456 1,140 10,361 4,972 9,653
------- ------- ------- ------- -------
Project margin................. 49 117 860 423 2,217
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.......... 1,185 1,596 999 431 735
Research and development..... 47 201 1,089 597 128
General and administrative... 289 681 1,204 513 890
------- ------- ------- ------- -------
Total operating expenses .. 1,521 2,478 3,292 1,541 1,753
------- ------- ------- ------- -------
Operating income (loss)........ (1,472) (2,361) (2,432) (1,118) 464
Interest expense............... -- 40 515 133 387
------- ------- ------- ------- -------
Income (loss) before income
taxes......................... (1,472) (2,401) (2,947) (1,251) 77
Income taxes (Note 2).......... -- -- -- -- 3
------- ------- ------- ------- -------
Net income (loss).............. $(1,472) $(2,401) $(2,947) $(1,251) $ 74
======= ======= ======= ======= =======
Net income (loss) per share
(Note 2)...................... $ (0.24) $ (0.39) $ (0.47) $ (0.20) $ 0.01
======= ======= ======= ======= =======
Weighted average number of com-
mon shares
(Note 2)...................... 6,225 6,225 6,225 6,225 6,225
======= ======= ======= ======= =======
Net assets, beginning of
period........................ $ -- $ 368 $ 1,554 $ 1,554 $ 1,323
Net income (loss).............. (1,472) (2,401) (2,947) (1,251) 74
Stock compensation expense..... -- -- -- -- 92
Net transactions with parent... 1,840 3,587 2,716 3,019 (587)
------- ------- ------- ------- -------
Net assets, end of period...... $ 368 $ 1,554 $ 1,323 $ 3,322 $ 902
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VIISAGE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------- --------------------
JULY 2, JUNE 30,
1993 1994 1995 1995 1996
------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $(1,472) $(2,401) $(2,947) $(1,251) $ 74
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and
amortization............... -- -- 88 10 228
Stock compensation expense.. -- -- -- -- 92
Changes in operating assets
and liabilities:
Accounts receivable........ (1,115) 1,115 (378) (1,007) (1,943)
Costs and estimated
earnings in excess of
billings.................. -- (4,244) (4,679) (7,312) (1,928)
Other current assets....... (44) 44 -- (12) (4)
Accounts payable and
accrued expenses.......... 791 632 (25) 395 2,189
------- ------- ------- ------- -------
Net cash (used) by
operating activities..... (1,840) (4,854) (7,941) (9,177) (1,292)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of contract equipment
converted to capital leases.. -- -- (2,216) -- --
Additions to property and
equipment.................... -- -- (101) (71) (27)
------- ------- ------- ------- -------
Net cash (used) by
investing activities..... -- -- (2,317) (71) (27)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net revolving credit
borrowings................... -- 46 6,610 6,360 2,153
Proceeds from long-term
borrowings................... -- 1,580 1,862 -- --
Proceeds from sale/leaseback
of equipment................. -- -- 2,216 -- --
Principal payments on
long-term borrowings......... -- (359) (3,083) (131) --
Principal payments on
obligations under capital
leases....................... -- -- (63) -- (247)
Net transactions with parent.. 1,840 3,587 2,716 3,019 (587)
------- ------- ------- ------- -------
Net cash provided by
financing activities..... 1,840 4,854 10,258 9,248 1,319
------- ------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents......... -- -- -- -- --
Cash and cash equivalents,
beginning of period.......... -- -- -- -- --
------- ------- ------- ------- -------
Cash and cash equivalents, end
of period.................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid during the period
for interest................. $ -- $ 34 $ 465 $ 99 $ 387
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND BUSINESS
Viisage Technology, Inc. (Viisage or the Company) was incorporated in
Delaware on May 23, 1996 as part of a planned reorganization of Lau
Acquisition Corp. (Lau Technologies). The ultimate establishment of the
Company as a separate and independent corporation will involve a series of
transactions, including the initial public offering of the Company's Common
Stock.
On the effective date of the registration statement relating to the initial
public offering, Lau Technologies will transfer substantially all of the
assets, liabilities and operations of its Viisage Technology Division to the
Company in exchange for all of the outstanding capital stock of the Company.
After the closing of such offering, the Company will be an approximately 67%
owned subsidiary of Lau Technologies. These reorganization transactions are
between entities under common control and will be accounted for using
historical amounts in a manner similar to a pooling of interests. The
financial statements for all periods presented reflect the financial position,
results of operations and cash flows of the Viisage Technology Division
business that will comprise the Company. All changes in the Company's equity
prior to the reorganization are reflected in net assets which represent the
net investment of Lau Technologies in the Company.
The statements of operations for all periods presented reflect allocations
for the costs of shared facilities and certain administrative services. Such
costs and expenses have been allocated to the Company based on actual usage or
other methods that approximate actual usage. Management believes that the
allocation methods are reasonable and that allocated costs and expenses
approximate what such amounts would be if the Company had operated on a stand-
alone basis. As discussed more fully in Note 3, the Company has entered into
agreements with Lau Technologies covering certain facilities, equipment and
administrative services after the reorganization. Although the Company has not
filed separate income tax returns for periods prior to the reorganization,
income taxes presented in the financial statements are computed on a separate
return basis taking into consideration the tax-sharing arrangement with Lau
Technologies described in Note 2.
The financial information included herein may not necessarily reflect the
financial position, results of operations and cash flows of the Company in the
future or what the financial position, results of operations and cash flows
would have been had it been a separate, stand-alone company throughout the
periods covered.
The Company designs, sells and implements turnkey digital identification
systems intended to deter fraud and to reduce customers' identification
program costs. These systems capture facial images, demographic information
and other biological identifiers, produce identification cards and create
relational databases containing this information. Using its design and systems
integration capabilities, the Company is able to combine its proprietary
software and hardware products with commercially available components and
customers' existing systems, creating a complete customized solution. In
addition, the Company is developing proprietary facial recognition software
designed to identify individuals in a large database of faces on a real-time
basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Contract Revenue and Cost Recognition
The Company provides services principally under contracts that provide for a
fixed price for the system and/or for each card produced. Revenue is
recognized using the percentage of completion method based on labor costs
incurred and/or cards produced. Contract losses, if any, are recognized in the
period in which they become determinable. Costs and estimated earnings in
excess of billings are recorded as a current asset. Billings in excess of
costs and estimated earnings and accrued contract costs are recorded as
current liabilities. Generally, contracts provide for billing when contract
milestones are met and/or cards are produced. Costs and estimated earnings in
excess of billings includes approximately $1.8 million expected to be billed
and collected after June 30, 1997 and approximately $3.1 million for which
payment terms and pricing are related to a subcontract that is currently
subject to negotiations. The subcontract is with a prime contractor that is
currently engaged in negotiations with its customer regarding an increase in
the contract amount for modifications requested by the customer, revised
payment terms and timing of performance. The final amount and payment terms of
the Company's subcontract will be based on the outcome of the prime
contractor's negotiations. Management believes that the prime contractor has
reached an understanding with the customer as to a substantial portion of the
contract modifications related to work performed and to be performed by the
Company. For the six months ended June 30, 1996 and for 1995, the Company
recorded approximately $4.4 million and $0.6 million of revenues and $1.2
million and $0.2 million of project margin, respectively, of which $1.9
million has been collected. These amounts are based in part on management's
best estimate of the final outcome of the negotiations and management believes
the amounts recorded are fully recoverable. However, actual results and/ or
timing of performance could differ based on the outcome of the aforementioned
negotiations.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable and payable and short- and long-term
borrowings, approximate fair values.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
Accounts Receivable
Accounts receivable are due principally from government agencies and
contractors to government agencies. Management periodically reviews accounts
receivable for possible uncollectible amounts. In the event management
determines a specific need for an allowance, a provision for doubtful accounts
is provided. Based on management's review, no allowance for doubtful accounts
has been recorded for the periods presented.
All of the Company's revenues related to one customer in 1993 and 1994. For
1995 and the six months ended June 30, 1996, three customers and four
customers, respectively, each accounted for more than 10% of revenues
individually, and approximately 85% and 81%, in the aggregate of the Company's
revenues, respectively.
At June 30, 1996, 77% of accounts receivable and costs and estimated
earnings in excess of billings related to four customers.
Property and Equipment
Property and equipment are recorded at cost or the lesser of fair value or
the present value of minimum lease payments for items acquired under capital
leases. Depreciation and amortization are calculated using the
F-7
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
straight-line or usage-based methods over the estimated useful lives of the
related assets that approximate 5 years or the lease term, whichever is
shorter.
Research and Development
Research and development costs are charged to expense as incurred.
Software Development
The Company reviews software development costs incurred in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 86
which requires that certain costs incurred in the development of computer
software to be sold or leased be capitalized once technological feasibility is
reached. The Company has not capitalized any software development costs
because development costs incurred subsequent to the establishment of
technological feasibility have not been material.
Costs related to internally developed software are expensed as incurred.
Externally purchased software costs are capitalized and depreciated over their
remaining useful lives not to exceed three years.
Income Taxes
The Company's operations prior to the reorganization discussed in Note 1,
were included in the income tax returns of Lau Technologies, an S corporation.
Income tax allocations for such periods have been calculated as if the Company
were filing separate income tax returns taking into consideration that
operating losses and tax credits have been utilized by the shareholders of Lau
Technologies.
After the reorganization the Company will file its own separate tax returns.
Any tax liability or refund that may arise relating to periods when the
Company was a division of Lau Technologies is covered by a tax indemnification
arrangement contained in the Asset Transfer Agreement executed in connection
with the reorganization. The indemnification provides for Lau Technologies to
pay or receive reimbursement from the Company for any tax adjustment relating
to the Viisage Technology Division for all periods prior to the effective date
of the reorganization if such adjustments will result in tax expense or tax
benefit, as the case may be, to the Company.
The Company accounts for income taxes under SFAS No. 109. Deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. As more fully discussed in the pro forma
financial information section, the Company will record a deferred tax
liability and corresponding expense when it becomes a separate entity.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted average number
of 6,225,000 common and common equivalent shares outstanding during the
period. This number is comprised of 5,680,000 shares of common stock issued in
connection with the reorganization discussed in Note 1 and 545,000 shares
related to common equivalents discussed in Note 9.
Pursuant to certain requirements of the Securities and Exchange Commission,
common and common equivalent shares issued during the 12 months prior to the
initial public offering date (using the treasury stock method and an assumed
initial public offering price of $10.00 per share) have been included in the
calculation of weighted average shares for all periods presented.
F-8
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interim Financial Information
In the opinion of management, the unaudited interim financial statements for
the six months ended July 2, 1995 include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim period
presented.
The Company's results of operations are significantly affected by, among
other things, the timing of award and performance on contracts. As a result,
the Company's revenue and income may fluctuate from quarter to quarter and
comparisons over longer periods of time may be more meaningful. The results of
operations for the period ended June 30, 1996 are not necessarily indicative
of the operating results to be expected for the full year.
Long-Lived Assets
In 1995, the Financial Accounting Standards Board adopted SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of, which is effective for 1996. Adoption of SFAS No. 121 did not
have a material impact on the Company's financial position or results of
operations.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which is effective for 1996. SFAS No.
123 establishes a fair value based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure only alternative
under SFAS No. 123, which requires disclosure of the pro forma effects on
earnings and earnings per share as if SFAS No. 123 had been adopted as well as
certain other information. See Note 9 for required disclosures.
Pro Forma Financial Information (Unaudited)
The pro forma balance sheet of the Company as of June 30, 1996 reflects the
estimated net deferred income tax liability that will be recorded by the
Company as a result of the reorganization discussed in Note 1. The deferred
income tax liability represents the tax effect of the cumulative differences
between the financial reporting and income tax bases of certain assets and
liabilities on the effective date of the reorganization. The actual deferred
income tax liability recorded will be adjusted to reflect the effect of the
Company's operations for the period from July 1, 1996 through the
reorganization date. The recording of the deferred income tax liability will
result in a corresponding income tax expense that will be recorded in the
statement of operations in the quarter in which the reorganization occurs.
The deferred income tax liability relates principally to differences in the
tax bases and financial statement carrying amounts of balance sheet amounts
related to contracts.
(3) OTHER RELATED PARTY TRANSACTIONS
In connection with the reorganization discussed in Note 1, the Company and
Lau Technologies will enter into an Administration and Services Agreement, a
Use and Occupancy Agreement and a License Agreement.
Under the Administration and Services Agreement, Lau Technologies provides
general accounting, data processing, payroll, human resources, employee
benefits administration and certain executive services to the Company. The
agreement requires the Company to pay a monthly fee based on the estimated
actual cost of such services and permits the Company to terminate selected
services upon 30 days written notice. The annual fee for services is
approximately $660,000 and will be revised if the level of services is
changed. The Company utilized the same allocation methods for prior periods.
Amounts for 1994 and 1995 reflect the use of additional services that were
provided by Company personnel in 1996.
The amounts for such services were approximately $280,000 in 1993, $710,000
in 1994, $1.1 million in 1995 and $540,000 and $330,000 for the six month
periods ended July 2, 1995 and June 30, 1996, respectively.
F-9
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Use and Occupancy Agreement requires the Company to pay its
proportionate share of the cost of shared facilities and office services
including rent, insurance, property taxes, utilities and other operating
expenses, based on square footage or equipment utilized. The Agreement expires
on February 23, 1997 and may be terminated by the Company in whole or in part
upon 30 days written notice. The annual fee for facilities and services is
approximately $220,000. See Note 7 for lease information. After the initial
expiration of this Agreement, the Company will continue to share facilities
with Lau Technologies under a comparable arrangement or will utilize separate
facilities.
Company employees will also participate in various Lau Technologies employee
benefit plans following the reorganization. The Company will pay its
proportionate share of the costs of such plans based on the number of
participating employees.
Management believes the methods for allocating expenses and those costs
related to shared facilities and equipment are reasonable and approximate what
these costs would be on a stand-alone basis.
The License Agreement grants the Company an exclusive, worldwide, royalty-
free, paid-up, perpetual, irrevocable license to use proprietary technology
used by the Viisage Technology Division at the time of the reorganization and
improvements thereto. The license excludes the use of such technology for
federal access control as defined in the Agreement.
The Company purchases certain system components and technical personnel from
Lau Technologies. The amounts for such components and services were
approximately $282,000 in 1993, $1.4 million in 1994, $2.8 million in 1995 and
$2.0 million and $1.0 million for the six month periods ended July 2, 1995 and
June 30, 1996, respectively.
The Company has employment and noncompetition agreements with certain
officers. Such agreements provide for employment and related compensation for
initial terms of five years, renewal options for two years, and restrict the
individuals from competing, as defined, with the Company during the terms of
their respective agreements and for up to two years thereafter. The agreements
also provide for stock options under the Company's stock option plan and for
severance payments upon termination under circumstances defined in such
agreements.
(4) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
JUNE 30,
1994 1995 1996
----- ------ --------
<S> <C> <C> <C>
Assets held under capital leases...................... $ -- $2,216 $2,216
Computer equipment.................................... -- 101 128
----- ------ ------
-- 2,317 2,344
Less--Accumulated depreciation and amortization....... -- 88 316
----- ------ ------
$ -- $2,229 $2,028
===== ====== ======
</TABLE>
During 1995, the Company sold and leased back under capital leases
approximately $2.2 million of system equipment used to produce identification
cards for certain contracts.
F-10
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Accounts payable...................................... $1,079 $ 835 $1,338
Accrued contract costs................................ -- -- 1,543
Accrued payroll and related taxes..................... 72 108 202
Accrued vacation...................................... 21 136 202
Other accrued expenses................................ 6 74 57
------ ------ ------
$1,178 $1,153 $3,342
====== ====== ======
</TABLE>
(6) BANK BORROWINGS
Long-term debt consists of borrowings under a revolving line of credit
agreement between Lau Technologies and a commercial bank. Borrowings that
relate to the Company's operations will be assumed in connection with the
reorganization discussed in Note 1. Borrowings are unsecured and bear interest
(7.6% at June 30, 1996) at the bank's corporate rate, rates based on the
bank's cost of funds or LIBOR-based options. The arrangement provides for
borrowings of up to $15.0 million, permits the Company to enter into equipment
leases of up to $15.0 million and requires Lau Technologies to maintain
certain financial ratios and minimum tangible net worth. At June 30 1996, Lau
Technologies was in compliance with such covenants. The revolving line of
credit expires on June 30, 1998 and, accordingly, all amounts due have been
classified as long-term.
The Company is negotiating a revolving credit agreement to replace the
existing arrangement. The new agreement is expected to provide for unsecured
borrowings of up to $10.0 million at prime rate or other LIBOR-based options
and permit additional lease obligations. Any agreement, among other things, is
expected to limit the amount the Company may borrow from other sources,
restrict certain expenditures and require the maintenance of debt coverage and
leverage ratios.
(7) LEASES
The Company leases certain equipment used in its operations and the shared
facilities discussed in Note 3. Rental expense for operating leases was
approximately $40,000 in 1993, $90,000 in 1994, $140,000 in 1995 and $70,000
and $110,000 for the six month periods ended July 2, 1995 and June 30, 1996,
respectively.
At June 30, 1996, approximate future minimum rentals under the lease for
shared facilities and capital leases for the six months ended December 31,
1996 and the years ending December 31, thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
PERIOD ENDING LEASE LEASE
------------- ------- ---------
<S> <C> <C>
1996....................................................... $ 329 $110
1997....................................................... 659 36
1998....................................................... 659 --
1999....................................................... 559 --
------ ----
Total minimum lease payments............................. 2,206 $146
====
Less--Interest portion..................................... 300
------
Present value of net minimum lease payments................ 1,906
Less--Current portion...................................... 512
------
$1,394
======
</TABLE>
F-11
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Lau Technologies has a system project lease arrangement, which will be
assumed by the Company at the time of the reorganization described in Note 1,
with a commercial leasing organization providing for system project leases of
up to $15.0 million. Pursuant to the facility, the lessor will purchase
certain of the Company's digital identification systems and lease them back to
Viisage for deployment with identified and contracted customers approved by
the lessor. The lessor will retain title to the systems and will have an
assignment of Viisage's rights under the related customer contracts, including
rights to use the software and technology underlying the related systems.
Under the facility, the lessor will bear the credit risk associated with
payments by Viisage's customers, but Viisage will bear performance and
appropriation risk and will generally be required to repurchase a system in
the event of a termination by a customer for any reason except credit default.
(8) RETIREMENT PLANS
The Company participates in the Lau Technologies 401(k) plan and pays its
proportionate share of plan expenses based on the number of participants. The
plan permits pretax contributions by participants of up to 15% of base
compensation. The Company may make discretionary matching contributions of up
to 3% of base compensation. Participants are fully vested in their
contributions and vest 20% per year in employer contributions. The Company's
allocation of costs for all periods was not material.
The Company does not offer any postretirement benefits.
(9) STOCK OPTION PLANS
Lau Technologies granted 1,167,950 nonqualified options for the Company's
common stock on February 1, 1996 to management and 81,650 nonqualified options
to directors. The exercise price for such options is $2.96 per share. The
Company granted an additional 177,500 nonqualified options to management on
April 15, 1996 at $4.86 per share, the estimated fair value of such shares at
the grant date. At the closing date of the initial public offering 255,600
options are exercisable. The remaining director options become exercisable
over three years and management options become exercisable in seven years or
earlier if certain performance measures are met. The performance measures are
based on each $1.0 million increase in Company value up to $500 million. In
connection with such options, the Company is recognizing compensation expense
of approximately $700,000 over the estimated vesting period. The amount of
compensation is calculated as the difference between the exercise price and
the fair value of the Company's business on the grant dates based on an
independent third-party appraisal. Stock compensation expense recorded for the
six months ended June 30, 1996 was $92,000. The Company has reserved 1,437,750
shares of common stock for issuance under the Plans of which 10,650 are
available for grant. No options have been exercised or canceled under the
Plans. The options expire ten years from the date of grant.
On June 17, 1996, the Board of Directors of the Company ratified the
foregoing option grants in connection with its adoption of the Stock Option
Plans (the Plans) under which incentive and nonqualified stock options may be
granted to employees and officers and nonqualified stock options may be
granted to directors. Generally, incentive stock options are granted at fair
value and are subject to the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended. Nonqualified options are granted at exercise
prices determined by the Board of Directors. Options vest over periods of up
to seven years and vesting may be accelerated based on performance criteria
set by the Board of Directors.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted in 1996 using the Black-Scholes option pricing model
prescribed by SFAS No. 123. The weighted average assumptions used for 1996
are:
<TABLE>
<S> <C>
Risk free interest rate............................ 6%
Expected dividend yield............................ --
Expected lives..................................... 10 Years
Expected volatility................................ 66%
</TABLE>
F-12
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The total value of options granted during 1996 was computed as approximately
$4.2 million. Of this amount $510,000 would be charged to operations for the
six months ended June 30, 1996 for currently vested options and the remaining
amount, $3.6 million, would be amortized over the related vesting periods. The
pro forma affect of SFAS No. 123 for the period ended June 30, 1996 is as
follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net income (loss)................................... $74,000 $(206,000)
Net income per share (loss)......................... 0.01 (0.03)
======= =========
</TABLE>
(10) SUBSEQUENT EVENTS
In August 1996, the Company filed a Registration Statement with the SEC
covering the issuance and sale by the Company of approximately 2,000,000
shares of common stock.
In September 1996, Lau Technologies entered into a system project lease
arrangement as described in Note 7 providing for system project leases of up
to $15.0 million, which will be assumed by the Company as a part of the
reorganization described in Note 1.
On the effective date of the aforementioned offering the Company completed
the reorganization discussed in Note 1 and issued 5,680,000 shares of common
stock to Lau Technologies.
The Company plans to use a portion of the proceeds from the aforementioned
sale of common stock to repay long-term debt. Assuming such debt were repaid
at the beginning of the period, net income (loss) per share would have been
($0.34) and $0.05 for the year ended December 31, 1995 and the six months
ended June 30, 1996, respectively.
On September 23, 1996, three minority shareholders of Lau filed suit in
Superior Court in Berkshire County, Massachusetts, alleging that certain
defendants breached the fiduciary duty owed the plaintiffs as shareholders of
Lau. The plaintiffs requested, among other things, an injunction to delay this
offering in an effort to obtain a direct, rather than an indirect, ownership
interest in the Company. On October 4, 1996, the Superior Court denied
plaintiffs' request for such relief, although plaintiffs' claims for
unspecified money damages remain pending. Lau has agreed to indemnify and hold
the Company harmless for any liabilities incurred by the Company as a result
of judgments, settlements or litigation expenses arising out of this suit.
Accordingly, the Company does not believe that the resolution of this matter
would have a material adverse effect on its business, financial condition or
results of operations.
F-13
<PAGE>
[Images and schematic representations of Viisage's facial recognition software
performing enrollment, identification and verification.]
SEE "BUSINESS--PRODUCTS & SERVICES--
FACIAL RECOGNITION TECHNOLOGIES."
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY
OF THE UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 26
Relationship and Certain Transactions with Lau Technologies.............. 37
Management............................................................... 40
Principal and Selling Stockholders....................................... 45
Description of Capital Stock ............................................ 46
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Financial Statements..................................................... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[Viisage Logo]
COMMON STOCK
------------------
PROSPECTUS
------------------
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of Common Stock being registered, other than the
underwriting discount and commissions. All amounts are estimates except for
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee. The Company will pay all expenses in connection with the issuance
and distribution of any securities sold by the Selling Stockholder, except for
underwriting discounts and commissions and for any fees of counsel selected by
the Selling Stockholder to act in addition to or lieu of the counsel for the
Selling Stockholder appointed by the Company.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 11,897
NASD filing fee................................................. 3,950
Nasdaq National Market listing fee.............................. 37,700
Securities Act liability insurance coverage..................... 140,000
Printing and engraving expenses................................. 130,000
Legal fees and expenses......................................... 200,000
Accounting fees and expenses.................................... 150,000
Blue sky fees and expenses (including counsel fees)............. 25,000
Transfer agent and registrar fees and expenses.................. 2,500
Miscellaneous................................................... 123,953
--------
Total......................................................... $825,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and
officers under certain conditions. Article IX of the Restated Certificate of
Incorporation and Article 5 of the By-Laws provide that the Company shall
indemnify each person who at any time is, or shall have been, a director or
officer of the Company, and is threatened to be or is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is,
or was, a director or officer of the Company, or served at the request of the
company as a director, officer, employee, trustee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any such action, suit or proceeding to
the maximum extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) any
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) any payment of a dividend or approval of a
stock purchase that is illegal under Section 174 of the Delaware Corporation
Law or (iv) any transaction from which the director derived an improper
personal benefit. Article VIII of the Restated Certificate of Incorporation
provides that to the maximum extent permitted by the General Corporation Law
of the State of Delaware, no director of the Company shall be personally
liable to the Company or to any of its stockholders for monetary damages
arising out of such director's breach of fiduciary duty as a director of the
Company. No amendment to or repeal of the provisions of Article VIII shall
apply to or have any effect of the liability or the alleged liability of any
director of the Corporation with respect to any act or failure to act of such
director occurring prior to such amendment or repeal. A principal effect of
such Article VIII is to limit or eliminate the potential liability of the
Company's directors for monetary damages arising from
II-1
<PAGE>
breaches of their duty of care, unless the breach involves one of the four
exceptions described in (i) through (iv) above. Article VIII does not prevent
stockholders from obtaining injunctive or other equitable relief against
directors, nor does it shield directors from liability under federal or state
securities laws.
Section 145 of the Delaware General Corporation Law also affords a Delaware
corporation the power to obtain insurance on behalf of its directors and
officers against liabilities incurred by them in those capacities. The Company
is procuring a directors' and officers' liability and company reimbursement
liability insurance policy that (a) insures directors and officers of the
Company against losses (above a deductible amount) arising from certain claims
made against them by reason of certain acts done or attempted by such
directors or officers and (b) insures the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of the Restated Certificate
of Incorporation or the By-Laws.
Reference is also made to Section 6 of the Underwriting Agreement between
the Company, the Selling Stockholders and the Underwriters, filed as Exhibit
1.1 of this Registration Statement, for a description of indemnification
arrangements between the Company, the Selling Shareholder and the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities issued
or sold by the Company within the past three years which were not registered
under the Securities Act.
In connection with and prior to the issuance of the shares of Common Stock
being registered hereby, the Company will issue 5,680,000 shares of its Common
Stock to the Selling Shareholder, Lau Technologies ("Lau") in return for Lau's
contribution of the assets, liabilities and business of its Viisage Technology
Division to the Registrant, a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 4(2) thereof. Lau has represented that, other than with
respect to the 500,000 shares of Common Stock being registered on its behalf
hereunder, it is acquiring the shares for investment purposes and not with a
view to distribution within the meaning of the Securities Act. The stock
certificates representing Lau's unregistered shares will bear restrictive
legends.
On February 1, 1996, Lau granted nonqualified options (i) for 1,167,950
shares of Common Stock in the Company, with an exercise price of $2.96 per
share, to eight employees and (ii) for 81,650 shares of Common Stock in the
Company, with an exercise price of $2.96 per share, to its five serving
directors. On April 15, 1996, Lau granted nonqualified options to acquire an
additional 177,500 shares of Common Stock in the Company, at an exercise price
of $4.86 per share, to a ninth executive employee. All of these options were
ratified by the Board of Directors of the Company on June 17, 1996 following
its incorporation in connection with the Board's adoption of the Company's
1996 Management Stock Option Plan (with respect to grants to executives) and
the 1996 Director Stock Option Plan. No options have been exercised. The
option grants were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof relating to sales by an issuer not
involving a public offering. In addition, the Company intends to register the
shares subject to options granted under the plans pursuant to Form S-8. Unless
and until such shares are registered, option holders will be required to
represent that they are acquiring their securities for investment purposes and
not with a view to distribution within the meaning of the Securities Act.
Stock certificates representing shares issued pursuant to such options (except
to the extent registered) will bear restrictive legends.
None of the foregoing transactions involved a distribution or public
offering. No underwriters were engaged in connection with the foregoing
issuances of securities, and no underwriting commissions or discounts were
paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The Exhibits required to be filed as part of this Registration Statement are
listed in the attached index to Exhibits.
II-2
<PAGE>
(b) Financial Statement Schedules
Financial statement schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the 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 the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
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 hereunder, the Registrant will, unless in the
opinion of 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 Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE TOWN
OF ACTON, COMMONWEALTH OF MASSACHUSETTS, ON THIS 9TH DAY OF OCTOBER, 1996.
Viisage Technology, Inc.
/s/ Robert C. Hughes
By:_________________________________
Robert C. Hughes
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 9TH DAY OF OCTOBER, 1996:
SIGNATURE TITLE
* Chairman of the Board of Directors
By: _________________________________
DENIS K. BERUBE
* President and Chief Executive Officer
By: _________________________________ (Principal Executive Officer)
ROBERT C. HUGHES
* Treasurer and Chief Financial Officer
By: _________________________________ (Principal Financial and Accounting
WILLIAM A. MARSHALL Officer)
* Secretary and Director
By: _________________________________
CHARLES J. JOHNSON
* Director
By: _________________________________
HARRIET MOUCHLY-WEISS
* Director
By: _________________________________
PETER NESSEN
* Director
By: _________________________________
THOMAS J. REILLY
/s/ Robert C. Hughes
*By: ___________________________
ROBERT C. HUGHES
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<C> <S> <C>
1.1+ Form of Underwriting Agreement.
2.1 Amended and Restated Asset Transfer Agreement, dated as
of August 20, 1996, between the Registrant and Lau
Technologies.
3.1** Restated Certificate of Incorporation of the
Registrant.
3.2** By-Laws of the Registrant.
4.1* Specimen certificates for shares of the Registrant's
Common Stock.
5.1* Opinion of Finnegan, Hickey, Dinsmoor & Johnson, P.C.
10.1 Amended and Restated License Agreement, dated as of
August 20, 1996, between the Registrant and Lau
Technologies.
10.2 Form of Administration & Services Agreement between the
Registrant and Lau Technologies.
10.3 Form of Use & Occupancy Agreement between the
Registrant and Lau Technologies.
10.4 License Agreement, dated as of August 20, 1996, between
the Registrant and Facia Reco Associates, Limited
Partnership.
10.5** Employment Agreement, dated as of February 1, 1996,
between the Registrant and Robert C. Hughes.
10.6** Employment Agreement, dated as of February 1, 1996,
between the Registrant and William A. Marshall.
10.7** Employment Agreement, dated as of July 1, 1996, between
the Registrant and Yona Wieder.
10.8 1996 Management Stock Option Plan.
10.9 1996 Director Stock Option Plan.
10.10 Form of Option Agreement for the 1996 Management Stock
Option Plan.
10.11 Form of Option Agreement for the 1996 Director Stock
Option Plan.
10.12* Executive Incentive Compensation Plan.
10.13 Subcontract between the Registrant and Information
Spectrum, Inc. (relating to the U.S. Immigration &
Naturalization Service), dated as of October 19, 1995.
10.14 Contract between the Registrant and the North Carolina
Department of Transportation, dated as of April 26,
1996.
10.15 Purchase Agreement (Project Finance Facility) between
the Registrant and Sanwa Business Credit Corporation,
dated as of September 12, 1996.
10.16* Contract between the Registrant and Transactive, Inc.
(relating to the New York Department of Social
Services), dated as of December 8, 1994, as amended.
23.1+ Consent of Arthur Andersen LLP.
23.2* Consent of Finnegan, Hickey, Dinsmoor & Johnson, P.C.
(See Exhibit 5.1 above).
24.1** Power of Attorney.
24.2** Power of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Supersedes previously filed exhibit.
II-5
<PAGE>
Draft Dated 10/7/96
-------------------
2,500,000 Shares/1/
Viisage Technology, Inc.
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
As Representatives of the Several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Dear Sirs:
1. Introductory. Viisage Technology, Inc., a Delaware corporation
------------
(the "Company"), and Lau Acquisition Corp. ("Lau"), a stockholder of the Company
(the "Selling Stockholder") propose to sell, pursuant to the terms of this
Agreement, to the several underwriters named in Schedule A hereto (the
"Underwriters," or, each, an "Underwriter"), an aggregate of 2,500,000 shares of
Common Stock, $.001 par value (the "Common Stock") of the Company, of
which 2,000,000 shares will be sold by the Company and 500,000 shares will be
sold by the Selling Stockholder. The aggregate of 2,500,000 shares so proposed
to be sold is hereinafter referred to as the "Firm Stock." The respective
amounts of the Firm Stock to be so purchased by the several Underwriters are set
forth opposite their names in Schedule A hereto. The Company Stockholder also
has granted to the Underwriters, upon the terms and conditions set forth in
Section 3 hereof, the option to purchase up to an additional 375,000 shares of
Common Stock (the "Optional Stock"). The Firm Stock and the Optional Stock are
hereinafter collectively referred to as the "Stock." Cowen & Company ("Cowen")
and Needham & Company, Inc. ("Needham") are acting as representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives."
2. (a) Representations and Warranties of the Company and the
-----------------------------------------------------
Selling Stockholder. The Company and the Selling Stockholder jointly and
- -------------------
severally represent and warrant to, and agree with, the several Underwriters
that:
________________________________
/1/ Plus an option to purchase up to 375,000 additional shares from the
Company to cover over-allotments.
<PAGE>
-2-
(i) A registration statement on Form S-1 (File No. 333-10649)
in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto shall
become effective with respect to the Stock, including any preeffective
prospectuses included as part of the registration statement as
originally filed or as part of any amendment or supplement thereto, or
filed pursuant to Rule 424 under the Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, copies of which have heretofore been
delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act and has been
filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended preeffective prospectus, copies of which amendments have
heretofore been delivered to you, have been so prepared and filed. If
it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this Agreement
shall also include any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act. All copies of Registration Statements that have been
delivered to you are identical to the electronically transmitted copies
thereof filed with the Commission pursuant to the Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"),
except to the extent permitted by Regulation S-T. The term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, (A) if the prospectus
included in the Registration Statement omits information in reliance on
Rule 430A under the Securities Act and such information is included in
a prospectus filed with the Commission pursuant to Rule 424(b) under
the Securities Act, the term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement
as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b) and
(B) if prospectuses that meet the requirements of Section 10(a) of the
Securities Act are delivered pursuant to Rule 434 under the Securities
Act, then (i) the term "Prospectus" as used in this Agreement means the
"prospectus subject to completion" (as such term is defined in Rule 434
(g) under the Securities Act) as supplemented by (a) the addition of
Rule 430A information or other information contained in the form of
prospectus delivered pursuant to Rule 434 (b) (2) under the Securities
Act or (b) the information contained in the term sheets described in
Rule 434 (b) (3) under the Securities Act, and (ii) the date of such
prospectuses shall be deemed to be the date of the term sheets. The
term "Preeffective Prospectus" as used in this Agreement means the
prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
<PAGE>
-3-
Prospectus. For purposes of this Agreement, all references to the
Registration Statement, any Pre-effective Prospectus, the Prospectus,
or any amendment or supplement to any of the foregoing shall be deemed
to include the respective copies thereof filed with the Commission
pursuant to EDGAR.
(ii) The Commission has not issued or threatened to issue any order
preventing or suspending the use of any Preeffective Prospectus, and,
at its date of issue, each Preeffective Prospectus conformed in all
material respects with the requirements of the Securities Act and did
not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and, when the Registration Statement becomes
effective and at all times subsequent thereto up to and including the
Closing Dates, the Registration Statement and the Prospectus and any
amendments or supplements thereto conformed and will conform in all
material respects to the requirements of the Securities Act and the
Rules and Regulations; and when the Registration Statement became
effective, neither the Registration Statement nor any amendment or
supplement thereto, included 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 not misleading; and, on the
Effective Date the Prospectus did not, and on the Closing Dates will
not, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing representations,
-------- -------
warranties and agreements shall not apply to information contained in
or omitted from any Preeffective Prospectus or the Registration
Statement or the Prospectus or any such amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished
to the Company by or on behalf of any Underwriter, directly or through
you (or by any Selling Stockholder), specifically for use in the
preparation thereof; there is no franchise, lease, contract, agreement
or document required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed therein as required; and all
descriptions of any such franchises, leases, contracts, agreements or
documents contained in the Registration Statement are accurate
descriptions of such documents in all material respects.
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as set
forth or contemplated in the Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, nor entered into
any transactions not in the ordinary course of business, and there has
not been any material adverse change in the condition (financial or
otherwise), properties, business, management, net worth or results of
operations of the Company, or any change in the capital stock, or any
material change in the short-term or long-term debt of the Company.
<PAGE>
-4-
(iv) The financial statements, together with the related notes, set
forth in the Prospectus and elsewhere in the Registration Statement
fairly present, on the basis stated in the Registration Statement, the
financial position and the results of operations and changes in
financial position of the Company at the respective dates or for the
respective periods therein specified. Such statements and related notes
and schedules have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis except as may be
set forth in the Prospectus. The selected financial and statistical
data set forth in the Prospectus under the caption "Selected Financial
Data" fairly present, on the basis stated in the Registration
Statement, the information set forth therein.
(v) Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(vi) The Company has been duly organized and is validly existing
and in good standing as a corporation under the laws of its
jurisdiction of organization, with power and authority (corporate and
other) to own or lease its business as described in the Prospectus; the
Company is in possession of and operating in material compliance with
all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of its
business, all of which are valid and in full force and effect; and the
Company is duly qualified to do business and in good standing as a
foreign corporation in all other jurisdictions where its ownership or
leasing of properties or the conduct of its business requires such
qualification. The Company has all requisite power and authority, and
all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and from all
public regulatory or governmental agencies and bodies to own, lease and
operate its properties and conduct its business as now being conducted
and as described in the Registration Statement and the Prospectus, and
no such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and
the Prospectus. The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(vii) The Company's authorized and outstanding capital stock is on
the date hereof, and will be on the Closing Date, as set forth under
the heading "Capitalization" in the Prospectus; the outstanding shares
of capital stock (including the outstanding shares of Stock) of the
Company conform to the description thereof in the Prospectus and have
been duly authorized and validly issued and are fully paid and
nonassessable, are duly listed on the Nasdaq National Market and have
been issued in compliance with all federal and state securities laws
and were not issued in violation of or subject to any preemptive rights
or
<PAGE>
-5-
similar rights to subscribe for or purchase securities and conform
to the description thereof contained in the Prospectus. Except as
disclosed in and or contemplated by the Prospectus and the financial
statements of the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations, except for options granted subsequent to the date of
information provided in the Prospectus pursuant to the Company's
employee and stock option plans as disclosed in the Prospectus. The
description of the Company' s stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description
thereof in the Prospectus.
(ix) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any executive
officers or directors is a party or of which any property of the
Company or any affiliate is subject, which, if determined adversely to
the Company or any executive officers or directors, might individually
or in the aggregate (i) prevent or adversely affect the transactions
contemplated by this Agreement, (ii) suspend the effectiveness of the
Registration Statement, (iii) prevent or suspend the use of the
Preeffective Prospectus in any jurisdiction or (iv) result in a
material adverse change in the condition (financial or otherwise),
properties, business, management, net worth or results of operations of
the Company; and to the best of the Company's knowledge no such
proceedings are threatened or contemplated against the Company or any
affiliate by governmental authorities or others. The Company is not a
party nor subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body or other
governmental agency or body. The description of the Company's
litigation under the heading "Legal Proceedings" in the Prospectus is
true and correct and complies with the Rules and Regulations.
(x) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms or provisions of or
constitute a default under any indenture, mortgage, deed of trust, note
agreement or other material agreement or instrument to which the
Company is a party or by which it or any of its properties is or may be
bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company, or any law, order, rule or
regulation of any court or
<PAGE>
-6-
governmental agency or body having jurisdiction over the Company or any
of its properties or will result in the creation of a lien.
(xi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such
as may be required by the National Association of Securities Dealers,
Inc. (the "NASD") or under the Securities Act or the securities or
"Blue Sky" laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to
the extent that rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or the public policy
underlying such laws.
(xiii) The Company is in all material respects in compliance with,
and conducts its business in material conformity with, all applicable
federal, state, local and foreign laws, rules and regulations
(including but not limited to the Foreign Corrupt Practices Act and any
laws, rules and regulations regarding government contracting and
procurement) or any court or governmental agency or body and the
Company has all permits or licenses required thereunder; to the
knowledge of the Company, otherwise than as set forth in the
Registration Statement and the Prospectus, no prospective change in any
of such federal or state laws, rules or regulations has been adopted
which, when made effective, would have a material adverse effect on the
operations of the Company.
(xiv) The Company has filed all necessary federal, state, local and
foreign income, payroll, franchise and other tax returns and have paid
all taxes shown as due thereon or with respect to any of its
properties, and there is no tax deficiency that has been, or to the
knowledge of the Company has been threatened or is likely to be,
asserted against the Company or any of its properties or assets that
would adversely affect the financial position, business or operations
of the Company.
(xv) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of
the filing or effectiveness of the Registration Statement or otherwise.
(xvi) Neither the Company nor any of its officers or directors has
taken or will take, directly or indirectly, any action designed or
intended to stabilize or manipulate the price of any security of the
Company, or which caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock of the Company.
<PAGE>
-7-
(xvii) The Company has provided you with all financial statements
since inception to the date hereof that are available to the officers
of the Company, including financial statements for the six months ended
June 30, 1996.
(xviii) The Company owns, possesses, or has rights to use all
patents, trademarks, trademark registrations, service marks, service
mark registrations, tradenames, copyrights, copyright registrations,
licenses, inventions, trade secrets and rights (collectively,
"Intellectual Property") necessary for the conduct of its business or
described in the Prospectus as being owned, licensed or used by it.
Other than as described in the Prospectus, the Company has not received
any notice or claim or any challenge by any other person to the rights
of the Company with respect to the Intellectual Property necessary for
the conduct of its business or described in the Prospectus as being
owned, licensed or used by it. The Company's business as now conducted
does not and will not infringe or conflict with any Intellectual
Property or franchise right of any person. Other than as described in
the Prospectus, no claim has been made against the Company alleging the
infringement by the Company of any Intellectual Property right or
franchise right of any person. None of the patents owned or licensed
by the Company are unenforceable or invalid. The Company, or the
Selling Stockholder, as the case may be, has duly and properly filed or
caused to be filed with the United States Patent and Trademark Office
(the "PTO") and applicable foreign and international patent authorities
all patent applications described or referred to in the Prospectus, and
believes it has complied with the PTO's duty of candor and disclosure
for each of the United States patent and patent applications described
or referred to in the Prospectus; neither the Company nor the Selling
Stockholder is aware of any facts which would preclude the grant of a
patent from each of its respective patent applications described or
referred to in the Prospectus; neither the Company nor the Selling
Stockholder has knowledge of any facts which would preclude it from
having clear title to its patent applications referenced in the
Prospectus; and neither the Company nor the Selling Stockholder has
terminated or breached and is not in violation of any agreement
covering any Intellectual Property rights.
(xix) No breach or default exists in the due performance and
observance by the Company of any term, covenant or condition of its
contracts. To the Company's knowledge, no other party to such contract
is in material default under or in breach of any such obligations. The
Company has not received any notice of such default or breach.
(xx) The Company is not involved in any labor dispute nor is any
such dispute threatened. The Company is not aware that (A) any
executive, key employee or significant group of employees of the
Company plans to terminate employment with the Company or (B) any such
executive or key employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement that would
be violated by the present or proposed business activities of
<PAGE>
-8-
the Company. The Company does not have or expect to have any liability
for any prohibited transaction or funding deficiency or any complete or
partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which the Company
makes or ever has made a contribution and in which any employee of the
Company is or has ever been a participant. With respect to such plans,
the Company is in compliance in all material respects with all
applicable provisions of ERISA.
(xxi) The Company has, and the Company as of the Closing Dates will
have, good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by it which is
material to the business of the Company, in each case free and clear of
all liens, encumbrances and defects except such as are described the
Prospectus or such as would not have a material adverse effect on the
Company; and any real property and buildings held under lease by the
Company are, or will be as of the Closing Dates, held by it under
valid, subsisting and enforceable leases with such exceptions as would
not have a material adverse effect on the Company, in each case except
as described in or contemplated by the Prospectus.
(xxii) The Company is insured by insurers of financial
responsibility against such losses and risks and in such amounts as are
customary in the business in which it is engaged; and no such insurer
has notified or indicated to the Company that it will not be able to
renew its existing insurance coverage as and when such coverage
expires; and the Company has no reason to believe that, if such
coverage is not renewed, that it will not be able to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or
operations of the Company, except as described in or contemplated by
the Prospectus.
(xxiii) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(xxiv) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
(xxv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
<PAGE>
-9-
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxvi) To the Company's knowledge, neither the Company nor any
employee or agent of the Company has made any payment or received or
retained any payment in violation of any law, rule or regulation, which
payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(xxvii) The Company is not or will not become an "investment
company" or an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended,
after the closing of the offering and the application of the proceeds
therefrom.
(xxviii) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
(xxix) The Company has obtained the written agreement described in
Section 8(k) of this Agreement from each of its officers, directors,
holders of Common Stock and holders of options to purchase Common
Stock.
(xxv) Each of the Amended and Restated Asset Transfer Agreement
(the "Transfer Agreement") dated August __,1996, the Amended and
Restated License Agreement dated August 1996, the Administrations and
Services Agreement dated August __, 1996, and Use and Occupancy
Agreement dated August __, 1996 between the Company and Lau and
pursuant to which the Company was initially organized and capitalized
(all of the foregoing agreements being referred to herein as the
"Organization Agreements") has been duly and validly authorized,
executed and delivered by the Company and is a valid and binding
obligation of the Company enforceable in accordance with its terms. The
execution, delivery and performance of the Organization Agreements by
the Company, the consummation of the transactions therein contemplated
and compliance with the terms thereof do not and will not result in a
breach or violation of, or constitute a default under, the corporate
charter, by-laws or other governing documents of the Company, or any
agreement, mortgage, trust, loan agreement, lease, indenture or other
instrument or agreement to which the Company is a party or by which it
is bound, or to which any of its properties is subject, and do not and
will not violate any existing law, rule, administrative regulation or
decree or judgment of any court or any governmental agency or body
having jurisdiction over the Company or any of its properties, or
result in the creation or imposition of any lien, charge, claim or
encumbrance upon any property or asset of the Company. No consent,
approval, authorization or order of any court, governmental agency or
body or financial institution is required in connection with the
consummation of the transactions contemplated by such Organization
Agreements.
<PAGE>
-10-
(b) Representations and Warranties and Agreements of the Selling
------------------------------------------------------------
Stockholder. The Selling Stockholder represents and warrants to, and
------------
agrees with, the several Underwriters that it:
(i) Now has, and on the Closing Dates will have, valid and
marketable title to the Stock to be sold by the Selling Stockholder,
free and clear of any lien, claim, security interest or other
encumbrance, including, without limitation, any restriction on
transfer, and has full right, power and authority to enter into this
Agreement, and, that it is a corporation, duly organized and validly
existing and in good standing as a corporation under the laws of its
jurisdiction of organization.
(ii) Now has, and on the Closing Dates will have, upon delivery of
and payment for each share of Stock hereunder, full right, power and
authority and approval required by law to sell, transfer, assign and
deliver the Stock being sold by the Selling Stockholder hereunder, and
each of the several Underwriters will acquire valid and marketable
title to all of the Stock being sold to the Underwriters by the Selling
Stockholder, free and clear of any liens, encumbrances, equities
claims, restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of this Agreement,
without the prior written consent of Cowen, the Selling Stockholder
will not offer, sell, assign, transfer, encumber, contract to sell,
grant an option to purchase or otherwise dispose of any shares of
Common Stock held by such Selling Stockholder (including without
limitation any shares of Common Stock that may be deemed to be
beneficially owned by such Selling Stockholder on the date hereof in
accordance with the Rules and Regulations) or any securities
convertible into, derivative of or exercisable or exchangeable for such
Common Stock for 180 days commencing on the date of the final
prospectus, except for shares of Common Stock sold by such Selling
Stockholder pursuant to this Agreement.
(iv) Has, by execution and delivery of each of this Agreement,
created valid and binding obligations of the Selling Stockholder,
enforceable against the Selling Stockholder in accordance with the
terms of such agreements and documents.
(v) The performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby will not result in a
breach or violation by the Selling Stockholder of any of the terms or
provisions of, or constitute a default by the Selling Stockholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder or any of its properties is bound, or any judgment
of any court or governmental agency or body applicable to the Selling
Stockholder or any of its properties, or to the Selling Stockholder's
knowledge, any statute, decree,
<PAGE>
-11-
order, rule or regulation of any court or governmental agency or body
applicable to the Selling Stockholder or any of its properties.
(vi) Has reviewed the Registration Statement and Prospectus and,
nothing has come to the attention of the Selling Stockholder that would
lead the Selling Stockholder to believe that on the Effective Date, the
Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus contained and, on
the Closing Date and any later date on which Optional Stock is to be
purchased, contains any untrue statement of a material fact or omitted
or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
The Selling Stockholder agrees that its obligations hereunder shall
not be terminated by operation of law, whether by liquidation or
distribution of the Selling Stockholder, or any other event.
(vii) Owns, and will own as of each Closing Date, of record and
beneficially, the number of shares of Common Stock of the Company set
forth in the Prospectus, free and clear of any liens, encumbrances,
claims or restrictions, except as described in the Prospectus and
except that certain of such shares are reserved for issuance
pursuant to stock option and other benefit plans under which options to
purchase Common Stock of the Company owned by Lau are granted to
certain employees, directors or consultants of Lau.
(viii) Has completed the transfer to the Company of certain assets,
as described in the Prospectus and in the Transfer Agreement, and has
taken all required corporate and other actions. Each of the
Organization Agreements to which Lau is a party has been duly and
validly authorized, executed and delivered by Lau and is a valid and
binding obligation of Lau enforceable in accordance with its terms.
The execution, delivery and performance of each of the Organization
Agreements by Lau, the consummation of the transactions therein
contemplated and compliance with the terms thereof do not and will not
result in a breach or violation of, or constitute a default under, the
corporate charter, by-laws or other governing documents of Lau, or any
agreement, mortgage, trust, loan agreement, lease, indenture or other
agreement or instrument to which Lau is a party or by which it is
bound, or to which any of its properties is subject, and do not and
will not violate any existing law, rule, administrative regulation or
decree or judgment of any court or any governmental agency or body
having jurisdiction over Lau or any of its properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon
any property or asset of Lau. No consent, approval, authorization or
order of any court, governmental agency or body or financial
institution is required in connection with the consummation by Lau of
the transactions contemplated by the Organization Agreements.
<PAGE>
-12-
(ix) Has filed all tax returns required to be filed by it, except for
such returns for which Lau's failure to file would not have a material
adverse effect on Lau or the Company, and has paid all taxes which have
become due, including without limitation, all taxes which it is
obligated to withhold for amounts owing to employees, creditors and
third parties, except for taxes for which Lau's failure to pay would
not have a material adverse effect on Lau or Company. All taxes with
respect to which Lau has become obligated pursuant to elections made by
it in accordance with generally accepted practice have been paid,
except for taxes for which Lau's failure to pay would not have material
adverse effect on Lau or Company, and adequate reserves have been
established for all taxes accrued but not yet payable. No waivers of
statutes of limitation with respect to any of the returns have been
given by or requested from Lau. No unsatisfied deficiencies have been
asserted or assessed against Lau as a result of any audit by any
federal, state, local or foreign taxing authority. No examination or
audit by any such authority is currently in progress or, to Lau's
knowledge, threatened, except that Lau's 1991 and 1992 federal tax
returns are under audit by the Internal Revenue Service and Lau's
Arizona payroll tax for 1995 is under audit in the State of Arizona.
There are no liens for taxes (other than for current taxes not yet due
and payable) upon the assets of the Company. Lau is not a party to any
agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
Lau does not have and has not had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or convention
between the United States of America and such foreign country.
Lau and its shareholders made a valid election for the Company to
be treated as an "S corporation," as that term is defined in Section
1361(a) of the Code, and at all times after such election and prior to
______, 1996 Lau was qualified as an S corporation. To Lau's
knowledge, each of the shareholders has timely filed all federal tax
returns with respect to S corporation taxes required to be filed
through the date hereof, and paid all S corporation taxes required to
be paid with respect to such filed tax returns. Except as provided
above in this clause 2(b)(ix), there has not been any audit of any tax
return filed by Lau or, to Lau's knowledge, by any shareholder with
respect to, or which may relate to, such S corporation tax liabilities.
3. Purchase by, and Sale and Delivery to, Underwriters -- Closing
--------------------------------------------------------------
Dates. The Company and the Selling Stockholder agree, severally and not
- -----
jointly, to sell to the Underwriters the Firm Stock in accordance with Section 1
hereof and on the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Underwriters agree, severally and not jointly, to purchase the Firm
Stock from the Company and the Selling Stockholder, the number of shares of Firm
Stock to be purchased by each Underwriter being set opposite its name in
Schedule A, subject to adjustment in accordance with Section 12 hereof.
<PAGE>
-13-
The purchase price per share to be paid by the Underwriters to the
Company and the Selling Stockholder will be $ _____ per share (the "Purchase
Price").
The Company and the Selling Stockholder will deliver the Firm Stock to
the Representatives for the respective accounts of the several Underwriters in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as Cowen may determine, against payment
of the aggregate Purchase Price therefor by wire transfer (same day funds),
payable to the order of the Company and the Selling Stockholder all at the
offices of Finnegan, Hickey, Dinsmoor & Johnson, P.C., Twenty Beacon Street,
Boston, Massachusetts 02108. The time and date of the delivery and closing
shall be at 10:00 A.M., New York Time, on ___________, 1996, in accordance with
Rule 15c6-1 of the Exchange Act. The time and date of such payment and delivery
are herein referred to as the "First Closing Date". The Closing Date and the
location of delivery of, and the form of payment for, the Firm Stock may be
varied by agreement between the Company and Cowen. The Closing Date may be
postponed pursuant to the provisions of Section 12.
The Company and the Selling Stockholder shall make the certificates
for the Stock available to the Representatives for examination on behalf of the
Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the Closing Date at the offices of Cowen & Company, Financial Square,
New York, New York 10005.
It is understood that Cowen or Needham, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company on behalf of any Underwriter or Underwriters, for
the Stock to be purchased by such Underwriter or Underwriters. Any such payment
by Cowen or Needham shall not relieve such Underwriter or Underwriters from any
of its or their other obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company and the Selling
Stockholder of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase up to 375,000
shares. The price per share to be paid for the Optional Stock shall be the
Purchase Price. The option granted hereby may be exercised as to all or any
part of the Optional Stock at any time, and from time to time, not more than
thirty (30) days subsequent to the effective date of this Agreement. No
Optional Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and
<PAGE>
-14-
delivered. The right to purchase the Optional Stock or any portion thereof may
be surrendered and terminated at any time upon notice by the Underwriters to the
Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the number of
shares of the Optional Stock to be purchased by them and the date and time for
delivery of and payment for the Optional Stock. Each date and time for delivery
of and payment for the Optional Stock (which may be the First Closing Date, but
not earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates"). Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriter's name in Schedule A hereto bears
to the total number of shares of Firm Stock (subject to adjustment by the
Underwriters to eliminate odd lots). Upon exercise of the option by the
Underwriters, the Company agrees to sell to the Underwriters the number of
shares of Optional Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly and subject to the terms and
conditions herein set forth, to purchase the number of such shares determined as
aforesaid.
The Company will deliver the Optional Stock to the Underwriters in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company and the
Selling Stockholder given at or prior to 12:00 Noon, New York Time, on the
second full business day preceding the Option Closing Date or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as Cowen may determine, against payment
of the aggregate Purchase Price therefor by wire transfer (same day funds),
payable to the order of the Company or payable as directed by the Company all at
the offices of Finnegan, Hickey, Dinsmoor & Johnson, P.C., Twenty Beacon Street,
Boston, Massachusetts 02108. The Company shall make the certificates for the
Optional Stock available to the Underwriters for examination not later than
10:00 A.M., New York Time, on the business day preceding the Option Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
The Option Closing Date and the location of delivery of, and the form of payment
for, the Option Stock may be varied by agreement between the Company and Cowen.
The Option Closing Date may be postponed pursuant to the provisions of Section
12.
4. Covenants and Agreements of the Company. The Company and the
---------------------------------------
Selling Stockholder covenant and agree with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have
determined not to proceed pursuant to Rule 430A, use its best efforts to
cause the Registration Statement to become effective, (ii) if the Company
and the Representatives have determined to proceed pursuant to Rule 430A,
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and Rule 424 of
the Rules and Regulations and (iii) if the Company and the
<PAGE>
-15-
Representatives have determined to deliver Prospectuses pursuant to Rule
434 of the Rules and Regulations, to use its best efforts to comply with
all the applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the Registration Statement
becomes effective, will advise the Representatives promptly of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible the lifting thereof, if
issued. The Company will advise the Representatives promptly of the receipt
of any comments of the Commission or any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus
or for additional information and will not at any time file any amendment
to the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representatives a reasonable time
prior to the proposed filing thereof or to which the Representatives shall
not have previously approved in writing (such approval not to be
unreasonably withheld or delayed) or which is not in compliance with the
Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendments or supplements to
the Registration Statement or the Prospectus which in the opinion of the
Representatives may be necessary to enable the several Underwriters to
continue the distribution of the Stock and will use its best efforts to
cause the same to become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act any event relating to or affecting the
Company occurs as a result of which the Prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact, or
omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
or if it is necessary at any time to amend the Prospectus to comply with
the Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which will
correct such statement or omission; and in case any Underwriter is required
to deliver a prospectus relating to the Stock nine (9) months or more after
the effective date of the Registration Statement, the Company upon the
request of the Representatives and at the expense of such Underwriter will
prepare promptly such prospectus or prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a)(3) of the
Securities Act.
(d) The Company will deliver to the Representatives, at or before the
Closing Dates, signed copies of the Registration Statement, as originally
filed with the Commission, and all amendments thereto including all
financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement,
including such financial statements, but without exhibits, and all
amendments thereto, as the Representatives may reasonably request. The
Company will deliver or mail to or upon the order of the Representatives,
from time to time until the effective date
<PAGE>
-16-
of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the Representatives on the date of
the initial public offering, and thereafter from time to time during the
period when delivery of a prospectus relating to the Stock is required
under the Securities Act, as many copies of the Prospectus, in final form
or as thereafter amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of the preparation
-------- -------
and delivery of any prospectus required for use nine (9) months or more
after the effective date of the Registration Statement shall be borne by
the Underwriters required to deliver such prospectus.
(e) The Company will make generally available to its stockholders as
soon as practicable, but not later than fifteen (15) months after the
effective date of the Registration Statement, an earnings statement which
will be in reasonable detail (but which need not be audited) and which will
comply with Section 11(a) of the Securities Act, covering a period of at
least twelve (12) months beginning after the "effective date" (as defined
in Rule 158 under the Securities Act) of the Registration Statement.
(f) The Company will cooperate with the Representatives to enable the
Stock to be registered or qualified for offering and sale by the
Underwriters and by dealers under the securities laws of such jurisdictions
as the Representatives may designate, provided that such jurisdictions are
within the United States, Guam or Puerto Rico, and at the request of the
Representatives will make such applications and furnish such consents to
service of process or other documents as may be required of it as the
issuer of the Stock for that purpose; provided, however, that the Company
-------- -------
shall not be required to qualify to do business or to file a general
consent (other than that arising out of the offering or sale of the Stock)
to service of process in any such jurisdiction where it is not now so
subject. The Company will, from time to time, prepare and file such
statements and reports as are or may be required of it as the issuer of the
Stock to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for the distribution of the Stock.
The Company will advise the Representatives promptly after the Company
becomes aware of the suspension of the qualifications or registration of
(or any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the Representatives
use its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public accountants
and with quarterly summary financial information in reasonable detail which
may be unaudited.
(h) The Company will use its best efforts to list the Stock, subject
to official notice of issuance, on the Nasdaq National Market.
<PAGE>
-17-
(i) The Company will maintain a transfer agent and registrar for its
Common Stock.
(j) Prior to filing its first six quarterly statements on Form 10-Q,
the Company will have its independent auditors perform a limited quarterly
review of its quarterly numbers.
(k) The Company will not offer, sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock (including, without limitation, Common Stock
of the Company which may be deemed to be beneficially owned by the Company
in accordance with the Rules and Regulations) during the 180 days following
the date on which the price of the Common Stock to be purchased by the
Underwriters is set (except with prior written consent of each of the
Representatives), other than the Company's sale of Common Stock hereunder
and the Company's issuance of Common Stock upon the exercise of warrants
and stock options which are presently outstanding and described in the
Prospectus or pursuant to the Company's stock option plans.
(l) The Company will apply the net proceeds from the sale of the Stock
as set forth in the description under "Use of Proceeds" in the Prospectus
which description complies in all material respects with the requirements
of Item 504 of Regulation S-K.
(m) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by, the Commission in connection
with the registration of the Stock under the Securities Act and the
Exchange Act.
(n) Prior to the Closing Dates, the Company will furnish to you, as
soon as they have been prepared, copies of any unaudited interim financial
statements of the Company for any periods subsequent to the periods covered
by the financial statements appearing in the Registration Statement and the
Prospectus.
(o) Prior to the First Closing Date, the Company will issue no press
release or other communications directly or indirectly and hold no press
conference with respect to the Company, the financial condition, results of
operation, business, prospects, assets or liabilities of any of them, or
the offering of the Stock, without your prior written consent. For a
period of twelve (12) months following the Closing Date, the Company will
use its best efforts to provide to you copies of each press release or
other public communications with respect to the financial condition,
results of operations, business, prospects, assets or liabilities of the
Company at least twenty-four (24) hours prior to the public issuance
thereof or such longer advance period as may reasonably be practicable.
(p) During the period of five (5) years hereafter, the Company will
furnish to the Representatives, and upon request of the Representatives, to
each of the Underwriters: (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of
<PAGE>
-18-
the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholder's equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, or the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or
communication of the Company mailed generally to holders of its Common
Stock and (iv) from time to time, such other information concerning the
Company as you may reasonably request.
5. Payment of Expenses. (a) The Company will pay (directly or by
-------------------
reimbursement) all costs, fees and expenses incurred in connection with or
incident to the performance of the obligations of the Company and of the Selling
Stockholder under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and taxes
incident to the issuance and delivery of the Stock to the Representatives; (ii)
all expenses incident to the registration of the Stock under the Securities Act;
(iii) the costs of preparing stock certificates (including printing and
engraving costs); (iv) all fees and expenses of the registrar and transfer agent
of the Stock; (v) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Stock to the Underwriters; (vi)
fees and expenses of the Company's counsel and the Company's independent
accountants; (vii) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement, each Preeffective Prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, the Selling Stockholder's Powers of Attorney, the Custody
Agreements, the "Agreement Among Underwriters" between the Representatives and
the Underwriters, the Master Selected Dealers' Agreement, the Underwriters'
Questionnaire and the Blue Sky memoranda and this Agreement; (viii) all filing
fees, attorneys fees' and expenses incurred by the Company or the Underwriters
in connection with exemptions from the qualifying or registering (or obtaining
qualification or registration of) all or any part of the Stock for offer and
sale and determination of its eligibility for investment under the Blue Sky or
other securities laws of such jurisdictions as the Representatives may
designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; and (x) all other reasonable costs and expenses
incident to the performance of their obligations hereunder which are not
otherwise specifically provided for in this Section.
(b) The Selling Stockholder will pay (directly or by reimbursement)
all fees and expenses incident to the performance of the Selling Stockholder
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and expenses of counsel for
the Selling Stockholder and all expenses and taxes incident to the sale and
delivery of the Stock to be sold by the Selling Stockholder to the Underwriters
hereunder.
(c) In addition to their other obligations under Section 6(a) hereof,
the Company and the Selling Stockholder agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon (i) any
<PAGE>
-19-
misstatement or omission or any alleged misstatement or omission or (ii) any
breach or inaccuracy in their representations and warranties, they will
reimburse each Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's and Selling Stockholder's obligation to reimburse each Underwriter
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company or the Selling Stockholder,
as the case may be, together with interest, compounded daily, determined on the
basis of the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to timed by Chemical Bank, New
York, New York (the "Prime Rate"). Any such interim reimbursement payments which
are not made to an Underwriter in a timely manner as provided below shall bear
interest at the Prime Rate from the due date for such reimbursement. This
expense reimbursement agreement will be in addition to any other liability which
the Company and the Selling Stockholder may otherwise have. The request for
reimbursement will be sent to the Company with a copy to the Selling
Stockholder. In the event that the Company fails to make such reimbursement
payment within thirty (30) days of the reimbursement request, the
Representatives shall notify the Selling Stockholder of its obligation to make
such reimbursement payments within fifteen (15) days.
(d) In addition to its other obligations under Section 6(b) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any misstatement or omission of a material fact, or
any alleged misstatement or omission of a material fact, described in Section
6(b) hereof which relates to information furnished by the Underwriters to the
Company, it will reimburse the Company (and, to the extent applicable, each
officer, director, or controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, or
controlling person or Selling Stockholder) for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company (and, to the extent
applicable, each officer, director, or controlling person or Selling
Stockholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (c) and/or (d) of
this Section 5, including the amounts of any requested reimbursement payments
and the method of determining such
<PAGE>
-20-
amounts, shall be settled by arbitration conducted under the provisions of and
pursuant to the arbitration procedures of the American Arbitration Association.
Any such arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not make
such designation of an arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (c) and/or (d) of this Section 5 and would not
resolve the ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of Section 6.
6. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, shareholders, partners and employees of each of
such Underwriter or person who controls such Underwriter (collectively, the
"Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses (including
the reasonable cost of investigating and defending against any claims therefor
and counsel fees incurred in connection therewith), joint or several, which may
be based upon the Securities Act, the Exchange Act or any other statute or at
common law, on the ground or alleged ground that any Preeffective Prospectus,
the Registration Statement or the Prospectus (or any Preeffective Prospectus,
the Registration Statement or the Prospectus as from time to time amended or
supplemented) includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any Registration
Statement, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Underwriter Indemnified Party from whom the person
asserting any such losses, claims, damages or liabilities purchased the shares
of Stock concerned to the extent that any such loss, claim, damage or liability
of such Underwriter Indemnified Party results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such shares of Stock to such person as required by
the Securities Act and if the untrue statement or omission concerned has been
corrected in the Prospectus; provided, however, that in no case is the Company
to be liable with respect to any claims made against any Underwriter Indemnified
Party against whom the action is brought unless such Underwriter Indemnified
Party shall have notified the Company in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim served upon the Underwriter Indemnified Party, but failure to notify the
Company of such claim shall not relieve it from any liability which it may have
to any Underwriter Indemnified Party otherwise than on account of its indemnity
agreement contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if the Company
elects to assume the defense, such defense shall be conducted by counsel chosen
by it. In the event the Company elects to assume the defense of any such suit
and
<PAGE>
-21-
retain such counsel, any Underwriter Indemnified Parties, defendant or
defendants in the suit may retain additional counsel but shall bear the fees and
expenses of such counsel unless (i) the Company shall have specifically
authorized in writing the retaining of such counsel or (ii) the parties to such
suit include any such Underwriter Indemnified Parties, and the Company and such
Underwriter Indemnified Parties at law or in equity have been advised by counsel
to the Underwriters that one or more legal defenses may be available to it or
them which may not be available to the Company, in which case the Company shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. The Company shall not
be liable to indemnify any person for any settlement of any such claim effected
without the Company's consent. This indemnity agreement is not exclusive and
will be in addition to any liability which the Company might otherwise have and
shall not limit any rights or remedies which may otherwise be available at law
or in equity to each Underwriter Indemnified Party.
(b) The Selling Stockholder agrees to indemnify and hold harmless each
Underwriter Indemnified Party against any losses, claims, damages, liabilities
or expenses (including, unless the Selling Stockholder elects to assume the
defense, the reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or several,
which may be based upon the Securities Act, the Exchange Act or any other
statute or at common law, on the ground or alleged ground that any Preeffective
Prospectus, the Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus, as from time to time
amended and supplemented) includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, written information any Underwriter,
directly or through Representatives, specifically for use in the preparation
thereof; provided, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Registration Statement, the
indemnity agreement contained in this subsection (b) shall not inure to the
benefit of any Underwriter Indemnified Party from whom the person asserting any
such losses, claims, damages or liabilities purchased the shares of Stock
concerned to the extent that any such loss, claim, damage or liability of such
Underwriter Indemnified Party results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such shares of Stock to such person as required by
the Securities Act and if the untrue statement or omission concerned has been
corrected in the Prospectus; provided, however, that in no case is such Selling
Stockholder to be liable with respect to any claims made against any Underwriter
Indemnified Party against whom the action is brought unless such Underwriter
Indemnified Party shall have notified such Selling Stockholder in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim served upon the Underwriter Indemnified
Party, but failure to notify such Selling Stockholder of such claim shall not
relieve it from any liability which it may have to any Underwriter Indemnified
Party otherwise than on account of its indemnity agreement contained in this
paragraph. The Selling Stockholder shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if the Selling Stockholder elects to
assume the defense, such defense shall be conducted by
<PAGE>
-22-
counsel chosen by it. In the event that the Selling Stockholder elects to assume
the defense of any such suit and retain such counsel, the Underwriter
Indemnified Parties, defendant or defendants in the suit may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Selling Stockholder shall have specifically authorized the retaining of such
counsel or (ii) the parties to such suit include such Underwriter Indemnified
Parties, and the Selling Stockholder and such Underwriter Indemnified Parties
have been advised by counsel that one or more legal defenses may be available to
it or them which may not be available to the Selling Stockholder, in which case,
the Selling Stockholder shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such counsel.
The Selling Stockholder against whom indemnity may be sought shall not be liable
to indemnify any person for any settlement of any such claim effective without
such Selling Stockholder's consent. This indemnity agreement is not exclusive
and will be in addition to any liability which the Selling Stockholder might
otherwise have and shall not limit any rights or remedies which may otherwise be
available at law or in equity to each Underwriter Indemnified Party. The Company
and the Selling Stockholder may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to their respective
amounts of such liability for which they each shall be responsible.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act (collectively, the "Company Indemnified
Parties") and the Selling Stockholder and each person, if any, who controls a
Selling Stockholder within the meaning of the Securities Act (collectively, the
"Stockholder Indemnified Parties"), against any losses, claims, damages,
liabilities or expenses (including, unless the Underwriter or Underwriters elect
to assume the defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, which arise out of or are based in whole or in part upon the
Securities Act, the Exchange Act or any other federal, state, local or foreign
statute or regulation, or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the Prospectus (or
any Preeffective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof provided,
however, that in no case is such Underwriter to be liable with respect to any
claims made against any Company Indemnified Party or Stockholder Indemnified
Party against whom the action is brought unless such Company Indemnified Party
or Stockholder Indemnified Party shall have notified such Underwriter in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party or Stockholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any liability which it may
have to any Company Indemnified Party or Stockholder Indemnified Party otherwise
than on account of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to
<PAGE>
-23-
participate at its own expense in the defense,or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but, if such
Underwriter elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event that any Underwriter elects to assume the
defense of any such suit and retain such counsel, the Company Indemnified
Parties or Stockholder Indemnified Parties and any other Underwriter or
Underwriters or controlling person or persons, d efendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, respectively unless (i) the Underwriter shall have specifically authorized
in writing the retaining of such counsel or (ii) the parties to such suit
- ----------
include the Company or a Stockholder Indemnified Party, and the Underwriters and
such Company or Stockholder Indemnified Party at law or in equity have been
advised by counsel to the Company or such Stockholder Indemnified Party that one
or more defenses may be available to them which may not be available to the
Underwriters, in which case the Underwriters shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear fees and expenses of
such counsel. The Underwriter against whom indemnity may be sought shall not be
liable to indemnify any person for any settlement of any such claim effected
without such Underwriter's consent. This indemnity agreement is not exclusive
and will be in addition to any liability which such Underwriter might otherwise
have and shall not limit any rights or remedies which may otherwise be available
at law or in equity to any Company Indemnified Party or Stockholder Indemnified
Party.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the offering
of the Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholder on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholder bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholder or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Stockholder and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro
<PAGE>
-24-
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc. The
---------------------------------------------------------
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholder and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholder, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters Obligations. The respective
--------------------------------------
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof and
at and as of the Closing Dates, of the representations and warranties made
herein by the Company and the Selling Stockholder, to compliance at and as of
the Closing Dates by the Company and the Selling Stockholder with their
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Dates, and to the following additional
conditions:
(a) The Registration Statement shall have become effective and no
stop order suspending the effectiveness thereof shall have been issued
and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424 (b) or Rule 434 of the Rules and Regulations,
shall have been made in the manner and within the time period required
by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
<PAGE>
-25-
(b) The Representatives shall have been satisfied that there
shall not have occurred any change prior to the Closing Dates in the
condition (financial or otherwise), properties, business, management,
net worth or results of operations of the Company, or any change in
the capital stock, or any material change in short-term or long-term
debt of the Company, such that (i) the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the opinion of the Representatives, is
material, or omits to state a fact which, in the opinion of the
Representatives, is required to be stated therein or is necessary to
make the statements therein not misleading, or (ii) it is
unpracticable in the reasonable judgment of the Representatives to
proceed with the public offering or purchase the Stock as contemplated
hereby.
(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the Company which is
material and adverse to the Company or which affects or may affect the
Company's or the Selling Stockholder' ability to perform their
respective obligations under this Agreement shall have been instituted
or threatened and there shall have occurred no material adverse
development in any existing such action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriters.
(e) The Representatives shall have received from Arthur Andersen
LLP, independent certified public accountants, a letter, dated the
Closing Dates, to the effect that such accountants reaffirm, as of the
Closing Dates, and as though made on the Closing Date(s), the
statements made in the letter furnished by such accountants pursuant
to paragraph (d) of this Section 8.
(f) The Representatives shall have received the following
opinions:
(a) from Finnegan, Hickey, Dinsmoor & Johnson, P.C., counsel
for the Company and for the Selling Stockholder, an opinion, dated the
Closing Dates, to the effect set forth in Exhibits I and II hereto;
and
(b) from Lahive & Cockfield, patent counsel to the Company
and the Selling Stockholder, an opinion, dated the Closing Dates, to
the effect set forth in Exhibit III hereto.
(g) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, their opinion or
opinions dated the Closing Dates with respect to the incorporation of
the Company, the validity of the Stock, the Registration Statement and
the Prospectus and such other related matters as they may reasonably
request, and the Company and the Selling
<PAGE>
-26-
Stockholder shall have furnished to such counsel such documents as
they may request for the purpose of enabling them to pass upon such
matters.
(h) The Representatives shall have received a certificate, dated
the Closing Dates, of the Chief Executive Officer or the President and
the chief financial or accounting officer of the Company to the effect
that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act;
(ii) Neither any Preeffective Prospectus, as of its date, nor
the Registration Statement nor the Prospectus, nor any amendment
or supplement thereto, as of the time when the Registration
Statement became effective and at all times subsequent thereto up
to the delivery of such certificate, included 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 were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, the Company has not incurred any material liabilities
or obligations, direct or contingent, nor entered into any
material transactions not in the ordinary course of business and
there has not been any material adverse change in the condition
(financial or otherwise), properties, business, management, net
worth or results of operations of the Company, or any change in
the capital stock, or any material change in the short-term or
long-term debt of the Company;
(iv) The representations and warranties of the Company in
this Agreement are true and correct at and as of the Closing
Dates, and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Dates; and
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, (i)
there has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), properties, business, management, net worth or
results of operations of the Company; (ii) the business and
operations conducted by the Company have not sustained a loss by
strike, fire, flood, accident or other calamity (whether or not
insured) of such a
<PAGE>
-27-
character as to interfere materially with the conduct of the
business and operations of the Company; (iii) no legal or
governmental action, suit or proceeding is pending or threatened
against the Company which is material to the Company, whether or
not arising from transactions in the ordinary course of business,
or which may materially and adversely affect the transactions
contemplated by this Agreement; (iv) since such dates and except
as so disclosed, the Company has not incurred any material
liability or obligation, direct, contingent or indirect, made any
change in its capital stock (except pursuant to its stock plans),
made any material change in its short-term or funded debt or
repurchased or otherwise acquired any of the Company's capital
stock; and (v) the Company has not declared or paid any dividend,
or made any other distribution, upon its outstanding capital
stock payable to stockholder of record on a date prior to the
Closing Date.
(i) The Representatives shall have received a certificate, dated
the Closing Dates of the Selling Stockholder to the effect that as of
the Closing Dates its representations and warranties in this Agreement
are true and correct as if made on and as of the Closing Dates, and
that it has performed all its obligations and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Dates.
(j) The Company and the Selling Stockholder shall have furnished
to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at
and as of the Closing Dates, of the representations and warranties
made herein by them and as to compliance at and as of the Closing
Dates by them with their covenants and agreements herein contained and
other provisions hereof to be satisfied at or prior to the Closing
Dates, and as to satisfaction of the other conditions to the
obligations of the Underwriters hereunder.
(k) Cowen shall have received the written agreements of the
officers, directors and holders of Common Stock and options to
purchase Common Stock listed in Schedule B that each will not offer,
sell, assign, transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of any shares of Common Stock held by
such person (including without limitation any shares of Common Stock
that may be deemed to be beneficially owned by such person on the date
hereof in accordance with the Rules and Regulations) or any securities
convertible into, derivative of or exercisable or exchangeable for
such Common Stock for 180 days commencing on the date of the final
prospectus, except for shares of Common Stock sold pursuant to this
Agreement.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the
<PAGE>
-28-
Representatives. The Company will furnish to the Representatives conformed
copies of such opinions, certificates, letters and other documents as the
Representatives shall reasonably request. If any of the conditions hereinabove
provided for in this Section shall not have been satisfied when and as required
by this Agreement, this Agreement may be terminated by the Representatives by
notifying the Company of such termination in writing or by telegram at or prior
to the Closing Dates, but Cowen shall be entitled to waive any of such
conditions.
9. Effective Date. This Agreement shall become effective immediately
--------------
as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.
10. Termination. This Agreement (except for the provisions of
-----------
Section 5) may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives and may
be terminated by the Representatives at any time before it becomes effective in
accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11 and other than as
provided in Section 12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First Closing
Date, or the Option Closing Date trading in securities on any of the New York
Stock Exchange, American Stock Exchange, or the Nasdaq National Market shall
have been suspended or minimum or maximum prices shall have been established on
any such exchange or market, or a banking moratorium shall have been declared by
New York or United States authorities; (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) if at or prior to the First Closing Date or the Option Closing
Date there shall have been (A) an outbreak or escalation of hostilities between
the United States and any foreign power or of any other insurrection or armed
conflict involving the United States or (B) any change in financial markets or
any calamity or crisis which, in the judgment of the Representatives, makes it
impractical or inadvisable to offer or sell the Firm Stock or Optional Stock, as
applicable, on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in the judgment of the Representatives,
makes it impracticable or inadvisable to offer or deliver the Firm Stock or the
Optional Stock, as applicable, on the terms contemplated by the Prospectus;
(v) if there shall be any litigation or proceeding, pending or threatened,
which, in the judgment of
<PAGE>
-29-
the Representatives, makes it impracticable or inadvisable to offer or deliver
the Firm Stock or Optional Stock, as applicable, on the terms contemplated by
the Prospectus; or (vi) if there shall have occurred any of the events specified
in the immediately preceding clauses (i) -(v) together with any other such event
that makes it, in the judgment of the Representatives, impractical or
inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable,
on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other
-----------------------------
provisions hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Stockholder pursuant to the first
paragraph of Section 10 or shall be terminated by the Representatives under
Section 8 or Section 10, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to their obligations pursuant to Section 6
hereof, the Company will reimburse the reasonable out-of-pocket expenses of the
several Underwriters (including reasonable fees and disbursements of counsel for
the Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives.
12. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase. If any Underwriter or Underwriters shall so default and the
aggregate number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares underwritten and
arrangements satisfactory to the Representatives and the Company for the
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Stockholder shall have the right to postpone the Closing Dates for a
period of not more than five (5) full business days in order that the Company
and the Selling Stockholder may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company, the Selling Stockholder or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter, the Selling Stockholder or the Company, except
for expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
<PAGE>
-30-
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Cowen & Company at Financial
Square, New York, New York 10005 except that notices given to an Underwriter
pursuant to Section 6 hereof shall be sent to such Underwriter at the address
furnished by the Representatives or, if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed at Viisage Technology, Inc., 531 Main
Street, Acton, MA 01720. With respect to the Selling Stockholder, notices may
be sent to Lau at 531 Main Street, Acton, MA 01720.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the several Underwriters, the Company and the Selling Stockholder
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Stockholder contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this
--------------------------------
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters.
17. Partial Unenforceability. The invalidity or unenforceability of
------------------------
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
18. General. This Agreement constitutes the entire agreement of the
-------
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
<PAGE>
-31-
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. In this Agreement, the term
"Company's knowledge" means the knowledge of the Company and the Selling
Stockholder. The section headings in this Agreement are for the convenience of
the parties only and will not affect the construction or interpretation of this
Agreement. This Agreement may be amended or modified, and the observance of any
term of this Agreement may be waived, only by a writing signed by the Company,
the Selling Stockholder and the Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
-32-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
Viisage Technology, Inc.
By:
-------------------------------------------
Name:
Title:
Lau Acquisition Corp.
By:
-------------------------------------------
Name:
Title:
<PAGE>
-33-
Accepted and delivered in
New York, New York as of
the date first above written.
COWEN & COMPANY
NEEDHAM & COMPANY, INC.
By: COWEN & COMPANY
Acting on their own behalf and as Representatives of the several
Underwriters referred to in the foregoing Agreement.
By: Cowen Incorporated,
its general partner
By:
-------------------------
Name:
Title:
<PAGE>
-34-
SCHEDULE A
<TABLE>
<CAPTION>
Number
of Firm
Shares
to be
Name Purchased
- ---- ---------
<S> <C>
Cowen & Company............................
Needham & Company, Inc. ...................
Total......................................
===========
[2,500,000]
===========
</TABLE>
<PAGE>
-35-
SCHEDULE C
LOCKUP AGREEMENTS
[to include all stock and optionholders]
<PAGE>
-36-
EXHIBIT I
---------
FORM OF OPINION TO BE DELIVERED BY COUNSEL TO COMPANY
-----------------------------------------------------
1. The Company has been duly organized and is validly existing and
in good standing as a corporation under the laws of its jurisdiction of
organization, with corporate power and authority to own or lease its properties
and conduct its businesses as described in the Prospectus. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where its ownership or leasing of properties on the conduct of
its business requires such qualification except to the extend that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other entity.
2. On the date hereof, the authorized capital stock of the Company
consists of _______________ shares of Common Stock, $.001 par value, and
________ shares of undesignated Preferred Stock, $.01 par value. The
outstanding shares of the capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable, conform to the
description thereof contained in the Prospectus in all material respects and, to
such counsel's knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right.
3. The Stock to be issued by the Company has been duly and validly
authorized and, upon issuance, delivery and payment therefor as described in the
Underwriting Agreement will be, validly issued, fully paid and nonassessable and
free and clear of any preemptive or similar rights and will conform to the
description thereof in the Prospectus in all material respects.
4. The authorized capital stock of the Company conforms in all
material respects to the description thereof set forth in the Prospectus under
the captions "Description of Capital Stock." The certificates representing the
Stock are in proper form under the Delaware General Corporation Law assuming
conformance with the specimen certificate filed as an Exhibit to the
Registration Statement. The outstanding shares of the capital stock of the
Company (including the shares to be sold by the Selling Stockholder) have been
duly authorized and validly issued, are fully paid and nonassessable, conform to
the description thereof contained in the Prospectus in all material respects
and, to such counsel's knowledge, were not issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right.
5. The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and, to such counsel's
knowledge, no proceedings for that purpose have been instituted or are pending
by the Commission.
<PAGE>
-37-
6. The Registration Statement and the Prospectus comply as to form
in all material respects with the requirements of the Securities Act and with
the Rules and Regulations, except as to the financial statements, the notes
thereto and the related schedules and other financial and statistical data
contained therein, as to which such counsel need not express an opinion.
7. To such counsel's knowledge, the Company has not received notice
of any claim or challenge regarding the ownership of any patents, trademarks,
service marks, trade names, licenses, inventions or any other rights described
in the Prospectus. To such counsel's knowledge (i) no claim has been made
against the Company alleging infringement by the Company or any of its
subsidiaries, of any patent, trademark, service mark, trade names, trade secret,
license in or other intellectual property or franchise rights of any person,
(ii) no legal or governmental proceedings are pending relating to the foregoing,
other than review of pending patent applications, and (iii) no such proceedings
are currently threatened by governmental authorities or others.
8. The statements under the captions "Risk Factors", "Business -
Customers and End Users", "Business - Intellectual Property and Proprietary
Rights", "Business - Legal Proceedings", "Management - Incentive and Stock
Plans", "Relationship and Certain Transactions with Lau Technologies",
"Principal and Selling Stockholders" "Shares Eligible for Future Sale" and
"Description of Capital Stock" in the Prospectus, only to the extent that such
statements constitute a summary of documents referred to therein or matters of
law, are accurate summaries in all material respects and fairly present the
information called for by the Securities Act and the Rules and Regulations with
respect to such documents and matters. Such counsel does not know of any laws,
rules or regulations or legal or governmental proceedings applicable to the
business of the Company required to be described in the Registration Statement
or the Prospectus that are not described as required.
9. Such counsel knows of no franchise, lease, contract, agreement or
document, which is required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement which is
not described or filed therein.
10. To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character required to
be disclosed in the Registration Statement or the Prospectus by the Act or the
Rules and Regulations or the applicable Rules and Regulation.
11. The Company has the corporate power and authority to enter into
the Underwriting Agreement and to perform its obligations thereunder (including
to issue, sell and deliver the Stock to be issued and sold by it), and the
Underwriting Agreement has been duly and validly authorized, executed and
delivered by the Company.
12. The execution and delivery of the Underwriting Agreement and the
issue and sale of the Stock will not result in a breach or violation of any of
the terms or provisions of or constitute a default under or violate or conflict
with the Certificate of Incorporation or Bylaws of the Company or any material
provision of any material contract or instrument to which the
<PAGE>
-38-
Company is a party or by which the Company is bound or any law of the United
States or the Commonwealth of Massachusetts or the Delaware General Corporation
Law, any rule or regulation of any governmental authority or regulatory body of
the United States or the Commonwealth of Massachusetts, or any judgment, order
or decree known to us and applicable to the Company or any of its subsidiaries
or any other properties or of any court, governmental authority or arbitrator or
will result in the creation of a lien.
13. To such counsel's knowledge, no person or entity has the right to
require registration of shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the Registration Statement or
otherwise.
14. No consent, approval, authorization or order of, and no notice to
or filing with, any court or governmental agency or body is required to be
obtained or made by the Company for the issue and sale of the Stock pursuant to
the Underwriting Agreement, except such as have been obtained or made and such
as may be required under state securities or blue sky laws or by the National
Association of Securities Dealers, Inc., as to which such counsel's expresses no
opinion.
15. To such counsel's knowledge, no material default exists on the
part of the Company in the performance of any provision contained in any of the
contracts filed as exhibits to the Registration Statement.
16. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
17. The Company has the corporate power and authority to enter into
each of the Organization Agreements and to perform its obligations thereunder,
and each of the Organization Agreements has been duly and validly authorized,
executed and delivered by the Company and is a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto when such documents became effective or were filed with
the Commission (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
<PAGE>
-39-
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to stated material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States, the Commonwealth of
Massachusetts or the State of Delaware upon opinions of local counsel, and as
to questions of fact upon representations or certificates of officers of the
Company, and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate
<PAGE>
-40-
EXHIBIT II
----------
1. The Selling Stockholders is the record owner and to such
counsel's knowledge has valid and marketable title to the shares of Stock to be
sold by such Selling Stockholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation, any restriction on
transfer, and has full right, power and authority to enter into the Underwriting
Agreement.
2. To such counsel's knowledge, the Selling Stockholder has, upon
delivery of and payment for each share of Stock being sold by such Selling
Stockholder, the right, power and authority, and any approval required by law to
sell, transfer, assign and deliver the Stock being sold by such Selling
Stockholder pursuant to the Underwriting Agreement. Each of the several
Underwriters (assuming that the Underwriters are bona fide purchasers as defined
in Section [8-302] of the Massachusetts Uniform Commercial Code) will acquire
valid and marketable title to all of the Stock being sold to the Underwriters by
such Selling Stockholder, free and clear of any liens, encumbrances, equities
claims, restrictions on transfer or other defects whatsoever.
3. The Selling Stockholder has the corporate power and authority to
enter into the Underwriting Agreement and to perform its obligations thereunder
and the Underwriting Agreement has been duly and validly authorized, executed
and delivered by such Selling Stockholder.
4. The execution and delivery of the Underwriting Agreement and the
sale of the Stock will not result in a breach or violation of any of the terms
or provisions of or constitute a default under or violate or conflict with the
Certificate of Incorporation or Bylaws of the Selling Stockholder, or, to such
counsel's knowledge, any material provision of any material contract or
instrument to which the Selling Stockholder is a party or by which the Selling
Stockholder is bound, or any law of the United States or the Commonwealth of
Massachusetts or the Delaware General Corporation Law, or any rule or regulation
of any governmental authority or regulatory body of the United States or the
Commonwealth of Massachusetts, or any judgment, order or decree known to such
counsel and applicable to the Selling Stockholder or its properties or of any
court, governmental authority or arbitrator or result in the creation of a lien.
5. The Selling Stockholder has the corporate power and authority to
enter into each of the Organization Agreements and to perform its obligations
thereunder, and each of the Organization Agreements has been duly and validly
authorized, executed and delivered by the Selling Stockholder and is a valid and
binding obligation of the Selling Stockholder enforceable against such Selling
Stockholder in accordance with its terms. To such counsel's knowledge, the
Selling Stockholder has performed all of its obligations under the Transfer
Agreement.
6. The execution, delivery and performance of each of the
Organization Agreements will not result in a breach or violation of any of the
terms or provisions of or constitute a default under or violate or conflict with
the Certificate of Incorporation or bylaws of the Selling Stockholder, or, to
such counsel's knowledge, any material provision of any material contract or
instrument to which the Selling Stockholder is a party or by which the Company
is bound, or any
<PAGE>
-41-
law of the United States or the Commonwealth of Massachusetts or the Delaware
General Corporation Law, or any rule or regulation of any governmental authority
or regulatory body of the United States or the Commonwealth of Massachusetts, or
any judgment, order or decree of any court, governmental authority or arbitrator
known to such counsel or result in the creation of a lien known to such counsel
and applicable to the Selling Stockholder or its properties.
7. The Selling Stockholder has been duly organized and is validly
existing and in good standing as a corporation under the laws of its
jurisdiction of organization, with corporate power and authority to execute and
deliver the Underwriting Agreement and each of the Organization Agreements,
perform its obligations under the Underwriting Agreement and each of the
Organization Agreements and consummate the transactions contemplated thereby.
In rendering the opinions hereinabove set forth, such counsel may rely
upon a certificate of the Selling Stockholder in respect of matters of fact as
to ownership of, and liens, encumbrances, equities or claims on, the Stock to be
sold by such Selling Stockholder, provided that such counsel shall state that
they believe that reliance upon such certificate is justified.
<PAGE>
-42-
Exhibit III
(i) Such counsel has been and is counsel to Visage Technology, Inc.
(the "Company") and to Lau Acquisition Corp. ("Lau") with respect to technology
and intellectual property matters including issued patents, pending and
contemplated patent applications, trade secrets, trademarks, and other
intellectual property and technology that the Company and/or Lau owns or has
rights to.
(ii) Such counsel is familiar with the technology and intellectual
property that is used by the Company in its business and that is the subject
matter of the Company's and Lau's patent portfolio. Such counsel has read the
Registration Statement and Prospectus and, in particular, has read the
statements in the Registration Statement and the Prospectus under the captions
"Risk Factors- Limited Protection of Intellectual Property and Proprietary
Rights; Potential Costs of Enforcement or Defense" and "Business-Intellectual
Property and Proprietary Rights".
(iii) Such counsel is unaware of any facts which would preclude the
Company from having clear title to the Company's patents, patent applications,
and contemplated patent applications referred to or described in the Prospectus.
Such counsel is unaware of any facts which would preclude Lau from having clear
title to Lau's patents, patent applications, and contemplated patent
applications referred to or described in the Prospectus. To the best of such
counsel's knowledge, it and the Company and Lau have complied with any required
duty (e.g., of candor and good faith) in dealing with the U.S. Patent and
Trademark Office and any such foreign offices, including the duty to disclose
all information known to be material to patentability. Such counsel has no
knowledge that the Company lacks or will be unable to obtain any rights or
licenses to use all patents, know-how, technology, and intellectual property
necessary to conduct the business now conducted or proposed to be conducted by
the Company as described in the Prospectus, except as described in the
Prospectus. Such counsel has no knowledge of any facts which would form a basis
for a belief that any of the patents owned or licensed by the Company or Lau are
unenforceable or invalid. Such counsel is not aware of any patents of others,
except as described in the Prospectus, which are or would be infringed by
specific products or processes referred to in the Prospectus. Such counsel
knows of no pending or threatened action, suit, proceeding or claim by others
that the Company or Lau is infringing any patent, except as described in the
Registration Statement and the Prospectus.
(iv) There are no legal or governmental proceedings pending relating
to any patents or patent applications owned or licensed by the Company or Lau,
other than review of pending patent applications, including appeal and reissue
proceedings, and, to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or others.
(v) There are no contracts or other documents material to the
Company's patents, other intellectual property, or technology other than those
described in the Registration Statement and Prospectus.
<PAGE>
-43-
(vi) Nothing has come to such counsel's attention that would form a
basis for the belief that the Registration Statement or Prospectus contains any
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein not misleading.
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
ASSET TRANSFER AGREEMENT
------------------------
This AMENDED AND RESTATED AGREEMENT dated as of this 20th day of August,
1996, by and between Viisage Technology, Inc., a Delaware corporation
("Viisage"), and Lau Acquisition Corp., a Massachusetts corporation doing
business as Lau Technologies ("Lau").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, Lau currently operates a division which develops, markets and
supports the Imaging Division defined below;
WHEREAS, Viisage is preparing a Registration Statement on Form S-1 to be
filed with the Securities and Exchange Commission with respect to an initial
public offering (the "IPO") of the common stock, $.001 par value per share, of
Viisage (the "Common Stock") and Lau is entering into this transaction in
contemplation of the IPO which will result in Lau owning less than 80% of the
outstanding capital stock of Viisage;
WHEREAS, Lau wishes to contribute certain assets and liabilities of the
Imaging Division to Viisage, a Delaware corporation, pursuant to Section 351 of
the Internal Revenue Code, effective as of immediately before the effectiveness
of the registration statement being filed in connection with the IPO, in
consideration of (i) 5,680,000 shares (the "Common Shares") of the Common Stock
and (ii) the assumption by Viisage of the Assumed Liabilities pursuant to the
terms contained herein; and
WHEREAS, the parties desire to amend and restate the asset transfer
agreement between them dated June 24, 1996.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree, subject to the terms and
conditions set forth herein, as follows:
Section 1. Certain Definitions.
-------------------
Certain terms which are not otherwise defined elsewhere in this Agreement
are defined below:
"Access Control Field" has the meaning given to it in the License Agreement
between the parties hereto of even date herewith.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including
1
<PAGE>
court costs and reasonable attorneys' fees and expenses.
"Assumed Liabilities" means (a) all Liabilities of the Imaging Division set
forth on the face of its Most Recent Balance Sheet; (b) all Liabilities of the
Imaging Division which have arisen since the date of the Most Recent Balance
Sheet in the Ordinary Course of Business; (c) all obligations of the Imaging
Division under the licenses, sublicenses, agreements, contracts, instruments,
other arrangements, permits and other rights included in the Subject Assets
(including without limitation any product liability or warranty claims which
exist or may arise under customer contracts); and (d) all other Liabilities and
obligations of the Imaging Division set forth in the Disclosure Schedule
attached hereto; provided, however, that the Assumed Liabilities shall not
-----------------
include (i) any Liability of Lau which does not relate to the Imaging Division,
(ii) any Liability of Lau for unpaid Taxes (with respect to the Imaging Division
or otherwise) for periods prior to the Closing, (iii) any Liability of Lau for
Taxes arising in connection with the consummation of the transactions
contemplated hereby, (iv) any obligation of Lau to indemnify any person by
reason of the fact that such person was a director, officer, employee, agent, or
member of an advisory board (including without limitation the Imaging Division's
advisory board) of Lau (whether such indemnification is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such indemnification is pursuant to any statute, charter
document, by-law, agreement, or otherwise), (v) any Liability of Lau for costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, (vi) any Liability with respect to the lease or use of the
premises known as 531 Main Street, Acton, Massachusetts (this is the subject of
the Use and Occupancy Agreement and referenced to in Section 7(b) below), or
(vii) any Liability or obligation of Lau under this Agreement.
"Confidential Information" means any information concerning the business
and affairs of the Imaging Division that is not already generally known to the
public.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan (as
defined in ERISA Section 3(2)), (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any multiemployer plan), or (d) Employee Welfare Benefit
Plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or
program.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of
2
<PAGE>
1986, the Toxic Substances Control Act, the Clean Air Act, and the Clean Water
Act, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"Imaging Division" shall mean the business of the Viisage Technology
Division of Lau as conducted on or before the closing, including, without
limitation, as it is described in the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission in connection with the IPO.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, logos, trade names,
and corporate names, including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith (other than
those described in subsection (b) in the definition of the Subject Assets), (c)
all copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (d) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(e) all computer software (including data and related documentation), (f) all
other proprietary rights, and (g) all copies and tangible embodiments thereof
(in whatever form or medium), relating to the Imaging Division.
"Liability" means any liability, cost, expense or obligation (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
3
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Subject Assets" means all right, title, and interest in and to all of the
assets of Lau constituting the Imaging Division, including all of its (a)
tangible personal property (including without limitation any equipment,
inventories of raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods), (b) all rights to the names, trademarks
and service marks "Viisage," "Viisage Technology," "SensorMast," "Visual
Inspection Systems," "Electronic Facial Identification Systems," and all other
names, trademarks, and service marks of the Imaging Division, (c) agreements,
contracts, instruments, other similar arrangements, and rights thereunder, (d)
accounts, notes, and other receivables, (e) claims, deposits, prepayments,
refunds, causes of action, chooses in action, rights of recovery, rights of set
off, and rights of recoupment, (f) permits, licenses, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, and (g) books, records, ledgers, files, documents,
correspondence, lists, plans, drawings, and specifications, promotional
materials, studies, reports, and other printed or written materials; provided
--------
however, that the Subject Assets shall not include (i) any Intellectual Property
- -------
or goodwill associated therewith, licenses and sublicenses granted to or
obtained by Lau with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions (other than the names, trademarks, and service marks
of the Imaging Division described above which are the subject of the license
agreement between the parties of even date herewith), (ii) any assets of Lau
which do not relate to the Imaging Division, (iii) any rights under Lau's lease
dated as of February 23, 1990 for premises known as 531 Main Street, Acton,
Massachusetts, (iv) the furniture, fixtures and equipment described in Exhibit B
of the Use and Occupancy Agreement between the parties of even date herewith, or
(v) any cash.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
4
<PAGE>
"Tax Returns" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes including any schedule or
attachment thereto, and including any amendment thereof.
Section 2. Contribution and Transfer of Subject Assets; Assumption of
----------------------------------------------------------
Assumed Liabilities; Closing; Deliveries.
- ----------------------------------------
(a) Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the principal office of the
parties at 531 Main Street, Acton, Massachusetts, 01720, effective as of 10:00
A.M. (eastern time) on the day to which Viisage requests, pursuant to Rule 461
promulgated under the Securities Act of 1933, as amended, acceleration of the
effectiveness of the Registration Statement filed by Viisage in connection with
the IPO, or at such other time and place as the parties hereto may mutually
determine (the "Closing Date"); provided that, this Agreement shall terminate
-------------
and be of no further force and effect if such the Closing Date does not occur by
September 30, 1997.
(b) Contribution and Transfer of Assets. On and subject to the terms
-----------------------------------
of this Agreement, at the Closing, Lau will contribute to Viisage, under Section
351 of the Internal Revenue Code, all of the Subject Assets in consideration of
(i) the Common Shares and (ii) Viisage's assumption of the Assumed Liabilities.
(c) Assumption of Assumed Liabilities. On and subject to the terms
---------------------------------
and conditions of this Agreement, at the Closing, Viisage agrees to assume, and
be responsible for, when due and payable, all of the Assumed Liabilities.
(d) Deliveries at the Closing. At the Closing, (i) Lau shall
-------------------------
contribute the Subject Assets to Viisage by execution and delivery of a
Confirmation of Asset Contribution in the form of Exhibit A-1 attached hereto,
-----------
and an assignment of trademarks in the form of Exhibit A-2 attached hereto, and
-----------
an assignment or assignments of contracts in the form of Exhibit A-3 attached
-----------
hereto; (ii) Viisage shall issue the Common Shares to Lau and deliver to Lau one
or more certificates evidencing the Common Shares; (iii) Lau and Viisage shall
execute and deliver the agreements referred to in Section 7 below; and (iv) each
party shall deliver to the other the various instruments and documents
reasonably required to effect the transactions contemplated hereby, in form and
substance satisfactory to the parties hereto.
Section 3. Representations and Warranties.
------------------------------
(A) Representations and Warranties of Viisage. Viisage represents and
-----------------------------------------
warrants that the statements contained in this Section 3(A) are correct and
complete as of the Closing Date:
5
<PAGE>
(a) Organization of Viisage. Viisage is a corporation duly organized,
-----------------------
validly existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. Viisage has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of Viisage has duly
authorized the execution, delivery and performance of this Agreement by Viisage.
This Agreement constitutes the valid and legally binding obligation of Viisage,
enforceable in accordance with its terms.
(c) Noncontravention. Neither the execution and delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, or court to which Viisage is subject or any provision of
its Certificate of Incorporation or By-Laws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which Viisage is a party or by which it is bound or to which any
of its assets is subject.
(d) Capitalization. Viisage's authorized capital stock consists of
--------------
20,000,000 shares of Common Stock, $.001 par value per share, and 2,000,000
shares of Preferred Stock, $.001 par value per share. Upon the consummation of
the transactions contemplated hereby, the Common Shares will be the only shares
of capital stock of Viisage issued and outstanding. The Common Shares shall be
validly issued, fully paid and nonassessable. There are no outstanding options,
warrants or other rights to acquire any shares of capital stock of Viisage other
than shares of Common Stock reserved for issuance under Viisage's stock option
programs (which equals 20.10% of the fully diluted pre-IPO capitalization of
Viisage).
(B) Representations and Warranties of Lau. Lau represents and warrants to
-------------------------------------
Viisage that the statements contained in this Section 3(B) are correct and
complete as of the Closing Date, except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3(B).
(a) Organization of Lau. Lau is a corporation duly organized, validly
-------------------
existing, and in good standing under the laws of The Commonwealth of
Massachusetts.
6
<PAGE>
(b) Authorization of Transaction. Lau has full power and authority
----------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of Lau have duly authorized
the execution, delivery, and performance of this Agreement by Lau. This
Agreement constitutes the valid and legally binding obligation of Lau,
enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Lau is subject or any provision of the
Articles of Organization or By-Laws of Lau or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Lau is a party or by which it is bound or to which any of
its assets is subject. Lau is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement.
(d) Title to Assets. Lau has good and marketable title to the Subject
---------------
Assets, free and clear of all Security Interests, except encumbrances relating
to the Assumed Liabilities or as set forth on Schedule 3(B)(d) of the Disclosure
Statement.
(e) Subsidiaries. Lau does not have any subsidiaries.
------------
(f) Financial Statements. Attached hereto as Exhibit B are the
-------------------- ---------
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of operations, and cash flow as of and for
the fiscal years ended December 31, 1994 and December 31, 1995 (the "Most Recent
Fiscal Year End") for the Imaging Division; and (ii) audited balance sheet and
statements of operations, and cash flow (the "Most Recent Balance Sheet") as of
and for the six months ended June 30, 1996, (the "Most Recent Fiscal Month End")
for the Imaging Division. The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of the Imaging Division as of such dates and the results of operations
of the Imaging Division for such periods, are correct and complete, and are
consistent with the books and records of Lau and the Imaging Division.
(g) Events Subsequent to Most Recent Fiscal Year End.
------------------------------------------------
7
<PAGE>
Since January 1, 1996, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Imaging Division. Without limiting the generality of the
foregoing, since that date:
(i) no tangible or intangible assets of the Imaging Division have
been sold, leased, transferred, or assigned outside the Ordinary Course of
Business;
(ii) the Imaging Division has not entered into any material
agreement, contract, lease, or license outside the Ordinary Course of
Business;
(iii) no party has accelerated, terminated, made material
modification to, or cancelled any material agreement, contract, lease, or
license relating to the Imaging Division to which Lau is a party or by
which it is bound;
(iv) no Security Interest has been imposed upon any assets,
tangible or intangible, which relate to the Imaging Division;
(v) Lau has not made any material capital expenditures which
relate to the Imaging Division outside the Ordinary Course of Business;
(vi) Lau has not made any material capital investment in, or any
material loan to, any other person or entity outside the Ordinary Course of
Business;
(vii) Lau has not issued any note, or other debt security, or
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, capitalized lease obligation, or performance bond which relates to
the Imaging Division outside of the Ordinary Course of Business except as
set forth in the Financial Statements;
(viii) Lau has not delayed or postponed the payment of accounts
payable and other Liabilities which relate to the Imaging Division outside
the Ordinary Course of Business;
(ix) Lau has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) which relates to
the Imaging Division outside the Ordinary Course of Business;
(x) Lau has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property outside of the Ordinary
Course of Business;
(xi) Lau has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to
8
<PAGE>
its property which relates to the Imaging Division;
(xii) Lau has not made any loan to or entered into any
transaction with any employees of the Imaging Division outside of the
Ordinary Course of Business except with respect to the 1996 Management
Stock Option Plan to be adopted by Viisage;
(xiii) Lau has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement which relates to the Imaging
Division except for employment agreements set forth in the Disclosure
Schedule;
(xiv) Lau has not granted any increase in the base compensation
of any of its employees in the Imaging Division outside the Ordinary Course
of Business;
(xv) Lau has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its officers or employees of the
Imaging Division, or taken any such action with respect to any other
Employee Benefit Plan;
(xvi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Imaging Division; and
(xvii) neither Lau nor the Imaging Division have committed to any
of the foregoing.
(h) Costs Incurred in Excess of Contract Revenues Billed. The costs
----------------------------------------------------
incurred in excess of contract revenues billed of the Imaging Division consists
of raw materials and supplies, manufactured and purchased parts, goods in
process, and finished goods, which, to the knowledge of the chief financial
officer of Lau, is merchantable and fit for the purpose for which it was
procured or manufactured.
(i) Undisclosed Liabilities. To the knowledge of the chief executive
-----------------------
officer and chief financial officer of Lau, Lau does not have any Liability
relating to the Imaging Division which will not be discharged on the Closing
Date except for the Assumed Liabilities.
(j) Legal Compliance. Lau has complied with all applicable laws
----------------
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) which relate to the Imaging Division,
except
9
<PAGE>
where noncompliance would not have a material adverse effect on the business of
the Imaging Division, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
Lau or the Imaging Division alleging any failure to so comply.
(k) Tax Matters. Except as set forth on the Disclosure Schedule, Lau
-----------
has filed all Tax Returns that were required to be filed by it, including but
not limited to Annual Reports required to be filed with respect to any Employee
Benefit Plan or fringe benefit plan, all of which returns were accurate and
complete in all material respects, except for such returns which Lau's failure
to file would not have a material adverse effect on the financial condition of
Lau or Viisage. Lau has timely paid all Taxes which have become due and
withheld and remitted any Taxes required to be withheld by it. No Taxes have
been incurred with respect to Code Section 4980B. No unsatisfied deficiencies
have been asserted or assessed against Lau as a result of any audit by any
federal, state, local or foreign taxing authority, and no examination or audit
by any such authority is currently in progress or, to the knowledge of the chief
financial officer of Lau, threatened, except as set forth on the Disclosure
Schedule. Lau's unpaid Taxes for pre-Closing periods do not exceed its accruals
and reserves for Taxes (or obligations established under its shareholders
agreement) and Taxes accrued in the Ordinary Course of Business from the date of
such balance sheet and prior to the Closing. For purposes of this section,
unpaid Taxes shall not include any Taxes attributable or related to the
transactions contemplated by this Agreement.
(l) Real Property. No real property is included in the Subject
-------------
Assets.
(m) Contracts. Section 3(B)(m) Disclosure Schedule lists the
---------
following contracts and other agreements relating to the Imaging Division to
which Lau is a party:
(i) any material customer contract relating to the Imaging Division;
(ii) any performance bond relating to the Imaging Division;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which the
Imaging Division has or will incur any indebtedness for borrowed money, or
any capitalized lease obligation;
(v) any agreement concerning confidentiality or noncompetition;
10
<PAGE>
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of employees of the Imaging Division;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing annual compensation
in excess of $100,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any amount to
any of the employees of the Imaging Division outside the Ordinary Course of
Business; or
(x) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Imaging Division.
Lau has delivered to Viisage a correct and complete copy of each written
agreement listed in Section 3(B)(m) of the Disclosure Schedule. With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) no party is in material breach or default, and
no event has occurred which with notice or lapse of time would constitute a
material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (C) no party has repudiated any material
provision of the agreement.
(n) Accounts Receivable. All accounts receivable of the Imaging
-------------------
Division are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and, to the
knowledge of Lau's chief financial officer, will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for bad debts
set forth on the Most Recent Balance Sheet as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Imaging Division.
(o) Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Imaging Division.
(p) Insurance. Section 3(B)(p) of the Disclosure Schedule lists each
---------
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
the Imaging Division has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past two years.
(q) Litigation. The Imaging Division is not (i) subject
----------
11
<PAGE>
to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) a party or, to the knowledge of the chief executive officer of Lau, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
(r) Employees. To the knowledge of the chief executive officer of
---------
Lau, no executive, key employee, or group of employees has any plans to
terminate employment with the Imaging Division within the next twelve months.
(s) Employee Benefits. Except as specifically disclosed on Schedule
-----------------
3(B)(s), the Imaging Division is not a party to any Employee Benefit Plan. With
respect to each such Employee Benefit Plan, the Imaging Division has furnished
to Viisage complete and accurate copies of the plan, the Internal Revenue
Service determination letter, if any, all plan applications and amendments, the
most recent plan actuarial reports and all reports of or regarding such plan
required by the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any regulations issued thereunder. Each such plan has been
maintained in compliance with its terms and applicable statutes and regulations.
Neither the Imaging Division nor Lau has ever maintained or contributed to a
defined benefit retirement plan or arrangement subject to Title IV of ERISA or
any multiemployer plan as defined in Section 3(37) of ERISA. No "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of the Code has
occurred with respect to any Employee Benefit Plan.
(t) Guaranties. The Imaging Division is not a guarantor or otherwise
----------
is liable for any Liability or obligation (including indebtedness) of any other
person or entity.
(u) Environment, Health, and Safety.
-------------------------------
(i) The Imaging Division and Lau have complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against either the Imaging Division or Lau alleging
any failure so to comply. Without limiting the generality of the preceding
sentence, each of the Imaging Division and Lau has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Imaging Division has no Liability (and has not handled or
disposed of any substance, arranged for the
12
<PAGE>
disposal of any substance, exposed any employee or other individual to any
substance or condition, or owned or operated any property or facility in
any manner that could form the basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of the Imaging Division or Lau giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
(v) Disclosure. The representations and warranties contained in this
----------
Section 3(B) do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
Section 4. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties of the Lau contained in Sections 3(B)(f) through
(j) and (m) through (v) of this Agreement shall survive the Closing and continue
in full force and effect for a period of one year thereafter. All of the other
--------
representations and warranties of Viisage and Lau contained in this Agreement
shall survive the Closing and continue in full force and effect forever
thereafter (subject to any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of Viisage.
-------------------------------------------------
(i) In the event Lau breaches any of its representations, warranties,
and covenants contained in this Agreement, and, if there is an applicable
survival period pursuant to Section 4(a) above, provided that Viisage makes
a written claim for indemnification against Lau within such survival
period, then Lau agrees to indemnify Viisage from and against the entirety
of any Adverse Consequences Viisage may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences
Viisage may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by
the breach (or the alleged breach); provided, however, that Lau shall not
-----------------
have any obligation to indemnify Viisage from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or alleged breach) of any representation or
warranty of Lau contained in Sections 3(B)(f)-(j) and (m)-(v) above until
Viisage has suffered Adverse Consequences by reason of all such breaches
(or alleged breaches) in excess of a $50,000, aggregate threshold (at which
point Lau will be obligated to indemnify Viisage from and against all such
Adverse Consequences relating back to the first dollar).
13
<PAGE>
(ii) Lau agrees to indemnify Viisage from and against the entirety of
any Adverse Consequences Viisage may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of Lau which is
not an Assumed Liability (including any Liability of Lau that becomes a
Liability of Viisage under any bulk transfer law of any jurisdiction, under
any common law doctrine of de facto merger or successor liability, or
otherwise by operation of law).
(c) Indemnification Provisions for Benefit of Lau.
---------------------------------------------
(i) In the event Viisage breaches any of its representations,
warranties, and covenants contained in this Agreement, then Viisage agrees
to indemnify Lau from and against the entirety of any Adverse Consequences
Lau may suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or caused by
the breach (or the alleged breach).
(ii) Viisage agrees to indemnify Lau from and against the entirety of
any Adverse Consequences Lau may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Assumed Liability.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against the other party (the
"Indemnifying Party") under this Section 4, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
the Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced, unless the Third Party Claim
relates to the representations and warranties made by Lau in Sections
3(B)(f)-(j) and (m)-(v) which must be made within the applicable survival
period.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by
14
<PAGE>
the Third Party Claim, (B) the Indemnifying Party provides the Indemnified
Party with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder,
(C) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests
of the Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 4 above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Section 4(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, the Indemnifying Party in connection
therewith), (B) the Indemnifying Party will reimburse the Indemnified Party
promptly and periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' fees and expenses), and (C)
the Indemnifying Party will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 4.
(e) Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy either party may have for breach of
representation, warranty, or covenant.
5. Pre-Closing Covenants. The Parties agree as follows with
---------------------
15
<PAGE>
respect to the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its best efforts to take all
-------
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
(S)7 below).
(b) Consents. Lau will use its best efforts to obtain any third party
--------
consents that are necessary in order for Viisage to take control of the Subject
Assets.
(c) Preservation of Business. Lau will cause the Imaging Division to keep
------------------------
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
Section 6 Post-Closing Covenants.
----------------------
The parties agree to the following post-closing covenants:
(a) Consents to Assignment. Notwithstanding Section 2(a) above, at
----------------------
Closing, Lau shall not be deemed to have transferred or assigned to Viisage any
contract, license, lease or agreement if such transfer or assignment requires
the consent of any party other than Lau and such consent has not been obtained
as of the Closing Date. Lau hereby agrees to take all actions reasonably
necessary to obtain any such required consent, and upon the receipt of such
consent, such contract, lease or agreement shall automatically be deemed to have
been assigned and transferred to Viisage as of the Closing Date. Prior to the
receipt of such consent, Lau shall take all actions necessary to give to Viisage
the benefits of such contract, lease or agreement, and Viisage shall take all
actions necessary to assume and perform all obligations and liabilities of Lau
in respect thereof.
(b) Certain Employee Benefit Matters. Effective as of the Closing
--------------------------------
Date, Lau shall cause each of its Employee Benefit Plans to be amended to permit
its adoption by Viisage for the eligible employees of Viisage, with no
interruption or reduction of service, benefits or coverage with respect to any
Viisage employee who was on the payroll of Lau immediately prior to the Closing
Date. In this connection, with respect to any Employee Benefit Plan to which
the health plan continuation or extension provisions of ERISA Sections 601
through 609 and Internal Revenue Code Section 4980B apply, and until the last
day of the first plan year commencing after the Closing Date, Lau shall
indemnify and hold harmless Viisage from any Adverse Consequences arising out of
or in connection with Lau's non-compliance with such ERISA or Code
16
<PAGE>
provisions, and regulations thereunder, for any period prior to the Closing
Date. Immediately as of the Closing Date, the Board of Directors of Viisage
shall cause each such Employee Benefit Plan of Lau to be adopted for the benefit
of all eligible employees of Viisage, with no interruption or reduction of
service, benefits or coverage with respect to any Viisage employee who was on
the payroll of Lau immediately prior to the Closing Date. Viisage, its agents
and employees, shall cooperate with Lau, its agents and employees in Lau's
performance of its duties as Administrator (as defined in Section 3(16) of
ERISA) of the respective Employee Benefit Plan. After the Closing Date, any
such Employee Benefit Plan adopted by Viisage may be amended or terminated by
Viisage with respect to the employees covered under the respective plan,
provided that the consent of Lau pursuant to the written resolution, or
certificate thereof, of Lau's Board of Directors or the duly authorized
committee thereof shall be required if such amendment or termination is to occur
prior to the end of the first full plan year following the Closing Date.
(c) Generally. In case at any time after the Closing Date any
---------
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents and the
transfer of any additional assets and/or liabilities) as the other party
reasonably may request. Lau acknowledges and agrees that from and after the
Closing Date Viisage will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Imaging Division. Viisage acknowledges and agrees that from and
after the Closing Date Lau will have access to all documents, books, records,
agreements and financial data of Viisage which is necessary to enable Lau to
file its Tax Returns for the period prior to the Closing Date.
(d) Litigation Support. In the event and for so long as either party
------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Imaging Division the other party will
cooperate with the contesting or defending party and its counsel in the contest
or defense, make available its personnel, and provide such testimony and access
to its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 4 above).
(e) Transition. Lau will not take any action that is
----------
17
<PAGE>
designed or intended to have the effect of discouraging any licensor, customer,
supplier, or other business associate of the Imaging Division from maintaining
the same business relationships with Viisage after the Closing Date as it
maintained with the Imaging Division prior to the Closing Date. Lau will refer
all customer inquiries relating to the business of the Imaging Division to
Viisage from and after the Closing Date.
(f) Confidentiality. Lau will treat and hold as such all of the
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to Viisage or
destroy, at the request and option of Viisage, all tangible embodiments (and all
copies) of the Confidential Information which are in its possession. In the
event that Lau is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, Lau will notify Viisage promptly of the request or requirement so
that Viisage may seek an appropriate protective order or waive compliance with
the provisions of this Section 6(f). If, in the absence of a protective order or
the receipt of a waiver hereunder, Lau is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, Lau may disclose the Confidential Information to the tribunal;
provided, however, that Lau shall use its reasonable efforts to obtain, at the
reasonable request of Viisage, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as Viisage shall designate. This Section 6(f) shall
not restrict Lau from engaging in any business or activity relating to the
Access Control Field.
(g) Covenants Not to Compete. For a period of ten years from and
------------------------ ---------
after the Closing Date, (i) Lau will not directly or indirectly enter into
competition with Viisage in the historic business of the Imaging Division;
provided that this restriction shall not extend to the Access Control Field; and
- -------------
(ii) Viisage will not directly or indirectly enter into competition with Lau in
the Access Control Field. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6(g) is invalid
or unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(h) Tax Matters, Tax Returns, Payment of Taxes and Refunds
------------------------------------------------------
18
<PAGE>
(i) Filings. Lau will prepare and file, or cause to be prepared and
-------
filed, at Lau's expense, on a timely basis, all Tax Returns of, or which
include, the activities of the Imaging Division, with respect to any taxable
period ending on or prior to the Closing, including any taxable period ending as
of the close of business on the Closing Date (any such period being referred to
herein as a "Pre-Closing Period"). Viisage will prepare and file, or will cause
to be prepared and filed, all Tax Returns for all taxable periods which do not
constitute Pre-Closing Periods ("Post-Closing Periods") relating to Viisage and
will pay, or will cause to pay, all unpaid Taxes of Viisage. If any adjustment
is made to any Tax Return relating to tax matters of the Imaging Division for
any Pre-Closing Period or portion thereof (whether such adjustment is the result
of, or in settlement of, any audit, or other administrative proceeding or
judicial proceeding or the filing of an amended return to reflect the
consequences of any determination made in connection with any such audit or
proceeding or otherwise) and there is a correlative offsetting adjustment
applicable to Viisage for any Post-Closing Period or portion thereof, and the
adjustment is favorable to Viisage for any Post-Closing Period (i.e., there
inures directly or indirectly to Viisage a net tax benefit (i.e., a current or
future reduction of Taxes payable or a refund of prior Taxes paid)) as a result
of any adjustment, the amount of such net Tax benefit shall be treated as an
obligation to Lau at the time the benefit is received.
(ii) Control of Contest. Each party will have the right, at its own
------------------
expense, to control any audit or determination by any taxing authority, to
initiate any claim for refund or file any amended Tax Return, and to contest,
resolve and defend against any assessment, notice of deficiency, or other
adjustment or proposed adjustment of Taxes for any taxable period for which such
party (or any of its affiliates) is charged with responsibility for filing a Tax
Return under this Agreement; provided, however, that no party will have the
right to agree to any assessment, deficiency, settlement, or other adjustment or
proposed adjustment, or to initiate any claim for refund or file any amended Tax
Return, that would adversely affect the interests of the other party without
such other party's written consent, which consent will not be unreasonably
withheld. Viisage will promptly forward to Lau all written notifications and
other written communications from any Taxing authority received by Viisage, or
by Lau relating to any liability for Taxes for any taxable period. The failure
by Viisage to provide any such notice to Lau within twenty (20) business days of
receipt by Viisage of such notice will relieve Lau from any obligations with
respect to the subject matter of any notification not so forwarded.
(iii) Cooperation on Return Filings, Examinations and Controversies;
--------------------------------------------------------------
Access to Information. Each party will fully cooperate with the other, in a
- ---------------------
prompt and timely manner, in connection with the preparation of filing of, and
any inquiry,
19
<PAGE>
audit, examination, investigation, dispute or litigation involving, any Tax
Return required to be filed by it. Such cooperation shall include, but not be
limited to, (1) the execution and delivery of any power of attorney or other
necessary document to allow the other party and its advisors to participate on
behalf of the other party and to assume the defense or prosecution, as the case
may be, of any contest described above. Each of Viisage and Lau will provide
the other, with the right, at reasonable times and upon reasonable notice, to
have access to and to copy and use any records or information and personnel
which may be relevant for the taxable period for which the requesting party is
charged with payment responsibility for Taxes under this Agreement in connection
with the preparation of any Tax Returns, any audit or other examination by any
taxing authority, the filing of any claim for a refund of Tax or for the
allowance of any Tax credit, or any judicial or administrative proceeding
relating to liability for Taxes. The party requesting assistance hereunder will
reimburse the other party for reasonable expenses incurred in providing such
assistance. Any information obtained pursuant to this Section will be held in
strict confidence and will be used solely in connection with the reason for
which it was requested. For a period of seven years from the Closing Date,
neither party will dispose of or destroy any of the business records and files
of the other relating to Taxes in existence on the Closing Date without first
offering to turn over possession thereof to the other party by written notice to
the other party at least 30 days prior to the proposed date of such disposition
or destruction.
Section 7 Covenant to Enter into Other Agreements.
---------------------------------------
Viisage and Lau covenant and agree to enter into the following agreements
concurrently with the Closing:
(a) The Administration and Services Agreement substantially in the
form of Exhibit C attached hereto pursuant to which Lau and Viisage agree upon
---------
the various services and facilities which Lau will continue to provide to
Viisage following the Closing Date and the fee structure for those services; and
(b) The Use and Occupancy Agreement substantially in the form of
Exhibit D attached hereto pursuant to which Viisage will continue to (i) occupy
- ---------
certain office and manufacturing space located in Lau's facilities at 351 Main
Street, Acton, Massachusetts, (ii) use certain furniture, fixtures and equipment
of Lau and (iii) receive certain office services from Lau.
Section 8 Miscellaneous.
-------------
(a) Amendments; No Waiver; Cumulative Remedies; Injunctive Relief.
-------------------------------------------------------------
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by Lau and Viisage. No failure or delay on the
part of either Viisage
20
<PAGE>
or Lau in exercising any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law. Any breach of
this Agreement could cause irreparable damage to the non-breaching party. In
the event of such breach, the non-breaching party shall have, in addition to any
and all remedies of law, the right to seek an injunction, specific performance
or other equitable relief to prevent a violation of this Agreement.
(b) Notices. Notices and other communications provided for herein
-------
shall be in writing and shall be delivered or mailed, certified, return receipt
requested, or sent by facsimile, addressed as follows (or such other address
which is designated by a party):
If to Viisage:
-------------
Viisage Technology, Inc.
531 Main Street
Acton, MA 01720
Attention: President
Telecopier: (508) 263-3358
If to Lau:
---------
Lau Technologies
531 Main Street
Acton, MA 01720
Attention: President
Telecopier: (508) 263-3358
(c) Severability. The invalidity or unenforceability of any
------------
provision hereof shall in no way affect the validity or enforceability of any
other provision.
(d) Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of The Commonwealth of Massachusetts,
without regard to the choice of law principles thereunder.
(e) Bulk Sales. Viisage hereby waives compliance by Lau with the
----------
provisions of any so-called bulk transfer law in connection with the assignment
and transfer of the Subject Assets to Viisage.
(f) Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and inure to
21
<PAGE>
the benefit of the parties hereto and their respective successors and assigns,
and no other person shall have any right, benefit or obligation hereunder.
(g) Incorporation of Exhibits. The Exhibits identified in this
-------------------------
Agreement are incorporated herein by reference and made a part hereof.
(h) Counterparts. This Agreement may be executed in several
------------
counterparts, and all counterparts so executed shall constitute one agreement,
binding on the parties hereto, notwithstanding that the parties are not
signatory to the same counterpart.
IN WITNESS WHEREOF, Viisage Technology, Inc. and Lau Acquisition Corp.
d/b/a Lau Technologies have caused this Agreement to be duly executed under seal
by their duly authorized officers as of the date first above written.
VIISAGE TECHNOLOGY, INC.
("VIISAGE")
By: /s/ Robert C. Hughes
--------------------
Title: President
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
("LAU")
By: /s/ Joanna T. Lau
-----------------
Title: President
22
<PAGE>
SCHEDULES TO ASSET TRANSFER AGREEMENT
Exhibit A-1: Confirmation of Asset Contribution
Exhibit A-2: Assignment of Trademarks
Exhibit A-3: Assignments of Contracts
Exhibit B: Financial Statements
(i) Comparative financial statements of the Imaging Division as
of December 31, 1994 and December 31, 1995
(ii) Financial statements of the Imaging Division as of June 30,
1996.
Exhibit C: Administration and Services Agreement
Exhibit D: Use and Occupancy Agreement
23
<PAGE>
EXHIBIT A-1
CONFIRMATION OF ASSET CONTRIBUTION
WHEREAS, LAU ACQUISITION CORP., a corporation organized pursuant to the
laws of Massachusetts doing business as LAU TECHNOLOGIES ("Lau"), and VIISAGE
TECHNOLOGY, INC., a corporation organized pursuant to the laws of Delaware
("Viisage"), are the parties to an Asset Transfer Agreement to become effective
on the date hereof (the "Asset Transfer Agreement");
NOW, THEREFORE, Lau, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, pursuant to Section 351 of the
Internal Revenue Code of 1986, as amended, by this instrument does contribute,
assign, transfer, set over and convey to Viisage, its successors and assigns,
all of that personal property, tangible or intangible, included within the
Subject Assets as defined in the Asset Transfer Agreement;
TO HAVE AND TO HOLD said property unto Viisage, its successors and assigns,
to and for its own use forever. Lau hereby irrevocably constitutes and appoints
Viisage, its successors and assigns, the true and lawful attorneys for Lau to do
all such acts and things in relation thereto that Lau might have done; and Lau
further agrees from time to time, at the written request of Viisage, its
successors and assigns, to execute such further separate instruments as Viisage
shall deem desirable for the better assuring, assigning and confirming to
Viisage, its successors and assigns, of the property hereby contributed.
Neither the making nor the acceptance of the within assignment and transfer
shall constitute a waiver or release by Lau or Viisage of any liabilities,
duties or obligations imposed upon either of them by the terms of the Asset
Transfer Agreement, including, without limitation, the representations and
warranties or other provisions which the Asset Transfer Agreement provides shall
survive the date hereof.
IN WITNESS WHEREOF, Lau has executed this instrument under seal on the
______ day of __________, 199__.
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
By:_______________________
24
<PAGE>
EXHIBIT A-2
ASSIGNMENT OF TRADEMARKS
ASSIGNMENT OF TRADEMARKS dated this ___ day of _________, 199__, by LAU
ACQUISITION CORP., a corporation organized pursuant to the laws of Massachusetts
doing business as LAU TECHNOLOGIES ("Assignor"), to VIISAGE TECHNOLOGY, INC., a
corporation organized pursuant to the laws of Delaware ("Assignee").
WHEREAS, Assignor and Assignee are parties to an Asset Transfer Agreement
to become effective on the date hereof (the "Asset Transfer Agreement")
providing, among other things, that Assignor transfer to Assignee certain
assets, properties and rights owned by Assignor, on the terms and conditions set
forth in the Asset Transfer Agreement; and
WHEREAS, Assignor has adopted and used, and is using the trademark which is
the subject hereof, and is the owner of such trademark;
NOW, THEREFORE, for the sum of Ten Dollars and other good and valuable
consideration, the receipt of which is hereby acknowledged, Assignor hereby
sells, assigns, transfers and sets over to Assignee, its successors and assigns,
all of Assignor's right, title and interest in and to the names, service marks
and trademarks "Viisage," "Viisage Technology," "SensorMast," "Visual Inspection
Systems," "Electronic Facial Identification Systems," and all other names,
trademarks, and service marks of the Imaging Division, including all variations
thereof and all drawings, logos and/or artistic renderings incorporating such
mark or any variation thereof, and including as well any registration and/or
application for registration thereof with the United States Patent and Trademark
Office or any other jurisdiction, together with the goodwill of the business
symbolized by such names and marks and each such variation thereof and the right
to sue and recover damages, profits, and other compensation for any and all
causes of action that may have accrued to Assignor up to and including the date
hereof in connection with any infringement, including past infringement, of the
said names and marks or any variation thereof.
Assignor hereby irrevocably appoints Assignee, its successors and assigns,
as true and lawful attorney of Assignor to execute such further documents and
instruments, and do such other acts and things as may be necessary or
appropriate to effectuate the intentions hereof.
Assignor agrees to execute all such instruments and take all such actions
as Assignee, being advised by counsel, shall reasonably request to secure to
Assignee, its successors and assigns the rights herein assigned.
25
<PAGE>
Assignor hereby requests the Commissioner of Patents and Trademarks of the
United States of America, or any official of any jurisdiction whose duty it is
to issue trademark registrations, to issue the Certificate of Registration for
any registration resulting from the trademark and/or variations thereof
contemplated in this instrument to the Assignee, its successors or assigns, in
accordance with the terms of this instrument.
Assignor hereby covenants that it has full right to convey the entire
interest herein assigned, and that it has not executed, and will not execute,
any agreements inconsistent herewith.
IN WITNESS WHEREOF, Assignor has caused this instrument to be executed
under seal as of the date first above written.
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
By:______________________
COMMONWEALTH OF MASSACHUSETTS )
) .ss
COUNTY OF SUFFOLK )
On the _________ day of ____________, 199__, before me personally came
________________, known to me to be the ___________ of Lau Acquisition Corp.
d/b/a Lau Technologies, who executed the above instrument on behalf of the said
corporation and acknowledged to me that the said corporation executed the same.
_______________________________
Notary Public
26
<PAGE>
EXHIBIT A-3
ASSIGNMENT OF CONTRACTS
ASSIGNMENT OF CONTRACTS dated as of this ___ day of __________, 199__, by
LAU ACQUISITION CORP., a corporation organized pursuant to the laws of
Massachusetts doing business as LAU TECHNOLOGIES ("Lau"), to VIISAGE TECHNOLOGY,
INC., a corporation organized pursuant to the laws of Delaware ("Viisage").
WHEREAS, Lau and Viisage are parties to an Asset Transfer Agreement to
become effective on the date hereof (the "Asset Transfer Agreement") providing,
among other things, that Lau transfer to Viisage certain assets, properties and
rights owned by Lau, on the terms and conditions set forth in the Asset Transfer
Agreement.
NOW, THEREFORE, Lau hereby assigns and transfers to Viisage, its successors
and assigns, the entire right, title and interest in and to the agreements
listed on Schedule 1 hereto (the "Assigned Contracts"), and Viisage hereby
accepts such assignment and assumes performance of obligations arising
thereunder after the effective date hereof, subject to and in accordance with
the terms of the Asset Transfer Agreement.
IN WITNESS WHEREOF, this instrument has been executed under seal as of the
date first above written.
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
By:___________________________
VIISAGE TECHNOLOGY, INC.
By:___________________________
27
<PAGE>
Schedule to Exhibit A-3
LAU/VIISAGE
-----------
Material Contracts Being Assigned to & Assumed by Viisage
---------------------------------------------------------
A. Existing Customer Contracts
---------------------------
1. Massachusetts RMV
2. Ohio BMV
3. Arizona DOT
4. New York DSS
5. Connecticut DSS
6. Warner Bros.
7. Ohio Prisons
8. Auburn Police
9. ISI (INS)
10. Massachusetts DTA
11. North Carolina DMV
12. Connecticut DPS/Pistol Permits
13. Jamaica/TRW
14. First National of Southern Africa Limited
B. Supplier Contracts
------------------
VAR or special pricing arrangements or service
agreements with the following vendors:
1. Hewlett Packard (VAR through Hallmark Computer)
2. Compaq (VAR through Merisel)
3. DEC (VAR through Hallark)
4. Merisel (Pricing Arrangement based on Sales Volume)
5. Memorex Telex (Service Agreement for Ohio & Az)
6. Praxis (Service Agreement for MA DTA)
7. IBM (VAR through Merisel)
8. Memotec (Service Agreement)
9. SMS (Service Agreement)
10. Toppan (Volume Pricing Agreement)
11. DataCard (Volume Pricing for Eqpt & Consumables)
C. Additional Contracts
--------------------
1. Letter Agreement dated February 23, 1996 between Lau's Viisage
Technology Division and Sanwa Business Credit Corporation
2. Agreement of Indemnity (for the Provision of Performance Bonds) dated
December 1993
28
<PAGE>
DISCLOSURE SCHEDULE TO ASSET TRANSFER AGREEMENT
Assumed Liabilities
- -------------------
(a) Obligations under equipment lease financing agreement with Sanwa Bank.
3(B)(c) -- Noncontravention
----------------
(a) Any consent which may be required under Amended and Restated Loan and
Security Agreement between Lau and The First National Bank of Boston dated as of
August 3, 1995.
3(B)(g) -- Subsequent Events
-----------------
(ii) Letter of intent with Sanwa Bank for equipment lease financing dated
as of February 23, 1996.
(xiii) Employment agreements dated as of February 1, 1996 with Robert C.
Hughes, Yona Wieder, and William A. Marshall. Lau also entered into stock
option arrangements, subject to the consummation of the transactions
contemplated in this Asset Transfer Agreement, relating to Viisage with Denis
Lussier, Michael O'Dea, Robert Brosnan, Ifti Ahmad and Kent Sharp as of February
1, 1996 and with Robert Schmitt as of May 15, 1996.
3(B)(j) -- Legal Compliance
----------------
Lau received a letter dated as of April 10, 1996 from an attorney
representing Bell Data Software Corp. alleging that Lau may be infringing U.S.
Patent No. 5,505,494 and two additional pending patents which relate to a system
for producing a personal identification card. A copy of this letter has been
furnished to Viisage.
3(B)(k) -- Tax Matters
-----------
Lau has filed an extension for the filing of its 1995 federal and state
income tax returns. Lau's 1991 and 1992 federal tax returns are under IRS
audit. Lau's Arizona payroll tax for 1995 is under audit.
3(B)(m) -- Material Contracts
------------------
See attached schedule.
3(B)(p) -- Insurance Policies
------------------
Copies provided to Viisage by Paul Principato.
3(B)(s) -- Employee Benefit Plans
----------------------
Lau 401(k) plan.
Cafeteria plan.
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
LICENSE AGREEMENT
-----------------
AMENDED AND RESTATED LICENSE AGREEMENT dated as of the 20th day of August,
1996 by and between Lau Acquisition Corp. d/b/a Lau Technologies, a
Massachusetts corporation having its principal place of business at 531 Main
Street, Acton, Massachusetts 01720 ("Licensor") and Viisage Technology, Inc., a
Delaware corporation having its principal place of business at 531 Main Street,
Acton, Massachusetts 01720 ("Licensee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Licensor is the current owner of the Business of the Imaging
Division and the owner or licensee of certain proprietary technology for
products, systems and services relating to the verification, recognition or
identification of human faces and other biometrics; and
WHEREAS, Licensee desires to obtain an exclusive worldwide license from
Licensor to use the proprietary technology except as it relates to access
control systems and services for federal governments which are described below;
WHEREAS, Licensor is contributing substantially all of the assets and
liabilities of its identification systems division to Licensor and this
agreement is to take effect on the date of that transfer (the "Contribution
Date");
WHEREAS, Licensee desires to develop, revise, enhance, modify, and/or
create derivatives with respect to such proprietary technology for use in
connection with Licensee's products, systems and services; and
WHEREAS, the parties desire to amend and restate the license agreement
entered into by them on June 24, 1996.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
SECTION I - DEFINITIONS.
- -----------------------
As used herein, the following capitalized terms shall have the respective
meanings set forth below:
1.1 "Access Control Field" shall mean the control of human entry through
--------------------
doorways, gates, turnstiles or similar thresholds in and to buildings or
facilities located on properties owned or controlled by the United States
federal government, or any other national government (but not political
subdivisions thereof) which is a member of the United Nations, using apparatus
at the entry
<PAGE>
point which may involve the use of facial recognition and/or other biometric
technologies, identification documents or cards, databases, communications
equipment and/or digital system components.
1.2 "Business of the Imaging Division" shall mean the business of the
--------------------------------
Viisage Technology Division of Licensor as conducted on or before the
Contribution Date, including without limitation as it is described in the
registration statement on Form S-1 filed with the Securities and Exchange
Commission in connection with Licensee's initial public offering of securities.
1.3 "Documentation" shall mean user manuals, notes, diagrams, drawings,
-------------
reports, publications and technical specifications including without limitation
descriptions of manufacturing processes and technical drawings, all computer
programs in both object and source code format and any other physical embodiment
of the Technology and Improvements owned or controlled by Licensor.
1.4 "Improvements" shall mean any Technology that is discovered,
------------
developed, or otherwise owned or controlled by Licensor at any future time as
further set forth in Section 2.4 of this Agreement but shall specifically
exclude Modifications made by or on behalf of Licensee pursuant to Section 4.1
of this Agreement, which shall be owned solely by Licensee.
1.5 "Licensee" shall mean Viisage and its permitted successors and
--------
assigns.
1.6 "Licensor" shall mean Lau and its permitted successors and assigns.
--------
1.7 "Owned or controlled" shall include Technology and/or Improvements
-------------------
which the Licensor owns, hereafter acquires or under which the Licensor is
licensed or becomes licensed and has the right to grant sublicenses.
1.8 "Modifications" shall include any developments, modifications,
-------------
enhancements, revisions or derivatives to the Technology made by or on behalf of
Licensee as further provided in Section 4.1 of this Agreement.
1.9 "Proprietary Information" shall mean all trade secrets and
-----------------------
confidential information disclosed in writing by one party (the "Disclosing
Party") to the other (the "Receiving Party").
The definition of "Proprietary Information" herein shall not include
information which
(a) is at the time of disclosure or later becomes known within the relevant
industry under circumstances involving no breach of this Agreement;
2
<PAGE>
(b) is lawfully and in good faith made available to the Receiving Party by a
third party;
(c) is required to be disclosed by the Receiving Party by a governmental
authority or by order of a court of competent jurisdiction, provided that
such disclosure is subject to all applicable governmental or judicial
protection available for similar material and reasonable advance notice is
given to the Disclosing Party;
(d) is independently developed or otherwise rightfully known by the Receiving
Party following the date of this Agreement; or
(e) is inherently disclosed in the use, lease, sale or other distribution of,
or publicly available supporting documentation for, any present or future
product or service licensed hereunder.
1.10 "Technology" includes the copyright and patent rights listed on
----------
Exhibit A which is attached hereto and incorporated herein by reference, and
includes all rights worldwide that relate to the Business of the Imaging
Division and that are owned or controlled by Licensor as of, and following, the
date of the execution of this Agreement, said rights including (a) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications and
patent disclosures, together with all continuation, continuation-in-part,
divisional, reissue, reexamination, revision and extension patents and patent
applications, (b) all copyrightable works, all copyrights, and all copyright
registrations, applications and renewals, (c) all trade secrets and confidential
information including ideas, concepts, discoveries, formulas, formulations,
processes, techniques, compositions, data, designs, drawings, specifications,
research and development, know-how, customer and supplier lists, pricing and
cost information, business and marketing plans and proposals, (d) software and
computer programs (in all forms and formats including without limitation source,
object, and executable code), (e) all other intellectual property or proprietary
rights, (f) Documentation, and (g) Proprietary Information; provided that the
Technology shall not include any of the technology or any other rights licensed
by Licensor from Facia Reco Associates, L.P., it being understood that Licensee
is entering into a license directly with Facia Reco Associates, L.P.
SECTION II - TERMS OF LICENSE.
- ------------------------------
2.1 Grant of License.
----------------
(a) Subject to Sections 2.3 and 2.4 below, effective as of the Contribution
Date, the Licensor hereby grants to Licensee and the Licensee hereby
accepts from Licensor an exclusive,
3
<PAGE>
perpetual, irrevocable, paid-up, royalty-free, worldwide license to use all
of Licensor's rights, now existing or hereafter acquired, direct or
indirect, in the Technology, including without limitation the right: (1) to
copy and distribute copies, utilize, develop, perform and display publicly,
prepare derivative works, improve, modify, revise and enhance the
Technology or any portion or component thereof as Licensee shall determine
appropriate, (2) to make, have made, use, lease, rent, sell, offer to sell,
import, (3) to sublicense pursuant to Section 2.2 below, or (4) to cause
its subcontractors, representatives or agents to perform the same for
Licensee's benefit. Licensor shall not for itself or authorize or appoint
any third party to engage in any action by which would conflict with such
license except in the Access Control Field.
(b) On the Contribution Date, Licensor shall deliver to Licensee all
Documentation in existence on the date hereof regarding the Technology,
including without limitation, computer programs listed on Exhibit A in both
---------
object and source code format and user documentation related thereto.
2.2 Right to Grant Sublicenses. The Licensee shall have the right to
--------------------------
grant sublicenses, and such sublicensees shall have the right to grant
sublicenses, of equal or lesser scope under the license set forth in Section
2.1.
2.3 Limitations on License Grant. Notwithstanding the generality of
----------------------------
Section 2.1 above, Licensee acknowledges that certain of the Technologies are
subject to third party proprietary rights which have been licensed to Licensor
and, accordingly, this Agreement and the license granted hereunder may be
subject to all such third party's restrictions included in the contracts
furnished to Licensee pursuant to the Amended and Restated Asset Transfer
Agreement between the parties of even date herewith or as Licensor may notify
Licensee in writing from time to time. Further, Licensee may not use the
Technology in the Access Control Field.
2.4 Improvements.
------------
(a) If, during the term of this Agreement, the Licensor shall develop, improve,
make, acquire, control or obtain the right to use (by license or otherwise)
any discovery, invention or Improvement (whether patentable or
unpatentable), or new method, system, technique or device or any technical
information, knowledge, technique, data or practice used in or relating to
the Business of the Imaging Division (including, without limitation any
such developments provided by Licensor to any of its other permitted
sublicensees), the Licensor shall promptly disclose the same to the
Licensee in writing and the same shall be and become, without the necessity
of any further action by the Licensor or the Licensee, a part of and
4
<PAGE>
be included in the Technology licensed pursuant to this Agreement.
(b) In connection with Section 2.4(a), the Licensor agrees promptly to provide
the Licensee with copies of all Documentation of such Improvements acquired
by Licensee including without limitation, computer programs in both object
and source code format and user documentation related thereto. Licensor
also agrees that it shall provide Licensee with such consulting services as
the Licensee may reasonably request to enable Licensee to fully understand
and utilize such Improvements at Licensor's standard commercial rates for
such services.
SECTION III - REPRESENTATIONS, WARRANTIES AND COVENANTS.
- -------------------------------------------------------
3.1 Licensee. Licensee represents, warrants and covenants to Licensor as
--------
follows:
(a) Licensee is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and all necessary action,
corporate or otherwise, has been taken by it to execute, deliver and
perform this Agreement.
(b) The execution, delivery and performance of this Agreement does not violate
nor conflict with the Certificate of Incorporation, the by-laws, any
existing material agreement of the Licensee with any third party or any
laws to which Licensee is subject.
3.2 Licensor. Licensor represents, warrants and covenants to Licensee as
--------
follows:
(a) Licensor is a corporation duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and all
necessary action, corporate or otherwise, has been taken by it to execute,
deliver and perform this Agreement.
(b) The execution, delivery and performance of this Agreement does not violate
nor conflict with the Articles of Organization, the by-laws, any existing
material agreement of the Licensor with any third party or any laws to
which Licensor is subject.
(c) Licensor has not granted any rights to any third party relating to the
Technology except (i) pursuant to the customer contracts which the Licensor
is assigning to the Licensee pursuant to the Asset Transfer Agreement or
(ii) with respect to security interests granted by Licensor in general
intangibles under certain of Licensor's financing arrangements. Licensor
has delivered to Licensee each pending patent application which relates to
the Technology.
5
<PAGE>
(d) Licensor has not received any charge, complaint, claim, demand, or notice
alleging any interference, infringement, misappropriation, or violation of
any rights of third parties which relate to the Technology which has not
been disclosed to Licensee in writing.
(e) Licensor will file a notice with respect to this Agreement with the Patent
and Trademark Office promptly following the Contribution Date.
SECTION IV - MODIFICATIONS
- --------------------------
4.1 Licensee and any of Licensee's duly authorized agents,
representatives, sublicensees or subcontractors, may develop, modify, enhance,
revise or prepare derivatives of the Technology as Licensee in its sole
discretion shall deem necessary or expedient for its own use or for use by any
third party who has contracted with the Licensee or any of its sublicensees (a
"Modification"). Any such Modification shall be deemed to be the sole and
exclusive property of Licensee and shall constitute part of Licensee's
Proprietary Information as that term is defined herein.
4.2 Licensee agrees to grant Licensor an exclusive, paid-up, royalty-
free, perpetual license to use the Modifications in the Access Control Field.
During the term of this Agreement, disclosure of Modifications shall be made by
Licensee to Licensor no later than thirty (30) days after their release for
external use in a patent or copyright application, in a customer proposal or in
a system or product licensed, leased or sold to a License's customer.
SECTION V - PROPRIETARY INFORMATION.
- -----------------------------------
5.1 Except with the prior written consent of the Disclosing Party or as
provided in this Agreement, the Receiving Party shall not directly or indirectly
disclose to any third party any of the Proprietary Information from the
Disclosing Party within three (3) years of the receipt of such Proprietary
Information. The Receiving Party agrees to use the same care and discretion to
avoid disclosure, publication, or dissemination outside of itself of received
Proprietary Information as the Receiving Party employs with similar information
of its own which it does not desire to publish, disclose or disseminate. The
Receiving Party may also disclose Proprietary Information received from the
Disclosing Party hereunder to any third party in the ordinary course of
business, including in the development, marketing, distribution or maintenance
of products or services, provided such third party has executed a written
agreement obligating the third party to limit use of such information in the
field of use permitted to the Receiving Party hereunder (or a more restrictive
subset of such field of use) and prohibiting such third party from further
disclosure of information so received outside of itself and its
6
<PAGE>
affiliated entities for the same period applicable to the Receiving Party
hereunder. Notwithstanding the foregoing, Licensor acknowledges that the
Licensee may release or otherwise disclose Proprietary Information to the extent
required in responding to requests for proposals from potential customers, in
the furtherance of the performance of any awarded contracts, or to other
entities which participate in such proposals or awarded contracts. Any required
disclosure or use of the Licensor's Proprietary Information by the Licensee or
other entities including without limitation its sublicensees shall not
constitute a breach of any term of this Agreement or any other rights of the
Licensor in the Proprietary Information.
SECTION VI - INFRINGEMENT OF LICENSED TECHNOLOGY OR IMPROVEMENTS.
- ----------------------------------------------------------------
6.1 Notification of Infringement. Each party shall notify the other of
----------------------------
any infringement of any Technology or Modifications of which it has knowledge
and shall provide the other with the available evidence, if any, of such
infringement.
6.2 Enforcement. If Licensor has not, within thirty (30) days after the
-----------
date on which it is notified or otherwise becomes aware of an alleged
infringement of Technology (a) terminated such infringement or (b) initiated
legal action against the infringer, then Licensor shall, upon the written
request of Licensee, grant the Licensee the right to prosecute the infringer.
6.3 Expenses; Proceeds. The party which prosecutes the infringement shall
------------------
bear the costs and expenses of bringing such action, except as provided in
Section 6.2. All amounts recovered in any enforcement action brought by
Licensor, whether by judgment or settlement, shall be retained by Licensor. All
amounts recovered by Licensee in any enforcement action brought by Licensee,
whether by judgment or settlement, shall be retained by Licensee.
6.4 Other. The Licensee and Licensor shall fully cooperate with each
-----
other in the planning and execution of any enforcement action. Neither the
Licensee, its sublicensees nor the Licensor shall enter into any settlement that
includes the grant of a license under, agreement not to enforce, or any
statement prejudicial to the validity or enforceability of any Technology or
this Agreement without the prior written consent of the other.
6.5 Declaratory Actions. In the event that a declaratory judgment action
-------------------
alleging invalidity or non-infringement of any of the Technology shall be
brought against the Licensee or Licensor at such entity's option, shall have the
right, within thirty (30) days after commencement of such action, to intervene
and take over the sole defense of that action at its expense subject to the
aforesaid Section 6.4 of this Article VI.
7
<PAGE>
SECTION VII -- INDEMNIFICATION
- ------------------------------
7.1 Indemnification.
---------------
(a) General. Each party agrees to indemnify and hold harmless the other party,
-------
its sublicensees, subcontractors, representatives, agents, employees,
officers and directors, successors and assigns from and against any and all
liabilities, losses, damages, claims, suits and expenses, including
reasonable legal fees and costs and all liabilities of whatsoever kind or
nature imposed on, incurred by, or asserted against the other party, its
sublicensees, subcontractors, representatives, agents, employees, officers
and directors, successors and assigns relating to or arising out of any
failure of the defaulting party to perform or comply with the terms of this
Agreement, including without implied limitation any breach of the
representations and warranties contained herein.
SECTION VIII - PRODUCT LIABILITY
- --------------------------------
8.1 Licensee shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold Licensor, directors, officers, employees
and affiliates (other than Licensee), harmless against all claims, proceedings,
demands and liabilities of any kind whatsoever, including reasonable legal
expenses and reasonable attorneys' fees, arising out of the death of or injury
to any person or persons or out of any damage to property, resulting from the
production, manufacture, sale, use, lease, consumption or advertisement of a
product utilizing the Technology or arising from any obligation of Licensee
hereunder, except that this indemnification shall not apply to claims that the
Technology infringes third party intellectual property rights. Notwithstanding
the foregoing, Licensee's obligation to indemnify the Licensor as previously
stated, shall be further limited to claims, proceedings, demands and liabilities
arising solely out of acts or omissions of Licensee.
8.2 Licensee shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect Licensor with respect to events
covered by Section 8.1 above. Such insurance shall be written by a reputable
insurance company authorized to do business in the Commonwealth of
Massachusetts, shall list Licensor as one of the additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to Licensor prior to any
cancellation or material change thereof. The limits of such insurance shall not
be less than One Million Dollars ($1,000,000.00) per occurrence with an
aggregate of Three Million Dollars ($3,000.000.00) for personal injury or death,
and One Million Dollars ($1,000,000.00) per occurrence with an aggregate of
Three Million Dollars ($3,000,000.00) for property damage.
8
<PAGE>
Licensee shall provide Licensor with Certificates of Insurance evidencing the
same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR,
ITS DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND
EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. EXCEPT AS OTHERWISE EXPRESSLY
SET FORTH IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION SECTION 7.1, LICENSOR
MAKES NO REPRESENTATION OR WARRANTY THAT THE PRACTICE BY LICENSEE OF THE LICENSE
GRANTED HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
8.4 IN NO EVENT SHALL EITHER PARTY OR THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST
PROFITS, REGARDLESS OF WHETHER LICENSOR OR LICENSEE SHALL BE ADVISED, SHALL HAVE
OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY.
SECTION IX - MARKINGS.
- ---------------------
9.1 Licensee agrees to mark all products utilizing the Technology sold in
the United States with all applicable United States patent numbers and copyright
notices of which it has been informed of by Licensor.
SECTION X - EXPORT CONTROLS.
- ---------------------------
10.1 It is understood that the Technology may be subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities (including the Arms Export
Control Act, as amended, and the Export Administration Act of 1979), and that
each's obligations hereunder are contingent on compliance with application
United States export laws and regulations. The transfer of certain technical
data and commodities may require a license from the cognizant agency of the
United States Government and/or written assurances by Licensee that Licensee
shall not export data or commodities to certain foreign countries without prior
approval of such agency.
SECTION XI - NON-USE OF NAMES.
- -----------------------------
11.1 Licensee shall not use the names or trademarks of Lau Technologies
(other than those names or trademarks assigned by Licensor to Licensee pursuant
to the Asset Transfer Agreement), nor any adaptation thereof, nor the names of
any of its employees, in any advertising, promotional or sales literature
without prior
9
<PAGE>
written consent obtained from Lau Technologies, or said employee, in each case,
except that Licensee may state that it is sub-licensed under one or more of the
patents and/or applications comprising the Technology.
SECTION XII - TERM AND TERMINATION.
- ----------------------------------
12.1 General. This Agreement shall automatically terminate and be of no
-------
further force and effect if the transfer of substantially all of the assets and
liabilities of Licensor's identification systems division to Licensee does not
occur pursuant to the Asset Transfer Agreement between the parties of even date
herewith on or before September 30, 1997.
12.2 Termination by the Licensee. The Licensee shall have the right to
---------------------------
terminate this Agreement, effective immediately, upon written notice of
termination to Licensor.
12.3 Survival. In the event of any termination of this Agreement by
--------
Licensee, the following shall survive termination and continue to be binding on
parties: (1) the provisions of Sections V (proprietary information), VII
(indemnification), VIII (product liability), X (export control), XI (non-use of
names) and this Section 12.3; and (2) any sublicense to an end user of products
previously granted by Licensee or its sublicensees. Licensor may continue to
use the Modifications in the Access Control Field following the termination of
this Agreement.
SECTION XIII - MISCELLANEOUS.
- ----------------------------
13.1 Force Majeure. In the event that any party is unable to perform any
-------------
of its obligations under this Agreement because of natural disaster, actions or
decrees of governmental bodies or electrical, communication or delivery failure
not the fault of the affected party (hereafter referred to as a "Force Majeure
Event"), the party who has been so affected shall immediately give notice to the
other party and shall do everything possible to resume performance. Upon
receipt of such notice, all obligations under this Agreement shall be
immediately suspended. If the period of nonperformance exceeds fifteen (15)
days from the receipt of notice of the Force Majeure Event, the party whose
ability to perform has not been so affected may by giving notice terminate this
Agreement.
13.2 Further Assistance. Each party agrees to duly execute and deliver, or
------------------
cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things, including, without limitation,
the filing of such additional assignments, agreements, documents and
instruments, that may be necessary or as the other party hereto may at any time
and from time to time reasonably request in connection with this Agreement or to
carry out effectually the provisions and purposes of, or to better assure and
confirm unto such other party its
10
<PAGE>
rights and remedies under, this Agreement.
13.3 Notice. All notices, including approvals, that any party hereto is
------
required or may desire to give to the other shall be in writing and shall be
given by addressing the same to the other at the address or facsimile number set
forth in this Section, or at such other address or facsimile number as either
may specify in writing to the other. All notices shall become effective when
deposited in the United States Mail with proper postage for first class
registered or certified air mail prepaid, return receipt requested, or when
delivered personally, or, if promptly confirmed by mail as provided above, when
dispatched by telegram, telex, facsimile or other written telecommunications,
addressed:
If to the Licensor: Lau Technologies
531 Main Street
Acton, MA 01720
Attn: President
Telephone: (508) 263-8365
Telecopier: (508) 263-3358
If to Licensee: Viisage Technology, Inc.
531 Main Street
Acton, MA 01720
Attn: President
Telephone: (508) 263-8365
Telecopier: (508) 263-3358
13.4 Waiver. No failure on the part of the either party to exercise, and
------
no delay in exercising, any right, remedy, power or privilege hereunder, and no
course of dealing between the parties, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, remedy, power or privilege.
13.5 Assignment. Neither party may assign this Agreement or any rights or
----------
obligations hereunder except as expressly set forth in this Agreement, provided,
--------
however, that either party may fully assign its rights and interests, and
- -------
delegate its obligations, hereunder, effective upon written notice thereof (a)
to an entity controlled by such party if such entity assumes all of the
obligations of such party hereunder and this Agreement remains binding upon such
party; or (b) to any entity which acquires all or substantially all of the
assets of either party or which is the surviving entity in a merger or
consolidation with such party, if such entity assumes all of the obligations of
the assigning party hereunder.
13.6 Injunctive Relief. Any breach of this Agreement by a party to this
-----------------
Agreement could cause irreparable damage to the non-breaching party. In the
event of such breach, the non-breaching
11
<PAGE>
party shall have, in addition to any and all remedies of law, the right to seek
an injunction, specific performance or other equitable relief to prevent a
violation of this Agreement.
13.7 Entire Agreement. This Agreement sets forth the entire understanding
----------------
of the parties with respect to their subject matter.
13.8 No Modification. This Agreement may be changed only by a writing
---------------
signed by duly-authorized representatives of both parties hereto.
13.9 Severability. In the event that any one or more of the provisions
------------
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein, unless the deletion of such provision or provisions
would result in such a material change so as to cause completion of the
transactions contemplated herein to be unreasonable.
13.10 Succession. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto and their respective successors and other
legal representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
13.11 Applicable Law; Dispute Resolution.
----------------------------------
(a) This Agreement shall in all events and for all purposes be governed by,
construed in accordance with, the law of The Commonwealth of Massachusetts
without regard to any choice of law principle that would dictate the
application of the law of another jurisdiction.
(b) Except for the right of either party to apply to a court of competent
jurisdiction for injunctive relief as provided in Section 13.6 above, any
and all claims, disputes or controversies arising under, out of, or in
connection with the Agreement, including any dispute relating to patent
validity or infringement, which the parties shall be unable to resolve
within sixty (60) days shall be mediated in good faith. The party raising
such dispute shall promptly advise the other party of such claim, dispute
or controversy in a writing which describes in reasonable detail the nature
of such dispute. By not later than five (5) business days after the
recipient has received such notice of dispute, each party shall have
selected for itself a representative who shall have the authority to bind
such party, and shall additionally have advised the other party in writing
of the name and title of such representative. By not later than ten (10)
business days
12
<PAGE>
after the date of such notice of dispute, the party against whom the
dispute shall be raised shall select a mediation firm in the Boston area
and such representatives shall schedule a date with such firm for a
mediation hearing. The parties shall enter into good faith mediation and
shall share the costs equally. If the representatives of the parties have
not been able to resolve the dispute within fifteen (15) days after such
mediation hearing, the parties shall have the right to pursue any other
remedies legally available to resolve such dispute in either the Courts of
the Commonwealth of Massachusetts or in the United States District Court
for the District of Massachusetts, to whose jurisdiction for such purposes
Licensor and Licensee each hereby irrevocably consents and submits.
(c) Notwithstanding the foregoing, nothing in this Article shall be construed
to waive any rights or timely performance of any obligations existing under
this Agreement.
13.12 Counterparts. This Agreement may be executed in counterparts. Each
------------
counterpart, including a signature page executed by each of the parties hereto,
shall be an original counterpart of this Agreement, but all of such counterparts
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date set forth in the preamble
hereto.
LAU TECHNOLOGIES
By: /s/ Joanna T. Lau
-----------------------------------
Title: President
--------------------------------
VIISAGE TECHNOLOGY, INC.
By: /s/ Robert C. Hughes
-----------------------------------
Title: President
--------------------------------
13
<PAGE>
EXHIBIT A
LAU TECHNOLOGIES
PATENT DOCKET REPORT
June 15, 1996
<TABLE>
<CAPTION>
DOCKET CTY. TITLE STATUS APPLN. NO. FILING DATE
- -------------- ---- -------------------------- ------ -------------- -----------
<S> <C> <C> <C> <C> <C>
LTH-0001 USA APPARATUS FOR COUPLING F 08/262552 2DJE1994
MULTIPLE DATA SOURCES ONTO
A PRINTED DOCUMENT
LTH-0001CP USA APPARATUS FOR COUPLING F 486958 07JE1995
MULTIPLE DATA SOURCES ONTO
A PRINTED DOCUMENT
LTH-0001CPPC PCT APPARATUS FOR COUPLING F PCT/US95/07815 19JE1995
MULTIPLE DATA SOURCES ONTO
A PRINTED DOCUMENT
LTH-0004 USA SYSTEMS AND METHODS FOR F 08/316041 30SE1994
RECORDING DATA
LTH-0004PC PCT SYSTEMS AND METHODS FOR F PCT/US95/12742 29SE1995
RECORDING DATA
LTH-0009 USA SYSTEMS AND METHODS FOR F 08/408517 20MR1995
RECORDING DATA
LTH-0009PC PCT SYSTEMS AND METHODS FOR F PCT/US96/02977 04MR1996
RECORDING DATA
</TABLE>
"PCT" -- Patent Cooperation Treaty
14
<PAGE>
LAU TECHNOLOGIES COPYRIGHTS
<TABLE>
<CAPTION>
CONTROL NO. DESCRIPTION DATE OF REGISTRATION NO.
- ------------- ----------------------------- -------- ----------------
REG.
- -------------
<S> <C> <C> <C>
20000032 MA Robot Control S/W 09/26/94 TXu 650-972
20000039 LAU Image Capture Application 09/26/94 TXu 650-855
20000073 MA Network Job Builder 09/26/94 TXu 650-889
20000075 Image Server 10/17/94 TXu 652-723
20000051 Vision Inspection System 10/24/94 TXu 657-465
</TABLE>
15
<PAGE>
EXHIBIT 10.2
EXHIBIT C
---------
ADMINISTRATION AND SERVICES AGREEMENT
This Administration and Services Agreement (the "Agreement") dated
_______________, 1996, by and between Lau Acquisition Corp., a Massachusetts
corporation doing business as Lau Technologies ("Lau"), and Viisage Technology,
Inc., a Delaware corporation ("Viisage"), is made with reference to the
following facts:
A. Lau has entered into an Amended & Restated Asset Transfer Agreement
dated as of August 20, 1996 with Viisage (the "Asset Transfer Agreement")
pursuant to which Lau will contribute to Viisage substantially all of the assets
and business currently conducted by the division of Lau that is in the business
of facial imaging and identification systems and services (the "Imaging
Division") in exchange for common stock of Viisage and the assumption by Viisage
of certain liabilities of Lau related to the Imaging Division.
B. Lau has heretofore provided various services on behalf of the Imaging
Division, and Lau and Viisage desire to enter into this Agreement to set forth
the terms and conditions under which Lau will continue to provide certain
services to Viisage following the date of the closing (the "Closing Date")
respecting the Asset Transfer Agreement, and to provide for other related
matters.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
1. General Services to be Provided.
-------------------------------
(a) Lau shall provide to Viisage those services delineated on Exhibit A
---------
substantially equivalent to those heretofore provided by Lau's central
administrative and support offices to the Imaging Division, subject to any
modifications which are made in accordance with Section 4 below (collectively,
the "General Services").
(b) Viisage understands that the General Services will be performed by
those employees of Lau who perform similar services for Lau in the normal course
of their employment.
2. Term.
----
The term of this Agreement shall commence on the Closing Date and terminate
upon the termination of the Use and Occupancy Agreement between the parties of
even date herewith or such later date as may be mutually agreed to by the
parties in writing;
<PAGE>
provided that Viisage may terminate this Agreement at any time upon thirty (30)
days advance written notice to Lau.
3. Fee for General Services.
------------------------
In consideration of the General Services provided by Lau, Viisage shall pay
to Lau a fee for services at the rate of $55,000 per month (subject to
adjustment as provided herein and to such changes as the parties may agree upon
from time to time (the "Service Fee")). This charge does not include office
space, facilities and services which are provided by Lau to Viisage under the
Use and Occupancy Agreement of even date herewith, which are subject to a
separate charge as provided therein. The Service Fee for services to be
performed in a month shall be due on or before the first day of that month.
4. Changes in General Services.
---------------------------
The scope and nature of the General Services shall be subject to change
from time to time as hereinafter provided in this Section 4:
(a) Viisage may cause any particular class of General Services to be
removed from the General Services, if Viisage determines in its sole discretion
to provide such class of services internally or obtain them elsewhere; provided
that Viisage shall give Lau at least 30 days' prior written notice of any such
removal.
(b) In the event that Lau determines in its sole discretion to remove or
modify a particular class of its own administrative services, then Lau shall be
permitted correspondingly to remove or modify such class of General Services as
provided by Lau to Viisage under this Agreement; provided that Lau shall give
Viisage at least 30 days' prior written notice of such removal or modification.
(c) Lau and Viisage may by written agreement at any time agree to change
the extent and nature of the General Services in general or with respect to any
particular class of the General Services.
(d) In the event of any change in the scope or nature of the General
Services under any provision of this Section 4, the Service Fee shall be
equitably adjusted by mutual agreement of the parties to reflect the impact of
such change on the cost of providing the General Services.
5. Independent Contractor Status.
-----------------------------
The Company acknowledges that Lau shall render and perform the General
Services to be rendered and performed by it hereunder as an independent
contractor in accordance with its own standards, subject to its compliance with
the provisions of this Agreement.
<PAGE>
6. Disclaimer; Limited Liability.
-----------------------------
(a) Subject to Section 6(d) below, Lau shall not be liable to Viisage for
any expense, claim, loss or damage (including, without limitation, compensatory,
indirect, special, consequential or exemplary damages) arising out of its
performance or non-performance of the General Services pursuant to Section 1
herein, except to the extent of amounts billed or billable for such General
Services.
(b) Lau shall provide prompt notice to Viisage of any failure or delay in
performance of General Services to be performed by Lau pursuant to Section 1
herein.
(c) Subject to Section 6(d) below, Viisage shall indemnify and hold
harmless any employee of Lau who performs General Services for Viisage pursuant
to Section 1 herein to the same extent that Viisage would indemnify its own
officers in accordance with its customary practices if they were to perform such
services.
(d) Each of Lau and Viisage shall indemnify and defend the other and hold
it harmless against any claims, liability, loss, damage or expense (including
reasonable attorneys' fees) arising out of any personal injury or property
damage caused by the negligence or willful misconduct of the employees or agents
of such party in connection with their activities under or related to this
Agreement.
7. Access to Information.
---------------------
Viisage shall afford Lau (including its authorized representatives)
reasonable access to records, books, and other data and information (including
using reasonable efforts to give access to persons or firms possessing such
information) relating to Viisage's business which is required in order for Lau
to provide the services contemplated under this Agreement.
8. Confidentiality.
---------------
Unless compelled to disclose by judicial or administrative process or, as
advised by its counsel, by other requirements of law, each of Lau on the one
hand, and Viisage on the other hand, shall hold, and shall direct its officers,
directors, employees, auditors, attorneys, financial advisors, bankers and other
consultants and advisors (collectively, "Representatives") to hold, in strict
confidence, all information identified as confidential or proprietary and
furnished or made available to the other pursuant to this Agreement (including
without limitation any information provided under Section 7), except to the
extent that such information has been (a) in the public domain through no fault
of the receiving party or (b) later lawfully acquired from any third
-3-
<PAGE>
person, except such persons who have agreed to keep such information
confidential.
9. Miscellaneous.
-------------
(a) Complete Agreement; Construction. This Agreement and documents
--------------------------------
referred to herein shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
commitments and writings with respect to such subject matter.
(b) Survival of Agreements. Except as otherwise contemplated by this
----------------------
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Closing Date.
(c) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of The Commonwealth of Massachusetts, without regard to
the principles of conflicts of laws thereof.
(d) Notices. All notices and other communications hereunder shall be in
-------
writing and shall be delivered by hand, by facsimile (with confirmation of
receipt) or mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
To Lau:
Lau Technologies
531 Main Street
Acton, Massachusetts 01720
Attention: Joanna T. Lau, President
-4-
<PAGE>
To Viisage:
Viisage Technology, Inc.
531 Main Street
Acton, Massachusetts 01720
Attention: Robert C. Hughes, President
(e) Amendments. This Agreement may not be modified or amended except by an
----------
agreement in writing signed by the parties.
(f) Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
(g) No Third Party Beneficiaries. This Agreement is solely for the benefit
----------------------------
of the parties hereto and shall not be deemed to confer upon other third parties
any remedy, claim liability, reimbursement, cause of action or other right.
(h) Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
enforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction. Without prejudice to any rights or
remedies otherwise available to any party hereto, each party hereto acknowledges
that damages would be an inadequate remedy for any breach of the provisions of
this Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
By:_______________________________
Its:______________________________
VIISAGE TECHNOLOGY, INC.
By:_______________________________
Its:______________________________
-6-
<PAGE>
EXHIBIT 10.3
EXHIBIT D
---------
USE AND OCCUPANCY AGREEMENT
---------------------------
The Use and Occupancy Agreement (this "Agreement") is made this ____ day of
_________, 1996, by and between Lau Acquisition Corp., a Massachusetts
corporation doing business as Lau Technologies ("Lau"), whose address is 531
Main Street, Acton, Massachusetts 01720, and Viisage Technology, Inc., a
Delaware corporation ("Viisage"), whose address is 531 Main Street, Acton,
Massachusetts 01720.
1. Recitals. This Agreement is made with reference to the following facts
--------
and objectives:
(a) Bowmar/ALI, Inc., a Massachusetts corporation, as Landlord
("Landlord"), and Lau, as Tenant, entered into a written lease dated as of
February 23, 1990 (the "Lease"), of certain premises known as 531 Main
Street, Acton, Massachusetts. Lau's rights and obligations respecting such
premises under said Lease were also the subject of a Non-Disturbance,
Attornment, Estoppel & Subordination Agreement dated as of August 28, 1995
(the "Non-Disturbance Agreement"), by and among Lau, Landlord and
Landlord's mortgagee, Bank One, Arizona, NA ("Mortgagee"). Unless
otherwise defined herein, all capitalized terms used in this Agreement
shall have the same meaning as ascribed to them in the Lease or the Non-
Disturbance Agreement, as the case may be.
(b) Viisage is succeeding to the business of the division of Lau which
develops, markets and supports facial imaging and identification systems
and services (the "Imaging Division") by virtue of the transactions
contemplated by a certain Amended & Restated Asset Transfer Agreement dated
as of August 20, 1996 by and between Lau and Viisage.
(c) The Imaging Division had occupied, and Viisage desires to continue
to occupy, the portion of the Premises identified on Exhibit A (the
---------
"Space").
(d) The Imaging Division has utilized, and Viisage desires to continue
to utilize, certain furniture, fixtures and equipment located in the Space
and more particularly described in Exhibit B hereto (the "Equipment").
---------
(e) The Imaging Division has received, and Viisage desires to continue
to receive, certain office services from Lau more particularly described in
Exhibit C hereto (the "Office Services").
---------
<PAGE>
2. License; Subordination; Indemnity.
---------------------------------
(a) Lau hereby grants Viisage a license to (1) use and occupy the
Space and (2) cross other portions of the Premises as reasonably necessary
to maintain access and egress between the Space and the Common Areas of the
Building, subject in all cases to the provisions of this Agreement.
Viisage acknowledges that Lau licenses the Space to Viisage "as is," and
that Lau makes no warranty, covenant or representation that the Space shall
be other than in its present existing condition. The parties expressly
acknowledge that this Agreement does not constitute a demise by Lau of any
real property interest in or encumbrance on the Premises (including without
limitation the Space) and, consequently, Viisage shall not be entitled to
any rights or remedies to which a subtenant may be entitled at law or in
equity, unless Viisage shall have been expressly afforded such rights and
remedies pursuant to the provisions of this Agreement. This Agreement is
subject and subordinate to the Lease and the Non-Disturbance Agreement and,
consequently, if the Lease expires or terminates for any reason whatsoever,
this Agreement shall immediately terminate and Viisage's license under this
Agreement shall terminate. Viisage's failure to immediately vacate the
Space following the expiration or earlier termination of this Agreement
shall constitute a trespass and Viisage hereby indemnifies and holds
harmless Lau from any loss, cost, liability or expense associated with such
trespass.
(b) Lau shall provide the Office Services to Viisage on the same basis
that such services are currently provided by Lau to the Imaging Division, such
Office Services to be performed by those employees of Lau who perform similar
services for Lau in the normal course of their employment.
3. License Period; Mutual Right of Termination. The period during which
-------------------------------------------
Viisage may use and occupy the Space, utilize the Equipment and receive the
Office Services, subject to the provisions of this Agreement, shall commence on
the date hereof and, subject to earlier termination as provided herein or in the
Lease, end on February 23, 1997 (the "License Period"). In addition to all
other circumstances which could result in the termination of this Agreement, the
parties shall have the following respective rights as to termination:
(a) Viisage shall have the right to terminate this Agreement, at any
time during the License Period, by giving thirty (30) days' prior written
notice to Lau; and
(b) Lau shall have the right to terminate this Agreement, at any time
during the License Period, by giving six (6) months' prior written notice
to Viisage.
-2-
<PAGE>
4. Changes in Office Services.
--------------------------
The scope and nature of the Office Services shall be subject to change from
time to time as hereinafter provided in this Section 4:
(a) Viisage may cause any particular type of Office Services to be
removed from the Office Services, if Viisage determines in its sole
discretion to provide such class of services internally or obtain them
elsewhere, provided that Viisage shall give Lau at least thirty (30) days'
prior written notice of any such removal.
(b) In the event that Lau determines in its sole discretion to remove,
reduce or change a particular class of services from the office services
provided for its own internal uses then Lau shall be permitted
correspondingly to remove, reduce, or change the nature of such class of
Office Services as provided by Lau to Viisage under this Agreement,
provided that Lau shall give Viisage reasonable prior written notice to
enable Viisage to obtain such services elsewhere.
(c) Lau and Viisage may by written agreement agree to change the
extent and nature of the Office Services in general or with respect to any
particular class of the Office Services.
(d) In the event of any change in the scope or nature of the Office
Services under any provision of this Section 4, the Service Fee shall be
reasonably adjusted by mutual agreement of the parties to reflect the
impact of such change on the cost of providing the Office Services.
5. Rent and Other Charges.
----------------------
(a) Rent Reimbursement. Viisage covenants and agrees to pay Lau for
------------------
Viisage's Share (as hereinafter defined) of the rent payable by Lau under
Section 4 of the Lease (the "Basic Rental Reimbursement"). Payment shall be
made on a timely basis to enable Lau to satisfy its financial obligations
under the Lease. For purposes of this Agreement, "Viisage's Share" shall
equal the percentage obtained by dividing the net rentable area of the
Space by the net rentable area of the Premises. Additionally, Viisage shall
reimburse Lau for all other financial obligations, if any, for which Lau is
responsible under the Lease arising as a direct result of Viisage's use and
occupancy of the Space, including without limitation, any indemnity
required under Section 6(c) of the Lease.
-3-
<PAGE>
(b) Taxes, Insurance, Utilities, Etc. Viisage covenants and agrees to
---------------------------------
pay Lau for Viisage's Share of Lau's out-of-pocket costs for real estate
taxes, insurance premiums, utilities costs, costs of repairs and
maintenance, and other costs specifically set forth in the Lease. Payment
shall be made on a timely basis to enable Lau to satisfy its obligations
under the Lease.
(c) Office Services. Viisage covenants and agrees to pay Lau for the
---------------
Office Services on the first day of each month an amount equal to
$____________ per month.
6. Landlord's Services. Viisage shall have the right to enjoy the
-------------------
services which Landlord provides to the Space pursuant to the Lease. However,
Lau shall have no liability for the obligations of Landlord under the Lease or
the Landlord's failure to fulfill such obligations in whole or in part.
7. Viisage's Covenants. Except as otherwise expressly set forth in this
-------------------
Agreement, Viisage shall, in its use and occupancy of the Space and access
thereto through the remainder of the Premises, observe and otherwise be bound by
all of the terms and conditions set forth in the Lease and in the Non-
Disturbance Agreement.
8. Independent Contractor Status. Viisage acknowledges that Lau shall
-----------------------------
render and perform the Office Services to be rendered and performed by it
hereunder as an independent contractor in accordance with its own standards,
subject to its compliance with the provisions of this Agreement.
9. No Transfer. The license granted pursuant to this Agreement is
-----------
personal to Viisage and Viisage shall have no power to transfer any of its
rights hereunder.
10. No Alterations; Surrender. Except to the extent permitted under
-------------------------
Section 9 of the Lease, Viisage may not make any alterations, additions or
improvements to the Space without Lau's prior consent, and subject to Lau having
obtained Landlord's consent to the extent required under Section 9 of the Lease.
Viisage shall surrender the Space as required by this Agreement in the same
condition as it now exists, except for wear and tear which cannot reasonably be
repaired by Viisage's performance of its obligations under this Agreement.
11. Access to Space. Lau and the Landlord shall each have the right to
---------------
enter the Space to the extent permitted under Section 10 of the Lease.
12. Insurance. Viisage shall maintain with respect to the Space all
---------
insurance policies in compliance with the requirements imposed upon the tenant
as set forth in the Lease (unless Lau chooses to maintain such insurance
policies for the Premises and
-4-
<PAGE>
Building and to have Viisage reimburse Lau for Viisage's share of such cost),
except that Viisage shall deposit with Lau all certificates of insurance which
the Lease requires to be deposited with Landlord.
13. Fire, Casualty and Eminent Domain. In the event there is casualty
---------------------------------
damage to the Space as contemplated in Section 11 of the Lease, or a
condemnation or taking by eminent domain of a portion of the Space as
contemplated in Section 12 of the Lease, Viisage may continue to occupy the
Space and receive its equitable portion of any abatement of rent which Lau
receives from the Landlord under Section 11 or 12, as the case may be, of the
Lease, or immediately terminate this Agreement by giving written notice to Lau.
14. Conformance with Lease Requirements. Without limitation by any other
-----------------------------------
provision of this Agreement, Viisage shall not do, omit to do or permit to be
done or omitted anything which would constitute a default under the terms,
covenants and conditions of the Lease, or which would otherwise result in
Landlord having the right to terminate the Lease.
15. Limitations on Lau's Liability. Viisage acknowledges that it has not
------------------------------
relied upon any representations or warranties of Lau or its agents with respect
to the Building or the Space. Viisage expressly acknowledges that, if Viisage
should have the right to seek recovery of any judgment from Lau associated with
Viisage's use and occupancy under this Agreement or Lau's obligations hereunder,
Viisage shall look solely to Lau's interest in the Lease for recovery of any
judgment from Lau. Lau's directors, officers and shareholders shall never be
personally liable for any such judgment.
16. Remedies and Damages. If this Agreement is terminated as the result
--------------------
of a default by Viisage beyond any applicable cure period, Lau may expel and
remove Viisage from the Space, provided that such termination shall be without
prejudice to Lau's power to exercise all of the rights to which it is entitled
at law or in equity by virtue of Viisage's default. If Viisage's default should
result in the termination of the Lease, Viisage shall indemnify Lau from and
against all damages for which Lau is liable to Landlord as a consequence
thereof, in addition to any other damages which Lau suffers or incurs.
17. Notices. Any notice, statement, certificate, consent, approval,
-------
disapproval, request or demand required or permitted to be given in this
Agreement shall be in writing and delivered by hand, by facsimile (with
confirmation of receipt) or sent by United States mail, registered or certified,
postage prepaid, or by a nationally recognized overnight courier, addressed, as
the case may be as follows:
-5-
<PAGE>
To Lau at the following address:
Lau Acquisition Corp.
d/b/a Lau Technologies
531 Main Street
Acton, Massachusetts 01720
Attn: Joanna T. Lau, President
and to Viisage at the following address:
Viisage Technology, Inc.
531 Main Street
Acton, Massachusetts 01720
Attn: Robert C. Hughes, President
Either party may change or add persons and places where notices are to be
sent or delivered by notice to the other. Mailed notices will be deemed served
three (3) business days after mailing as required above provided the same are
received in the ordinary course of business or upon receipt if sent by hand
delivery.
18. Entire Agreement; Construction. This Agreement contains the entire
------------------------------
agreement between Lau and Viisage with respect to its subject matter and can
only be changed by a written agreement executed by the parties. The titles of
the several Sections contained herein are for convenience only and shall not be
considered in construing this Agreement.
19. Power to Execute. Lau and Viisage covenant, warrant and represent
----------------
that they have full power and proper authority to execute this Agreement.
20. Covenants and Conditions. All provisions, whether covenants or
------------------------
conditions, on the part of Viisage to be performed under this Agreement shall be
deemed to be both covenants and conditions.
-6-
<PAGE>
IN WITNESS WHEREOF, Lau Acquisition Corp. d/b/a Lau Technologies and
Viisage Technology, Inc. have each caused these presents to be executed as a
sealed instrument as of the day and year first written above.
LAU ACQUISITION CORP.
d/b/a LAU TECHNOLOGIES
By:_________________________________
Name:_______________________________
Title:______________________________
VIISAGE TECHNOLOGY, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
-7-
<PAGE>
EXHIBIT A
---------
Space
-----
The Space consists of the following portion(s) of the Premises:
-8-
<PAGE>
EXHIBIT B
---------
Equipment
---------
The Equipment consists of:
-9-
<PAGE>
EXHIBIT C
---------
Office Services
---------------
Type of Service Method of Charge
--------------- ----------------
-10-
<PAGE>
EXHIBIT 10.4
LICENSE AGREEMENT
LICENSE AGREEMENT dated as of this 20th day of August, 1996 by and between
Facia Reco Associates, Limited Partnership, a Massachusetts limited partnership
having its principal office at c/o Victor Colantonio, c/o Peabody & Brown, 101
Federal Street, Boston, Massachusetts 02110, ("Licensor"), and Viisage
Technology, Inc., a Delaware corporation having its principal place of business
at 531 Main Street, Acton, Massachusetts 01720 ("Licensee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Licensor is the owner or licensee of certain proprietary
technology, including U.S. Patent No. 5,164,992, relating to facial recognition
systems; and
WHEREAS, Licensee desires to develop, revise, enhance, modify, and/or
create derivatives with respect to such proprietary technology for use in
connection with Licensee's systems and products.
WHEREAS, the Licensee is acquiring the Viisage Technology Division of Lau
Acquisition Corp. and this agreement shall not take effect until that
transaction is consummated as further provided in Section 14.12 below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
SECTION I - DEFINITIONS.
- -----------------------
As used herein, the following capitalized terms shall have the respective
meanings set forth below:
1.1 "Access Control Field" shall mean the the control of human entry
--------------------
through doorways, gates, turnstiles or similar thresholds in and to buildings or
facilities located on properties owned or controlled by the United States
federal government, or any other national government (but not, for example,
state or local subdivisions thereof) which is a member of the United Nations,
using apparatus at the entry point.
1.2 "Documentation" shall mean user manuals, notes, diagrams, drawings,
-------------
reports, publications and technical specifications including without limitation
descriptions of manufacturing processes and technical drawings, all computer
programs in both object and source code format and any other physical embodiment
of the Technology and Improvements owned or controlled by Licensor.
<PAGE>
1.3 "End User" shall mean a customer authorized to use a Machine Copy for
--------
internal purposes only and not for further distribution.
1.4 "Field" shall mean the use of the Technology in connection with face
-----
recognition for:
(a) de-duplicating data bases created, controlled and/or managed by Licensee
or its sublicensees;
(b) querying data bases created, controlled and/or managed by Licensee or its
sublicensees; and/or
(c) utilizing, directly or indirectly, personal identification cards.
1.5 "Improvements" shall mean any Technology that is discovered, developed
------------
or otherwise owned or controlled by Licensor at any future time which relates to
the Field as further set forth in Section 2.4 of this Agreement but shall
specifically exclude Modifications made by or on behalf of Licensee pursuant to
Section 4.1 of this Agreement, which shall be owned solely by Licensee.
1.6 "Licensee" shall mean Viisage Technology, Inc. and its successors and
--------
permitted assigns.
1.7 "Licensor" shall mean Facia Reco Associates, Limited Partnership, a
--------
Massachusetts limited partnership, and its successors and assigns.
1.8 "Owned or controlled" shall include Technology and/or Improvements
-------------------
which the Licensor owns, hereafter acquires or under which the Licensor is
licensed or becomes licensed and has the right to grant sublicenses including
without limitation pursuant to that certain patent license from The
Massachusetts Institute of Technology ("MIT"), and that certain copyright
license which has been licensed from MIT to Dr. Alex P. Pentland, and in turn
sublicensed from Cogito, Inc., a Massachusetts corporation controlled by Dr.
Alex P. Pentland, to Licensor, which licenses are referred to in Section 3.2(c)
of this Agreement.
1.9 "Machine Copy" shall mean the physical embodiment of the Technology
------------
manufactured by or on behalf of Licensee first sold by Licensee or its duly
authorized sublicensee to an EndUser, which copy shall reside on a single
central processing unit.
1.10 "Modifications" shall include any developments, modifications,
-------------
enhancements, revisions or derivatives to the Technology made by or on behalf of
Licensee as further provided in Section 4.1 of this Agreement.
1.11 "Minimum Royalty" shall mean the minimum royalty payable pursuant to
---------------
Section 2.5(d) of this Agreement.
<PAGE>
1.12 "Proprietary Information" shall mean all trade secrets and
-----------------------
confidential information disclosed by one party (the "Disclosing Party") to the
other (the "Receiving Party").
The definition of "Proprietary Information" herein shall not include
information which
(a) was known to the Receiving Party at the time it was disclosed, other than
by previous disclosure by the Disclosing Party;
(b) is at the time of disclosure or later becomes known within the relevant
industry under circumstances involving no breach of this Agreement;
(c) is lawfully and in good faith made available to the Receiving Party by a
third party;
(d) is required to be disclosed by the Receiving Party by a governmental
authority or by order of a court of competent jurisdiction, provided that
such disclosure is subject to all applicable governmental or judicial
protection available for similar material and reasonable advance notice is
given to the Disclosing Party; or
(e) is independently developed or otherwise rightfully known by the Receiving
Party.
1.13 "Royalty" shall mean that royalty payable by Licensee to Licensor as
-------
further set forth in Section 2.5(b) of this Agreement.
1.14 "Sponsors" shall mean sponsors of the MIT Media Laboratory as
--------
determined by that certain statement entitled, "Intellectual Property Rights of
Media Laboratory Sponsors to Intellectual Property Developed Under Sponsored
Research at the Media Laboratory, MIT, effective November 30, 1988, revised
January 1, 1993, notes as of October 1, 1993."
1.15 "Technology" shall mean all patent rights (including without
----------
limitation U.S. Patent No. 5,164,992 and any broadening reissues thereof),
copyrights (including without limitation Copyright 1993, 1994, Facia Reco
Associates Limited Partnership for software entitled "Sherlock Facial
Recognition Software," DOS and Windows Versions based upon M.I.T. Case 5404, 'A
Face Recognition System' by Matthew A. Turk and Alex P. Pentland, and related
Documentation; and Copyright 1992, Massachusetts Institute of Technology for
computer software entitled "Image Similarity Software," and related
Documentation described in M.I.T. Case No. 5929ST, "Image Similarity Software,"
by Alex P. Pentland), derivatives to any of the foregoing (except as set forth
in Section 4.1 of this Agreement) made by Licensor, its General Partners and/or
Affiliated Persons (as that term is defined in the Facia Reco Associates Limited
Partnership Certificate and Agreement of Limited Partnership dated October 27,
1992), trademarks, service marks, technical or other information, trade secrets,
know-how,
<PAGE>
processes, formulations, concepts, ideas, data, software, computer programs (in
all formats including without limitation, both source code and object code) and
any and all other rights including without limitation intellectual property that
is used in or relates to the Field, and that is either (a) owned or controlled
by the Licensor as of the date of the execution of this Agreement including
without limitation as further set forth in Exhibit A which is attached hereto
and incorporated herein by reference, (b) owned or controlled by the Licensor
hereafter, including Improvements, and (c) any Documentation and Proprietary
Information of Licensor related thereto.
SECTION II - TERMS OF LICENSE.
- ------------------------------
2.1 Grant of License.
----------------
(a) Subject to the terms and conditions of this Agreement, the Licensor grants
to Licensee and the Licensee accepts from Licensor an exclusive worldwide
license for all of Licensor's rights, now existing or hereafter acquired,
direct or indirect, in the Technology including without limitation the
right to: (1) to distribute copies, utilize, develop, perform and display
publicly, prepare derivative works, reproduce in copies, improve, modify,
revise and enhance the Technology or any portion or component thereof as
Licensee shall determine appropriate, (2) to cause its subcontractors,
representatives or agents to perform the same for Licensee's benefit, or
(3) in the manufacture, advertising, promotion, distribution and sale,
licensing and/or sublicensing of the Licensee's products and systems,
and/or (4) in connection with or as integrated into any third party's
products and systems which Licensee may have licensed, sublicensed or
otherwise acquired; provided that Licensee shall not have the right to use
-------------
the Technology in the Access Control Field.
(b) Licensor has previously delivered to Licensee all Documentation in
existence regarding the Technology as it presently exists, including
without limitation, computer programs listed on Exhibit A in both object
and source code format and user documentation related thereto.
2.2 Right to Grant Sublicenses. The Licensee shall have the right to
--------------------------
grant sublicenses, and such sublicensees shall have the right to grant
sublicenses, of equal or lesser scope under the license set forth in Section
2.1.
2.3 Exclusive Territory; Leads. The license set forth in Section 2.1
--------------------------
shall be exclusive worldwide, and the Licensor shall not for itself or authorize
or appoint a third party to engage in business activities which would conflict
with such license. Licensor shall advise Licensee of all sales leads obtained
by Licensor for systems and products which would use the Technology in the
Field. The parties acknowledge that the license set forth in
<PAGE>
Section 2.1 does not grant any rights to Licensee (i) outside of the Field or
(ii) in the Access Control Field; any future grant with respect thereto may be
addressed in one or more separate agreements which the parties may enter into
from time to time. Licensee acknowledges that MIT has reserved the right to
practice U.S. Patent No. 5,164,992 for its own noncommercial research purposes
and to grant licenses under such patent to Sponsors of its Media Laboratory.
Licensee also acknowledges that Licensor has granted an exclusive license to Lau
Acquisition Corp. ("Lau") of even date herewith to use the Technology in the
Access Control Field.
2.4 Improvements.
------------
(a) If, during the term of this Agreement, the Licensor shall develop, improve,
make, acquire, control, obtain the right to use (by license or otherwise)
or otherwise own or control any discovery, invention or Improvement
(whether patentable or unpatentable), or new method, system, technique or
device used in the Field (including, without limitation any such
developments provided by Licensor to any of its other permitted
sublicensees), but excluding any rights to be assigned to Licensee under
Section 4.1 of this Agreement, the Licensor shall promptly disclose the
same to the Licensee in writing and the same shall be and become, without
the necessity of any further action by the Licensor or the Licensee, a part
of and be included in the Technology licensed as part of this Agreement.
(b) In connection with Section 2.4(a), the Licensor agrees promptly to provide
the Licensee with copies of all Documentation of such Improvements
including without limitation, computer programs in both object and source
code format and user documentation related thereto.
2.5 Fixed Fee and Royalty Obligation. In consideration of the grant of
--------------------------------
license hereunder, the Licensee shall pay to Licensor the following:
(a) Intentionally Omitted.
(b) Royalty. A royalty (the "Royalty") equal to $350 per Machine Copy of the
-------
Technology used in a system or product first licensed, leased or sold to an
End User by: (1) Licensee or (2) a sublicensee of Licensee who is not an
End-User sublicensee. Notwithstanding any other provision in this
Agreement, Licensee shall not pay any Royalty to Licensor for any Machine
Copy shipped by Licensee or its sublicensee(s) as a warranty replacement
without charge for another Machine Copy for which a Royalty has previously
been paid, and furthermore, under no circumstances shall Licensee be
required to pay more than one Royalty in connection with sales of any
products incorporating the Technology (including, without limitation,
updates, enhancements or improvements) to an End User who has
<PAGE>
previously purchased, leased or licensed any Machine Copy, provided that
such products shall be limited to use on the same single central processing
unit as the initial Machine Copy.
(c) Sublicense Fee. Licensee shall pay Licensor a sublicensee issue fee
--------------
applicable to sublicenses authorizing a third party to make and distribute
products utilizing the Technology in an amount equal to fifty percent (50%)
of the sublicense issue fee (which shall exclude royalties) paid to
Licensee, by any sublicensee, if any; provided, however, in no event shall
any such sublicense issue fee exceed Five Thousand Dollars ($5,000.00) (the
"Sublicense Fee").
(d) Minimum Royalty.
---------------
(i) United States. During the period that that certain Patent License
-------------
Agreement between Massachusetts Institute of Technology and Facia Reco
Associates Limited Partnership dated July 5, 1994, as amended, shall
provide for an exclusive license under Section 2.3 of that Patent License
Agreement (the "Exclusive Patent Period"), Licensee shall pay Licensor a
minimum Royalty under this Section 2.5(d)(i) with respect to End-Users
located in the United States for each twelve (12) month period ending on
July 22 during the term of this Agreement, equal to the difference of
$21,000 and the Royalties paid during such twelve month period (the
"Minimum U.S. Royalty"). The Licensee shall have no obligation to pay
Minimum U.S. Royalties for any period following the expiration of the
Exclusive Patent Period.
(ii) Outside United States. During the Exclusive Patent Period, Licensee
---------------------
shall pay Licensor a minimum Royalty under this Section 2.5(d)(ii) with
respect to End-Users located outside of the United States for each twelve
(12) month period ending on November 21 during the term of this Agreement,
equal to the difference of $21,000 and the Royalties paid during such
twelve month period (the "Minimum Foreign Royalty"). The Minimum Foreign
Royalty shall be increased to $28,200 for the fourth year during which a
Minimum Foreign Royalty is payable as provided in the preceding sentence;
$34,400 for the fifth year during which a Minimum Foreign Royalty is
payable as provided in the preceding sentence; and $42,000 for subsequent
years during which a Minimum Foreign Royalty is payable as provided in the
preceding sentence. The Licensee shall have no obligation to pay Minimum
Foreign Royalties for any period following the expiration of the Exclusive
Patent Period, as may be extended by Licensor and MIT from time to time.
The terms "Minimum U.S. Royalty" and "Minimum Foreign Royalty" shall be
collectively referred to as the Minimum Royalty.
2.6 Payment and Reports. All Royalties accrued with respect to Machine
-------------------
Copies sold or leased by the Licensee and its sublicensees in each calendar
quarter shall be paid to Licensor on
<PAGE>
or before the sixtieth (60th) day following the end of the quarter, and together
with such payment, Licensee shall deliver to Licensor a quarterly report of the
amounts for such quarter, showing the calculation of the Royalties being paid
therewith. The balance of any Minimum Royalty due under Section 2.5(d) shall be
paid by Licensee to Licensor on or before sixtieth (60th) day following the end
of the last calendar quarter in which said respective twelve month period of the
Exclusive Patent Period as further set forth in Section 2.5(d) concludes.
2.7 Records. Licensee shall keep complete books and records showing all
-------
systems or products licensed, leased or sold by Licensee and its sublicensees
which use Technology; in sufficient detail to ascertain the accuracy of the
reports required by this Agreement and to enable the earned royalties payable
hereunder to be accurately determined and verified as herein provided. Licensee
agrees to maintain such books and records, including any audit reports relating
to activities of its sublicensees, for a period of five (5) years from the later
of the effective date of this Agreement or the end of the calendar quarter to
which they apply, unless Licensor shall have sooner notified Licensee that it
disputes any of such books or records, in which event Licensee shall maintain
any such disputed books and records for such longer period as shall be
reasonably necessary to resolve, settle or litigate any such dispute. Licensee
shall permit such relevant books and records to be examined (but shall not be
required to do so more than once in a calendar year) at a reasonable time during
normal business hours following notice to Licensee from Licensor of Licensor's
request to exercise its right hereunder for the purpose only of verifying the
reports and royalty payments required by the Agreement. Such examination will
be made at the expense of Licensor and, at its election, by an independent
Certified Public Accountant reasonably acceptable to Licensee. All such books
and records shall be treated as confidential by Licensor and such accountant
unless it determines that material deficiencies exist in any of the reports that
are audited, and except to the extent required in any litigation resulting from
a dispute in connection with this Agreement. Licensee shall pay the reasonable
expenses incurred by Licensor in connection with any such audit, if said
certified public accountant conducting such audit certifies to Licensee
(together with the delivery of such reasonable verification of such audit
results as Licensee may request) that he has determined based on said audit that
Licensee had under-reported its Royalties by more than ten percent (10%) as
determined based on the amount of the underpayment to the total amount said
accountant determines to have been due and owing in any calendar year.
2.8 Intentionally Omitted.
SECTION III - REPRESENTATIONS, WARRANTIES AND COVENANTS.
- -------------------------------------------------------
3.1 Licensee. Licensee represents, warrants and covenants to Licensor as
--------
follows:
<PAGE>
(a) Licensee is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and all necessary action,
corporate or otherwise, has been taken by it to execute, deliver and
perform this Agreement.
(b) The execution, delivery and performance of this Agreement does not violate
nor conflict with the Certificate of Incorporation, the by-laws, any
existing material agreement of the Licensee with any third party or any
laws to which Licensee is subject.
3.2 Licensor. Licensor together with each of its General Partners and
--------
each of their Affiliated Persons (as that term is defined in the Facia Reco
Associates Limited Partnership Certificate and Agreement of Limited Partnership
dated October 27, 1992), their respective officers and directors, hereby
represent, warrant and covenant to the Licensee as follows:
(a) Licensor is a limited partnership duly formed, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and all
necessary action has been taken by the General Partners of Licensor to
execute, deliver and perform this Agreement.
(b) The execution, delivery and performance of this Agreement does not violate
nor conflict with any existing agreement of the Licensor or its General
Partners or their Affiliated Persons including, without limitation, Dr.
Alex P. Pentland, or consultants, or any laws to which any of them are
subject.
(c) Except as provided below, Licensor is the sole and exclusive owner of the
Technology in the Field, other than Copyright 1992 Massachusetts Institute
of Technology for computer software entitled "Image Similarity Software"
and related Documentation described in MIT Case No. 5929ST, "Image
Similarity Software," by Alex P. Pentland, as existing on April 16, 1992
and U.S. Patent No. 5,164,992 which are solely and exclusively owned by MIT
(the "MIT Technology"). Licensor has received licenses in the Field for
the aforementioned MIT Technology and certain derivatives thereto pursuant
to: (1) that certain Patent License Agreement between Massachusetts
Institute of Technology and Facia Reco Associates Limited Partnership dated
as of July 5, 1994, as amended, which is an exclusive license of the Patent
in the Field (subject to MIT's right to practice the said patent for its
own noncommercial research purposes, and the right of MIT to grant licenses
under such patent to Sponsors) (the "MIT Patent License Agreement"), and
(2) those certain copyright licenses comprised of: (i) Agreement between
Massachusetts Institute of Technology and Alex P. Pentland effective as of
June 1, 1992 (the "MIT Copyright License"), and (ii) OEM Software License
Agreement between Cogito, Inc. (Pentland's wholly owned corporate nominee)
and Facia Reco Associates Limited Partnership made as of October 28, 1992
which is a grant of
<PAGE>
sublicense to Licensor under the aforesaid MIT Copyright License for the
"Image Similarity Software," together with an exclusive grant of license
for all derivatives authored by Dr. Alex P. Pentland thereto and then
constituting the "Sherlock Facial Recognition Software," (the foregoing
patent and copyright licenses are referred to individually and collectively
as the "Pre-Existing License Agreements"), and has the right to grant
sublicenses therefor on the terms set forth in this Agreement. A true,
accurate and complete copy of each of the Pre-Existing License Agreements
have been previously delivered to Licensee. Licensor has and shall
continue at all times to perform in accordance with the Pre-Existing
License Agreements and such other third party licenses granting Licensor
rights in Technology, as the same may arise in the future. Should Licensor
at any time receive a notice of default from MIT or Cogito, Inc. under any
of said Pre-Existing License Agreements, Licensor agrees to immediately
deliver a copy of same to Licensee, together with such reasonable
assurances of Licensor's efforts to cure and assure continued compliance as
Licensee may request. Except as provided by this Agreement, Licensor
further agrees to forebear from exercising any of its assignment,
termination, licensing or sublicensing rights in the Field anywhere in the
world (including any rights granted to any of its related companies as may
be otherwise authorized pursuant to said Pre-Existing License Agreements)
under said Pre-Existing License Agreements, without the prior written
consent of Licensee.
(d) All derivatives to the Technology including, without limitation, the MIT
Technology now existing (i.e., presently embodied in the Sherlock Face
Recognition Software) or hereafter developed or acquired, which are made by
or on behalf of Licensor, its General Partners and/or Affiliated Persons
(as that term is defined in the Facia Reco Associates Limited Partnership
Certificate and Agreement of Limited Partnership dated October 27, 1992),
are and shall be solely owned by Licensor; provided, however, that this
Section shall not apply to future derivatives which said parties have
agreed to assign to Licensee under Section 4.1 of this Agreement. Without
limiting the foregoing, no other third party, including without limitation
MIT, or any Sponsor, has any right to use any of said derivatives except in
the case of MIT, that MIT shall have a site license to use derivatives
created by Pentland prior to the execution of this Agreement pursuant to
the MIT Copyright License for MIT's own internal noncommercial, research
purposes.
(e) To the best of the knowledge of Licensor, its General Partners and their
Affiliated Persons after diligent inquiry, neither the Technology, nor the
use thereof, violates or infringes any patent, copyright, trade secret, or
any other right of any third party.
(f) Licensor agrees that it shall use its best efforts to obtain
<PAGE>
a federal Copyright Registration Certificate or Patent Registration for all
Technology which is proprietary to it, or its General Partners or any of
their Affiliated Persons, and which is copyrightable or patentable subject
matter (including all derivatives of Licensor referred to in Section 3.2(d)
above). Without limiting the foregoing, Licensor agrees to keep Licensee
informed of all efforts relating to a broadening reissue of U.S. Patent No.
5,164,992. Licensor further agrees to execute and file with the U.S.
Copyright Office or Patent Office such further documents as Licensee may
request to evidence the exclusive grant of license under this Agreement.
SECTION IV - MODIFICATIONS
- --------------------------
4.1 Licensee and any of Licensee's duly authorized agents,
representatives, sublicensees or subcontractors, may develop, modify, enhance,
revise or prepare derivatives of the Technology as Licensee in its sole
discretion shall deem necessary or expedient for its own use or for use by any
third party who has contracted with the Licensee or any of its sublicensees (a
"Modification"). Any such Modification shall be deemed to be the sole and
exclusive property of Licensee and shall constitute part of Licensee's
Proprietary Information as that term is defined herein.
4.2 Licensee agrees to grant Licensor a nonexclusive, nonassignable
license to use certain of Licensee's Modifications outside the Field subject to
such terms, including royalty rates, not in excess of the royalty rates payable
by Licensee under this Agreement, as shall be mutually agreeable to both
parties.
SECTION V - PROPRIETARY INFORMATION.
- -----------------------------------
5.1 Except as provided in this Agreement, the Receiving Party shall not
directly or indirectly disclose to any third party any of the Proprietary
Information from the Disclosing Party, except with the prior written consent of
the Disclosing Party; nor will the Receiving Party use such Proprietary
Information for the Receiving Party's own benefit or for the benefit of any
other person or business entity. The Receiving Party will restrict disclosure
of the Disclosing Party's Proprietary Information within its own organization or
to its authorized agents or subcontractors who have a need to receive such
Proprietary Information in order to further the purposes of this Agreement, each
of whom shall have been advised of the confidentiality obligations set forth in
this Agreement and who shall be obligated to the Receiving Party in a similar
manner. Notwithstanding the foregoing, Licensor acknowledges that the Licensee
may disclose Licensor's Proprietary Information to the extent required in
responding to requests for proposals from potential customers, in the
furtherance of the performance of any awarded contracts, or to other entities
which participate in such proposals or awarded contracts, and in the developing,
marketing and sales of Licensee's products and systems. Any required disclosure
or use of the Licensor's Proprietary Information by the Licensee or other
entities including without
<PAGE>
limitation its sublicensees shall not constitute a breach of any term of this
Agreement or any other rights of the Licensor in the Proprietary Information.
SECTION VI - INFRINGEMENT OF LICENSED TECHNOLOGY OR IMPROVEMENTS.
- ----------------------------------------------------------------
6.1 Notification of infringement. Each party shall notify the other of
----------------------------
any infringement of any Technology or Modifications of which it has knowledge
and shall provide the other with the available evidence, if any, of such
infringement.
6.2 Enforcement. If the Licensor and/or MIT has not, within seven (7)
-----------
months after the date on which it is notified or otherwise becomes aware of an
alleged infringement of the Technology, (a) terminated such infringement or (b)
initiated legal action against the infringer, then the Licensor shall, upon the
written request of the Licensee, grant the Licensee and/or its sublicensees the
right to prosecute the infringer, provided that such right to bring such an
infringement action shall remain in effect only for so long as the license
granted herein remains exclusive as set forth in Section II. In the event that
Licensee elects to prosecute the infringer, the Licensor agrees to promptly sign
and give to the Licensee and/or its sublicensees all documents in Licensor's
possession necessary for the Licensee to prosecute such infringement, and
provide reasonable assistance over the course of this proceeding at Licensor's
expense. Licensor represents and warrants that it is authorized to grant
Licensee and/or its sublicensees the right to use the name of the Massachusetts
Institute of Technology, Dr. Alex P. Pentland and Cogito, Inc. as well as Facia
Reco Associates Limited Partnership, as party plaintiffs in any such action.
6.3 Expenses; Proceeds. The party which prosecutes the infringement shall
------------------
bear the costs and expenses of bringing such action, except as provided in
Section 6.2. All amounts recovered in any enforcement action brought by
Licensor, whether by judgment or settlement, shall be retained by Licensor;
provided, however, that any such recovery by Licensor in excess of costs and
expenses shall be applied against the Minimum Royalties otherwise payable by
Licensee to Licensor. All amounts recovered by Licensee in any enforcement
action brought by Licensee or its sublicensees for a period equivalent to the
period of infringement, whether by judgment or settlement, shall be applied
first in satisfaction of any costs and expenses incurred by Licensee in such
action, then against the Minimum Royalties otherwise payable by Licensee for a
period equivalent to the period of infringement, and the balance, if any, shall
be divided equally between Licensor and Licensee. The Licensee acknowledges
that MIT has retained the right to prosecute all infringements of the MIT
Technology and any recovery in an action brought by MIT shall be retained by MIT
with no credit toward Minimum Royalties.
6.4 Other. The Licensee and Licensor shall fully cooperate
-----
<PAGE>
with each other in the planning and execution of any enforcement action.
Neither the Licensee, its sublicensees nor the Licensor shall enter into any
settlement that includes the grant of a license under, agreement not to enforce,
or any statement prejudicial to the validity or enforceability of any Technology
or this Agreement without the prior written consent of the other.
6.5 Declaratory Actions. In the event that a declaratory judgment action
-------------------
alleging invalidity or non-infringement of any of the Technology shall be
brought against the Licensee, either Licensor or MIT, at its option, shall have
the right, within thirty (30) days after commencement of such action, to
intervene and take over the sole defense of that action at its expense subject
to the aforesaid Section 6.4 of this Article VI.
SECTION VII -- INDEMNIFICATION
- ------------------------------
7.1 Indemnification.
---------------
(a) Licensor agrees to indemnify and hold harmless the Licensee, its
sublicensees, subcontractors, representatives, agents, employees, officers
and directors, successors and assigns from and against any and all
liabilities, losses, damages, claims, suits and expenses, including
reasonable legal fees and costs and all liabilities of whatsoever kind or
nature imposed on, incurred by, or asserted against the Licensee, its
sublicensees, subcontractors, representatives, agents, employees, officers
and directors, successors and assigns relating to or arising out of defects
in the Technology or any failure of the Licensor to perform or comply with
the terms of this Agreement, including without implied limitation any
breach of the representations and warranties of the Licensor and its
General Partners and their Affiliated Persons contained herein. Without
limiting the foregoing or any other rights or remedies available to
Licensee in law or equity, in the event the Technology is likely to become,
in Licensor's opinion, or does become, the subject of a claim, suit,
proceeding or action of infringement or misappropriation of a patent,
copyright, trade secret, or trademarks, Licensor shall, at its expense,
perform one of the following at its discretion:
(i) replace the Technology with compatible, functionally equivalent non-
infringing Technology;
(ii) modify the Technology to make it non-infringing without impairing
Licensee's ability to produce its products and systems as intended,
such modifications shall be subject to Licensee's approval, which
approval shall not be unreasonably withheld;
(iii) procure, at no increased cost to Licensee, the right of Licensee to
continue using the Technology; or
<PAGE>
(iv) if none of the foregoing alternatives are reasonably available to
Licensor, then Licensor will immediately refund any monies paid by Licensee
pursuant to and in reliance on this Agreement relating to the stand alone
version of the Technology which gave rise to the infringement. For example, if
Versions 1.1 and 1.2 of the software included in Technology have been non-
infringing, but Version 1.3 is infringing, Licensor will refund pursuant to
clause (iv) only monies paid by Licensee to Licensor with respect to Version
1.3.
(b) Right of Set-Off. In addition to the foregoing, the Licensor acknowledges
----------------
and agrees that the Licensee shall have the right of set off against any
Royalties or any other monies due and owing to Licensor under the terms of
this Agreement in the event the Licensee is entitled to seek
indemnification pursuant to Section 7.1. Nothing in this Section VII shall
be construed to limit any other rights or remedies which are available in
law or in equity to Licensee.
SECTION VIII - PRODUCT LIABILITY
- --------------------------------
8.1 Licensee shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold Licensor, MIT, and their respective
trustees, directors, officers, employees and affiliates, harmless against all
claims, proceedings, demands and liabilities of any kind whatsoever, including
reasonable legal expenses and reasonable attorneys' fees, arising out of the
death of or injury to any person or persons or out of any damage to property,
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of a product utilizing the Technology or arising from any
obligation of Licensee hereunder, except that this indemnification shall not
apply to claims that the Technology infringes third party intellectual property
rights. Notwithstanding the foregoing, Licensee's obligation to indemnify the
Licensor as previously stated, shall be further limited to claims, proceedings,
demands and liabilities arising solely out of acts or omissions of Licensee.
8.2 Licensee shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect Licensee, Licensor and MIT with
respect to events covered by Section 8.1 above. Such insurance shall be written
by a reputable insurance company authorized to do business in the Commonwealth
of Massachusetts, shall list Licensor and MIT as an additional named insured
thereunder, shall be endorsed to include product liability coverage and shall
require thirty (30) days written notice to be given to MIT and Licensor prior to
any cancellation or material change thereof. The limits of such insurance shall
not be less than One Million Dollars ($1,000,000.00) per occurrence with an
aggregate of Three Million Dollars ($3,000.000.00) for personal injury or death,
and One Million Dollars ($1,000,000.00) per occurrence with an aggregate of
Three Million Dollars
<PAGE>
($3,000,000.00) for property damage. Licensee shall provide Licensor with
Certificates of Insurance evidencing the same, and Licensor shall, in turn,
provide MIT with a copy of the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR,
ITS PARTNERS AND THEIR DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OR MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
SECTIONS 3.2(d) AND 7.1, LICENSOR MAKES NO REPRESENTATION OR WARRANTY THAT THE
PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE
PATENT RIGHTS OF ANY THIRD PARTY.
8.4 IN NO EVENT SHALL LICENSOR, ITS PARTNERS, LICENSEE AND THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR
INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER LICENSOR OR LICENSEE
SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE
POSSIBILITY.
SECTION IX - MARKINGS.
- ---------------------
9.1 Licensee agrees to mark all products utilizing the Technology sold in
the United States with all applicable United States patent numbers of which is
has been informed of by Licensor. In addition, any copy of software utilizing
the following copyrights included in the Technology shall include the following
notices: "Copyright 1992, Massachusetts Institute of Technology. All Rights
Reserved" or "(C) 1992, M.I.T. All Rights Reserved" and "Copyright 1993, 1994,
Facia Reco Associates Limited Partnership."
SECTION X - EXPORT CONTROLS.
- ---------------------------
10.1 It is understood that Licensor and MIT are each subject to United
States laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities (including the Arms Export
Control Act, as amended, and the Export Administration Act of 1979), and that
each's obligations hereunder are contingent on compliance with application
United States export laws and regulations. The transfer of certain technical
data and commodities may require a license from the cognizant agency of the
United States Government and/or written assurances by Licensee that Licensee
shall not export data or commodities to certain foreign countries without prior
approval of such agency. Licensor and MIT neither represents that a license
shall be required nor that, if required, it shall be issued.
<PAGE>
SECTION XI - NON-USE OF NAMES.
-----------------------------
11.1 Licensee shall not use the names or trademarks of the Massachusetts
Institute of Technology or Lincoln Laboratory, nor any adaptation thereof, nor
the names of any of their employees, in any advertising, promotional or sales
literature without prior written consent obtained from MIT, or said employee, in
each case, except that Licensee may state that it is sub-licensed under one or
more of the patents and/or applications comprising the Technology.
SECTION XII - TERM AND TERMINATION.
- ----------------------------------
12.1 General. This Agreement shall continue in full force and effect
-------
until the termination of the last remaining license to Licensor for the MIT
Technology, including any extensions thereof, unless sooner terminated pursuant
to either Section 12.2 or 12.3 below.
12.2 Termination by the Licensor. The Licensor shall have the right to
---------------------------
terminate this Agreement, effective immediately, upon written notice of
termination to the Licensee in the event that:
(a) The Licensee shall (i) seek the liquidation, reorganization, dissolution or
winding-up of itself, (ii) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its assets, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a
voluntary case under the bankruptcy laws of the United States, or (v) file
a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts; or
(b) a proceeding or case shall be commenced without the application or consent
of the Licensee and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the following
shall be entered and continue unstayed and in effect, for a period of
ninety (90) days from and after the date service of process is effected
upon the Licensee, seeking (i) the Licensee's liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of the Licensee or of all or any substantial part of its assets, or
(iii) similar relief in respect of the Licensee under any law relating to
bankruptcy, insolvency, reorganization, winding-up or the composition or
readjustment of debts; or
(c) any material breach by Licensee of the terms of this Agreement, including
without limitation, the monetary obligations contained herein, which
material breach is not cured within thirty (30) days of Licensor's notice
thereof.
<PAGE>
12.3 Termination by the Licensee. The Licensee shall have the right to
---------------------------
terminate this Agreement, effective immediately, upon written notice of
termination to Licensor in the event that:
(a) Either Licensor shall (i) seek the liquidation, reorganization, dissolution
or winding-up of itself, (ii) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator
or the like of itself or of all or a substantial part of its assets, (iii)
make a general assignment for the benefit of its creditors, (iv) commence a
voluntary case under the applicable bankruptcy laws (v) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or readjustment of
debts, or (vi) adopt any resolution of its partners for the purpose of
effecting any of the foregoing; or
(b) a proceeding or case shall be commenced without the application or consent
of either Licensor and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the following
shall be entered and continue unstayed and in effect, for a period of
ninety (90) days from and after the date service of process is effected
upon the Licensor, seeking (i) either Licensor's liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment or its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of either Licensor or of all of any
substantial part of its assets, or (iii) similar relief in respect of
either Licensor under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts; or
(c) any material breach by Licensor of the terms of this Agreement, including
without limitation, the representations and warranties contained herein
which breach is not cured within thirty (30) days of Licensee's notice
thereof; or
(d) immediately upon the delivery of written notice of termination by Licensee
to Licensor.
12.4 Survival.
--------
(a) In the event of the expiration of the term of this Agreement or any
termination of this Agreement by either Licensor or Licensee, the following
shall survive termination and continue to be binding on parties: (1)
Licensee shall be obligated to pay Licensor all Royalties or other amounts
due and payable to Licensor due and owing as of the termination date; (2)
the provisions of Sections V (proprietary information), VII
(indemnification), VIII (product liability), X (export control), XI (non-
use of names) and this Section 12.4; and (3) any sublicense to an End User
of products previously granted by Licensee or its sublicensees.
<PAGE>
(b) In addition to the foregoing, upon the expiration of this Agreement under
Section 12.1 or any termination by Licensee for the reasons identified in
Section 12.3 (a), (b) or (c), Licensor acknowledges that the license granted to
Licensee under this Agreement shall continue with respect to all Technology
which is owned or controlled by Licensor as of the date of said termination
date; provided, however, such license shall henceforth be deemed to be a paid-
up, royalty-free, irrevocable, perpetual license. Except as set forth in
Section 12.4(a) above, Licensee shall have no further rights or obligations with
respect to the Technology if Licensee elects to terminate this Agreement
pursuant to Section 12.3(d).
SECTION XIII - CONDITIONS PRECEDENT TO LICENSEE'S OBLIGATIONS.
- -------------------------------------------------------------
13.1 It shall be a condition precedent to Licensee's obligations hereunder
that:
(a) Licensor shall have delivered to Licensee a copy of the side letter from
Dr. Alex P. Pentland to Massachusetts Institute of Technology, attached hereto
as Exhibit B, duly executed by each of said parties (the "1996 MIT Side
Letter"); and
(b) Licensor shall have delivered to Licensee the Agreement between Licensor,
Cogito, Inc. Dr. Alex P. Pentland, Lau Acquisition Corp. and Licensee, attached
hereto as Exhibit C, duly executed by each of the parties thereto (the "Five
Party Agreement").
SECTION XIV - MISCELLANEOUS.
- ---------------------------
14.1 Force Majeure. In the event that any party is unable to perform any
-------------
of its obligations under this Agreement because of natural disaster, actions or
decrees of governmental bodies or electrical, communication or delivery failure
not the fault of the affected party (hereafter referred to as a "Force Majeure
Event"), the party who has been so affected shall immediately give notice to the
other party and shall do everything possible to resume performance. Upon
receipt of such notice, all obligations under this Agreement shall be
immediately suspended. If the period of nonperformance exceeds fifteen (15)
days from the receipt of notice of the Force Majeure Event, the party whose
ability to perform has not been so affected may by giving notice terminate this
Agreement.
14.2 Further Assistance. Each party agrees to duly execute and deliver, or
------------------
cause to be duly executed and delivered, such further instruments and do and
cause to be done such further acts and things, including, without limitation,
the filing of such additional assignments, agreements, documents and
instruments, that may be necessary or as the other party hereto may at any time
and from time to time reasonably request in connection with this Agreement or to
carry out effectually the provisions and purposes
<PAGE>
of, or to better assure and confirm unto such other party its rights and
remedies under, this Agreement.
14.3 Notice. All notices, including approvals, that any party hereto is
------
required or may desire to give to the other shall be in writing and shall be
given by addressing the same to the other at the address or facsimile number set
forth in this Section, or at such other address or facsimile number as either
may specify in writing to the other. All notices shall become effective when
deposited in the United States Mail with proper postage for first class
registered or certified air mail prepaid, return receipt requested, or when
delivered personally, or, if promptly confirmed by mail as provided above, when
dispatched by telegram, telex, facsimile or other written telecommunications,
addressed:
If to the Licensee: Viisage Technology, Inc.
531 Main Street
Acton, MA 01720
Attn: President
Telephone: (508) 263-8365
Telecopier: (508) 263-3358
With a copy to: Finnegan, Hickey, Dinsmoor
& Johnson, P.C.
20 Beacon Street
Boston, MA 02108
Attn: Charles J. Johnson, Esq.
Telephone: (617) 523-2500
Telecopier: (617) 523-2502
If to Licensor: Facia Reco Associates
Limited Partnership
393 Totten Pond Road, Suite 201
Waltham, MA 02154
Attention: Victor Colantonio
Telephone: (617) 890-8402
Telecopier: (617) 890-8404
With a copy to: Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110-1832
Attn: Maurice L. Zilber, Esq.
Telephone: (617) 345-1000
Telecopier: (617) 345-1300
14.4 Waiver. No failure on the part of the either party to exercise, and
------
no delay in exercising, any right, remedy, power or privilege hereunder, and no
course of dealing between the parties, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise thereof, or the exercise of any other
right, remedy, power or privilege.
14.5 Assignment. Neither party may assign this Agreement or
----------
<PAGE>
any rights or obligations hereunder except as expressly set forth in this
Agreement, provided, however, that either party may fully assign its rights and
-------- -------
interests, and delegate its obligations, hereunder, effective upon written
notice thereof (a) to an entity controlled by such party if such entity assumes
all of the obligations of such party hereunder and this Agreement remains
binding upon such party; or (b) to any entity which acquires all or
substantially all of the assets of either party or which is the surviving entity
in a merger or consolidation with such party, if such entity assumes all of the
obligations of the assigning party hereunder; or (c) Licensee may assign its
rights and interests and delegate its obligations hereunder to Lau or any of
Lau's affiliates, if such entity assumes all of the obligations of the assigning
party hereunder; provided that in either case, the non-assigning party has not
objected to any such assignment within ten (10) days of notice of such proposed
assignment including the identity of the proposed assignee, provided that any
such objection must be for reasonable and verifiable commercial factors; for
example, the proposed assignee controls a twenty percent (20%) or greater market
share of the market in which the assigning party competes.
14.6 Entire Agreement. This Agreement together with the 1996 MIT Side
----------------
Letter and the Five Party Agreement set forth the entire understanding of the
parties with respect to their subject matter.
14.7 No Modification. This Agreement may be changed only by a writing
---------------
signed by duly-authorized representatives of both parties hereto.
14.8 Severability. In the event that any one or more of the provisions
------------
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein, unless the deletion of such provision or provisions
would result in such a material change so as to cause completion of the
transactions contemplated herein to be unreasonable.
14.9 Succession. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto and their respective successors and other
legal representatives and, to the extent that any assignment hereof is permitted
hereunder, their assignees.
14.10 Applicable Law; Dispute Resolution.
----------------------------------
(a) This Agreement shall in all events and for all purposes be governed by,
construed in accordance with, the law of The Commonwealth of Massachusetts
without regard to any choice of law principle that would dictate the
application of the law of another jurisdiction.
<PAGE>
(b) Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm,
any and all claims, disputes or controversies arising under, out of, or in
connection with the Agreement, including any dispute relating to patent validity
or infringement, which the parties shall be unable to resolve within sixty (60)
days shall be mediated in good faith. The party raising such dispute shall
promptly advise the other party of such claim, dispute or controversy in a
writing which describes in reasonable detail the nature of such dispute. By not
later than five (5) business days after the recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the authority to bind such party, and shall additionally have advised the
other party in writing of the name and title of such representative. By not
later than ten (10) business days after the date of such notice of dispute, the
party against whom the dispute shall be raised shall select a mediation firm in
the Boston area and such representatives shall schedule a date with such firm
for a mediation hearing. The parties shall enter into good faith mediation and
shall share the costs equally. If the representatives of the parties have not
been able to resolve the dispute within fifteen (15) days after such mediation
hearing, the parties shall have the right to pursue any other remedies legally
available to resolve such dispute in either the Courts of the Commonwealth of
Massachusetts or in the United States District Court for the District of
Massachusetts, to whose jurisdiction for such purposes Licensor and Licensee
each hereby irrevocably consents and submits.
(c) Notwithstanding the foregoing, nothing in this Article shall be construed
to waive any rights or timely performance of any obligations existing under
this Agreement.
14.11 Counterparts. This Agreement may be executed in counterparts. Each
------------
counterpart, including a signature page executed by each of the parties hereto,
shall be an original counterpart of this Agreement, but all of such counterparts
together shall constitute one instrument.
14.12 Effective Date of this Agreement. This Agreement shall take effect
--------------------------------
when Lau Acquisition Corp. ("Lau") transfers its Viisage Technology Division to
Licensee and Licensee provides Licensor with written notice of the consummation
of such transaction. Pursuant to an asset transfer agreement between the
Licensee and Lau, that transfer will occur at 10 a.m. (eastern time) on the day
to which Licensee requests, pursuant to Rule 461 under the Securities Act of
1933, as amended, acceleration of the effectiveness of the registration
statement filed by Licensee with the Securities and Exchange Commission in
connection with Licensee's initial public offering.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date set forth in the preamble
hereto.
VIISAGE TECHNOLOGY, INC.
By: /s/ Robert C. Hughes
--------------------------
Title: President
-----------------------
FACIA RECO ASSOCIATES
LIMITED PARTNERSHIP
By its General Partners:
Cogito, Inc.
By: /s/ Alexander Pentland
____________________________
Title: President
________________________
Facia Reco, Inc.
By: /s/ Victor Colantonio
___________________________
Title: President
________________________
APPROVED AND AGREED TO WITH
REGARD TO SECTIONS 2 AND 3.2:
Cogito, Inc.
By: /s/ Alexander Pentland
___________________________
Title: President
________________________
Facia Reco, Inc.
By: /s/ Victor Colantonio
___________________________
Title: President
________________________
<PAGE>
EXHIBIT A
1. Copyright 1993, 1994, Facia Reco Associates, Limited Partnership for
computer software entitled, "Sherlock Face Recognition Software" - DOS and
Windows Versions based upon M.I.T. Case 5404, 'A Face Recognition System'
by Matthew A. Turk and Alex P. Pentland, and related Documentation.
2. All "Patent Rights" licensed by Massachusetts Institute of Technology to
Facia Reco Associates Limited Partnership pursuant to that certain Patent
License Agreement dated as of July 5, 1994, as amended, pursuant to which
"Patent Rights" shall mean all of the following MIT intellectual property:
a. the United States and/or patent application listed below (the "United
States Patent Rights"):
M.I.T. Case No. 5404
Title: "A Face Recognition System"
U.S.S.N. 608,000 or U.S.P.N. 5,164,992
By: Matthew A. Turk and Alex P. Pentland
Filed on November 11, 1990
b. United States Patents issued from the applications listed in the
United States Patent Rights and from divisionals and continuations of
these applications;
c. claims of U.S. continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically described
in the U.S. applications listed in the United States Patent Rights;
and
d. any reissues including without limitation any broadening reissues of
United States patents described in a, b or c above.
e. the Foreign patent applications (including European Patent Application
No. 9290003348.1 designating Austria, Belgium, France, Germany, Italy,
Luxembourg, The Netherlands, Sweden, Switzerland, and the United
Kingdom), and divisionals, continuations and claims of continuation-
in-part applications which shall be directed to subject matter
specifically described in such Foreign patent applications, and the
resulting patents;
f. Foreign patent divisionals, continuations and claims of continuation-
in-part applications which shall be directed to subject matter
specifically described in such patent applications, and the resulting
patents; and
g. any Foreign patents, resulting from equivalent Foreign
procedures to United States reissues and reexaminations, of the
Foreign patents described in e. and f. above.
<PAGE>
3. Copyright 1992, Massachusetts Institute of Technology for computer software
entitled "Image Similarity Software," and related Documentation, described
in MIT Case No. 5929ST, "Image Similarity Software," by Alex P. Pentland,
as existing on April 16, 1992 and described in Appendix A to that certain
Agreement between Massachusetts Institute of Technology and Dr. Alex P.
Pentland dated June 1, 1992.
4. All derivatives to any of the foregoing made by or on behalf of Licensor,
its General Partners and/or Affiliated Persons (as that term is defined in
the Facia Reco Associates Limited Partnership Certificate and Agreement of
Limited Partnership dated October 27, 1992), on or before November 21,
1994.
<PAGE>
EXHIBIT 10.8
VIISAGE TECHNOLOGY, INC.
1996 MANAGEMENT STOCK OPTION PLAN
---------------------------------
Section 1 -- Purpose
The Purpose of this Plan is to advance the interest of Viisage Technology,
Inc. (the "Company"), a Delaware corporation, by providing an opportunity to
selected officers and employees of the Company to purchase common stock of the
Company. By encouraging such stock ownership, the Company and its parent seek
to attract, retain and motivate officers and employees. It is intended that
this purpose will be effected by issuance of nonqualified stock options
("nonqualified options") and incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("incentive options").
Section 2 -- Effective Date
The Plan became effective as of June 17, 1996, the date as of which it was
adopted by the Board of Directors of the Company (the "Effective Date"),
provided that, with respect to incentive options, the Plan is approved by the
shareholders of the Company within one year of that date. (If such approval is
not obtained, the Plan shall be effective only for the purpose of issuing
nonqualified options, and although incentive options may be issued before
Shareholder approval is obtained, no incentive option may be exercised until
such approval is obtained or one year has elapsed from the Effective Date, and
such incentive options will be treated as nonqualified options if such approval
is not obtained.)
Section 3 -- Stock Subject to the Plan
Options issued under this Plan shall be exercisable for the Company's
common stock. The number of shares that may be issued under this Plan shall not
exceed in the aggregate one million three hundred fifty-six thousand one hundred
(1,356,100) shares of the common stock, $.001 par value, of the Company (the
"Shares") authorized on the Effective Date, subject to adjustment as provided in
Sections 9 and 10 below. Any Shares subject to an option which for any reason
expires or is terminated as to such Shares may again be the subject of an option
under this Plan. In addition, any Shares purchased by an optionee upon exercise
of an option under this Plan that are subsequently repurchased by the Company
pursuant to the terms of such option, and Shares tendered as payment for Shares
upon exercise of an option under this Plan, may again be the subject of an
option under the Plan. The Shares delivered upon exercise of options under this
Plan may, in whole or in part, be either authorized but unissued Shares or
issued Shares reacquired by the Company.
Section 4 -- Administration
This Plan shall be administered by a committee of two or more non-employee
members of the Board of Directors of the Company appointed by the Board (the
"Committee"), each of whom meets any applicable requirements under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision, as applicable to the Company at the time ("Rule 16b-
3"). Subject to the provisions of the Plan, the Committee
<PAGE>
shall have full power to construe and interpret the Plan and to establish, amend
and rescind rules and regulations for its administration. Any decisions made
with respect thereto shall be final and binding on the Company, the optionee and
all other persons. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan.
Section 5 -- Eligible Participants
Incentive options may be issued to such management employees of the Company
as are selected by the Committee. Nonqualified options may be issued to such
officers or management employees of the Company as are selected by the
Committee. Options under this Plan may not be issued to members of the Board of
Directors of the Company. No employee may be granted options to acquire, in the
aggregate, more than 1,337,000 Shares under the Plan (subject to adjustment as
provided in Sections 9 and 10 below) during any fiscal year of the Company. If
any option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part or shall be repurchased by the Company, the
Shares subject to such option shall be included in the determination of the
aggregate number of Shares deemed to have been granted to such employee under
the Plan.
Section 6 -- Duration of the Plan
This Plan shall remain in effect indefinitely, unless terminated earlier
pursuant to Paragraph 14 hereof, provided no incentive options may be issued
after the tenth anniversary of the Effective Date. Options that are issued on
or before the date of this Plan's termination shall remain exercisable in
accordance with their respective terms after the termination of the Plan.
Section 7 -- Restriction on Incentive Options
Incentive options (but not nonqualified options) issued under this Plan
shall be subject to the following restrictions:
(a) Limitation on Number of Shares. To the extent that the aggregate fair
market value, determined as of the date the incentive option is issued, of the
Shares with respect to which incentive options are exercisable for the first
time by an employee during any calendar year exceeds $100,000 (the "$100,000
limitation"), the portion of such option which is exercisable in excess of such
$100,000 limitation shall be treated as a nonqualified option. In the event
that an employee is eligible to participate in any other incentive stock option
plan of the Company intended to comply with the provisions of Section 422 of the
Code, the $100,000 limitation shall apply to the aggregate number of Shares for
which incentive stock options may be issued under all such plans.
(b) 10% Stockholder. If any employee to whom an incentive option is issued
-2-
<PAGE>
pursuant to the provisions of the Plan is on the date of issuance the owner of
stock (as determined under Section 424 (d) of the Code) possessing more than 10%
of the total combined voting power of all classes of stock of the Company or any
of its subsidiaries, then the following special provisions shall be applicable
to the incentive option issued to such individual:
(i) The option price per share subject to such incentive option shall not
be less than 110% of the fair market value of one share on the date of
issuance; and
(ii) The incentive option shall not have a term in excess of five (5) years
from the date of issuance.
Section 8 -- Terms and Conditions of Options
Options issued under this Plan shall be evidenced by written instruments in
such form not inconsistent with this Plan as the Committee shall approve from
time to time, which instruments shall evidence the following terms and
conditions, and such other terms and conditions (which need not be the same in
different options) not inconsistent with the Plan as the Committee may approve
from time to time:
(a) Price. Subject to the conditions on incentive options in paragraph
7(b), if applicable, the purchase price per share of stock payable upon the
exercise of each incentive option issued hereunder shall be not less than one
hundred percent of the fair market value of the stock on the day the option is
issued. The purchase price per Share of stock payable upon exercise of each
nonqualified option issued hereunder shall be determined by the Committee. Fair
market value shall be determined in accordance with procedures to be established
in good faith by the Committee and, with respect to incentive options,
conforming to regulations issued by the Internal Revenue Service with regard to
incentive stock options.
(b) Number of Shares. Each option agreement shall specify the number of
Shares to which it pertains.
(c) Exercise of Options. Subject to the conditions on incentive options
in subparagraph (b)(ii) of Paragraph 7, if applicable, each option shall be
exercisable for the full amount or for any part thereof and at such intervals or
in such installments, with acceleration based on such events, as the Committee
may determine at the time it issues such option, provided that no incentive
--------
option shall be exercisable with respect to any Shares later than ten (10) years
after the date of the issuance of such option.
(d) Notice of Exercise and Payment. An option shall be exercisable only by
delivery of a written notice to the Company's Treasurer or any other officer of
the Company designated by the Committee to accept such notices on its behalf,
specifying the number of Shares for which it is exercised. If said Shares are
not at that time effectively registered under the Securities Act of 1933, as
amended, the optionee shall include with such notice a letter, in form
-3-
<PAGE>
and substance satisfactory to the Company, confirming that the Shares are being
purchased for the optionee's own account for investment and not with a view to
distribution. Payment shall be made in full at the time the option is
exercised. Payment shall be made by (i) cash; (ii) by check; (iii) if permitted
by vote of the Committee and stated in the Option agreement, subject to Section
13(c) below, by delivery and assignment to the Company of Shares previously
owned by the optionee for more than six months and having a value equal to the
Option price; (iv) if permitted by vote of the Committee and stated in the
Option agreement (and if permitted by applicable law), through the delivery of
an assignment to the Company of a sufficient amount of the proceeds from the
sale of unrestricted Shares acquired upon exercise to pay for all of the Shares
so acquired and any tax withholding obligation resulting from such exercise, and
an authorization to the broker or selling agent to pay that amount to the
Corporation; or (v) by a combination of (i), (ii), (iii) and (iv). The value of
the Company stock for purposes of the foregoing clause (iii) shall be its fair
market value as of the date the Option is exercised, as determined in accordance
with procedures to be established by the Committee.
(e) Withholding Taxes; Delivery of Shares. The Company's obligation to
deliver Shares upon exercise of an option, in whole or in part, shall be subject
to the optionee's satisfaction of all applicable federal, state and local income
and employment act withholding obligations. If permitted by vote of the
Committee and stated in the stock option agreement, subject to Section 13(c)
below, the optionee may satisfy the obligation, in whole or in part, (i) by
electing to have Shares withheld having a value equal to the amount to be so
satisfied (but not in an amount exceeding the minimum statutory withholding
requirement applicable to such exercise), or (ii) by delivery and assignment to
the Company of Shares previously owned by the optionee having a value equal to
the amount to be so satisfied (but unless such Shares have been owned by the
optionee for more than six months, not in an amount exceeding the minimum
statutory withholding requirement applicable to such exercise). The value of
Shares to be withheld or assigned shall be determined based on the fair market
value of the Shares on the date the amount of tax to be withheld is to be
determined.
(f) Termination of Options. Each option shall terminate and may no longer
be exercised if the optionee ceases for any reason to perform services as an
employee (or in the case of nonqualified options, as an officer or employee),
unless otherwise provided in the optionee's option agreement; provided, however,
that no option may be exercised to any extent by anyone after the date of
expiration of the option.
(g) Rights as Shareholder. The optionee shall have no rights as a
shareholder with respect to any Share covered by this option until the purchase
thereof.
(h) Non-Transferability. No option shall be transferable by the optionee
otherwise than by will or the laws of descent or distribution, and each option
shall be exercisable during the optionee's lifetime only by the optionee.
Notwithstanding the foregoing (but in the case of an optionee that is subject to
Section 16 of the Exchange Act, only to the extent consistent with the
requirements of Rule 16b-3 or other rules under Section 16 of the Exchange Act,
and in the case of an incentive option, only if then permitted for incentive
options under the Code
-4-
<PAGE>
and applicable regulations and rulings), such option may be transferred pursuant
to an order that would constitute a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder.
(i) Repurchase of Shares by the Company. Any Shares purchased by an
optionee upon exercise of an option may in the discretion of the Committee be
subject to repurchase by the Company if and to the extent specifically set forth
in the option agreement pursuant to which the Shares were purchased.
(j) The instruments evidencing options may be in the form of agreements to
be executed by both the optionee and the Company or certificates, letters or
similar instruments, which need not be executed by the optionee but acceptance
of which will evidence agreement to the terms of the issuance.
Section 9 -- Stock Dividends; Stock Splits; Stock Combinations;
Recapitalization.
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Company's common stock other than
normal cash dividends, automatic adjustment shall be made in the number and kind
of shares as to which outstanding options or portions thereof then unexercised
shall be exercisable and in the available shares set forth in Section 3 hereof,
to the end that the proportionate interest of the option holder shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options and with a corresponding adjustment
in the option price per share. Automatic adjustment shall also be made in the
number and kind of shares subject to options subsequently issued under the Plan.
Section 10 -- Merger; Sale of Assets; Dissolution
In the event of a change of the Company's common stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, or the formation of a holding company, the number and kind of
shares which thereafter may be optioned and sold under the Plan and the number
and kind of shares then subject to options issued hereunder or portions thereof
then unexercised and the price per share thereof shall be appropriately adjusted
by the Committee to prevent substantial dilution or enlargement of the rights
available or granted hereunder. If the Company shall be a party to a merger or
a similar reorganization after which the Company will not survive, or if there
will be a sale of substantially all the common stock of the Company or a sale of
all or substantially all of the assets of the Company, the Committee, in its
discretion, may declare (a) that all outstanding options issued hereunder are to
be terminated after giving at least 30 days' notice to holders of outstanding
options (but if the Committee determines that 30 days' notice would be
disruptive to the reorganization transaction with respect to which such notice
is given, then the Committee may give such shorter notice as the circumstances
reasonably require, but in no event less than 10 days), (b) that any outstanding
option issued hereunder shall pertain to and apply, with
-5-
<PAGE>
appropriate adjustments as determined by the Committee, to the securities of the
resulting corporation to which a holder of the number of Shares subject to the
option would have been entitled, or (c) that the Company or resulting
corporation will purchase all outstanding options issued hereunder from the
optionees at a price per Share as to which the option is outstanding,
unexercised and vested equal to the difference between the price at which Shares
of the Company are to be purchased or exchanged in the transaction and the
option price stated in the option agreement.
Section 11 -- Certain Definitions
(a) The term "employee" shall have, for purposes of the Plan, the meaning
ascribed to it under Section 3401(c) of the Code and the regulations promulgated
thereunder.
(b) the term "option", unless otherwise indicated, means either an
incentive option or a nonqualified option.
(c) the term "optionee" means an officer or employee to whom an option is
issued under this Plan.
Section 12 -- Reload Options
Concurrently with the award of incentive options and nonqualified options
under this Plan, the Committee may authorize reload options ("Reload Options")
to purchase the number of Shares which equals, to the extent authorized by the
Committee, the number of Shares previously owned by the optionee for more than
six months that are delivered and assigned to the Company in payment of the
exercise price of such underlying option or in payment of the optionee's
withholding tax obligation arising from the exercise of such underlying option.
The issuance of a Reload Option shall become effective upon the exercise of such
underlying option. Despite the fact that the underlying option may be an
incentive option, a Reload Option is not intended to qualify as an "incentive
stock option" under Section 422 of the Code. The instrument evidencing each
option under this Plan for which Reload Options have been authorized by the
Committee shall state that Reload Options are authorized thereunder, and upon
exercise of such underlying option, the Reload Option shall be evidenced by an
amendment to the underlying option instrument. The option price per Share
deliverable upon the exercise of a Reload Option shall be the fair market value
per Share on the date the issuance of the Reload Option becomes effective, as
determined by the Committee. Each Reload Option is exercisable six months from
the effective date of its issuance. The term of each Reload Option shall be
equal to the remaining option term of the underlying incentive option or
nonqualified option with respect to which it was issued. No additional Reload
Options shall be issued to optionees when options are exercised following
termination of the optionee's employment, except to the extent otherwise
provided in an optionee's option agreement.
Section 13 -- Regulatory Compliance and Listing
-6-
<PAGE>
(a) The issuance or delivery of any Shares subject to exercisable Options
hereunder may be postponed by the Committee for such period as may be required
to comply with any applicable requirements under the Federal securities laws,
any applicable listing requirements of NASDAQ or any national securities
exchange or any requirements under any law or regulation applicable to the
issuance or delivery of such Shares. The Company shall not be obligated to issue
or deliver any such Shares if the issuance or delivery thereof would constitute
a violation of any provision of any law or of any applicable regulation of any
governmental authority, NASDAQ or any national securities exchange.
(b) Should any provision of this Plan require modification or be
unnecessary to comply with the requirements of Section 16 of the Exchange Act
and Rule 16b-3, subject, in the case of incentive options, to applicable
requirements for incentive options under the Code, the Committee may waive such
provision and/or amend this Plan to add to or modify the provisions hereof
accordingly.
(c) Any election made by an optionee then subject to Section 16 of the
Exchange Act to make payment of any portion of an option price with Shares or to
make payment of any portion of a tax withholding obligation with respect to an
option exercise with Shares or by withholding of Shares shall be subject to any
then-applicable requirements of Rule 16b-3 and other applicable rules under
Section 16 of the Exchange Act.
Section 14 -- Termination or Amendment of Plan
The Board of Directors shall have the right to amend, modify or terminate
the Plan at any time and from time to time; provided, however, that unless
required by law, no such amendment or modification shall (a) affect any right or
obligation with respect to any option theretofore issued; or (b) if this Plan
has been approved by the Company's stockholders, make any modification or
amendment affecting incentive options, for which stockholder approval is
required under the Code, unless such amendment or modification affecting
incentive options has been approved by the stockholders. In addition, no such
amendment or modification shall be made without previous approval by the
stockholders where such approval is necessary to satisfy, nor shall any
amendment or modification be made at a time when the same would violate, any
then-applicable requirements of federal securities laws (including without
limitation Rule 16b-3), the Code or rules of NASDAQ or any stock exchange on
which the Company's common stock is listed.
[jch/Vi-MOPla.829]
-7-
<PAGE>
EXHIBIT 10.9
VIISAGE TECHNOLOGY, INC.
1996 DIRECTORS STOCK OPTION PLAN
--------------------------------
Section 1 -- Purpose
The purpose of this 1996 Directors Stock Option Plan (the "Plan") is to
increase the proprietary interest of non-employee members of the Board of
Directors (the "Board") of Viisage Technology, Inc., a Delaware corporation (the
"Company"), in the continued success of the Company, and to provide them with an
incentive to continue to serve as directors. All options issued pursuant to the
Plan shall be nonstatutory options which are not intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
Section 2 -- Effective Date
The Plan became effective as of June 17, 1996, the date as of which it was
adopted by the Board (the "Effective Date").
Section 3 -- Stock Subject to the Plan
Options issued under this Plan shall be exercisable for the Company's
common stock. The number of shares that may be issued under this Plan shall not
exceed in the aggregate eighty-one thousand six hundred fifty (81,650) shares of
the common stock, $.001 par value, of the Company (the "Shares") authorized on
the Effective Date, subject to adjustment as provided in Sections 9 and 10
below. Any Shares subject to an option which for any reason expires or is
terminated as to such Shares may again be the subject of an option under this
Plan. In addition, any Shares purchased by an optionee upon exercise of an
option under this Plan that are subsequently repurchased by the Company pursuant
to the terms of such option, and Shares tendered as payment for Shares upon
exercise of an option under this Plan, may again be the subject of an option
under the Plan. The Shares delivered upon exercise of options under this Plan
may, in whole or in part, be either authorized but unissued Shares or issued
Shares reacquired by the Company.
Section 4 -- Administration
This Plan shall be administered by the Board. Subject to the provisions of
the Plan, the Board shall have full power to construe and interpret the Plan and
to establish, amend and rescind rules and regulations for its administration.
Any decisions made with respect thereto shall be final and binding on the
Company, the optionee and all other persons. No member of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan.
Section 5 -- Eligible Participants
For so long as Shares are available for issuance pursuant to the provisions
of this Plan, individuals who become directors of the Company and who are not
employees of the Company
<PAGE>
("Non-Employee Directors") shall be eligible to participate in the Plan. Each
Director to whom options are issued hereunder shall be a participant
("Participant") under the Plan.
Section 6 -- Duration of Plan
This Plan shall remain in effect until December 31, 1998, unless terminated
earlier pursuant to Paragraph 13 hereof. Options that are issued on or before
the date of this Plan's termination shall remain exercisable in accordance with
their respective terms after the termination of the Plan.
Section 7 -- Automatic Issuance of Options
For so long as a sufficient number of Shares are available under this Plan,
(i) each person who is a Non-Employee Director on the date when the Company
first shall have effectively registered Shares for public offering under the
Securities Act of 1933, as amended, upon the date when such registration becomes
effective, and (ii) each person who thereafter becomes a Non-Employee Director
and who has not already received an option under this Plan, upon the date of
such director's election or appointment as a director: shall receive
automatically, and without further action by the Board, an option to purchase
16,330 Shares in accordance with the provisions of Section 8, and subject to
adjustment as provided in Sections 9 and 10 below.
Section 8 -- Terms and Conditions of Options
Options issued under this Plan shall be evidenced by written instruments in
such form not inconsistent with this Plan as the Board shall approve from time
to time, which instruments shall evidence the following terms and conditions:
(a) Price. The exercise price of an option issued on or before the date
when the Company first shall have effectively registered Shares for public
offering under the Securities Act of 1933, as amended, shall be $2.96 per Share,
and the exercise price of an option issued after such date shall be 100% of the
fair market value per Share on the date the option is issued. For purposes of
the foregoing, "fair market value" of a share of stock on any date shall mean
the closing price on NASDAQ (or, if the Company's common stock is not traded on
NASDAQ, on the principal exchange on which the Company's stock then is publicly
traded) as of the date of issuance, or if the date of issuance is not a business
day, as of the last business day for which prices are available prior to the
date of issuance.
(b) Number of Shares. Each option agreement shall specify the number of
Shares to which it pertains, pursuant to Section 7.
(c) Vesting. Each option issued under the Plan shall vest and be
exercisable in accordance with the following schedule, subject to adjustment as
provided in Section 9 and 10 below: (i) the option shall be vested and
exercisable for 1,420 Shares upon the issuance of the
-2-
<PAGE>
option; and (ii) for so long as the Participant continues to be a director of
the Company on the applicable anniversary of Option issuance, the option shall
vest and become exercisable for an additional 4,970 Shares on each of the first,
second and third anniversaries of the date of issuance of the option. In the
event that the Participant ceases to be a director of the Company for any reason
prior to the time a Participant's option becomes fully exercisable, the option
will terminate with respect to the Shares as to which the option is not then
vested and exercisable and all rights of the Participant to such Shares shall
terminate without further obligation on the part of the Company. In the event
that the Participant ceases to be a director of the Company after his or her
option has become exercisable in whole or in part, such option shall remain
exercisable in whole or in part, as the case may be, in accordance with the
terms hereof.
(d) Notice of Exercise and Payment. An option shall be exercisable only
by delivery of a written notice to the Company's Treasurer or any other officer
of the Company designated by the Board to accept such notices on its behalf,
specifying the number of Shares for which it is exercised. If said Shares are
not at that time effectively registered under the Securities Act of 1933, as
amended, the optionee shall include with such notice a letter, in form and
substance satisfactory to the Company, confirming that the Shares are being
purchased for the optionee's own account for investment and not with a view to
distribution. Payment shall be made in full at the time the option is
exercised. Payment shall be made by (i) cash; (ii) by check; (iii) subject to
Section 12(c) hereof, by delivery and assignment to the Company of Shares
previously owned by the optionee for one year or more and having a value equal
to the Option price; (iv) if permitted by applicable law, through the delivery
of an assignment to the Company of a sufficient amount of the proceeds from the
sale of unrestricted Shares acquired upon exercise to pay for all of the Shares
so acquired and any tax withholding obligation resulting from such exercise, and
an authorization to the broker or selling agent to pay that amount to the
Corporation; or (v) by a combination of (i), (ii), (iii) and (iv). The value of
the Company stock for purposes of the foregoing clause (iii) shall be its fair
market value as of the date the Option is exercised, as determined in accordance
with procedures to be established by the Board.
(e) Expiration. Options issued under the Plan shall expire ten years from
the date on which the option is issued, unless terminated earlier in accordance
with the Plan; provided, however, that the vested portion of any unexpired
option in effect on the date of a Participant's death or disability shall expire
one year from the date of the Participant's death or disability (whether or not
this period ends after the stated expiration of the exercise period).
(f) Rights as Shareholder. No optionee shall have any rights as a
shareholder with respect to any Share covered by any option until the purchase
thereof.
(g) Non-Transferability. No option shall be transferable by the optionee
otherwise than by will or the laws of descent or distribution, and each option
shall be exercisable during the optionee's lifetime only by the optionee.
Notwithstanding the foregoing (but in the case of an optionee that is subject to
Section 16 of the Exchange Act, only to the extent consistent with the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the
-3-
<PAGE>
"Exchange Act"), or any successor provision, as applicable to the Company at the
time ("Rule 16b-3"), or other rules under Section 16 of the Exchange Act), such
option may be transferred pursuant to an order that would constitute a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder.
(h) The instruments evidencing options may be in the form of agreements to
be executed by both the optionee and the Company or certificates, letters or
similar instruments, which need not be executed by the optionee but acceptance
of which will evidence agreement to the terms of the issuance.
Section 9 -- Stock Dividends; Stock Splits; Stock Combinations; Recapitalization
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Company's common stock other than
normal cash dividends, automatic adjustment shall be made in the number and kind
of shares as to which outstanding options or portions thereof then unexercised
shall be exercisable and in the available shares set forth in Section 3 hereof,
to the end that the proportionate interest of the option holder shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options and with a corresponding adjustment
in the option price per share. Automatic adjustment shall also be made in the
number and kind of shares subject to options subsequently issued under the Plan.
Section 10 -- Merger; Sale of Assets; Dissolution
In the event of a change of the Company's common stock resulting from a
merger or similar reorganization as to which the Company is the surviving
corporation, or the formation of a holding company, the number and kind of
shares which thereafter may be optioned and sold under the Plan and the number
and kind of shares then subject to options issued hereunder or unexercised
portions thereof and the price per share thereof shall be appropriately adjusted
to the end that the proportionate interest of the option holder shall be
maintained as before the occurrence of such event. If the Company shall be a
party to a merger or a similar reorganization after which the Company will not
survive, or if there will be a sale of substantially all the common stock of the
Company or a sale of all or substantially all of the assets of the Company, then
to the extent permitted by Rule 16b-3, the options under this Plan automatically
shall be terminated, assumed by the successor corporation or repurchased by the
Company or its successor to the same extent, and on the same terms, as are
approved for options for the Company's Common Stock issued under the Company's
1996 Management Stock Option Plan or the then-existing successor plan thereto,
and otherwise will terminate upon such merger, reorganization or sale. Despite
the foregoing, no such adjustment shall be made which would, within the meaning
of any applicable provisions of the Internal Revenue Code of 1986, as amended,
constitute a modification, extension or renewal of any Option or a grant of
additional benefits to any optionee.
-4-
<PAGE>
Section 11 -- No Right to Reelection
Nothing in the Plan shall be deemed to create any obligation on the part of
the Board or standing Committee thereof to nominate any Director for reelection
by the Company's stockholders, nor confer upon any Director the right to remain
a member of the Board for any period of time, or at any particular rate of
compensation.
Section 12 -- Regulatory Compliance and Listing
(a) The issuance or delivery of any shares of stock subject to exercisable
Options hereunder may be postponed by the Board for such period as may be
required to comply with any applicable requirements under the Federal securities
laws, any applicable listing requirements of NASDAQ or any national securities
exchange or any requirements under any law or regulation applicable to the
issuance or delivery of such shares. The Company shall not be obligated to issue
or deliver any such shares if the issuance or delivery thereof would constitute
a violation of any provision of any law or of any applicable regulation of any
governmental authority, NASDAQ or any national securities exchange.
(b) Should any provision of this Plan require modification or be unnecessary
to comply with the requirements of Section 16 of and Rule 16b-3 under the 1934
Act, the Board may waive such provision and/or amend this Plan to add to or
modify the provisions hereof accordingly.
(c) Any election made by an optionee then subject to Section 16 of the
Exchange Act to make payment of any portion of an option price with Shares shall
be subject to any then-applicable requirements of Rule 16b-3 and other
applicable rules under Section 16 of the Exchange Act.
Section 13 -- Amendment and Termination
The Board shall have the right to amend, modify or terminate the Plan at
any time and from time to time; provided, however, that unless required by law,
no such amendment or modification shall affect any right or obligation with
respect to any option theretofore issued. In addition, no such amendment or
modification shall be made without previous approval by the stockholders where
such approval is necessary to satisfy, nor shall any amendment or modification
be made at a time when the same would violate, any then-applicable requirements
of federal securities laws (including without limitation Rule 16b-3), the Code
or rules of NASDAQ or any stock exchange on which the Company's common stock is
listed.
[jch\VI-DOPln.829]
-5-
<PAGE>
EXHIBIT 10.10
Option # _____ Shares
VIISAGE TECHNOLOGY, INC. -- STANDARD FORM
MANAGEMENT NONQUALIFIED STOCK OPTION CERTIFICATE AND AGREEMENT
Viisage Technology, Inc. (the "Company"), a Delaware corporation, pursuant
to its 1996 Management Stock Option Plan (the "Plan"), hereby issues to the
Optionholder named below an option to purchase the number of shares of Common
Stock, $.001 par value (the "Shares"), of the Company set forth below (the
"Option"), exercisable on the following terms and conditions:
Name of Optionholder: _______________________________
Address: _______________________________ Social Security No.:
_______________________________
_______________________________ ____________________
Number of Shares: ____________________ (________)
Option Price per Share: __________ Dollars ($__.__) U.S.
Date of Issuance: _____________, 1996
Exercise Schedule: The Option is exercisable for all Shares on or after
__________, 2003, subject to acceleration and earlier vesting as follows:
- -Benchmark Shares: Exercisable for a total of ___________ (________) Shares, in
increments at the rate of ________ (______) Shares (the
"Benchmark Rate") each, for each Benchmark Increment as
defined in and pursuant to Section 11 below.
- -Grant Shares: [Exercisable for _______________ (________) shares
immediately on or after Date of Issuance.] [-if none
scheduled, substitute "None" above-]
Expiration Date: ______________, 2006, subject to earlier termination as
provided below.
TRANSFER OF THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE ATTACHED TERMS
AND CONDITIONS.
By signing below, the Company and the Optionholder each agrees to the
foregoing and to the attached Management Stock Option Terms and Conditions,
which are incorporated herein by reference.
VIISAGE TECHNOLOGY, INC. OPTIONHOLDER
By: _____________________ __________________________
Title:
<PAGE>
VIISAGE TECHNOLOGY, INC.
MANAGEMENT STOCK OPTION AGREEMENT
Management Stock Option Terms and Conditions
--------------------------------------------
(Nonqualified)
1. Option Price. The price to be paid for each share of common stock
------------
of the Company, $.001 par value (each, a "Share"), issued upon exercise of the
whole or any part of this Option, is the Option Price per Share set forth on the
stock option certificate to which these terms and conditions have been attached
(the "Certificate").
2. Exercise Schedule. This Option may be exercised for the Number of
-----------------
Shares set forth on the Certificate as follows: (i) the Option may be exercised
with respect to the Grant Shares on or after the date of Option Issuance, and
(ii) the Option may be exercised with respect to the Benchmark Shares, at any
time and from time to time, on or after _______________, 2003, subject to
acceleration pursuant to Section 11 below, all as administered by the Committee
described in Section 10 below in its sole discretion. The Option may not be
exercised as to any Shares after the Expiration Date set forth on the
Certificate or after any earlier termination of the Option in accordance with
this Agreement.
3. Method and Terms of Exercise.
----------------------------
(a) Notice of Exercise. To exercise this Option, the Optionholder shall
deliver written notice of exercise to the Treasurer of the Company specifying
the number of shares with respect to which the Option is being exercised
accompanied by payment of the Option Price for such Shares.
(b) Payment. Payment shall be made by (i) cash; (ii) certified check,
(iii) if permitted by vote of the Committee, and subject to Section 3(f) hereof,
by delivery and assignment to the Company of Shares previously owned by the
Optionholder for more than six months or more and having a value equal to the
Option price; (iv) if permitted by vote of the Committee, and if permitted by
applicable law, through the delivery of an assignment to the Company of a
sufficient amount of the proceeds from the sale of unrestricted Shares acquired
upon exercise to pay for all of the Shares so acquired and any tax withholding
obligation resulting from such exercise, and an authorization to the broker or
selling agent to pay that amount to the Corporation; or (v) by a combination of
(i), (ii), (iii) and (iv). The value of the Company stock for purposes of the
foregoing clause (iii) shall be its fair market value as of the date the Option
is exercised, as determined in accordance with procedures to be established by
the Committee. Optionholder's election to request payment in any manner other
than that described in clause (i) or (ii) above shall be made in writing on or
before the applicable exercise date and (subject to approval by the Committee)
shall be irrevocable by the Optionholder, unless any such method of exercise
would result in a loss of exemption under or violate Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision, as applicable to the Company at the time ("Rule 16b-3").
(c) Reload Options. Reload Options, as defined in the Plan, have been
authorized with respect to this Option. Accordingly, (a) if any portion of this
Option is permitted to be exercised under Subsection 3(b)(iii) above or if any
withholding tax obligation is permitted to
<PAGE>
be paid under the second sentence of Section 9 below, in either case at a time
when Optionholder is employed by the Company, and (b) if the Option price or
such withholding tax is paid by assignment and delivery of Shares that have been
owned by Optionholder for a period of more than six months, then Reload Options
for the Shares so assigned and delivered shall be issued as provided in and
subject to the terms and conditions of the Plan.
(d) Delivery of Shares. Promptly following notice of exercise and payment,
the Company will deliver to the Optionholder a certificate representing the
number of Shares with respect to which the Option is being exercised.
(e) Compliance and Registration. If said Shares are not at that time
effectively registered under the Securities Act of 1933, as amended, the
Optionholder shall include with such notice a letter, in form and substance
satisfactory to the Company, confirming that the Shares are being purchased for
the Optionholder's own account for investment and not with a view to
distribution. The issuance or delivery of any Shares hereunder may be postponed
by the Committee for such period as may be required to comply with any
applicable requirements under the Federal securities laws, any applicable
listing requirements of NASDAQ or any national securities exchange or any
requirements under any law or regulation applicable to the issuance or delivery
of such Shares. The Company shall not be obligated to issue or deliver any such
Shares if the issuance or delivery thereof would constitute a violation of any
provision of any law or of any applicable regulation of any governmental
authority, NASDAQ or any national securities exchange; but the Company shall
exercise its reasonable efforts to cause the Shares that are the subject of the
Option to be effectively registered on Form S-8 under the Securities Act of
1933, as amended, within nine months after the date when Company has first
registered Shares on Form S-1 under said Securities Act, and for so long as the
Company shall continue to be registered under the Exchange Act, the Company
shall exercise its reasonable efforts to keep such registration in effect.
(f) Withheld Shares -- Rule 16b-3. Any election made by the Optionholder,
if then subject to Section 16 of the Exchange Act, to make payment of any
portion of a tax withholding obligation with respect to any Option exercise by
withholding or assignment of Shares or to make payment of any portion of an
exercise price by assignment of Shares shall be subject to any then-applicable
requirements of Rule 16b-3 and other applicable rules under Section 16 of the
Exchange Act.
4. Rights as a Stockholder or Employee. The Optionholder shall not
-----------------------------------
have any rights in respect of Shares to which the Option shall not have been
exercised and payment made as provided above. The Optionholder shall not have
any rights to continued employment by the Company or its affiliates by virtue of
the issuance of this Option.
5. Stock Dividends; Stock Splits; Recapitalization. In the event of
-----------------------------------------------
a stock dividend, stock split or combination of shares, recapitalization or
other change in the Company's capitalization, or other distribution with respect
to holders of the Company's common stock other than normal cash dividends,
automatic adjustment shall be made in the number and kind of shares as to which
the then unexercised portion of the Option shall be exercisable, to the end that
the proportionate interest of the Optionholder shall be maintained as before the
occurrence of such event. Such adjustment shall be made without change in the
total price
-3-
<PAGE>
applicable to the unexercised portion of the Option and with a corresponding
adjustment in the Option price per Share.
6. Merger; Sale of Assets; Dissolution. In the event of a change of
-----------------------------------
the Shares resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, or the formation of a holding company, the
Committee will adjust the number and kind of shares subject to this Option and
the exercise price hereunder to prevent substantial dilution or enlargement of
the rights available or granted hereunder. If the Company shall be a party to a
merger or a similar reorganization after which the Company will not survive, or
if there will be a sale of substantially all the Common Stock of the Company or
a sale of all or substantially all of the assets of the Company, the Committee,
in its discretion, may declare (a) that the Option shall terminate on a date not
less than 30 days after the date notice of such termination is given to the
holder hereof unless theretofore exercised (but if the Committee determines that
30 days' notice would be disruptive to the reorganization transaction with
respect to which such notice is given, then the Committee may give such shorter
notice as the circumstances reasonably require, but in no event less than 10
days), (b) that the Option shall pertain to and apply, with appropriate
adjustments as determined by the Committee, to the securities of the resulting
corporation to which a holder of the number of Shares subject to this Option
would have been entitled, or (c) that the Company or resulting corporation will
purchase the Option from the holder at a price per Share as to which the Option
is outstanding, unexercised and vested equal to the difference between the price
at which Shares of the Company are to be purchased or exchanged in the
transaction and the Option Price.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
Notwithstanding the foregoing (but if Optionholder then is subject to Section 16
of the Exchange Act, only to the extent consistent with the requirements of Rule
16b-3 or other rules under Section 16 of the Exchange Act), this Option may be
transferred pursuant to an order that would constitute a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act or the rules thereunder.
8. Exercise of Option After Termination of Employment. If the
--------------------------------------------------
Optionholder's employment with (a) the Company or (b) a corporation (or parent
or subsidiary corporation of such corporation) issuing or assuming a stock
option in a transaction to which section 424(a) of the Code applies, is
terminated for any reason, then the Option may be exercised for a period of
ninety days (or in the case of death or disability, for a period of one year)
after such termination of employment, but only to the extent that the Option
shall have been vested in accordance with the terms and conditions hereof on the
date of such termination, and upon the expiration of such ninety-day period
following termination (or in the case of termination by death or disability,
upon the expiration of such one-year period following termination), the Option
immediately shall expire and may not be exercised. If the Optionholder's
employment is terminated in any of the following manners: (i) by the Company
without cause under the terms of any then-existing employment agreement with the
Optionholder for a stated term of employment, (ii) by Optionholder's resignation
due to a material breach of such employment agreement by the Company at a time
when Optionholder is not in breach thereof, or (iii) by reason of the
Optionholder's death or disability (any termination described in the foregoing
-4-
<PAGE>
clause (i), (ii) or (iii) being referred to as a "Measuring Termination"), then
the most recently ended fiscal quarter of the Company shall be a "Measuring
Date" for purposes of Section 11 hereof, whether or not such quarter end
coincides with the fiscal year end of the Company. Notwithstanding the
foregoing, no rights under the Option may be exercised after the Expiration
Date, and any portion of the Option that is not vested on the date when
employment terminates immediately shall expire on the date of employment
termination and may not be exercised.
9. Payment of Taxes. The Optionholder shall pay to the Company, or
----------------
make provision satisfactory to the Company for payment, of all applicable
federal, state and local income and employment act withholding obligations.
Such tax obligations may be paid in whole or in part, to the extent permitted
under Section 3(f) hereof and if the Committee so approves: (i) by electing to
have Shares withheld having a value equal to the amount to be so satisfied (but
not in an amount exceeding the minimum statutory withholding requirement
applicable to such exercise), or (ii) by assigning and delivering to the Company
Shares previously owned by the Optionholder and having a value equal to the
amount to be so satisfied (but unless such Shares have been owned by the
Optionholder for more than six months, not in an amount exceeding the minimum
statutory withholding requirement applicable to such exercise). The value of
Shares to be withheld or assigned shall be determined based on the fair market
value of the Shares on the date the amount of tax to be withheld is to be
determined. The Company, its parent and subsidiaries may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Optionholder.
10. Administration. The Option is issued and this Agreement has been
--------------
made pursuant and subject to the terms and conditions of the Company's 1996
Management Stock Option Plan. The Option and this Agreement shall be
administered by a committee of two or more members of the Board of Directors of
the Company appointed by said Board (the "Committee") pursuant to the Plan. The
Committee shall have full power to determine whether Benchmark Increments have
been achieved and the amounts thereof, to construe and interpret the Option,
this Agreement (which includes the Certificate and these Management Stock Option
Terms and Conditions) and the Plan, and to establish, amend and rescind rules
and regulations for its and their administration. Any decisions of the
Committee made with respect to any of the foregoing shall be final and binding
on the Company, the Optionholder and all other persons.
11. Benchmarks. For so long as the Option remains in effect, subject
----------
to the terms and conditions set forth herein, the Option for the Benchmark
Shares set forth on the Certificate shall vest and become exercisable on each
Measuring Date (as defined below) in increments of previously unvested Benchmark
Shares equal in number to the product of (i) the Benchmark Rate set forth on the
Certificate, multiplied by (ii) the Benchmark Increment (as defined below),
rounded to the nearest whole number of Shares:
11.1 For purposes hereof, the term "Benchmark Increment" as at any
-------------------
particular Measuring Date shall mean the quotient (to be calculated in the
manner(s) designated by the Committee and rounded to the nearest thousandth)
having as its numerator the sum of the Current Common Value minus the Base Value
and also minus the Prior Increments (all as of
-5-
<PAGE>
the close of business on such Measuring Date), and having as its denominator the
number one million (1,000,000), said quotient being depicted mathematically as
follows:
Net Current Common Value - Base Value - Prior Increments
--------------------------------------------------------
1,000,000
where:
(a) the term "Current Common Value" on any particular Measuring Date
--------------------
means either (i) the total net proceeds and the net value of any securities or
other property that are payable or distributable in liquidation to the common
stockholders of the Company by reason of a Change in Control (as defined below);
or (ii) if the foregoing clause (i) is not applicable, the average closing price
on NASDAQ (or, if the Company's common stock is not traded on NASDAQ, on the
principal exchange on which the Company's stock then is publicly traded) for the
last twenty trading days immediately preceding such Measuring Date multiplied by
the average number of Shares used in the earnings per share calculations of the
Company for financial reporting purposes over the same 20 day period, or (iii)
if neither of the foregoing clauses (i) or (ii) is applicable, the fair market
value of all issued and outstanding Shares used in the earnings per share
calculations of the Company for financial reporting purposes as at the close of
business on such Measuring Date determined in such other manner as the Committee
shall determine; and in any such case, there shall be deducted from the value
determined all amounts, if any, that then are owed to the Company with respect
to the issuance of any Shares in accordance with generally accepted accounting
principles consistently applied; with all of the foregoing being determined by
or in the manner(s) designated by the Committee;
(b) the term "Base Value" means _______________ Dollars ($________);
(c) the term "Prior Increments" means the aggregate number of
----------------
Benchmarks that have been achieved on any prior dates or for which any Benchmark
Shares already shall have been vested hereunder, multiplied by the number one
million; and
(d) the term "Change in Control" means and shall be deemed to occur
-------------------
if any of the following occurs: (i) any Person is or becomes the beneficial
owner of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding voting securities; or (ii)
individuals comprising the Incumbent Board, or individuals approved by a
majority of the Incumbent Board, cease for any reason to constitute at least a
majority of the Board of Directors of the Company; or (iii) approval by the
stockholders of the Company of a merger or consolidation of the Company, other
than (A) a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
more than 50% of the combined voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of the Company
in which no Person acquires more than 50% of the Company's then outstanding
voting securities; or (iv) approval by the stockholders of the Company of (A) a
complete or substantial liquidation or dissolution of the Company, or (B) the
sale or other disposition of all or substantially all of the assets of the
Company. An underwritten public offering of common stock of the Company,
including the completion of any sale of common stock
-6-
<PAGE>
pursuant to an underwriter's over-allotment option, and any offering to
employees pursuant to a registration statement on Form S-8 or other similar
offering shall not be counted toward a Change in Control for purposes of this
Agreement. For purposes of the foregoing: "Incumbent Board" shall mean those
individuals who comprised the Board of Directors of the Company on its
incorporation date; and "Person" shall have the meaning used in Sections
13(d)(3) or 14(d)(2) of the Exchange Act, provided that, it shall not include
-------------
Denis K. Berube, Joanna T. Lau, Lau Acquisition Corp., the Company, any trustee
or other fiduciary holding securities under an employee benefit plan of the
Company, or any entity owned by the stockholders of Lau Acquisition Corp.
11.2 Despite the foregoing formula, in no event shall the amount of
any Benchmark Increment be less than zero. Once the Company has achieved a
Benchmark Increment, then the Shares that vest hereunder as result thereof shall
remain vested, regardless of whether the Current Common Value thereafter shall
decrease in amount.
11.3 For purposes hereof, the term "Measuring Date" shall mean each
--------------
date while the Option remains in effect and the Optionholder is employed by the
Company that is either: (i) a fiscal year end of the Company; or (ii) the date,
if any, when a Change in Control shall have been completed as determined by the
Committee (or if the Committee shall have exercised its right hereunder to
terminate the Option by reason of a Change in Control, the date immediately
preceding such date of termination, with the Benchmark Increment for such date
to be determined as if the Change in Control had been completed on such earlier
date); or (iii) if there occurs a Measuring Termination of Optionholder's
employment as defined in Section 8 above (but not otherwise), the most recently
ended fiscal quarter of the Company that occurs on or before the date of such
termination of Optionholder's employment.
11.4 The maximum number of Shares that shall vest or become exercisable
under this Section 11 shall not exceed the lesser of either (i) the Number of
Shares set forth on the Certificate or (ii) the total number of Benchmark Shares
set forth on the Certificate. Therefore, if the application of the above vesting
formula ever results in any number of Shares that would vest in an amount
exceeding the then-remaining unvested number of Benchmark Shares, the number of
Shares to vest at such time shall equal the number of Benchmark Shares then
remaining unvested, and no more.
11.5 Attached as Exhibit A hereto is a
---------
hypothetical example of how the Benchmark Increment shall be calculated.
12. Option Nonqualified. The Option shall be a nonstatutory option which is
-------------------
not intended to meet the requirements of Section 422 of the Code.
13. Surrender and Notation of Option. If and when the Option is exercised in
--------------------------------
its entirety, this Agreement and the Certificate shall be surrendered to the
Company for cancellation. If and as the Option shall be exercised in part, or
any change or adjustment shall be made to the Option as contemplated under this
Agreement, this Agreement and the Certificate shall be delivered by the
Optionholder to the Company for the purpose of making appropriate notation
thereon, or of otherwise reflecting the partial exercise or the change or
adjustment hereto.
-7-
<PAGE>
Exhibit A
---------
to Management Stock Option Terms and Conditions
-----------------------------------------------
The following is a hypothetical example of how the Benchmark Increment
shall be calculated:
(I) If the applicable Certificate designated a total of 200,000
Benchmark Shares and a Benchmark Rate of 1,500 Shares, (ii) the Base Value were
$10,000,000, (iii) at the next fiscal year end of the Company ("FYE 1") the
immediately preceding 20-day trailing average closing price on NASDAQ for Shares
is $25.00, (iv) during such 20 day period the number of outstanding Shares (used
in the earnings per share calculation of the Company for financial reporting
purposes) is 10,000,000, (iv) at the close of business on such fiscal year end
the Company is owed $35,000.00 in subscription payments for Shares, and (v) at
FYE 1 the Optionholder is an officer or employee of the Company, then the
Benchmark Increment would be calculated as follows:
Before adjustment for unpaid subscriptions, market value of Shares would
be: 25 * 10,000,000 = $25,000,000. To adjust for unpaid subscriptions:
25,000,000 - 35,000 = $24,065,000, which would be the Current Common Value.
---------- --------------------
The Benchmark Increment would be:
(24,065,000 - 10,000,000 + 0) / 1,000,000 = 14.065
------
The number of Shares to vest as of such fiscal year end shall be: 1,500 *
14.065 = 21,097.50, which rounded to the nearest whole number of Shares
would result in a vesting increment of 21,098 Shares.
------
(II) If at the next fiscal year end ("FYE 2") the immediately preceding
20-day trailing average closing price on NASDAQ for Shares is $22.00 per share,
but none of the other facts set forth above have changed, then:
The number initially calculated to determine the Benchmark Increment would
be:
(21,065,000 - 10,000,000 - (22 * 1,000,000)) = -10,935,000
-----------
Because the Benchmark Increment is limited by a floor amount of zero,
instead of using the above negative number, the Benchmark Increment for FYE 2
would be zero. The 21,098 Shares that vested at FYE 1, however, would remain
----
vested and would continue to be exercisable if the Option had not already been
partially exercised for such Shares.
(III) If at the next following fiscal year end ("FYE 3") the immediately
preceding 20-day trailing average closing price on NASDAQ for Shares is $27.50
per share, but none of the other facts set forth above have changed, then:
The number initially calculated to determine the Benchmark Increment would
be:
(27,500,000 - 35,000) - 10,000,000 - (14.07 * 1,000,000) =
--------------------------------------------------------
1,000,000
<PAGE>
27,465,000 - 10,000,000 - 14,070,000 = 3,395,000 = 3.395
------------------------------------------------
1,000,000
Because this number exceeds zero, the Benchmark Increment for FYE 3 would
be 3.395. Multiplying that figure times the Benchmark Rate: 3.395 * 1,500
-----
= 5,092.50, which rounded to the nearest whole number of Shares would
result in 5,093 additional Benchmark Shares vesting at FYE 3. If the
-----
Option still has not been exercised to acquire the 21,098 Benchmark Shares
that vested at FYE 1, a total of 26,191 Shares would be vested and
available for exercise of the Option at FYE 3.
[jch]
[Exhibit A--Page ii]
<PAGE>
EXHIBIT 10.11
Option # _____ Shares
VIISAGE TECHNOLOGY, INC.
DIRECTORS NONQUALIFIED STOCK OPTION CERTIFICATE AND AGREEMENT
Viisage Technology, Inc. (the "Company"), a Delaware corporation, pursuant
to its 1996 Directors Stock Option Plan (the "Plan"), hereby issues to the
Optionholder named below an option to purchase the number of shares of Common
Stock, $.001 par value (the "Shares"), of the Company set forth below (the
"Option"), exercisable on the following terms and conditions:
Name of Optionholder: _______________________________
Address: _______________________________ Social Security No.:
_______________________________
_______________________________ ______________________
Number of Shares: Sixteen Thousand Three Hundred Thirty (16,330)
Option Price per Share: __________ Dollars ($__.__) U.S.
Date of Issuance: _______________, 1996
Exercise Schedule: The Option shall be vested and exercisable and, for so long
as the original Optionholder shall continue to serve as a director of the
Company, shall further vest and become exercisable in accordance with the
following schedule, subject to the attached terms and conditions:
<TABLE>
<CAPTION>
Vesting Date Number of Shares to Vest
---------------------- ------------------------
<S> <C>
Date of Issuance of this Option One Thousand Four Hundred Twenty (1,420)
_______________, 1997 Four Thousand Nine Hundred Seventy (4,970)
_______________, 1998 Four Thousand Nine Hundred Seventy (4,970);
and
_______________, 1999 Four Thousand Nine Hundred Seventy (4,970).
</TABLE>
Expiration Date: _____________, 2006, subject to earlier termination and
extension as provided below.
TRANSFER OF THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE ATTACHED TERMS
AND CONDITIONS.
By signing below, the Company and the Optionholder each agrees to the
foregoing and to the attached Directors Stock Option Terms and Conditions, which
are incorporated herein by reference.
VIISAGE TECHNOLOGY, INC. OPTIONHOLDER
By: _____________________ __________________________
Title:
<PAGE>
VIISAGE TECHNOLOGY, INC.
DIRECTORS STOCK OPTION AGREEMENT
Directors Stock Option Terms and Conditions
-------------------------------------------
(Nonqualified)
1. Option Price. The price to be paid for each share of common stock of the
------------
Company, $.001 par value (each, a "Share"), issued upon exercise of the whole or
any part of this Option, is the Option Price per Share set forth on the stock
option certificate to which these terms and conditions have been attached (the
"Certificate").
2. Exercise Schedule. This Option may be exercised for the Number of Shares
-----------------
set forth on the Certificate as follows: (i) the Option is vested and may be
exercised with respect to 1,420 Shares on or after the date of Option issuance,
and (ii) for so long as the original Optionholder shall serve as a Director of
the Company on the applicable anniversary, the Option shall further vest and
become exercisable with respect to an additional 4,970 Shares on each of the
first, second and third anniversaries of the date of Option issuance as set
forth on the Certificate, subject to the terms and conditions of this Agreement.
The Option may not be exercised as to any Shares after the Expiration Date set
forth on the Certificate or after any earlier termination of the Option in
accordance with this Agreement.
3. Method and Terms of Exercise.
----------------------------
(a) Notice of Exercise. To exercise this Option, the Optionholder shall
deliver written notice of exercise to the Treasurer of the Company specifying
the number of shares with respect to which the Option is being exercised
accompanied by payment of the Option Price for such Shares.
(b) Payment. Payment shall be made by (i) cash; (ii) certified
check, (iii) subject to Section 3(e) hereof, by delivery and assignment to the
Company of Shares previously owned by Optionholder for one year or more and
having a value equal to the Option price; (iv) if permitted by applicable law,
through the delivery of an assignment to the Company of a sufficient amount of
the proceeds from the sale of unrestricted Shares acquired upon exercise to pay
for all of the Shares so acquired and any tax withholding obligation resulting
from such exercise, and an authorization to the broker or selling agent to pay
that amount to the Corporation; or (v) by a combination of (i), (ii), (iii) and
(iv). The value of the Company stock for purposes of the foregoing clause (iii)
shall be its fair market value as of the date the Option is exercised, as
determined in accordance with procedures to be established by the Board.
Optionholder's election to request payment in any manner other than that
described in clause (i) or (ii) above shall be made in writing on or before the
applicable exercise date and shall be irrevocable by the Optionholder, unless
any such method of exercise would result in a loss of exemption under or violate
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision, as applicable to the Company at the time
("Rule 16b-3").
(c) Delivery of Shares. Promptly following notice of exercise and
payment, the Company will deliver to the Optionholder a certificate representing
the number of Shares with respect to which the Option is being exercised.
-2-
<PAGE>
(d) Compliance and Registration. If said Shares are not at that time
effectively registered under the Securities Act of 1933, as amended, the
Optionholder shall include with such notice a letter, in form and substance
satisfactory to the Company, confirming that the Shares are being purchased for
the Optionholder's own account for investment and not with a view to
distribution. The issuance or delivery of any Shares hereunder may be postponed
by the Board for such period as may be required to comply with any applicable
requirements under the Federal securities laws, any applicable listing
requirements of NASDAQ or any national securities exchange or any requirements
under any law or regulation applicable to the issuance or delivery of such
Shares. The Company shall not be obligated to issue or deliver any such Shares
if the issuance or delivery thereof would constitute a violation of any
provision of any law or of any applicable regulation of any governmental
authority, NASDAQ or any national securities exchange; but the Company shall
exercise its reasonable efforts to cause the Shares that are the subject of the
Option to be effectively registered on Form S-8 under the Securities Act of
1933, as amended, within nine months after the date when Company has first
registered Shares on Form S-1 under said Securities Act, and for so long as the
Company shall continue to be registered under the Exchange Act, the Company
shall exercise its reasonable efforts to keep such registration in effect.
(e) Payment with Shares -- Rule 16b-3. Any election made by the
Optionholder, if then subject to Section 16 of the Exchange Act, to make payment
of any portion of the Option price by delivery of Shares shall be subject to any
then-applicable requirements of Rule 16b-3 and other applicable rules under
Section 16 of the Exchange Act.
4. Rights as a Stockholder or Director. The Optionholder shall not have any
-----------------------------------
rights in respect of Shares to which the Option shall not have been exercised
and payment made as provided above. Nothing herein shall be deemed to create
any obligation on the part of the Board of Directors or standing Committee
thereof to nominate Optionholder as a Director for reelection by the Company's
stockholders, nor confer upon the Optionholder any right to remain a member of
the Board of Directors for any period of time, or at any particular rate of
compensation.
5. Stock Dividends; Stock Splits; Recapitalization. In the event of a stock
-----------------------------------------------
dividend, stock split or combination of shares, recapitalization or other change
in the Company's capitalization, or other distribution with respect to holders
of the Company's common stock other than normal cash dividends, automatic
adjustment shall be made in the number and kind of shares as to which the then
unexercised portion of the Option shall be exercisable, to the end that the
proportionate interest of the Optionholder shall be maintained as before the
occurrence of such event. Such adjustment shall be made without change in the
total price applicable to the unexercised portion of the Option and with a
corresponding adjustment in the Option price per Share.
6. Merger; Sale of Assets; Dissolution. In the event of a change of the
-----------------------------------
Company's common stock resulting from a merger or similar reorganization as to
which the Company is the surviving corporation, or the formation of a holding
company, the number and kind of shares which thereafter may be optioned and sold
under the Plan and the number and kind of shares then subject to options issued
hereunder or unexercised portions thereof and the price per share thereof shall
be appropriately adjusted to the end that the proportionate interest of the
option holder shall be maintained as before the occurrence of such event and not
increased.
-3-
<PAGE>
If the Company shall be a party to a merger or a similar reorganization after
which the Company will not survive, or if there will be a sale of substantially
all the common stock of the Company or a sale of all or substantially all of the
assets of the Company, then to the extent permitted by Rule 16b-3, the options
under this Plan automatically shall be terminated, assumed by the successor
corporation or repurchased by the Company or its successor to the same extent,
and on the same terms, as are approved for options for the Company's Common
Stock issued under the Company's 1996 Management Stock Option Plan or the then-
existing successor plan thereto, and otherwise will terminate upon such merger,
reorganization or sale. Despite the foregoing, no such adjustment shall be made
which would, within the meaning of any applicable provisions of the Internal
Revenue Code of 1986, as amended, constitute a modification, extension or
renewal of the Option or a grant of additional benefits to the Optionholder.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
Notwithstanding the foregoing (but if Optionholder then is subject to Section 16
of the Exchange Act, only to the extent consistent with the requirements of Rule
16b-3 or other rules under Section 16 of the Exchange Act), this Option may be
transferred pursuant to an order that would constitute a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act or the rules thereunder.
8. Exercise of Option After Death or Disability; Termination of Board
------------------------------------------------------------------
Membership. If this Option is unexpired and in effect on the date of
- ----------
Optionholder's death or disability, the expiration of this Option, if within one
year of the date such event occurs, shall be extended for one year from the date
of the Optionholder's death or disability, but only to the extent that the
Option shall have been vested in accordance with the terms and conditions
hereof. If Optionholder's Company Board membership terminates for any reason,
the vested portion of the Option shall remain in effect for its stated term,
subject to the terms and conditions of this Agreement, and the unvested portion
of this Option immediately shall terminate and not be exercisable.
9. Administration. The Option is issued and this Agreement has been made
--------------
pursuant and subject to the terms and conditions of the Company's 1996 Directors
Stock Option Plan. The Option and this Agreement shall be administered by the
Board of Directors of the Company (the "Board") pursuant to the Plan. The Board
shall have full power to construe and interpret the Option, this Agreement
(which includes the Certificate and these Directors Stock Option Terms and
Conditions) and the Plan, and to establish, amend and rescind rules and
regulations for its and their administration. Any decisions of the Board made
with respect to any of the foregoing shall be final and binding on the Company,
the Optionholder and all other persons.
10. Option Nonqualified. The Option shall be a nonstatutory option which is
-------------------
not intended to meet the requirements of Section 422 of the Code.
11. Surrender and Notation of Option. If and when the Option is exercised in
--------------------------------
its entirety, this Agreement and the Certificate shall be surrendered to the
Company for cancellation. If and as the Option shall be exercised in part, or
any change or adjustment shall be made to the Option as contemplated under this
Agreement, this Agreement and the Certificate shall be
-4-
<PAGE>
delivered by the Optionholder to the Company for the purpose of making
appropriate notation thereon, or of otherwise reflecting the partial exercise or
the change or adjustment hereto.
[jch\Vi-DOAgr.829]
-5-
<PAGE>
EXHIBIT 10.13
SUBCONTRACT
BETWEEN
INFORMATION SPECTRUM, INC. (CONTRACTOR)
AND
LAU TECHNOLOGIES (SUBCONTRACTOR)
FOR PRODUCTS AND/OR SERVICES FOR THE
U.S. IMMIGRATION AND NATURALIZATION SERVICE'S
INTEGRATED CARD PRODUCTION SYSTEM
<PAGE>
SECTION A.
- ----------
A.1 This Subcontract is made and entered into effective October 19, 1995, by
and between Lau Technologies (hereinafter the "Subcontractor" or "LAU") having
its principal place of business at 531 Main Street, Acton, Massachusetts 01720
and Information Spectrum, Inc. (hereinafter the "Contractor" or "Prime
Contractor" or "ISI"), a New Jersey corporation having its principal place of
business at 7611 Little River Turnpike, Annandale, Virginia 22003, (collectively
hereinafter the "Parties").
A.2 DEFINITIONS
"Contracting Officer": Means the INS contracting officer.
"Base Year or Base Period": The period commencing on date of the Prime Contract
award by the INS to ISI and continuing for a period of twelve months thereafter.
"COTR": Means the INS Contracting Officer Technical Representative.
"INS": Means the U.S. Department of Justice, Immigration and Naturalization
Service.
"Option Year 1": Means the period commencing the day after the last day of the
Base Year and continuing for a twelve month period thereafter.
"Option Year 2": Means the period commencing the day after the last day of
Option Year 1 and continuing for a twelve month period thereafter.
"ICPS": Means the Integrated Card Production System(s) required to be delivered
by ISI under the Prime Contract with the INS.
"ISI Contracting Representative": Means the ISI representative who is
authorized to enter into or modify this Subcontract or to take actions or
provide notices under this Subcontract on behalf of ISI.
"ISI Technical Representative": Means the ISI representative who is authorized
to provide notices or take actions under this contract on behalf of ISI.
However, the ISI Technical Representative is not authorized to enter into or
modify this Subcontract.
"Prime Contract": Prime Contract No. COW-6-C-0001, dated October 19, 1995 and
entered into between the INS and ISI for delivery of the ICPS, upgrades,
supplies and consumables and related services.
"Reserved": See the definition in section A.3 of this Subcontract.
A.3 SUBCONTRACT STRUCTURE AND SECTION NUMBERS
The structure of, and the numbering of the sections in, this Subcontract are
patterned after the Prime Contract. This will enable the parties to refer easily
to the relevant provisions in the Prime Contract which may be incorporated into
this Subcontract by specific references in the following sections of this
Subcontract. The term "Reserved" following a section number in this Subcontract
means that the particular section is set aside for future use and that the
counterpart section in the Prime Contract is not incorporated by reference into
this Subcontract.
1
<PAGE>
SECTION B. SUPPLIES OR SERVICES AND PRICES/COSTS
-------------------------------------
B.1 CONTRACT PRICING TABLES
The Subcontractor shall provide to the Contractor the products and services in
the contract line item numbers (CLINs), identified as the Subcontractor's
responsibility, as set forth in the pricing tables in Exhibit A of this
Subcontract, and as further detailed in the Statement of Work/Specifications
provided in Section C of this Subcontract. All prices shall be firm-fixed prices
and shall be for the periods shown in the pricing tables in Exhibit A.
B.1.1. THROUGH B.1.8
The Subcontractor's performance of work under this Subcontract will support
ISI's delivery to the INS of the products and services described in sections
B.1.1 through B.1.8 of the Prime Contract.
B.2 OPTIONS/OPTIONAL FEATURES
This subcontract contains two (2) types of options that may be exercised
unilaterally by the Contractor: options to extend the period of performance of
the contract and options to purchase upgrades, additional supplies and
consumables and services.
All options will be exercised by the ISI Contracting Representative's issuance
to the Subcontractor of a unilateral written Task Order which identifies the
option exercised. See also sections F.3 and I.7.
B.3 TRAVEL REIMBURSEMENT
Travel and subsistence charges under this contract in support of Consultation
Services (CLINs 2000 through 2003) furnished by the Subcontractor shall not
exceed those allowed under FAR 31.205-46. All travel and substance charges shall
be authorized in advance by the ISI Contracting Representative.
B.4 INVOICING AND PAYMENT
B.4.1. INVOICE REQUIREMENTS
(a) Subcontractor shall present to ISI, in accordance with the issued
Task Order, in an original and three copies an invoice for products and
services:
(i) accepted in accordance with section E and FAR 52.232-1
"Payments (APR 1984)"; or
(ii) for which an advance payment, partial payment or progress
payment is explicitly provided for in this section B.4.
(b) The original and one copy shall be submitted to the following ISI
office:
Information Spectrum, Inc.
Accounts Payable
7611 Little River Turnpike, Suite 300 East
Annandale, Virginia 22003
2
<PAGE>
One additional copy of the invoice shall be sent to each of the ISI
representatives identified in section G.1 and G.2 of this Subcontract.
To constitute a proper invoice, the invoice must include the following
information and/or attached documentation in addition to the requirements in FAR
52.232-25:
(i) Task Order number.
(ii) Contract Line Item Number (CLIN), product identification
number, description, price and quantity of products or services
actually delivered, and dates products or services delivered.
B.4.2 PAYMENTS.
ISI shall pay the firm fixed price in Exhibit A to the Subcontractor for the
products and services it provides under this Subcontract in accordance with the
following paragraphs.
(a) CLIN 100. ISI shall pay the Subcontractor for its products in the Base
ICPS and for related services in accordance with the following scheme:
(1) 50% of the price of each Base ICPS and related services specified in
CLIN 100a (except for Maintenance Spares in SubCLIN 5(d) and Acceptance
Test in SubCLIN 6(c)), and 50% of the price of each Base ICPS and related
services specified in CLIN 100b (except for Maintenance Spares in SubCLIN
(5c)), shall be paid to the Subcontractor as a Progress Payment after
delivery of the Base ICPS and related services to the designated INS
installation site on a delivery date specified by ISI and the Subcontractor
submits to ISI an appropriate invoice in accordance with this Subcontract.
(2) The remaining 50% of the price specified in these relevant CLINs for
the Base ICPS and related services (including the total price for the
spares and acceptance tests excepted in subparagraph (a)(1), above) shall
be paid to the Subcontractor when the following conditions are met:
(i) after the particular Base ICPS successfully completes
acceptance testing and meets the Standard of Performance in sections
E.2.2 and E.2.3, or, with respect to the spares, after the Government
inspects and accepts the spares; and
(ii) after the Subcontractor submits to ISI an appropriate invoice in
accordance with this Subcontract and the Government pays ISI for these
particular products and services.
(b) CLINs 110 and 111. ISI shall pay the Subcontractor for its products and
services in, or related to, each module provided as an option under CLINs
110 and 111 in accordance with the following scheme:
(1) 50% of the price specified in CLIN 110 and 111 shall be paid to the
Subcontractor as a Progress Payment after delivery of the module to the
designated INS installation site on a delivery date specified by ISI and
the Subcontractor submits to ISI an appropriate invoice in accordance with
this Subcontract.
(2) The remaining 50% of the price specified in these relevant CLINs for
the products and services shall be paid to the Subcontractor when the
following conditions are met:
3
<PAGE>
(i) after the particular module successfully completes acceptance
testing and meets the Standard of Performance in sections E.2.2 and
E.2.3; and
(ii) after the Subcontractor submits to ISI an appropriate invoice in
accordance with this Subcontract and the Government pays ISI for these
particular products and services.
(c) CLINs 122, 123, 130, and 131. ISI shall pay the Subcontractor for its
products and services in, or related to, each module provided as an option under
CLINs 122, 123, 130 and 131 in accordance with the following scheme:
(1) 50% of the price specified for "Non-Recurring Engineering" for
the particular module shall be paid to the Subcontractor as a Progress
Payment after delivery of that module and related software to an INS
site on a delivery date specified by ISI and the Subcontractor submits
to ISI an appropriate invoice in accordance with this Subcontract.
(2) 50% of the price specified for "Installation" of the particular
module's price shall be paid to the Subcontractor as a Progress
Payment after the Subcontractor's certifies that the module has been
installed in the ICPS at the designated INS installation site and is
ready for acceptance testing.
(3) The remaining 50% of the price specified in these relevant CLINs
for these products and services shall be paid to the Subcontractor
when the following conditions are met:
(i) after the particular module successfully completes
acceptance testing and meets the Standard of Performance in
sections E.2.2 and E.2.3; and
(ii) after the Subcontractor submits to ISI an appropriate
invoice in accordance with this Subcontract and the Government
pays ISI for these particular products and services. ISI.
(d) CLINs 136, 137, 140 and 141. ISI shall pay the Subcontractor for its
products and services in, or related to, each module provided as an option under
CLINS 136, 137, 140 and 141 in accordance with the following scheme:
(1) 50% of the price specified in CLINs 136, 137, 140 and 141 shall
be paid to the Subcontractor as a Progress Payment after delivery of
the particular module to the designated INS installation site on a
delivery date specified by ISI and after the Subcontractor submits to
ISI an appropriate invoice in accordance with this Subcontract.
(2) The remaining 50% of the price specified in these CLINs for these
products and services shall be paid to the Subcontractor when the
following conditions are met:
(i) after the particular module successfully completes
acceptance testing and meets the Standard of Performance in
sections E.2.2 and E.2.3; and
(ii) after the Subcontractor submits to ISI an appropriate
invoice in accordance with this Subcontract and the Government
pays ISI for these particular products and services.
4
<PAGE>
(e) CLINs 3001, 3002, 3010, 3011, 9005 and 9006. ISI shall pay the
Subcontractor for the maintenance services performed in 3001, 3002, 3010, 3011,
9005 and 9006 in accordance with the following scheme:
A proportionate part of the price specified in CLINs 3001, 3002, 3010,
3011, 9005 and 9006 shall be paid monthly in arrears to the Subcontractor
for the maintenance services performed in the prior month. The payment
shall be made after the Subcontractor submits to ISI an appropriate invoice
in accordance with this Subcontract and the Government pays ISI for the
maintenance services.
(f) CLIN 9000, 9001, 9002, 9003, and 9004. ISI shall pay the Subcontractor for
its products and services in, or related to the option of a Hot Backup System
provided as an option in CLIN 9000, and related services, and the products and
services in, or related to each module provided as an option in CLINs 9001,
9001, 9002, 9003 and 9004 in accordance with the following scheme:
(1) 50% of the price specified in CLINS 9000 shall be paid to the
Subcontractor as a Progress Payment after the Subcontractor has
certified to ISI that the Hot Backup System is ready for acceptance
testing and the Standard of Performance and the Subcontractor submits
to ISI an appropriate invoice in accordance with this Subcontract.
(2) 50% of the price specified in CLINS 9001, 9002, 9003 and 9004
shall be paid to the Subcontractor as a Progress Payment after the
Subcontractor has certified to ISI that the particular option is ready
for acceptance testing and the Standard of Performance, and the
Subcontractor submits to ISI an appropriate invoice in accordance with
this Subcontract.
(3) The remaining 50% of the price specified in these relevant CLINs
for these products and services shall be paid to the Subcontractor
when the following conditions are met:
(i) after the particular product or service successfully
completes acceptance testing and meets the Standard of
Performance in sections E.2.2 and E.2.3; and
(ii) after the Subcontractor submits to ISI an appropriate
invoice in accordance with this Subcontract and the Government
pays ISI for these particular products and services.
(g) All payments to the Subcontractor shall be made within 15 days after
receipt of invoice but only after the conditions to payment specified in
paragraphs (a) through (f) are met.
(h) Repayment of Progress Payments to ISI. If the Government does not accept
the products and services provided by the Subcontractor and if the Prime
Contract is thereafter terminated, in part or as a whole for this reason, the
Subcontractor shall repay to ISI that portion of the Progress Payments
previously paid to the Subcontractor which corresponds to the terminated portion
of the Prime Contract. Subcontractor shall repay the Progress Payments to ISI
within 30 days after receipt of ISI's demand for repayment. If the Prime
Contract is not terminated but the price paid to ISI is reduced because of the
defective products or services provided by the Subcontractor, the parties shall
seek to agree to a corresponding reduction in the Progress Payments paid to
Subcontractor and Subcontractor shall repay to ISI the amount of Progress
Payments agreed to by the parties.
(i) Reduction of Suspension of Progress Payments. ISI may reduce or suspend
Progress Payments after finding on substantial evidence that the Subcontractor
failed to comply with any material requirement of this Subcontract; however, the
Subcontractor will be given 10 days to cure, and if the failure is cured within
that time, the Progress Payments will be continued.
5
<PAGE>
(j) Defect in ISI Component. Notwithstanding the provisions of paragraph B.4.2
(a)(2), B.4.2 (b)(2), B.4.2 (c)(3), B.4.2 (d)(2) and B.4.2 (f)(3), if the
Government fails to accept the particular products and services solely because
of a defect in a component provided by ISI, then ISI shall pay the Subcontractor
25% of the price specified in the relevant CLINs within 15 days after receipt of
an appropriate invoice in accordance with this Subcontract after the
Government's refusal to accept because of such defect. ISI shall pay the
remaining 25% of the price specified in the relevant CLINs when the following
conditions are met:
(1) after the particular product and services successfully complete
acceptance testing and meet the Standard of Performance in sections E.2.2
and E.2.3; and
(2) after the Subcontractor submits to ISI an appropriate invoice in
accordance with this Subcontract and the Government pays ISI for the
accepted products and services.
B.4.2.3 Subcontractor's Remittance Address
ISI shall make all payments to the Subcontractor under this Subcontract by
remitting the payment to the following address:
LAU TECHNOLOGIES
531 MAIN STREET
ACTON, MA 01720
SECTION C. SPECIFICATIONS/STATEMENT OF WORK
--------------------------------
C.1 RESERVED
C.1.1 SCOPE OF WORK/SPECIFICATIONS
The Subcontractor's scope of work and required specifications are described in
Exhibit B. The Subcontractor shall provide minimum one-year warranties from the
date of the Government's acceptance for all products delivered and all services
performed under this Subcontract.
All work performed under this Subcontract will be ordered through written Task
Orders issued by the ISI Contracting Representative to the Subcontractor.
C.1.2 THROUGH C.2.1
The Subcontractor's performance of work under this Subcontract will support
ISI's delivery to the INS of the products and services which meets the INS
requirements described in sections C.1.2 through C.2.1 of the Prime Contract.
C.2.2 COMMERCIAL AVAILABILITY
All products delivered under this Subcontract must be available as integrated
commercial-off-the-shelf (COTS) products on the dates specified in section C.2.2
of the Prime Contract, subject to section H.19 below.
6
<PAGE>
C.2.3 THE NEW BUSINESS PROCESS
The Subcontractor's products and services shall support the Contractor's
solution described in section C.2.3 of the Prime Contract.
C.2.3.1 CONTINUOUS, AUTOMATED INTEGRATED SYSTEM
The Subcontractor's products and services shall support a continuous, automated
Integrated Card Production System, such that under normal production conditions,
human intervention is not required except to load blank card stock and other
supplies, and to remove the finished cards inside addressed, stamped mailing
envelopes ready for delivery to the Postal Service.
C.2.3.2 PRODUCTION CYCLE
The Subcontractor's products and services shall support an Integrated Card
Production System that is a stable, heavy-duty, reliable product, capable of
continuous uninterrupted production 24 hours per day, seven days per week,
except for normal maintenance.
C.3 CARD PRODUCTION REQUIREMENTS
C.3.1 PRODUCTION RATE
The Subcontractor's products and services shall support the normal production
operation of each card-producing system which produces cards with the hologram
laminate applied at a minimum average rate of 300 cards per hour. This
production rate shall be sustained for cards with: a color photographic image; a
fingerprint and multicolor text printing on the front; text and a 2-D barcode in
PDF417 symbology on the rear; and encoding of data into all three channels of a
high coercivity magnetic stripe, and the insertion of the card in a mailing
insert and envelope.
C.3.2 MULTIPLE TYPES OF CARDS
The Subcontractor's products and services shall support the manufacture of at
least four different card types on the card production systems. Presently, INS
intends to produce the Employment Authorization Document (EAD), Alien
Registration Card (ARC), Border Crossing Card (BCC) and the INS Passenger
Accelerated Service System (INSPASS) card. These cards require different
materials with different electronic (automated) features and security on each as
described in Table C-1 (see Attachment A in Section J).
At a minimum the system supported by the Subcontractor's products and services
shall provide the following capabilities:
a. Production of multiple types of cards (such as, layout of text,
pictures, etc.) which use the same materials under automatic software
control on a card-by-card basis.
b. Production of multiple types of cards which use the same PVC base and
different electronic materials in a batch mode by changing the raw
materials and executing software control over the operation of the
equipment. It shall not take more than 45 minutes to make the changeover
from one type of card to another for the batch process. The changeover
process shall include the changeover of materials.
7
<PAGE>
Table C-1, provided as Attachment A, in Section J, provides a summary of the
features that INS intends to incorporate in each of these card types. Section
C.5, Card Production Formats, provides a more detailed description of each card,
and the technologies that INS will use to develop and produce the cards.
C.4 CARD PRODUCTION REQUIREMENTS
C.4.1 THROUGH C.4.3.1.2
If the Subcontractor is obligated to provide software to the Contractor in the
performance of work under this Subcontract, the Subcontractor shall meet the
software requirements specified in sections C.4.1 through C.4.3.1.2 of the Prime
Contract.
C.5 CARD PRODUCTION FORMAT
C.5 THROUGH C.5.5
To the extent the Subcontractor is required to provide card materials or the
cards itself, the materials and cards shall meet the requirements specified in
sections C.5 through C.5.5 of the Prime Contract.
C.6 SUPPLIES AND CONSUMABLES
To the extent Subcontractor is required to provide supplies and consumables to
produce cards, the cards will use the technologies in Table C-1 of the Prime
Contract. The Subcontractor is obligated to comply with FAR clauses 52.227-14,
Rights to Data-General, 52.227-23, Rights to Proposal Data (Technical), which
are contained in Section I of the Prime Contract (see Exhibit C to this
Subcontract); and H.19, Rights to Technical Data and H.20 Security Requirements,
which are contained in Section H of the Prime Contract (see Exhibit C to this
Subcontract).
C.6.1 INS INSPECTION AND TEST OF SUPPLIES AND CONSUMABLES
Prior to the delivery of any items of supplies or consumables that the
Subcontractor is obligated to deliver under this Subcontract, the Subcontractor
shall furnish sufficient materials for the production of 100 cards (i.e., 25 of
each card type) for inspection and testing by the INS. The batch of materials
submitted for testing shall be taken from the same lot of materials that will be
delivered to the INS. As required by the ISI Contracting Representative or the
ISI Technical Representative, the samples shall be delivered to the COTR, who
will coordinate the production of the sample cards and forward them to the
Director of the INS Forensic Laboratory for inspection and testing. The samples
will be tested to ensure that all items have the security features required,
meet all of the requirements set forth in this Subcontract, and are of good
quality and workmanship. The Subcontractor shall provide written notification of
the date of shipment to, and receipt by, the designated INS officials to the ISI
Contracting Representative and the ISI Technical Representative. It is
estimated that the entire inspection and testing process will take approximately
15 days. The ISI Contracting Representative or ISI Technical Representative will
furnish the Subcontractor with written notification of the results of the
inspection and test of the supplies and consumables. If the Subcontractor's
supplies and/or consumables fail to pass the inspection, the Subcontractor will
immediately provide a second batch of supplies and/or consumables for inspection
and testing at no cost to ISI. If the second batch fails, then ISI shall have
the right to assess liquidated damages in accordance with Section F and/or
terminate this Subcontract for default.
INS' inspection and test of supplies and consumables does not relieve the
Subcontractor of its responsibility to inspect and test its products to ensure
compliance with and adherence to the contract
8
<PAGE>
requirements and industry standards. The Subcontractor must also ensure that the
various consumables it supplied are compatible for the purposes of creating the
INS cards.
The Subcontractor shall be responsible for any damage to the card production
systems resulting from inferior consumables furnished by the Subcontractor. All
costs associated with the repair or replacement of equipment damaged by such
consumables shall be the sole responsibility of the Subcontractor. The
Subcontractor's attention is also called to the Liquidated Damages clause in
Section F of this Subcontract.
C.6.2 CONTROL AND DELIVERY OF SUPPLIES AND CONSUMABLES
Supplies and consumables produced by the Subcontractor which are unique to the
INS will be controlled immediately upon production. Such controls will provide
for access by only those individuals who have met the INS' Office of Security
employment suitability background requirements set forth in section H. Small
inventories may be stored in a safe-type steel file container having a built-in,
three position, dial-type changeable combination lock. Storage of larger
inventories will be accomplished by the use of a vault or spaces where each door
is equipped with a high security, long throw deadbolt lock. All windows in
storage areas shall be secured with steel bars of other appropriate security
devices. Overhead access to inventory storage areas shall be prevented by the
installation of a 9-gauge wire mesh between the top of the walls and the true
ceiling, or by the installation of infra-red or motion detection alarms. If 9-
gauge wire mesh is installed, the mesh opening is not to be wider than 2 inches
square and the top and bottom are to be secured to the ceiling above the wall
below. All items will be kept under secure storage and will remain under such
controls until the time of shipment.
The Subcontractor shall comply with the requirements of the clause entitled
Packaging. Marking and Shipment contained in Section D.
C.6.3 DISPOSITION OF SUPPLIES AND CONSUMABLES
Seventy five days prior to the expiration of the Subcontract, the Subcontractor
shall notify the ISI Contracting Representative of any expected excess in
supplies and consumables at the time of Subcontract completion. Excess or
remaining materials shall be delivered to the Director of the INS Forensic
Laboratory for secure destruction or the ISI Technical Representative, or upon
written request of the ISI Contracting Representative, destroyed by the
Subcontractor in a manner approved by the IS Contracting Representative after
consultation with the INS Security Office and coordinate with ISI Security
Officer.
If, prior to delivery to ISI or the INS, the Subcontractor is required to
dispose of waste and defective supplies and consumables that have not been
converted into INS-unique deliverables, the Subcontractor shall handle such
disposition in accordance with local, state, and federal environmental
regulations and best commercial practices. If the waste and defective supplies
and consumables have been converted into INS-unique deliverables, then the
Subcontractor shall immediately notify the ISI Contracting Representative and
await further instructions. The INS will either assume responsibility for the
items, require the Subcontractor to ship the items to the INS Forensic
Laboratory, or require the Subcontractor to proceed with the destruction and
disposal of the items.
C.7 ENVIRONMENTAL REQUIREMENTS
C.7.1 INSTALLATION SITES
The integrated card production systems are intended to be installed at one or
more of the following INS Service Center sites: St. Albans, Vermont: Lincoln,
Nebraska; Laguna Niguel, California; and Dallas
9
<PAGE>
Texas. INS reserves the right to require the installation of more than one
integrated card production system at these sites, or have such systems installed
at other INS sites, including the possibility of installing a Hot Backup System
at the LAU facility in Acton, Massachusetts.
The INS intends to install the production equipment and store supplies in a
designated security area designed by the INS Service Center in coordination with
the INS Office of Security (HQSEC). The secured area will be a standard office
environment with published access control measures in place including specific
work hours. Therefore, the systems shall be suitable for operation in a standard
office environment.
C.8 MAINTENANCE (APPLICABLE TO LAU)
The Subcontractor shall provide in the Base Year and, to the extent an option is
exercised by ISI, in each Option Year, the following maintenance support in
accordance with section C.8 through C.8.2 of the Prime Contract. In the referred
to sections of the Prime Contract, the term "Contractor" shall mean
"Subcontractor". The Subcontractor shall provide:
(i) telephone technical/engineering support in accordance with section
C.8.1.3 of the Prime Contract;
(ii) corrective and emergency maintenance support in accordance with
Exhibit B and sections C.8.1.2 and C.8.2 of the Prime Contract; and provide
spare parts in accordance with Exhibit B of this Subcontract in and section
C.8.1.2.1 of the Prime Contract;
(iii) software upgrades and documentation updates in accordance with
Exhibit B of this Subcontract and sections C.8.1.2.2 and C.8.1.2.3 of the
Prime Contract.
C.9 WARRANTY
The Subcontractor shall provide a warranty included in the purchase price of the
product and services the Subcontractor provides. The warranty shall start on
INS's acceptance of the system, product or service and end a minimum of one year
later. To the extent the Subcontractor is required to provide one or more of the
following requirements, the one year warranty shall be applicable to the
following requirements the Subcontractor is required to provide as set forth in
section C.8 of the Prime Contract:
a. Preventive Maintenance
b. Corrective Maintenance - 8-Hour Response
c. Emergency Corrective Maintenance - 4-Hour Response
d. Parts
e. Software Upgrades
f. Documentation Updates
g. User-Provided Services
h. Telephone Technical/Engineering Support
10
<PAGE>
C.10 CONSULTATION SERVICES
If the Subcontractor is required by Exhibit A or Exhibit B to provide
consultation services, if and when requested by the ISI Contracting
Representative, the Subcontractor shall furnish the services of a Software
Engineer, Hardware Engineer, and/or System Technician to modify the commercial
off-the-shelf hardware and software (furnished by the Subcontractor as a part of
the integrated card production system) as required by the Contractor to support
future INS card production requirements. Any services required of these
personnel will be specifically requested by the ISI Contracting Representative
through the issuance of Task Orders.
C.11 QUALITY ASSURANCE/CARD VERIFICATION
Reserved.
C.12 SYSTEMS AND MATERIALS/CONSUMABLES DOCUMENTATION
The Subcontractor shall furnish to the Contractor three copies of documentation
for the products it provides which are included in each integrated card
production system developed for the INS under the Prime Contract. The
documentation shall include all the necessary information, with respect to the
products Subcontractor is responsible to deliver under this Subcontract, to
operate, maintain, and develop software interfaces for each integrated card
production system, including optional features purchased with the system.
The Subcontractor shall also furnish three copies of documentation for each
batch of material/consumables the Subcontractor furnishes for the production of
INS cards. The documentation shall include information on storage, handling, and
use of these items, as well as any other information deemed necessary by the
Subcontractor to ensure the reliability of the products.
In addition to the documentation supplies as a part of the integrated card
production system, the Subcontractor shall make available for the Contractor's
purchase, additional copies of the documentation described in this section C.12.
The additional copies will be purchased under CLINs 60-163 (see Exhibit B).
C.13 TRAINING (APPLICABLE TO LAU)
C.13.1 Maintenance Contractor Training. The Subcontractor shall provide, in
accordance with Exhibits A and B, maintenance training to employees of an ISI
designated maintenance contractor, and such other persons as designated by ISI,
at the Subcontractor's facilities, and certify that not less than three
employees are qualified to provide maintenance on the products the Subcontractor
delivered for each installation site, including option and upgrade features.
Training shall provide complete instruction, including testing and
certification, on the proper maintenance of the system and shall include all
training materials for three employees at each INS site.
C.13.2 INS Personnel Training. The Subcontractor shall provide, in accordance
with Exhibit B, training to INS employees at each installation site, and such
other persons as designated by ISI, on the operation and maintenance of the
Subcontractor's products delivered for each installation site, including
optional and upgrade features purchased. Training shall provide complete
instruction, including testing and certification, on the proper operation and
maintenance of the system and shall include all training materials for a minimum
of 5 INS personnel.
11
<PAGE>
At a minimum, the Subcontractor shall furnish with its products for each
integrated card production system delivered, training of 5 INS operators on the
operation and maintenance of the system.
SECTION D. PACKAGING AND MARKING
---------------------
D.1 PACKAGING AND PACKING
Unless otherwise specified, the Subcontractor shall package and pack all items
that it is required to deliver in accordance with normal commercial practices.
Packages containing magnetic media shall have on their surfaces express markings
regarding protection against exposure to magnetic fields and/or temperature
extremes.
The Subcontractor shall stamp or mark the items delivered or otherwise furnished
with a notice of the existence of the warranty. Markings may be brief, but
shall include:
(i) a brief statement that a warranty exists,
(ii) the substance of the warranty,
(iii) its duration, and
(iv) who to notify if the supplies are found to be defective.
The INS shall furnish such labor as may be necessary for packaging, unpacking,
and placement of equipment when in the possession of the INS (unless otherwise
specified herein). ISI shall supervise, with the assistance of the
Subcontractor, the packing, unpacking and placement of equipment at each site.
D.2 PACKING LIST
The Subcontractor shall prepare a packing list or other suitable shipping
document to accompany each shipment of all items that is required to deliver.
The packing list or other document shall show the (a) name and address of
consignor; (b) the name and address of consignee; (c) Government contract and
delivery order number; (d) Government bill of lading number covering the
shipment, if any; (e) description of the material shipped, including item
number, quantity, number of containers, and package number, if any; and (f) ISI
Task Order number and date.
D.3 SHIPPING
The Subcontractor shall ship and deliver all items which are unique to INS and
not sold to any other customer by either registered mail, return receipt
requested, or by UPS Delivery Confirmation Response Service with signature
required. Shipments consisting of more than one carton will be identified when
shipped as 1 of 3, 2 of 3, etc. In order to protect the integrity of the sealed
shipping containers, the Subcontractor shall affix packing slips to the outside
of shipping containers. Immediately after shipment, the Subcontractor shall
notify the ISI Contracting Representative, the ISI Technical Representative and
the affected INS regional security Officer via facsimile transmission of the
date of the shipment, quantities of materials being shipped, total number of
cartons shipped and addressee of shipment.
The Subcontractor shall ship and deliver all items which are not unique to the
INS in accordance with normal commercial practice.
The subcontractor shall be responsible for the costs of shipping, including
insurance.
12
<PAGE>
SECTION E. INSPECTION AND ACCEPTANCE
-------------------------
E.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses identified are incorporated by reference into this
Subcontract subject to the modifications specified in section I.1.
Federal Acquisition Regulation (FAR), (48 CFR Chapter 1), Clauses
52.246-2 Inspection of Supplies - JUL 1985
Fixed-Price
52.246-4 Inspection of Services - FEB 1992
Fixed-Price
52.246-6 Inspection--Time-and-Material JAN 1986
and Labor-Hour
52.246-15 Certificate of Conformance APR 1984
52.246-16 Responsibility For Supplies APR 1984
E.2 STANDARD OF PERFORMANCE AND ACCEPTANCE OF INTEGRATED CARD PRODUCTION
SYSTEMS
The Subcontractor shall participate in the performance of the acceptance tests
of the Integrated Card Production Systems delivered under CLIN 100 and, if
options are exercised, the System Upgrades in CLINS 110 through 157, including
tests in Acton, Massachusetts. The INS will inspect and accept the systems to
ensure the systems meet the requirements of Section C of the Prime Contract have
the performance capabilities proposed by ISI and the Subcontractor; and are
configured consistent with the delivery order(s) issued by the INS to acquire
the system(s). The Subcontractors' participation in the acceptance test and
Standard of Performance is described in Exhibit B of this Subcontract. The
acceptance tests which the Subcontractor's products and services are required to
meet, as part of the System at each site, are described in sections E.2.1
through E.2.5 in this Subcontract.
E.2.1 Subcontractor Testing
Each Subcontractor product which is to be part of the Integrated Card Production
System or System Upgrade shall be certified by the Subcontractor in writing as
to having undergone a Subcontractor quality control/assurance test process to
detect faulty hardware and software; to insure the quality and reliability of
system performance; and to certify that the product, when integrated into the
system, will meet the Standard of Performance set forth in Section E.2.3, below.
The Subcontractor's test shall be conducted prior to installation of the system
at the INS sites. The Subcontractor's quality control/assurance tests must be
conducted as evaluated and approved by ISI.
E.2.2 Inspection and Acceptance Testing
The INS will produce 10,000 "live" cards during the inspection and acceptance
test of each of the Integrated Card Production Systems. Therefore INS personnel
will subject the Integrated Card Production Systems to a 10-day acceptance test
following installation at the INS site before formal acceptance. The
13
<PAGE>
INS will operate the system for 10 consecutive days, 24 hours per day, less 4
hours system downtime due to preventive maintenance. The first day of the
Performance Acceptance Period shall be the actual date of installation
completion by ISI and the Subcontractor. If any component fails to complete the
Performance Acceptance Period successfully within 10 days from the initial
installation, INS, at its option may require replacement of the component or the
entire system. In that event, ISI, at its option, may require the Subcontractor
to replace its failed component or its entire product or system. The replacement
of the component, product or system shall be completed within 48 hours. After
replacement is completed, the 10-day test period will begin again. If the
replacement component, product or system fails to complete the Performance
Acceptance Period successfully within the next 10 days after it is installed,
the INS may exercise its right to terminate the ISI Prime Contract for default
and ISI may exercise its right to terminate this Subcontract for default.
During the Inspection and Acceptance Testing of the base integrated card
production system (i.e., CLIN 100, which is considered to be unit #1), INS will
produce 10,000 "live" EAD cards that consist of the features described in
section C.5.1, C.5.2 (exclusive of optional features), C.5.3.1 (exclusive of
optional features), C.5.4.1.1, C.5.4.1.2, and C.5.4.1.3 of the Prime Contract.
For the purposes of Acceptance Tests for other than the Base Integrated Card
Production System (i.e., units #2 through #6) will include all of the features
described in section C.5 of the Prime Contract. Therefore, the inspection and
acceptance test of units #2 through #6 (should the INS decide to order these
units), shall provide for the production of 10,000 "live" cards that include all
of the features described in section C.5 of the Prime Contract.
E.2.3 Standard of Performance
Notwithstanding the requirement for an inspection and acceptance test that will
be completed within 10 days after system installation, the Standard of
Performance for operation of the integrated card production system shall be 95%,
30 consecutive days of 24 hour/day operational use with no more than 12 hours
per month system downtime due to preventive maintenance. Once the system is
placed into production by the INS, ISI and the Subcontractor will be immediately
notified if the system fails to meet the Standard of Performance. For the
purposes of this clause, the INS considers "production" to include INS'
production of sample cards.
E.2.4 Date of Installation
The Date of Installation shall be the day of successful completion, assembly and
installation of the system, including the Subcontractor's products, and
certification by the Subcontractor and ISI that the system is ready for normal
operational use.
E.2.5 Date of Acceptance
The Date of Acceptance of the integrated card production system or the upgraded
system shall be the first day after the system meets the Standard of Performance
and completion of acceptance testing.
E.3 INSPECTION AND TEST OF SUPPLIES AND CONSUMABLES.
See section C.6.1 of this Subcontract for the inspection and test of certain
supplies and consumables.
14
<PAGE>
SECTION F. DELIVERIES OR PERFORMANCE
-------------------------
F.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses are incorporated by reference into this Subcontract
subject to the modifications specified in section I.1.
Federal Acquisition Regulation (FAR), (48 CFR Chapter 1), Clauses
52.212-10 Delivery of Excess Quantities of $250 SEP 1989
or Less
52.212-13 Stop Work Order AUG 1989
52.212-15 Government Delay of Work APR 1984
52.247-34 F.O.B. Destination NOV 1991
F.2 DELIVERY LOCATIONS
Each ICPS and all other products which the Subcontractor is required to deliver
under this Subcontract shall be packaged and shipped to the designated site(s)
(inside delivery to the exact room location as specified in the ISI Task Order).
Delivery locations are listed in section C.7.1 of this Subcontract. ISI
reserves the right to install additional Integrated Card Production Systems at
these sites or at other INS sites.
F.3 PERIOD OF PERFORMANCE
The period of performance of this Subcontract shall commence on the effective
date of this Subcontract. The Base Period of performance of this Subcontract
shall end 12 months days after the date of the INS' award of the Prime Contract
to ISI. In accordance with section B.2 of this Subcontract, ISI has the right
to extend the period of performance of this Subcontract for Option Year 1 and
Option Year 2 as defined in Section A.2.
F.4 TRANSPORTATION
Unless otherwise specifically provided in Exhibits A or B, all shipments in the
performance of this Subcontract shall be at Subcontractor's expense.
F.5 REQUIRED TIME, PLACE OF DELIVERY AND PERFORMANCE
The required time and place of delivery of products or provision of services to
be provided under this Subcontract will be specified in each Task Order issued
by ISI. If a Task Order fails to identify the required time and place of
delivery, then the Subcontractor shall promptly notify the ISI Contracting
Representative and request due dates and/or destinations.
The minimum requirement for the Subcontractor's delivery of products and
services to ISI under this Subcontract is provided in the following matrix. The
time and place of delivery of all products and services will be specified in
written Task Orders issued by ISI.
15
<PAGE>
NOTE: DARO IS "CALENDAR DAYS AFTER RECEIPT OF ORDER" MEANING AFTER ISI'S
RECEIPT OF A PROPERLY EXECUTED INS DELIVERY ORDER TO ISI. DAC IS "CALENDAR
DAYS AFTER AWARD OF THE PRIME CONTRACT TO ISI" MEANING AFTER THE PRIME
CONTRACT IS PROPERLY EXECUTED BY INS AND ISI.
MINIMUM DELIVERY SCHEDULE MATRIX
<TABLE>
<CAPTION>
=================================================================================================
CLIN DESCRIPTION SCHEDULE
=================================================================================================
<S> <C> <C>
100 Integrated Card Production System, installed
- -------------------------------------------------------------------------------------------------
Site #1: Lincoln, Nebraska 60 DAC
- -------------------------------------------------------------------------------------------------
Site #2: Laguna Niguel, CA 120 DARO
- -------------------------------------------------------------------------------------------------
Site #3: St. Albans, Vermont 120 DARO
- -------------------------------------------------------------------------------------------------
Site #4: Dallas, TX 120 DARO
- -------------------------------------------------------------------------------------------------
Site #5 and #6: (location to be determined) 120 DARO
- -------------------------------------------------------------------------------------------------
110-113 WORM Upgrades, installed 300 DARO
- -------------------------------------------------------------------------------------------------
120-123 RF Upgrades, installed 360 DARO
- -------------------------------------------------------------------------------------------------
130-131 OCR-B Upgrades, installed 360 DARO
- -------------------------------------------------------------------------------------------------
132 Multi-Color Text Printing 360 DARO
- -------------------------------------------------------------------------------------------------
133 Write 3D Barcode 360 DARO
- -------------------------------------------------------------------------------------------------
135 Embedded Magnetic Stripe 360 DARO
- -------------------------------------------------------------------------------------------------
136 - 147 IC Chip Upgrades, installed 360 DARO
- -------------------------------------------------------------------------------------------------
150 Tracking Information - Inventory Control 360 DARO
- -------------------------------------------------------------------------------------------------
151 Tracking Information - Failed Card Count 360 DARO
- -------------------------------------------------------------------------------------------------
155 Microline Printing 360 DARO
- -------------------------------------------------------------------------------------------------
156 Mailer - Seal Envelopes 360 DARO
- -------------------------------------------------------------------------------------------------
157 Mailer - Stamp Envelopes (Postal Meter) 360 DARO
- -------------------------------------------------------------------------------------------------
160 - 163 System Documentation 30 DARO
- -------------------------------------------------------------------------------------------------
200 - 235 Substrate 30 DARO
- -------------------------------------------------------------------------------------------------
250 - 287 PVC 30 DARO
- -------------------------------------------------------------------------------------------------
300 Hologram and Hologram Laminate 60 DAC
- -------------------------------------------------------------------------------------------------
310 - 313 Hologram Laminate 30 DARO
- -------------------------------------------------------------------------------------------------
350 - 353 Plain Laminate 30 DARO
- -------------------------------------------------------------------------------------------------
400 - 403 Color Dye Diffusion Ribbon 30 DARO
- -------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
500 - 532 Inks 30 DARO
- --------------------------------------------------------------------------------------------------
600 - 632 Mailing Supplies 30 DARO
- --------------------------------------------------------------------------------------------------
700 - 703 Carbon Ribbon 30 DARO
- --------------------------------------------------------------------------------------------------
750 Cleaning Tape 30 DARO
- --------------------------------------------------------------------------------------------------
751 Cleaning Roller 30 DARO
- --------------------------------------------------------------------------------------------------
752 Print Head 30 DARO
- --------------------------------------------------------------------------------------------------
800 - 805 Card Readers 60 DAC
- --------------------------------------------------------------------------------------------------
1000 - 1012 Training 30 DARO
- --------------------------------------------------------------------------------------------------
2000 - 2003 Consultation Services As Required
- --------------------------------------------------------------------------------------------------
3000 - 4000 Maintenance As Required
- --------------------------------------------------------------------------------------------------
5000 Quality Assurance Verification Station As Required
- --------------------------------------------------------------------------------------------------
9000 Hot Backup System As Required
- --------------------------------------------------------------------------------------------------
</TABLE>
ISI reserves the right to order system upgrades separate from the base
integrated card production system and require that the upgrade be delivered and
installed on the INS Integrated Card Production System within the time frame set
forth for the upgrade as described in the matrix provided above table in this
section F.5.
F.6 WAIVER OF DELIVERY SCHEDULE.
None of the following shall be regarded as an extension, waiver, or abandonment
of the delivery schedule, or waiver of ISI's right to terminate for default:
(i) delay by ISI in terminating for default; (ii) acceptance of delinquent
deliveries; and (iii) acceptance or approval of late delivered samples.
Any assistance rendered to the Subcontractor on this Subcontract, or acceptance
by ISI of delinquent goods or services hereunder, will be solely for the purpose
of mitigating damages and is not construed as an intention on the part of ISI to
condone any delinquency, or as a waiver of any right ISI may have under the
Subcontract.
F.7 NOTICE TO ISI OF DELAYS
In the event the Subcontractor either encounters difficulty in meeting
performance requirements, or anticipates difficulty in complying with the
contract delivery schedule or completion date, or whenever the Subcontractor has
knowledge that any actual or potential situation is delaying or threatens to
delay the timely performance of this Subcontract, the Subcontractor shall
immediately notify the ISI Contracting Representative and the ISI Technical
Representative in writing, giving pertinent details; provided however, that this
data shall be informational only in character and that this provision shall not
be construed as a waiver by ISI of any delivery schedule or date, or any rights
or remedies provided by law or under this contract.
17
<PAGE>
F.8 LIQUIDATED DAMAGES - SUPPLIES, SERVICES, OR RESEARCH AND
DEVELOPMENT (FAR 52.212-4)(APR 1984)
a. If the Subcontractor fails to deliver the supplies or perform the
services within the time specified in the Subcontract, or any extension,
the Subcontractor shall, in place of actual damages, pay to ISI as fixed,
agreed, and liquidated damages, for each calendar day of delay the sum of
$5,000.00 for non-delivery of those supplies and services.
---------
(i) The maximum period for assessment of liquidated damages shall be
90 days which established the maximum amount of liquidated damages at
-------
$450,000.00. The liquidated damages shall be assessed for failure to
-----------
make delivery of each Integrated Card Production System ordered under
CLIN 100, or part thereof for which the Subcontractor is responsible,
and for failure to make delivery of the supplies and consumables
required under CLINs 200 through 532 for which the Subcontractor is
---------------------
responsible.
(ii) If the Subcontractor successfully delivers the Integrated Card
Production System (i.e. CLIN 100), or part thereof for which the
Subcontractor is responsible, but fails to deliver the supplies and
consumables (i.e. items ordered under CLINs 200 through 532) for which
the Subcontractor is responsible, liquidated damages at the amounts
set forth above shall be assessed against the Subcontractor.
(iii) If one ore more of ISI's subcontractors or ISI itself also are
responsible for causing the Subcontractor's failure to deliver the
supplies or perform the services for which liquidated damages are
payable by the Subcontractor to ISI, the liquidated damages payable
shall be equitably shared by the Subcontractor and other contributors
to the failure.
(iv) If one or more of ISI's subcontractors or ISI itself also cause,
in parallel, a separate independent failure to deliver supplies on the
same days or perform the services on the same days for which
liquidated damages are payable by the Subcontractor to ISI, the
liquidated damages payable by the Subcontractor to ISI because of such
failure shall be equitably shared by the Subcontractor and the other
contributors to the failure.
(v) If pursuant to subparagraphs (iii) or (iv), there are alleged to
be two or more contributors to a failure to deliver, those
contributors shall meet and seek to determine the relative fault of
each one of them and the corresponding responsibility for payment of
liquidated damages. If the contributors to a failure cannot agree on
the relative fault and the corresponding responsibility for payment of
liquidated damages, these issues will be settled by arbitration in
accordance with section I.21 of this Subcontract.
b. If delivery or performance is so delayed, ISI may terminate this
Subcontract in whole or in part under the Default-Fixed-Price Supply and
Service clause in this Subcontract and in that event the Subcontractor
shall be liable for fixed, agreed, and liquidated damages accruing until
the time ISI may reasonably obtain delivery or performance of similar
supplies or services. The liquidated damages shall be in addition to excess
costs under the Termination clause.
c. The Subcontractor shall not be charged liquidated damages when the
delay in delivery or performance arises out of causes beyond the control
and without the fault or negligence of the Subcontractor as defined in the
Default-Fixed-Price Supply and Service clause in this Subcontract.
18
<PAGE>
F.10 ENVIRONMENTAL CONDITIONS
Each ICPS shall be delivered and fully installed and made operational in a
standard office environment. (See Attachment C of Section J of the Prime
Contract).
F.11 SCHEDULE AND DESTINATION FOR DELIVERY OF REPORTS
In accordance with Exhibit B, the Subcontractor shall provide relevant
information on a timely basis to enable ISI to provide the Management Reports to
the INS. These are the reports required for the COTR and the Contracting Officer
to monitor ISI's performance. This list is not all inclusive and therefore does
not constitute a waiver of other reporting requirements established by the FAR,
FIRMR, or the Special and General Provisions of this Subcontract.
The format and content for each of the following reports is specifically
described in section G of this Subcontract. The deliverables will be marked in
accordance with section D of this Subcontract.
FIRST DUE -
REPORT TITLE PERIODICITY CHANGES ADDRESSEE
<TABLE>
<CAPTION>
=================================================================================
FIRST DUE
REPORT TITLE PERIODICITY CHANGES ADDRESSEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Subcontract Management Plan 12 DAC Within 11 ISI CO REP
calendar & ISI TECH
days REP
- ---------------------------------------------------------------------------------
Updated Quality Assurance Plan 19 DAC Within 18 ISI CO REP
calendar & ISI TECH
days REP
- ---------------------------------------------------------------------------------
Documentation Plan 12 DAC Within 11 ISI CO REP
calendar & ISI TECH
days REP
- ---------------------------------------------------------------------------------
Updated Security Management Plan 19 DAC Within 18 ISI CO REP
calendar & ISI TECH
days REP
- --------------------------------------------------------------------------------
Monthly Report 27 DAC As required ISI CO REP
& ISI TECH
REP
- --------------------------------------------------------------------------------
Annual Report 27 DAC As required ISI CO REP
& ISI TECH
REP
=================================================================================
</TABLE>
NOTE: DAC MEANS "CALENDAR DAYS AFTER PRIME CONTRACT AWARD".
ISI may unilaterally modify this delivery schedule provided the Subcontractor
receives 25 calendar days' notice of the scheduled change.
19
<PAGE>
SECTION G. CONTRACT ADMINISTRATION DATA
----------------------------
G.1 CONTRACTING REPRESENTATIVES
The ISI Contracting Representative is:
Ms. Terri Ann Rogers
7611 Little River Turnpike, Suite 100 East
Annandale, Virginia 22003
Telephone: (703) 813-8544
Telefax: (703) 813-8499
The Subcontractor's Contracting Representative is:
Mr. Donald B. Kenyon
Manager of Contracts
531 Main Street
Acton, Massachusetts 01720
Telephone: (508) 263-8365 (Ext.242)
Telefax: (508) 263-3358
G.2 TECHNICAL REPRESENTATIVES
(a) The ISI Technical Representative is:
Mr. William T. Alsbrooks
7611 Little River Turnpike, Suite 100 East
Annandale, Virginia 22003
Telephone: (703) 813-8330
Telefax: (703) 813-8332
The ISI Technical Representative will coordinate the technical aspects of this
Subcontract and inspect products and services furnished hereunder; however
he/she is not authorized to modify or add any terms or conditions of this
Subcontract, including price. The authority to accept products and services
furnished by the Subcontractor is expressly reserved to the ISI Contracting
Representative.
(b) The Subcontractor's Technical Representative is:
Mr. William Bradley
531 Main Street
Acton, Massachusetts 01720
Telephone: (508) 263-8365 (Ext. 267)
Telefax: (508) 263-3358
G.3 INVOICE REQUIREMENTS
See section B.4.1 of this Subcontract.
20
<PAGE>
G.4 AUTHORIZATION FOR PLACING ORDERS
The ISI individuals identified in section G.1 are authorized to place Task
Orders under this Subcontract. All Task Orders will be placed in accordance
with section I.4, "Ordering" of this Subcontract.
G.5 PRICING OF ADJUSTMENTS
When costs are a factor in any determination of Subcontract price adjustment
pursuant to the "Changes" clause, or any other clause of this Subcontract, such
costs shall be in accordance with the contract cost principles and procedures in
Part 31 of the Federal Acquisition Regulation (48 CFR 31) in effect on the date
of the Subcontract.
G.6 CONTRACTOR'S REMITTANCE ADDRESS
See section B.4.2 of this Subcontract.
G.7 CONTRACT ADMINISTRATION REPORTING REQUIREMENTS
The following is a description of reports that the Subcontractor shall provide
on a regular basis as a part of their overall management activities under this
Subcontract:
G.7.1 MANAGEMENT REPORTS
G.7.1.1 LOWER TIER SUBCONTRACT MANAGEMENT PLAN
The Subcontractor shall describe its subcontract management objectives, as well
as describe the criteria used to evaluate the degree of lower tier subcontractor
compliance with performance, price and schedule objectives. Acquisition
strategies shall be specified in the Subcontract Management Plan ("SMP") to
ensure compliance with Government regulations. The SMP shall include a
discussion of implementation and compliance with the Small and Small
Disadvantaged Business Plan and applicable reporting requirements contained in
this Subcontract.
G.7.1.2 UPDATED QUALITY ASSURANCE PLAN
The Updated Quality Assurance Plan (QAP) shall describe the Subcontractor's
standards and procedures for ensuring that all deliverables are accurate,
current, complete, and of the highest possible quality. The QAP shall discuss
requirements for reporting, auditing, and evaluating processes at all levels to
ensure a check and balance is provided.
G.7.1.3 DOCUMENTATION PLAN
The Documentation Plan (DP) shall describe the documentation processes that are
being implemented and the methods that will be utilized for control of the
distribution of system manuals and updates.
G.7.1.4 UPDATED SECURITY MANAGEMENT PLAN
The Subcontractor shall furnish an update of the plan proposed for maintaining
the security and integrity of the INS data and card production process. The
security management plan shall address how the Subcontractor will receive,
control, store, and distribute supplies and consumables that will be purchased
and used by the INS to produce cards.
21
<PAGE>
G.7.2.1 MONTHLY REPORT
The Subcontractor shall submit a monthly report that identifies the status of
all activities under the Subcontract including Task Orders, quality assurance,
lower tier subcontracts, and maintenance services. All warranty/maintenance
(including all emergency corrective maintenance) calls received during the
period shall be identified by the location of the equipment or software, the
problem reported, resolution of the problem (including the amount of time
required to complete repairs) or status of problem (if the problem(s) remain
unresolved).
G.7.2.2 ANNUAL REPORT
The Subcontractor shall submit an annual report that identifies all the
activities under the Subcontract during the year. This report shall contain the
same level of detail as the Monthly Report and shall update and/or correct the
data furnished in the Monthly Report.
SECTION H. SPECIAL CONTRACT REQUIREMENTS
-----------------------------
H.1 Reserved.
H.2 TYPE OF SUBCONTRACT
This is a Fixed Price, Indefinite-Delivery Indefinite-Quantity (IDIQ) type
contract.
H.3 Reserved.
H.4 INCORPORATION OR REPRESENTATIONS, CERTIFICATIONS AND OTHER
STATEMENTS OF SUBCONTRACTOR
This Subcontract incorporates the Representations, Certifications and Other
Statements of Subcontractor (see Exhibit D) by reference with the same force and
effect as if they were included in full text.
H.5 Reserved.
H.6 EMPLOYMENT OF ILLEGAL ALIENS
Subject to existing laws, regulations, Executive Orders, and other provisions of
this Subcontract, aliens unauthorized to be employed in the United States shall
not be employed by the Subcontractor, or it lower tier subcontractors, to work
on, under, or with this Subcontract. The Subcontractor shall ensure that this
provision is expressly incorporated into any and all lower tier subcontracts or
subordinate agreements issued in support of this Subcontract.
H.7 WORK ON OCCUPIED PREMISES
If the Subcontractor (or any of its lower tier subcontractors and their
employees) is assigned to work at INS sites, then the Subcontractor shall comply
with the regulations governing access to, operation of, and conduct while in or
on the premises. The Subcontractor shall ensure that all work is performed in a
manner that does not interrupt or interfere with the conduct of INS business.
The Subcontractor, upon notification by the Contracting officer or the ISI
Contracting Representative, shall immediately remove from any INS site and/or
performance under the Subcontract, any of its
22
<PAGE>
employees so identified. Neither the Contracting Officer nor any INS official
nor the ISI Contracting Representative is required to provide justification for
this unilateral determination, and any such directed removal is not subject to
question or challenge in any fashion.
H.8 INSURANCE
In accordance with FAR 52.228-8, Insurance - Work on a Government Installation
(SEP) 1989), contained in Section I of this Subcontract, the Subcontractor shall
have insurance as follows:
General Liability $500,000 per incident
Worker's Compensation $100,000 per incident
& Employee's Liability
Within 30 days after this Subcontract is awarded, the Subcontractor shall
provide a certification from its insurance broker that the Subcontractor has the
required insurance coverage.
H.9 AMERICANS WITH DISABILITIES ACT
INS currently does not have a requirement for ADP software for INS
employees/users with disabilities. However, if the Subcontractor is obligated to
provide ADP software under this Subcontract, the Subcontractor shall have the
capability to provide ADP software to meet the accessibility requirements as
further described in the Federal Information Resources Management Regulations.
ISI will identify the need for any such software in the individual Task Orders
issued under the Subcontract.
H.10 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO PURCHASE OF
EQUIPMENT
(a) COST OF MOVEMENT: Except as explicitly otherwise provided in this
Subcontract, prior to the expiration period, whenever equipment furnished
by the Subcontractor is shipped for mechanical replacement purposes, the
Subcontractor shall bear all costs, including, but not limited to, the
costs of packing, transportation, rigging, drayage, and insurance.
(b) FAULT OF GOVERNMENT: The warranty shall not apply to maintenance
required due to the fault or negligence of the INS.
(c) TITLE: Title to equipment, including special features installed
thereon, will pass from the Subcontractor to the INS upon acceptance by the
INS. However, the Subcontractor shall retain rights to software identified
in Exhibit F in accordance with the data clauses in this Subcontract--FAR
52-227-14 "Rights In Data--General (JUN 1987)" and FAR 52-227-19
"Commercial Computer Software--Restricted Rights (JUN 1987)".
H.11 ALTERATIONS AND ATTACHMENTS
Upon 7 days written notice to the Subcontractor, the INS may make alterations or
install attachments to the equipment purchased from the Subcontractor, provided
that such action will not create a safety hazard. The INS shall assume full
liability for any damages and/or degradation in equipment performance
attributable directly to such alteration or attachment.
23
<PAGE>
H.12 ENGINEERING CHANGES
Engineering changes proposed by the Subcontractor shall be complete; i.e., they
shall therefore address all training, documentation, maintenance, and warranties
required by Section C of this contract.
(a) After Subcontract award, ISI may solicit, and the Subcontractor shall
propose, engineering changes to the equipment and software specifications,
or other requirements of this Subcontract. These changes may be proposed
to save money, to improve performance, to save energy, or to satisfy
increased data processing requirements. However, if proposed changes
relating to improved performance are necessary to meet the increased data
processing requirements of the user, those requirements shall not exceed
the Prime Contract requirements by more than 25%. If the proposed changes
are acceptable to both parties, the Subcontractor shall submit a price
change proposal to ISI for evaluation. Those proposed engineering changes
that are acceptable to ISI will be processed as modifications to the
Subcontract.
(b) This clause applies only to those proposed changes identified by the
Subcontractor as an engineering change proposal (ECP) submitted pursuant to
the provisions of this clause. At a minimum, the following information
shall be submitted by the Subcontractor with each proposal:
(1) A description of the difference between the existing
Subcontract requirement and the proposed change, and the
comparative advantages and disadvantages of each;
(2) Itemized requirements of the Subcontract which must be
changed if the proposal is adopted, and the proposed
revision to the contract for each such change;
(3) An estimate of the changes in performance and cost, if any,
that will result from adoption of the proposal;
(4) An evaluation of the effects the proposed change would have
on collateral costs to INS and ISI, such as Government-
furnished property costs, costs of related items, and costs
of maintenance and operation; and
(5) A statement of the time by which the change order adopting
the proposal must be issued so as to obtain the maximum
benefits of the changes during the remainder of this
Subcontract. Also, any effect on the Subcontract completion
time or delivery schedule shall be identified.
(c) ECPs submitted to the ISI Contracting Representative shall be
processed expeditiously. Neither ISI nor INS shall be liable for proposal
preparation costs or any delay in acting upon any proposal submitted
pursuant to this clause. The Subcontractor has the right to withdraw, in
whole or in part, any ECP not accepted by ISI within the period specified
in the proposal. The decision of the ISI Contracting Representatives as to
the acceptance of any proposal under this contract shall be final and shall
not be subject to the "Disputes" clause of this contract.
(d) If the ISI Contracting Representative accepts any ECP submitted
pursuant to this clause he/she shall issue a modification to this
Subcontract. Unless and until a modification is executed to incorporate an
ECP under this Subcontract, the Subcontractor shall remain obligated to
perform in accordance with the terms of the existing Subcontract.
24
<PAGE>
(e) If an ECP submitted pursuant to this clause is accepted and applied to
this Subcontract, an equitable adjustment in the Subcontract price and in
any other affected provisions shall be made in accordance with this and/or
other applicable clauses. When the cost of performance of this Subcontract
is increased or decreased as a result of the change, the equitable
adjustment to the Subcontract price shall be calculated in accordance with
the "Changes" clause, but the resulting Subcontract modification shall
state that it is made pursuant to this clause.
(f) The Subcontractor shall specifically identify information contained in
the ECP which it considers confidential and/or proprietary and which
prefers not be disclosed to the public. The identification of information
as confidential and/or proprietary is for information purposes only and
shall not be binding on ISI or the INS to prevent disclosure of such
information. Offerors are advised that such information may be subject to
release upon request pursuant to the Freedom of Information Act (5 U.S.C.
(S)552).
H.13 CERTIFICATE OF MAINTAINABILITY
Reserved.
H.14 REPLACEMENT PARTS AVAILABILITY
The Subcontractor agrees to make available replacement parts for equipment that
it provides in this Subcontract for the system life designated in Section F,
"Term of Contract." The Contractor shall notify ISI 180 days before the end of
the system's life as to the continuing availability of parts subsequent to this
period. If parts will not be available from the Subcontractor, ISI may require
the Subcontractor to furnish data that is available to the Subcontractor, to
assist ISI to obtain such parts from another source.
H.15 SITE PREPARATION
Equipment environmental specifications shall conform exactly with the Section C
notice of INS' environment standards.
H.16 CONFLICTS WITH OTHER CONTRACTS
The Subcontractor is informed that services and supplies called for under this
Subcontract, other than the identified minimum amounts, shall not be ordered by
ISI or provided by the Subcontractor when this Subcontract conflicts with the
supplies or services available under a requirements type contract(s), as defined
by the Federal Acquisition Regulation (FAR) 16.5, which has been awarded by the
INS or to which the INS is party or subject. When this Subcontract duplicates
the supplies and services under another indefinite delivery, indefinite quantity
contract, ISI and the INS reserve the right to process those supplies or
services under either contract.
H.17 SUBCONTRACTING PLAN
In accordance with FAR 52.219-9 (as prescribed in FAR 19.7), a subcontracting
plan is required of the Subcontractor if this Subcontract is expected to exceed
$500,000 and if the Subcontractor is not a small business. The approved plan
will be incorporated into the Subcontract as Exhibit E at time of Subcontract
award.
25
<PAGE>
H.18 PRICING OF ADJUSTMENTS
When costs are a factor in any determination of a contract price adjustment
pursuant to the "Changes" Clause or any other clause of this Subcontract, such
costs shall be in accordance with the contract cost principles and procedures in
Part 31 of the FAR (48 CFR 31) in effect as of the date of this Subcontract.
H.19 RIGHTS IN TECHNICAL DATA
The INS shall have all rights in data related to the card production equipment,
supplies and consumables which were made solely for the INS under the
Subcontract. The INS will have all rights to color formulations and substrate
designs, color formulations and material compositions applicable to cards
generally, microline printing, embedded codes, holograms, RF tags and formulas
for specific IR and UV inks which are furnished to ISI and the INS as a part of
this Subcontract and which are unique to the INS. Further, the INS retains all
rights to the hologram artwork furnished by the INS and any sketches, designs,
changes, and products furnished by the Subcontractor in developing the hologram
for the INS.
Because of the potential for the production of counterfeit documents, the
Subcontractor shall not market or sell any of the unique supplies, consumables,
and data produced for this Subcontract. Further, the INS will have exclusive
intellectual and proprietary rights to all of the INS-unique features and
processes identified in Section C. The INS intends to protect its rights fully
and to prosecute violators of its rights to the maximum extent permitted by the
law. The Subcontractor shall insert this clause in any subcontract having to do
with the satisfaction of performance and/or deliveries under this Subcontract.
Subcontractor shall require the inclusion of this clause in any lower tier
subcontract. The Subcontractor shall be responsible for compliance with this
clause by the its lower tier subcontractor.
H.20 SECURITY REQUIREMENTS (NON-CLASSIFIED CONTRACT)
The Immigration and Naturalization Service shall have and exercise full and
complete control over granting, denying, withholding or terminating access for
Subcontractor employees. INS may, as it deems appropriate, authorize and grant
temporary access to employees of the Subcontractor or its lower tier
subcontractors, vendor, and/or volunteer. The granting of a waiver to commence
work shall not be considered as assurance that a full security authorization
will follow as a result thereof, and the granting of either a waiver or a full
employment suitability clearance shall in no way prevent, preclude or bar the
withdrawal or termination of any such access by INS, at any time during the term
of the contract. No employee of the Subcontractor, or its lower tier
---------------------------------------------------
subcontractor, vendor, or volunteer shall be allowed access without such
- ------------------------------------------------------------------------
employment suitability clearance.
- --------------------------------
All employees (to include subcontractors, temporary, part-time and replacement
employees) assigned to the performance of work under this Subcontract shall
undergo a position sensitivity analysis. The results of the position sensitivity
analysis shall identify the appropriate background investigation to be
conducted. At a minimum, each Subcontractor having involvement with the
fabrication, production, or processing of each card identified, shall undergo a
Limited Background Investigation (LBI). All background investigations will be
processed through the INS Contract Security Section. Subcontractor employees
hired under INS contracts requiring an investigation shall not commence work
under the contract until authorization has been issued by the INS Contract
Security Section to the INS Contracting Officer's Technical Representative
(COTR). All prospective Subcontractor employee shall submit the following
completed forms (no less than thirty-eight (38) days before the starting date of
the Subcontract):
(1) Standard Form 85P - "Questionnaire for Public Trust Positions"
(original plus a copy)
26
<PAGE>
(2) Supplemental "Foreign Born Relatives" statement relating to
individuals who have relatives in another country (original plus a copy)
(3) Proof of employment authorization (if non-U.S. citizen) or birth
certificate (if U.S. citizen)
(4) FD form 258, "Fingerprint Card" (2 copies)
(5) SF 171 "Application for Employment", Questions 3, 6, 19, 28, 36, 38-
44, 48 and 49 only. (original plus a copy)
(6) Pre-Employment suitability check. Form G-736 (five years employment)
The Subcontractor using form G-736 will also provide documentation that the
previous employers of all new contract employees have been interviewed to
ascertain the following information concerning the period five years prior to
application:
(1) Verification of employment history (dates, salary, job titles and
duties)
(2) Reason for leaving employment
(3) Whether employer would re-hire the applicant
(4) Name of person contacted
(5) Name of employee doing the interview on behalf of the Subcontractor
Necessary forms will be provided by ISI at the time of award of the Subcontract.
Only complete suitability packages will be accepted by INS Contract Security.
Specific instructions on submission of packages will be provided upon award of
the Subcontract. If an unsuitable report on any employee is received after
processing of the required forms, or if a prospective employee is found to be
unsuitable or unfit for his assigned duties, the COTR will advise the
Subcontractor that the employee shall not continue to work or be assigned to
work under this Subcontract.
Employees found suitable for employment through this process while employed by
one Subcontractor are not required to submit a new set of forms if subsequently
hired by a follow-on Subcontractor, unless specifically requested to do so by
the COTR.
INS and ISI reserve the right and prerogative to require the Subcontractor to
terminate the services and restrict access to the facility of any employee who
may be an offender, or whose personal habits, criminal history or inclinations
are in conflict with the DOJ standards of conduct, 28 CFR 45.731.1 through
45.731.26, or who otherwise may be a security risk.
The Subcontractor shall appoint a senior official to act as the Subcontractor's
Security Officer. This individual will interface with the ISI and INS Security
Office on all security matters, to include physical, personnel, and protection
of all information and data accessed by the Subcontractor.
The COTR, the INS Contract Security offices and ISI shall have the right to
inspect the procedures, methods, and facilities utilized by the Subcontractor in
complying with the security requirements under this Subcontract. Should the
COTR or ISI determine that the Subcontractor is not complying with the
27
<PAGE>
security requirements of this Subcontract, the Contracting Officer of ISI shall
inform the Subcontractor in writing of the proper action to be taken in order to
effect compliance with the requirements.
The Subcontractor must agree that each person employed by it or any
subcontractor(s) will have a social security card issued and approved by the
Social Security Administration and be a United States citizen or Legal Permanent
Residents (LPR's). INS will address the employment suitability of each
prospective employee on a case-by-case basis. Each employee of the
Subcontractor, and of any subcontractor(s), must complete and sign a form 1-9,
"Employment Eligibility Verification" before commencing work. The Contractor
will retain the original form 1-9 before the employee commences work. The
Subcontractor is responsible to the government and to ISI for acts and omissions
of its own employees and of any subcontractor employees.
H.21 EQUIPMENT MAINTENANCE
See Section C, Paragraph C.8.
H.22 WARRANTY FOR EQUIPMENT AND CONSUMABLE SUPPLIES
See Section C, Paragraph C.9.
H.23 SUBSTITUTION OF EQUIPMENT
Any substitutions proposed by the Subcontractor shall be complete and shall
therefore address all training, documentation, maintenance, and warranties as
required by Section C of this Subcontract.
This clause acknowledges that from time to time some of the contracted-for
equipment may not be readily available or may have gone out of production
permanently. The Subcontractor may request a one time or permanent substitution
of one or more contract line items. Such requests must be made in writing to
the ISI Contracting Representative. The following conditions must be met:
(a) The replacement item(s) must meet or exceed all contract
specifications applicable to the item(s) replaced;
(b) The replacement item(s) must be acceptable to the Contracting Officer,
to the Contracting Officer's Technical Representative; and the ISI
Contracting Representative.
(c) The replacement item(s) must be approved in writing by the ISI
Contracting Representative;
(d) The replacement item(s) shall carry the same or better warranty; and
(e) Replacement items proposed are subject to the provisions of Clause
H.24, Technical Refreshment, (a)(1) through (a)(7).
The fact that the Subcontractor requests a replacement shall not extend the
required delivery dates of any items. Upon acceptance of a replacement, the
Subcontractor may request a reasonable extension.
28
<PAGE>
H.24 TECHNOLOGY REFRESHMENT
Technology refreshments proposed by the Subcontractor shall be complete and
shall therefore address all training, documentation, maintenance, and warranties
as required by Section C of this Subcontract.
(a) The Subcontractor is responsible for developing and maintaining a
technology refreshment program throughout the course of the Subcontract.
This program shall require the Subcontractor to propose, and ISI and INS to
consider, alternate equipment and software which meets the following
requirements:
(1) Meets at a minimum all of the mandatory requirements of the
specification;
(2) Is functionally equivalent or superior to current components
under the Subcontract;
(3) Will maintain or improve successful performance of the total
system;
(4) Will facilitate or maintain ease of maintenance or ease of
use;
(5) Will be supportable for the life of the Prime Contract;
(6) Has been successfully utilized in actual performance in
accordance with the commercial availability requirements of
the Subcontract; and
(7) Will be provided at a cost per unit of value to ISI equal to
or less than the equipment or software currently under
Subcontract.
(b) The Subcontractor shall prepare and submit a plan in the proposal
setting forth their approach to technology refreshment. This plan shall,
at a minimum, address the following issues:
(1) Anticipated sources for new products and the procedures by
which current information will be supplied to the
Subcontractor.
(2) Procedures for verification of functionality;
(3) Procedures for performance testing prior to incorporation
into the network, including specification for a
Subcontractor-furnished test bed;
(4) Procedures for verifying supportability;
(5) Vendor or manufacturer responsibility;
(6) Procedures for informing ISI and INS on both a regular and
extraordinary basis of new product possibilities (e.g.,
meetings, reports, demonstrations, etc.);
(7) Personnel responsible for maintaining the technology
refreshment program and their qualifications;
(8) Procedures for guaranteeing system integrity; and
(9) Procedures for evaluation and enforcement of the technology
refreshment
29
<PAGE>
program.
(c) Technology refreshment under this clause is applicable only to
equipment and supplies or software not yet installed at the time the
improvement is accepted by INS. Replacement of already-installed
Subcontractor equipment or software will be considered by ISI and INS under
the Engineering Change Proposal Clause, should ISI, INS or the Contractor
so request.
(d) Equipment, software, and supplies installed pursuant to this clause
shall be subject to the same evaluation, warranties, maintenance credits,
downtime credit, liquidated damages and acceptance procedures as items
already under Subcontract.
(e) ISI will periodically evaluate the quality of the Subcontractor's
technology refreshment program, based upon the Subcontractor's approved
plan.
H.25 SPECIAL PROVISION CONCERNING CONTRACT COMPLETION OR TERMINATION
Upon Subcontract expiration or should this Subcontract be terminated for either
convenience or default, all INS-unique items as described in Section C
previously produced, currently controlled by the Subcontractor, will be
delivered to ISI in accordance with Section C.6.3 of this Subcontract.
H.26 KEY PERSONNEL
The personnel listed below (or specified in the Subcontract schedule) are
considered essential to the work being performed under this contract. Before
removing, replacing, or diverting any of the specified personnel or facilities,
the Subcontractor shall:
(a) Notify the ISI Contracting Representative reasonably (no less than 35
calendar days) in advance.
(b) Submit a detailed explanation or justification for the proposed
substitution.
(c) Furnish a resume for the substitute.
The explanation/justification and resume shall contain sufficient detail to
permit evaluation of the impact on this contract. The proposed substitute(s)
shall be of equal or superior qualifications to those of the person(s) being
replaced. The ISI Contracting Representative will notify the Subcontractor
within fifteen (15) calendar days after receipt of all required information of
the Government's decision on the proposed substitute(s).
The Subcontractor shall make no diversion without the ISI Contracting
Representative's written consent; provided, that the ISI Contracting
Representative may confirm in writing the proposed change, and that confirmation
shall constitute the ISI Contracting Representative's consent required by this
clause.
The list of personnel (shown below or as specified in the contract schedule)
may, with the consent of the Subcontracting parties, be amended from time-to-
time during the course of the Subcontract to add or delete personnel and/or
facilities.
30
<PAGE>
KEY PERSONNEL
Individual's Name Position
- ----------------- --------
H.27 KEY SUBCONTRACTORS
The subcontractors listed below (or specified in the contract schedule) are
considered essential to the work being performed under this Subcontract.
Before removing, replacing, or diverting any of the listed or specified
subcontractors, the Subcontractor shall:
(a) Notify the ISI contracting Representative reasonably (no less than, 35
calendar days) in advance.
(b) Submit a detailed explanation or justification for the proposed
substitution.
(c) Furnish a company information package or the substitute.
The explanation/justification and information package shall contain sufficient
detail to permit evaluation of the impact on this Subcontract. The proposed
substitute(s) shall be of equal or superior qualifications to those of the
subcontractor(s) being replaced. The ISI Contracting Representative will notify
the Subcontractor within fifteen (15) calendar days after receipt of all
required information of the decision on the proposed substitute(s).
The Subcontractor shall make no diversion without the ISI Contracting
Representative's written consent; provided, that the ISI Contracting
Representative may confirm in writing the proposed change, and that confirmation
shall constitute the ISI Contracting Representative's consent required by this
clause.
The list of subcontractors (shown below or as specified in the contract
schedule) may, with the consent of the contracting parties, be amended from
time-to-time during the course of the contract to add or delete subcontractors.
KEY SUBCONTRACTORS
------------------
Company Name Product or Service to be Furnished
- ------------ ----------------------------------
SECTION I. CONTRACT CLAUSES
----------------
I.1 CLAUSES INCORPORATED BY REFERENCE. (FAR 52.252-2) (JUNE 1988)
This Subcontract incorporates the FAR clauses identified in this section by this
reference, with the same force and effect as if they were given in full text,
subject to the following modifications.
I.1.1 Except as provided for in sections I.1.2 and I.1.3 below, whenever the
following terms are used in the clauses incorporated by reference in this
section, they shall have the meaning as set forth below:
(a) The term "Contract" shall mean "this Subcontract".
(b) The term "Subcontract" shall mean "lower tier subcontract".
31
<PAGE>
(c) The term "Government", "Contracting Officer" and equivalent terms
shall mean "Contractor".
(d) The term "Contractor" shall mean "Subcontractor", and if required by
the clause, "lower tier subcontractors".
I.1.2 The definitions in section I.1.1 shall not be applicable to the following
clauses or to the terms therein, to the extent specified:
(a) Whenever there is a reference to "Government Property", "Government
Equipment", or equivalent terms which refer to Government property, these
terms shall remain unchanged.
(b) Whenever there is a reference to the right to inspect, examine or
audit records, only the Government shall have that right.
(c) Whenever there is a reference to patents or copyrights, or
infringement of intellectual property rights, the related references in
the test of the clause to the Government or Contracting Officer shall
remain unchanged.
(d) Whenever there is a reference to the reimbursement of costs to a
Contractor or Subcontractor for liability, the related references in the
text of the clause to the Government or Contracting Officer shall remain
unchanged.
I.1.3 Notwishstanding any other provision of this Subcontract, including
sections I.1.1 and I.1.2 above, with respect to the risk of loss provision in
the "Government Property" clause, if any, in this Subcontract, the Subcontractor
shall assume the risk of, and be responsible for, any loss or destruction of, or
damage to, the Government property while in subcontractor's possession or
control as required by that provision. The Subcontractor shall return all
Government property in as good condition as when received, except for reasonable
wear and tear or for its use in accordance with the provisions of the Prime
Contract.
This Subcontract incorporates the following FAR clauses by reference, with the
same force and effect as if they were given in full text.
<TABLE>
<S> <C> <C>
52.202-1 Definitions SEP 1991
52.203-1 Officials Not to Benefit APR 1984
52.203-3 Gratuities APR 1984
52.203-5 Covenant Against Contingent Fees APR 1984
52.203-6 Restrictions on Subcontractor Sales to the Government JUL 1985
52.203-7 Anti-Kickback Procedures OCT 1988
52.203-10 Price or Fee Adjustment for Illegal or Improper Activity SEP 1990
52.208-1 Required Sources for Jewel Bearing and Related Items APR 1984
52.209-6 Protecting the Government's Interest When Subcontracting NOV 1992
with Contractors Debarred, Suspended, or Proposed for
Debarment
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
52.210-5 New Material APR 1984
52.215-1 Examination of Records by Comptroller General FEB 1993
52.215-2 Audit -- Negotiation FEB 1993
52.215-23 Price Reduction for Defective Cost or Pricing Data - DEC 1994
Modifications
52.215-25 Subcontractor Cost or Pricing Data - Modifications DEC 1994
52.215-26 Integrity of Unit Prices APR 1991
52.217-8 Option to Extend Services [to be exercised by contract AUG 1989
modification prior to, or up to 30 days after,
expiration of the contract, provided that 30 days
preliminary notice is provided to Contractor in writing]
52.219-8 Utilization of Small Business Concerns and Small FEB 1990
Disadvantaged Business Concerns
52.219-9 Small Business and Small Disadvantaged Business FEB 1995
Subcontracting Plan
52.219-13 Utilization of Women-Owned Small Businesses AUG 1986
52.219-16 Liquidated Damages-Small Business Subcontracting Plan AUG 1989
52.220-3 Utilization of labor Surplus Area Concerns APR 1984
52.220-4 Labor Surplus Area Program Subcontracting Program APR 1984
52.222-3 Convict Labor APR 1984
52.222-4 Contract Work Hours and Safety Standards Act - Overtime MAR 1986
Compensation
52.222-20 Walsh-Healey Public Contracts Act APR 1984
52.222-26 Equal Opportunity APR 1984
52.222-35 Affirmative Action for Special Disabled and Vietnam Era APR 1984
Veterans
52.222-36 Affirmative Action for Handicapped Workers APR 1984
52.222-37 Employment Reports on Special Disabled Veterans and JAN 1988
Veterans of the Vietnam Era
52.223-2 Clean Air and Water APR 1984
52.223-6 Drug-Free Workplace JUL 1990
52.225-3 Buy American Act-Supplies JAN 1994
52.225-11 Restrictions on Certain Foreign Purchases MAY 1992
52.227-1 Authorization and Consent APR 1984
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
52.227-2 Notice and Assistance Regarding Patent and Copyright APR 1984
Infringement
52.227-3 Patent Indemnity APR 1984
52.227-14 Rights in Data - General JUN 1987
52.227-19 Commercial Computer Software - Restricted Rights JUN 1987
52.227-23 Rights to Proposal Data (Technical) JUN 1987
52.228-5 Insurance - Work on a Government Installation SEP 1989
[(a) Workers compensation and employer's liability;
coverage of at least[(a) Workers $200,000 required,
(b) General liability; bodily injury liability on a
comprehensive policy of at least $500,000 per occurrence
required.]
52.229-3 Federal, State, and Local Taxes JAN 1991
52.229-5 Taxes - Contracts Performed in U.S. possessions or Puerto APR 1984
Rico
52.230-2 Cost Accounting Standards NOV 1993
52.230-5 Administration of Cost Accounting Standards DEC 1004
52.232-1 Payments APR 1984
52.232-8 Discounts for Prompt Payment APR 1989
52.232-11 Extras APR 1984
52.232-17 Interest JAN 1991
52.232-23 Assignment of Claims JAN 1986
2.233-3 Protest After Award AUG 1989
52.237-2 Protection of Government Buildings, Equipment and APR 1984
Vegetation
52.243-1 Changes - Fixed Price AUG 1987
52.244-1 Subcontract (Fixed-Price Contracts) FEB 1995
52.244-5 Competition in Subcontracting APR 1984
52.246-24 Limitation of Liability - High Value Item APR 1984
52.249-2 Termination for Convenience of the Government APR 1984
(Fixed-Price)
52.249-8 Default (Fixed-Price Supply and Service) APR 1984
</TABLE>
I.2 REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY-
MODIFICATION (FAR 52.203-9) (NOV 1990)
See Exhibit D, clause FAR 52.203-8.
34
<PAGE>
I.3 RESERVED
I.4 ORDERING
(a) Any supplies and services to be furnished under this Subcontract
shall be ordered by issuance of Task Orders by the individuals or
activities designated in the Schedule. Such orders may be issued from
date of award through to the last day of the term of this Subcontract, as
long as the provisions of Paragraph F.3 (Period of Performance) are
upheld.
(b) All Task Orders are subject to the terms and conditions of this
Subcontract. In the event of conflict between a Task Order and this
Subcontract, the Subcontract shall control.
(c) If mailed or faxed, a Task Order is considered issued when ISI
deposits the order in the mail or faxes the order, respectively. Orders
may not be issued orally.
I.5 RESERVED
I.6 INDEFINITE QUANTITY SUBCONTRACT
(a) This is an indefinite-quantity Subcontract for the supplies or
services specified, and effective for the period stated, in the Schedule.
The quantities of supplies and services specified in the Schedule are
estimates only and are not purchased by this Subcontract.
(b) Delivery or performance shall be made only as authorized by Task
Orders issued in accordance with the Ordering clause. The Subcontractor
shall furnish to the ISI, when and if ordered, the supplies or services
specified in the Schedule up to and including the quantity designated in
the Schedule as the maximum.
(c) Except for any limitations in the Schedule, there is no limit on the
number of orders that may be issued. ISI may issue orders requiring
delivery to multiple destinations or performance at multiple locations.
(d) Any order issued during the effective period of this Subcontract and
not completed within that period shall be completed by the Subcontractor
within the time specified in the order. The Subcontract shall govern the
Subcontractor's and ISI's rights and obligations with respect to that
order to the same extent as if the order were completed during the
Subcontract's effective period: provided, that the Subcontractor shall
not be required to make any deliveries under this contract 60 days after
the expiration of this Subcontract.
I.7 OPTION TO EXTEND THE TERM OF THE SUBCONTRACT
(a) ISI may extend the term of this contract for the periods specified
in section F.3 by writtten notice to the Subcontractor prior to this
Subcontract's expiration.
(b) If ISI exercises this option, the extended contract shall be
considered to include this option provision.
35
<PAGE>
(c) The total duration of this Subcontract, including the exercise of
any options under this clause, shall not exceed 36 months.
I.8 RESERVED
I.9 BUY AMERICAN ACT - TRADE AGREEMENTS ACT - BALANCE OF PAYMENTS PROGRAM
(FAR 52.225-9) (JAN 1994)
(a) This clause implements the Buy American Act (41 U.S.C. 10), the
Trade Agreements Act of 1979 (19 U.S.C. 2501-2582), the North American
Free Trade Agreement (NAFTA) Implementation Act (Pub. L. 103-182, 107
Stat. 2057), and the Balance of Payments Program by providing a
preference for domestic end products over foreign end products, except
for certain foreign end products which meet the requirements for
classification as designated, NAFTA, or Caribbean Basin country end
products.
"Caribbean Basin country end product," as used in this clause, means an
article that: (1) Is wholly the growth, product, or manufacture of a
Caribbean Basin country (as defined in section 25.401 of the Federal
Acquisition Regulation (FAR)), or (2) in the case of an article which
consists in whole or in part of materials from another country or
instrumentality, has been substantially transformed into a new and
different article of commerce with a name, character, or use distinct
from that of the article or articles from which it was so transformed.
The term includes services (except transportation services) incidental to
its supply; provided that the value of those incidental services does not
exceed that of the product itself. It does not include service contracts
as such. The term excludes products that are excluded from duty free
treatment for Caribbean countries under the Caribbean Basin Economic
Recovery Act (19 U.S.C. 2703(b)).
These exclusions presently consist of (i) textiles and apparel articles that are
subject to textile agreements; (ii) footwear, handbags, luggage, flat goods,
work gloves, and leather wearing apparel not designated as eligible articles for
the purpose of the Generalized System of Preferences under title V of the Trade
Act of 1974; (iii) tuna, prepared or preserved in any manner in airtight
containers; (iv) petroleum, or any product derived from petroleum; and (v)
watches and watch parts (including cases, bracelets and straps), of whatever
type including, but not limited to, mechanical, quartz digital or quartz analog,
if such watches or watch parts contain any material that is the product of any
country to which the Tariff Schedule of the United States (TSUS) column 2 rates
of duty apply.
"Components," as used in this clause, means those articles, materials, and
supplies incorporated directly into the end products.
"Designated country end product," as used in this clause, means an article that
(1) is wholly the growth, product, or manufacture of the designated country (as
defined in section 25.401 of the Federal Acquisition Regulation (FAR)), or (2)
in the case of an article which consists in whole or in part of materials from
another country or instrumentality, has been substantially transformed into a
new and different article of commerce with a name, character, or use distinct
from that of the article or articles from which it was so transformed. The term
includes services (except transportation services) incidental to its supply,
provided that the value of those incidental services does not exceed that of the
product itself. It does not include service contracts as such.
36
<PAGE>
"Domestic end product," as used in this clause, means (1) an unmanufactured end
product mined or produced in the United States, or (2) and end product
manufactured in the United States, if the cost of its components mined,
produced, or manufactured in the United States exceeds 50 percent of the cost of
all its components. A component shall also be considered to have been mined,
produced, or manufactured in the United States (regardless of its source in
fact) if the end product in which it is incorporated is manufactured in the
United States and the component is of a class or kind (i) determined by the
Government to be not mined, produced, or manufactured in the United States in
sufficient and reasonably available commercial quantities of a satisfactory
quality, or (ii) to which the agency head concerned has determined that it would
be inconsistent with the public interest to apply the restrictions of the Buy
American Act.
"End products," as used in this clause, means those articles, materials, and
supplies to be acquired under this contract for public use.
"Foreign end product," as used in this clause, means an end product other than a
domestic end product.
"NAFTA country," as used in this clause, means Canada or Mexico.
"NAFTA country end product," as used in this clause means an article that (1) is
wholly the growth, product, or manufacture of a NAFTA country, or (2) in the
case of an article which consists in whole or in part of materials from another
country or instrumentality, has been substantially transformed in a NAFTA
country into a new and different article of commerce with a name, character, or
use distinct from that of the article or articles from which it was transformed.
The term includes services (except transportation services) incidental to its
supply; provided, that the value of those incidental services does not exceed
that of the product itself. It does not include service contracts as such.
(b) The Contracting Officer has determined that the Trade Agreements Act
and NAFTA apply to this acquisition. Unless otherwise specified, the Acts
apply to all items in the schedule. The Subcontractor agrees to deliver
under this Subcontract only domestic end products unless, in its offer,
it specifies delivery of foreign end products in the provision entitled
"Buy American Act - Trade Agreements - Balance of Payments Program
Certificate." An offer certifying that a designated, NAFTA, or Caribbean
Basin country end product will be supplied requires the Contractor to
supply a designated, NAFTA, or Caribbean Basin country end product or, at
the Contractor's option, a domestic end product. Contractors may not
supply a foreign end product for line item subject to the Trade
Agreements Act unless the foreign end product is a designated NAFTA, or
Caribbean end product (see FAR 25.401), or unless a waiver is granted
under section 302 of the Trade Agreements Act of 1979 (see FAR
25.402(c).)
(c) Offers will be evaluated in accordance with the policies and
procedures of Subpart 25.4 of the FAR.
I.10 RESERVED
I.11 WARRANTY EXCLUSION AND LIMITATION OF DAMAGES
Except as expressly set forth in writing in this Subcontract (see section C.1.1
and C.9 of this Subcontract and section C.8.1 of the Prime Contract) and except
for the implied warranty of merchantability, there are no warranties expressed
or implied. In no event will the Subcontractor be liable to ISI for
consequential
37
<PAGE>
damages as defined in the Uniform Commercial Code, Section 2-715,
in effect in the District of Columbia as of January 1, 1973; i.e.--
Consequential damage resulting from the seller's breach include--
(a) Any loss resulting from general or particular requirements and needs
of which the seller at the time of contracting had reason to know and
which could not reasonably be prevented by cover or otherwise; and
(b) Injury to person to property proximately resulting from any breach
of warranty.
I.13 SUBCONTRACTING
The Subcontractor shall not subcontract any portion of the work it has agreed to
perform under this Subcontract without the prior written approval of Contractor.
I.14 INDEPENDENT CONTRACTORS
At all times the Subcontractor and Contractor shall remain independent
Contractors, each responsible for its own employees.
I.15 PROPRIETARY DATA
(a) "Proprietary Information" for purposes of this clause is defined as
information which the disclosing person or entity at the time of
disclosure identifies in writing as Proprietary Information by means of a
proprietary legend, marking, stamp or other positive written notice
identifying the information to be proprietary. It includes, but is not
limited to, information so identified which are trade secrets,
confidential or privileged commercial or financial information, and
Government information identified as "Source Selection Information",
"Competition Sensitive" or "For Official Use Only". It also includes
Source Selection Information, whether or not marked, as prescribed and
identified in FAR 3.104-5. In order for other information disclosed
orally or visually to be Proprietary Information protected hereunder, the
disclosing person or entity shall identify the information as proprietary
at the time of disclosure, and, within thirty (30) days after such oral
or visual disclosure, reduce the subject matter of the disclosure to
writing, properly stamped with the proprietary legend, stamp or other
positive written notice and submit it to the receiving person or entity.
(b) The Subcontractor shall not use, publish or otherwise disclose
Proprietary Information except as required for performance of work
authorized under this Agreement and then only to the extend consistent
with law and applicable Government regulation.
(c) The Subcontractor shall take reasonable steps to protect the
Proprietary Information and prevent disclosure to third parties. The
Subcontractor agrees that it will use the same reasonable efforts to
protect Proprietary Information as are used to protect its own, but, in
any event, not less than reasonable care.
(d) The Subcontractor agrees to execute company-to-company written
agreements with companies providing Proprietary Information to the
Subcontractor in the performance of this Subcontract. These agreements
shall prescribe the scope of authorized use of such Proprietary
Information as well as necessary safeguards against unauthorized use or
disclosure, and other
38
<PAGE>
terms and conditions to be agreed upon. Two (2) copies of such
company-to-company agreements shall be furnished promptly after execution
to the Government Contracting Officer.
(e) In addition to the obligations under the Organizational Conflict of
Interest clause that may be included in this Subcontract, the
Subcontractor agrees not to use Proprietary Information obtained in the
performance of this Subcontract in supplying any system, subsystem or
component thereof or service, for the U.S. Government or any other person
or entity, as a prime Contractor, Subcontractor at any tier or vendor,
except as may be authorized in writing by the Contractor or by the owner
of the Proprietary Information.
(f) The Subcontractor agrees to inform and train its employees in
appropriate recognition, handling and protection of Proprietary
Information. The Subcontractor agrees to obtain from each of its
employees, who may be reasonably expected to have access to Proprietary
Information, an agreement in writing which provides that the employee
shall use and protect Proprietary Information in accordance with this
section.
(g) The Subcontractor agrees to hold the U.S. Government and the
Contractor harmless and indemnify them as to any cost or loss resulting
from the unauthorized use or disclosure of Proprietary Information by the
Subcontractor, its employees, its lower tiered subcontractors or agents.
(h) Notwithstanding the expiration or termination of this Agreement, the
Subcontractor's obligation to protect Proprietary Information shall
continue as long as that information continues to be Proprietary
Information.
(i) The Subcontractor agrees to flow down this clause to its
subcontractors at every tier who may have access to Proprietary
Information.
I.16 PUBLICITY
Subcontractor shall not in any manner advertise, publish, or release for
publication any statement mentioning Contractor or the fact that Subcontractor
has furnished or contracted to furnish Contractor items and or services required
by this subcontract. Subcontractor shall not disclose any information relating
to this Subcontract to any person not authorized by the Contractor to receive
it. Subcontractor shall use information supplied by the Contractor or the
Government only to accomplish services or products covered by this Subcontract.
Such information shall not be used for any other purposes.
I.17 SUBCONTRACTOR'S DUTY OF NOTICE AND NON-INFRINGEMENT
(a) The Subcontractor shall not, in the course of performing work under
this Subcontract, infringe or cause the Contractor to infringe any
patent, copyright, or trademark rights of others. In the event the
Subcontractor possesses information that the Subcontractor or Contractor
may infringe any patent, copyright, trademark, or trade secret, the
Subcontractor shall, in a reasonable and timely manner, give notice of
the facts known by the Subcontractor to the Contractor.
(b) If the Subcontractor receives notice of any legal actions or claim
in which Contractor may become involved, or of any Contractor right to
invention, discovery, copyright, or trade secret covered by the terms of
this Agreement, Subcontractor shall promptly give notice of the facts
known by Subcontractor to Contractor.
39
<PAGE>
I.18 ASSIGNMENTS
(a) No right under this Subcontract is assignable by Subcontractor
except the right to payments may be assigned to a United States financial
institution, provided written notice is made to Contractor and such
assignment is acknowledged by Contractor. Acknowledgment will not be
withheld or unreasonably delayed by Contractor.
I.19 TERMINATION
(a) This Subcontract will expire or terminate automatically upon the
occurrence of any of the following conditions, whichever first occurs and
is subject to the applicable provisions of FAR clause 52.249-2
(Termination for Convenience of the Government (Fixed Price)):
(b) Completion of the term or work of this Subcontract;
(c) Official announcement of the termination of the Prime Contract;
(d) Written notice of termination by the Contractor in the Contractor's
best interests;
(e) Debarment or suspension of the Subcontractor by the Government;
(f) Upon completion of the Prime Contract, unless options to continue
are exercised by the Government and corresponding options are executed by
ISI with respect to this Subcontract.
I.20 INCORPORATION BY REFERENCE
The provisions of the Prime Contract, to the extent specifically identified in
the sections of this Subcontract, are applicable to this Subcontract and are
hereby incorporated by reference, subject to the modifications identified in
section I.1 of this Subcontract.
I.21 INDEMNIFICATION
Subcontractor agrees that it shall indemnify Contractor and hold Contractor
harmless against any claim for which Subcontractor is adjudged responsible, and
for related expenses as a result of the application of the terms and conditions
of this Subcontract.
I.22 CLAIMS AND DISPUTES
(a) Claims or Disputes Between the Parties Under the Subcontract.
Except with respect to claims or disputes under section (b) below, any
claim or dispute concerning questions of fact or law arising out of this
Subcontract, or to an alleged breach thereof by a party, which is not
disposed of by mutual agreement within thirty (30) calendar days after
one party has provided written notice of the claim or dispute to the
other, shall be settled by arbitration in, and in accordance with the
laws of, the Commonwealth of Virginia. Such arbitration shall be by and
in accordance with the Rules of the American Arbitration Association. The
parties shall share equally in the cost of the arbitrator(s) and the cost
of recording any arbitration proceeding. Judgment on the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Neither party shall institute any action or proceeding against
the other party in any court with respect to any claim or dispute which
is governed by this paragraph (a). The
40
<PAGE>
decision of the arbitrator(s) shall be conclusive and final and shall be
binding on the parties unless fraudulent, arbitrary or capricious, so
grossly erroneous as to necessarily imply bad faith, or contrary to law.
(b) Claims or Disputes With the Government Under the Prime Contract.
1. All Subcontractor claims or disputes arising out of the
Government's action or failure to act under the Prime
Contract shall be governed by this paragraph (b).
2. The Contractor shall notify the Subcontractor in writing
of a Government action or failure to act and any final
decision that has an adverse impact on the Subcontractor.
Any final decision of the Contracting Officer under the
Prime Contract shall be conclusive and binding upon
Subcontractor unless appealed pursuant to this paragraph
(b).
3. In the event a final decision of the Government's
Contracting Officer has an adverse impact on the
Subcontractor, the Contractor and Subcontractor shall seek
to agree on (1) whether a claim or appeal should be filed
and the forum in which the claim or appeal should be
filed; (2) whether the Subcontractor should be sponsored
by the Contractor in filing the claim or appeal; (3)
whether there is sufficient evidence that the claim is
made in good faith, all statements in the required
certification are accurate and complete and the amount
requested accurately reflects the contract adjustment
claimed; (4) the responsibility for the prosecution of the
claim and/or appeal, the support to be provided by each
party and the responsibility for the costs and liabilities
that may be incurred; and (5) other relevant matters.
(c) Pending the final disposition of a claim or dispute pursuant to
paragraphs (a) or (b) above, the Subcontractor shall proceed diligently
with the performance of this Subcontract in accordance with the
Contractor's written direction.
(d) Any decision upon such claim or appeal pursuant to paragraph (b)
above, by a Government Board of Contract appeals, the United States Court
of Federal Claims, or other forum having jurisdiction, shall be
conclusive and final and shall be binding on the parties unless appealed
to a court having jurisdiction. A final judgment in any such appeal,
shall be conclusive and final and shall be binding on the parties.
I.23 MODIFICATIONS
No modification of any part of this Subcontract shall be binding upon the
parties hereto, or either of them, unless such is in writing and duly signed by
those authorized to sign for the respective parties.
I.24 APPLICABLE LAW
This Subcontract shall be governed by the laws of the Commonwealth of Virginia.
I.25 ORDER OF PRECEDENCE
Any inconsistency in this Subcontract shall be resolved by giving precedence in
the following order:
41
<PAGE>
(a) Articles 1 through 25 of this Subcontract.
(b) Exhibits A and B.
(c) Exhibit C.
(d) Attachments to Exhibit C.
(e) Exhibits D, E and F.
I.26 ISI PROPERTY
(a) The Subcontractor agrees that ISI shall own and have all right, title and
interest in (i) the design of the following products, (ii) the identified
software, and (iii) the related operation and maintenance manuals (hereinafter
"Unique Products"):
1. The IC Chip module and its software.
2. The OCR-B verification module and its software.
3. The RF Probe module and its software.
4. The Worm Upgrade module and its software.
5. The related operation and maintenance manuals to the modules
identified in paragraphs 1 through 4 above.
(b) The Subcontractor shall provide to ISI on request, and in any event on
termination or expiration of this Subcontract, at no cost to ISI, one complete
set of specifications, drawings, and other related records of the design of the
Unique Products, the source code of the software, and the related operation and
maintenance manuals.
(c) The Subcontractor shall not use, duplicate, disclose or sell the
aforementioned design, software or manuals or manufacture or produce, or
authorize others to manufacture or produce, the Unique Products unless ISI gives
its written consent.
I.27 SUBCONTRACTORS PRODUCTS.
Notwithstanding anything in this Subcontract to the contrary, but subject to FAR
clauses FAR 52.227-14 "Rights In Data--General (JUN 1987)" and FAR 52.227-19
"Commercial Computer Software--Restricted Rights (JUN 1987)", the Subcontractor
shall own and have all right, title and interest in (i) the design of the
products, (ii) the identified software, and (iii) the data related to the
products identified on Exhibit F hereto (collectively the "Subcontractor's
Property"). The Subcontractor's Property has not been first produced in the
performance of this Subcontract and has been developed at private expense.
SECTION J. LIST OF ATTACHMENTS AND EXHIBITS
--------------------------------
NOTE: TECHNICAL ATTACHMENTS A AND B ARE FURNISHED FOR INFORMATION PURPOSES
ONLY. THESE DOCUMENTS ARE INTENDED TO FURNISH OFFERORS WITH A GRAPHICAL
REPRESENTATION OF ISI' VISION OF THE CARDS THAT WILL BE PRODUCED USING THE
INTEGRATED CARD PRODUCTION SYSTEM. IF THERE IS A CONFLICT BEEN THE
INFORMATION PRESENTED IN SECTION C AND THE INFORMATION SHOWN ON THE
ATTACHMENTS, THE INFORMATION CONTAINED IN SECTION C SHALL TAKE PRECEDENCE.
ALL ATTACHMENTS ARE CONTAINED IN THE PRIME CONTRACT, EXHIBIT C TO THIS
SUBCONTRACT, AND ARE HEREBY INCORPORATED BY THIS REFERENCE.
42
<PAGE>
ATTACHMENTS
-----------
<TABLE>
<S> <C>
Attachment A - Table C-1, Planned Card Types/Technologies
Attachment B - Planned Card Types Sketches
Attachment C - Physical Layout of Planned Facilities for Integrated Card Production Systems
Attachment D - INS Information Systems Descriptions
</TABLE>
EXHIBITS
--------
<TABLE>
<S> <C>
Exhibit A - Pricing Tables
Exhibit B - Statement of Work/Specification
Exhibit C - Prime Contract
Exhibit D - Representations, Certificates or Other Statements of
Subcontractor
Exhibit E - Subcontracting Plan (if applicable; see H.17)
Exhibit F - Subcontractor's Products (see I.27)
</TABLE>
IN WITNESS WHEREOF, the parties have executed this Subcontract.
ATTEST:
for: LAU TECHNOLOGIES for: INFORMATION SPECTRUM, INC.
/s/: ROBERT C. HUGHES /s/: MARK GREEN
------------------------------- ---------------------
Name: ROBERT C. HUGHES Name: MARK GREEN
------------------------------- ----------------------
Title: PRES.,I.D. SYSTEMS DIV., LAU Title: PRESIDENT
------------------------------ ---------------------
Date: 11/15/1995 Date: 11/28/95
------------------------------- ---------------------
43
<PAGE>
EXHIBIT 10.14
STATE OF NORTH CAROLINA
COUNTY OF WAKE
DIGITAL IMAGING DRIVER LICENSE SYSTEM
CONTRACT
THIS Agreement, made and entered into this 26 day of April, 1996, by and between
LAU Technologies, of Acton, Massachusetts, hereinafter referred to as
"Contractor", and the North Carolina Department of Transportation, Division of
Motor Vehicles, hereinafter referred to as "Department".
WITNESSETH
THAT WHEREAS, the Contractor has submitted to the Department a proposal for
performance of certain services; and
WHEREAS, the parties hereto desire to reduce the terms of this agreement to
writing;
NOW, THEREFORE, for and in consideration of the mutual promises to each other,
as hereinafter set forth, the parties hereto do mutually agree as follows:
The Contractor hereby agrees to perform in a manner satisfactory to the
Department, the following services:
A Complete Digital Imaging Driver License System, as described in Request for
Proposals # 504405, issued September 15, 1995, the RFP addendums issued and the
Contractor's proposal entitled "LAU Technologies proposal for a North Carolina
Digital Driver License System", dated December 21, 1995, such documents being
incorporated herein by reference as though set forth verbatim.
The Contractor represents that it has, or will secure at its own expense, all
personnel required in performing the services under this agreement. Such
employees shall not be employees of, or have any individual contractual
relationship with the Department.
The Contractor shall not substitute key personnel assigned to the performance of
this contract without prior approval by the Contract Administrator. The
individuals designated as key personnel for purposes of this contract are those
specified in the Contractor's proposal.
<PAGE>
Work proposed to be performed under this contract by the Contractor or its
employees shall not be subcontracted without prior written approval of the
Contract Administrator.
The services of the Contractor are to commence on or about the date of the
signing of this contract and shall continue for period of five years. A pilot
test must begin four (4) months from the signing of this contract.
Implementation of hardware must begin five (5) months from the signing of this
contract. Full implementation of all hardware and software and complete training
of all required personnel (as specified in the RFP) must be completed six months
from the signing of this contract. This contract may be extended a maximum of
three times for a one year period each time with the prior approval of the
Contract Administrator.
If, through any cause, the Contractor shall fail to fulfill in a timely and
proper manner the obligations under this agreement, the Department shall
thereupon have the right to terminate this contract by giving written notice to
the Contractor and specifying the effective date thereof which shall not be less
than 30 days from the date of notice. Upon termination, Contractor shall receive
just and equitable compensation for all goods and services furnished to the
Department through the termination date. In that event, the Department may, at
its option, continue to use the system provided hereunder and license the
programs on terms as may be mutually agreed to by the parties. Notwithstanding
the foregoing, the Contractor shall not be relieved of liability to the
Department for damages sustained by the Department by virtue of any breach of
this agreement, provided that the Contractor's liability hereunder shall not
exceed amounts paid to the Contractor under this agreement and in no event shall
Contractor be liable for incidental, consequential or tort damages.
It is understood and agreed between the Contractor and the Department that
payment of compensation specified in this agreement, its continuation or any
renewal thereof, is dependent upon and subject to the allocation or
appropriation of funds to the Department for the purpose set forth in this
agreement. In the event of nonappropriation, or if the Department fails to pay
the Contractor for convenience or upon a breach by the Department, the
Contractor shall receive just and equitable compensation for all goods and
services furnished to the Department through the termination date.
Any information, data, instruments, documents, studies or reports given to or
prepared or assembled by the Contractor under this agreement shall be kept as
confidential and not divulged or made available to any individual or
organization without the prior written approval of the Department. Nothing in
this agreement shall be construed to grant the Department any title to or
ownership interest in the Contractor's products or proprietary technologies.
Upon the entering of a judgment of bankruptcy or insolvency by or against the
Contractor, the Department may terminate this contract for cause.
<PAGE>
The Contractor shall not assign or transfer any interest in this agreement,
provided that the Contractor may grant a collateral assignment of this
agreement.
No deliverable items produced in whole or in part under this agreement,
exclusively for the Department, shall be the subject of an application for
copyright by or on behalf of the Contractor.
It is agreed between the parties hereto that the place of this contract, its
situs and forum, shall be Wake County, North Carolina, and in said County and
State shall matters, whether sounding in contract or tort relating to the
validity, construction, interpretation and enforcement of this agreement, be
determined.
The Contractor agrees that the State will have the right to audit the records of
the Contractor pertinent to this contract both during performance and after
completion. The Contractor will retain all records for a period of three years
following completion of the contract.
The Contractor agrees that it shall be responsible for the proper custody and
care of any property furnished the Contractor, by the State, for use in
connection with the performance of this contract and will reimburse the State
for loss or damage of such property.
The Director of Driver License, is designated the Contract Administrator for the
State.
The non-discrimination clause contained in Section 202 Executive Order 11246, as
amended by Executive Order 11375, relative to Equal Employment Opportunity for
all persons without regard to race, color, religion, sex, or national origin,
and the implementing rules and regulations prescribed by the Secretary of Labor,
are incorporated herein.
Program for Employment of the Handicapped (Affirmative Action): Regulations
issued by the Secretary of Labor of the United States in Title 20, part 741,
Chapter VI, subchapter "C" of the Code of Federal Regulations, pursuant to the
provisions of Executive Order 11758 and Section 503 of the Federal
Rehabilitation Act of 1973 are incorporated herein.
Contractor shall obtain, pay for, and keep in force for the duration of the
contract the following minimum insurance and shall furnish to the Department
certificates evidencing that such insurance is in effect and providing that the
carrier shall give the Contractor and the Department at least 10 days written
notice of any material change in or cancellation of such insurance:
1. Worker's Compensation Insurance, required by the laws of North Carolina,
covering all of the Contractor's employees engaged in any work hereunder.
<PAGE>
2. Public liability insurance against liability for bodily injury or death of
any one person in any one accident in the amount of $100,000, and in the
amount of $300,000 for the injury or death of more than one person in any
one accident; this policy shall further provide against liability for
Property Damage in the amount of $100,000 for any one accident and $100,000
in the aggregate, which may be caused by Contractor or employees of
Contractor in the course of doing its work.
All above insurance coverage must be obtained from a company duly licensed to do
business in the State of North Carolina and countersigned by a licensed resident
agent.
Neither party shall be deemed to be in default of its obligations hereunder if
and so long as it is prevented from performing such obligations by any act of
war, hostile foreign action, nuclear explosion, riot, strikes, civil
insurrection, earthquake, hurricane, tornado, or other catastrophic natural
event or act of God.
The Contractor shall be required to comply with all laws, ordinances, codes,
rules, regulations, and licensing requirements that are applicable to the
conduct of its business, including those of Federal, State, and local agencies
having jurisdiction and/or authority.
The Contractor shall be considered to be an independent contractor and as such
shall be wholly responsible for the work to be performed and for the supervision
of its employees.
The contract and any documents incorporated specifically by reference represent
the entire agreement between the parties and supersede all prior oral or written
statements or agreements.
This contract may be amended only by written amendments duly executed by the
Department and the Contractor, with prior written approval from the Division of
Purchase and Contract.
Any notice under this contract to the Department shall be sufficient if mailed
to the Department as indicated below:
Director of Driver License
North Carolina Division of Motor Vehicles
1100 New Bern Ave.
Raleigh, N.C. 27697-0001
<PAGE>
Any notice under this contract to the Contractor shall be sufficient if Mailed
to the Contractor as indicated below:
Yona Wieder
LAU Technologies
531 Main Street
Acton, MA 01720
All promises, requirements, terms, conditions, provisions, representations,
guarantees, and warranties contained herein shall survive the contract
expiration or termination date unless specifically provided otherwise herein, or
unless superseded by applicable Federal or State statutes of limitation.
Payment will be made by the State to the Contractor on a monthly basis as
follows:
The Contractor will be paid $1.05 for every acceptable driver license and ID
card produced after the successful implementation of all hardware, software
and training for the digital imaging system. The Contractor will not be paid
for any driver license or ID card produced which was deemed unacceptable due
to the Contractor's equipment, software or supplies.
For the first 30 days of production operation of the digital imaging system,
the Contractor will not be paid for any driver license or ID card produced
which was deemed unacceptable due to operator error or due to the Contractor's
equipment, software or supplies.
<PAGE>
IN WITNESS THEREOF, the parties have executed this agreement in duplicate
originals, one which is retained by each of the parties, effective the day and
year first above written.
WITNESS:
North Carolina Department of Transportation By: /s/ Frederick Aikens
---------------------------
Frederick Aikens
Deputy Secretary of NCDOT
Date: 26 April 96
------------
WITNESS:
LAU Technologies By: /s/ Denis K. Berube
--------------------------
Denis K. Berube
Executive Vice President
and General Manager
Date: 4/18/96
---------
APPROVED AS TO FORM
By: /s/ Michael F. Easley Date: 4/16/96
----------------------------- ---------
Michael F. Easley
Attorney General
<PAGE>
EXHIBIT 10.15
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is entered into as of September 12,
---------
1996 by and between Lau Acquisition Corp., doing business under the assumed
names of Lau Technologies and Viisage Technology, having a principal place of
business located at 531 Main Street, Acton Massachusetts 01720. ("Viisage") and
-------
Sanwa Business Credit Corporation, having a principal place of business located
at One South Wacker Drive, Suite 3900, Chicago Illinois 60606 ("SBCC").
----
WHEREAS, Viisage is engaged in the development of digital imaging software,
and the integration and provision, by sale, lease or otherwise, of digital
imaging systems to Viisage's customers; and
WHEREAS, Viisage may from time to time offer to sell and SBCC in its sole
discretion may from time to time agree to buy certain Systems covered by leases,
installment sale contracts and other chattel paper arising out of such business
and the property covered thereby; and
WHEREAS, SBCC and Viisage desire to set forth the terms and conditions
under which such purchases and sales may be conducted;
NOW THEREFORE, in consideration of the promises contained herein and for
other valuable consideration received, SBCC and Viisage hereby agree as follows:
1. PURCHASE.
--------
(a) Offering. Viisage may offer SBCC the right to purchase any Systems
--------
which it places in service under Contracts, together with the Payments under the
Contract and Assigned Rights, and SBCC may elect to purchase or decline to
purchase any Systems, Payments and Assigned Rights so offered. If SBCC for any
reason refuses to buy any System, Payments and Assigned Rights offered to SBCC
within ten (10) days after the offer has been made, then Viisage may offer them
to any other purchaser. The "Purchase Price" of any Systems, Payments and
--------------
Assigned Rights shall be determined as of the date of purchase according to the
System Purchase Price methodology shown on Schedule A (as the same may be
revised from time to time by mutually agreed upon written revisions). On the
date of SBCC's purchase of a System, SBCC may first apply the Purchase Price to
be paid by it against any payments Viisage is then required to make to SBCC and
then SBCC will pay any remainder to Viisage in cash.
(b) Advance Credit Determinations. Viisage may request that SBCC
-----------------------------
determine credit acceptability for prospective Customers under prospective
Contracts and SBCC may, in its sole discretion, evaluate such requests. Credit
approvals will be valid for a period of six (6) months after the date when
rendered unless a different time is specified in connection with the approval.
Any credit approval will be subject to any terms specified by SBCC in connection
with the approval. SBCC's credit approval for any prospective Customer will not
constitute an approval or commitment with respect to any Contract terms, System,
or with respect to the acceptability of
1 of 30
<PAGE>
or purchase price to be paid for any System, Payments and Assigned Rights, and
SBCC's determination to ultimately purchase any System may be exercised or
deferred by SBCC in its sole discretion.
(c) Advance Contract and System Determinations. In connection with its
------------------------------------------
request for an advance credit approval of a proposed Customer under a Contract,
Viisage may request that SBCC determine the acceptability of the System proposed
to be offered to such Customer under a Contract and to SBCC for purchase, and
the form of proposed Contract to be entered into with respect to the System.
SBCC may, in its sole discretion, evaluate such requests and may, in addition to
an advance credit determination, approve the form of Contract and System to be
provided under the Contract. Any approval so rendered will be coterminous with
the credit approval for the proposed transaction and will become ineffective
upon termination of the credit approval. Contract and System approvals will be
specific only to the exact form of Contract and the exact configuration of the
System approved, and may be subject to other conditions specified by SBCC in
connection with the approval and/or the payment of mutually agreed fees. SBCC's
approval of any System will not constitute an approval or commitment with
respect to any Contract or the credit of any proposed Customer. SBCC's approval
of any Contract will not constitute an approval or commitment with respect to
any System or the credit of any proposed Customer.
(d) Evaluation Information. In connection with any request for a
----------------------
credit, Contract or System approval, Viisage will make a full, accurate and
continuing disclosure to SBCC of all information and documents known to Viisage
or in its possession which relate to the requested approval and/or the
underlying transaction.
(e) Revocation of Approvals. Credit, System and/or Contract approvals
-----------------------
may be revokedat SBCC's sole and absolute discretion, and of no further effect
if, after the date of approval, (i) a material change (as determined by SBCC in
its sole discretion) is recognized in the Contract, System configuration or in
the structure of the proposed transaction from that understood by SBCC at the
time of approval, (ii) there has occurred an adverse change (as determined by
SBCC in its sole discretion) in the creditworthiness of such Customer from that
shown in the materials presented to SBCC in connection with its credit
evaluation, (iii) any of the materials, information, statements and/or
representations provided to SBCC in connection with its review or approval are
false, misleading or incomplete; (iv) Viisage is in default of any of its
obligations, covenants and agreements under this Agreement, any Assignment, or
any other instrument document or agreement with SBCC, or any event has occurred
which with the passage of time or giving of notice or both would constitute such
an event of default; (v) Viisage or any other provider is in default under, or
System performance or viability issues have been raised under similar System
Contracts or installations with other of Viisage's customers; (vi) any default
under the Contract (or any related support or maintenance agreement) has
occurred, or any event has occurred which with the passage of time or giving of
notice or both would constitute such a default, (vi) SBCC determines that both
(A) the approved Contract or approved System fails to satisfy each of the
eligibility requirements which would be applicable thereto if the System were to
be purchased under this Agreement and (B) such failure is unlikely to be cured
or satisfied prior to expiration of the applicable approval period; (viii) any
System components or technology or
2 of 30
<PAGE>
Software will not, as of the proposed date of purchase, be current generation,
warranted-as-new, latest production or release versions of products offered by
the manufacturers or developers thereof, unless otherwise agreed by SBCC; (ix)
there has occurred an adverse change (as determined by SBCC in its sole
discretion) in the business or financial condition of Viisage; or (x) any
condition specific to the approval is not satisfied.
(f) Conditions. SBCC's purchase of any System subject to one or more
----------
approvals under this Section shall be subject to all of the following conditions
being satisfied on the date of purchase:
(i) the creditworthiness of the Customer, the acceptability of the
Contract and related documents, and the offered System are as required by
the approval (which must be current and in effect on the purchase date) or
otherwise acceptable to SBCC in its sole discretion; and
(ii) SBCC receives the following documents:
(A) an Assignment of the Contract;
(B) the Contract;
(C) financing statements (or copies of filed financing
statements) and other documents necessary or reasonably desirable to
perfect or evidence SBCC's, the lessor's, or vendor's rights in the
Equipment covered by the Contract;
(D) evidence of the delivery and acceptance of the System or
of the satisfaction of all conditions required of the provider(s), and
of Viisage's payment for components provided by other parties;
(E) complete copies of all contracts pertaining to the
maintenance and service of the System;
(F) evidence of insurance for the System;
(G) evidence of the payment of applicable taxes with respect
to the System and Contract;
(H) evidence of the due authorization and execution of the
Contract by the parties thereto and of the validity and enforceability
thereof;
(I) an executed notice of assignment as provided under Section
2; and
(J) such other instruments, documents and agreements as SBCC
has required in connection with any approval and /or as SBCC may
reasonably require in its sole discretion.
(g) General. Approvals will not be effective unless in writing and signed
-------
by SBCC. Neither SBCC's rendering of an approval, nor purchase of any System,
nor knowledge of any unsatisfied conditions, representations or warranties with
respect to a Contract will constitute a waiver of any of the representations,
warranties, conditions or rights provided under this agreement or any applicable
Assignment with respect to the Contract.
2. ASSIGNMENT OF SYSTEMS, PAYMENTS AND ASSIGNED RIGHTS.
---------------------------------------------------
3 of 30
<PAGE>
(a) Assignment. At the time of SBCC's purchase of a System, Payments and
----------
Assigned Rights, Viisage will:
(i) transfer, sell and assign to SBCC all of such System and all
accessions, accessories, parts, additions and attachments attached thereto
or used in connection therewith (to the extent that the same are not
removable without affecting the capacity, specifications, performance or
configuration of the System), and all replacements and substitutions
thereof or therefor, provided that for Systems which have not been fully
-------------
developed or installed and for which interim purchase price payments are to
be made under Section 2(d), the foregoing condition need be satisfied only
at the time the final purchase price payment is made, and that at the time
of SBCC's interim payments, Viisage shall transfer such interest in the
System as it then may have; and
(ii) assign to SBCC all of Viisage's right, title and interest in,
to the Payments with respect to the System and under any related Contract
thereunder, and all related Customer Guaranties, and
(iii) assign to SBCC all of Viisage's right, title and interest in,
to and under all Assigned Rights with respect to the System.
all by executing such form of bill of sale and assignment (an "Assignment") in
----------
the Form of Exhibit A hereto or such other form as shall be acceptable to SBCC.
(b) Security Interest. As security for all of its obligations to SBCC
-----------------
under this Agreement Viisage hereby grants or assigns to SBCC a Security
interest in all of the following, whether now or in the future owned by Viisage:
(i) all Systems purchased by SBCC and all Payments, Customer
Guaranties and Assigned Rights related to such Systems;
(ii) subject to Section 2(c) of this Agreement, all rights, whether
against the Customer or any licensor, developer or servicer, and whether
construed as accounts, general intangibles, contract rights or otherwise,
to use and re-license the use of the Software to a user of the Systems or
components thereof, together with the rights of enforcement against any
user in the event of a breach or violation of the related Contract; and all
proceeds of any of the foregoing.
(iii) all additions, parts, accessions or attachments (to the extent
that the same are not removable without affecting the capacity,
specifications, performance or configuration of the Systems) and all
replacements, substitutions to or for such property; and
(iv) all proceeds of any of the foregoing.
4 of 30
<PAGE>
(c) Special Limitations on Assignments of Software. Notwithstanding any
----------------------------------------------
other provision of this Agreement, an Assignment of or security interest granted
in any Software or technology will not be construed as a conveyance of any
---
ownership in or proprietary rights in any Software, patents, copyrights, or
intellectual property except (i) the right to receive payments (whether license
------
payments or otherwise, and whether due from the original Customer or otherwise)
with respect to the Software and technology components of purchased Systems,
(ii) all rights (whether deemed contract rights, accounts, general intangibles
or otherwise) with respect to such payments, whether arising under the
applicable Contract or otherwise, including the rights of enforcement and
remedies, and (iii) a right to re-license or compel the relicensing of such
Software, and transfer the use of such technology, at no additional cost, to any
user(s) of the Equipment components of the Systems. SBCC's rights in Software
will not extend to any copies of Software which are not used or to be used in
connection with the purchased Systems.
(d) Interim Purchase Price Payments. Viisage and SBCC may mutually
-------------------------------
agree to provide for interim conditional payments of the Purchase Price for
Systems which are to be implemented over a period of time not exceeding twelve
(12) months. In order to effect interim payments, the following conditions must
be satisfied:
(i) Viisage and a Customer shall have irrevocably entered into a
Contract which provides for the development, delivery and installation of a
System by Viisage for the Customer and satisfies all provisions of this
Agreement (save for such development, delivery, installation and/or
acceptance of the System);
(ii) The Contract provides that the Customer will become bound to the
entire Contract for its entire term (subject only [i] to appropriation of
fiscal funds, in the case of any Customer which is a governmental body and
[ii] to termination of the Contract in the event of a material, uncured and
continuing default of performance obligations by Viisage) upon Viisage's
completion of installation and delivery benchmarks on or before a specified
date;
(iii) Viisage has provided SBCC with a schedule of installation or
delivery dates, or other benchmarks for System components and deliverables
to be provided by Viisage and its projected direct System costs and months
in which such costs are to be incurred, and Viisage and SBCC have mutually
agreed upon a schedule of dates and amounts for SBCC's interim payment and
final payment of the Purchase Price;
(iv) The System, Payments, Assigned Rights and Customer Guarantees shall
have been assigned from Viisage to SBCC;
(v) This Agreement is in full force and effect and has not expired, or
been terminated or revoked (or if it has expired or terminated, the
commitment to purchase such System remains in effect);
(vi) All of the requirements of this Agreement which must be true or be
performed as of the date of SBCC's purchase with respect to the Contract,
System, Payments,
5 of 30
<PAGE>
Equipment, Assigned Rights and Customer, including but not limited to the
eligibility requirements set forth in Section 4, shall be satisfied,
excepting only those requirements which relate to Viisage's scheduled
development, delivery and installation of the System and the Customer's
acceptance of the System;
(vii) Viisage is not in default of any of its obligations, duties or
agreements under this Agreement, any Assignment, or any other instrument
document or agreement with SBCC, nor has any event occurred which with the
passage of time or giving of notice or both would constitute such an event
of default, nor is Viisage or any other provider in default under, nor have
System performance or viability issues been raised under, similar System
Contracts or installations with other of Viisage's customers;
(viii) There has been no default, nor event which with the passage of time
or giving of notice or both would constitute a default under the Contract,
by any party to the applicable Contract; and
(ix) Any additional conditions or requirements agreed upon in writing by
SBCC and Viisage have been satisfied.
SBCC will make payment of scheduled interim Purchase Price payments at the times
and in the amounts provided under clause (iii) above (but only to the extent of
Viisage's costs therefor) upon Viisage's request for payment, accompanied by its
certification of invoices, checks and other evidence that Viisage has actually
incurred such costs and its certification that Viisage has performed and
satisfied each of the Contract's benchmarks and conditions to be performed as of
the date of the interim payment request.
(e) Closing Out Interim Purchase Price Arrangements. If, on or before
the date for final payment of the Purchase Price (under Section 2(d)(iii)
above), (i) all of the conditions described under Section 2(d) with respect to
the purchase have been and continue to be satisfied, and (ii) all acceptances
and conditions required to cause the Contract and the Payments provided
thereunder to become unconditional, fully satisfied obligations of the Customer
have been satisfied, then SBCC will remit the balance of the Purchase Price to
----
Viisage and the Assignment will become unconditionally effective. If any of the
conditions specified under Section 2(d) are not satisfied on the scheduled date
for an interim Purchase Price advance or cease to be fully satisfied after an
interim Purchase Price advance has been paid, or any of the conditions specified
in the preceding sentence are not satisfied as of the date for final payment of
the Purchase Price, then SBCC's remaining obligation to purchase the System,
----
Payments and Assigned Rights shall become void and of no further effect, and
Viisage will immediately make payment to SBCC of the amount of any interim
Purchase Price advances made by SBCC, plus interest thereon from the date of the
advance to the date of payment at a rate equal to the Prime Rate, and, upon
SBCC's receipt of such payment, the remaining provisions of the Assignment will
be canceled and of no further effect.
6 of 30
<PAGE>
(f) No Assumption by SBCC. SBCC shall not be deemed to have assumed any
---------------------
of Viisage's, or any lessor's, developer's, licensor's or vendor's, obligations
under any Contract or with respect to any Systems.
(g) Use of Purchased Systems. SBCC acknowledges that the Systems to be
------------------------
purchased under this Agreement will be subject to Contracts under which the
Customers will have rights to use and enjoy the Systems. SBCC agrees that,
absent a default under the Contract or related documents by the Customer, and so
long as the Contract remains in effect, SBCC will not interfere with the
Customers' use and enjoyment of the Systems.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
Viisage hereby represents and warrants (each representation and warranty
shall be considered as having been made concurrently with each purchase made
pursuant to this Agreement as an inducement to SBCC to make such purchase) that:
(a) Organized and Existing. Viisage is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of Massachusetts, and
Viisage is duly qualified and in good standing as a foreign corporation
authorized to do business in each state or jurisdiction where such qualification
is necessary.
(b) Due Authorization; No Conflict. Viisage is duly authorized to execute
------------------------------
and deliver this Agreement, and is and will (as long as this Agreement is in
effect and thereafter until no further payment or performance obligations are
owed to SBCC under this Agreement or any Assignment) continue to be, duly
authorized to perform all of its obligations under this Agreement and under each
instrument and document delivered in connection with this Agreement. Viisage's
execution, delivery and performance of this Agreement does not and will not
conflict with any law, rule or regulation, Viisage's charter or by-laws, or any
agreement or court or administrative order, judgment or decree.
(c) Financial Information. Viisage has delivered to SBCC copies of
---------------------
Viisage's most recent quarterly and annual financial statements, in the form
required by Section 5(a).
(d) Principal Place of Business. Unless and until changed in accordance
---------------------------
with Section 5(g), Viisage's chief executive office and principal place of
business is located at the address set forth on the first page of this
Agreement.
4. ELIGIBILITY REQUIREMENTS.
------------------------
All of the following conditions must be true, correct and satisfied with
respect to each System purchased under this Agreement, the Payments with respect
to the System and the related Contract and Assigned Rights, and if such
conditions thereafter shall cease to be true with respect to such System, then
the provisions of Section 9 shall apply to such System. The satisfaction or
failure of satisfaction of the any of the following conditions will be
determined independently of, and without regard to, whether or not a Credit
Default has occurred.
7 of 30
<PAGE>
(a) Assignable Original; Related Agreements. Viisage has delivered to
---------------------------------------
SBCC all assignable originals of the Contract, together with true and accurate
copies of all agreements (including third party Services agreements) entered
into in connection with the Contract.
(b) Accurate Description of System, Services and Payments; Acceptance.
-----------------------------------------------------------------
Except as otherwise contemplated under Section 2(d) or 2(e), the Contract
accurately describes the System covered by, the Payments due under, and the
Services to be rendered in connection with, the purchased System, the System
complies with the requirements of the Contract and has been delivered to and
unqualifiedly accepted by the Customer thereunder, or, if acceptance is not
required by the Contract, all performance conditions necessary to cause the
Contract to become fixed and unconditional against the Customer have been
satisfied; all Services required or to be rendered in connection with a Contract
or any System have been and will be timely and fully provided and unqualifiedly
accepted by the Customer, or, if acceptance is not required by the Contract,
received by the Customer without objection.
(c) No Default. At the time of SBCC's purchase, no default or event which
----------
with the passage of time or giving of notice or both would become a default
under the terms of the Contract existed, and Viisage had no knowledge of any
fact that might impair the Contract's or Assigned Rights' validity.
(d) No Prepayments. At the time of SBCC's purchase, no amounts have been
--------------
prepaid on the Contract except advance payments required by the Contract.
(e) No Setoffs; Non-cancellable. No setoffs, counterclaims or defenses
---------------------------
exist to any claims against or obligations of any Customer under the Contract or
any related Customer Guaranty; the Contract has not been canceled or terminated
by any Customer; and, if the Contract is one under which the Customer is a
governmental entity, the Contract will not be canceled, terminated or permitted
to lapse or expire due to non-renewal prior to the original projected term of
the Contract or the term of any renewal or extension in effect, regardless of
whether such cancellation, termination or non-renewal is permitted by the
Contract, any related agreement, or by applicable law or regulation.
(f) Valid, Binding, Enforceable. The Contract and each related Customer
---------------------------
Guaranty are genuine, valid, binding and enforceable in accordance with their
terms.
(g) Complies with Laws. The Contract and the System and Services covered
------------------
by the Contract comply with all applicable laws and regulations.
(h) Title; Liens; Right to License Software; Perfection. Viisage has
---------------------------------------------------
conveyed to SBCC good title to the System, Payments, Assigned Rights and
Customer Guaranties and all proceeds thereof, free and clear of any lien, claim
or security interest excepting tax liens for which Viisage has fully reserved
payment and which Viisage is contesting in good faith and by appropriate
proceedings; Viisage will not convey to any other party (besides the Customer)
any interest in any related System, Contract, Payments, Assigned Rights or
Customer Guaranties, or
8 of 30
<PAGE>
any proceeds thereof; and at the time of purchase, Viisage has taken, at its
expense, all steps necessary or deemed by SBCC to be desirable to perfect SBCC's
security interest or other interest in the System, Payments, Assigned Rights and
Customer Guaranties. Viisage has an unimpaired fully paid right to perpetually
license the related Software to any user of the Equipment components of the
System, subject only to the interest, if any, of the developer or third-party
licensor of the Software to whom or which all license fees and/or royalties have
been and will be paid by Viisage when due.
(i) No Impairment of Rights or Value. Viisage has not done anything that
--------------------------------
might impair the value of the System, Contract, Payments, Assigned Rights any
related Customer Guaranty, or any of SBCC's rights thereunder.
(j) No Amendments. Neither the Contract nor any related Customer Guaranty
-------------
has been, or will be, altered, modified, changed or amended without SBCC's prior
written consent, which consent will not be unreasonably withheld if the
amendment does not modify the Payments or rights of enforcement under the
Contract, or release any party under or security for the Contract, or provide
for a modification of the System under the Contract. If Viisage requests SBCC's
consent to any proposed amendment, SBCC will be deemed to have consented to the
amendment if SBCC has not denied consent within five (5) business days from its
receipt of Viisage's written request therefor.
(k) Insurance. Viisage will maintain or cause the Customer to maintain
---------
insurance with respect to the Equipment components of the System and otherwise
to such extent and against such risks, hazards and liabilities as is commonly
maintained by companies similarly situated (provided, however, that in no event
shall the amount of insurance which is required to be maintained against damage
to or loss of any System or component thereof be less than the Termination
Amount thereof).
(l) Taxes. All taxes, assessments, fines, fees and other liabilities
-----
relating to the Contract, the Payments due under the Contract, the related
System and Services; and any related Customer Guaranty have been paid when due,
and all related filings have been timely made.
(m) Service Agreements. Viisage has provided full and complete copies of,
------------------
and obtained SBCC's concurrence (which may be given or withheld by SBCC in its
sole discretion) with any contract or agreement under which third parties are to
perform or be responsible for any Services to be rendered in connection with the
Contract or System. SBCC will be deemed to have concurred with any such
contract or agreement if it has not noted its disapproval within ten (10) days
after receipt thereof.
5. DUTIES.
------
Until the termination of this Agreement and for as long as any Payments or
Assigned Rights purchased under this Agreement have not been fully paid or
satisfied, or any System or component thereof is owned by SBCC and has not been
abandoned, Viisage will:
9 of 30
<PAGE>
(a) Financial Information. Furnish to SBCC:
---------------------
(i) as soon as available, but not later than sixty (60) days after
the end of each quarter (except the last) of each fiscal year, quarterly
unaudited financial statements concerning Viisage's business, prepared in
accordance with generally accepted accounting principles and applicable
Securities and Exchange Commission rules and regulations, applied on a
basis consistent with that of the preceding fiscal quarter, presenting
fairly its financial condition as at the end of that quarter and containing
such data as may be requested by SBCC, and certified as true and correct by
its Chief Financial Officer;
(ii) as soon as available, but not later than one hundred-five (105)
days after the end of each fiscal year, a copy of Viisage's annual audit
report for that year, prepared in conformity with generally accepted
accounting principles and applicable Securities and Exchange Commission
rules and regulations, applied on a basis consistent with that of the
preceding fiscal year and presenting fairly its financial condition as at
the end of that fiscal year and the results of its operations for the
twelve (l2) month period then ended and signed by independent certified
public accountants of recognized standing or otherwise satisfactory to
SBCC; and
(iii) any other information as SBCC may reasonably request from time
to time.
(b) Notice of Adverse Events. Notify SBCC promptly upon Viisage's
------------------------
learning of:
(i) any change in the name of any Customer;
(ii) the default or violation by any Customer under any Contract or
other related document;
(iii) any adverse credit information, which Viisage may acquire or
have knowledge of, with respect to any Customer under any Contract;
(iv) the occurrence of any Termination Event or event which, with
the passage of time or with notice or both would become a Termination
Event.
(c) Books and Records. Permit SBCC reasonable access, upon reasonable
-----------------
notice and during normal business hours, to Viisage's books and records as they
relate to Systems, Payments, Assigned Rights or Customer Guaranties purchased by
SBCC, or any related Contracts.
(d) Continuity of Business. Subject to Section 13(f), not (i) cease to
----------------------
engage in substantially the same line of business in which Viisage is engaged on
the date of this Agreement, (ii) cease to engage in the provision of Systems and
related Services, or (iii) sell, transfer or convey a substantial part of
Viisage's assets, or effect or be a party to any merger or consolidation if the
effect thereof, determined by SBCC in its sole discretion, would adversely
affect any of SBCC's rights under this Agreement, any Assignment or in any
property or rights covered by an
10 of 30
<PAGE>
Assignment, or adversely affect Viisage's ability to perform or satisfy any of
its duties and obligations under this Agreement, any Assignment, or any
Contract.
(e) Defaults Under Loan Agreements. Not default under that certain Fourth
------------------------------
Amended and Restated Loan and Conditional Security Agreement between Lau
Acquisition Corporation and the First National Bank of Boston, N.A., or any
related document or agreement, or under any other primary working capital credit
agreement or arrangement hereafter substituted by Viisage therefor, with the
result that any indebtedness with respect to such agreement shall have been
declared due and payable prior to the date on which it would otherwise become
due and payable, and such default is not cured or waived before SBCC has acted
upon such a default as a Termination Event or condition for repurchase of a
System under Section 9 of this Agreement.
(f) Performance of Obligations Under Contracts. Perform or cause any
------------------------------------------
supplier, vendor or developer of System components or Services to perform all of
Viisage's or any such supplier's, vendor's or developer's obligations arising by
contract or imposed by applicable law, rule or regulation with respect to the
Contracts and the related Systems.
(g) Changed Locations. Notify SBCC at least ten (10) days prior to:
-----------------
(i) Viisage's changing the location of its principal place of
business or chief executive office; or
(ii) Viisage's opening or closing any places of business in any
jurisdictions where such openings or closings might affect the place where
a UCC financing statement or similar document would need to be filed in
order to perfect or protect SBCC's security interest or other interest in
any Systems, Payments or Assigned Rights.
(h) Further Assurances. From time to time execute and deliver such
------------------
further documents and take such actions as SBCC may reasonably request in order
to fully effect the purposes of this Agreement and to protect SBCC's interest in
the Systems, Payments and Assigned Rights.
(i) Qualification to Do Business. Subject to Section 13(f), maintain in
----------------------------
full effect its corporate existence and qualification, in each state or
jurisdiction where the failure to do so would have an adverse effect upon
Viisage's rights under this Agreement, any Assignment, any Contract, or with
respect to any Systems, Payments or Assigned Rights, to conduct business under
Viisage's name, the names Lau Technologies and Viisage Technologies, and any
other name under which Viisage conducts business.
6. AGREEMENT TO INDEMNIFY.
----------------------
(a) Scope of Indemnity. Viisage agrees to indemnify and save SBCC
------------------
harmless of, from and against any losses, damages, penalties, forfeitures,
claims, costs, expenses (including court costs and reasonable attorneys' fees)
or liabilities, excepting those arising solely out of SBCC's gross negligence or
willful misconduct, which may at any time be brought, incurred,
11 of 30
<PAGE>
assessed or adjudged against SBCC, related to or arising from the purchased
Systems, the related Contracts and Services, or any breach by Viisage of any of
its representations, warranties, duties or other obligations or agreements
contained in this Agreement, any Assignment or any other agreement with SBCC.
(b) Indemnity Notification. SBCC and Viisage will each give the other
----------------------
notice of any event or condition that requires indemnification by Viisage, or
any allegation that such event or condition exists, promptly upon obtaining
knowledge thereof.
(c) Control of Proceedings. If Viisage is otherwise in compliance with
----------------------
the terms of this Agreement, Viisage shall be subrogated to SBCC's rights with
respect to such event or condition and shall have the right to control, and
determine the settlement of claims upon related litigation, so long as Viisage
does not impose any liability upon SBCC without SBCC's consent (acting in SBCC's
sole discretion).
(d) Survival of Indemnity Obligations. All of the indemnities and
---------------------------------
agreements contained in this Section shall survive and continue in full force
and effect notwithstanding termination of this Agreement or of any Contract.
7. ADMINISTRATION AND COLLECTIONS.
------------------------------
(a) Generally. Viisage agrees to collect Payments and to administer the
---------
Contracts generally. Viisage will undertake such collections and administration
as an independent contractor and not as SBCC's agent, and in connection
therewith will, at Viisage's sole cost and expense, diligently monitor and
verify the amount of usage under Per-Use Contracts, and perform all billing and
collecting for amounts due and to become due with respect to such Contracts.
Viisage will bill Customers and perform such administration in accordance with
its standard procedures.
(b) Billings; Remittances. Subject to Section 2(d), Viisage shall render
---------------------
billings to Customers such that rental, license or usage Payments for any month
during the term of a Contract for a System purchased hereunder will be due not
later than thirty (30) days after the end of such month. Within ten (10) days
after its receipt of any Payment under a Contract or otherwise with respect to a
System purchased hereunder, Visage will remit to SBCC (but only to the extent of
such Payment) the total of unpaid Remittance Amounts for such System for the
month in which paid and for any prior month(s). If Viisage has not received and
remitted the full Remittance Amount to SBCC for each of the first three (3)
respective months in any Contract's term, Viisage shall, within thirty (30) days
after the end of each such month and regardless of whether corresponding
Payments have been received from the Customer, make payment to SBCC of the
unpaid Remittance Amount for such System for such month. Viisage shall be
entitled to receive back the amount of any such forced payments made to SBCC
upon a Credit Default under the Contract, together with interest thereon at the
Prime Rate. All payments made to SBCC shall, unless otherwise specified by SBCC
in writing, be made to SBCC by wire transfer to SBCC's account at Harris Trust
and Savings Bank, ABA Number 071000288, Account Number 4016895.
12 of 30
<PAGE>
(c) Viisage's Recovery of Remittance Amounts. Viisage may, unless SBCC has
----------------------------------------
terminated Viisage's authority to collect for Payments under Section 7(f), or
unless a breach has occurred under this Agreement or any Assignment, retain the
excess by which Payments (excepting prepayments) received by Viisage exceed the
Remittance Amounts attributed to the purchased Systems through such period. If
SBCC has terminated Viisage's authority to bill and collect for Payments under
Section 7(f) or if a breach under this Agreement or any Assignment has occurred,
then SBCC shall receive and may retain all Payments with respect to all Systems
which are subject to the Termination Event. To the extent that any such
Payments retained by SBCC exceed the Remittance Amounts then due with respect to
the Systems to which they relate, SBCC shall apply any such excess Payments
first against the Termination Amount with respect to the System in the inverse
order of maturity until the Termination Amount is zero, and second, against the
Termination Amount(s) (in inverse order of maturity) of any other System(s) then
subject to a Termination Event, with any remaining excess to Viisage. If a
Termination Event is remedied after SBCC has terminated Viisage's authority to
bill and collect for Payments, and SBCC has elected to continue billing and
collecting for Payments, SBCC may, in its sole discretion, remit back to Viisage
the amount of excess Payments collected.
(d) Collection Reports. So long as Viisage shall administer Payments
------------------
purchased by SBCC, Viisage shall maintain books and records pertaining to all
related Contracts and provide SBCC with summaries of monthly billings to the
Customer involved and summaries of the Payments due under and Payments received
under such Contracts, of the usage (compared to the number of usage units
projected for such period under the Contract) and payment amounts under each
Per-Use Contract, and, as requested by SBCC, other source information from which
the aforementioned summaries are prepared. Such reports shall be provided to
SBCC on or before the twentieth (20th) calendar day of each month.
(e) Taxes. Viisage will make or cause the Customer to make all filings in
-----
respect of, and file or cause the Customer to file for and remit payments
received on account of, any and all personal property taxes, license, permit and
registration fees, sales, use, excise, or similar taxes, together with any
penalties or interest in connection therewith, now or hereafter imposed by any
state, Federal or other government or agency on any Contract, System, Assigned
Rights, Services or Payment covered under this Agreement, whether the same shall
be payable by or billed or assessed to the Customer, Viisage or SBCC.
(f) Termination of Billing and Collections. SBCC may terminate Viisage's
--------------------------------------
authority to bill, collect and administer under this Section 7 as to any or all
System Contracts upon the occurrence of a Termination Event, provided that if
the Termination Event results solely out of a default by a Customer under a
Contract, then SBCC may terminate such authority only with respect to the
affected System. If Viisage's authority is terminated by SBCC, SBCC may deliver
to the applicable Customers the notices delivered to SBCC or prepared by SBCC
pursuant to this Agreement and bill for and collect all amounts payable under
the applicable Contracts or with respect to any related Systems. If, despite a
termination of Viisage's authority under this Section 7(f), Viisage subsequently
receives any Payment, Viisage agrees to immediately forward the Payment to SBCC
in kind, and until such Payment is forwarded to SBCC, to hold the Payment in
trust for SBCC. If SBCC has terminated Viisage's billing and collection
authority under this
13 of 30
<PAGE>
Section, Viisage shall not interfere or attempt to interfere with the issuance
of notices with respect to, or the billing and collection of sums due under the
applicable Contracts or with respect to any related Systems. Furthermore,
following termination of Viisage's authority to bill and collect, Viisage agrees
to cooperate and assist SBCC in efforts with respect to billing and collection.
SBCC's right to send notices and bill and collect for Payments and other amounts
shall be specifically enforceable by SBCC.
(g) Notice Letters and Billing Information; Contacts with Customers.
---------------------------------------------------------------
Viisage agrees to provide to each applicable Customer, at the time of SBCC's
purchase of a System, an original notice in the form of Exhibit B hereto. Upon
the occurrence of a Termination Event, Viisage irrevocably authorizes SBCC, in
connection with any notification of Customers as provided in this Section 7, to
deliver the same as an original to each Customer to whom notice under this
Section may be given.
(h) Power of Attorney. For as long as any amounts are owing to SBCC under
-----------------
this or any related agreements, Viisage hereby irrevocably constitutes and
appoints SBCC as Viisage's true and lawful attorney with respect to any System
for which a Termination Event has occurred, with full power of substitution, for
Viisage and in Viisage's name, place and stead, to ask, demand, collect,
receive, receipt for, sue for, compound and give acquittance for any and all
Payments and other sums due with respect to such Systems under Section 7(f), and
to endorse, in writing or by stamp, Viisage's name or otherwise on all checks,
collections, receipts or instruments given in payment or part payment thereof.
(i) SBCC's Discretion. Upon the occurrence of a Termination Event and
-----------------
SBCC's subsequent undertaking to bill and collect for Payments, SBCC may, in
accordance with its ordinary practices and procedures, take or forego whatever
action with respect to the collection of such Payments and receipt of such funds
as SBCC, in its sole discretion, shall deem proper. In addition thereto, SBCC
or its designees may take such actions as SBCC deems appropriate to provide
ongoing verification of usage under Per-Use Contracts and to satisfy any
conditions and/or perform any obligations which may be required in order to
recognize Payments under and/or give effect to such Contract. Regardless of any
such action SBCC may take or forego, the provisions of this Agreement which
govern repurchase will remain in force and shall be unaffected by any such
action or failure to act on SBCC's part.
(j) Reimbursement of Collection Expenses. If SBCC has terminated
------------------------------------
Viisage's authority to bill, collect and administer for Payments under Section
7(f), SBCC will be entitled to receive and retain out of collected amounts any
out-of-pocket expenses and costs which have been reasonably incurred in
connection with SBCC's billing and collection of, performance of administrative
functions with respect to, and verification of usage under any related
Contracts. Viisage will not have any direct liability for such costs and
expenses incurred by SBCC.
(k) Post Termination Repurchases. Viisage will have the right, within
----------------------------
sixty (60) days after SBCC's termination of authority to collect and administer
any Contract, to repurchase the related System and Payments for cash for a price
equal to the then applicable Termination Amount of the System. Such repurchases
may be made pursuant to Section 9A with respect to
14 of 30
<PAGE>
terminations based upon the occurence of a Credit Default. After SBCC receives
the Termination Amount for any repurchased System, SBCC will reassign to Viisage
all of its right, title and interest in the repurchased System and any Payments
due thereunder without representations or warranties by SBCC of any kind
whatsoever, except that SBCC shall represent and warrant that it has not granted
or conveyed any interest therein to any third party (other than interests that
have been fully and finally released). The existence of such a right on
Viisage's part will not (until the right is exercised) impair, limit or effect
SBCC's authority to conduct collections and administration as provided above.
8. PREPAYMENTS.
-----------
Viisage has no right to repurchase any System or prepay any Contract,
whether in whole or in part. If a Contract covering a System purchased by SBCC
is prepaid in full for any reason, SBCC shall be entitled to receive, in
connection with the prepayment, an amount equal to the Termination Amount with
respect to the System.
9. REPURCHASE.
----------
(a) Ineligible Systems, Payments or Contracts. If any of the conditions
-----------------------------------------
specified in Section 4 shall not be or shall cease to be true, correct or
satisfied, SBCC may request or demand that Viisage repurchase the related or
affected System and Payments. If any such condition remains untrue, incorrect
or unsatisfied for sixty (60) days after SBCC's written request or demand, then
Viisage will immediately after expiration of the sixty (60) day period,
repurchase the System and Payments for cash for a price equal to the then
applicable Termination Amount of the related System.
(b) Repurchase of All Systems and Payments. Upon any breach of Viisage's
--------------------------------------
duties or agreements in this Agreement (other than any duty set forth in Section
5(d) or 5(e)) and the continuation of such breach for sixty (60) days after
written notice from SBCC, or upon a breach of any duty set forth in Section 5(d)
or 5(e), Viisage will immediately repurchase all Systems and Payments for cash
for a price equal to the total of then applicable Termination Amounts of all
such Systems.
(c) Per-Use Payment Shortfall. If the Payments actually due under any
-------------------------
Per-Use Contract over any three (3) consecutive-month period are less in the
aggregate than the total of Remittance Amounts for the such period and no Credit
Default exists (other than a Credit Default existing solely because the Customer
has failed or refused to make payments, and not in connection with any other
Credit Default), and upon SBCC's written request to do so, Viisage will
repurchase the related System and Payments for cash for a price equal to the
then applicable Termination Amount.
(d) Reassignment by SBCC. After SBCC receives the Termination Amount for
--------------------
any repurchased System, SBCC will reassign to Viisage all of its right, title
and interest in the repurchased System and any Payments due thereunder without
representations or warranties by SBCC of any kind whatsoever, except that SBCC
shall represent and warrant that it has not
15 of 30
<PAGE>
granted or conveyed any interest therein to any third party (other than
interests that have been fully and finally released).
9A. Term Repurchases'
----------------
(a) Request for Term Repurchase. Upon written request to SBCC within the
---------------------------
time provided for the repurchase of a System and Payments under Section 9(a)
or 9(c), as applicable, Viisage may elect to discharge its repurchase payment
obligations under Section 9(a) or 9(c) over a period of time by making periodic
payments not greater than the related Remittance Amounts to SBCC over a term not
less than the projected term of the related Contract. Unless a different amount
or term are agreed to in writing by SBCC and Viisage, the periodic payment
amount and term for repayment will be equal to the unpaid Remittance Amounts and
remaining term of the Contract. Any difference between the unpaid Termination
Amount due for the repurchase and the present value of the periodic payments
(determined using the Discount Rate used to originally determine the Purchase
Price for the System) must be paid at the time the first deferred payment is
due.
(b) Retained Security Interest. SBCC will retain a security interest in the
--------------------------
Systems, Payments, Assigned Rights, and Customer Guaranties which are
repurchased by payments under this Section 9A and in all proceeds thereof. Said
security interest will be automatically released and of no further effect upon
final payment of all deferred payments with respect to the repurchased System,
Assigned Rights and Customer Guaranties.
(c) Conditions for Deferred Repurchase; Deferral Effective Only While
-----------------------------------------------------------------
Conditions are Satisfied. Viisage's right to defer its repurchase payments
- ------------------------
under this Section 9A will be effective and may be exercised only if each of the
following conditions is and remains fully satisfied. In the event that any of
the following conditions is not satisfied or at any time ceases to be satisfied,
Viisage will not be able to exercise any right to defer payment of its
repurchase obligations under Section 9 and the full unpaid amount of all
---
repurchase obligations deferred under this Section 9A will immediately become
due and be payable to SBCC without further notice or demand. These conditions
are as follows:
(i) Viisage's Debt to Worth Ratio shall equal or be less than 3 to 1;
(ii) Viisage's Debt Service Coverage Ratio shall equal or exceed 1.5 to 1;
(iii) Viisage's EBITDA to Interest Ratio shall equal or exceed 2.5 to 1;
(iv) Viisage's EBITDA to Funded Debt Ratio shall equal or exceed 0.20 to
1;
(v) Viisage's Interest Coverage Ratio shall equal or exceed 1.5 to 1;
(vi) Viisage is not in default of any of its obligations, covenants and
agreements under this Agreement, any Assignment, or any other instrument
document or agreement with
16 of 30
<PAGE>
SBCC, nor has any event occurred which with the passage of time or giving
of notice or both would constitute such an event of default.
(d) Prepayments. All prepayment amounts and other amounts received on
-----------
account of any System, Assigned Rights or Customer Guaranty repurchased by
payments under this Section 9A, or under any related Contract must be paid to
SBCC by Viisage upon Viisage's receipt thereof. Such amounts will be applied in
inverse order against the periodic payments for such System.
10. UPGRADES; FIRST OPPORTUNITY; DISPLACEMENTS.
------------------------------------------
(a) First Opportunity. Whenever a Customer wishes to upgrade any
-----------------
components of a System to a different capacity or model number (an "Upgrade"),
-------
or wishes to add any separately identifiable additional Equipment or Software to
a System (an "Add-On") which will result in additional Payments to become due
------
under the Contract, Viisage will provide SBCC with the first opportunity to, and
SBCC may, in its sole discretion, purchase the Upgrade or Add-On and any
Payments and/or Assigned Rights arising from the lease or financing thereof
(which may, with SBCC's consent, be in the form of an amendment to or
replacement of the original Contract). If SBCC declines to make such purchase,
Viisage may, at its election, either (i) repurchase the existing System and
Payments by paying SBCC the Termination Amount, without any prepayment fee, or
(ii) fund the applicable Upgrade or Add-On itself or from funding sources other
than SBCC (provided that in so doing, none of the eligibility conditions with
respect to the System owned by SBCC are violated and Viisage does not breach any
duty or agreement hereunder or under any Assignment). Upon receipt of such
payment from Viisage, SBCC will reassign all of its right, title and interest in
the System, any unpaid Payments due thereunder, and any related Assigned Rights,
without recourse to and without representations or warranties by SBCC of any
kind whatsoever, except that SBCC shall represent and warrant that it has not
granted or conveyed any interest therein to any third party (other than
interests that have been fully and finally released).
(b) No Displacements. Viisage agrees that it will not, without SBCC's
----------------
written consent, solicit, counsel, offer or encourage any Customer to replace,
reconfigure or consolidate System components in such a manner that existing
System components are replaced or rendered surplus to the ordinary operation of
the existing System.
11. REMARKETING.
-----------
(a) Appointment, Priority. SBCC hereby appoints Viisage as its sole
---------------------
agent, to Remarket Systems purchased by SBCC for a term commencing with the
date of this Agreement and continuing until all of the Systems subject to
Remarketing are sold to the then Customer or other end user, and the provisions
of this Section will apply with respect to the Remarketing of Systems during
such term. The terms "Remarket" or "Remarketing" as used herein will mean the
-------- -----------
re-lease, rental, lease and sale of Systems as provided in this Section, on
prices, terms and conditions acceptable to SBCC and consistent with Viisage's
business practice. Viisage shall use its best commercially reasonable efforts
to Remarket Systems. No priority is required to be given
17 of 30
<PAGE>
by Viisage to Remarket Systems owned by SBCC, but Viisage shall not discriminate
against SBCC in favor of any comparable Systems or components, or upgrades
owned, managed or remarketed by Viisage. Viisage will not replace any System
component owned by SBCC with components owned by Viisage or any other third
party that performs substantially the same functions as SBCC's related System
components (e.g. no "like for like" replacements). Viisage's Remarketing duties
shall, unless terminated earlier by SBCC in accordance with Section 11(k), be
effective with respect to each System and its components until the Termination
Amount with respect to such System has been reduced to zero or, if earlier, the
System has been finally disposed of.
(b) Reporting. For any period beginning after December 31, 1996, Viisage
---------
will provide periodic market reports to SBCC, which will be prepared to the best
of Viisage's knowledge and will show summaries of market information for goods
comparable to any Systems which were offered, represented, sold or brokered by
Viisage during the previous period. Such reports will be considered
confidential and covered by that certain confidentiality agreement dated as of
October 11, 1995, between SBCC and Viisage. Viisage also will provide to SBCC,
within 30 days after the end of any month in which Remarketing has been
conducted, a monthly Remarketing report, which will cover in detail a listing of
Systems which became Off-Lease and Systems or items which were Remarketed during
the prior month.
(c) Remarketing to Existing Customers. If provided for under the
---------------------------------
Assignment related to a System, Viisage may agree to extensions and/or renewals
of the term of the Contract with the Customer thereunder. Any such extension or
renewal must be entered into and become effective prior to the time that the
System becomes Off-Lease and the periodic payments required to be paid by the
Customer on account of the extension or renewal must equal or exceed the amount
specified in the Assignment as the Renewal Rental Amount. If any such renewal
or extension is entered into, all rent and other proceeds of Remarketing, net of
sales, use, property, excise, ad valorem, or similar taxes shall be SBCC's
property, and shall be remitted to SBCC, provided however, that Viisage may
----------------
retain any Payments which are in excess of the Renewal Rental Amounts required
to be paid to SBCC.
(d) Off-Lease Systems, Duties. At such time as a System ceases to be
-------------------------
subject to a Contract or any renewal or extension of a Contract, whether due to
the expiration or termination of the Contract or after a default by the
Customer, the System covered by such Contract or agreement will be deemed "Off-
---
Lease" and Viisage will diligently perform the following Remarketing services
- -----
with respect to each such item of the System:
(i) Take possession of Off-Lease Equipment and/or Software as it
becomes Off-Lease and exercise such of the lessor's or vendor's remedies
under the appropriate Contract as SBCC may request.
(ii) Transport, store, refurbish, insure, perform such service and
repairs as necessary to place the System in proper working order and
otherwise perform such duties as set forth in Section 11(d);
18 of 30
<PAGE>
(iii) Certify the System components to the Remarketing lessee or
purchaser for inclusion under the manufacturer's standard maintenance
policy for equipment of like kind if available to the commercial market;
(iv) Seek new rental customers or purchasers for the System and/or
the components thereof (including, but not limited to, arranging for the
transportation, storage, maintenance and installation of the System, re-
licensing the Software components of the System, and making available to
any lessee, purchaser or user such operating and other Software, service,
and maintenance, spare parts, and training as necessary).
(e) Removal, Refurbishing. Viisage's refurbishment duties for Off-Lease
---------------------
Systems shall include, but are not limited to, a duty to return the Equipment to
an attractive appearance suitable for Remarketing, and a duty to cause the Off-
Lease Systems to perform in accordance with applicable product and certification
specifications for a System of the same model, version or release. Viisage
shall refurbish Off-Lease Systems on a schedule sufficient to make items of
refurbished Systems available to satisfy orders for Equipment or Systems of the
same type as the same are received by SBCC or Viisage. Upon the re-lease or
sale of any System or component of a System (whether Off-Lease or subject to
extensions or renewals of an existing Contract), Viisage shall, at no additional
charge, re-license any Software used in connection with the transferred
Equipment to the purchaser, lessee or user of such Equipment for the full term
of use of such Equipment and shall install or cause to be installed, such System
at the lessee or purchaser's place of business. Viisage shall also, subject to
SBCC's prior approval, (i) update Systems (in accordance with Viisage's standard
service procedures for said Equipment) to incorporate changes or new version
releases of Software and/or microcode which affects the System's value,
compatibility, performance, ability to be upgraded, or ability to accept
interchangeable parts in the same manner Viisage does for other comparable
equipment, and (ii) provide all engineering changes made to substantially all
other Equipment of the same model. SBCC shall not pay greater charges for
products and services covered under Sections 11 (d) and 11(e) than Viisage's
reasonable and customary charges for any such services and products for Systems
similar to such System..
(f) Terms of Remarketing. Subject to the provisions of Section 11(c), any
--------------------
proposed Remarketing of a System will be with parties and upon terms (including
but not limited to price or rental term) and conditions satisfactory to SBCC in
its discretion. Viisage will transmit to SBCC for approval:
(i) The identity of those prospective lessees, users or purchasers
who are considered reasonable prospects to lease or purchase Systems,
setting forth the name (and address if reasonably available) of each such
party;
(ii) A copy of each proposed lease, renewal, extension or contract
for the sale of the System, as the case may be, together with a copy of any
other agreement that may exist or be under consideration between Viisage
and each proposed lessee, user or purchaser, as the case may be, relating
to the System or the leasing or sale thereof; and
19 of 30
<PAGE>
(iii) Sufficient credit information (as may be reasonably requested
by SBCC and which can be reasonably provided by Viisage) with respect to
each proposed lessee, user or installment purchaser to enable SBCC to make
an informed judgment as to the prospective lessee's, user's or purchaser's
creditworthiness, it being understood that any such information will be
provided without any warranty as to the accuracy of such information.
SBCC will notify Viisage in writing of its approval of any Remarketing
transaction proposed by Viisage. If such approval is not given prior to the
seventh (7) business day after SBCC receives the information, SBCC will be
deemed to have not approved the proposed transaction.
(g) Documentation. Upon the Remarketing of any System or portion of a
-------------
System, Viisage will promptly deliver to SBCC, in the case of a cash sale, the
executed contract for the sale of the Equipment and all other documents
effecting or evidencing such sale, and the collected sale proceeds, and, in the
case of a re-lease, installment sale or other arrangement, Viisage will promptly
deliver:
(i) Each assignable original executed lease or document of
extension or renewal with respect to the System;
(ii) All other documents, including executed financing statements in
appropriate form for filing and releases of any liens, necessary or
appropriate to evidence and record SBCC's title and interest in the System,
all moneys due with respect to the System, and rights under all contracts
and agreements concerning the System, and all proceeds of all of the
foregoing;
(iii) An executed assignment to SBCC of each lease or extension,
renewal agreement or Remarketing document;
(iv) If the re-lease is not to an existing Customer, an installation
certificate to the effect that such System has been installed and is ready
for use by the lessee or user; and a letter to each lessee from Viisage and
signed by an authorized representative of Viisage notifying such lessee of
the assignment to SBCC of Viisage's rights under the lease or agreement.
(h) Rates. In establishing rental or sales rates for Remarketing (except
-----
as provided in Section 11(c), Viisage shall apply rates that, in its best
commercial judgment, are the reasonable commercially available rates obtainable
for Systems of the same type. Viisage shall not offer any credits or discounts
to lessees or purchasers of Off-Lease stems not normally granted to like
customers.
(i) Remarketing Proceeds. All proceeds of any Remarketing, net of sales,
--------------------
use, property, excise, ad valorem, or similar taxes ("Remarketing Proceeds")
--------------------
shall be SBCC's property and shall, except as provided under Section 11(c), if
received by Viisage, be immediately remitted
20 of 30
<PAGE>
to SBCC by Viisage, in the form in which they were received. Except for Systems
Remarketed pursuant to Section 11(c), Viisage will be entitled to retain out of
Remarketing Proceeds for any System the amount of Viisage's direct costs of
Remarketing for such System (including sales commissions) up to five percent
(5%) of the original purchase price paid by SBCC for such System, plus (ii) such
of Viisage's documented direct costs as have been approved by SBCC and incurred
in connection with the services covered under Section 11(d) and Section11(e).
Viisage will not be entitled to any additional Remarketing Proceeds except as
provided under Section 11(m) or as otherwise agreed by SBCC in writing.
(j) Communications With Customers. SBCC may communicate directly with
-----------------------------
existing or prospective Customers, lessees or users of Systems if Viisage fails
to perform any of its Remarketing duties with respect to the System.
(k) Brokers; Termination of Remarketing. With respect to any Off-Lease
-----------------------------------
System and with prior notice to Viisage, SBCC may arrange sales to brokers or
dealers. If SBCC arranges a sale of any such System and notifies Viisage before
Viisage Remarkets such System to an end-user, SBCC will be free to conclude such
sale. Further, if any item of a System subject to Remarketing due to the
occurrence of a Customer default is Off-Lease for a period of ninety (90) days
or more, or if any item of a System subject to Remarketing due to any other
reason is Off-Lease for a period of ninety (90) days or more, SBCC may, upon ten
(10) days prior written notice, notify Viisage of SBCC's intention to Remarket
such System. If Viisage fails to Remarket the item within such ten (10) days,
SBCC or its designee may remarket such System on its own behalf. In the event
SBCC arranges a sale of a System or portion thereof to a broker or dealer or
undertakes to remarket any System, Viisage shall only be entitled to receive
payment of its permitted costs and expenses as provided under Section 11(i).
Viisage will not be entitled to any other compensation or residual sharing in
connection with the Remarketing of such System and all Remarketing Proceeds will
be for SBCC's account. Notwithstanding any sale to a broker or dealer or any
undertaking to remarket by SBCC, Viisage agrees that it will make available to
SBCC and to any lessee, purchaser or user of a remarketed System or component,
at prevailing commercial rates, all services, parts, attachments, maintenance
and upgrades as it generally makes available to owners or users of similar
Systems or components. Any Software to be remarketed as part of a System by SBCC
or by a broker or dealer shall be licensed, at no additional cost, to the end
user(s) of the Equipment components of the System. SBCC agrees that it will not
Remarket any Systems to any person or entity that is directly engaged in
competition with Viisage's digital identification system business
(l) Overseas Transactions. If conversion of any System component to a
---------------------
different model or modification of the System to allow its use in any country
other than the United States is required in connection with any remarketing,
Viisage will undertake such conversion, with SBCC's prior written approval, but
the cost thereof will be paid by SBCC. SBCC may require that some or all of
such Off-Lease System be transported by Viisage to destinations outside the
United States. In the event SBCC requests that items be transported outside the
United States, then SBCC will be responsible for the costs of such
transportation export permits, customs fee and duties.
21 of 30
<PAGE>
(m) Revenue Sharing. Provided that Viisage continues to Remarket any
---------------
System which is subject to this Agreement; after the Termination Amount with
respect to such System has been reduced to zero, all Remarketing Proceeds and
other proceeds received by SBCC from or on account of such System shall be paid
one half to SBCC and one-half to Viisage.
12. TERMINATION.
-----------
This Agreement shall continue in effect until terminated and may be
terminated by either party at any time upon thirty (30) days' written notice to
the other, provided, however, that all indemnities and all of the rights and
obligations of the parties which apply to the Systems, Payments and Assigned
Rights assigned and/or approvals and commitments given prior to such termination
shall survive such termination.
13. MISCELLANEOUS.
-------------
(a) Costs and Expenses. Viisage agrees to pay all reasonable costs and
------------------
expenses, including reasonable attorneys' and paralegals' fees, expenses and
court costs incurred by SBCC in enforcing any of the provisions of this
Agreement or in enforcing any of Viisage's obligations under any Assignment
(b) Waiver of Notice of Customer Default. Viisage waives further notice of
------------------------------------
any Customer Default under any Contract for a System purchased hereunder for
which SBCC has undertaken to effect collections under Section 7(f). Viisage
further consents and agrees that with regard to any Contract for which Viisage's
collection rights have terminated under Section 7(f) hereof, and that, without
affecting any of its liabilities or obligations under this Agreement or under
any Assignment, SBCC may agree with any Customer as to any modification,
alteration, release, compromise, extension, waiver, consent, or other similar or
dissimilar indulgence of, or with respect to any Contract.
(c) Notices. Any notice under this Agreement shall be in writing and shall
-------
be delivered in person, by overnight air courier or by United States first class
mail, postage prepaid, and addressed:
(i) if to Viisage, at Viisage's address set forth on the first page of
this Agreement, with a copy to Charles J. Johnson, Esq., Finnegan, Hickey,
Dinsmoor & Johnson, P.C., 20 Beacon Street, Boston, Massachusetts 02110;
(ii) if to SBCC, at One South Wacker Drive, Chicago, Illinois 60606, Attn:
Senior Credit Officer; and
(iii) to either party at any other address as such party may, by notice as
herein provided, received by the other, designate as its address for all
notices under this Agreement.
22 of 30
<PAGE>
(d) Jury; Venue; Jurisdiction. This Agreement has been delivered for
-------------------------
acceptance by SBCC in Chicago, Illinois and shall be governed by and construed
in accordance with the internal laws of the State of Illinois. VIISAGE AND SBCC
EACH:
(I) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION ARISING FROM
---
OR RELATED TO THIS AGREEMENT;
(II) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN COOK COUNTY, ILLINOIS, OVER ANY ACTION OR PROCEEDING
ARISING FROM OR RELATED TO THIS AGREEMENT;
(III) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT VIISAGE MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF ANY SUCH ACTION OR PROCEEDING;
(IV) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT
ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND
(V) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST
SBCC'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN
ONE LOCATED IN COOK COUNTY, ILLINOIS.
Nothing in this Section shall affect or impair either party's right to serve
legal process in any manner permitted by law or to bring any action or
proceeding against the other in the courts of any other jurisdiction.
(e) Successors and Assigns; SBCC's Assignment. This Agreement shall be
-----------------------------------------
binding on, and inure to the benefit of, SBCC and Viisage and their respective
successors and assigns and contains their entire understanding and agreement
with respect to the subject matter of this Agreement. It is understood and
agreed that from time to time SBCC may, without notice to Viisage:
(i) decide that any or all of the purchases pursuant to this
Agreement shall be made by one or more of SBCC's affiliates, subsidiaries,
or subsidiaries of SBCC's affiliates;
(ii) assign or transfer all or a part of SBCC's right, title and
interest in any Systems, Payments or Assigned Rights and any related rights
under this Agreement, to any person; and
(iii) assign this Agreement in whole or in part and/or assign all or
part of SBCC's rights and benefits under this Agreement to one or more of
SBCC's affiliates, subsidiaries or subsidiaries of SBCC's affiliates.
23 of 30
<PAGE>
If one or more of SBCC's affiliates, subsidiaries or subsidiaries of SBCC's
affiliates purchase any Systems, Payments or Assigned Rights, the purchase or
purchases shall be made under the terms and conditions of this Agreement.
Despite the foregoing, SBCC agrees that it shall not to make any assignment
hereunder to any person or entity that is directly engaged in competition with
Viisage's digital identification system business.
(f) Viisage's Assignment. This Agreement is not assignable by Viisage;
--------------------
provided, however, that Viisage may assign and delegate all of its rights and
obligations hereunder to Viisage Technology, Inc., a Delaware corporation
("Viisage Delaware"), in connection with the transfer of the Viisage Technology
- ------------------
Division (being Viisage's digital imaging division) by Lau Acquisition Corp. to
Viisage Delaware, such transfer to be made in consideration of shares of Viisage
Delaware's common stock in a transaction that is intended to qualify under
Section 351 of the Internal Revenue Code of 1986, as amended, provided that (i)
-------------
Viisage Delaware shall, immediately following completion of the transaction,
have assets and liabilities substantially similar to those shown in pro forma
financial statements previously disclosed to SBCC, and (ii) the transfer shall
be consented to by SBCC. From and after the date of such assignment, Viisage
Delaware shall become, and Lau Acquisition Corp. shall cease to be, bound
hereunder and under any Assignment or other instrument, document or agreement
made or entered into by Viisage in connection herewith, and references herein to
Viisage shall be deemed to mean Viisage Delaware. Upon such assignment, Viisage
Delaware shall enter such agreements of assumption of this Agreement and shall
execute and deliver to SBCC such Uniform Commercial Code financing statements
consistent herewith for Systems purchased by SBCC hereunder as SBCC reasonably
may request to confirm Viisage Delaware's obligations hereunder.
(g) Reliance. All of the covenants, agreements, representations and
--------
warranties made by Viisage in this Agreement shall, notwithstanding any
investigation by SBCC, be deemed material and to have been relied upon by SBCC
with respect to each purchase made pursuant to this Agreement.
(h) Waivers. SBCC's knowledge of any breach of or non-compliance with any
-------
of Viisage's duties, agreements, representations or warranties shall not
constitute a waiver by SBCC. None of SBCC's rights under this Agreement will be
waived except in a writing signed by SBCC and any such waiver will be effective
only as to the matters expressly set forth in such writing.
(i) Illegality. SBCC's obligation to perform under this Agreement is
----------
limited by and subject to any and all applicable laws, rules and regulations.
Wherever possible, each provision of this Agreement shall be interpreted as
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
SBCC and Viisage intend to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary, Viisage shall not be required to
pay and SBCC shall not be permitted to collect interest in excess of the maximum
amount of interest permitted by law. If any excess interest is determined to
have been provided for by a court of competent jurisdiction, then: (i) Viisage
shall not be obligated to pay any excess
24 of 30
<PAGE>
interest; (ii) any excess interest that SBCC may have received shall be applied
against any of Viisage's outstanding obligations or refunded to Viisage; (iii)
the interest rate(s) shall be automatically reduced to the maximum lawful rate
allowed under applicable law, and this Agreement and any related agreements
shall be deemed to have been, and shall be, reformed and modified to reflect
such reduction; and (iv) Viisage shall not have any action against SBCC for any
damages arising out of the payment or collection of any excess interest.
14. DEFINITIONS.
-----------
The following terms, wherever used in this Agreement, shall have the
meanings given to them in this Section. To the extent applicable, all of the
terms shall be determined in accordance with, and each of the components used
therein shall be afforded the meaning given under, generally accepted accounting
principles consistently applied with respect to prior periods:
"Add-On" has the meaning given in Section 10(a).
------
"Assigned Rights" with respect to a System means all rights with respect to
---------------
the ownership of the System, except as otherwise provided under Section 2(c),
including the rights under any Contract related to the System, all rights with
respect to any Payments related to the System, rights of enforcement and
remedies with respect to any Contract and/or Payments, and all related rights
under or with respect to any of the foregoing (whether deemed contract rights,
accounts, general intangibles or otherwise).
"Assignment" has the meaning given in Section 2(a).
----------
"Assumed Residual" means the projected value of a System purchased by SBCC,
----------------
as of the end of the projected term or renewal term of the Contract. The
Assumed Residual will be determined at the date of purchase and will be shown on
the Assignment relating to the System.
"Contract" means:
--------
(i) a non-cancelable lease agreement arising out of a lease of a
System or
(ii) an installment sale contract, other installment payment
agreement;
(iii) a Per Use Contract;
(iv) other chattel paper arising out of the sale, provision or
financing of a System
"Credit Default" with respect to any particular Contract or the Customer
--------------
thereunder means any payment default by such Customer which continues for a
period of 90 days, default by the Customer under the terms of the Contract (but
not including any default arising solely from the Customer's failure to make
Payments), the filing of a voluntary or involuntary bankruptcy petition naming
such Customer as debtor thereunder, the commencement of any other insolvency
25 of 30
<PAGE>
proceedings by or against such Customer, the failure by such Customer to
continue its business or legal existence, the meeting by such Customer with a
committee of its creditors, the making of any assignment or the appointment of
any receiver for any such Creditor or its property, or any other similar event
evidencing an insolvency of or imposing upon or seeking any insolvency relief
for such Customer.
"Customer" means any party obligated with respect to a System other than
--------
the lessor, provider or vendor of the System covered thereby.
"Customer Guaranty" means any guaranty given to Viisage (or under which
-----------------
Viisage has rights) by any person or entity guaranteeing the payment and/or
performance of a Contract.
"Current Maturities of Long Term Debt" for an accounting period means the
------------------------------------
sum of the current portions of long term debt, capitalized leases and operating
leases due and to become due in such period.
"Debt to Worth Ratio" shall mean the ratio calculated as Liabilities
-------------------
divided by Tangible Net Worth.
- ----------
"Debt Service Coverage Ratio" shall be determined as of the end of fiscal
---------------------------
quarters, and, as of the end of a fiscal quarter, means the ratio calculated as
Operating Income for the four quarters ending as of the relevant fiscal quarter
divided by the Current Maturities of Long Term Debt for such 12-month period.
- ----------
"Discount Rate" for any System means the rate, as of the date of SBCC's
-------------
purchase, specified as the Discount Rate in Schedule A to this Agreement.
Changes to the Discount Rate may be announced by SBCC from time to time and will
apply prospectively to purchases made after the announced effective date.
"EBITDA" shall be determined as of the end of fiscal quarters, and, as of
------
the end of a fiscal quarter, means the net income for the four quarters ending
as of the relevant fiscal quarter plus the amounts by which gross income was, in
determining net income, reduced on account of depreciation, interest,
amortization and federal, state and local income tax expenses and/or tax
reserves.
"EBITDA to Interest Ratio" shall be determined as of the end of fiscal
------------------------
quarters, and, as of the end of a fiscal quarter, means the ratio calculated as
EBITDA for the four quarters ending as of the relevant fiscal quarter divided by
----------
interest expense for such 12-month period.
"EBITDA to Funded Debt Ratio" shall be determined as of the end of fiscal
---------------------------
quarters, and, as of the end of a fiscal quarter, means the ratio calculated as
EBITDA for the four quarters ending as of the relevant fiscal quarter, divided
-------
by the sum of current and deferred portions of long term debt, capital leases
- --
and operating leases for the such 12-month period.
26 of 30
<PAGE>
"Equipment" means digital imaging equipment and/or other goods which are
---------
sold or leased by Viisage under a Contract together with all additions,
replacements, substitutions, parts, repairs, accessories, accessions or
attachments to such property.
"Interest Coverage Ratio" shall be determined as of the end of fiscal
-----------------------
quarters, and, as of the end of a fiscal quarter, means the ratio calculated as
Operating Income for the four quarters ending as of the relevant fiscal quarter,
divided by interest expense for such 12-month period.
- ----------
"Liabilities" means all consolidated liabilities, obligations and
-----------
indebtedness to any person or entity of any and every kind and nature, whether
primary, secondary, direct, indirect, absolute, contingent, fixed, or otherwise,
heretofore, now or hereafter owing, due, or payable, however evidenced, created,
incurred, acquired or owing and however arising, whether under written or oral
agreement, by operation of law, or otherwise. Liabilities specifically includes
(i) all obligations or liabilities of any person or entity that are secured by
any lien, claim, encumbrance, or security interest upon property owned by
Viisage, even though Viisage has not assumed or become liable for the payment
thereof, (ii) all obligations or liabilities created or arising under any lease
of real or personal property, or conditional sale or other title retention
agreement with respect to property used or acquired, even though the rights and
remedies of the lessor, seller or lender thereunder are limited to repossession
of such property, (iii) all unfunded pension fund obligations and liabilities
and (iv) deferred taxes.
"Off-Lease System" has the meaning given in Section 11.
----------------
"Operating Income" shall be determined as of the end of fiscal quarters,
----------------
and, as of the end of a fiscal quarter, means net income for the four quarters
ending as of the relevant fiscal quarter, plus the amounts by which gross income
was, in determining net income, reduced on account of depreciation and
amortization
"Payment" means any payment, whether or not earned by performance,
-------
receivable by the vendor, lessor or provider on account of any related System
purchased by SBCC, including but not limited to all payments receivable under
any Contract covering or related to the System.
"Per-Use Contract" means a Contract under which the Payments to become due
----------------
(or some portion of the Payments) will be calculated by multiplying (i) the
amount or extent of System usage or production, measured numerically, by (ii) a
per-use, per-cycle, per-unit, etc., rate.
"Prime Rate" means the highest "Prime Rate" of interest quoted, from time
----------
to time, by The Wall Street Journal. If The Wall Street Journal ceases quoting
----------------------- -----------------------
a "Prime Rate", "Prime Rate" shall be determined by SBCC in good faith using
Statistical Release H.15 (519) published by the Board of Governors of the
Federal Reserve System or a comparable index chosen by SBCC. The "Prime Rate"
shall change effective on the date of the publication of any change in the
applicable index by which such "Prime Rate" is determined.
"Purchase Price" of a System covered by a Contract shall be computed as of
--------------
the date of purchase (or, if interim payments of the Purchase Price are made, on
the date of the first payment
27 of 30
<PAGE>
of any interim payments of the Purchase Price) and shall be an amount equal to
the sum of (i) the present value of the Remittance Amounts for the System,
calculated using the Discount Rate, plus (ii) the present value of the Assumed
Residual of the System calculated using the Residual Discount Rate.
"Remarket" has the meaning given in Section 11.
--------
"Remarketing Proceeds" has the meaning given in Section 11.
--------------------
"Remittance Amount" means, with respect to any System for any period of
-----------------
time, the amount specified in the Assignment applicable to the System as the
"Remittance Amount" for such period, plus any prepayments or other amounts
received on account of the System, plus any additional amounts then due to SBCC
under the Contract or otherwise with respect to the System, plus, for any
Remittance Amount which is projected to be paid, but is not paid within ten (10)
days after the end of the month in which payment is projected, a monthly late
payment amount equal to one percent of the unpaid Remittance Amount as of the
end of the preceding month. If the Assignment does not specify a Remittance
Amount, the Remittance Amount for a System for a specified period will be an
amount determined in good faith to provide to SBCC an internal rate of return on
the System's Purchase Price, based on the originally anticipated Contract term,
equal to the Discount Rate.
"Renewal Rental Amount" means, with respect to any particular System
---------------------
purchased by SBCC hereunder, the periodic dollar amount to be paid by Viisage to
SBCC during Contract renewals and extensions, if any, for such System under
Section 11(c) hereof, which dollar amount shall be specified in the Assignment
for such System.
"Residual Discount Rate" for any System means the rate, as of the date of
----------------------
SBCC's purchase, specified as the Residual Discount Rate in Schedule A to this
Agreement. Changes to the Residual Discount Rate may be announced by SBCC from
time to time and will apply prospectively to purchases made by SBCC after the
announced effective date.
"Services" means design, installation, analysis, testing, monitoring,
--------
maintenance, development, training, support engineering, consulting or other
services taken or to be taken by Viisage, its designees and/or parties other
than the Customer under or in connection with a System or Contract.
"Software" means operating and applications Software products or code used
--------
in connection with the Equipment comprising a part of a System, together with
all upgrades, enhancements or supplements thereto.
"System" means a digital identification system that is designed, developed
------
or implemented by Viisage and that is sold, leased or otherwise made available
to a Customer, and includes Equipment, rights to use solutions and Software in
connection therewith, and other property which is sold, provided or leased by
Viisage, together with all additions, replacements, substitutions, parts,
repairs, accessories, accessions or attachments thereto.
28 of 30
<PAGE>
"Tangible Net Worth" shall mean, as of any particular date, the
-------------------
difference between (a) total assets excluding all values attributable to
goodwill, patents, copyrights, trademarks, licenses, prepaid expense, other
general intangibles and accounts due from affiliated entities and (b) total
liabilities and deferred charges, including as liabilities all guarantees of the
indebtedness of affiliated entities.
"Termination Amount" with respect to any System will be an amount equal to
------------------
the sum of (i) the present value of any Remittance Amounts with respect to the
System which have not been received by SBCC, calculated using the Discount Rate
in effect on the date that the Purchase Price of the System was determined, plus
(ii) the present value of any unpaid Assumed Residual of the System, calculated
using the Residual Discount Rate in effect on the date that the Purchase Price
for the System was determined plus (iii) the amount of any costs, expenses or
sums payable to or recoverable by SBCC with respect to the System and any
related Contract.
"Termination Event" means: (i) Viisage's failure to timely pay any amount
-----------------
due under this Agreement or any Assignment, which failure is not remedied within
ten (10) business days; (ii) the breach or violation of any duties set forth in
Section 5(d) or 5(e) of this Agreement; (iii) the breach or violation of any
other of Viisage's duties set forth in this Agreement or any Assignment, and the
continuation thereof for sixty (60) days after written notice from SBCC; (iv)
Viisage's insolvency, inability to pay debts as they mature, making of an
assignment for the benefit of creditors, or the institution of any proceeding by
Viisage alleging that Viisage is insolvent or unable to pay Viisage's debts as
they mature, (v) the institution of any proceeding against Viisage alleging
that Viisage is insolvent or unable to pay its debts as they mature, which is
consented to by Viisage or under which Viisage is adjudicated to be a debtor in
a Bankruptcy case, or which is not withdrawn or dismissed within one hundred
eighty (180) days after its institution; or (vi) with respect to the affected
Contract only, the default, breach or violation of the Contract by any Customer.
"Upgrade" has the meaning given in Section 10(a).
-------
IN WITNESS WHEREOF, SBCC and Viisage have executed this Purchase Agreement
effective as of September 12, 1996.
SANWA BUSINESS CREDIT CORPORATION ("SBCC")
By: /s/ Tom McGlinch
___________________________________________
Title: Vice President, Vendor Finance Division
________________________________________
LAU ACQUISITION CORP. ("VIISAGE")
By: /s/ William A. Marshall
___________________________________________
Title: CFO, Viisage
________________________________________
29 of 30
<PAGE>
Attachments:
Schedule A
Exhibit A (form of Assignment)
Exhibit B(form of notification letter)
30 of 30
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viisage Technology, Inc.:
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Boston, Massachusetts
October 8, 1996
ARTHUR ANDERSEN LLP
