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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________.
Commission File Number 000-21559
VIISAGE TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3320515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Porter Road, Littleton, MA 01460
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978)-952-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of exchange on which registered
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Common Stock $.001 par value NASDAQ National Market
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 1, 2000, was approximately $35 million.
As of March 1, 2000, the registrant had 9,687,753 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 9, 2000, and Form S-1 filed on November 12,
1999 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
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(a) General Development of Business
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Viisage Technology, Inc. (Viisage or the Company), is a leader in the emerging
field of biometrics technology and in providing digital identification systems
and solutions. The Company focuses on identification solutions that improve
personal convenience and security, deter fraud and reduce identification program
costs. Viisage combines its systems integration and software design capabilities
with its proprietary software and hardware products and other industry standard
products to create complete customized solutions. These turnkey solutions
integrate image and data capture, create relational databases, incorporate
multiple biometrics and improve customers' ability to move and manage
information. Applications can include driver's licenses, voter registration,
national ID's, law enforcement, social services, access control and PC network
and internet access security. To date, Viisage's primary customers have been
government agencies with particular emphasis on U.S. drivers licensing agencies.
Since its inception in 1993, the Company has captured approximately 30% of the
domestic driver's license market. Viisage products annually produce more than 20
million identification documents at more than 1,000 locations in 12 states. The
Company has also provided services under subcontracts for projects in Jamaica,
the Philippines and for the U.S. Immigration and Naturalization Service.
The Company began operations in 1993 as a division of Lau Technologies (Lau), a
provider of systems integration services and products for sophisticated
electronic systems. In November 1996, Lau transferred substantially all of the
assets, liabilities and operations of the division to the Company and the
Company completed its initial public offering. As of December 31, 1999 the
Company is a 64% owned subsidiary of Lau.
Effective June 1, 1998, the Company reorganized its operations to create a
separate biometrics division to respond to the growing market interest in
biometric solutions. The biometrics division is focused on product, market and
channel development activities in three principal areas: facility access
control; PC network and internet access security; and real-time large database
identification and verification of individuals. The systems integration and
identification card division (SI division) focuses on Viisage's public sector
markets and serves as a channel to existing customers and the public sector for
the Company's biometric technologies. The Company believes that it is in the
early stages of an emerging and high growth market for biometric identification
solutions, particularly facial recognition solutions in the government and
commercial markets.
The SI division provides systems and services principally under contracts that
generally have five to seven year terms and provide for several annual renewals
after the initial contract term. 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
size of the database, the level of post-installation support and the competitive
environment. Substantially all of the Company's revenues are currently derived
from SI division 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.
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(b) Financial Information about Industry Segments
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The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. The Company has two reportable
business segments represented by its SI division and biometrics division
discussed in item (a). For financial information about industry segments see
Note 12 of Notes to Financial Statements.
(c) Description of Business
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(i) Principal Products and Services
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Industry Background
The need for proper identification impacts most people every day. The desire for
personal convenience, the significant and increasing costs of fraud and the
growing concern over declining personal security have become driving forces
behind the global need for effective identification solutions. Starting with
only a fake driver's license, an individual is able to create multiple
identities, commit fraud, evade law enforcement and engage in other criminal
activities that have significant financial and societal implications. Password
security and identity card systems can also be compromised if someone obtains a
password or identity card and uses this information to gain unauthorized access
to facilities, networks or information.
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.
Advances in and the acceptance of digital technology have 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. This ability to move and manage information helps to
increase personal convenience for system users.
As an additional means of improving personal convenience and security and
deterring fraud, identification systems have increasingly used biometrics
(unique biological characteristics) to verify personal identities. Biometric
identifiers include facial images, fingerprints, iris scans, retinal scans,
voice data, hand geometry and others, with fingerprints enjoying wide usage in
law enforcement. However, unlike other biometrics, a facial image can be easily
verified visually and can be captured in an unobtrusive manner via a 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. The Company generally advocates the use of
multiple biometrics and can incorporate these technologies into its solutions.
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Applications for digital identification systems and biometrics 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 also focusing on the value of sharing databases to avoid redundant
data gathering efforts, distribute information in a timely manner, increase
efficiency and deter fraud. The Company believes that public and commercial
sector applications for digital identification systems and biometrics will
include national ID's, driver's licenses, law enforcement, voter registration,
social services, access control, PC network and internet access security, ATMs,
retail point-of-sale transaction processing and administration of health care
benefits.
The emergence of digital identification systems and biometrics present
significant challenges for integrating these systems with customers' existing
software, hardware and computing environments. Consequently, customers are
seeking complete, integrated solutions to overcome these issues.
Products and Services
Digital Identification Systems
The Company's SI division develops and implements digital identification systems
and solutions and serves as a channel to the public sector for the biometrics
division. The SI division's systems can produce identification cards that are
virtually tamper proof and utilize facial recognition and other biometrics with
or without cards for the real-time identification (one-to-many) and verification
(one-to-one) of individuals.
Depending on the customer's needs, the SI division offers "instant issue"
systems which produce identification cards on location in minutes, and central
production systems which receive the information electronically from the point
of capture and produce cards from a secure off-site processing location which
are later mailed to recipients in several days. The facial images captured by
the SI division's card systems can provide the content (face bases) for
identification and verification applications.
In a Viisage card system the facial image and other information are captured in
digital format at the SI division's PC-based Image Capture Workstation which
usually incorporates the SI division's proprietary SensorMast. Compact and
self-contained, Viisage workstations can easily be linked to a central image
storage device, central card production unit and other remote devices using an
existing network, custom designed data communications or the World Wide Web.
This flexibility makes the Image Capture Workstation ideal for instant issue,
central production, mobile use and multiple site systems. The Viisage Quality
Advisor can be used to assess image quality at the point of capture. With an
instant issue system, a commercially available dye-sublimation printer produces
single-piece, tamper-resistant identification cards. Alternatively, with a
central production system, a high speed manufacturing unit produces the cards,
and an integrated card delivery unit prepares the cards for mailing. When
central production is selected, such systems incorporate the SI division's
proprietary Visual Inspection System for quality control of all cards produced.
Every system delivers top quality, tamper-resistant identification cards
customized to meet the customer's information, delivery and security needs. A
wide range of optional features are available including bar codes, holographic
overlays, ghost imaging, ultraviolet or micro preprinting, smart cards and a
number of other features.
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Systems Integration and Software Design Capabilities. In addition to the SI
division's systems integration capabilities, an important aspect of its services
and ability to deliver turnkey solutions for its customers involves the design
of customized software. Viisage's proprietary software controls the system and
integrates the system components, including the SensorMast and Visual Inspection
System and a variety of third party components and technologies used by its
customers. The SI division has designed software to support all current industry
standard operating systems (e.g., Windows NT, Windows 95, Unix 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 SI division's
software design and systems integration capabilities enable it to accommodate
most computing environments and customers with special requirements.
Proprietary Products. The SI division's proprietary products and related
software are described below:
. The SensorMast is a fully-integrated, secure tower unit that
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. An integrated version of the
SensorMast also includes the computer in the SensorMast.
. The Visual Inspection System automatically evaluates cards produced by
the SI division'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, high-speed cameras
and sophisticated software, automates an activity, which is otherwise
performed manually and is a potential source of cost savings for
customers.
. The Viisage Quality Advisor can be used by customers to ensure proper
image quality. This software product instantly and precisely assesses
image quality against desired standards. Images that fail to meet such
standards are immediately rejected.
Customer Service and Support. Following the installation of its digital
identification systems, the SI division offers extensive customer training and
help desk telephone support as well as ongoing maintenance services. The SI
division'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, the SI division has
contracted with third party service organizations for maintenance support.
Facial Recognition Systems
The Company's biometrics division is developing the Company's biometric
technologies in cooperation with its principal shareholder and technology
partner Lau, with a particular emphasis on facial recognition. The group 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 in most cases by an individual with no special
training. The biometrics division is concentrating on three principal areas:
facility access control; PC network and internet access
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security; and real-time large database products. The Company has several
on-going facial recognition identification projects, including projects with the
Massachusetts Department of Transitional Assistance and the Illinois Secretary
of State.
Over the last six years, Viisage and Lau have enhanced technology initially
developed by Professor Alex Pentland of the Massachusetts Institute of
Technology (MIT) and have developed products for access control, surveillance,
and real-time large database identification and verification of individuals.
Viisage and Lau each license the underlying MIT technology for their respective
markets through Facia Reco Associates Limited Partnership (Facia Reco), an
entity formed by Dr. Pentland. While Dr. Pentland's software forms the basis of
the Company's facial recognition technologies, the Company believes that its
proprietary software, developed over the last five years, is integral to making
these technologies commercially viable.
Viisage's patented facial recognition software offers organizations the ability
to create unique identification solutions and both enhances existing
identification solutions and offers opportunities for new applications. Using a
sophisticated algorithm, the software translates the characteristics of a face
into a unique number or eigenface. The eigenface is used by the system for
identification, a one-to-many search of a database, and verification, a one-to-
one match to a specific stored image. The Company's facial recognition products
are unique because they are scalable to databases of millions of faces. Viisage
generally advocates the use of multiple biometrics and can integrate other
biometrics such as iris, voice, signature and fingerprint technology into its
solutions.
Viisage offers several facial recognition software systems that can be utilized
in virtually any solution requiring identification or verification of an
individual. The Company's identification software instantly calculates an
individual's eigenface identifier and can search an existing database of
millions of records in less than 10 seconds for images similar to the image
being searched. Viisage's Face in the Crowd technology can find and identify
specific individuals in a crowd. The system searches real-time for a match
between individuals in the field and images in a database. When a match is
located, the system tracks the individual and reports to the user. Early
adopters are using the software for access control, fraud reduction,
surveillance and law enforcement applications. The software can also be utilized
with other biometrics, PIN's and identification cards or on a stand- alone basis
for a variety of applications such as PC network and internet access security,
ATMs, retail point-of-use and administration of health care benefits. The
Company envisions a day when society could be free from cards, keys, PIN's and
signatures. One's face will be the private, secure and convenient password of
choice.
Sales and Marketing
The SI division markets its products directly through its internal sales force,
and continues 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 traveling 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 SI division also uses its program management group
to identify opportunities with existing customers and coordinate related selling
efforts.
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The SI division's systems are generally provided to public sector customers
through a formal bidding process. The 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 proposal is issued, a six-to-twelve month
proposal and award process usually 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. The Company believes
that long sales cycles in its public sector markets will continue. 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.
The biometrics division is a software content provider. Its sales force and
business development activities are focused on establishing OEM and other
distribution arrangements with vendors, systems integrators and service
organizations serving its principal market areas. The SI division and Lau are
also serving as channels for the division's products. The division's engineering
department provides technical support for the division's selling and channel
development activities.
(ii) and (xi) Product Development
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In prior years, the Company developed proprietary software that supports all
current industry standard operating systems and networking environments, and
proprietary image capture and inspection products for its card-based
identification systems. The Company believes that these products will support
its card-based identification system offerings for the foreseeable future.
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's current development activities
are focused on its facial recognition products and the further commercialization
of its facial recognition technology. In addition to its own development
efforts, the Company has benefited and expects to continue to benefit from on-
going research and development conducted by Lau and, through its license with
Facia Reco, from certain research activities at MIT. The Company also benefits
from research and development activities conducted by the manufacturers of the
components integrated into the Company's systems such as PC's, printers, etc.
For the years ended December 31, 1999, 1998 and 1997, research and development
expense was $253,000, $358,000 and $152,000, respectively. Such amounts do not
include amounts for specific projects that are allocated to project costs or the
benefits from the other research and development activities referred to above.
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(iii) Manufacturing and Sources of Supply
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Proprietary subsystems and assemblies are made to the Company's specifications
by contract manufacturers, including Lau Technologies. Other non-proprietary
system components, such as personal computers, printers and related components,
are purchased from third-party vendors. 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.
(iv) Patents, Trademarks and Licenses
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In addition to customized technology developed by the Company to meet customer
requirements, the Company utilizes certain patented technology and trade secrets
developed by its principal shareholder and technology partner, Lau. The Company
has an exclusive, perpetual, irrevocable, paid-up royalty-free, worldwide
license to use all of the technology owned or controlled by Lau relating to the
Company's business 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). The Company has also entered into nonexclusive, nontransferable,
royalty-generating license agreements with Lau to allow to allow Lau to use
Viisage's proprietary technology to distribute Face-in-the-Crowd products for
certain European markets and for United States airports and federal agencies.
Lau has a U.S. patent which runs to 2014 on a card production system used by the
Company, has a number of U.S. patent applications in process for facial
recognition technologies, has copyrighted the SensorMast and has made a
copyright filing for the Company's Visual Inspection System and related
proprietary software. Lau has also filed foreign patent applications, which
correspond to three of these domestic patent applications.
The Company also makes use of patented technology and trade secrets owned or
controlled by Facia Reco 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 extends until the expiration
of the final patent included in the license and includes Facia Reco's rights to
use patented facial recognition technology of MIT, which rights are exclusive
through June 1, 2001, except for certain rights granted to sponsors of the MIT
Media Lab and certain research rights. Thereafter, Facia Reco's patent license
with MIT extends to 2010 on a non-exclusive basis. MIT has applied to extend its
patent rights to certain jurisdictions in Europe and in Singapore. Further, at
Lau's request and expense, broadened claims for the MIT patent have been allowed
by the U.S. Patent and Trademark Office. The Company's license agreement with
Facia Reco provides for a royalty of $350 per machine copy incorporating the
licensed technology. Until June 1, 2001, a minimum annual royalty applies of,
generally, $21,000 for the U.S. rights and an amount ranging from $21,000 to
$42,000 for the non-U.S. rights.
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The Company has also obtained from Lau an exclusive (except for limited fields
reserved by Lau), perpetual, worldwide license to use the U.S. patent 5,432,864
purchased by Lau from Daozeng Lu and Simon Lu, and all improvements thereto,
which relates to a system for automatically verifying the identity of an
individual using identification parameters that are carried on an escort memory
such as an identification or credit card. This license requires royalty payments
to Lau for each unit sold or licensed by Viisage. The agreement also requires
the issuance of 50,000 shares of Viisage common stock to Lau following the
royalty commencement date.
The Company has registered its "Viisage" trademark with the U.S. Patent and
Trademark Office.
There can be no assurance that the Company's efforts to prevent the
misappropriation of the intellectual property used in its business will be
successful. Further, there can be no assurance that any of the additional U.S.
or foreign patents applied for by Lau or the foreign patents applied for by MIT
will be issued or that, if issued, they will provide protection against
competitive technologies or will be held valid and enforceable if challenged.
Finally, 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
patent and copyrights.
(v) Seasonality
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The Company's SI division operations are not seasonal since contracts are
awarded and performed throughout the year. However, the Company believes its
public sector business is subject to cyclical procurement delays that may be
related to state-wide election cycles. Biometric division revenues have not been
material to date and operations are not expected to be seasonal.
(vi) Working Capital Requirements
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The Company is generally required to fund the development and implementation of
large digital identification system projects for public sector customers.
Historically, the Company has utilized bank borrowings and project lease
financing to meet these needs. There are no special requirements or customer
terms that are expected to have a material adverse effect on the Company's
working capital. As discussed more fully in Management's Discussion and Analysis
of Financial Condition and Results of Operations, the Company plans to raise
capital, as needed, to fund biometric division activities.
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(vii) Customers and End Users
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The following lists and categorizes the Company's customers and end users as of
December 31, 1999:
STATE DEPARTMENTS OF MOTOR VEHICLES, OTHER STATE AND LOCAL AGENCIES
Arizona Department of Transportation
Arkansas Office of Driver Services
Connecticut Department of Social Services
Florida Department of Highway Safety and Motor Vehicles*
Illinois Secretary of State
Maryland Department of Transportation and Motor Vehicle Administration*
Massachusetts Department of Transitional Assistance
Massachusetts Registry of Motor Vehicles
New Mexico Department of Taxation and Revenue
New York Department of Social Services*
North Carolina Department of Transportation
Ohio Bureau of Motor Vehicles
Ohio Department of Public Safety
South Carolina Department of Public Safety*
Wisconsin Department of Corrections
Wisconsin Department of Transportation
FEDERAL AGENCIES FOREIGN CONTRACTS
U.S. Immigration and Naturalization Service *
Commission on Elections of the Republic of the Philippines*
* By subcontract.
For 1997, one customer (Illinois Secretary of State) accounted for an aggregate
of 46% of revenues. For 1998, three customers (Arkansas Office of Driver
Services, Florida Department of Highway Safety and Motor Vehicles and Illinois
Secretary of State) each accounted for over 10% of Company revenues and an
aggregate of 40% of revenues for the year. For 1999, four customers (Ohio Bureau
of Motor Vehicles, Unisys Corporation (Florida Department of Safety and Motor
Vehicles), Arkansas Department of Revenue, and Illinois Secretary of State) each
accounted for over 10% of Company revenues and an aggregate of 52% of revenues
for the year. The loss of any such customers could have a material adverse
impact on the Company's business, operating results and financial condition.
Since inception in June 1998, revenues for the biometrics division related
solely to a subcontract with Lau and were not material. However, the SI division
has on-going facial recognition projects (Massachusetts Department of
Transitional Assistance, Illinois Secretary of State and Wisconsin Department of
Corrections).
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(viii) Backlog
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The Company measures backlog based on signed contracts, subcontracts and
customer commitments for which revenue has not yet been recognized. Backlog does
not include amounts for phase-outs or other extension opportunities included in
such contracts. Accordingly, backlog is not necessarily indicative of future
revenue. Backlog amounts relate solely to SI division contracts. A substantial
amount of the such 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. Therefore, the Company believes that backlog
cannot be considered a meaningful indicator of future financial performance.
At December 31, 1999, the Company's backlog was approximately $58 million,
compared to approximately $59 million at December 31, 1998.
(ix) Government Contacts
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Government contracts are generally subject to termination for convenience or
lack of appropriation at the election of the subject agency. At December 31,
1999, amounts subject to future negotiation are not material.
(x) Competition
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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 SI division faces competition in the identification systems market (for both
digital and conventional systems) from technologically sophisticated companies,
including Polaroid Corporation and De La Rue, which, in some cases, have 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 SI division'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.
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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.
(xi) Research and Development
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See Product Development Section
(xii) Environmental Protection Regulations
------------------------------------
The Company believes that compliance by the Company with federal, state and
local environmental regulations will not have a material adverse effect on its
financial position or results of operations.
(xiii) Employees
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As of December 31, 1999, the Company had 61 employees. The Company from time-to-
time supplements its employee forces with independent contractors. As of
December 31, 1999, the Company had 6 such contractors. None of the Company's
employees is represented by a labor union, and the Company considers its
relationship with its employees to be good.
(xiv) Officers
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Executive officers of the Company are elected by the Board of Directors annually
and serve until their successors have been duly elected and qualified.
Thomas J. Colatosti, 52, became President and Chief Executive Officer of the
Company on November 3, 1998. From July 8, 1998 until November 3, 1998, Mr.
Colatosti served as Chief Operating Officer of the Company. Prior to that, he
served as Vice President, Operations of the Company, which he joined on December
30, 1996. From April 1995 through December 1996, Mr. Colatosti was President and
Chief Executive Officer of CIS, a software and systems integration company. Mr.
Colatosti held various finance, sales, and operations positions with Digital
Equipment Corporation from 1973 to March 1995, serving as Vice President of the
Northeast Region from 1993 through 1994 and Vice President of the Federal
Systems Division from 1991 to 1993.
Iftikhar A. Ahmad, 48, was elected as an officer in March 1999 with the title of
Vice President of Engineering and Program Management of the Company. From
November 1996 until March 1999, Mr. Ahmad served as a Director in the Company's
Software Engineering Department. From January 1995 to November 1996, he was a
senior consultant in Lau's Systems Engineering Department, and prior to that, he
held various senior engineering positions at Digital Equipment Corporation.
12
<PAGE>
Stanley Duci, 47, was elected as an officer in January of 2000 with the title of
Vice President of Customer Service of the Company. In February, 1999, Mr. Duci
was Vice President of Customer Service. From November, 1995 to February, 1999,
Mr. Duci served as Customer Service Manager. Prior to joining Viisage, Mr. Duci
was employed by Data General Corporation, where he was responsible for directing
worldwide customer service engineering, technology, reliability and performance
management systems.
Sean F. Mack, 37, was elected as an officer in January of 2000 with the title of
Vice President, Treasurer and Controller of the Company. From July, 1999, Mr.
Mack served as the Corporate Controller. Previously, Mr. Mack served in various
capacities at Lau. From October, 1994 to July, 1999, Mr. Mack served as
Controller and Treasurer of Lau Defense Systems, and he served as Cost Manager
of Lau Technology from May, 1989 to October, 1994. Prior to joining Lau, Mr.
Mack worked as a senior cost accountant at Benjamin Thompson & Associates in
Cambridge, Massachusetts for two years, and as a financial program analyst for
Raytheon Company in Marlboro, Massachusetts from 1985 to 1987.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
----------------------------------------------------------------------------
The Company's foreign operations and export sales are currently not material.
ITEM 2. PROPERTIES
----------
The Company currently uses approximately 15,000 square feet of space in
facilities located in Littleton, Massachusetts and has access to common areas
under the terms of a Use and Occupancy Agreement with Lau through February 2002.
The Company believes that its facilities are in good condition and are suitable
and adequate for its present operations and that suitable space is available if
such lease is not extended.
ITEM 3. LEGAL PROCEEDINGS
------------------
The Company does not believe that there are any legal matters that would have a
material adverse effect on its business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock is traded on the NASDAQ National Market under the
symbol VISG. On March 13, 2000, the closing price of the common stock was $8.75
per share and there were approximately 43 holders of record of the Company's
common stock. The quarterly high and low closing prices, as reported by NASDAQ,
of Viisage's common stock in 1999 and 1998 were as follows:
1999 1998
---- ----
Quarter HIGH Low HIGH LOW
- ------- ---- --- ---- ---
First Quarter 1-13/16 1-1/16 7-3/8 4-7/8
Second Quarter 1-5/8 3/4 5-3/8 1-15/16
Third Quarter 2-1/2 1-3/16 3-1/2 1-1/4
Fourth Quarter 8-1/16 1-3/4 2-1/4 5/8
DIVIDEND POLICY
The Company presently intends to retain its cash for use in the operation and
expansion of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
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 Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 (1) 1997 (2) 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues ................................ $ 19,297 $ 16,259 $ 29,388 $ 24,971 $ 11,221
Project costs ........................... 15,131 15,957 26,122 19,484 10,361
-------- -------- -------- -------- --------
Project margin .......................... 4,166 302 3,266 5,487 860
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing ..................... 739 2,195 4,930 1,852 999
Research and development ................ 253 358 152 235 1,089
General and administrative .............. 1,939 2,247 2,105 1,880 1,204
-------- -------- -------- -------- --------
Total operating expenses ................ 2,931 4,800 7,187 3,967 3,292
-------- -------- -------- -------- --------
Operating income (loss) ................. 1,235 (4,498) (3,921) 1,520 (2,432)
Interest expense, net ................... 2,230 1,667 441 714 515
-------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting change .. (995) (6,165) (4,362) 806 (2,947)
Income taxes ............................ -- -- -- 205 --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change ....................... (995) (6,165) (4,362) 601 (2,947)
Cumulative effect of accounting change .. -- 1,038 -- -- --
-------- -------- -------- -------- --------
Net income (loss) ....................... (995) (7,203) (4,362) 601 (2,947)
Preferred stock dividends ............... 1,003 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to common
Shareholders ............................ $ (1,998) $ (7,203) $ (4,362) $ 601 $ (2,947)
======== ======== ======== ======== ========
Basic income (loss) per share applicable
to common shareholders before
cumulative effect of accounting change.. $ (0.23) $ (0.75) $ (0.54) $ 0.10 $ (0.52)
Basic net income (loss) per share
applicable to common shareholders(3).... $ (0.23) $ (0.88) $ (0.54) $ 0.10 $ (0.52)
======== ======== ======== ======== ========
Weighted average basic common shares
outstanding............................. 8,610 8,175 8,060 6,022 5,680
======== ======== ======== ======== ========
Diluted income (loss) per share applicable
to common shareholders before cumulative
effect of accounting change............. $ (0.23) $ (0.75) $ (0.54) $ 0.09 $ (0.52)
Diluted net income (loss) per share
applicable to common shareholders(3).... $ (0.23) $ (0.88) $ (0.54) $ 0.09 $ (0.52)
======== ======== ======== ======== ========
Weighted average diluted common shares
outstanding............................. 8,610 8,175 8,060 6,537 5,680
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 (1) 1997 (2) 1996 1995
---- -------- -------- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working Capital....................... $13,549 $ 11,089 $ 15,261 $20,676 $ 7,413
Total 44,680 46,444 47,463 36,119 11,285
assets................................
Long-term obligations................. 15,721 18,058 13,300 4,420 8,319
Shareholders' equity.................. 15,790 12,618 18,736 23,020 -
Net assets(4)......................... - - - - 1,323
</TABLE>
(1) 1998 amounts reflect the impact of charges of $230 for restructuring,
$1,321 for the early adoption of SOP 98-5, Reporting on the Costs of
Start-Up Activities, and $2,322 to revise project margins and contract
cost-to-complete estimates.
(2) 1997 amounts reflect the impact of charges of $7.6 million for investments
in technology, services and markets.
(3) See note 2 of Notes to Financial Statements for information concerning the
computation of basic and diluted net income (loss) per share.
(4) Net assets represents divisional investment during the time the Company
operated as a division of Lau Technologies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis contains forward-looking statements and
information that are based on the beliefs of management as well as assumptions
made by and information currently available to the Company. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the section below entitled "Certain Factors that
May Affect Future Results." The cautionary statements made herein should be read
as being applicable to all related forward-looking statements in this Form 10-K.
OVERVIEW
Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions. The Company focuses on
identification solutions that improve personal convenience and security, deter
fraud and reduce identification program costs. Viisage combines its systems
integration and software design capabilities with its proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and internet access security. To date,
Viisage's primary customers have been government agencies with particular
emphasis on U.S. drivers licensing agencies. Since its inception in 1993, the
Company has captured approximately 30% of the domestic driver's license market.
Viisage products annually produce more than 20 million identification documents
at more than 1,000 locations in 12 states. The Company has also provided
services under subcontracts for projects in Jamaica, the Philippines and for the
U.S. Immigration and Naturalization Service.
16
<PAGE>
The Company began operations in 1993 as a division of Lau Technologies (Lau), a
provider of systems integration services and products for sophisticated
electronic systems. In November 1996, Lau transferred substantially all of the
assets, liabilities and operations of the division to the Company and the
Company completed its initial public offering. The Company is currently a 64%
owned subsidiary of Lau.
Effective June 1, 1998, the Company reorganized its operations to create a
separate biometrics division to respond to the growing market interest in
biometric solutions. The biometrics division is focused on product, market and
channel development activities in three principal areas: facility access
control; PC network and internet access security; and real-time large database
identification and verification of individuals. The systems integration and
identification card division (SI division) focuses on Viisage's public sector
markets and serves as a channel to existing customers and the public sector for
the Company's biometric technologies. The Company believes that it is in the
early stages of an emerging and high growth market for biometric identification
solutions, particularly facial recognition solutions in the government and
commercial markets.
The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. As discussed above, since June 1,
1998, the Company has operated in two segments. Amounts for the biometrics
division prior to the reorganization are not material or meaningful.
The SI division provides systems and services principally under contracts that
have five to seven year terms and provide for several annual renewals after the
initial contract term. 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 size
of the database, the level of post-installation support and the competitive
environment. Substantially all of the Company's revenues are currently derived
from the SI division's 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. For the years ended December 31, 1999, 1998 and 1997, four customers,
three customers and one customer, respectively, each accounted for more than 10%
of the Company's revenues and an aggregate of 52%, 40% and 46% of revenues for
each of the years, respectively.
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. However, the Company believes its public sector business is
subject to cyclical procurement delays that may be related to state-wide
election cycles. Biometric division revenues have not been material to date and
operations are not expected to be seasonal.
17
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------
Revenues are derived principally from multi-year contracts for system
implementation, card production and related services. Revenue grew to $19.3
million in 1999 from $16.3 million in 1998. The 18.7% increase between the two
years was primarily the result of contract extensions with the State of Ohio and
the Commonwealth of Massachusetts along with new contracts with the States of
Maryland, South Carolina and Wisconsin Department of Corrections.
Gross margins increased to 21.6% in 1999 from 1.9% in 1998. The increase in
gross margins between the two periods is due principally to the positive impact
of new higher margin new business on the overall revenue mix in 1999 and the
negative impact of start-up and restructuring costs in 1998.
Sales and marketing expenses decreased $1.5 million in 1999 from 1998. This
represents a decrease to 3.8% from 13.5% of revenue for the year to year period.
The decrease is due principally to restructuring and the related reductions in
headcount, more focused marketing efforts, and the Company's ongoing cost
reduction efforts.
Research and development expenses decreased $0.1 million in 1999 from 1998. This
represents a decrease to 1.3% from 2.2% of revenue for the year to year period.
The decrease is due principally to restructuring and related reductions in
headcount, more focused R & D efforts, and the Company's ongoing cost reduction
efforts. Research and development costs do not include amounts for specific
projects that are allocated to project costs and do not reflect the benefits to
Viisage under license arrangements from the research and development efforts of
Lau and the Massachusetts Institute of Technology for projects that are not
directly related to the Company.
General and administrative expenses fell $0.3 million in 1999 from 1998, a
decrease to 10.0% from 13.8% of revenue. The saving is due principally to
restructuring and related reductions in headcount and the Company's ongoing cost
reduction efforts.
Interest expense rose $0.6 million in 1999 from 1998. This represents an
increase to 11.6% from 10.3% of revenue. The additional cost is due principally
to increased borrowing and leasing activity due to new business.
The Company did not record any tax benefit for the 1999 loss due to the
uncertainty of when such benefits will be realized.
YEAR ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------
Charges and Accounting Change. During the first quarter of 1998, the Company
recorded charges of approximately $230,000 related to a restructuring to reduce
expenses in line with the Company's revised plan for 1998. Approximately $50,000
of such charges are included in project costs, $170,000 are included in sales
and marketing expenses and $10,000 are included in general and administrative
expenses in the statement of operations. During the third and fourth quarters of
1998, the Company recorded charges of $472,000 and $1,850,000, respectively, to
revise project margins
18
<PAGE>
and contract cost-to-complete estimates. Approximately $2,222,000 of such
charges are included in project costs and $100,000 are included in general and
administrative expenses in the statement of operations.
The Company elected early adoption of Statement of Position No. 98-5 (SOP 98-5),
Reporting on the Costs of Start-Up Activities, which requires start-up costs to
be expensed as incurred rather than capitalized. The Company previously
capitalized certain start-up costs as pre-contract costs under SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, and charged such costs to contracts upon award. As required, the
adoption of SOP 98-5 has been made effective as of the beginning of the year.
The cumulative effect of the change in accounting principle of $1,038,000 was
recorded as a one-time charge in the Company's results for the year. Project
costs also include start-up costs of $283,000, which were incurred in the first
quarter of 1998.
Revenues. SI division revenues are derived principally from systems
implementation, card production and related services under multi-year contracts.
Biometrics division revenues are derived principally from software development
services. Revenues decreased 45% to $16.3 million for 1998 from $29.4 million in
1997. This decrease reflects the slowdown in new business awards during 1997 and
1998. Biometrics division revenues for the period were approximately $500,000,
all of which were earned under a subcontract from Lau.
Project Costs and Margin. SI division project costs consist primarily of
hardware, consumables (printer ribbons, cards, holographic overlays, etc.),
system design, software development and implementation labor, maintenance and
overhead. Biometrics division project costs consist primarily of labor and
related overhead. As a percentage of revenues, project costs, excluding charges
and accounting change, increased to 82% for 1998 from 71% for 1997. This
increase reflects the impact of lower margin contracts in the overall revenue
mix and overhead variances resulting from lower than anticipated 1998 revenues.
Including charges and accounting change, project costs increased to 98% for 1998
compared to 89% for 1997. This increase reflects the charges discussed above
which are due in part to enhancements to central production operations and
technology and transitioning to an in-house maintenance organization during
1998. Project margin, excluding charges and accounting change, decreased 66% to
$2.9 million (18% of revenues) for 1998 from $8.5 million (29% of revenues) for
1997. This decrease reflects lower revenues in 1998 and the increases in project
costs discussed above. Including charges and accounting change, project margin
decreased 91% to $302,000 (2% of revenues) compared to $3.3 million (11% of
revenues) for 1997. Biometrics division project costs for 1998 were $516,000,
including a portion of the overhead variances discussed above.
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, excluding charges,
decreased 23% to $2.0 million from $2.6 million for 1997. This decrease reflects
the reduction in headcount and related expenses in connection with the
restructuring mentioned above. Including charges, sales and marketing expenses
decreased 55% to $2.2 million for 1998 compared to $4.9 million for 1997. As a
percentage of revenues, sales and marketing expenses, excluding charges,
increased to 12% for 1998 from 9% for 1997 due to the decrease in 1998 revenues
discussed above. Including charges, sales and marketing expenses were 14% for
1998 compared to 17% for 1997. Sales and marketing expenses since the
reorganization for the biometrics division were $380,000.
19
<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 increased 135% to $358,000 for 1998 from
$152,000 for 1997. Expenditures for 1998 and 1997 relate primarily to the
Company's facial recognition products. Such amounts do not include amounts for
specific projects that are allocated to project costs and do not reflect the
benefits to the Company under license arrangements from the research and
development efforts of Lau Technologies and the Massachusetts Institute of
Technology for projects that are not directly related to the Company.
General and Administrative. General and administrative expenses consist
principally of compensation for executive management, finance and administrative
personnel and outside professional fees and are shared by the Company's two
divisions. General and administrative expenses, excluding charges, remained
constant at approximately $2.1 million for 1998 and 1997. Amounts for 1998
reflect the restructuring and reorganization charges discussed above and the
related transfer of certain management expenses to general and administrative
expenses. Including charges, general and administrative costs increased 7% to
$2.3 million. As a percentage of revenues, general and administrative expenses,
excluding charges, increased to 13% for 1998 compared to 7% for 1997 due
primarily to lower revenues in 1998. Including charges, general and
administrative costs were 14% of revenues.
Interest Expense. The increase in net interest expense to $1.7 million for 1998
from $441,000 for 1997 reflects increased borrowings during 1998 and a reduction
in interest earned on cash equivalents in 1998.
Income Taxes. The Company did not record any tax benefit for the 1998 or 1997
losses due to the uncertainty of whether such benefit will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were $0.4 million at December 31, 1999, an increase of $0.3
million from December 31, 1998. The increase is primarily the result of cash
generated by operating and financing activities. These cash inflows were largely
offset by cash outflows for investing activities.
Accounts receivable decreased 23.8% from December 31, 1998 to December 31, 1999.
Day's sales outstanding in receivables improved to 62 days at December 31, 1999
from 96 days at December 31, 1998.
Costs and estimated earnings in excess of billings increased 2.3% from December
31, 1998 to December 31, 1999, which reflects the impact of additional business
volume that will be billable in the future.
Historically, the Company has not made substantial capital expenditures for
facilities, office and computer equipment, instead, satisfying its needs in
these areas principally through leasing.
20
<PAGE>
The Company has a revolving credit facility with a commercial bank that provides
for borrowings of up to $9 million through December 31, 1999 and $6.5 million
through June 30, 2000 at the prime rate plus 1%. The revolving credit facility
is secured by substantially all of the Company's assets and requires the Company
to maintain certain financial ratios and minimum levels of earnings and tangible
capital funds, as defined. At December 31, 1999, the Company was in compliance
with all loan covenants. The revolving credit facility also requires the Company
to raise funds, as needed, from other sources to cover biometrics division
expenses. These sources are expected to include a combination of biometrics
division revenues, subordinated debt and equity capital.
In March 2000, the Company received a two year commitment letter from a
commercial bank to provide a new revolving credit facility to the Company
through April 2002 In connection with the bank's commitment, the revolving
credit facility is amended to provide for borrowings of up to $4 million at the
prime rate plus 1 1/4%. The facility is secured by substantially all of the
Company's assets and requires the Company to maintain certain financial ratios
and minimum levels of earnings and tangible capital funds, as defined. The
accompanying financial statements reflect this commitment as of December, 31
1999.
The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of our digital identification systems and leases them back to
the Company for deployment with identified and contracted customers approved by
the lessor. The lessor retains title to the systems and has an assignment of the
Company's rights under the related customer contracts, including rights to use
the software and technology underlying the related systems. Under this
arrangement, the lessor bears the credit risk associated with payments by the
Company's customers, but the Company bears performance and appropriation risk
and is generally required to repurchase a system in the event of a termination
by a customer for any reason except credit default. The Company is also required
to maintain certain financial ratios and minimum levels of tangible capital
funds, as defined. As of December 31, 1999, the Company was in compliance with
all lease covenants. These project lease arrangements are accounted for as
capital leases. The current arrangement provides for project financing of up to
$15.0 million. At December 31, 1999, the Company had approximately $11.6 million
outstanding under the lease financing arrangement. The Company has a similar
lease financing arrangement with Lau that provides for up to $3.1 million of
capital lease financing in 1999 with $3.1 million outstanding at December 31,
1999.
The Company believes that it will continue to meet its debt covenants. However,
this expectation is dependent in part on achieving business forecasts and
raising funds to cover biometrics division expenses. If the Company does not
meet such covenants, the bank and the lessor could require immediate repayment
of amounts outstanding.
In May 1999, the Company received a commitment from Lau to lend up to $2 million
in exchange for a 4% convertible subordinated note. Amounts drawn under the
note, with Lau's consent, and related accrued interest are convertible at Lau's
option into shares of the Company's common stock at any time prior to January 1,
2001 at $1.26 per share. In May 1999, the Company borrowed $1 million under this
commitment. The Company plans to raise additional funding, as needed, from other
sources.
21
<PAGE>
In June 1999, the Company completed a $1.5 million private placement of Series A
Convertible Preferred Stock (the "preferred stock") and warrants with a private
equity fund. The preferred stock accrues dividends at 7% per annum, payable in
cash or stock at the Company's option upon conversion. Subject to certain limits
on the number of shares the holder can convert at any one time, the holder can
convert up to 50% of the preferred stock into shares of the Company's common
stock beginning six months after closing and the balance beginning nine months
after closing. Shares can be converted at the lesser of $3.00 per share or 85%
of the market price prior to conversion of the Company's common stock for
conversions within ten months from the closing date or 77% of the market price
prior to conversion for conversions after ten months from the closing date. The
Company has the right at any time to redeem the preferred shares. Subject to
certain volume limitations, the preferred stock is required to be converted into
the Company's common stock on June 30, 2002. Within ten (10) business days after
that date, the Company may either (i) redeem the outstanding shares of Series A
Preferred Stock, together with all accrued and unpaid dividends thereon, in
cash, to the date of redemption or (ii) extend the mandatory conversion date for
a period of one year. The Company has agreed to register for resale the common
stock underlying the preferred shares, related dividends and warrants. This
transaction was an exempt transaction under Section 4(2) of the Securities Act
of 1933, as amended. In connection with this transaction, the Company paid an
investment banking fee of $112,500 and warrants to purchase 75,000 shares of the
Company's common stock, exercisable for three years, at an exercise price of
$1.79 per share which was 130% of the then current closing price of the
Company's common stock. The Company also issued warrants to purchase 75,000
shares of the Company's common stock, exercisable for three years, at an
exercise price of $1.58 per share to the investor.
In December 1999, the Company completed a $1.5 million private placement of
Series B Convertible Preferred Stock (the "preferred stock") and warrants with a
private equity fund. The preferred stock accrues dividends at 7% per annum,
payable in cash or stock at the Company's option upon conversion. Subject to
certain limits on the number of shares the holder can convert at any one time,
the holder can convert up to 50% of the preferred stock into shares of the
Company's common stock beginning six months after closing and the balance
beginning nine months after closing. Shares can be converted at the lesser of
$7.00 per share or 85% of the market price prior to conversion of the Company's
common stock for conversions within ten months from the closing date or 77% of
the market price prior to conversion for conversions after ten months from the
closing date. The Company has the right at any time to redeem the preferred
shares. Subject to certain volume limitations, the preferred stock is required
to be converted into the Company's common stock on October 30, 2002. Within ten
(10) business days after that date, the Company may either (i) redeem the
outstanding shares of Series B Preferred Stock, together with all accrued and
unpaid dividends thereon, in cash, to the date of redemption or (ii) extend the
mandatory conversion date for a period of one year. The Company has agreed to
register for resale the common stock underlying the preferred shares, related
dividends and warrants. This transaction was an exempt transaction under Section
4(2) of the Securities Act of 1933, as amended. In connection with this
transaction, the Company paid an investment banking fee of $60,000 and warrants
to purchase 20,000 shares of the Company's common stock, exercisable for three
years, at an exercise price of $8.94 per share which was 130% of the then
current closing price of the Company's common stock. The Company also issued
warrants to purchase 50,000 shares of the Company's common stock, exercisable
for three years, at an exercise price of $8.94 per share to the investor.
On December 9, 1999, warrants issued through the placement of the series A
preferred stock were exercised at $1.79 for the purchase of 75,000 shares of
common stock.
22
<PAGE>
In January 2000, 750 shares of series A preferred stock were converted into
259,356 shares of common stock.
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
is to be funded following the registration of the offered securities with the
Commission), the Company agreed to issue to a private equity investor 391,917
shares of common stock, closing warrants to purchase 97,979 shares of the
Company's common stock, exercisable for five years at $11.77 per share, and
adjustable warrants, exercisable at nominal consideration during three 25
trading day periods beginning four months following closing (which may be
delayed to December 31, 2000). The adjustable warrants terminate if the market
value of the Company common stock exceeds $14.28 for any 20 consecutive trading
days prior to the adjustment periods. If not terminated, the number of shares
that may be acquired under the adjustable warrants is determined by a formula
that is dependent on the extent to which the market value of the Company's
common stock is less than $11.09 per share during the adjustment periods.
Subject to certain closing conditions, two additional investments of $3,000,000
each may be invested by the same investor between 150 and 170 days after the
initial investment and between 120 and 140 days thereafter on similar terms. The
purchase price of the common stock for each additional investment will be equal
115% of the average per share market value for the ten trading days prior to the
applicable closing date and the closing warrants will equal to 25% of each
investment at an exercise price equal to 125% of the average per share market
price for the five trading days prior to such closing date. The termination
amount for the subsequent adjustable warrants will be 140% of the market value
of the common stock on the applicable closing date and the formula amount will
be set at 108% of such market value.
The Company believes that if it meets its business forecast for 2000, cash flows
from available borrowings, project leasing, operations and capital raising will
be sufficient to meet the Company's working capital and capital expenditure
needs for the foreseeable future. There can be no assurance, however, that
additional capital will be available on favorable terms or at all.
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.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to recognize all
derivative contracts at their fair values as either assets or liabilities on the
balance sheet.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect the adoption of the new standard to affect its financial statements.
23
<PAGE>
Market Risk
Except for the Company's revolving credit facility, which has a variable
interest rate, the Company has no material exposure to market risk that could
affect its future results of operations and financial condition.
Certain Factors That May Affect Future Results
The Company operates in an environment that involves a number of risks, some of
which are beyond the Company's control. Forward-looking statements in this
document and those made from time to time by the Company through its senior
management are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning
future plans or results are necessarily only estimates and actual results could
differ materially from expectations. Certain factors that could cause or
contribute to such differences include, among other things, potential
fluctuations in quarterly results, the size and timing of award and performance
on contracts, dependence on large contracts and a limited number of customers,
lengthy sales and implementation cycles, changes in management estimates
incident to accounting for contracts, availability and cost of key components,
market acceptance of new or enhanced products and services, proprietary
technology and changing technology, competitive conditions, system performance,
management of growth, dependence on key personnel, and general economic and
political conditions and other factors affecting spending by customers.
24
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants 26-27
Balance Sheets as of December 31, 1999 and 1998 28
Statements of Operations for the years ended December 31, 1999, 1998 and 1997 29
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 30
Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 31
Notes to Financial Statements 32-47
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viisage Technology, Inc.:
We have audited the accompanying balance sheet of Viisage Technology, Inc. as of
December 31, 1999, and the related statements of operations, changes in
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viisage Technology, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Boston, Massachusetts
February 4, 2000 (except for note 6
for which the date is March
30, 2000)
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Viisage Technology, Inc.:
We have audited the accompanying balance sheet of Viisage Technology, Inc. as of
December 31, 1998, and the related statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1998. 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Viisage Technology, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 19, 1999 (except for note 6 for which
the date is April 26, 1999)
27
<PAGE>
VIISAGE TECHNOLOGY, INC.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 441 $ 166
Accounts receivable, net of allowance for
doubtful accounts of $100 3,264 4,285
Costs and estimated earnings in excess of billings 22,216 21,723
Other current assets 797 683
-------- --------
Total current assets 26,718 26,857
-------- --------
Property and equipment, net 17,237 18,513
Other assets 725 1,074
-------- --------
$ 44,680 $ 46,444
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,621 $ 9,090
Accrued and deferred income taxes -- 27
Convertible subordinated debt -- 800
Current portion of long-term debt 2,500 2,054
Obligations under capital leases 4,048 3,797
-------- --------
Total current liabilities 13,169 15,768
Long-term debt 4,000 6,500
Convertible subordinated debt 1,000 --
Obligations under capital leases 7,964 11,558
Obligations under related party capital leases 2,757 --
-------- --------
Total liabilities 28,890 33,826
Shareholders' equity
Preferred stock, $0.001 par value; 2,000,000
shares authorized; 3,000 shares issued and
outstanding at December 31, 1999 2,782 --
Common stock, $0.001 par value; 20,000,000
shares authorized; 9,275,940 and 8,382,700
shares issued and outstanding at December 31,
1999 and 1998, respectively
9 8
Additional paid-in capital 26,545 24,157
Accumulated deficit (13,546) (11,547)
-------- --------
Total shareholders' equity 15,790 12,618
-------- --------
$ 44,680 $ 46,444
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
VIISAGE TECHNOLOGY, INC.
Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 19,297 $ 16,259 $ 29,388
Project costs 15,131 15,957 26,122
-------- -------- --------
Project margin 4,166 302 3,266
-------- -------- --------
Operating Expenses:
Sales and marketing 739 2,195 4,930
Research and development 253 358 152
General and administrative 1,939 2,247 2,105
-------- -------- --------
Total operating expenses 2,931 4,800 7,187
-------- -------- --------
Operating income (loss) 1,235 (4,498) (3,921)
Interest expense 2,230 1,667 441
-------- -------- --------
Loss before income taxes and cumulative
effect of change in accounting principle (995) (6,165) (4,362)
Provision for income taxes -- -- --
-------- -------- --------
Loss before cumulative effect of change
in accounting principle (995) (6,165) (4,362)
Cumulative effect of change in accounting principle -- (1,038) --
-------- -------- --------
Net loss (995) (7,203) (4,362)
Preferred stock dividends 1,003 -- --
-------- -------- --------
Net loss applicable to common shareholders $ (1,998) $ (7,203) $ (4,362)
======== ======== ========
Basic and diluted loss per share applicable to
common shareholders before change in
accounting principle $ (0.23) $ (0.75) $ (0.54)
Basic and diluted net loss per share applicable
to common shareholders $ (0.23) $ (0.88) $ (0.54)
======== ======== ========
Weighted average basic and diluted common
shares outstanding 8,610 8,175 8,060
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
VIISAGE TECHNOLOGY, INC.
Statements of Changes in Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Preferred Paid-in Earnings
Stock Stock Capital (Deficit) Total
-------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 8 $ $ 22,994 $ 18 $ 23,020
Exercise of stock options -- -- 78 -- 78
Net loss -- -- -- (4,362) (4,362)
-------- -------- -------- -------- --------
Balance, December 31, 1997 8 -- 23,072 (4,344) 18,736
-------- -------- -------- -------- --------
Issuance of stock options -- -- 444 -- 444
Issuance of common stock -- -- 600 -- 600
Exercise of stock options -- -- 41 -- 41
Net loss -- -- -- (7,203) (7,203)
-------- -------- -------- -------- --------
Balance, December 31, 1998 8 -- 24,157 (11,547) 12,618
-------- -------- -------- -------- --------
Exercise of employee stock
options -- -- 301 -- 301
Common stock issued for
services -- -- 144 -- 144
Common stock issued under
employee stock purchase
plan -- -- 39 -- 39
Exercise of private placement
warrants -- -- 134 -- 134
Conversion of Lau debt 1 -- 832 -- 833
Issuance of preferred stock
with beneficial conversion
feature of $896 -- 2,104 896 -- 3,000
Issuance costs of preferred
stock -- -- (271) -- (271)
Amortization of beneficial
conversion feature of
preferred stock -- 678 -- (678) --
Accrued dividends on
preferred stock -- -- -- (49) (49)
Issuance of warrants to
preferred stock investors -- -- 277 (277) --
Issuance of options for
services -- -- 36 -- 36
Net loss -- -- -- (995) (995)
-------- -------- -------- -------- --------
Balance, December 31, 1999 $ 9 $ 2,782 $ 26,545 $(13,546) $ 15,790
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
30
<PAGE>
VIISAGE TECHNOLOGY, INC.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (995) $ (7,203) $ (4,362)
Adjustments to reconcile net loss to net cash
Provided (used) by operating activities
Depreciation and amortization 4,422 3,022 1,964
Cumulative effect of change in accounting principle -- 1,038 --
Expenses paid in common stock 212 -- --
Change in operating assets and liabilities:
Accounts receivable 1,021 (1,114) (1,672)
Costs and estimated earnings in excess of (494) 2,722 (9,038)
billings
Other current assets (113) (260) (85)
Accounts payable and accrued expenses (2,516) (2,005) 5,259
Accrued and deferred taxes
(28) 11 (174)
-------- -------- --------
Net cash provided (used) by operating activities 1,509 (3,789) (8,108)
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of equipment converted to capital leases (3,125) (5,244) (7,800)
Purchase of system assets -- (100) (3,900)
Additions to property and equipment (21) (145) (453)
Decrease in other assets 349 99 178
-------- -------- --------
Net cash provided (used) by investing activities (2,797) (5,390) (11,975)
-------- -------- --------
Cash Flows from Financing Activities:
Net revolving credit (repayments) borrowings (2,054) 8,554 --
Proceeds from long-term borrowings 1,000 -- 4,100
Proceeds from sale/leaseback of equipment 3,125 5,244 7,800
Principal payments on long-term borrowings -- (4,054) (46)
Principal payments on obligations under capital leases (3,711) (2,651) (1,311)
Net proceeds from issuance of common stock 474 641 78
Net proceeds from issuance of preferred stock 2,729 -- --
-------- -------- --------
Net cash provided (used) by financing activities 1,563 7,734 10,621
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 275 (1,445) (9,462)
Cash and cash equivalents, beginning of year 166 1,611 11,073
-------- -------- --------
Cash and cash equivalents, end of year $ 441 $ 166 $ 1,611
======== ======== ========
Supplemental Cash Flow Information:
Cash paid during the year for interest $ 1,788 $ 1,416 $ 832
Cash paid during the year for income taxes $ -- $ 68 $ 122
Non-cash Transactions:
Conversion of subordinated debt to common stock $ 800 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
VIISAGE TECHNOLOGY, INC.
Notes To Condensed Financial Statements
1. DESCRIPTION OF BUSINESS
Viisage is a leader in the emerging field of biometrics technology and in
providing digital identification systems and solutions. The Company focuses on
identification solutions that improve personal convenience and security, deter
fraud, and reduce identification program costs. Viisage combines its systems
integration and software design capabilities with its proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and internet access security. To date,
Viisage's primary customers have been government agencies with particular
emphasis on U.S. drivers licensing agencies.
The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. Effective June 1, 1998, the
Company reorganized its operations to create a separate biometrics division to
respond to the growing market interest in biometric solutions. The biometrics
division is focused on product, market, and channel development activities in
three principal areas: facility access control, PC network and internet access
security, and real-time large database identification and verification of
individuals. The systems integration and identification card division (SI
division) focuses on Viisage's public sector markets and serves as a channel to
existing customers and the public sector for the Company's biometric
technologies. Since June 1, 1998, the Company has operated in two segments.
Amounts for the biometrics division prior to the reorganization are not
material.
As of December 31, 1999, the Company was a 64% owned subsidiary of Lau
Technologies (Lau).
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.
32
<PAGE>
Computation of Net Loss per Share
Basic and dilutive net loss per share is computed based on the weighted average
number of common shares outstanding during the period. The diluted per share
amounts do not reflect the impact of options outstanding for approximately
2,472,139 shares in 1999, 2,784,531 shares in 1998, and 1,770,550 shares in
1997, the conversion of convertible subordinated debt, the conversion of
convertible preferred stock, or stock warrants because their effect is
antidilutive. Except for the convertible subordinated debt, convertible
preferred stock, warrants and options referred to above, the Company does not
have any other potential common stock at December 31, 1999.
Contract Revenue and Cost Recognition
The Company provides services principally under contracts that provide for a
fixed price for each 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. Retainages and amounts subject to future negotiation are not material.
Costs and estimated earnings in excess of billings include approximately $7
million expected to be billed and collected after December 31, 2000.
Charges and Accounting Change
During the first quarter of 1998, the Company recorded charges of approximately
$230,000 related to a restructuring to reduce expenses in line with the
Company's revised plan for 1998. Approximately $50,000 of such charges are
included in project costs, $170,000 are included in sales and marketing expenses
and $10,000 are included in general and administrative expenses in the statement
of operations. During the third and fourth quarters of 1998, the Company
recorded charges of $472,000 and $1,850,000, respectively, to revise project
margins and contract cost-to-complete estimates. Approximately $2,222,000 of
such charges are included in project costs and $100,000 are included in general
and administrative expenses in the statement of operations.
During 1998, the Company elected early adoption of Statement of Position No.
98-5 (SOP 98-5), Reporting on the Costs of Start-Up Activities, which requires
start-up costs to be expensed as incurred rather than capitalized. The Company
previously capitalized certain start-up costs as pre-contract costs under SOP
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, and charged such costs to contracts upon award. As
required, the adoption of SOP 98-5 has been made effective as of the beginning
of 1998. The cumulative effect of the change in accounting principle of
$1,038,000 was recorded as a one-time charge in the Company's results for 1998.
33
<PAGE>
During the fourth quarter of 1997, the Company recorded non-recurring charges of
approximately $7.6 million related to investments in technology, services and
markets. These investments relate principally to upgrades and enhancements to
older systems, enhancements to central production and data management
capabilities and enhancements to certain systems to facilitate the future use of
facial recognition technologies. Approximately $5.3 million of such charges are
included in project costs and $2.3 million are included in sales and marketing
expenses in the statement of operations.
Cash and Cash Equivalents
The company considers all highly liquid instruments, with a maturity of three
months or less when acquired, to be cash equivalents.
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.
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, a $100,000 allowance for doubtful accounts has been
established at December 31, 1999 and 1998.
For 1999, 1998 and 1997, four customers, three customers, and one customer,
respectively, each accounted for more than 10% of revenues individually, and
approximately 52%, 40% and 46% in the aggregate of the Company's revenues,
respectively. At December 31, 1999, 75% of accounts receivable are due from five
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 straight-line or
usage-based methods over the estimated useful lives of the related assets or the
lease term, whichever is shorter.
Research and Development
Research and development costs are charged to expense as incurred.
34
<PAGE>
Software Development
The Company reviews software development costs incurred in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, 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 software developed for internal use are expensed as incurred,
except for externally purchased software, which is capitalized and depreciated
over its estimated useful life not to exceed five years.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes. 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 currently enacted tax rates. 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. Due to the uncertainty surrounding the realization
of the Company's net deferred tax asset, the Company has provided a full
valuation allowance against this amount.
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. SFAS
No. 123, Accounting for Stock-Based Compensation, 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 10 for required
disclosures.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to recognize all
derivative contracts at their fair values as either assets or liabilities on the
balance sheet.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect the adoption of the new standard to affect its financial statements.
35
<PAGE>
3. RELATED PARTY TRANSACTIONS
Debt
During the first quarter of 1999, the Company issued Lau options to purchase
60,000 shares of the Company's common stock in exchange for Lau's guarantee of
an indemnification obligation of the Company. The options are exercisable
through February 2002 at $1.90 per share. The fair value of the options,
amounting to $36,000, have been credited to shareholders' equity and included in
deferred financing cost, a component of other assets. The value of these options
will be amortized over the indemnification period and charged to interest
expense.
In May 1999, the Company received a commitment from Lau to lend to the Company
up to $2,000,000 in exchange for a 4% convertible subordinated note. Amounts
drawn under the note, with Lau's consent, and related accrued interest are
convertible at Lau's option into shares of the Company's common stock at any
time prior to January 1, 2001 at $1.26 per share. In May 1999, the Company
borrowed $1,000,000 under this commitment, which is outstanding as of December
31, 1999.
The Company has a project lease financing arrangement with Lau that provides for
up to $3.1 million of capital lease financing in 1999 with $3.1 million
outstanding at December 31, 1999
On October 14, 1999, Lau Technologies exercised an option to convert $800,000,
4%, subordinated convertible debt, borrowed prior to 1999, plus accrued interest
of $33,000, into 526,582 shares of the Company's common stock at the conversion
price of $1.58 per share.
Licenses
The Company has two non exclusive license agreements with Lau, whereby Lau acts
as a distributor of the Company's "Facial Recognition" Technology for certain
European Markets, U.S. Airports and other end users that are Federal Agencies.
Lau will pay the Company royalties, as defined, under these agreements. Through
December 31, 1999, no royalties have been earned.
The Company has also obtained from Lau an exclusive (except for limited fields
reserved by Lau), perpetual, worldwide license to use the U.S. patent 5,432,864
purchased by Lau from Daozeng Lu and Simon Lu, and all improvements thereto,
which relates to a system for automatically verifying the identity of an
individual using identification parameters that are carried on an escort memory
such as an identification or credit card. This license requires royalty payments
to Lau for each unit sold or licensed by Viisage. The agreement also requires
the issuance of 50,000 shares of Viisage common stock to Lau following the
royalty commencement date.
36
<PAGE>
Other
Under an Administration and Services Agreement, Lau provides general accounting,
data processing, payroll, certain 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 revised if the level of
services is changed. Amounts for 1999 and 1998 reflect a continued reduction in
services. The amounts for such services were approximately $418,000 in 1999,
$636,000 in 1998 and $864,000 in 1997.
A 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 annual fee for facilities and services
is revised for changes in space utilized and in operating expenses. The amounts
for facilities and services were approximately $217,000 in 1999, $550,000 in
1998 and $512,000 in 1997, respectively. See note 7 for lease information.
Company employees participate in various Lau employee benefit plans. The Company
pays 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 Company purchases certain system components and technical personnel services
from Lau. The amounts for such components and services were approximately $0.5
million in 1999, $1.0 million in 1998 and $1.9 million in 1997. During 1999 and
1998, the Company provided software development services as a subcontractor to
Lau amounting to $120,000 and $500,000, respectively.
At December 31, 1999 and 1998, the Company had approximately $35,000 and
$596,000 of accounts receivable due from Lau, respectively, and approximately
$119,000 and $906,000 of accounts payable due to Lau, respectively. The Company
also has a 9% note receivable from Lau Technologies due in monthly installments
of principal and interest of approximately $21,000 through February 28, 2002. At
December 31, 1999 and 1998, approximately $214,000 and $197,000 of the note was
included in other current assets, respectively, and the remaining balance of
approximately $258,000 and $472,000 was included in other assets, respectively,
in the accompanying balance sheet.
The Company has employment and noncompetition agreements with certain officers.
Such agreements provide for employment and related compensation, 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.
37
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
December 31,
1999 1998
Assets held under capital lease $ 22,351 $ 19,225
System assets 4,000 4,000
Computer equipment 994 974
--------- --------
27,345 24,199
Less--Accumulated depreciation 10,108 5,686
--------- --------
$ 17,237 $ 18,513
========= ========
During 1999 and 1998, the Company sold and leased back under capital leases
approximately $3.1 million and $5.2 million, respectively, of system equipment
used to produce identification cards for certain contracts.
In October 1997, Viisage completed a System Sale, License and Subcontract
Agreement (the Agreement) with Unisys Corporation (Unisys). Under the Agreement,
Viisage purchased and licensed certain assets from Unisys and agreed to perform
certain services as Unisys' subcontractor relating to a digital imaging system
for the Florida Department of Highway Safety and Motor Vehicles. The purchase
price was $4 million, consisting of $3.8 million paid in 1997 and two payments
of $100,000 each, one made in December 1998 and the other to be made on October
1, 2000. In addition, Viisage agreed to additional contingent payments of up to
$754,000 depending largely on Unisys' support of Viisage's efforts to generate
incremental revenues from Florida state agencies. The purchase, including
approximately $100,000 of transaction costs, was recorded using the purchase
method of accounting and has been allocated to system assets which are being
amortized over the estimated remaining useful life of the system.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in thousands):
December 31,
1999 1998
Accounts payable $ 2,139 $ 3,112
Accrued contract costs 3,912 5,235
Accrued payroll and related taxes 95 138
Accrued vacation 189 219
Other accrued expenses 286 386
---------- ----------
$ 6,621 $ 9,090
========== ==========
38
<PAGE>
6. LONG TERM DEBT AND PROJECT LEASE ARRANGEMENTS
In December 1998, the Company executed an amended and restated agreement with a
commercial bank to provide a new revolving credit facility to the Company
through June 2000. Outstanding term and revolving credit borrowings were repaid
with funds from the new agreement at closing. In connection with the bank's
commitment, the revolving credit facility was amended to provide for borrowings
of up to $9 million through December 31, 1999 and $6.5 million through June 30,
2000 at the prime rate plus 1%. The facility is secured by substantially all of
the Company's assets and requires the Company to maintain certain financial
ratios and minimum levels of earnings and tangible capital funds, as defined. At
December 31, 1999, the Company was in compliance with all loan covenants. The
revolving credit facility also requires the Company to raise funds, as needed,
from other sources to cover biometrics division expenses. These sources are
expected to include a combination of biometrics division revenues, subordinated
debt and equity capital.
In March 2000, the Company received a two-year commitment letter from a
commercial bank to provide a new revolving credit facility to the Company
through April 2002. In connection with the bank's commitment, the revolving
credit facility is amended to provide for borrowings of up to $4 million at the
prime rate plus 1 1/4%. The facility is secured by substantially all of the
Company's assets and requires the Company to maintain certain financial ratios
and minimum levels of earnings and tangible capital funds, as defined. The
accompanying financial statements reflect this commitment as of December 31,
1999.
The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of the Company's digital identification systems and leases
them back to Viisage for deployment with identified and contracted customers
approved by the lessor. The lessor retains title to systems and has 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 bears the credit risk associated with payments by
Viisage's customers, but Viisage bears performance and appropriation risk and is
generally required to repurchase a system in the event of a termination by a
customer for any reason except credit default. The Company is also required to
maintain certain financial ratios and minimum levels of tangible capital funds,
as defined. At December 31, 1999, the Company was in compliance with all lease
covenants. These project lease arrangements are accounted for as capital leases.
The current arrangement provides for project financing of up to $15.0 million.
At December 31, 1999, the Company had approximately $11.6 million outstanding
under the lease financing arrangement. The Company has a similar project lease
financing arrangement with Lau that provides for up to $3.1 million of capital
lease financing in 1999 with $3.1 million outstanding at December 31, 1999.
The Company believes that it will continue to meet its debt covenants. However,
this expectation is dependent in part on achieving business forecasts and
raising funds to cover biometrics division expenses. If the Company does not
meet such covenants, the bank and the lessor could require immediate repayment
of amounts outstanding.
39
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain equipment and facilities used in its operations and
the shared facilities discussed in note 3. Rental expense for operating leases
was approximately $131,000 in 1999, $212,000 in 1998 and $212,000 in 1997.
At December 31, 1999, approximate future minimum rentals under the lease for
shared facilities and capital leases are as follows (in thousands):
Capital Operating
Leases Lease
Year Ending:
2000 $ 5,117 $ 131
2001 4,446 131
2002 3,110 12
2003 2,674 -
2004 1,541 -
Thereafter 670 -
-------- -------
Total minimum lease payments 17,558 $ 274
=======
Less--Interest portion 2,789
--------
Present value of net
minimum lease payments 14,769
Less--Current portion 4,048
--------
$ 10,721
========
Litigation
The Company does not believe that there are any legal matters that would have a
material adverse effect on its business, financial condition or results of
operations.
8. RETIREMENT BENEFITS
The Company participates in the Lau 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 contributions to the plan, subject to certain limitations.
Participants are fully vested in their contributions and vest 20% per year in
employer contributions. The Company's costs for this plan amounted to
approximately $79,000, $67,000 and $95,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
The Company does not offer any postretirement benefits.
40
<PAGE>
9. INCOME TAXES
There was no provision for income taxes for the years ended December 31, 1999,
1998 and 1997.
A reconciliation of the federal statutory rate to the Company's effective tax
rate for the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
Federal statutory rate (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit (6.0) (6.0) (6.0)
Valuation allowance recorded 40.0 40.0 40.0
----- ----- -----
-% -% -%
===== ===== =====
The components and approximate tax effects of the Company's deferred tax assets
and liabilities as of December 31, 1999, and 1998 are as follows (in thousands):
1999 1998
Deferred tax assets (liabilities):
Net operating loss carryforwards for tax purposes $ 4,902 $ 4,363
Bases differences related to contract assets (620) (859)
Property, plant and equipment (14) (19)
Accruals and other reserves (72) 242
------- --------
Net deferred tax asset before valuation allowance 4,196 3,727
Valuation allowance (4,196) (3,727)
------- --------
Net deferred tax asset $ - $ -
======= ========
Due to the uncertainty surrounding the realization of the Company's net deferred
tax asset, the Company has provided a full valuation allowance against this
amount.
At December 31, 1999, the Company had available estimated net operating loss
carryforwards for federal tax purposes of approximately $11.6 million to reduce,
subject to certain limitations, future income taxes. These carryforwards expire
from 2011 to 2019 and are subject to review and possible adjustment by the
Internal Revenue Service.
10. SHAREHOLDERS' EQUITY
Stock Option Plans
Under the 1996 Management Stock Option Plan and the 1996 Director Stock Option
Plan (the Plans), the Board of Directors may grant incentive and nonqualified
stock options to employees and officers and nonqualified stock options 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 granted to date to directors vest over three
years from the date of grant. Options granted to management and employees vest
at various rates over periods ranging from three to seven
41
<PAGE>
years or, in some cases, earlier if certain performance measures are met. The
performance measures are based on each $1 million increase in Company value up
to approximately $500 million, as adjusted. All options granted under the Plans
expire ten years from the date of grant.
At December 31, 1999, the Company has reserved 2,057,100 shares of common stock
for issuance under the management plan of which 454,945 shares are available for
future grants, and 201,616 shares of common stock under the director plan which
have all been granted.
During 1998, the Company adjusted the exercise price from $13.00 to $2.25 on
177,000 employee options and from $6.25 to $2.25 on 21,000 options granted to
certain management personnel. These options were treated as cancelled and
reissued in the table that follows.
A summary of stock option activity under the Plans is as follows:
<TABLE>
<CAPTION>
Exercise Price Weighted Average
Shares Per Share Exercise Price
<S> <C> <C> <C>
Options outstanding, December 31, 1996 1,427,100 $ 2.96-$4.86 $ 3.20
Granted 362,000 6.25-13.00 12.50
Exercised (10,732) 2.96 2.96
Cancelled (7,818) 2.96 2.96
---------- -------------- --------
Options outstanding, December 31, 1997 1,770,550 2.96-13.00 5.07
Granted 1,109,077 0.625-4.4375 1.63
Exercised (1,465) 2.96 2.96
Cancelled (1,125,335) 2.96-13.00 5.68
---------- -------------- --------
Options outstanding, December 31, 1998 1,752,827 0.625-12.50 2.53
Granted 167,996 1.1875-1.51 1.36
Exercised (101,751) 2.96 2.96
Cancelled (129,249) 0.625-2.96 2.68
---------- -------------- --------
Options outstanding, December 31, 1999 1,689,823 $ 0.625-$12.50 $ 2.38
========== ============== ========
Options exercisable, December 31, 1999 692,003 $0.9375-$12.50 $ 2.43
========== ============== ========
Options available for grant 454,945
==========
</TABLE>
The following table summarizes information about outstanding options as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Number Contractual Price per Number Price per
Exercise Prices Outstanding Life Share Exercisable Share
<S> <C> <C> <C> <C> <C>
$0.9375 - $1.51 806,833 8.6 years $1.02 187,771 $1.03
2.00 - 2.96 788,020 6.6 years 2.75 499,262 2.94
4.4375 19,970 8.4 years 4.44 4,970 4.44
12.50 75,000 7.4 years 12.50 - 12.50
--------- -------
1,689,823 692,003
========= =======
</TABLE>
42
<PAGE>
The Company has computed the pro forma disclosures required under SFAS No. 123
for options granted using the Black-Scholes option pricing model prescribed by
SFAS No. 123. The weighted average assumptions used are:
1999 1998 1997
Risk free interest rate 4.95 - 5.7 % 4.63-5.7% 6%
Expected dividend yield - - -
Expected lives 3 - 10 years 8-10 years 10 years
Expected volatility 71 - 78% 74 % 76 %
The total value of options granted under the Company's plans was computed as
approximately $0.2 million for 1999, $1.1 million for 1998, and $3.7 million for
1997, respectively. Of these amounts, approximately $0.7 million, $0.8 million,
and $0.4 million would have been charged to operations for the years ended
December 31, 1999, 1998 and 1997, respectively, for currently vested options.
The remaining amounts of $5.8 million, $6.4 million and $6.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively, should be amortized
over the related vesting periods. The pro forma effect of SFAS No. 123 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss, as reported $ (1,998,000) $ (7,203,000) $ (4,362,000)
Pro forma net loss (2,714,000) (7,985,000) (4,796,000)
Basic and diluted net loss per share, as reported (0.23) (0.88) (0.54)
Pro forma basic and diluted net loss per share (0.32) (0.98) (0.60)
</TABLE>
Employee Stock Purchase Plan
In 1997, the Company adopted the 1997 Employee Stock Purchase Plan and reserved
70,000 shares of common stock for issuance under such plan. In January 2000, an
additional 70,000 were reserved for issuance under the plan. The purchase price
is determined by taking the lower of 85% of the closing price on the first or
last day of periods defined in the plan. As of December 31, 1999, 39,844 shares
have been issued and options to purchase 2,515 shares of common stock at $1.09
per share were vested under the plan.
Preferred Stock
In June 1999, the Company completed a $1.5 million private placement of Series A
Convertible Preferred Stock (the "preferred stock") and warrants with a private
equity fund. The preferred stock accrues dividends at 7% per annum, payable in
cash or stock at the Company's option upon conversion. Subject to certain limits
on the number of shares the holder can convert at any one time, the holder can
convert up to 50% of the preferred stock into shares of the Company's common
stock beginning six months after closing and the balance beginning nine months
after closing. Shares can be converted at the lesser of $3.00 per share or 85%
of the market price prior to conversion of the Company's common stock for
conversions within ten months from the closing date or 77% of the market price
prior to conversion for conversions after ten months from the closing date. The
43
<PAGE>
Company has the right at any time to redeem the preferred shares. Subject to
certain volume limitations, the preferred stock is required to be converted into
the Company's common stock on June 30, 2002. Within ten (10) business days after
that date, the Company may either (i) redeem the outstanding shares of Series A
Preferred Stock, together with all accrued and unpaid dividends thereon, in
cash, to the date of redemption or (ii) extend the mandatory conversion date for
a period of one year. The Company has agreed to register for resale the common
stock underlying the preferred shares, related dividends and warrants. This
transaction was an exempt transaction under Section 4(2) of the Securities Act
of 1933, as amended. In connection with this transaction, the Company paid an
investment banking fee of $112,500 and warrants to purchase 75,000 shares of the
Company's common stock, exercisable for three years, at an exercise price of
$1.79 per share which was 130% of the then current closing price of the
Company's common stock. The Company also issued warrants to purchase 75,000
shares of the Company's common stock, exercisable for three years, at an
exercise price of $1.58 per share to the investor.
In December 1999, the Company completed a $1.5 million private placement of
Series B Convertible Preferred Stock (the "preferred stock") and warrants with a
private equity fund. The preferred stock accrues dividends at 7% per annum,
payable in cash or stock at the Company's option upon conversion. Subject to
certain limits on the number of shares the holder can convert at any one time,
the holder can convert up to 50% of the preferred stock into shares of the
Company's common stock beginning six months after closing and the balance
beginning nine months after closing. Shares can be converted at the lesser of
$7.00 per share or 85% of the market price prior to conversion of the Company's
common stock for conversions within ten months from the closing date or 77% of
the market price prior to conversion for conversions after ten months from the
closing date. The Company has the right at any time to redeem the preferred
shares. Subject to certain volume limitations, the preferred stock is required
to be converted into the Company's common stock on October 30, 2002. Within ten
(10) business days after that date, the Company may either (i) redeem the
outstanding shares of Series B Preferred Stock, together with all accrued and
unpaid dividends thereon, in cash, to the date of redemption or (ii) extend the
mandatory conversion date for a period of one year. The Company has agreed to
register for resale the common stock underlying the preferred shares, related
dividends and warrants. This transaction was an exempt transaction under Section
4(2) of the Securities Act of 1933, as amended. In connection with this
transaction, the Company paid an investment banking fee of $60,000 and warrants
to purchase 20,000 shares of the Company's common stock, exercisable for three
years, at an exercise price of $8.94 per share which was 130% of the then
current closing price of the Company's common stock. The Company also issued
warrants to purchase 50,000 shares of the Company's common stock, exercisable
for three years, at an exercise price of $8.94 per share to the investor.
In the event of liquidation of the company, the preferred shareholders would
have a liquidating preference equal to the issuance price of the stock plus all
accrued and unpaid dividends.
On December 9, 1999, warrants issued through the placement of the series A
preferred stock were exercised at $1.79 for the purchase of 75,000 shares of
common stock.
In January 2000, 750 shares of series A preferred stock were converted into
259,356 shares of common stock.
44
<PAGE>
Common Stock
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
is to be funded following the registration of the offered securities with the
Commission), the Company agreed to issue to a private equity investor 391,917
shares of common stock, closing warrants to purchase 97,979 shares of the
Company's common stock, exercisable for five years at $11.77 per share, and
adjustable warrants, exercisable at nominal consideration during three 25
trading day periods beginning four months following closing (which may be
delayed to December 31, 2000). The adjustable warrants terminate if the market
value of the Company common stock exceeds $14.28 for any 20 consecutive trading
days prior to the adjustment periods. If not terminated, the number of shares
that may be acquired under the adjustable warrants is determined by a formula
that is dependent on the extent to which the market value of the Company's
common stock is less than $11.09 per share during the adjustment periods.
Subject to certain closing conditions, two additional investments of $3,000,000
each may be invested by the same investor between 150 and 170 days after the
initial investment and between 120 and 140 days thereafter on similar terms. The
purchase price of the common stock for each additional investment will equal
115% of the average per share market value for the ten trading days prior to the
applicable closing date and the closing warrants will equal to 25% of each
investment at an exercise price equal to 125% of the average per share market
price for the five trading days prior to such closing date. The termination
amount for the subsequent adjustable warrants will be 140% of the market value
of the common stock on the applicable closing date and the formula amount will
be set at 108% of such market value.
11. BUSINESS SEGMENTS, GEOGRAPHICAL INFORMATION, AND CONCENTRATIONS OF RISK
The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. Effective June 1, 1998, the
Company reorganized its operations to create two separate divisions, a
biometrics division and a systems integration and identification card division
(SI). Since June 1, 1998, the Company has operated in two segments. Amounts for
the biometrics division prior to the reorganization are not material. The costs
of shared facilities and certain administrative services have been allocated to
each division based on actual usage or other methods that approximate actual
usage. All other costs and expenses have been allocated to each business based
on actual usage. The Company's accounting policies for its segments are the same
as disclosed in Note 2. Management evaluates segment performance based on
operating income.
45
<PAGE>
Substantially all of the Company's revenues are currently derived from the SI
division's public sector customers and contractors to such customers. The
Company believes that for the foreseeable future it will continue to derive a
significant portion of its revenues from a limited number of large contracts.
For the years ended December 31, 1999, 1998 and 1997, four customers, three
customers and one customer, respectively, each accounted for more than 10% of
the Company's revenues and an aggregate of 52%, 40% and 46% of revenues for each
of the years, respectively.
<TABLE>
<CAPTION>
1999 1998 1997
BUSINESS SEGMENT INFORMATION
Revenues:
<S> <C> <C> <C>
Systems integration division $ 19,177 $15,759 $29,388
Biometrics division 120 500 --
-----------------------------
$ 19,297 $ 6,259 $29,388
=============================
Operating Income (Loss):
Systems integration division $ 2,860 $(3,141) $(3,921)
Biometrics division (1,625) (1,357) --
-----------------------------
$ 1,235 $(4,498) $(3,921)
=============================
Total Assets:
Systems integration division $ 44,587 $45,881 $47,463
Biometrics division 93 563 --
-----------------------------
$ 44,680 $46,444 $47,463
=============================
Depreciation and Amortization:
Systems integration division $ 4,422 $ 2,996 $ 1,964
Biometrics division -- 26 --
-----------------------------
$ 4,422 $ 3,022 $ 1,964
=============================
Capital Expenditures:
Systems integration division $ 3,146 $ 5,480 $12,153
Biometrics division -- 9 --
-----------------------------
$ 3,146 $ 5,489 $12,153
=============================
GEOGRAPHIC INFORMATION:
Revenues:
United States $ 19,297 $15,644 $28,149
International -- 615 1,239
-----------------------------
$ 19,297 $16,259 $29,388
=============================
</TABLE>
46
<PAGE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for 1999 and
1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1999
<S> <C> <C> <C> <C>
Revenues $ 4,431 $ 4,714 $ 5,209 $ 4,943
Project margin (loss) (145) 120 407 853
Net income (loss) (665) (433) (68) 171
Loss applicable to common
shareholders (665) (433) (282) (618)
Basic net loss per share (0.08) (0.05) (0.03) (0.07)
Diluted net loss per share (0.08) (0.05) (0.03) (0.07)
1998
Revenues $ 4,629 $ 2,965 $ 4,242 $ 4,423
Project margin (loss) 633 343 185 (859)
Net loss (1,864) (1,568) (1,286) (2,485)
Loss applicable to common
shareholders (1,864) (1,568) (1,286) (2,485)
Basic and diluted net loss per share (0.23) (0.19) (0.16) (0.30)
</TABLE>
Net loss per share amounts for the first quarter of 1998 have been restated to
reflect the Company's early adoption of SOP 98-5.
The 1998 results reflect the impact of charges and the accounting change
discussed in note 2.
The 3rd and 4th quarter results for 1999 include preferred stock dividends of
$214 and $789, respectively, in arriving at the loss attributable to common
shareholders.
47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On November 3, 1999, the Company's audit committee approved the engagement of
BDO Seidman, LLP to replace Arthur Andersen LLP as the Company's independent
public accountants. The Company's change in independent public accountants was
made at the request of its majority shareholder, Lau Technologies. Lau
Technologies has engaged BDO Seidman, LLP to act as its independent public
accountants and desires that the same firm audits the financial statements of
its 64%-owned subsidiary. There were neither disagreements with Arthur Andersen
LLP on any matter of accounting principles or practice, financial statement
disclosure, auditing scope or procedure nor any "reportable events" as that term
is used in Item 304(a) of Regulation S-K.
48
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning executive officers required under this item is contained herein under
the caption "Officers," Part I(c)(xiv).
Item 11. Executive Compensation
The information required under this item is incorporated herein by reference
from the material contained under the caption "Executive Compensation" in the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by reference
from the material contained under the caption "Security Ownership" in the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by reference
from the material contained under the caption "Certain Relationships and Related
Transactions" in the registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
49
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a), (d) Financial Statements and Schedules
For a list of financial statements included herein see Index on page 25.
All schedules are omitted because they are not applicable or not required, or
because the required information is shown either in the financial statements or
in the notes thereto.
(b) Reports on Form 8-K
Changes in Registrant's certifying accountants filed on November 3, 1999.
(c) Exhibits
See Exhibit Index on pages 51 through 53.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this 29th day of March,
2000.
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
----------------------------
Thomas J. Colatosti
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 29th day of March, 2000:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
By:________________________________
Denis K. Berube Chairman of the Board of Directors
*
By:________________________________
Thomas J. Colatosti President and Chief Executive Officer (Principal Executive Officer)
*
By:________________________________ Vice President, Corporate Controller and Treasurer (Principal Financial and
Accounting Officer)
Sean F. Mack
* Secretary and Director
By:________________________________
Charles J. Johnson
* Director
By:________________________________
Charles E. Levine
* Director
By:________________________________
Harriet Mouchly-Weiss
* Director
By:________________________________
Peter Nessen
* Director
By:________________________________
Thomas J. Reilly
*
* By: /s/ Thomas J. Colatosti
______________________________
Thomas J. Colatosti
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
No. Description
-- -----------
2* 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.
3.3** Certificate of Designation of series A convertible preferred stock.
3.4 Certificate of Designation of series B convertible preferred stock.
4* Specimen certificates for shares of the Registrant's Common Stock.
10.1* Amended and Restated License Agreement, dated as of August 20, 1996,
between the Registrant and Lau Technologies.
10.2* Form of Administration and Services Agreement between the Registrant and
Lau Technologies.
10.3* Form of Use and 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 1996 Management Stock Option Plan, as amended.
10.6* Form of Option Agreement for the 1996 Management Stock Option Plan.
10.7 1996 Director Stock Option Plan, as amended.
10.8* Form of Option Agreement for the 1996 Director Stock Option Plan.
10.9* Contract between the Registrant and Transactive, Inc. (relating to the
New York Department of Social Services), dated as of December 8, 1994, as
amended.
10.10* Subcontract between the Registrant and Information Spectrum, Inc.
(relating to the U.S. Immigration & Naturalization Service), dated as of
October 19, 1995.
10.11* Contract between the Registrant and the North Carolina Department of
Transportation, dated as of April 26, 1996.
10.12*** Contract between the Registrant and the Illinois Secretary of State,
dated June 2, 1997, as amended.
10.13**** 1997 Employee Stock Purchase Plan.
10.14***** Employment Agreement, dated as of November 3, 1998, between the
Registrant and Thomas J. Colatosti.
10.15******Purchase Agreement (Project Finance Facility) between the Registrant
and Sanwa Business Credit Corporation, dated as of November 20, 1998,
as amended.
10.16******* Amended and Restated Credit Agreement between the Registrant and
State Street Bank and Trust Company, dated December 7, 1998.
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
No. Description
-- -----------
10.17 $2,000,000 Convertible Subordinated Note between the Registrant and Lau
Acquisition Corporation, dated May 3, 1999.
10.18 Securities Purchase Agreement, dated June 30, 1999 between the Registrant
and Shaar Fund Ltd.
10.19 Registration Rights Agreement, dated June 30, 1999 between the Registrant
and Shaar Fund Ltd.
10.20 Common Stock Purchase Warrants, dated June 30, 1999 between the
Registrant and Shaar Fund Ltd.
10.21 Subcontract Agreement, dated December 6, 1999 between the Registrant and
Compaq Computer Corporation.
10.22 Securities Purchase Agreement, dated December 30, 1999 between the
Registrant and Shaar Fund Ltd.
10.23 Registration Rights Agreement, dated December 30, 1999 between the
Registrant and Shaar Fund Ltd.
10.24 Common Stock Purchase Warrants, dated December 30, 1999 between the
Registrant and Shaar Fund Ltd.
10.25 Securities Purchase Agreement, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.
10.26 Registration Rights Agreement, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.
10.27 Common Stock Purchase Warrant, dated March 10, 2000 between the
Registrant and Strong River Investments, Inc.
10.28 Adjustable Common Stock Purchase Warrant, dated March 10, 2000 between
the Registrant and Strong River Investments, Inc.
10.29 Letter Agreement, dated March 10, 2000 between the Registrant and Strong
River Investments, Inc.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Arthur Andersen LLP.
24 Power of Attorney.
27 Financial Data Schedule.
* Filed as an exhibit to the Registrant's Form S-1 Registration Statement
dated November 4, 1996 (File No. 333-10649).
2
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
No. Description
-- -----------
** Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 27, 1999 (File No. 000-21559).
*** Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1997 (File No. 000-21559).
**** Filed as appendix to October 10, 1997 Schedule 14C Information Statement.
***** Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1998 (File No. 000-21559).
****** Original agreement filed as an exhibit to the Registrant's Form S-1
Registration Statement dated November 4, 1996 (File No. 333-10649).
Amendment filed as an exhibit to the Registrant's Report on Form 10-K for
the year ended December 31, 1997 (File No. 000-21559).
*******Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996 (File No. 000-21559).
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Exhibit 3.4
AMENDED
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
VIISAGE TECHNOLOGY, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
This Amended Certificate of Designation of Series B Convertible Preferred
Stock (this "Certificate of Designation") amends the Certificate of Designation
of Series B Convertible Preferred Stock filed by Viisage Technology, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation," or the "Company") on December 29, 1999.
No shares of Series B Convertible Preferred Stock have been issued prior to the
filing of this Certificate of Designation.
The Corporation hereby certifies that the following resolutions were
adopted by the Board of Directors of the Corporation on December 23, 1999
pursuant to authority of the Board of Directors as required by Section 151 of
the General Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Certificate of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $0.001 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series B 7% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used
in this Certificate of Designation have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section 6.1(e).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to
close.
(d) "CAPITAL SHARES" means the Common Shares and any other shares of any other
class or series of common stock, whether now or hereafter authorized and
however
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designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "CLOSING DATE" means December 30, 1999.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common stock, $.001 par
value, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to the
securities issuable upon conversion of the Series B Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other
class or series into which the Series B Preferred Stock hereafter shall
have been changed or substituted, whether now or hereafter created and
however designated.
(h) "CONVERSION DATE" means any day on which all or any portion of shares of
the Series B Preferred Stock is converted in accordance with the provisions
hereof.
(i) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(j) "CONVERSION PRICE" means on any date of determination the applicable price
for the conversion of shares of Series B Preferred Stock into Common Shares
on such day as set forth in Section 6.1.
(k) "CONVERSION RATIO" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means Viisage Technology, Inc., a Delaware corporation, and
any successor or resulting corporation by way of merger, consolidation,
sale or exchange of all or substantially all of the Corporation's assets,
or otherwise.
(m) "CURRENT MARKET PRICE" means on any date of determination the closing bid
price of a Common Share on such day as reported by the Nasdaq Stock Market,
Inc. ("NASDAQ").
(n) "DIVIDEND PAYMENT DUE DATE" has the meaning set forth in Section 4(a)(ii).
(o) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any Person to
whom the Series B Preferred Stock is subsequently transferred in accordance
with the provisions hereof.
(p) "LIQUIDATION PREFERENCE" has the meaning set forth in Section 5(c).
(q) "MARKET DISRUPTION EVENT" means any event that results in a material
suspension or limitation of trading of Common Shares on NASDAQ.
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(r) "MARKET PRICE" per Common Share means the average of any three (3)
consecutive closing bid prices of the Common Shares as reported on NASDAQ
for the Valuation Period.
(s) "OUTSTANDING" when used with reference to Common Shares or Capital Shares
(collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares directly or indirectly
owned or held by or for the account of the Corporation or any Subsidiary of
the Corporation shall not be deemed "Outstanding" for purposes hereof.
(t) "PERSON" means an individual, a corporation, partnership, an association, a
limited liability company, unincorporated business organization, a trust or
other entity or organization, and any government or political subdivision
or any agency or instrumentality thereof.
(U) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated a date even herewith between the Corporation and The Shaar
Fund Ltd.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(x) "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement dated a date even herewith between the Corporation and The Shaar
Fund Ltd.
(y) "SERIES B PREFERRED STOCK" means the Series B 7% Convertible Preferred
Stock of the Corporation or such other convertible Preferred Stock
exchanged therefor as provided in Section 2.1.
(z) "STATED VALUE" has the meaning set forth in Article 2.
(aa) "SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are
owned directly or indirectly by the Corporation.
(bb) "TRADING DAY" means any day on which purchases and sales of securities
authorized for quotation on NASDAQ are reported thereon and on which
no Market Disruption Event has occurred.
(cc) "VALUATION EVENT" has the meaning set forth in Section 6.1.
(dd) "VALUATION PERIOD" means the ten Trading Day period immediately
preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United States
of America.
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ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 3,000 shares of Preferred
Stock, is Series B 7% Convertible Preferred Stock (the "Series B Preferred
Stock") and the stated value shall be One Thousand Dollars ($1,000) per share
(the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series B Preferred Stock shall rank (i) prior to the Common Stock; (ii)
pari passu with the Corporation's Series A 7% Convertible Preferred Stock
("Series A Preferred Stock"); (iii) prior to any class or series of capital
stock of the Corporation hereafter created other than "Pari Passu Securities"
(collectively, with the Common Stock, "Junior Securities"); and (iv) pari passu
with any class or series of capital stock of the Corporation hereafter created
specifically ranking on parity with the Series B Preferred Stock ("Pari Passu
Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, and the Board of
Directors shall be required to declare, out of funds legally available for the
payment of dividends, dividends at the rate of 7% per annum (computed on the
basis of a 360-day year) (the "Dividend Rate") on the Stated Value of each share
of Series B Preferred Stock on and as of the Dividend Payment Due Date.
Dividends on the Series B Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable at the Corporation's option, in
Common Stock or cash on a pro rata basis, upon conversion of the Preferred
Shares the "Dividend Payment Due Date"). Accrued and unpaid dividends may be
declared and paid at any time, without reference to any Dividend Payment Due
Date, to holders of record on such date, not more than 15 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be paid in
cash or through the issuance of duly and validly authorized and issued, fully
paid and nonassessable, freely tradeable shares of the Common Stock valued at
the Market Price. The Common Stock to be issued in lieu of cash payments shall
be registered for resale in the Registration Statement (as defined in the
Registration Rights Agreement) to be filed by the Corporation to register the
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
and exercise
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of the Warrants as set forth in the Registration Rights Agreement.
Notwithstanding the foregoing, until such Registration Statement (as defined in
the Registration Rights Agreement) has been declared effective under the
Securities Act by the SEC, payment of dividends on the Series B Preferred Stock
shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series B Preferred Stock prior to the date of
payment of the dividend on such class or series of Pari Passu Securities. When
dividends are not declared on the Series B Preferred Stock, all dividends
declared upon any other class or series of Pari Passu Securities shall be
declared ratably in proportion to the respective amounts of dividends
accumulated on the Series B Preferred Stock and accumulated on such Pari Passu
Securities.
(d) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case the full cumulative
dividends required to be paid on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment with respect to the Series B Preferred Stock.
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ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series B Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference with respect to
each share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series B Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series B
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance of disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series of related transactions (or
excluding circumstances pursuant to the Securities Purchase Agreement or
transfers to a subsidiary controlled by the Corporation) in which more than 50%
of the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
Person or Persons when the Corporation is not the survivor shall either: (i) be
deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to, such transaction an amount equal to one
hundred percent (100%) of the Liquidation Preference with respect to each
outstanding share of Series B Preferred Stock in accordance with and subject to
the terms of this Article 5 or (ii) be treated pursuant to Article 5(c)(iii)
hereof; provided, that all holders of Series B Preferred Stock shall be deemed
to elect the option set forth in clause (i) hereof if at least a majority in
interest of such holders elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series B Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series B
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Preferred Stock until the Dividend Payment Due Date; provided that, in the event
of an actual liquidation, dissolution or winding up of the Corporation, the
amount referred to in clause (ii) above shall be calculated by including accrued
and unpaid dividends to the actual date of such liquidation, dissolution or
winding up, rather than the Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the option of the Holder, the
shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time following the date of issuance of the
Series B Preferred Stock (the "Issue Date") at a Conversion Price per share of
Common Stock equal to the lesser of: (i) $7.00 per share, (ii) 85% of the Market
Price for conversions consummated on or before October 30, 2000, and (B) 77% of
the Market Price for conversions consummated on or after November 1, 2000;
(a) notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Company shall not have the obligation, to convert
all or any portion of the Series A Preferred Stock (and the Company shall not
have the right to pay dividends on the Series A Preferred Stock in shares of
common stock) if and to the extent that the issuance to the Holder of shares of
common stock upon such conversion (or payment of dividends) would result in the
Holder being deemed the "beneficial owner" of 5% or more of the then outstanding
shares of Common Stock within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder; and
(b) unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the NASDAQ
or such other stock market with which the Corporation shall be required to
comply, the Corporation shall not issue shares of Common Stock (i) upon
conversion of any shares of Series A Preferred Stock or (ii) as a dividend on
the Series A Preferred Stock, if such issuance of Common Stock, when added to
the number of shares of Common Stock previously issued by the Corporation (i)
upon conversion of shares of the Series A Preferred Stock, (ii) upon exercise of
the Warrants issued pursuant to the terms of the Securities Purchase Agreement
and (iii) in payment of dividends on the Series A Preferred Stock, would be in
excess of 19.99% of the number of shares of the Corporation's Common Stock which
were issued and outstanding on the Conversion Date (the "Maximum Issuance
Amount"). In the event that a properly executed Conversion Notice is received
by the Corporation which would require the Corporation to issue shares of Common
Stock equal to or in excess of the Maximum Issuance Amount, the Corporation
shall honor such conversion request by (i) converting the number of shares of
Series A Preferred Stock stated in the Conversion Notice not in excess of the
Maximum Issuance Amount and (ii) at the Company's option (A) redeeming the
number of shares of Series A Preferred Stock stated in the Conversion Notice
equal to or in excess of the Maximum Issuance Amount in cash at a price equal to
one hundred and twenty-five percent (125%) of the Stated Value of the shares of
Series A Preferred Stock to be so redeemed, together with the fair market value
of all accrued and unpaid dividends thereon, or (B) obtaining such stockholder
approval within 45 days of the relevant Conversion Notice. If such stockholder
approval is not so obtained within such 45 day period, the Company shall redeem
the number of shares named in the relevant Conversion Notice in excess of the
Maximum Issuance Amount as described in clause (ii)(A) above. In the event that
the Corporation shall
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elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
The Holder of the Series B Preferred Stock may exercise its right of
conversion of such shares as follows: (i) 50% of the aggregate number of Series
B Preferred Shares issued to the Holder from and after the 180th day after the
Closing Date; and (ii) from and after the 270th day after the Closing Date, 100%
of the aggregate number of Series B Preferred Shares issued to the Holder.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; provided that, if a Valuation Event occurs
on the fifth day of any Valuation Period, then the Conversion Price shall be the
Current Market Price of the Common Shares on such day; and provided, further,
that the Holder may, in its discretion, postpone such Conversion Date to a
Trading Day which is no more than five (5) Trading Days after the occurrence of
the latest Valuation Event by delivering a notification to the Corporation
within two (2) Business Days of the receipt of the Valuation Event Notice. In
the event that the Holder deems the Valuation Period to be other than the five
(5) Trading Days immediately prior to the Conversion Date, the Holder shall give
written notice of such fact to the Corporation in the related Conversion Notice
at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and
6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such
issuances, or without consideration, except for issuances under employee
benefit plans consistent with those presently in effect and issuances under
presently outstanding warrants, options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the Current
Market Price in effect immediately prior to such issuance;
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(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities
shall be less than the Current Market Price in effect immediately prior to
such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or
surplus legally available for the payment of dividends under applicable law
or any distribution to such holders made in respect of the sale of all or
substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through
6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege.
(a) Conversion of the Series B Preferred Stock may be exercised, in
whole or in part, by the Holder by telecopying an executed and completed
notice of conversion in the form annexed hereto as Annex I (the "Conversion
Notice") to the Corporation. Each date on which a Conversion Notice is
telecopied to and received by the Corporation in accordance with the
provisions of this Section 6.2 shall constitute a Conversion Date. The
Corporation shall convert the Series B Preferred Stock and issue the Common
Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of
the persons who are to become the holders of the Common Stock issued at
Conversion in connection with such conversion. The Holder shall deliver the
shares of Series B Preferred Stock to the Corporation by express courier
within 30 days following the date on which the telecopied Conversion Notice
has been transmitted to the Corporation. Upon surrender for conversion, the
Series B Preferred Stock shall be accompanied by a proper assignment
thereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in
any event not more than five Business Days after the Corporation's receipt
of such Conversion Notice, the Corporation shall (i) issue the Common Stock
issued at Conversion in accordance with the provisions of this Article 6,
and (ii) cause to be mailed for delivery by overnight courier to the Holder
(X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion, (Y)
cash, as provided in Section 6.3, in respect of any fraction of a Share
issuable upon such conversion and (Z) cash or shares in the amount of
accrued and unpaid related dividends as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates so long as the Series B Preferred Stock shall
have been surrendered as aforesaid at such time, and at such time the
rights of the Holder of the Series B Preferred Stock, as such, shall cease
and the Person and Persons in whose name or names the Common Stock Issued
at Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby. The
Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number
of Common Shares which it will be entitled to receive upon such conversion
and, in payment and satisfaction of such subscription (and for any cash
adjustment to which it is entitled pursuant to Section 6.4), to surrender
the
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Series B Preferred Stock and to release the Corporation from all liability
thereon. No cash payment aggregating less than $1.00 shall be required to be
given unless specifically requested by the Holder.
(b) Subject to Sections 6.1(a) and (b) if, at any time (i) the
Corporation challenges, disputes or denies the right of the Holder hereof to
effect the conversion of the Preferred Stock into Common Shares or otherwise
dishonors or rejects any Conversion Notice delivered in accordance with this
Section 6.2 or (ii) any third party who is not and has never been an Affiliate
of the Holder commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to
effect the conversion of the Preferred Stock into Common Shares, then the Holder
shall have the right, by written notice to the Corporation, to require the
Corporation to promptly redeem the Series B Preferred Stock for cash at a
redemption price equal to one hundred twenty percent (120%) of the Stated Value
thereof together with all accrued and unpaid dividends thereon (the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Corporation shall be responsible for the payment of all reasonable costs and
expenses of the Holder, including reasonable legal fees and expenses, as and
when incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
SECTION 6.3 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.00 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while the Series B Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series B Preferred Stock
providing that the Holder shall have the right to convert such new Series B
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series B Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series B Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series B Preferred Stock had
the
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Series B Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 6.5 Adjustments to Conversion Ratio. For so long as any shares of
the Series B Preferred Stock are outstanding, if the Corporation (i) issues and
sells pursuant to an exemption from registration under the Securities Act (A)
Common Shares at a purchase price on the date of issuance thereof that is lower
than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock option agreements
or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the Current Market Price on the date of issuance or conversion, as applicable,
of such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right to
the purchaser(s) thereof to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemption Under Certain Circumstances. At anytime
after the date of issuance of the Series B Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem in whole or in part from time
to time, in cash, the Series B Preferred Stock (but only with respect to such
shares as to which the Holder has not theretofore furnished a Conversion Notice
prior to receiving the Corporation's notice of redemption in compliance with
Section 6.2), at one hundred twenty-five percent (125%) of the Stated Value
thereof (the "Optional Redemption Price"), together with all accrued and unpaid
dividends thereon to the date of redemption (the "Redemption Date"). Except as
set forth in this Section 6.6, the Corporation shall not have the right to
prepay or redeem the Series B Preferred Stock.
SECTION 6.7 Notice of Redemption. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any redemption of the
Series B Preferred Stock pursuant to Sections 6.6 or 6.7, the Holder shall
either deliver the Series B Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series B Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Redemption Date, then the Holder shall again have the right to convert the
Series B Preferred Stock as provided in Article 6 hereof.
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<PAGE>
SECTION 6.9 Mandatory Conversion. On the third anniversary of the filing
of this Certificate of Designation (the "Mandatory Conversion Date"), the
Corporation shall convert all Series B Preferred Stock outstanding at the
Conversion Price. Notwithstanding the previous sentence, in no event shall the
Corporation convert that portion of the Series B Preferred Stock to the extent
that the issuance of Common Shares upon conversion of such Series B Preferred
Stock, when combined with shares of Common Shares received upon other
conversions of Series B Preferred Stock by such Holder and any other holders of
Series B Preferred Stock and Warrants, together with all other shares of Common
Stock beneficially owned by such Holder (or any affiliate thereof) would exceed
19.99% of the Common Stock outstanding on the Mandatory Conversion Date, unless
the Corporation's shareholders approve the issuance of an amount of the
Corporation's Common Stock in excess of the 19.99% threshold. Within ten (10)
Business Days after the Mandatory Conversion Date, the Corporation may either
(i) redeem those outstanding shares of Series B Preferred Stock in excess of the
19.99% threshold at one hundred and twenty-five percent (125%) of the Stated
Value thereof, together with all accrued and unpaid dividends thereon, in cash,
to the date of redemption or (ii) extend the Mandatory Conversion Date for a
period of one year.
ARTICLE 7
VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware
("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such acting is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series B
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series B
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series B Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL holders
of the Series B Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series B
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<PAGE>
Preferred Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled tonight, which notice
would be provided pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation ("Senior
Securities") or alter or change the rights, preferences or privileges of
any Senior Securities so as to affect adversely the Series B Preferred
Stock;
(c) increase the authorized number of shares of Series B Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding shares
of Series B Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series B Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of thirty (30) days to convert pursuant to the terms of this Certificate
of Designation as they exist prior to such alteration or change or continue to
hold their shares of Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred Stock. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series B Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series B Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series B Preferred Stock, new shares of Series B Preferred
Stock of like tenor. The Series B Preferred Stock shall be held and
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<PAGE>
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series B Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The Corporation may deem the
Person in whose name the Series B Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series B Preferred Stock for the purpose of receiving payment of
dividends on the Series B Preferred Stock, for the conversion of the Series B
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series B Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.7 of this Certificate of
Designation, the Corporation shall cause to be mailed to the Holder of the
Series B Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20) days
notice is not possible, at the earliest possible date prior to any such record,
effective or expiration date), a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, issuance or
granting of rights, options or warrants, or if a record is not to be taken, the
date as of which the holders of record of Series B Preferred Stock to be
entitled to such dividend, distribution, issuance or granting of rights, options
or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Series B Preferred Stock will be entitled to exchange their
shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution, liquidation
or winding-up.
SECTION 9.4 Register. The Corporation shall keep at its principal office a
register in which the Corporation shall provide for the registration of the
Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock in
accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the person in whose name the Series B Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series B Preferred Stock for the
purpose of receiving payment of dividends on the Series B Preferred Stock, for
the conversion of the Series B Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series B Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
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<PAGE>
SECTION 9.6 Headings. The headings of the Articles and Sections of this
Certificate of Designation are inserted for convenience only and do not
constitute a part of this Certificate of Designation.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on this 30th day of
December 1999.
VIISAGE TECHNOLOGY, INC.
By: /s/ Charles J. Johnson
----------------------
Charles J. Johnson
Secretary
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<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
TO:
The undersigned owner of this Series B 7% Convertible Preferred Stock
(the "Series B Preferred Stock") issued by Viisage Technology, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert shares of the
Series B Preferred Stock into _______ shares of the common stock, $.001 par
value, of the Corporation ("Common Stock"), in accordance with the terms of the
Certificate of Designation. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series B Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designation. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series B Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designation.
Dated: __________________________________
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address (including zip code number) :
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VIISAGE TECHNOLOGY, INC.
AMENDED AND RESTATED 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.) On July 21, 1997, the Board voted to amend the Plan, subject
to shareholder approval, to authorize an additional 701,000 shares under the
Plan to increase the number of shares available under the Plan to 2,057,100
shares. On January 26, 2000, the Board voted to further amend the Plan,
subject to shareholder approval, to authorize an additional 750,000 shares under
the Plan to increase the number of shares available under the Plan to 2,807,100
shares.
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 two million eight hundred seven thousand one hundred
(2,807,100) shares of the common stock, $.001 par value, of the Company (the
"Shares"), 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
<PAGE>
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 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
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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
(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
<PAGE>
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.
<PAGE>
Exhibit 10.7
VIISAGE TECHNOLOGY, INC.
AMENDED AND RESTATED 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 of Directors of the Company (the "Effective Date"). On May
12, 1998, the Board voted to amend the Plan to authorize an additional 19,970
shares under the Plan to increase the number of shares available under the Plan
from 156,650 shares to 176,620 shares. On May 28, 1999, the Board voted to
further amend the Plan to authorize an additional 24,996 shares under the Plan
to increase the number of shares available under the Plan from 176,620 shares to
201,616 shares. On January 26, 2000, the Board voted to further amend the Plan,
subject to shareholder approval, to authorize an additional 125,000 shares under
the Plan to increase the number of shares available under the Plan from 201,616
shares to 326,616 shares.
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 three hundred twenty-six thousand six hundred sixteen (326,616)
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.
<PAGE>
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 ("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, 2005, 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 -- Issuance of Options
Options available for issuance under this Plan shall be issued in the
discretion of the Board.
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 schedule determined by the Board and set forth in the
written instrument evidencing the Options issued hereunder, subject to
adjustment as provided in Section 9 and 10 below. Such schedule may be amended
by mutual agreement of the Board and the optionee. 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
<PAGE>
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 "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.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
Exhibit 10.17
THIS NOTE AND UNDERLYING COMMON SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE HOLDER WILL NOT
TRANSFER THE NOTE OR ANY COMMON SHARES ISSUED PURSUANT TO ITS CONVERSION
PROVISION UNLESS THERE IS (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH
NOTE OR THE UNDERLYING SHARES UNDER THE 1933 ACT AND ANY OTHER APPLICABLE
SECURITIES LAW OR (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
------------------------------------------------------------------------
VIISAGE TECHNOLOGY, INC.
4% SUBORDINATED CONVERTIBLE NOTE
DUE December 31, 2000
--------------------------------------------------------------------------
$2,000,000.00 Date: May 3, 1999
Littleton, Massachusetts
Viisage Technology, Inc. ("Company"), incorporated under the laws of the
State of Delaware, FOR VALUE RECEIVED, hereby promises to pay to Lau Acquisition
Corp. d/b/a Lau Technologies (together with its successors and assigns,
"Holder") on December 31, 2000 ("Maturity Date"), the principal amount of Two
Million Dollars U.S. ($2,000,000.00) or such lesser amount of principal advanced
by Holder under the "Loan" pursuant to Holder's letter agreement with the
Company dated the date hereof (the "Loan Agreement"), together with interest on
the unpaid principal balance hereof from time to time outstanding, from the date
of issuance hereof, at a rate of four percent (4%) per annum. Notwithstanding
the foregoing, as long as the Company's obligations to State Street Bank and
Trust Company ("State Street") and/or Fleet Business Credit Corporation ("FBCC")
remain outstanding, the Company will not make payments of principal under this
Note without said creditors' written consent.
This Note may be prepaid any time after the date of issuance hereof, in
whole or in part, without prepayment penalty. Any such prepayment shall be
applied first to accrued and unpaid interest and then to principal.
All claims of the Holder of this Note against earnings or assets of the
Company hereby are subordinated to those of State Street and FBCC. The Holder
agrees to enter into such further instruments and agreements of subordination
with the foregoing lenders as the Company reasonably may request from time to
time, to confirm the subordination of this Note and the terms and conditions
applicable to such subordination.
Principal and interest under this Note are convertible in whole, but not in
part, into Common Stock of the Company, at the rate of conversion set forth
herein below, which rate of
<PAGE>
conversion has been determined based on a value equal to 130% of the average
closing market price of the Common Stock of the Company for the 20 trading days
immediately preceding the effective date of this Note. Conversion shall be made
at the option of the Holder hereof at any time during the Conversion Period
(defined below), upon surrender of this Note at the principal office of the
Company. Upon conversion, interest shall cease to accrue. "Conversion Period"
means the period commencing with the effective date of this Note set forth above
and ending on the repayment of all obligations under this Note.
Conversion shall be made into that number (as equitably adjusted by the
Company's Board of Directors for stock splits, reverse stock splits, and stock
dividends, if any) of fully paid and non-assessable shares of the Company's
Common Stock, $.001 par value, that equals the quotient of the fraction having
as its numerator the sum of the unpaid principal amount of this Note plus the
amount of any unpaid accrued interest under this Note, and having as its
denominator $1.26. Fractional shares may be paid in cash at the Company's
election.
If the Company consolidates or merges into or with another corporation, or
if the Company sells or conveys to any other person all or substantially all its
property (any of the foregoing, collectively, a "Capital Event"), the Holder of
this Note shall thereafter be entitled, upon conversion, to receive the kind and
amount of shares, other securities, cash, and property receivable upon such
consolidation, merger, sale, or conveyance by a holder of the number of common
shares which might have been received upon conversion of this Note immediately
prior to such consolidation, merger, sale, or conveyance, and shall have no
other conversion rights. Notwithstanding the foregoing provisions of this
paragraph, if the Company shall have given the Holder not less than 30 days'
prior written notice of any Capital Event, and if such Capital Event is made or
entered into by the Company with a third party that is not an Affiliate of the
Company (as such term is defined in the Securities Act of 1933, as amended)
immediately prior thereto, then the provisions of this paragraph shall not apply
to said Capital Event so long as the Holder shall not have been prevented by any
injunction, stay or other legal impediment from exercising the Holder's
then-existing rights under this Warrant throughout the 30-day period after
notice of such event has been given as provided above.
In case of dissolution, termination of existence, or insolvency of the
Company, appointment of a receiver of the Company, assignment for benefit of
creditors by or commencement of any proceedings under the Bankruptcy Code or any
insolvency law by or against the Company, or if the Company shall fail to make
any payment or fail to pay any installment when due hereunder and such failure
shall continue for 30 days, following written notice thereof, this Note shall,
at the option of the Holder, become due and payable without further notice or
demand.
The Company agrees to pay all reasonable charges of the Holder of this Note
in connection with the collection and enforcement of this Note, including,
without limitation, reasonable attorneys' fees.
The Company and every endorser and guarantor hereof hereby consents to any
extension of time of payment hereof, release of all or any part of the security
for the payment hereof, or release of any party liable for this obligation, and
waives presentment for payment, demand,
2
<PAGE>
protest and notice of dishonor. Any such extension or release may be made
without notice to the Company and without discharging its liability.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts. All of the provisions of this Note shall be binding upon and
inure to the benefit of the Company and the Holder and their respective
successors and assigns. IN THE EVENT OF ANY LITIGATION IN CONNECTION WITH THIS
NOTE, THE COMPANY AND THE HOLDER KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ALL RIGHTS TO A TRIAL BY JURY.
Agreed, under seal, as of the date set forth above.
Witness: VIISAGE TECHNOLOGY, INC.
/s/ Joan Albertelli By: /s/ William A. Marshall
- --------------------- ----------------------------------
Name: Joan Albertelli Name: William A. Marshall
Title: Vice President, Chief Financial
Officer and Treasurer
3
<PAGE>
Exhibit 10.18
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of June 30, 1999, between VIISAGE
TECHNOLOGY, INC., a Delaware corporation with principal executive offices
located at 30 Porter Road, Littleton, Massachusetts 01460 (the "Company"), and
the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Company, and the Company desires to
issue and sell to the Buyer, upon the terms and subject to the conditions of
this Agreement, (i) 1,500 shares of the Company's Series A 7% Convertible
Preferred Stock, par value $.001 per share (the "Preferred Shares") and (ii)
75,000 Common Stock Purchase Warrants in the form attached hereto as Exhibit A
(the "Warrants") on the Funding Date (as defined in Section VII below):
WHEREAS, upon the terms and subject to the designations, preferences and
rights set forth in the Company's Certificate of Designations to the Company's
Certificate of Incorporation in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.001 per share (the "Common Stock");
and
WHEREAS, the Warrants, upon the terms and subject to the conditions
therein, will be exercisable to purchase shares of Common Stock for a period of
three (3) years from and after the Funding Date.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. Transaction. Subject to the terms and conditions contained herein, Buyer
hereby agrees to purchase from the Company, and the Company hereby agrees to
issue and sell to the Buyer in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Preferred Shares and the Warrants.
B. Purchase Price; Form of Payment.
1. The purchase price for the Preferred Shares and the Warrants to be
purchased by Buyer hereunder shall be $1,500,000, less deductions for fees and
expenses (the "Purchase Price").
2. Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Escrow Instructions dated as of the date hereof, a copy of which is
attached hereto as Exhibit C (the "Escrow Instructions").
<PAGE>
Simultaneously against receipt by the Escrow Agent of the Purchase Price, the
Company shall deliver to the Escrow Agent or its designated depository one or
more duly authorized, issued and executed certificates (in the name of Buyer or,
if the Company has been notified otherwise, in the name of Buyer's nominee)
evidencing the Preferred Shares and the Warrants which the Buyer is purchasing.
By executing and delivering this Agreement, Buyer and the Company each hereby
agrees to observe the terms and conditions of the Escrow Instructions, all of
which are incorporated herein by reference as if fully set forth herein.
C. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of immediately available funds to:
Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
For the Account of: Herrick, Feinstein LLP Attorney Trust Account
Account# 967-123445
ABA Reference# 021-000-021
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants representing the securities
to be purchased.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") and the shares of
Common Stock issuable upon conversion of the Preferred Shares (the "Conversion
Shares" and, collectively with the Preferred Shares, the Warrants and the
Warrant Shares, the "Securities") for its own account, for investment purposes
only and not with a view towards or in connection with the public sale or
distribution thereof in violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, (ii) experienced in making investments of
the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.
C. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy
- 2 -
<PAGE>
of, and Buyer's compliance with, Buyer's representations, warranties and
covenants set forth in this Agreement to determine the availability of such
exemption and the eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has had access to all press releases issued
by the Company since December 31, 1998 and has had access to copies of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and all other reports and documents heretofore filed by the Company with
the Commission pursuant to the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), since November 8, 1996 (collectively, the
"Commission Filings").
F. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of, and to receive
answers from, the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been approved or
disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person acting on its or their
behalf will enter into, at any time prior to the conversion of all the Preferred
Stock and the exercise of the Warrants, any put option, short position or other
similar instrument or position with respect to the Common Stock, and neither
Buyer nor any of its affiliates nor any person acting on its or their behalf has
or will use at any time shares of Common Stock acquired pursuant to this
Agreement or otherwise to settle any put option, short position or other similar
instrument or position that may have been entered into prior to the execution of
this Agreement.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
- 3 -
<PAGE>
A. Capitalization.
1. The authorized capital stock of the Company consists of: (i) 20,000,000
shares of Common Stock, of which, as of June 29, 1999, 8,457,619 shares were
issued and outstanding and none were held in treasury; and (ii) 2,000,000 shares
of "blank check" preferred stock, of which no shares are issued and outstanding
on the date hereof. All of the issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company has outstanding 1,889,823
stock options under management, employee and director stock option plans to
purchase shares of Common Stock. The Conversion Shares and Warrant Shares have
been duly and validly authorized and reserved for issuance by the Company, and
when issued by the Company upon conversion of or in lieu of accrued dividends on
the Preferred Shares, or on exercise of the Warrants, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder. There are no preemptive,
subscription, "call", convertible debt instruments or other similar rights to
acquire the Common Stock (including the Conversion Shares and Warrant Shares)
that have been issued or granted to any person, except as disclosed on Schedule
III.A.1. hereto or otherwise previously disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto, the Company does not
own or control, directly or indirectly, any material interest in any other
corporation, partnership, limited liability company, unincorporated business
organization, association, trust or other business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly qualified as a
foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the Company or on
the consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect").
2. Except as disclosed on Schedule III.B.2, the Company has registered
certain of its Common Stock pursuant to Section 12(g) of the Exchange Act and
has timely filed with the Commission all reports and information required to be
filed by it pursuant to all reporting obligations under Section 13(a) or 15(d),
as applicable, of the Exchange Act for the 12-month period immediately preceding
the date hereof. Such Common Stock is listed and traded on The NASDAQ Stock
Market, Inc. national market system ("NMS") and the Company has not received any
notice regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of such Common Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Preferred Shares and Warrant
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Shares upon conversion of the Preferred Shares and exercise of the Warrants. The
Company further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares and Warrant Shares upon exercise of the
Warrants in accordance with this Agreement, the Certificate of Designation and
the Warrants is, subject to Section II.I, absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
D. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into the Documents (as hereinafter
defined), and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
execution, delivery and performance by the Company of the Documents, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Designation
with the Delaware Secretary of State's office, the issuance of the Preferred
Shares, the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares), has been duly authorized by all necessary
corporate action on the part of the Company. Each of the Documents (as defined
below) has been duly and validly executed and delivered by the Company and the
Certificate of Designation has been duly filed with the Delaware Secretary of
State's office by the Company, and each instrument constitutes a valid and
binding obligation of the Company enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The Securities have been duly and validly authorized for
issuance by the Company and, when executed and delivered by the Company, will be
valid and binding obligations of the Company enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. For purposes of this Agreement, the
term "Documents" means (i) this Agreement; (ii) the Registration Rights
Agreement of even date herewith between the Company and Buyer, a copy of which
is annexed hereto as Exhibit D (the "Registration Rights Agreement"); (iii) the
Warrants; (iv) the Certificate of Designation; and (v) the Escrow Instructions.
E. Authorization of the Securities. The authorization, issuance, sale and
delivery of the Preferred Shares and Warrants has been duly authorized by all
requisite corporate action on the part of the Company. As of the Funding Date,
the Preferred Shares and the Warrants, and the Conversion Shares and the Warrant
Shares upon payment of the consideration provided therefor and their issuance in
accordance with the Certificate of Designation and the Warrants, respectively,
will be validly issued and outstanding, fully paid and nonassessable, and not
subject to any preemptive rights, rights of first refusal or other similar
rights.
F. Non-contravention. The execution and delivery by the Company of the
Documents, the issuance of the Securities, and the consummation by the Company
of the other transactions contemplated hereby and thereby, including, without
limitation, the filing of the Certificate of Designation with the Delaware
Secretary of State's office, do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default (or an event which, with notice, lapse of time or both, would constitute
a default) under (i) the
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certificate of incorporation or by-laws of the Company or (ii) any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company is a party or by which its properties or assets are bound, or any law,
rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
G. Approvals. No authorization, approval or consent of any third party or
entity, including, without limitation, any court or public or governmental
authority is required to be obtained by the Company for the issuance and sale of
the Securities to Buyer as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by the Company
prior to the date hereof.
H. Commission Filings. None of the Commission Filings contained at the time
they were filed 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
made therein, in light of the circumstances under which they were made, not
misleading.
I. Absence of Certain Changes. Except as provided on Schedule III.B.2,
since the Balance Sheet Date (as defined in Section III.M.), there has not
occurred any change, event or development in the business, financial condition,
prospects or results of operations of the Company, and there has not existed any
condition having or reasonably likely to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to the Buyer or in the Commission Filings
that (i) reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened, by
or before any court or public or governmental authority which, if determined
adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" or "Default" (as
each such term is defined in any agreement or instrument to which the Company is
a party) and no event which, with notice, lapse of time or both, would
constitute an Event of Default (as so defined) or Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has made
available to Buyer true and complete copies of its audited balance sheet as at
December 31, 1998, and the related audited statements of operations and cash
flows for the fiscal year ended December 31, 1998, including the related notes
and schedules thereto (collectively, the "Financial Statements"), and all
management letters, if any, from the Company's independent auditors relating to
the dates and periods covered by the Financial Statements. Each of the Financial
Statements is complete and
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fairly stated in all material respects, has been prepared in accordance with
United States Generally Accepted Accounting Principles ("GAAP") (subject, in the
case of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes) and in conformity with the practices consistently applied
by the Company without modification of the accounting principles used in the
preparation thereof, and fairly presents the financial position, results of
operations and cash flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the balance sheet of the Company as at March 28,
1999, as filed in connection with the Company's Quarterly Report on Form 10-Q on
May 12, 1999, is hereinafter referred to as the "Balance Sheet" and March 28,
1999, is hereinafter referred to as the "Balance Sheet Date". The Company has no
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that would have been
required to be reflected in, reserved against or otherwise described in the
Balance Sheet or in the notes thereto in accordance with GAAP, which was not
fully reflected in, reserved against or otherwise described in the Balance Sheet
or the notes thereto or was not incurred in the ordinary course of business
consistent with the Company's past practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
O. Related Party Transactions. Except as set forth on Schedule III.O.
hereto, or otherwise described in the Financial Statements or Commission
Filings, neither the Company nor any of its officers, directors or "Affiliates"
(as such term is defined in Rule 12b-2 under the Exchange Act) has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company. Except as set forth on Schedule III.O. hereto or Commission
Filings, neither the Company nor any of its officers, directors or Affiliates
(i) owns any direct or indirect interest constituting more than a one percent
equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant to or lender to
or borrower from, or has the right to participate in the profits of, any person
or entity which is (x) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (y) engaged in a business related to the
business of the Company , or (z) a participant in any transaction to which the
Company is a party (other than in the ordinary course of the Company's business)
or (ii) is a party to any contract, agreement, commitment or other arrangement
with the Company.
P. Insurance. The Company maintains insurance coverage with financially
sound and reputable insurers and such insurance coverage is adequate, consistent
with industry standards and the Company's historical claims experience, and
includes coverage for such things as property and casualty, general liability,
workers' compensation, personal injury and other similar types of insurance. The
Company has not received notice from, and has no knowledge of any threat by, any
insurer (that has issued any insurance policy to the Company) that such insurer
intends to deny coverage under or cancel, discontinue or not renew any insurance
policy presently in force.
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Q. Securities Law Matters. Based, in part, upon the representations and
warranties of Buyer set forth in Section II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year immediately preceding the date hereof,
except as disclosed on Schedule III.Q. hereto, and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Preferred Shares
or shares of Common Stock or any of the other Securities), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Securities as contemplated by
this Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Securities as contemplated by this
Agreement or any other agreement to which the Company is a party.
R. Environmental Matters. To the Company's knowledge:
1. The operations of the Company are in compliance with all applicable
Environmental Laws (as defined below) and all permits issued pursuant to
Environmental Laws or otherwise;
2. the Company has obtained or applied for all permits required under all
applicable Environmental Laws necessary to operate its business;
3. the Company is not the subject of any outstanding written order of or
agreement with any governmental authority or person respecting (i) Environmental
Laws, (ii) Remedial Action or (iii) any Release or threatened Release of
Hazardous Materials;
4. the Company has not received, since the Balance Sheet Date, any written
communication alleging that it may be in violation of any Environmental Law or
any permit issued pursuant to any Environmental Law, or may have any liability
under any Environmental Law;
5. the Company does not have any current contingent liability in connection
with any Release of any Hazardous Materials into the indoor or outdoor
environment (whether on-site or off-site);
6. except as set forth on Schedule III.R.6 hereto, to the Company's
knowledge, there are no investigations of the business, operations, or currently
or previously owned, operated or leased property of the Company pending or
threatened which could lead to the imposition of any liability pursuant to any
Environmental Law;
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7. there is not located at any of the properties of the Company any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and,
8. the Company has provided to Buyer all environmentally related audits,
studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or rule of common law as now or hereafter in effect in
any way relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C.ss.9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. App.ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C.ss.6901 et seq.), the Clean Water Act
(33 U.S.C.ss. 1251 et seq.), the Clean Air Act (42 U.S.C.ss.7401 et seq.), the
Toxic Substances Control Act (15 U.S.C.ss.2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C.ss.651 et seq.), and the
regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or toxic substance" under any provision of any Environmental Law.
"Release" means any release, spill, filtration, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the indoor
or outdoor environment, or into or out of any property.
"Remedial Action" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company. No employees of the Company are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company pending or to the Company's knowledge, threatened
by any labor organization or group of
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employees of the Company. There are no (i) strikes, work stoppages, slowdowns,
lockouts or arbitrations or (ii) material grievances or other labor disputes
pending or, to the knowledge of the Company, threatened against or involving the
Company. There are no unfair labor practice charges, grievances or complaints
pending or, to the knowledge of the Company, threatened by or on behalf of any
employee or group of employees of the Company.
T. ERISA Matters. The Company and its ERISA Affiliates (as defined below)
are in compliance in all material respects with all provisions of ERISA (as
defined below) applicable to it. No Reportable Event (as defined below) has
occurred, been waived or exists as to which the Company or any ERISA Affiliate
was required to file a report with the Pension Benefits Guaranty Corporation,
and the present value of all liabilities under all Plans (based on those
assumptions used to fund such Plans) did not, as of the most recent annual
valuation date applicable thereto, exceed the value of the assets of all such
Plans (as defined below) in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the regulations thereunder, as the same may be
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that was, is or hereafter may become, a member of a group of which the Company
is a member and which is treated as a single employer under ss. 414 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of ss. 414
of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan) subject to
the provision of Title IV of ERISA or ss. 412 of the Internal Revenue Code that
is maintained for employees of the Company or any ERISA Affiliate.
"Reportable Event" means any reportable event as defined in Section 4043(b)
of ERISA or the regulations issued thereunder with respect to a Plan (other than
a Plan maintained by
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an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of ss. 414 of the Internal Revenue Code.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required to file under
applicable Laws, except for such Tax Returns in respect of which the failure to
so file does not and could not have a Material Adverse Effect; all such Tax
Returns are complete and fairly stated in all material respects and have been
prepared in compliance with all applicable Laws; the Company has paid all Taxes
(as defined below) due and owing by it (whether or not such Taxes are required
to be shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties; and
since the Balance Sheet Date, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
2. No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that such corporation is or may be subject to
taxation by that jurisdiction. There are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit or
other review has been received by the Company from any foreign, federal, state
or local taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
3. The Company has not made an election underss.341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. Except as disclosed in
the Commission Filings, the Company is not a party to any tax sharing agreement.
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The Company has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that would not
be deductible under ss. 28OG of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
V. Property. The Company has good and marketable title to all real and
personal property owned by it, free and clear of all liens, encumbrances and
defects except as are described on Schedule III.V. hereto or in the Commission
Filings or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") for the conduct of its business as now being conducted as
described on Schedule III.W. hereto. The Company is not infringing upon or in
conflict with any right of any other person with respect to any Intangibles.
Except as disclosed on Schedule III.W. hereto, no claims have been asserted by
any person to the ownership or use of any Intangibles and the Company has no
knowledge of any basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company is a party or by which its
properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the
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financial statements of the Company in accordance with U.S. generally accepted
accounting principles consistently applied.
Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, not misleading.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Preferred Shares and the Warrants (and any
shares of Common Stock issued in conversion of the Preferred Shares or exercise
of the Warrants) shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares and the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND ARE
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
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C. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to timely file all reports
required to be filed by it with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the sale of
the Securities (excluding amounts paid by the Company for legal fees and
finder's fees in connection with such sale) solely for general corporate and
working capital purposes.
E0 Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange, the Company shall use its best efforts to maintain its
listing of the Common Stock on the NMS.
F0 Reserved Conversion Shares. The Company at all times from and after the
date hereof shall have a sufficient number of shares of Common Stock duly and
validly authorized and reserved for issuance to satisfy the conversion, in full,
of the Preferred Shares and upon the exercise of the Warrants.
V TRANSFER AGENT INSTRUCTIONS.
A0 The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants otherwise shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of such Common Stock. If, at any time, Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company and its counsel that
registration of the resale by Buyer of such Common Stock is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Company shall permit the transfer of such Common Stock
and, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without any restrictive legends endorsed thereon.
B0 The Company shall permit Buyer to exercise its right to convert the
Preferred Shares by telecopying an executed and completed Notice of Conversion
to the Company. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company shall transmit the certificates evidencing the
shares of Common Stock issuable upon conversion of any Preferred Shares
(together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within ten (10) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company the Preferred
Shares being converted.
- 14 -
<PAGE>
C0 The Company shall permit Buyer to exercise its right to purchase shares
of Common Stock pursuant to exercise of the Warrants in accordance with its
applicable terms of the Warrants. The last date that the Company may deliver
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
D0 The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond ten
(10) business days from the Dividend Payment Due Date (as that term is defined
in the Certificate of Designation), the Delivery Date on the Warrant Delivery
Date, as applicable):
<TABLE>
<CAPTION>
Compensation For Each 10
Shares of Preferred Shares and
Related Dividends Not
No. Business Days Converted Timely or 5,000
----------------- Shares of Common Stock
Issuable Upon Exercise of
Warrants
------------------------------
<S> <C>
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + $100 for each Business
Day Late beyond 10 business
days
</TABLE>
- 15 -
<PAGE>
The Company shall pay to Buyer the compensation described above as liquidated
damages, by the transfer of immediately available funds upon Buyer's demand.
Nothing herein shall limit Buyer's right to pursue actual damages for the
Company's failure to issue and deliver Common Stock to Buyer, and in addition to
any other remedies which may be available to Buyer, in the event the Company
fails for any reason to effect delivery of such shares of Common Stock within
ten (10) business days after the relevant Dividend Payment Due Date, the
Delivery Date or the Warrant Delivery Date, as applicable, Buyer shall be
entitled to rescind the relevant Notice of Conversion or exercise of Warrants by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original positions immediately
prior to delivery of such Notice of Conversion on delivery.
VI DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
closing of the transactions contemplated hereby.
VII FUNDING DATE.
The date and time of the issuance and sale of the Preferred Shares and the
Warrants (the "Funding Date") shall be the date hereof or such other date as
shall be mutually agreed upon in writing. The issuance and sale of the Preferred
Shares and the Warrants shall occur on the Funding Date, at the offices of the
Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be authorized to release to the Company the Purchase
Price and to Buyer the certificate(s) evidencing the Preferred Shares and the
Warrants unless the conditions set forth in VIII.C. and IX.G hereof have been
satisfied.
VIII CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Securities
on the Funding Date to Buyer pursuant to this Agreement is conditioned upon:
A0 Delivery by Buyer to the Escrow Agent of the Purchase Price on the
Funding Date.
B0 The accuracy in all material respects on the Funding Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Funding Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Funding Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Funding Date;
- 16 -
<PAGE>
C0 There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Securities
on the Funding Date pursuant to this Agreement is conditioned upon:
A0 Delivery by the Company to the Escrow Agent on or before the Funding
Date of one or more certificates evidencing the Securities;
B0 The accuracy in all respects on the Funding Date of the representations
and warranties of the Company contained in this Agreement as if made on the
Funding Date (except for representations and warranties which, by their express
terms, speak as of and relate to a specified date, in which case such accuracy
shall be measured as of such specified date) and the performance by the Company
in all respects on or before the Funding Date of all covenants and agreements of
the Company required to be performed by it pursuant to this Agreement on or
before the Funding Date;
C0 Buyer having received an opinion of counsel for the Company, dated the
Funding Date, in form, scope and substance satisfactory to the Buyer.
D0 There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NMS, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
E0 There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably could have a
Material Adverse Effect.
F0 The Company shall have delivered to Buyer (as provided in the Escrow
Instructions) reimbursement of Buyer's reasonable out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement.
G0 There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
- 17 -
<PAGE>
X TERMINATION.
A0 Termination by Mutual Written Consent. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned, for any reason and at
any time prior to the Funding Date, by the mutual written consent of the Company
and Buyer.
B0 Termination by the Company or Buyer. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Funding Date shall not have occurred at or prior to
5:00 p.m., New York City time, on July 9, 1999; provided, however, that the
right to terminate this Agreement pursuant to this Section X.B.(i) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Funding
Date to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
C0 Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Funding Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, or (iii) there shall have occurred any event or
development, or there shall be in existence any condition, having or reasonably
and foreseeably likely to have a Material Adverse Effect.
D0 Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Funding Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
XI SURVIVAL; INDEMNIFICATION.
A0 The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Funding Date and the
consummation of the transactions contemplated hereby for a period of three (3)
years from and after the Funding Date or such later date as when all of the
Preferred Shares have been converted to Common Stock. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Funding Date.
B0 The Company hereby agrees to indemnify and hold harmless the Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer
- 18 -
<PAGE>
Indemnitees"), from and against any and all losses, claims, damages, judgments,
penalties, liabilities and deficiencies (collectively, "Losses"), and agrees to
reimburse the Buyer Indemnitees for all out-of-pocket expenses (including the
fees and expenses of legal counsel), in each case promptly as incurred by the
Buyer Indemnitees and to the extent arising out of or in connection with:
1 any misrepresentation, omission of fact or
breach of any of the Company's representations or
warranties contained in this Agreement or the other
Documents, or the annexes, schedules or exhibits hereto
or thereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to
this Agreement or the other Documents; or
2 any failure by the Company to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement
or the other Documents, or the annexes, schedules or
exhibits hereto or thereto or any instrument, agreement
or certificate entered into or delivered by the Company
pursuant to this Agreement or the other Documents.
C0 Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1 any misrepresentation, omission of fact, or
breach of any of Buyer's representations or warranties
contained in this Agreement or the other Documents, or
the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into
or delivered by Buyer pursuant to this Agreement or the
other Documents; or
2 any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings
or obligations set forth in this Agreement or the other
Documents or any instrument, certificate or agreement
entered into or delivered by Buyer pursuant to this
Agreement or the other Documents.
D0 Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially
- 19 -
<PAGE>
prejudiced and forfeits substantive rights and defenses by reason of such
failure. In connection with any Claim as to which both the Indemnifying Party
and the Indemnified Party are parties, the Indemnifying Party shall be entitled
to assume the defense thereof. Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
E0 In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII GOVERNING LAW: MISCELLANEOUS.
- 20 -
<PAGE>
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware, without regard to the conflicts of law principles
of such state. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. if any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XIII NOTICES.
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be sent by facsimile with a copy delivered personally or sent by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton, Massachusetts 01460
Attention: Thomas J. Colatosti
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 02110
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-6080
- 21 -
<PAGE>
(2) if to the Buyer, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
(3) if to the Escrow Agent, to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV CONFIDENTIALITY.
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 10 of Rule
601 of Regulation S-K under the Securities Act and the Exchange Act).
- 22 -
<PAGE>
XV ASSIGNMENT.
This Agreement shall not be assignable by either of the parties hereto
without the prior written consent of the other party, and any attempted
assignment contrary to the provisions hereby shall be null and void; provided,
however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
- 23 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first written above.
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ William A. Marshall
-----------------------------
Name: William A. Marshall
Title: Chief Financial Officer
BUYER:
THE SHAAR FUND LTD.
By: INTERCARRIBBEAN SERVICES, INC.
By: /s/ Sam Levinson
-----------------------------
Name: Sam Levinson
Title:
- 24 -
<PAGE>
EXHIBIT A
Common Stock Purchase Warrant
- 25 -
<PAGE>
EXHIBIT B
Certificate of Designation
- 26 -
<PAGE>
EXHIBIT C
Escrow Instructions
- 27 -
<PAGE>
EXHIBIT D
Registration Rights Agreement
- 28 -
<PAGE>
Schedule III.A.1
Capitalization
- 29 -
<PAGE>
Schedule III.A.2
Subsidiaries
- 30 -
<PAGE>
Schedule III.O.
Related Party Transactions
- 31 -
<PAGE>
Schedule III.Q.
Securities Law Matters
- 32 -
<PAGE>
Schedule III.R.6.
Environmental Matters
- 33 -
<PAGE>
Schedule III.V.
Property
- 34 -
<PAGE>
Schedule III.W.
Intellectual Property
- 35 -
<PAGE>
Exhibit 10.19
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of June 30, 1999 (this "Agreement"),
between VIISAGE TECHNOLOGY, INC., a Delaware corporation with principal
executive offices located at 30 Porter Road, Littleton, Massachusetts 01460 (the
"Company"), and the undersigned (the "Investor").
W I T N E S S E T H :
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of the date hereof, between the Investor and the
Company (the "Securities Purchase Agreement"), the Company has agreed to issue
and sell to the Investor on the date hereof, (i) 1,500 shares of the Company's
Series A 7% Convertible Preferred Stock, par value $.001 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation to the Company's Certificate of
Incorporation (the "Certificate of Designation"), are convertible into shares of
the Company's common stock, par value $0.001 per share (the "Common Stock"), and
(ii) 75,000 Common Stock Purchase Warrants (the "Warrants") to purchase shares
of Common Stock; and
WHEREAS, to induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide with respect to the Common
Stock issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares and exercise of the Warrants
certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Affiliate", of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(iii) "Commission" means the Securities and Exchange Commission.
(iv) "Current Market Price" on any date of determination means the
closing bid price of a share of the Common Stock on such day as reported by
the NASDAQ Stock Market, National Market System ("NMS"). If such security
is not listed or admitted to trading on
<PAGE>
the NMS, on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any NASD
member firm selected from time to time by the Board of Directors of the
Company for that purpose, or a price determined in good faith by the Board
of Directors of the Company as being equal to the fair market value
thereof, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(ii) "Funding Date" means the date and time of the issuance and sale
of the Preferred Shares and the Warrants.
(vi) "Investors" means the Investor and any transferee or assignee of
Registrable Securities who agrees to become bound by all of the terms and
provisions of this Agreement in accordance with Section 8 hereof.
(vii) "Public Offering" means an offer registered with the Commission
and the appropriate state securities commissions by the Company of its
Common Stock and made pursuant to the Securities Act.
(viii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(ix) "Prospectus" means the prospectus (including, without limitation,
any preliminary prospectus and any final prospectus filed pursuant to Rule
424(b) under the Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance on Rule 430A under the
Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(x) "Registrable Securities" means the Common Stock issued or issuable
(i) in lieu of cash dividend payments on the Preferred Shares, (ii) upon
conversion of the Preferred Shares or (iii) upon exercise of the Warrants;
provided, however, that a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security.
(xi) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the Registrable Securities pursuant
-2-
<PAGE>
to Rule 415 under the Securities Act, including the Prospectus contained
therein and forming a part thereof, any amendments to such registration
statement and supplements to such Prospectus, and all exhibits and other
material incorporated by reference in such registration statement and
Prospectus.
(xii) "Restricted Security" means any share of Common Stock issued or
issuable in lieu of cash dividend payments on the Preferred Shares, upon
conversion of the Preferred Shares or exercise of the Warrants except any
such share that (i) has been registered pursuant to an effective
registration statement under the Securities Act, (ii) has been transferred
in compliance with the resale provisions of Rule 144 under the Securities
Act (or any successor provision thereto) or is transferable pursuant to
paragraph (d) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new share
of Common Stock not subject to transfer restrictions under the Securities
Act has been delivered by or on behalf of the Company.
(xiv) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(b) All capitalized terms used and not defined herein have the respective
meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission not later than ninety (90) days after the
Funding Date, a Registration Statement relating to the offer and sale of all of
the Registrable Securities and shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than one hundred and eighty (180)
days after the Funding Date. The Company shall not include any other securities
in the Registration Statement relating to the offer and sale of the Registrable
Securities, except for (i) shares of Common Stock underlying convertible
debentures and options held by Lau Technologies and, (ii) certain shares issued
to directors in lieu of cash fees and otherwise, each as set forth on Schedule
III.A.1 of the Securities Purchase Agreement. The Company shall notify the
Investor by written notice that such Registration Statement has been declared
effective by the Commission within 24 hours of such declaration by the
Commission.
(b) Registration Default. (i) If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section 2
(a) hereof is not (A) filed with the Commission within ninety (90) days after
the Funding Date or (B) declared effective by the Commission within one hundred
and eighty (180) days after the Funding Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Investor as provided in the next sentence as liquidated damages and not as a
penalty. The amount to be paid by the Company to the Investor shall be
determined as of each Computation Date (as defined below), and such amount shall
be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price (as defined
in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with or
declared effective by the Commission (the "Periodic Amount"); provided, however,
that in no event shall the Liquidated Damages be less than
-3-
<PAGE>
$15,000. The full Periodic Amount shall be paid by the Company to the Investor
by wire transfer of immediately available funds within three days after each
Computation Date.
(ii) As used in this Section 2(b), "Computation Date" means the date which
is 30 days after the applicable Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
most recent applicable Computation Date until such Registration Statement is so
declared effective.
(iii) Notwithstanding the above, if the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof, as the case may be, is not filed with the Commission by the
ninetieth (90th) day after the Funding Date, the Company shall be in default of
this Registration Rights Agreement.
(c) (i) If the Company proposes to register any of its warrants, Common
Stock or any other shares of common stock under the Securities Act (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B)
relating to Common Stock or any other shares of common stock of the Company
issuable upon exercise of employee share options or in connection with any
employee benefit or similar plan of the Company or (C) in connection with a
direct or indirect acquisition by the Company of another Person or any
transaction with respect to which Rule 145 (or any successor provision) under
the Securities Act applies, whether or not for sale for its own account), it
will at each such time, give written notice at least 20 days prior to the
anticipated filing date of the registration statement relating to such
registration to the Investor, which notice shall set forth such Investor's
rights under Section 3 hereof and shall offer the Investor the opportunity to
include in such registration statement such number of Registrable Shares as the
Investor may request. Upon the written request of the Investor made within ten
(10) days after the receipt of notice from the Company (which request shall
specify the number of Registrable Shares intended to be disposed of by such
Investor), the Company will use its best efforts to effect the registration
under the Securities Laws of all Registrable Shares that the Company has been so
requested to register by the Investor, to the extent requisite to permit the
disposition of the Registrable Shares so to be registered; provided, however,
that (A) if such registration involves a Public Offering, the Investor must sell
its Registrable Shares to the underwriters selected as provided in Section 3(b)
hereof on the same terms and conditions as apply to the Company and (B) if, at
any time after giving written notice of its intention to register any
Registrable Shares pursuant to Section 3 hereof and prior to the effective date
of the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable Shares,
the Company shall give written notice to the Investor and, thereupon, shall be
relieved of its obligation to register any Registrable Shares in connection with
such registration. The Company's obligations under this Section 2(c) shall
terminate on the date that the registration statement to be filed in accordance
with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(c) involves a Public
Offering and the managing underwriter thereof advises the Company that, in its
view, the number of shares of Common Stock, Warrants or other shares of Common
Stock that the Company and the Investor intend to include in such registration
exceeds the largest number of shares of Common Stock or Warrants (including any
other shares of Common Stock or Warrants of the Company) that can be sold
without having an adverse effect on such Public Offering (the "Maximum Offering
Size"), the Company will include in such registration, only that number of
shares of Common Stock
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or Warrants, as applicable, such that the number of Registrable Shares
registered does not exceed the Maximum Offering Size, with the difference
between the number of shares in the Maximum Offering Size and the number of
shares to be issued by the Company to be allocated (after including all shares
to be issued and sold by the Company) among the Company, the Investor, Lau
Technologies, and other holders of registration rights, pro rata on the basis of
the relative number of Registrable Shares offered for sale under such
registration by each of the Company and the Investor.
(iii) If as a result of the proration provisions of Section 2 (c) (ii)
above, any Investor is not entitled to include all such Registrable Shares in
such registration, such Investor may elect to withdraw its request to include
any Registrable Shares in such registration. With respect to registrations
pursuant to this Section 2(c), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated pro rata among the
Company, the Investor, Lau Technologies, and other holders of registration
rights on the basis of the relative number of securities otherwise to be
included by each of them in the registration with respect to which such
over-allotment option relates.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of one (1) year from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an 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, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an 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.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension.
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(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii) furnish to each
Investor whose Registrable Securities are included in the Registration Statement
and its legal counsel identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus, and each
amendment or supplement thereto, and (B) such number of copies of the Prospectus
and all amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d);
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on a national securities exchange, and included in an
inter-dealer quotation system of a
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<PAGE>
registered national securities association, on or in which securities of the
same class or series issued by the Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit
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<PAGE>
the scope of the information sought to be disclosed) or is required by law, or
such records, information or documents become available to the public generally
or through a third party not in violation of an accompanying obligation of
confidentiality; provided, however, that such records, information and documents
shall be used by such person solely for the purpose of determining that
disclosures made in the Registration Statement are true and correct, and for no
other purpose; and provided further that, if the foregoing inspection and
information gathering would otherwise disrupt the Company's conduct of its
business, such inspection and information gathering shall, to the maximum extent
possible, be coordinated on behalf of the Investors and the other parties
entitled thereto by one firm of counsel designed by and on behalf of the
majority in interest of Investors and other parties;
(n) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(r) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the NASD (the "NASD Rules") (or any successor provision thereto))
of the Company or has a "conflict of interest" (as defined in Rule 2720(b)(7) of
the NASD Rules (or any successor provision thereto)) and such broker-dealer
shall underwrite, participate as a member of an underwriting syndicate or
selling group or assist in the distribution of any Registrable Securities
covered by the Registration Statement, whether as a holder of such Registrable
Securities or as an underwriter, a placement or sales agent
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<PAGE>
or a broker or dealer in respect thereof, or otherwise, the Company shall assist
such broker-dealer in complying with the requirements of the NASD Rules,
including, without limitation, by (A) engaging a "qualified independent
underwriter" (as defined in Rule 2720(b) (15) of the NASD Rules (or any
successor provision thereto)) to participate in the preparation of the
Registration Statement relating to such Registrable Securities, to exercise
usual standards of due diligence in respect thereof and to recommend the public
offering price of such Registrable Securities, (B) indemnifying such qualified
independent underwriter to the extent of the indemnification of underwriters
provided in Section 6(a) hereof, and (C) providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the NASD Rules.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. As least ten (10) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least five (5) business days prior to the anticipated filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor") , then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor and have no further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of its election to exclude all of its Registrable Securities from the
Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f), it
shall immediately discontinue its disposition of Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(e) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities shall be borne by the Company.
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<PAGE>
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no
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Investor or underwriter shall be liable under this Section 6(b) for any amount
in excess of the net proceeds paid to such Investor or underwriter in respect of
shares sold by it, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x) , (y) or (z) above, the fees, costs and expenses of
such legal counsel shall be borne exclusively by the Indemnified Party. Except
as provided above, the Indemnifying Party shall not, in connection with any
Claim in the same jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied
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by such Indemnified Party or by such Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation (even if the Investors or any 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 in this Section 6 (d) . The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. 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. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company agrees
to use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Holder, make available other information as required by,
and so long as necessary to permit sales of, its Registrable Securities pursuant
to Rule 144.
8 Assignment. The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to not more than five (5) transferees of all or any portion of such
securities (or all or any portion of any Preferred Shares
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or Warrant of the Company which is convertible into such securities) of
Registrable Securities only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights subject to the terms and conditions
of this Agreement and the Securities Purchase Agreement, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.
9 Amendment and Waiver. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) , only with the written
consent of the Company and Investors who hold a majority-in-interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon each Investor and the Company.
10 Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be sent by facsimile with a copy delivered personally or sent by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton, Massachusetts 01460
Attention: Thomas J. Colatosti
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
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With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 01460
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-0080
(2) if to the Investor, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
(3) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company.
The Company or any Investor may change the foregoing address by notice given
pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full
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force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(g) Subsequent to the date hereof, the Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. Subject to the registration rights set
forth on Schedule IIIA.I of the Securities Purchase Agreement, the Company is
not currently a party to any agreement granting any registration rights with
respect to any of its securities to any person which conflicts with the
Company's obligations hereunder or gives any other party the right to include
any securities in any Registration Statement filed pursuant hereto, except for
such rights and conflicts as have been irrevocably waived. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority in interest of the Registrable Securities, the Company shall not grant
to any person the right to request it to register any of its securities under
the Securities Act unless the rights so granted are subject in all respect to
the prior rights of the holders of Registrable Securities set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement. The restrictions on the Company's rights to grant registration rights
under this paragraph shall terminate on the date the Registration Statement to
be filed pursuant to Section 2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of the date hereof (the "Escrow Instructions"), between
the Company, the Investor and Herrick, Feinstein LLP, the Preferred Shares and
the Warrants constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement, the Securities Purchase Agreement, the Escrow Instructions, the
Certificate of Designation and the Warrants supersede all prior agreements and
undertakings among the parties hereto with respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
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(m) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ William A. Marshall
----------------------------------
Name: William A. Marshall
Title: Chief Financial Officer
BUYER:
THE SHAAR FUND LTD.
By: INTERCARRIBBEAN SERVICES, INC.
By: /s/ Sam Levinson
-----------------------------
Name: Sam Levinson
Title:
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Exhibit 10.20
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 75,000
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Viisage Technology, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or its registered assigns, is
entitled, at any time from the Funding Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from VIISAGE TECHNOLOGY,
INC., a Delaware corporation (the "Company"), 75,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price equal to $1.54 per
share, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Funding Date, other than Warrant Shares.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Certificate of Designation" shall mean that certificate indicating the
designations, rights and preferences of the Company's Series A 7% Convertible
Preferred Stock, as filed with the Secretary of State of the State of Delaware,
as of June 30, 1999.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $0.001, of the Company as constituted on the Funding
Date, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include
<PAGE>
(i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (ii) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Common Stock of the
Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean June 30, 2002.
"Funding Date" means the date and time of the issuance and sale of the
Preferred Shares and the Warrants (each as defined in the Securities Purchase
Agreement).
"Holder" shall mean the Person in whose name the Warrant or Warrant Shares
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" shall have the meaning set forth in the Certificate of
Designation.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
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"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and The
Shaar Fund, Ltd. as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Shares or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Shares" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Funding Date and until 5:00
P.M., New York City time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, in increments of 15,000 shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 30 Porter Road, Littleton,
Massachusetts 01460, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment of the Warrant Price in cash or by wire transfer or
cashier's check drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in
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clauses (i), (ii) and (iii) above, the Company shall, as promptly as
practicable, and in any event within ten (10) Business Days thereafter, execute
or cause to be executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as Holder shall request in the notice and shall be registered
in the name of Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the cash or check or checks and this Warrant, is
received by the Company as described above and all taxes required to be paid by
Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of Holder, appropriate notation may be made on this Warrant
and the same returned to Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in the name of
any Person who acquired this Warrant (or part hereof) or any Warrant Shares
otherwise than in accordance with this Warrant.
2.2 Payment of Taxes and Charges. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges (excluding income and related taxes) that may be imposed
with respect to, the issue or delivery thereof, unless such tax or charge is
imposed by law upon Holder, in which case such taxes or charges shall be paid by
Holder. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of this Warrant in
any name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock as of the Initial Funding Date.
2.4 Continued Validity. A holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part (other than a holder who acquires
such shares after the same have been publicly sold pursuant to a Registration
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under Sections 9, 10 and 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its
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continuing obligation to afford Holder all such rights; provided, however, that
if Holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with the Securities Purchase Agreement
and Section 3.1 and Section 9 herein, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned in compliance with Section 9, may be exercised by a new Holder
for the purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination. Subject to Section 3.1 and 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
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(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised this Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common
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Stock for which this Warrant is exercisable and the Current Warrant Price
provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. If the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving corporation or where there is a change in or distribution
with respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then Holder shall have the right thereafter to receive, upon exercise of the
Warrant within ten (10) business days following the Company's notice of such
event, the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In the case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such
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modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.4 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.5 Other Action Affecting Common Stock. If at any time or from time to
time the Company shall take any action in respect of its Common Stock, other
than any action described in this Section 4, which would have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
4.6 Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5)
describing the number and kind of any other shares of stock or Other Property
for which this warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its office or
agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of a Warrant
designated by the Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to
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subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any
other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least ten 10 business days' prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least ten (10) business
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
(a) The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (ii) take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this warrant, and (iii) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
-9-
<PAGE>
(b) Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
(a) From and after the Funding Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and validly
issued and fully paid and nonassessable, and not subject to preemptive rights.
(b) Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
(c) Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Shares shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant
Shares. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1 Restrictive Legend. (a) The Holder by accepting this Warrant and any
Warrant Shares agrees that unless registered under the Securities Act of 1933,
as amended (the "Securities Act"), subsequent to the Funding Date and prior to
the exercise hereof, this Warrant and the Warrant Shares issuable upon exercise
hereof may not be assigned or otherwise transferred unless and until (i) the
Company has received an opinion of counsel for the Holder reasonably
satisfactory to the Company and its counsel that such securities may be sold
pursuant to an exemption from registration under the Securities Act or (ii) a
registration statement relating to such securities has been filed by the Company
and declared effective by the Commission.
-10-
<PAGE>
(b) Each certificate for Warrant Shares issuable hereunder shall bear a
legend as follows unless such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"These securities have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or the
securities laws of any state, and are being offered and sold
pursuant to an exemption from the registration requirements of
the Securities Act and such laws. These securities may not be
sold or transferred except pursuant to an effective registration
statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities
Act or such other laws."
(c) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, and may
not be transferred in violation of such Act, the rules and
regulations thereunder or the provisions of this Warrant."
9.2 Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give ten days, prior written notice (a "Transfer Notice") to the Company
and its counsel of Holder's intention to effect such Transfer, describing the
manner and circumstances of the proposed Transfer, and obtain from counsel to
Holder who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five (5) business days
thereof, notify the Holder as to whether such opinion is reasonably satisfactory
and, if so, such holder shall thereupon be entitled to Transfer such Warrants or
such Restricted Common Stock, in accordance with the terms of the Transfer
Notice. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall bear the restrictive legend set forth in
Section 9.1(b), and the Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1(c), unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act. The Holder shall not be entitled to Transfer such Warrants or
such Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3 Required Registration. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, the Company shall prepare and file with
the Commission not later than the ninetieth (90th) day after the Funding Date, a
Registration Statement relating to the offer and sale of the Common Stock
issuable upon exercise of the Warrants and shall use its best efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but no later than one hundred and
eighty (180) days after the Funding Date.
-11-
<PAGE>
9.4 Termination of Restrictions. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Shares and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Shares or Restricted Common Stock (or Common Stock issuable upon the exercise of
the warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it and its counsel that such shares may be transferred without
registration thereof under the Securities Act. Whenever the restrictions imposed
by Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company upon written request
of the Holder, at the expense of the Company, a new Warrant bearing the
following legend in place of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON
_________________, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(b).
9.5 Listing on Securities Exchange. If the Company shall list any shares of
Common Stock on any securities exchange, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided,
-12-
<PAGE>
in the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If the
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, the Company shall pay to
Holder such amounts as shall be sufficient to cover any reasonable costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
14.2 Notice Generally. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be sent by facsimile with a copy delivered personally or
sent by a nationally recognized overnight courier service, and shall be deemed
given when so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton Massachusetts 01460
Attention: Thomas J. Colatosti,
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
-13-
<PAGE>
With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 01460
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-6080
(2) if to the Holder, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
-14-
<PAGE>
14.5 Successors and Assigns. Subject to the provisions of Sections 3.1 and
9, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof, holders of Warrant Shares, and shall be enforceable by any such Holder
or holder of Warrant Shares.
14.6 Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.
14.7 Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable 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 Warrant.
14.8 Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law. This Warrant shall be governed by the laws of the State
of Delaware, without regard to the provisions thereof relating to conflict of
laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: June 30, 1999
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ William A. Marshall
--------------------------------
Name: William A. Marshall
Title: Chief Financial Officer
[SEAL]
-16-
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
warrant for the purchase of __________ Shares of Common Stock of Viisage
Technology, Inc. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to _____________________ whose address is _______________________ and,
if such shares of Common Stock shall not include all of the shares of Common
Stock issuable as provided in this Warrant, that a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable hereunder be
delivered to the undersigned.
________________________________________
(Name of Registered owner)
________________________________________
(Signature of Registered Owner)
________________________________________
(Street Address)
________________________________________
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-17-
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
<TABLE>
<CAPTION>
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ----------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _____________
attorney-in-fact to register such transfer on the books of _____________
maintained for the purpose, with full power of substitution in the premises.
Dated: ________________ Print Name: ____________________________
Signature: _____________________________
Witness: _______________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
Exhibit 10.21
Statement of Work between Viisage Technology and
Compaq Computer Corporation for the
Maryland Motor Vehicle Administration
DLS/POS Systems and Related Modules
================================================================================
Program ID: MVA
Copy No. 1
Document Version: 12.0
Date: December 6, 1999
Abstract: Viisage Technology will create and configure PC's and image servers
supplied by Compaq and additional necessary hardware supplied by
Viisage, a turnkey digitized driver's license system for the State
of Maryland.
- --------------------------------------------------------------------------------
<PAGE>
Viisage Statement of Work
Version l2.0
Agreed To & Accepted By:
VIISAGE COMPAQ COMPUTER CORPORATION
BY: /s/ Thomas J. Colatosti BY: /s/ Terence K. Thomas
------------------------- -------------------------
TITLE: President & CEO TITLE: Program Director
---------------------- ----------------------
DATE: December 7, 1999 DATE: 12/8/99
----------------------- -----------------------
Compaq Computers Corp Identification: Viisage SOW Page i
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
Contents
- --------------------------------------------------------------------------------
1. PURPOSE ................................................................ 1
2. SCOPE .................................................................. 2
3. ASSUMPTIONS ............................................................ 3
4. VIISAGE RESPONSIBILITIES ............................................... 4
5. PROJECT MANAGEMENT ..................................................... 5
5.1 CHANGE CONTROL ...................................................... 5
5.2 ISSUE RESOLUTION .................................................... 6
5.3 CONFIGURATION MANAGEMENT ............................................ 6
5.4 QUALITY ASSURANCE ................................................... 7
6. REVIEWS, MEETINGS, AND REPORTS .........................................11
6.1 REVIEWS .............................................................11
6.2 STATUS MEETINGS .....................................................11
6.3 STATUS REPORTS ......................................................11
7. CONTRACT MANAGEMENT .....................................................12
7.1 PRIME CONTRACT ......................................................12
8. DEPENDENCIES ...........................................................13
8.1 EQUIPMENT, FACILITIES, AND OPERATIONS SUPPORT .......................13
8.2 PROJECT PERSONNEL ...................................................13
8.3 INFORMATION AND ASSISTANCE ..........................................13
9. DELIVERABLES ...........................................................15
9.1 PROJECT KICKOFF ......................................................15
9.2 SPECIFICATIONS .......................................................15
9.2.1 Project Plan ....................................................15
9.2.2 Requirements Document ...........................................15
9.2.3 Design Document .................................................16
9.2.4 Quality Plan ....................................................16
9.2.5 Configuration Plan ..............................................16
9.2.6 Training Plan ...................................................16
9.2.7 Acceptance Test Plan ............................................16
9.2.8 Pilot Deployment Plan ...........................................16
9.2.9 Final Deployment Plan ...........................................16
9.3 DOCUMENTATION .......................................................16
9.3.1 User Documentation ..............................................17
9.3.2 Administrator Documentation .....................................17
9.3.3 Training Documentation ..........................................17
9.3.4 Maryland New Driver License & ID Card Booklet ...................17
Compaq Computers Corp Identification: Viisage SOW Page ii
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
9.4 CUSTOM APPLICATION SOFTWARE .........................................17
9.5 COMPUTERIZED VISUAL INSPECTION SYSTEM(VIS) ..........................17
9.6 DLS SOFT WARE AND HARDWARE ..........................................17
9.7 PROTOTYPE ...........................................................18
9.8 TRAIN THE TRAINER ...................................................18
9.9 TECHNICAL SUPPORT ...................................................18
9.10 MAINFRAME INTEGRATION AND MIGRATION ................................18
9.11 WARRANTY AND MAINTENANCE SERVICES ..................................18
9.12 SUPPLIES ...........................................................19
10. DELIVERABLE ACCEPTANCE ................................................20
10.1 PROJECT KICKOFF ...................................................20
10.2 SPECIFICATIONS ....................................................20
10.3 DOCUMENTATION .....................................................21
10.4 CUSTOM APPLICATION SOFTWARE .......................................21
10.5 COMPUTERIZED VISUAL INSPECTION SYSTEM(VIS) ........................21
10.6 DLS SOFT WARE AND HARDWARE ........................................21
10.7 PROTOTYPE .........................................................21
10.8 TRAIN THE TRAINER .................................................21
10.9 TECHNICAL SUPPORT .................................................21
10.10 MAINFRAME INTEGRATION AND MIGRATION ..............................21
10.11 WARRANTY AND MAINTENANCE SERVICES ................................21
10.12 SUPPLIES .........................................................21
11. PRICE .................................................................23
12. PAYMENT SCHEDULE ......................................................25
13. REFERENCED DOCUMENTS ..................................................28
13.1 MARYLAND CUSTOMER DOCUMENTS ......................................28
13.2 VIISAGE DOCUMENTS TO COMPAQ ......................................28
14. ADDITIONAL TERMS AND CONDITIONS ........................................29
APPENDIX A. SCHEDULE ....................................................... 1
APPENDIX B. HARDWARE LIST .................................................. 1
APPENDIX C. CHANGE REQUEST FORM ............................................ 1
Compaq Computers Corp Identification: Viisage SOW Page iii
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
Preface
- --------------------------------------------------------------------------------
Distribution Control
---------------------------------------------------------------------------
Copy No. Distribution
---------------------------------------------------------------------------
1. Approval Copy Compaq Computer Corporation
2. Approval Copy Viisage Technology, Inc.
People Involved in the Preparation of This Document
---------------------------------------------------------------------------
Function Name
---------------------------------------------------------------------------
Compaq Program Manager Terence Thomas
Compaq Deputy Program Manager Kathy Stanton
Review List
---------------------------------------------------------------------------
Reviewed by Date
---------------------------------------------------------------------------
[TEXT] [text]
[TEXT] [text]
---------------------------------------------------------------------------
Change History
---------------------------------------------------------------------------
Version Date Revision Description
---------------------------------------------------------------------------
1.0 11/03/99 Initial Draft
---------------------------------------------------------------------------
Compaq Computers Corp Identification: Viisage SOW Page iv
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
1. Purpose
This Statement of Work defines the scope of the services and the deliverables
that Viisage Technology Inc., hereafter referred to as "Viisage", will provide
to Compaq Computer Corporation, hereafter referred to as "COMPAQ", under this
agreement.
The performance of this Statement of Work is contingent upon COMPAQ being
awarded a contract to deliver the same services to the Maryland MVA (hereafter
referred to as MVA) and issuing a corresponding purchase order to Viisage.
This Statement of Work details:
1. The scope of work Viisage agrees to deliver to COMPAQ.
2. The working relationship between Viisage and COMPAQ, including roles and
responsibilities.
3. Description of required deliverable items under this agreement.
4. The process for deliverable acceptance.
5. Significant tasks and schedule.
6. Change procedure and issue resolution process.
7. The quality assurance process to be followed.
8. Additional terms and conditions under which the work will be performed.
Compaq Computers Corp Identification: Viisage SOW Page 1 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
2. Scope
Under this agreement, Viisage will define, develop, and deliver to COMPAQ the
following items:
1. Requirements Specification and System Design Specification
2. Acceptance Test Specification
3. User Manual, Training Material, and Technical Manual
4. Application Software License for exclusive use in Maryland
5. User Training (Training the Compaq Trainers)
6. Maintenance parts and Help desk support on all items delivered by Viisage
(as second level support)
7. Card Supplies
8. Prototype
9. Pilot
10. Staging, Configuration, and Associated Plans
11. Creation of Drivers License ID Booklet
12. First level support procedures on all items delivered by Viisage.
13. Training on proper maintenance of Viisage Equipment
The deliverable items are described in Section 9, DELIVERABLES. All deliverable
items will, hereafter, be collectively referred to as "DELIVERABLES".
Viisage will define, develop, and deliver to COMPAQ the DELIVERABLES in
accordance with the contract and specification documents listed in Section 13,
Referenced Documents and Section 14, Terms and Conditions.
Compaq Computers Corp Identification: Viisage SOW Page 2 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
3. Assumptions
1) Compaq will provide for the MVA user's:
a) all PC's (including monitor, keyboard and mouse),
b) network connectivity,
c) PC operating system, layered software and licenses
d) image server hardware and system.
2) Compaq will review with Viisage all hardware configurations and Viisage
shall certify that the hardware is compatible with their product. The
description and total quantity of all equipment to be provided by Viisage
for all requirements [development, pilot, installation, training, spares,
etc.] is given in Appendix B -- Hardware List.
3) Compaq will post all bonds.
4) Viisage will attend one Project Status Review per month on-site at the MVA
facilities. For the Project Status Meetings, Viisage will participate by
telephone on the conference call.
5) To meet the MVA record retention requirements, Viisage will provide
requested project files such as Project Deliverables, Status Reports, and
Invoices in the mutually agreed upon formats.
6) Training of Compaq-supplied trainers will occur at site(s) provided by
Compaq.
7) Pending Technical Agreements -- Compaq's and Viisage's Technical Teams
will design during Phase I of the MVA DLS/POS Project final hardware and
software configurations to include at a minimal:
a) Target production operating system. Because of the timing around the
delivery of Windows 2000, both companies, as well as the customer,
must consider the advantages of delivering the DLS solution on
Windows 2000. Viisage will supply the application under the latest
available version of Windows NT; the migration to Windows 2000 will
be considered as a change order option when Windows 2000 is released
to the public. Costs, if any, will be addressed at that time.
b) Dual monitor support. As required in the RFP, the turnkey DLS
solution must support dual monitors. Viisage is supplying a single
framegrabber card for single monitor support. Viisage will provide
additional software [to be finalized during the specification/design
phase] to support dual monitors at no additional cost; in
consideration of this Compaq agrees to an accelerated payment
schedule as mutually agreed. However, the 2nd monitor may require a
2nd framegrabber card which is an out of pocket expense. Compaq and
Viisage have agreed to negotiate a business arrangement that would
address the impact of the out of pocket expense associated with the
2nd framegraber card, such as expanding the scope of work/software
development to be done by Viisage under a separate agreement.
Compaq Computers Corp Identification: Viisage SOW Page 3 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
4. Viisage Responsibilities
Viisage is responsible for:
1) Customizing its base imaging and printing software to facilitate the
production of driver's licenses (turnkey) in accordance with the contract
and specification documents listed in Section 13, Referenced Documents and
Section 14, Terms and Conditions.
2) Provide consulting during image server/central issuance development to
ensure compatibility and successful operation of the system.
3) Retrieving existing portrait and signature images from the central imaging
system after Compaq has converted the existing image database,
4) Storing and Retrieving driver's license images (portrait and signature)
and associated data, display data, and print cards
5) Delivering the hardware defined in Appendix B,
6) Assisting in configuring the PC's to meet imaging system requirements
7) Supporting the driver's license imaging system,
8) Producing manuals (user, technical, training),
9) Performing training
10) Viisage will provide spare parts and technician training to allow others
to provide first level maintenance of the hardware defined in Appendix B
and will provide 2nd level support for these devices,
11) Providing 2nd level help desk support to Compaq as specified in Section
9.9.
12) Provide consulting during setup/conversion of images to ensure
compatibility and successful operation of the system. Delivering a
Train-the-trainer program to Compaq Trainers and associated training
materials to enable Compaq Trainers to train MVA end users on the DL/ID
system. Viisage will provide a training plan to accomplish this task.
13) Viisage will provide a master hard disk drive [which can be duplicated
using a disk duplicator], instructions, and support required to deploy the
application. As required, during the Pilot and Phase II rollout, Viisage
will provide on-site support.
14) Providing the above and other services as described herein and according
to documents specified in Section 13 and in accordance with the schedule.
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5. Project Management
5.1 Change Control
Both Viisage and COMPAQ must mutually agree upon any changes to this Work
Statement. No verbal agreement between persons involved in the project will be
binding on either Viisage or COMPAQ. Mutually acceptable changes in the scope of
work and adjustments in schedule and price will be incorporated as a
modification to this agreement or may become the basis of a new, follow-on
agreement.
Walter Krepcio has been designated as the authorized Viisage representative for
making changes to this Statement of Work. Terence K. Thomas or Kathy Stanton are
designated as the authorized COMPAQ representative(s) for making changes to this
Statement of Work.
Change requests that impact project scope must be submitted in writing using
Compaq Computer Corporation's standard Change Request Form contained in Appendix
C, Change Request Form. The Change Request Form is part of COMPAQ's change
control as defined in the COMPAQ Program Methodology/Transform.
The generic approval process for change requests is as follows
1. Definition
During this step, the requirements for change are defined and change
impact is initially estimated. The proposed change is classified, and the
effort required to evaluate its full impact is estimated. A review of the
proposed change takes place. The status of the proposed change is logged
and communicated.
2. Evaluation
Here, a full-scale impact analysis is conducted and any missing data are
requested from the change originator. The status of the proposed change is
logged and communicated.
3. Approval
The proposed change is reviewed here and a decision is reached regarding
its approval, rejection, or deferral. If a change proposal is deferred,
additional studies or external approval can be requested. Funding for
implementing the change may need to be negotiated, and again the status of
the request is logged and communicated.
4. Implementation
The change is implemented and the baseline information is updated. The
change
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status is tracked and reported.
5. Verification
A check for correctness, completeness, and adherence to quality
requirements is completed, and final status of the change is logged and
reported.
5.2 Issue Resolution
The process for resolving issues will be in conformance with the COMPAQ's
Network and Systems Integration Services (NSIS) Standard for Issue Resolution.
An Issue Resolution Form is submitted when individuals working on customer
projects experience problems within a given area. The status of open issues and
actions taken or planned for resolution are published via the Issue Status
Report.
The following activities will be performed for each issue:
1. Define the problem and decide that it should be handled as an issue.
2. Evaluate the issue, estimate its impact on the project and potential
financial exposure.
3. Identify corrective action(s) and personnel responsible.
4. Log and track the issue.
5. Notify appropriate business management.
6. Follow up until satisfactorily resolved.
Should issues need to be elevated beyond the process described here they will be
elevated to Kevin French of Compaq and Tom Colatosti of Viisage.
5.3 Configuration Management
Viisage will manage its deliverables and project process using the Configuration
Management Procedures to be developed and provided by Compaq. These procedures
will require Viisage adherence to these project standards throughout the term of
this agreement.
Configuration management is the process by which project management can
systematically identify, correlate, maintain, and control the various components
of a project. This process ensures the components' integrity and the
traceability of changes as they occur throughout the lifetime of the project.
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Configuration management allows the project team to pinpoint the status of any
component in its life cycle and allows for any version to be recreated at any
point. Components can include any combination of hardware, software, and
training. Configuration management is composed of four subprocesses, which
operate simultaneously:
1. Configuration identification
2. Configuration control
3. Configuration status accounting
4. Configuration audits/reviews
5.4 Quality Assurance
COMPAQ and Viisage will document the quality assurance process in accordance
with ISO 8402 and ISO 9000 series standards. This process will be followed
throughout the life of the project. Compaq will consider using Viisage's
methodology. Viisage must provide the methodology for Compaq's review. At a
minimal, the final methodology used must contain the necessary elements required
for Compaq to meet its requirements to the MVA.
Compaq's quality model proposed to the MVA defines three main processes:
Quality definition: specification of quality standards for the development
process as well as for the solution.
Quality management: defining, maintaining, and executing the Quality Plan to
meet COMPAQ requirements.
Quality assessment: reviewing and measuring the project at any time against the
quality requirements.
The following table shows a minimal list of the Quality Requirements:
- --------------------------------------------------------------------------------
Quality Requirements
- --------------------------------------------------------------------------------
Access Audit - The degree to which the system logs the access (who, when, from
where).
- --------------------------------------------------------------------------------
Access Control - The degree to which the system restricts the access properly.
- --------------------------------------------------------------------------------
Accessibility - The ease with which the system can be accessed.
- --------------------------------------------------------------------------------
Accuracy -The precision of computations and control.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Quality Requirements
- --------------------------------------------------------------------------------
Audibility - The ease with which conformance to standards can be checked.
- --------------------------------------------------------------------------------
Communication Communality - The degree to which standard interfaces, protocols,
and bandwidth are used.
- --------------------------------------------------------------------------------
Communicativeness - The ease with which the system can be used.
- --------------------------------------------------------------------------------
Completeness - The degree to which full implementation of a required function
has been achieved.
- --------------------------------------------------------------------------------
Conciseness - The compactness of the program in terms of lines of code.
- --------------------------------------------------------------------------------
Consistency - The use of uniform design and documentation techniques throughout
the software development project.
- --------------------------------------------------------------------------------
Correctness - The extent to which a program satisfies its specifications and
thus fulfills the customer's mission objectives.
- --------------------------------------------------------------------------------
Data Commonality - The use of standard data structures and types throughout the
program
- --------------------------------------------------------------------------------
Efficiency - The amount of computing resources and code required by a program to
perform its function.
- --------------------------------------------------------------------------------
Error Tolerance - The damage that occurs when the program encounters an error.
- --------------------------------------------------------------------------------
Execution Efficiency - The run-time performance of a program.
- --------------------------------------------------------------------------------
Expandability - The degree to which architectural, data, or procedural design
can be extended
- --------------------------------------------------------------------------------
Flexibility - The effort required to modify an operational program
- --------------------------------------------------------------------------------
Generality - The breadth of the potential application of program components.
- --------------------------------------------------------------------------------
Hardware Independence - The degree to which the software is decoupled from the
hardware on which it operates.
- --------------------------------------------------------------------------------
Human Engineering - The extent to which the application is built for human
interaction (user friendly).
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Quality Requirements
- --------------------------------------------------------------------------------
Input/Output Volume - Amount of data which is passed to the user.
- --------------------------------------------------------------------------------
Instrumentation - The degree to which the program monitors its own operation and
identifies errors that do occur.
- --------------------------------------------------------------------------------
Integrity - The extent to which access to software or data by unauthorized
persons can be controlled.
- --------------------------------------------------------------------------------
Interoperability - The effort required to couple one system to another.
- --------------------------------------------------------------------------------
Legibility - The degree to which the documentation is easy to read.
- --------------------------------------------------------------------------------
Maintainability - The effort required to locate and to fix an error in a program
(defects).
- --------------------------------------------------------------------------------
Modifiability -The effort to change the application (enhancements).
- --------------------------------------------------------------------------------
Modularity - The function independence of program components.
- --------------------------------------------------------------------------------
Operability - The ease of operation of a program.
- --------------------------------------------------------------------------------
Portability - The effort required to transfer the program from one hardware
and/or software system environment to another.
- --------------------------------------------------------------------------------
Reliability - The extent to which a program can be expected to perform its
intended function with the required precision.
- --------------------------------------------------------------------------------
Reusability -The extent to which a program (or parts of a program) can be reused
in other applications.
- --------------------------------------------------------------------------------
Security - The availability of mechanisms that control or protect program and
data.
- --------------------------------------------------------------------------------
Self-Descriptiveness - The degree to which the source code provides meaningful
documentation.
- --------------------------------------------------------------------------------
Simplicity - The degree to which a program can be understood without difficulty.
- --------------------------------------------------------------------------------
Software System Independence - The degree to which the program is independent of
nonstandard programming language features, operating system characteristics, and
other environmental constraints.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Quality Requirements
- --------------------------------------------------------------------------------
Storage Efficiency - The efficient usage of storage media.
- --------------------------------------------------------------------------------
Testability - The effort required to test a program to ensure that it performs
its intended function.
- --------------------------------------------------------------------------------
Traceability - The ability to trace a design representation or actual program
component back to requirements.
- --------------------------------------------------------------------------------
Training - The degree to which the software assists in enabling new users to
apply the system
- --------------------------------------------------------------------------------
Understandability - The level of complexity of the modules and the application.
- --------------------------------------------------------------------------------
Usability - The effort required to learn, operate, input, and interpret the
output of a program.
- --------------------------------------------------------------------------------
For each quality requirement COMPAQ and Viisage will jointly identify the
associated metric and method for the associated quality requirement in the
Quality Plan which will be jointly developed and mutually agreed upon by the
parties. This plan will cover the custom development for this project.
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6. Reviews, Meetings, and Reports
6.1 Reviews
Customer Project Status Reviews will be conducted once a month on site at MVA
facilities.
Quarterly management reviews between Viisage and Compaq will be held at a
mutually agreed time and place.
Other reviews/walkthroughs will be defined and conducted as specified in the
Schedule and/or the Quality Plan. Viisage will participate in Project Status
Review via on-site representation by the Viisage project manager.
6.2 Status Meetings
Project Status Meetings will be conducted weekly except for the week of the
formal Project Status Review held monthly. Viisage will participate in Project
Status Meetings meetings via conference call. Viisage will participate on-site
for the formal Project Status Review. The Viisage's Project Manager and COMPAQ's
Project Manager will represent their organizations at these meetings. Status
Meetings will include, but are not limited to:
o Review of progress against schedule
o Review open Change Requests
o Review open Issues
o Review achievement against milestones
The COMPAQ Program Manager will take minutes at each Project Status Meeting. The
minutes will document decisions made and any action items. The minutes will be
distributed prior to the next Project Status Meeting.
6.3 Status Reports
Project Status Reports will be prepared by the Viisage Project Manager and sent
to COMPAQ's Program Manager no later than two (2) days before each scheduled
Project Status Review. Status Reports will contain, but are not limited to, the
following:
o A project status summary
o Change Request status (new, open, closed since last report)
o Issue status (new, open, closed since last report)
o A schedule status
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7. Contract Management
7.1 Prime Contract
Compaq Computer Corporation is the prime contractor for the Maryland MVA DLS/POS
project. The COMPAQ Program Manager will communicate questions or issues
pertinent to this project to Maryland MVA.
As prime contractor, COMPAQ has engaged Viisage as a subcontractor to provide
project deliverables. This Statement of Work includes products and services to
be delivered by subcontractor(s) under COMPAQ's direction.
COMPAQ, as prime contractor, is the sole contact for Maryland MVA questions and
issues for these services. COMPAQ will provide a common, single interface to:
o Solicit consulting and technical information
o Resolve business and technical issues
o Coordinate delivery schedules
o Insure materials are delivered in a satisfactory time frame and condition
Viisage agrees to conduct any project-related communications through the COMPAQ
Program Managers.
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8. Dependencies
8.1 Equipment, Facilities, and Operations Support
1. Development System
Software development for this project will be performed at both MVA
facilities and at Viisage facilities. Compaq will provide all hardware and
software that is needed to perform development at Viisage facilities; all
equipment provided by Viisage for the entire scope of the project in
quantity and type [development, pilot, installation, training, spares,
etc.] is limited to that equipment specified in Appendix B --Hardware
List. Compaq will provide a limited number of PCs for development to be
performed at the Viisage site. These PCs will be returned to Compaq at the
end of the project or as otherwise requested by Compaq. COMPAQ will
provide the Server hardware and one (1) PC workstation for use by Viisage
for work conducted at the MVA facility. Viisage will provide the necessary
equipment as listed in Appendix B at the MVA facility to be able to
perform testing and execute the acceptance test for the Viisage
deliverables.
2. Training Facilities
Compaq will ensure that MVA will provide the facilities necessary to hold
the training classes at MVA. Viisage will supply train-the trainer
training to Compaq-supplied trainers at such MVA facilities. The training
workstations are included in the equipment list in the COTS Hardware Lists
contained in Appendix B.
3. Computer Data
Compaq will ensure that MVA makes available the MVA computer data that is
needed for system interfaces, DLIS conversion, data migration, and system
testing for the project.
8.2 Project Personnel
Viisage will provide personnel with the appropriate skills to perform the
tasks and services described herein. COMPAQ reserves the right to approve
Viisage personnel assigned to the project or require replacement of any
Viisage personnel assigned with another Viisage employee of equal or
better experience.
8.3 Information and Assistance
Viisage agrees to respond, within two (2) business days (unless otherwise
agreed to by both the Viisage Project Manager and the COMPAQ Project
Manager), to requests for the following documentation, information, or
assistance needed for the PROJECT. This includes, but is not limited to,
providing:
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o Documentation and information needed for design, development, testing,
evaluation, installation, etc.
o Skilled and knowledgeable personnel to assist COMPAQ in the project.
o Samples of data and/or the assistance of Viisage personnel to prepare
required data for testing.
Viisage is responsible for the accuracy and completeness of all information it
provides.
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9. Deliverables
Viisage will deliver the following items in accordance with the contract and
specification documents listed in Section 13, Referenced Documents ("Referenced
Documents"), and according to the Project Schedule contained in Appendix A,
hereafter referred to as the Schedule.
NOTE: THE PROJECT SCHEDULE SHOWS CUSTOMER MILESTONES. VIISAGE'S DELIVERABLES ARE
REQUIRED TEN (10) BUSINESS DAYS BEFORE THE ASSOCIATED CUSTOMER MILESTONE IS DUE.
Requests for enhancements or changes to these items will be considered Change
Requests and will be processed by the Change Control process.
9.1 Project Kickoff
Viisage will prepare and perform a demonstration at two project startup meetings
conducted at the MVA facility. The first meeting will be for MVA senior
management and the second meeting will be for the MVA technical teams.
9.2 Specifications
Viisage will prepare and deliver three (3) hard copies and one (1) soft copy to
Compaq of the following specifications according to the Schedule. Viisage will
deliver these specifications as Microsoft word documents in the format specified
by COMPAQ.
9.2.1 Project Plan
Viisage will provide the components of the Project Plan that describe the
project management plan for Viisage. Viisage will also provide the detail
project schedule of the tasks being performed by Viisage. This Project Plan will
be updated at the beginning of each phase to reflect changes in scope. The
project schedule is updated at the project status meetings.
9.2.2 Requirements Document
The Requirements Document will detail the functional requirements for the Driver
Licensing System (DLS) components and related modules. The baseline 0
requirements are specified in the Referenced Documents. The Requirements
Document will address the baseline 0 requirements and will detail each
requirement based on discussions and reviews with the MVA. Upon MVA acceptance
of the Requirements Document, it will become the Baseline 1 requirements and
will supercede Baseline 0. The Requirements Document forms the basis for the
Design Document and development of the applications.
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9.2.3 Design Document
The Design Document will detail the design for implementing the Driver Licensing
System (DLS) and related modules.
9.2.4 Quality Plan
The Quality Plan will detail the metrics and goals for achieving the quality
criteria as described in Section 5.4.
9.2.5 Configuration Plan
The Configuration Plan will detail all items under configuration control. For
each item the plan will detail the information collected, the method or process
for collecting the information, who is responsible for managing the information,
tools for managing the information, and the configuration control process. Items
include specifications, custom software, hardware, system operational
procedures, and COTS software.
9.2.6 Training Plan
The Training Plan will specify the types of training courses, the training
documentation requirements, the training class facility requirements, the
training system and data requirements, and the schedule for training.
9.2.7 Acceptance Test Plan
The Acceptance Test Plan documents the tests with associated test steps and
expected results for demonstrating that the delivered items conform to the
requirements as specified in the Requirements Document.
9.2.8 Pilot Deployment Plan
The Pilot Deployment Plan details the work to be performed by Compaq, Daly, and
Viisage in implementing their component of the Pilot System.
9.2.9 Final Deployment Plan
The Final Deployment Plan details the work to be performed by Viisage in
implementing their portion of the DLS/POS systems at the MVA locations. In
addition, this plan will include the system verification test. The system
verification test details specific tests that are run to verify that the
hardware is correctly installed and configured and that the application software
is correctly installed and operating.
9.3 Documentation
Unless specified differently below, Viisage will prepare and deliver three (3)
hard copies and one (1) soft copy to Compaq of the following documents according
to the Schedule. Viisage will deliver these specifications as Microsoft word
documents in the format specified by COMPAQ.
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9.3.1 User Documentation
The User Documentation describes how the system is to be operated from a user's
point of view. This document will include sample CRT screen layouts, sample
reports, step-by-step processing of each function, and a guide to run-time
errors generated by the system.
9.3.2 Administrator Documentation
The Administrator Documentation describes the system administrative functions.
This manual will describe how to operate and maintain the production driver
license system, including installation procedures, startup, shutdown, backup
procedures, and user authorization procedures.
9.3.3 Training Documentation
The Training Documentation documents exercises for the user to perform in
learning how to use the production drivers license system. Viisage will provide
one set of documentation in both hard copy and in Microsoft Word Format and one
camera-ready copy
9.3.4 Maryland New Driver License & ID Card Booklet
The Maryland New Driver License & ID Card Booklet is a maximum 6 page pamphlet
that describes the features of the new drivers license. Viisage will design the
pamphlet and provide one camera-ready copy in addition to one soft copy version.
9.4 Custom Application Software
Viisage will provide Compaq with Custom Application Software that integrates the
COTS software and conforms to the requirements outlined in the Requirements and
Design Documents and is delivered in accordance with the Schedule. Viisage will
provide a copy of the executable code, non-proprietary and custom source code,
and supporting procedures for the software installation.
9.5 Computerized Visual Inspection System(VIS)
Viisage will provide the Computerized Visual Inspection System according to the
requirements outlined in the Requirements and Design Documents and the Schedule.
9.6 DLS Software and Hardware
Viisage will provide the DSL software and hardware as described in Appendix B.
These products will be delivered to the Daly staging and configuration facility
in accordance with the Project Schedule. Viisage will configure these items at
the staging facility.
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9.7 Prototype
Viisage will develop a prototype of the drivers license custom solution in
accordance with Section 13, Reference Documents and the Schedule. This prototype
will demonstrate at a minimum receiving an item in queue, locally retrieving and
storing images, and printing a drivers license.
9.8 Train the Trainer
Viisage will provide a Train-the-Trainer training course to Compaq Trainers and
Installation Technicians along with associated training material/procedures.
This training will be provided in accordance with the requirements outlined in
the Referenced Documents and in accordance with the Schedule. This training
includes items such as:
1. Implement and configure the Photo ID system
2. Provide training to MVA end users on the Photo ID system
3. Use the system as described in the attached requirements matrix
9.9 Technical Support
The Viisage Customer Support Help Desk will be the single point of contact for
2nd level support for all problem calls and operational issues associated with
the Viisage solution. Calls will come from a single help desk to be specified by
Compaq. The help desk shall be available Monday through Friday 8am to 9pm and
Saturday 8am to 6pm at a toll-free number. Viisage must return calls within 15
minutes Help desk calls must be logged and remain active until problem is
completely resolved. Viisage will also provide engineering/software
troubleshooting support if field efforts to fix a problem fail and it is
determined to be a system problem caused by Viisage provided elements.
9.10 Viisage will provide consulting during setup/conversion of images to
ensure compatibility and success for operation of the system.
9.10 Warranty and Maintenance Services
Viisage will provide a warranty for two (2) immediately-subsequent twenty-four
(24) month warranties, one beginning at the completion of the Phase II work, and
the other beginning at the completion of the Phase III work. Each warranty shall
cover all Viisage developed or supplied hardware, software and communications,
delivered during the applicable project Phase. Viisage will not provide first
level field maintenance services. Viisage will provide maintenance material,
training, second level support, and spare parts for personnel providing first
level support. Whole spare units are included in the equipment totals given in
Appendix B -- Hardware List. All service field labor is provided by Compaq.
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Viisage is also responsible for providing a pool of equipment regionally [per
Appendix B], necessary for the system and of sufficient number so that
replacement units can be deployed upon notification of a down operating unit.
Compaq will be responsible to deploy and allocate this material within the State
of Maryland. Whole spare units are included in the equipment totals given in
Appendix B -- Hardware List.
Should any of the equipment become obsolete throughout the performance of this
contract, i.e. Repair parts are no longer available, Viisage shall replace such
obsolete equipment with compatible equipment to keep the system operational.
Viisage shall be responsible for maintaining call logs and repair records on
Viisage-provided equipment. Viisage shall provide Compaq monthly, a written
record or summary of all repair, or equipment replacement calls.
Per industry standard, Compaq is responsible for one-way shipping charges to
return defective Viisage-supplied components for repair, and Viisage is
responsible for one-way shipping charges to return repaired Viisage-supplied
items to the MVA. In the event that the performance of maintenance services
result in a need to replace defective parts, such items may only be replaced by
new parts or refurbished parts which are equivalent to new parts. Compaq
reserves the right to refuse refurbished parts if Compaq's or MVA's documented
experience shows that re-furbished parts have not performed equivalent to new
parts.
9.11 Supplies
Viisage will provide supplies for Phase II follow-on, the first two year renewal
term and supplies for the second two year renewal term in accord with the prices
herein. Payment will be rendered based upon supplies actually ordered. The
pricing assumes supplies will be provided by Viisage for a total of 5,703,336
licenses during the term of this agreement and the first and second two year
renewal terms of this agreement. The number of licenses is an estimated
projection over the course of this agreement (inclusive of renewal options).
This quantity may be reviewed periodically and if necessary, a reconciliation
shall occur on an annual basis.
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10. Deliverable Acceptance
The acceptance criteria for each deliverable is specified below.
Upon delivery of such Deliverables as defined in the Statement of Work which are
the subject of an acceptance test plan, Viisage shall notify COMPAQ and upon
Compaq's request commence the acceptance process as described in the Acceptance
Test Plan (ATP) to be agreed to by the parties or as described below.
If a formal acceptance test between Compaq and Viisage is provided for in the
ATP, Compaq shall appoint personnel who shall attend and verify the results of
the acceptance test. Within five (5) days of completion of the acceptance
process Compaq shall issue a written notice of preliminary acceptance of the
Deliverables or provide to Viisage a detailed list of any non-conformances. If a
list of non-conformances is issued, Viisage shall notify Compaq, in writing, of
its concurrence or objections within the shorter of the time set forth in the
Schedule or five (5) days from receipt of such list. Viisage and Compaq shall
jointly agree upon a reasonable cure period for each nonconformance with a goal
of five (5) days or less. Viisage shall demonstrate the corrections to Compaq
within the timeframe agreed upon to cure each nonconformance.
If a formal acceptance test between Compaq and MVA is provided for in the ATP,
Viisage shall provide all necessary support, as requested by Compaq, to perform
the test and assess and correct any non-conformances according the Schedule.
Deliverables which are not the subject matter of an Acceptance Test Plan will be
accepted as provided below.
In no case shall acceptance of any Deliverables for which there is an associated
MVA deliverable occur until Compaq has received acceptance of the associated
deliverable from MVA.
10.1 Project Kickoff
Delivery of the demo at Project Kickoff constitutes acceptance.
10.2 Specifications
Viisage shall deliver the Specifications in the timeframe defined in the
Schedule to the Compaq Project Manager. The Compaq Project Manager shall provide
a list of required changes or provide provisional acceptance to Viisage.
Required changes shall be made within three (3) days or according to the
Schedule. Final acceptance shall occur only after MVA has accepted the
associated Specification.
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10.3 Documentation
Viisage shall deliver the Documentation in the timeframe defined in the Schedule
to the Compaq Project Manager. The Compaq Project Manager shall provide a list
of required changes or provide provisional acceptance to Viisage. Required
changes shall be made within three (3) days or according to the Schedule. Final
acceptance shall occur only after MVA has accepted the associated Documentation.
10.4 Custom Application Software
Custom Application Software will be accepted in accordance with the Acceptance
Test Plan.
10.5 Computerized Visual Inspection System(VIS)
Acceptance is upon successful demonstration of a system verification test.
10.6 DLS Software and Hardware
DLS software and hardware will be accepted in accordance with the Acceptance
Test Plan.
10.7 Prototype
Prototype is accepted upon successful demonstration of the functions.
10.8 Train the Trainer
Delivery of the training classes and documents is accepted upon completion of
service and compliance with training acceptance criteria. These criteria will be
mutually agreed upon and documented in the training plan.
10.9 Technical Support
Acceptance is upon the successful and satisfactory delivery of services.
10.10. Viisage will provide consulting to ensure compatibility and successful
operation of the system.
10.10 Warranty and Maintenance Services
Warranty and repair Services are accepted upon delivery and agreement with
Compaq that the quality of service was at acceptable levels.
10.11 Supplies
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Release Date: 12/06/99 Confidential
<PAGE>
Supplies are accepted upon delivery, but defects may be shipped back for
replacement at no additional charge to Compaq.
Compaq Computers Corp Identification: Viisage SOW Page 22 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
11. Price
The services and supporting products described in this agreement are for a Fixed
Price as specified below in accordance with the contract and terms and
conditions contained herein. This price includes all travel & accommodations
required during all phases including warranty and support.
Viisage shall provide Phase II Follow-on System Maintenance and Supplies and at
Compaq's unilateral option, shall provide up to two (2) additional two-year
periods of system maintenance. Each successive year of maintenance may be
ordered by Compaq in writing at least twenty (20) days prior to expiration of
existing warranty or maintenance period.
Compaq reserves the right to renew annual maintenance from Viisage beyond the
two additional two-year period specified in this agreement as long as the need
exists and the price remains fair and reasonable. Compaq further reserves the
right to cancel maintenance as deemed necessary upon prior written notice to
Viisage. Maintenance cost shall then be adjusted accordingly.
MAIN PROJECT
o $1,860,592 Phase I, II, III System Integration Services, Pilot, and 6
month Warranty 5/14/01 to 11/14/01
o $1,752,000 Phase I,11, III Hardware*
o $ 499,900 Phase II to III Supplies
o $1,206,534 First Two-Year Renewal - Supplies
o $1,018,791 Second Two-Year Renewal - Supplies
OPTIONAL ONGOING SUPPORT RENEWALS:
o $ 905,026 First Two-Year Renewal - Warranty/Maintenance
o $1,014,860 Second Two-Year Renewal - Warranty/Maintenance
= $8,257,703 Subtotal*
SELECTED OPTIONS
o $ 393,000 VISUAL INSPECTION SYSTEM
OTHER OPTIONS
Compaq, upon MVA approval, may procure one or more of the following options:
Compaq Computers Corp Identification: Viisage SOW Page 23 of 31
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<PAGE>
o $.478 Per Card cost of all Supplies to produce additional Driver's
Licenses, in excess of the contracted amount of 5,703,336.
o $.25 Biometrics Facial Recognition Transaction Fee Per Image Capture
(Note: License Fee Waived)
o $150.00 Incremental Price per unit for Electronic Signature Pad
o $3,500 per unit for Fingerprint Option
o $ 500 Annual Bronze Support per unit for Fingerprint Option
o $35,000 per unit for Fax On Demand
o UV Printing per Card $.006
o Microprinting per Card $.006
*PROJECT EFFICIENCY
To facilitate overall project efficiency, VIISAGE will sell and ship hardware
content directly to our staging, installation, and support partner, DALY
Computers. Selected hardware components are:
o Printers and related Equipment $838,000
o Backdrops and Mounts $ 14,000
o Sensor Masts $684,000
o Central Production Equipment $216,000
Total $1,752,000
Compaq Computers Corp Identification: Viisage SOW Page 24 of 31
Version: 12.0 Status: Final Release
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<PAGE>
12. Payment Schedule
Consistent with Maryland's processes, Compaq will issue Purchase Orders to
VIISAGE by phase and/or fiscal year.
For the selected hardware components, Compaq's partner, DALY Computers, will
issue the equipment Purchase Order(s) to Viisage upon receipt of Purchase
Order(s) from Compaq.
Payment terms will be milestone based as specified below. A precondition for
payment of any milestone is the acceptance of all deliverables which are
scheduled to be delivered prior to the deliverable directly associated with the
milestone.
Phase I
- --------------------------------------------------------------------------------
MILESTONE DATE PAYMENT
- --------------------------------------------------------------------------------
Project Kickoff 11/15/99 $50,000
- --------------------------------------------------------------------------------
Phase I Requirements Document 3/24/00 $50,000
- --------------------------------------------------------------------------------
Phase I Design Document 6/16/00 $41,001
- --------------------------------------------------------------------------------
Phase Completion and Acceptance 6/16/00 $40,000
- --------------------------------------------------------------------------------
Total $181,001
- --------------------------------------------------------------------------------
Phase II Compaq Payments
- --------------------------------------------------------------------------------
MILESTONE DATE PAYMENT
- --------------------------------------------------------------------------------
Prototype 7/31/00 $287,051
- --------------------------------------------------------------------------------
Delivery of Mobile Demo System TBD $ 20,000
- --------------------------------------------------------------------------------
Pilot Site Accepted 4/6/01 $350,000
- --------------------------------------------------------------------------------
VIS Option 4/6/01 $493,000
- --------------------------------------------------------------------------------
Phase Completion and Acceptance 5/14/01 $325,600
- --------------------------------------------------------------------------------
Total $1,475,651
- --------------------------------------------------------------------------------
Compaq Computers Corp Identification: Viisage SOW Page 25 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
Phase II Daly Payments
- --------------------------------------------------------------------------------
MILESTONE DATE PAYMENT
- --------------------------------------------------------------------------------
Hardware Procurement 1/12/01 $1,752,000
- --------------------------------------------------------------------------------
Total $1,752,000
- --------------------------------------------------------------------------------
Phase III
- --------------------------------------------------------------------------------
MILESTONE DATE PAYMENT
- --------------------------------------------------------------------------------
Phase III Completion and Acceptance 9/31/01 $327,000
- --------------------------------------------------------------------------------
Total $327,000
- --------------------------------------------------------------------------------
Maintenance and Supplies
- --------------------------------------------------------------------------------
MILESTONE DATE PAYMENT
- --------------------------------------------------------------------------------
Phase II Follow on Supplies (6mo) 5/14/01- $499,900 Total
11/14/01 (invoiced monthly
at $83,316/mo)
- --------------------------------------------------------------------------------
Phase II Follow on Maintenance(6mo) 5/14/01- $289,940
11/14/01 (invoiced monthly
@ $48,323)
- --------------------------------------------------------------------------------
Term I Supplies (24 months) 11/14/01- $1,206,534
11/14/03 (invoiced monthly
@$50,272)
- --------------------------------------------------------------------------------
Term I Maintenance (24 months) 11/14/01- $905,026
11/14/03 (invoiced monthly
@37,709)
- --------------------------------------------------------------------------------
Term 2 Supplies (24 months) 11/14/01- $1,018,791
11/14/03 (invoiced monthly
@ $42,449)
- --------------------------------------------------------------------------------
Term 2 Maintenance (24 Months) 11/14/01- $1,014,860
11/14/03 (invoiced monthly
@$42,285)
- --------------------------------------------------------------------------------
Compaq Computers Corp Identification: Viisage SOW Page 26 of 31
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<PAGE>
- --------------------------------------------------------------------------------
Total $4,935,051
- --------------------------------------------------------------------------------
Note: the initial total contract amount [with selected VIS option] is
$8,670,703. Mobile Demo System includes mobile SensorMast, floor mounted
backdrop, mobile printer & custom engineering development. Supplies to be billed
at standard rate. PC and monitors to be provided by Compaq.
Compaq Computers Corp Identification: Viisage SOW Page 27 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
13. Referenced Documents
13.1 Maryland Customer Documents
o Compaq's contract with the customer: "State of Maryland, Department of
Transportation (MDOT), Motor Vehicle Administration, Driver Licensing
Point of Sale Systems and Related Modules, DLS/POS, Contract No.
V-HQ-99091-IP.
o Statement of Work between Compaq and the State of Maryland.
o The Administration's Request for Proposal V-HQ-99091-IP, Driver
Licensing/Point of Sale Systems and Related Modules (DLS/POS)
requirements, Amendments #1 through #6.
o COMPAQ's Technical Proposal dated February 24,1999.
o COMPAQ's Oral Presentation dated April 23, 1999 as set forth in the
transcript thereof made contemporaneously with such presentation.
o COMPAQ's Clarification Letters dated 4/30/99, 5/17/99, 5/31/99 and 6/8/99.
13.2 Viisage Documents to Compaq
o Viisage's proposal to Compaq for the State of Maryland, Department of
Transportation (MDOT), Motor Vehicle Administration, Driver Licensing
Point of Sale Systems and Related Modules, DLS/POS
o Viisage's compliance matrix to Compaq State of Maryland, Department of
Transportation (MDOT), Motor Vehicle Administration, Driver Licensing
Point of Sale Systems and Related Modules, DLS/POS
Compaq Computers Corp Identification: Viisage SOW Page 28 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
14. Additional Terms and Conditions
This document is incorporated by reference into the Subcontract Agreement
between Viisage Technology, Inc. and Digital Equipment Corporation for this
Project.
The following additional terms and conditions are hereby agreed to between the
parties:
1. All references to "Digital Equipment Corporation" and "Digital" in the
Subcontract Agreement are hereby modified to include (i) Digital Equipment
Corporation and all subsidiaries worldwide, (ii) Digital's parent company
Compaq Computer Corporation and (iii) all worldwide subsidiaries of Compaq
Computer Corporation.
2. In case of a conflict between referenced documents, the following order of
precedence shall apply:
a) this Statement of Work,
b) any Purchase Order issued pursuant to the Subcontract Agreement,
c) the Subcontract Agreement,
d) the Maryland Customer Documents,
e) Viisage's Proposal to Compaq, and
f) Viisage Compliance Matrix.
3. Viisage agrees to comply with all relevant State and MDOT computerized
record system security requirements in accordance with Appendix E of
Customer's RFP.
4. Should any of the equipment become obsolete throughout the performance of
this contract; i.e. repair parts are no longer available, Viisage shall
replace such obsolete equipment with compatible equipment to keep the MVA
system operational, at Viisage's sole cost.
5. Viisage agrees to adhere to the following language from Compaq's contract
with the MVA:
J. CONFIDENTIALITY OF INFORMATION & COMPUTER SECURITY
1. Contractor and their employees agree to maintain in strictest
confidence and not willfully to disclose to any person, firm
or corporation, information relating to or contained in the
State's Data Base Information obtained as a result of
Contractor's work associated with this Agreement. Access to
and use of information and computer resources is limited to
what is required for performance of this Agreement. Contractor
shall be aware that the Administration adheres to State
policies for Data Processing Resources Security authorized by
the Governor's Executive Order 01.01.1983.18 and Article 27,
Section 45A and 146 of the Annotated Code of Maryland.
Failure of contractor to abide by these same policies and
statutes may result in the Administration's prosecuting or
seeking remedies made available to it by statute or
regulation. In addition, other Federal and State Laws and
Regulations affect the access to
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Release Date: 12/06/99 Confidential
<PAGE>
and use of computer information such as the U.S. Computer
Crime Statute (1984) Computer Security Act of 1987, Privacy
Act of 1974, Freedom of Information Act, the Computer Fraud
and Abuse Act (1986), and the Drivers Privacy and Protection
Act (1994). Contractor personnel shall individually sign an
agreement attesting to the above.
2. Each Contractor participant individual in the services
provided under this Agreement must sign the Office of Security
Advisory form (Appendix E), which will then be a part of this
Agreement.
6. Viisage agrees that the settlement of any litigation and/or claim of
infringement requires approval of the Attorney General of the State of
Maryland.
7. Viisage acknowledges that Compaq is the prime contractor and is
responsible for the project. All contacts with MVA with respect to the
Project will be the responsibility of Compaq. Any contacts made by Viisage
will be with the consent and/or participation of Compaq. Viisage further
acknowledges that repeated failure to adhere to this provision will
constitute a breach of the Subcontract Agreement.
8. Viisage agrees to provide personnel that have skills sufficient to perform
the tasks described in this Statement of Work. Compaq reserves the right
to interview, approve, reject and/or replace any Viisage personnel that
Compaq deems, in its sole opinion, do not have sufficient skills to
perform the Work.
9. All documentation delivered under this Statement of Work may be reproduced
by Compaq or MVA as required to meet the requirements of the Referenced
Documents.
10. Should any Viisage supplied Equipment be returned to Viisage for repair
and not be repaired within five (5) business days of receipt of equipment
by Viisage, Viisage agrees to provide a new unit at no additional charge
to Compaq. Note: the software system will be thoroughly tested and
accepted as part of the Pilot Test. Viisage cannot be held responsible for
software system that is rendered unusable due to operator abuse of
negligence.
Compaq Computers Corp Identification: Viisage SOW Page 30 of 31
Version: 12.0 Status: Final Release
Release Date: 12/06/99 Confidential
<PAGE>
Appendix A. Schedule
Compaq Computers Corp Identification: Viisage SOW Page A-1
Version: 1.0 Status: Draft
Release Date: 11/03/99 Confidential
<PAGE>
Appendix B. Hardware List
Final quantities may vary based on the final approved design or the addition of
more facilities. Adjustments will be made in accordance with unit prices below:
<TABLE>
<CAPTION>
Equipment Description Quantity Unit Price
- --------- ----------- -------- ----------
<S> <C> <C> <C>
SensorMast with built-in signature pad Viisage Image Capture 151 $4,635.00
SensorMast mobile Image capture for mobile workstation. 2 $5,660.00
Hanging Backdrop Viisage Back Drops 151 $88.00
Floor Mounted Backdrop Viisage Back Drops 2 $515.00
Electronic Signature Pad (incremental cost) Viisage Biometrics Signature Pad 151 $185.00
Drivers License Printers Eltron Printer 151 $5,662.00
Mobile Drivers License Printers Eltron Printer 2 $7,532.00
</TABLE>
Compaq Computers Corp Identification: Viisage SOW Page B-1
Version: 1.0 Status: Draft
Release Date: 11/03/99 Confidential
<PAGE>
Appendix C. Change Request Form
Compaq Computers Corp Identification: Viisage SOW Page C-1
Version: 1.0 Status: Draft
Release Date: 11/03/99 Confidential
<PAGE>
Exhibit 10.22
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of December 30, 1999, between
VIISAGE TECHNOLOGY, INC., a Delaware corporation with principal executive
offices located at 30 Porter Road, Littleton, Massachusetts 01460 (the
"Company"), and the undersigned ("Buyer").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Company, and the Company desires to
issue and sell to the Buyer, upon the terms and subject to the conditions of
this Agreement, (i) 1,500 shares of the Company's Series B 7% Convertible
Preferred Stock, par value $.001 per share (the "Preferred Shares") and (ii)
50,000 Common Stock Purchase Warrants in the form attached hereto as Exhibit A
(the "Warrants") on the Funding Date (as defined in Section VII below):
WHEREAS, upon the terms and subject to the designations, preferences and
rights set forth in the Company's Certificate of Designations to the Company's
Certificate of Incorporation in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.001 per share (the "Common Stock");
and
WHEREAS, the Warrants, upon the terms and subject to the conditions
therein, will be exercisable to purchase shares of Common Stock for a period of
three (3) years from and after the Funding Date.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. Transaction. Subject to the terms and conditions contained herein, Buyer
hereby agrees to purchase from the Company, and the Company hereby agrees to
issue and sell to the Buyer in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Preferred Shares and the Warrants.
A. Purchase Price; Form of Payment.
1. The purchase price for the Preferred Shares and the Warrants to be
purchased by Buyer hereunder shall be $1,500,000, less deductions for fees and
expenses (the "Purchase Price").
<PAGE>
1. Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Escrow Instructions dated as of the date hereof, a copy of which is
attached hereto as Exhibit C (the "Escrow Instructions"). Simultaneously against
receipt by the Escrow Agent of the Purchase Price, the Company shall deliver to
the Escrow Agent or its designated depository one or more duly authorized,
issued and executed certificates (in the name of Buyer or, if the Company has
been notified otherwise, in the name of Buyer's nominee) evidencing the
Preferred Shares and the Warrants which the Buyer is purchasing. By executing
and delivering this Agreement, Buyer and the Company each hereby agrees to
observe the terms and conditions of the Escrow Instructions, all of which are
incorporated herein by reference as if fully set forth herein.
A. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of immediately available funds to:
Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
For the Account of: Herrick,
Feinstein LLP Attorney Trust Account
Account# 967-123445
ABA Reference# 021-000-021
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants representing the securities
to be purchased.
I. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with the Company
as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") and the shares of
Common Stock issuable upon conversion of the Preferred Shares (the "Conversion
Shares" and, collectively with the Preferred Shares, the Warrants and the
Warrant Shares, the "Securities") for its own account, for investment purposes
only and not with a view towards or in connection with the public sale or
distribution thereof in violation of the Securities Act.
A. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act, (ii) experienced in making investments of
the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.
<PAGE>
A. Buyer understands that the Securities are being offered and sold by the
Company in reliance on an exemption from the registration requirements of the
Securities Act and equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's
representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
A. Buyer has been furnished with or provided access to all materials
relating to the business, financial position and results of operations of the
Company, and all other materials requested by Buyer to enable it to make an
informed investment decision with respect to the Securities.
A. Buyer acknowledges that it has had access to all press releases issued
by the Company since December 31, 1998 and has had access to copies of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and all other reports and documents heretofore filed by the Company with
the Commission pursuant to the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), since November 8, 1996 (collectively, the
"Commission Filings").
A. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of, and to receive
answers from, the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
A. Buyer understands that the Securities have not been approved or
disapproved by the Commission or any state securities commission and that the
foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
A. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. B. Neither Buyer nor its
affiliates nor any person acting on its or their behalf will enter into, at any
time prior to the conversion of all the Preferred Stock and the exercise of the
Warrants, any put option, short position or other similar instrument or position
with respect to the Common Stock, and neither Buyer nor any of its affiliates
nor any person acting on its or their behalf has or will use at any time shares
of Common Stock acquired pursuant to this Agreement or otherwise to settle any
put option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement.
I. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
<PAGE>
A. Capitalization.
1. The authorized capital stock of the Company consists of: (a) 20,000,000
shares of Common Stock, of which, as of December 30, 1999, 9,275,940 shares were
issued and outstanding and none were held in treasury; and (b) 2,000,000 shares
of preferred stock, of which (i) 3,000 shares have been designated Series A
Convertible Preferred, 1,500 of which Series A Convertible Preferred are issued
and outstanding on the date hereof, and (ii) 1,997,000 are "blank check"
preferred stock, none of which are issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable. As of the date hereof, the Company has
outstanding 1,664,823 stock options under a management and director stock option
plan to purchase shares of Common Stock. The Conversion Shares and Warrant
Shares have been duly and validly authorized and reserved for issuance by the
Company, and when issued by the Company upon conversion of or in lieu of accrued
dividends on the Preferred Shares, or on exercise of the Warrants, will be duly
and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder. There are
no preemptive, subscription, "call", convertible debt instruments or other
similar rights to acquire the Common Stock (including the Conversion Shares and
Warrant Shares) that have been issued or granted to any person, except as
disclosed on Schedule III.A.1. hereto or otherwise previously disclosed in
writing to Buyer.
1. Except as disclosed on Schedule III.A.2. hereto, the Company does not
own or control, directly or indirectly, any material interest in any other
corporation, partnership, limited liability company, unincorporated business
organization, association, trust or other business entity.
A. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly qualified as a
foreign corporation in all jurisdictions in which the failure to so qualify
would have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the Company or on
the consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect").
1. The Company has registered certain of its Common Stock pursuant to
Section 12(g) of the Exchange Act and on a Registration Statement on Form S-1
under the Securities Act and has timely filed with the Commission all reports
and information required to be filed by it pursuant to all reporting obligations
under Section 13(a) or 15(d), as applicable, of the Exchange Act for the
12-month period immediately preceding the date hereof. Such Common Stock is
listed and traded on The NASDAQ Stock Market, Inc. national market system
("NMS") under the symbol "VISG" and the Company has not received any notice
regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of such Common Stock for such listing.
<PAGE>
A. Authorized Shares. The Company has duly and validly authorized and
reserved for issuance shares of Common Stock sufficient in number for the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
understands and acknowledges the potentially dilutive effect to the Common Stock
of the issuance of the Preferred Shares and Warrant Shares upon conversion of
the Preferred Shares and exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Certificate of Designation and the Warrants
is, subject to Section II.I, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
A. Authority; Validity and Enforceability. The Company has the requisite
corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into the Documents (as hereinafter
defined), and to perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the Securities). The
execution, delivery and performance by the Company of the Documents, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Designation
with the Delaware Secretary of State's office, the issuance of the Preferred
Shares, the Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares), has been duly authorized by all necessary
corporate action on the part of the Company. Each of the Documents (as defined
below) has been duly and validly executed and delivered by the Company and the
Certificate of Designation has been duly filed with the Delaware Secretary of
State's office by the Company, and each instrument constitutes a valid and
binding obligation of the Company enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The Securities have been duly and validly authorized for
issuance by the Company and, when executed and delivered by the Company, will be
valid and binding obligations of the Company enforceable against it in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally. For purposes of this Agreement, the
term "Documents" means (i) this Agreement; (ii) the Registration Rights
Agreement of even date herewith between the Company and Buyer, a copy of which
is annexed hereto as Exhibit D (the "Registration Rights Agreement"); (iii) the
Warrants; (iv) the Certificate of Designation; and (v) the Escrow Instructions.
A. Authorization of the Securities. The authorization, issuance, sale and
delivery of the Preferred Shares and Warrants has been duly authorized by all
requisite corporate action on the part of the Company. As of the Funding Date,
the Preferred Shares and the Warrants, and the Conversion Shares and the Warrant
Shares upon payment of the consideration provided therefor and their issuance in
accordance with the Certificate of Designation and the Warrants, respectively,
will be validly issued and outstanding, fully paid and nonassessable, and not
subject to any preemptive rights, rights of first refusal or other similar
rights.
A. Non-contravention. The execution and delivery by the Company of the
Documents, the issuance of the Securities, and the consummation by the Company
of the other
<PAGE>
transactions contemplated hereby and thereby, including, without limitation, the
filing of the Certificate of Designation with the Delaware Secretary of State's
office, do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default (or an event
which, with notice, lapse of time or both, would constitute a default) under (i)
the certificate of incorporation or by-laws of the Company or (ii) any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
A. Approvals. No authorization, approval or consent of any third party or
entity, including, without limitation, any court or public or governmental
authority is required to be obtained by the Company for the issuance and sale of
the Securities to Buyer as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by the Company
prior to the date hereof.
A. Commission Filings. None of the Commission Filings contained at the time
they were filed 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
made therein, in light of the circumstances under which they were made, not
misleading.
A. Absence of Certain Changes. Except as provided on Schedule III.B.2,
since the Balance Sheet Date (as defined in Section III.M.), there has not
occurred any change, event or development in the business, financial condition,
prospects or results of operations of the Company, and there has not existed any
condition having or reasonably likely to have, a Material Adverse Effect.
A. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to the Buyer or in the Commission Filings
that (i) reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.
A. Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation pending or, to the Company's knowledge, threatened, by
or before any court or public or governmental authority which, if determined
adversely to the Company, would have a Material Adverse Effect.
A. Absence of Events of Default. No "Event of Default" or "Default" (as
each such term is defined in any agreement or instrument to which the Company is
a party) and no event which, with notice, lapse of time or both, would
constitute an Event of Default (as so defined) or Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
A. Financial Statements; No Undisclosed Liabilities. The Company has made
available to Buyer true and complete copies of its audited balance sheet as at
December 31,
<PAGE>
1998, and the related audited statements of operations and cash flows for the
fiscal year ended December 31, 1998, including the related notes and schedules
thereto (collectively, the "Financial Statements"), and all management letters,
if any, from the Company's independent auditors relating to the dates and
periods covered by the Financial Statements. Each of the Financial Statements is
complete and fairly stated in all material respects, has been prepared in
accordance with United States Generally Accepted Accounting Principles ("GAAP")
(subject, in the case of the interim Financial Statements, to normal year end
adjustments and the absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the accounting
principles used in the preparation thereof, and fairly presents the financial
position, results of operations and cash flows of the Company as at the dates
and for the periods indicated. For purposes hereof, the balance sheet of the
Company as at September 26, 1999, as filed in connection with the Company's
Quarterly Report on Form 10-Q on November 12, 1999, is hereinafter referred to
as the "Balance Sheet" and September 26, 1999, is hereinafter referred to as the
"Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or was
not incurred in the ordinary course of business consistent with the Company's
past practices since the Balance Sheet Date.
A. Compliance with Laws; Permits. The Company is in compliance with all
laws, rules, regulations, codes, ordinances and statutes (collectively "Laws")
applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
A. Related Party Transactions. Except as set forth on Schedule III.O.
hereto, or otherwise described in the Financial Statements or Commission
Filings, neither the Company nor any of its officers, directors or "Affiliates"
(as such term is defined in Rule 12b-2 under the Exchange Act) has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company. Except as set forth on Schedule III.O. hereto or Commission
Filings, neither the Company nor any of its officers, directors or Affiliates
(i) owns any direct or indirect interest constituting more than a one percent
equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant to or lender to
or borrower from, or has the right to participate in the profits of, any person
or entity which is (x) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (y) engaged in a business related to the
business of the Company, or (z) a participant in any transaction to which the
Company is a party (other than in the ordinary course of the Company's
business), or (ii) is a party to any contract, agreement, commitment or other
arrangement with the Company.
A. Insurance. The Company maintains insurance coverage with financially
sound and reputable insurers and such insurance coverage is adequate, consistent
with industry
<PAGE>
standards and the Company's historical claims experience, and includes coverage
for such things as property and casualty, general liability, workers'
compensation, personal injury and other similar types of insurance. The Company
has not received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer intends
to deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
A. Securities Law Matters. Based, in part, upon the representations and
warranties of Buyer set forth in Section II hereof, the offer and sale by the
Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one_year immediately preceding the date hereof,
except as disclosed on Schedule III.Q. hereto, and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Preferred Shares
or shares of Common Stock or any of the other Securities), so as to make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Securities as contemplated by
this Agreement. No form of general solicitation or advertising has been used or
authorized by the Company or any of its officers, directors or Affiliates in
connection with the offer or sale of the Securities as contemplated by this
Agreement or any other agreement to which the Company is a party.
A. Environmental Matters. To the Company's knowledge:
1. The operations of the Company are in compliance with all applicable
Environmental Laws (as defined below) and all permits issued pursuant to
Environmental Laws or otherwise;
1. the Company has obtained or applied for all permits required under all
applicable Environmental Laws necessary to operate its business;
1. the Company is not the subject of any outstanding written order of or
agreement with any governmental authority or person respecting (i) Environmental
Laws, (ii) Remedial Action or (iii) any Release or threatened Release of
Hazardous Materials;
1. the Company has not received, since the Balance Sheet Date, any written
communication alleging that it may be in violation of any Environmental Law or
any permit issued pursuant to any Environmental Law, or may have any liability
under any Environmental Law;
<PAGE>
1. the Company does not have any current contingent liability in connection
with any Release of any Hazardous Materials into the indoor or outdoor
environment (whether on-site or off-site);
1. except as set forth on Schedule III.R.6 hereto, to the Company's
knowledge, there are no investigations of the business, operations, or currently
or previously owned, operated or leased property of the Company pending or
threatened which could lead to the imposition of any liability pursuant to any
Environmental Law;
1. there is not located at any of the properties of the Company any (A)
underground storage tanks, (B) asbestos-containing material or (C) equipment
containing polychlorinated biphenyls; and,
1. the Company has provided to Buyer all environmentally related audits,
studies, reports, analyses, and results of investigations that have been
performed with respect to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance, or rule of common law as now or hereafter in effect in
any way relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C.ss.9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. App.ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C.ss.6901 et seq.), the Clean Water Act
(33 U.S.C.ss.1251 et seq.), the Clean Air Act (42 U.S.C.ss.7401 et seq.), the
Toxic Substances Control Act (15 U.S.C.ss.2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C.ss.651 et seq.), and the
regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or toxic substance" under any provision of any Environmental Law.
"Release" means any release, spill, filtration, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, or leaching into the indoor
or outdoor environment, or into or out of any property.
"Remedial Action" means all actions to (x) clean up, remove, treat or in
any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
<PAGE>
A. Labor Matters. The Company is not party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company. No employees of the Company are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company pending or to the Company's knowledge, threatened
by any labor organization or group of employees of the Company. There are no (i)
strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material
grievances or other labor disputes pending or, to the knowledge of the Company,
threatened against or involving the Company. There are no unfair labor practice
charges, grievances or complaints pending or, to the knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the Company.
A. ERISA Matters. The Company and its ERISA Affiliates (as defined below)
are in compliance in all material respects with all provisions of ERISA (as
defined below) applicable to it. No Reportable Event (as defined below) has
occurred, been waived or exists as to which the Company or any ERISA Affiliate
was required to file a report with the Pension Benefits Guaranty Corporation,
and the present value of all liabilities under all Plans (based on those
assumptions used to fund such Plans) did not, as of the most recent annual
valuation date applicable thereto, exceed the value of the assets of all such
Plans (as defined below) in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974, or any
successor statute, together with the regulations thereunder, as the same may be
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that was, is or hereafter may become, a member of a group of which the Company
is a member and which is treated as a single employer under ss. 414 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of ss. 414
of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan) subject to
the provision of Title IV of ERISA or ss. 412 of the Internal Revenue Code that
is maintained for employees of the Company or any ERISA Affiliate.
"Reportable Event" means any reportable event as defined in Section 4043(b)
of ERISA or the regulations issued thereunder with respect to a Plan (other than
a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate
only pursuant to subsection (m) or (o) of ss. 414 of the Internal Revenue Code.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
A. Tax Matters.
1. The Company has filed all Tax Returns which it is required to file under
applicable Laws, except for such Tax Returns in respect of which the failure to
so file does not and could not have a Material Adverse Effect; all such Tax
Returns are complete and fairly stated in all material respects and have been
prepared in compliance with all applicable Laws; the Company has paid all Taxes
(as defined below) due and owing by it (whether or not such Taxes are required
to be shown on a Tax Return) and have withheld and paid over to the appropriate
taxing authorities all Taxes which it is required to withhold from amounts paid
or owing to any employee, stockholder, creditor or other third parties; and
since the Balance Sheet Date, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax liabilities
of the Company if its current tax year were treated as ending on the date
hereof.
1. No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that such corporation is or may be subject to
taxation by that jurisdiction. There are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being conducted with
respect to the Company; no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit or
other review has been received by the Company from any foreign, federal, state
or local taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or
<PAGE>
operations of the Company. The Company has not been a United States real
property holding corporation within the meaning of ss. 897(c)(2) of the Internal
Revenue Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of
the Internal Revenue Code.
1. The Company has not made an election under ss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. Except as disclosed in
the Commission Filings, the Company is not a party to any tax sharing agreement.
The Company has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that would not
be deductible under ss. 28OG of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
A. Property. The Company has good and marketable title to all real and
personal property owned by it, free and clear of all liens, encumbrances and
defects except as are described on Schedule III.V. hereto or in the Commission
Filings or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company.
A. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") for the conduct of its business as now being conducted as
described on Schedule III.W. hereto. The Company is not infringing upon or in
conflict with any right of any other person with respect to any Intangibles.
Except as disclosed on Schedule III.W. hereto, no
<PAGE>
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
A. Internal Controls and Procedures. The Company maintains accurate books
and records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company is a party or by which its
properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles consistently
applied.
A. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
A. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement, any schedule, annex or exhibit hereto or any
agreement, instrument or certificate furnished by the Company to Buyer pursuant
to this Agreement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, not misleading.
I. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees that, upon issuance
pursuant to this Agreement, the Preferred Shares and the Warrants (and any
shares of Common Stock issued in conversion of the Preferred Shares or exercise
of the Warrants) shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares and the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE
<PAGE>
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
A. Filings. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
A. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall use its best efforts to timely file all reports
required to be filed by it with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act.
A. Use of Proceeds. The Company shall use the net proceeds from the sale of
the Securities (excluding amounts paid by the Company for legal fees and
finder's fees in connection with such sale) solely for general corporate and
working capital purposes.
A. Listing. Except to the extent the Company lists its Common Stock on The
New York Stock Exchange, the Company shall use its best efforts to maintain its
listing of the Common Stock on the NMS.
A. Reserved Conversion Shares. The Company at all times from and after the
date hereof shall have a sufficient number of shares of Common Stock duly and
validly authorized and reserved for issuance to satisfy the conversion, in full,
of the Preferred Shares and upon the exercise of the Warrants.
I. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants otherwise shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of such Common Stock. If, at any time, Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company and its counsel that
registration of the resale by Buyer of such Common Stock is not required under
the Securities Act and that the removal of restrictive legends is permitted
under applicable law, the Company shall permit the transfer of such Common Stock
and, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without any restrictive legends endorsed thereon.
A. The Company shall permit Buyer to exercise its right to convert the
Preferred Shares by telecopying an executed and completed Notice of Conversion
to the
<PAGE>
Company. Each date on which a Notice of Conversion is telecopied to and received
by the Company in accordance with the provisions hereof shall be deemed a
Conversion Date. The Company shall transmit the certificates evidencing the
shares of Common Stock issuable upon conversion of any Preferred Shares
(together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within ten (10) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company the Preferred
Shares being converted.
A. The Company shall permit Buyer to exercise its right to purchase shares
of Common Stock pursuant to exercise of the Warrants in accordance with its
applicable terms of the Warrants. The last date that the Company may deliver
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
A. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond ten
(10) business days from the Dividend Payment Due Date (as that term is defined
in the Certificate of Designation), the Delivery Date on the Warrant Delivery
Date, as applicable):
<PAGE>
No. Business Days Compensation For Each 10 Shares of
----------------- Preferred Shares and Related
Dividends Not Converted Timely or
5,000 Shares of Common Stock
Issuable Upon Exercise of Warrants
----------------------------------
1 $25
2 $50
3 $75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + $100 for each Business Day
Late beyond 10 business days
The Company shall pay to Buyer the compensation described above as liquidated
damages, by the transfer of immediately available funds upon Buyer's demand.
Nothing herein shall limit Buyer's right to pursue actual damages for the
Company's failure to issue and deliver Common Stock to Buyer, and in addition to
any other remedies which may be available to Buyer, in the event the Company
fails for any reason to effect delivery of such shares of Common Stock within
ten (10) business days after the relevant Dividend Payment Due Date, the
Delivery Date or the Warrant Delivery Date, as applicable, Buyer shall be
entitled to rescind the relevant Notice of Conversion or exercise of Warrants by
delivering a notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original positions immediately
prior to delivery of such Notice of Conversion on delivery.
I. DELIVERY INSTRUCTIONS.
<PAGE>
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
closing of the transactions contemplated hereby.
I. FUNDING DATE.
The date and time of the issuance and sale of the Preferred Shares and the
Warrants (the "Funding Date") shall be the date hereof or such other date as
shall be mutually agreed upon in writing. The issuance and sale of the Preferred
Shares and the Warrants shall occur on the Funding Date, at the offices of the
Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be authorized to release to the Company the Purchase
Price and to Buyer the certificate(s) evidencing the Preferred Shares and the
Warrants unless the conditions set forth in VIII.C. and IX.G hereof have been
satisfied.
I. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell the Securities
on the Funding Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price on the
Funding Date.
A. The accuracy in all material respects on the Funding Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Funding Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Funding Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Funding Date;
A. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
I. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase the Securities
on the Funding Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to the Escrow Agent on or before the Funding
Date of one or more certificates evidencing the Securities; B. The accuracy in
all respects on the Funding Date of the representations and warranties of the
Company contained in this Agreement as if made on the Funding Date (except for
representations and warranties which, by their express terms, speak as of and
relate to a specified date, in which case such accuracy shall be measured as of
such specified date) and the performance by the Company in all respects on or
before the Funding Date of all covenants
<PAGE>
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Funding Date;
A. Buyer having received an opinion of counsel for the Company, dated the
Funding Date, in form, scope and substance satisfactory to the Buyer.
A. There not having occurred (i) any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NMS, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof.
A. There not having occurred any event or development, and there being in
existence no condition, having or which reasonably and foreseeably could have a
Material Adverse Effect.
A. The Company shall have delivered to Buyer (as provided in the Escrow
Instructions) reimbursement of Buyer's reasonable out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement.
A. There shall not be in effect any Law or order, ruling, judgment or writ
of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
I. TERMINATION.
A. Termination by Mutual Written Consent. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned, for any reason and at
any time prior to the Funding Date, by the mutual written consent of the Company
and Buyer.
A. Termination by the Company or Buyer. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Funding Date shall not have occurred at or prior to
5:00 p.m., New York City time, on December 31, 1999; provided, however, that the
right to terminate this Agreement pursuant to this Section X.B.(i) shall not be
available to any party whose failure to fulfill any of its obligations under
this Agreement has been the cause of or resulted in the failure of the Funding
Date to occur at or before such time and date or (ii) any court or public or
governmental authority shall have issued an order, ruling, judgment or writ, or
there shall be in effect any Law, restraining, enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by this
Agreement.
A. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Funding Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements
<PAGE>
contained in this Agreement, (ii) there shall have been a breach by the Company
with respect to any representation or warranty made by it in this Agreement, or
(iii) there shall have occurred any event or development, or there shall be in
existence any condition, having or reasonably and foreseeably likely to have a
Material Adverse Effect.
A. Termination by the Company. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Funding Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
I. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Funding Date and the
consummation of the transactions contemplated hereby for a period of three (3)
years from and after the Funding Date or such later date as when all of the
Preferred Shares have been converted to Common Stock. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Funding Date.
A. The Company hereby agrees to indemnify and hold harmless the Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this
Agreement or the other Documents, or the annexes, schedules or
exhibits hereto or thereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this Agreement or
the other Documents; or
1. any failure by the Company to perform in any material respect
any of its covenants, agreements, undertakings or obligations set
forth in this Agreement or the other Documents, or the annexes,
schedules or exhibits hereto or thereto or any instrument, agreement
or certificate entered into or delivered by the Company pursuant to
this Agreement or the other Documents.
<PAGE>
A. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by Buyer pursuant to this Agreement or the other Documents;
or
1. any failure by Buyer to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in
this Agreement or the other Documents or any instrument, certificate
or agreement entered into or delivered by Buyer pursuant to this
Agreement or the other Documents.
A. Promptly after receipt by either party hereto seeking indemnification
pursuant to this Section XI (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall
<PAGE>
be borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
A. In the event one party hereunder should have a claim for indemnification
that does not involve a claim or demand being asserted by a third party, the
Indemnified Party promptly shall deliver notice of such claim to the
Indemnifying Party. If the Indemnified Party disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
I. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware, without regard to the conflicts of law principles
of such state. Each of the parties consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original. The headings of this Agreement are
for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. if any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
I. NOTICES.
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be sent by facsimile with a copy delivered personally or sent by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, as follows:
<PAGE>
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton, Massachusetts 01460
Attention: Thomas J. Colatosti
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 02110
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-6080
(1) if to the Buyer, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
(1) if to the Escrow Agent, to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
<PAGE>
I. CONFIDENTIALITY.
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 10 of Rule
601 of Regulation S-K under the Securities Act and the Exchange Act).
I. ASSIGNMENT.
This Agreement shall not be assignable by either of the parties hereto
without the prior written consent of the other party, and any attempted
assignment contrary to the provisions hereby shall be null and void; provided,
however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement on the date first written above.
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
Thomas J. Colatosti
President and Chief Executive Officer
BUYER:
THE SHAAR FUND LTD.
By: INTERCARRIBBEAN SERVICES, INC.
By: /s/ Declan Quillgan
Declan Quillgan
Director
<PAGE>
EXHIBIT A
Common Stock Purchase Warrant
<PAGE>
EXHIBIT B
Certificate of Designation
<PAGE>
EXHIBIT C
Escrow Instructions
<PAGE>
EXHIBIT D
Registration Rights Agreement
<PAGE>
Schedule III.A.1
Capitalization
<PAGE>
Schedule III.A.2
Subsidiaries
<PAGE>
Schedule III.O.
Related Party Transactions
<PAGE>
Schedule III.Q.
Securities Law Matters
<PAGE>
Schedule III.R.6.
Environmental Matters
<PAGE>
Schedule III.V.
Property
<PAGE>
Schedule III.W.
Intellectual Property
<PAGE>
Exhibit 10.23
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of December 30, 1999 (this
"Agreement"), between VIISAGE TECHNOLOGY, INC., a Delaware corporation with
principal executive offices located at 30 Porter Road, Littleton, Massachusetts
01460 (the "Company"), and the undersigned (the "Investor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement dated as of the date hereof, between the Investor and the
Company (the "Securities Purchase Agreement"), the Company has agreed to issue
and sell to the Investor on the date hereof, (i) 1,500 shares of the Company's
Series B 7% Convertible Preferred Stock, par value $.001 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation to the Company's Certificate of
Incorporation (the "Certificate of Designation"), are convertible into shares of
the Company's common stock, par value $0.001 per share (the "Common Stock"), and
(ii) 50,000 Common Stock Purchase Warrants (the "Warrants") to purchase shares
of Common Stock; and
WHEREAS, to induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide with respect to the Common
Stock issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares and exercise of the Warrants
certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Affiliate", of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, is in control
of, is controlled by, or is under common control with, such specified
Person. For purposes of this definition, control of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(iii) "Commission" means the Securities and Exchange Commission.
(iv) "Current Market Price" on any date of determination means the
closing bid price of a share of the Common Stock on such day as reported by
the NASDAQ Stock Market, Inc., National Market System ("NMS"). If such
security is not listed or admitted to trading on the NMS, on the principal
national security exchange or quotation system on which
<PAGE>
such security is quoted or listed or admitted to trading, or, if not quoted
or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished by any NASD
member firm selected from time to time by the Board of Directors of the
Company for that purpose, or a price determined in good faith by the Board
of Directors of the Company as being equal to the fair market value
thereof, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(i) "Funding Date" means the date and time of the issuance and sale of
the Preferred Shares and the Warrants.
(vi) "Investors" means the Investor and any transferee or assignee of
Registrable Securities who agrees to become bound by all of the terms and
provisions of this Agreement in accordance with Section 8 hereof.
(vii) "Public Offering" means an offer registered with the Commission
and the appropriate state securities commissions by the Company of its
Common Stock and made pursuant to the Securities Act.
(viii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(ix) "Prospectus" means the prospectus (including, without limitation,
any preliminary prospectus and any final prospectus filed pursuant to Rule
424(b) under the Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance on Rule 430A under the
Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(x) "Registrable Securities" means the Common Stock issued or issuable
(i) in lieu of cash dividend payments on the Preferred Shares, (ii) upon
conversion of the Preferred Shares or (iii) upon exercise of the Warrants;
provided, however, that a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security.
(xi) "Registration Statement" means a registration statement of the
Company filed on an appropriate form under the Securities Act providing for
the registration of, and the sale on a continuous or delayed basis by the
holders of, all of the Registrable Securities pursuant to Rule 415 under
the Securities Act, including the Prospectus contained therein and
<PAGE>
forming a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits and other material
incorporated by reference in such registration statement and Prospectus.
(xii) "Restricted Security" means any share of Common Stock issued or
issuable in lieu of cash dividend payments on the Preferred Shares, upon
conversion of the Preferred Shares or exercise of the Warrants except any
such share that (i) has been registered pursuant to an effective
registration statement under the Securities Act, (ii) has been transferred
in compliance with the resale provisions of Rule 144 under the Securities
Act (or any successor provision thereto) or is transferable pursuant to
paragraph (d) of Rule 144 under the Securities Act (or any successor
provision thereto), or (iii) otherwise has been transferred and a new share
of Common Stock not subject to transfer restrictions under the Securities
Act has been delivered by or on behalf of the Company.
(xiv) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
successor statute.
(a) All capitalized terms used and not defined herein have the respective
meaning assigned to them in the Securities Purchase Agreement.
1. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company shall
prepare and file with the Commission not later than one hundred fifty (150) days
after the Funding Date, a Registration Statement relating to the offer and sale
of all of the Registrable Securities and shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than two hundred ten (210) days
after the Funding Date. The Company shall not include any other securities in
the Registration Statement relating to the offer and sale of the Registrable
Securities, except for (i) shares of Common Stock underlying convertible
debentures and options held by Lau Technologies and, (ii) certain shares issued
to directors in lieu of cash fees and otherwise, each as set forth on Schedule
III.A.1 of the Securities Purchase Agreement. The Company shall notify the
Investor by written notice that such Registration Statement has been declared
effective by the Commission within 24 hours of such declaration by the
Commission.
(a) Registration Default. (i) If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section 2
(a) hereof is not (A) filed with the Commission within one hundred fifty (150)
days after the Funding Date or (B) declared effective by the Commission within
two hundred ten (210) days after the Funding Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Investor as provided in the next sentence as liquidated damages and not as a
penalty. The amount to be paid by the Company to the Investor shall be
determined as of each Computation Date (as defined below), and such amount shall
be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price (as defined
in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with or
declared effective by the Commission (the "Periodic Amount"); provided, however,
that in no event shall the Liquidated Damages be less than $15,000. The full
Periodic Amount shall be paid by the
<PAGE>
Company to the Investor by wire transfer of immediately available funds within
three days after each Computation Date.
(ii) As used in this Section 2(b), "Computation Date" means the date which
is 30 days after the applicable Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
most recent applicable Computation Date until such Registration Statement is so
declared effective.
(iii) Notwithstanding the above, if the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof, as the case may be, is not filed with the Commission by the one
hundred fiftieth (150th ) day after the Funding Date, the Company shall be in
default of this Registration Rights Agreement.
(i) If the Company proposes to register any of its warrants, Common
Stock or any other shares of common stock under the Securities Act (other
than a registration (A) on Form S-8 or S-4 or any successor or similar
forms, (B) relating to Common Stock or any other shares of common stock of
the Company issuable upon exercise of employee share options or in
connection with any employee benefit or similar plan of the Company or (C)
in connection with a direct or indirect acquisition by the Company of
another Person or any transaction with respect to which Rule 145 (or any
successor provision) under the Securities Act applies, whether or not for
sale for its own account), it will at each such time, give written notice
at least 20 days prior to the anticipated filing date of the registration
statement relating to such registration to the Investor, which notice shall
set forth such Investor's rights under Section 3 hereof and shall offer the
Investor the opportunity to include in such registration statement such
number of Registrable Shares as the Investor may request. Upon the written
request of the Investor made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number of
Registrable Shares intended to be disposed of by such Investor), the
Company will use its best efforts to effect the registration under the
Securities Laws of all Registrable Shares that the Company has been so
requested to register by the Investor, to the extent requisite to permit
the disposition of the Registrable Shares so to be registered; provided,
however, that (A) if such registration involves a Public Offering, the
Investor must sell its Registrable Shares to the underwriters selected as
provided in Section 3(b) hereof on the same terms and conditions as apply
to the Company and (B) if, at any time after giving written notice of its
intention to register any Registrable Shares pursuant to Section 3 hereof
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register such Registrable Shares, the Company shall give
written notice to the Investor and, thereupon, shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration. The Company's obligations under this Section 2(c) shall
terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
(i) If a registration pursuant to this Section 2(c) involves a Public
Offering and the managing underwriter thereof advises the Company that, in
its view, the number of shares of Common Stock, Warrants or other shares of
Common Stock that the Company and the Investor intend to include in such
registration exceeds the largest number of shares of Common Stock or
Warrants (including any other shares of Common Stock or Warrants of the
Company) that can be sold without having an adverse effect on such Public
Offering (the "Maximum Offering Size"), the Company will include in such
registration, only that number of
<PAGE>
shares of Common Stock or Warrants, as applicable, such that the number of
Registrable Shares registered does not exceed the Maximum Offering Size,
with the difference between the number of shares in the Maximum Offering
Size and the number of shares to be issued by the Company to be allocated
(after including all shares to be issued and sold by the Company) among the
Company, the Investor, Lau Technologies, and other holders of registration
rights, pro rata on the basis of the relative number of Registrable Shares
offered for sale under such registration by each of the Company and the
Investor.
(i) If as a result of the proration provisions of Section 2 (c) (ii)
above, any Investor is not entitled to include all such Registrable Shares
in such registration, such Investor may elect to withdraw its request to
include any Registrable Shares in such registration. With respect to
registrations pursuant to this Section 2(c), the number of securities
required to satisfy any underwriters' over-allotment option shall be
allocated pro rata among the Company, the Investor, Lau Technologies, and
other holders of registration rights on the basis of the relative number of
securities otherwise to be included by each of them in the registration
with respect to which such over-allotment option relates.
1. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of one (1) year from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an 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, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an 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.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension.
<PAGE>
(a) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(a) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii) furnish to each
Investor whose Registrable Securities are included in the Registration Statement
and its legal counsel identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus, and each
amendment or supplement thereto, and (B) such number of copies of the Prospectus
and all amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(a) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d);
(a) As promptly as practicable after becoming aware of such event, notify
each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(a) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
<PAGE>
(a) Cause all the Registrable Securities covered by the Registration
Statement to be listed on a national securities exchange, and included in an
inter-dealer quotation system of a registered national securities association,
on or in which securities of the same class or series issued by the Company are
then listed or included;
(a) Maintain a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(a) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(a) Take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;
(a) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(a) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(a) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and
<PAGE>
any such underwriter, attorney, accountant or agent (pursuant to an appropriate
confidentiality agreement in the case of any such holder or agent), unless such
disclosure is made pursuant to judicial process in a court proceeding (after
first giving the Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be disclosed) or is
required by law, or such records, information or documents become available to
the public generally or through a third party not in violation of an
accompanying obligation of confidentiality; provided, however, that such
records, information and documents shall be used by such person solely for the
purpose of determining that disclosures made in the Registration Statement are
true and correct, and for no other purpose; and provided further that, if the
foregoing inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and information gathering
shall, to the maximum extent possible, be coordinated on behalf of the Investors
and the other parties entitled thereto by one firm of counsel designed by and on
behalf of the majority in interest of Investors and other parties;
(a) In connection with any underwritten offering, make such representations
and warranties to the Investors participating in such underwritten offering and
to the managers, in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(a) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(a) In connection with any underwritten offering, obtain "cold comfort"
letters and updates thereof from the independent public accountants of the
Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(a) In connection with any underwritten offering, deliver such documents
and certificates as may be reasonably required by the managers, if any; and
(a) In the event that any broker-dealer registered under the Exchange Act
shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the NASD (the "NASD Rules") (or any successor provision thereto))
of the Company or has a "conflict of interest" (as defined in Rule 2720(b)(7) of
the NASD Rules (or any successor provision thereto)) and such broker-dealer
shall underwrite, participate as a member of an underwriting syndicate or
<PAGE>
selling group or assist in the distribution of any Registrable Securities
covered by the Registration Statement, whether as a holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
defined in Rule 2720(b) (15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Registration Statement
relating to such Registrable Securities, to exercise usual standards of due
diligence in respect thereof and to recommend the public offering price of such
Registrable Securities, (B) indemnifying such qualified independent underwriter
to the extent of the indemnification of underwriters provided in Section 6(a)
hereof, and (C) providing such information to such broker-dealer as may be
required in order for such broker_dealer to comply with the requirements of the
NASD Rules.
1. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. As least ten (10) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least five (5) business days prior to the anticipated filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor") , then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor and have no further obligations to the Non-Responsive Investor;
(a) Each Investor by its acceptance of the Registrable Securities agrees to
cooperate with the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of its election to exclude all of its Registrable Securities from the
Registration Statement; and
(a) Each Investor agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 3(e) or 3(f), it
shall immediately discontinue its disposition of Registrable Securities pursuant
to the Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(e) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
1. Expenses of Registration. All expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees,
-25-
<PAGE>
printing and engraving fees, accounting fees, and the fees and disbursements of
counsel for the Company, and the reasonable fees of one firm of counsel to the
holders of a majority in interest of the Registrable Securities shall be borne
by the Company.
1. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Investor and each
underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(a) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in
<PAGE>
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
holder or underwriter expressly for use therein; provided, however, that no
Investor or underwriter shall be liable under this Section 6(b) for any amount
in excess of the net proceeds paid to such Investor or underwriter in respect of
shares sold by it, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(a) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x) , (y) or (z) above, the fees, costs and expenses of
such legal counsel shall be borne exclusively by the Indemnified Party. Except
as provided above, the Indemnifying Party shall not, in connection with any
Claim in the same jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(a) Contribution. If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the
<PAGE>
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by such
Indemnified Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any 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 in this Section 6 (d) .
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. 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. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(a) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(a) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
1. Rule 144. With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(a) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been
<PAGE>
required to or did file such reports, it will, upon the request of any Holder,
make available other information as required by, and so long as necessary to
permit sales of, its Registrable Securities pursuant to Rule 144.
1. Assignment. The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
not more than five (5) transferees of all or any portion of such securities (or
all or any portion of any Preferred Shares or Warrant of the Company which is
convertible into such securities) of Registrable Securities only if: (a) the
Investor agrees in writing with the transferee or assignee to assign such rights
subject to the terms and conditions of this Agreement and the Securities
Purchase Agreement, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment, the
securities so transferred or assigned to the transferee or assignee constitute
Restricted Securities, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein.
1. Amendment and Waiver. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively) , only with the written consent of
the Company and Investors who hold a majority-in-interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon each Investor and the Company.
1. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(a) If, after the date hereof and prior to the Commission declaring the
Registration Statement to be filed pursuant to Section 2(a) effective under the
Securities Act, the Company grants to any Person any registration rights with
respect to any Company securities which are more favorable to such other Person
than those provided in this Agreement, then the Company forthwith shall grant
(by means of an amendment to this Agreement or otherwise) identical registration
rights to all Investors hereunder.
(a) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be sent by facsimile with a copy delivered personally or sent by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, as follows:
<PAGE>
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton, Massachusetts 01460
Attention: Thomas J. Colatosti
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 01460
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-0080
(1) if to the Investor, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
(1) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company.
The Company or any Investor may change the foregoing address by notice given
pursuant to this Section 10(c).
(a) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(a) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State
<PAGE>
of New York sitting in the City of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions.
(a) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(a) Subsequent to the date hereof, the Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. Subject to the registration rights set
forth on Schedule IIIA.I of the Securities Purchase Agreement, the Company is
not currently a party to any agreement granting any registration rights with
respect to any of its securities to any person which conflicts with the
Company's obligations hereunder or gives any other party the right to include
any securities in any Registration Statement filed pursuant hereto, except for
such rights and conflicts as have been irrevocably waived. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority in interest of the Registrable Securities, the Company shall not grant
to any person the right to request it to register any of its securities under
the Securities Act unless the rights so granted are subject in all respect to
the prior rights of the holders of Registrable Securities set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement. The restrictions on the Company's rights to grant registration rights
under this paragraph shall terminate on the date the Registration Statement to
be filed pursuant to Section 2(a) is declared effective by the Commission.
(a) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of the date hereof (the "Escrow Instructions"), between
the Company, the Investor and Herrick, Feinstein LLP, the Preferred Shares and
the Warrants constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement, the Securities Purchase Agreement, the Escrow Instructions, the
Certificate of Designation and the Warrants supersede all prior agreements and
undertakings among the parties hereto with respect to the subject matter hereof.
(a) Subject to the requirements of Section 8 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(a) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
<PAGE>
(a) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(a) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3, or any delay in such performance could result in
direct damages to the Investors and the Company agrees that, in addition to any
other liability the Company may have by reason of any such failure or delay, the
Company shall be liable for all direct damages caused by such failure or delay.
(a) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
--------------------------------------
Thomas J. Colatosti
President and Chief Executive Officer
BUYER:
THE SHAAR FUND LTD.
By: INTERCARRIBBEAN SERVICES, INC.
By: /s/ Declan Quillgan
--------------------------------------
Declan Quillgan
Director
<PAGE>
Exhibit 10.24
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 50,000
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Viisage Technology, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or its registered assigns, is
entitled, at any time from the Funding Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from VIISAGE TECHNOLOGY,
INC., a Delaware corporation (the "Company"), 50,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price equal to $8.94 per
share, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Funding Date, other than Warrant Shares.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Certificate of Designation" shall mean that certificate indicating the
designations, rights and preferences of the Company's Series B 7% Convertible
Preferred Stock, as filed with the Secretary of State of the State of Delaware,
as of December 28, 1999.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $0.001, of the Company as constituted on the Funding
Date, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the
<PAGE>
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean December 31, 2002.
"Funding Date" means the date and time of the issuance and sale of the
Preferred Shares and the Warrants (each as defined in the Securities Purchase
Agreement).
"Holder" shall mean the Person in whose name the Warrant or Warrant Shares
set forth herein is registered on the books of the Company maintained for such
purpose.
"Market Price" shall have the meaning set forth in the Certificate of
Designation.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
<PAGE>
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this Warrant would be, evidenced by
a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and The
Shaar Fund, Ltd. as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Shares or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrants" shall mean this Warrant and all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Shares" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Funding Date and until 5:00
P.M., New York City time, on the Expiration Date, Holder may exercise this
Warrant, on any Business Day, in increments of 10,000 shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 30 Porter Road, Littleton,
Massachusetts 01460, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment of the Warrant Price in cash or by wire transfer or
cashier's check drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
ten (10) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to
<PAGE>
the extent possible, in such denomination or denominations as Holder shall
request in the notice and shall be registered in the name of Holder or, subject
to Section 9, such other name as shall be designated in the notice. This Warrant
shall be deemed to have been exercised and such certificate or certificates
shall be deemed to have been issued, and Holder or any other Person so
designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date the notice, together with the
cash or check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
Section 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Shares, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Shares otherwise than in accordance with
this Warrant.
2.2 Payment of Taxes and Charges. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, and without any preemptive rights. The
Company shall pay all expenses in connection with, and all taxes and other
governmental charges (excluding income and related taxes) that may be imposed
with respect to, the issue or delivery thereof, unless such tax or charge is
imposed by law upon Holder, in which case such taxes or charges shall be paid by
Holder. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of this Warrant in
any name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock as of the Initial Funding Date.
2.4 Continued Validity. A holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part (other than a holder who acquires
such shares after the same have been publicly sold pursuant to a Registration
Statement under the Securities Act or sold pursuant to Rule 144 thereunder),
shall continue to be entitled with respect to such shares to all rights to which
it would have been entitled as Holder under Sections 9, 10 and 14 of this
Warrant. The Company will, at the time of exercise of this Warrant, in whole or
in part, upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; provided, however, that if Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
<PAGE>
3.1 Transfer. Subject to compliance with the Securities Purchase Agreement
and Section 3.1 and Section 9 herein, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned in compliance with Section 9, may be exercised by a new Holder
for the purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination. Subject to Section 3.1 and 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
<PAGE>
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distributions. If at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised this Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
<PAGE>
(b) Fractional Interests. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or Disposition
of Assets. If the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another corporation (where the Company
is not the surviving corporation or where there is a change in or distribution
with respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then Holder shall have the right thereafter to receive, upon exercise of the
Warrant within ten (10) business days following the Company's notice of such
event, the number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In the case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any
<PAGE>
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.4 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.5 Other Action Affecting Common Stock. If at any time or from time to
time the Company shall take any action in respect of its Common Stock, other
than any action described in this Section 4, which would have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
4.6 Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of shares of Common Stock
for which this Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company determined the fair value of any
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights referred to in Section 4.2),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4 or 4.5)
describing the number and kind of any other shares of stock or Other Property
for which this warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 14.2. The Company shall keep at its office or
agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of a Warrant
designated by the Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation, or
<PAGE>
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least ten 10 business days' prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least ten (10) business
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
(a) The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (ii) take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this warrant, and (iii) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
(b) Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
(a) From and after the Funding Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of
<PAGE>
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
(b) Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
(c) Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Shares shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant
Shares. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
(a) Restrictive Legend. The Holder by accepting this Warrant and any
Warrant Shares agrees that unless registered under the Securities Act of 1933,
as amended (the "Securities Act"), subsequent to the Funding Date and prior to
the exercise hereof, this Warrant and the Warrant Shares issuable upon exercise
hereof may not be assigned or otherwise transferred unless and until (i) the
Company has received an opinion of counsel for the Holder reasonably
satisfactory to the Company and its counsel that such securities may be sold
pursuant to an exemption from registration under the Securities Act or (ii) a
registration statement relating to such securities has been filed by the Company
and declared effective by the Commission.
(b) Each certificate for Warrant Shares issuable hereunder shall bear a
legend as follows unless such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"These securities have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or the securities laws
of any state, and are being offered and sold pursuant to an exemption
from the registration requirements of the Securities Act and such
laws. These securities may not be sold or transferred except pursuant
to an effective registration statement
<PAGE>
under the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act or such other
laws."
(c) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT."
9.2 Notice of Proposed Transfers. Prior to any Transfer or attempted
Transfer of any Warrants or any shares of Restricted Common Stock, the Holder
shall give ten days, prior written notice (a "Transfer Notice") to the Company
and its counsel of Holder's intention to effect such Transfer, describing the
manner and circumstances of the proposed Transfer, and obtain from counsel to
Holder who shall be reasonably satisfactory to the Company, an opinion that the
proposed Transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five (5) business days
thereof, notify the Holder as to whether such opinion is reasonably satisfactory
and, if so, such holder shall thereupon be entitled to Transfer such Warrants or
such Restricted Common Stock, in accordance with the terms of the Transfer
Notice. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall bear the restrictive legend set forth in
Section 9.1(b), and the Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1(c), unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act. The Holder shall not be entitled to Transfer such Warrants or
such Restricted Common Stock until receipt of notice from the Company under this
Section 9.2 that such opinion is reasonably satisfactory.
9.3 Required Registration. Pursuant to the terms and conditions set forth
in the Registration Rights Agreement, the Company shall prepare and file with
the Commission not later than the ninetieth (90th) day after the Funding Date, a
Registration Statement relating to the offer and sale of the Common Stock
issuable upon exercise of the Warrants and shall use its best efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but no later than one hundred and
eighty (180) days after the Funding Date.
9.4 Termination of Restrictions. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants, the Warrant Shares and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 9.1 shall terminate as to any particular Warrant or share of Warrant
Shares or Restricted Common Stock (or Common Stock issuable upon the exercise of
the warrants) (i) when and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant thereto or (ii)
when the Company shall have received an opinion of counsel reasonably
satisfactory to it and its counsel that such shares may be transferred without
registration thereof under the Securities Act. Whenever the
<PAGE>
restrictions imposed by Section 9 shall terminate as to this Warrant, as
hereinabove provided, the Holder hereof shall be entitled to receive from the
Company upon written request of the Holder, at the expense of the Company, a new
Warrant bearing the following legend in place of the restrictive legend set
forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________, AND ARE
OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(b).
9.5 Listing on Securities Exchange. If the Company shall list any shares of
Common Stock on any securities exchange, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in
the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
<PAGE>
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If the
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, the Company shall pay to
Holder such amounts as shall be sufficient to cover any reasonable costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
14.2 Notice Generally. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted hereunder shall
be in writing and shall be sent by facsimile with a copy delivered personally or
sent by a nationally recognized overnight courier service, and shall be deemed
given when so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
VIISAGE TECHNOLOGY, INC.
30 Porter Road
Littleton Massachusetts 01460
Attention: Thomas J. Colatosti,
Chief Executive Officer
Telephone: (978) 952-2200
Facsimile: (978) 952-2218
With a copy to:
Finnegan, Hickey, Dinsmoor & Johnson, PC
175 Federal Street
Boston, Massachusetts 01460
Attention: Charles Johnson, Esq.
Telephone: (617) 523-2500
Facsimile: (617) 422-6080
(2) if to the Holder, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Sam Levinson
<PAGE>
with a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1400
Facsimile: (212) 889-7577
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify and hold harmless
Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
14.5 Successors and Assigns. Subject to the provisions of Sections 3.1 and
9, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof, holders of Warrant Shares, and shall be enforceable by any such Holder
or holder of Warrant Shares. 14.6 Amendment. This Warrant and all other Warrants
may be modified or amended or the provisions hereof waived with the written
consent of the Company and the Holder.
14.7 Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable 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 Warrant.
14.8 Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
<PAGE>
14.9 Governing Law. This Warrant shall be governed by the laws of the State
of Delaware, without regard to the provisions thereof relating to conflict of
laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: December 30, 1999
THE COMPANY:
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
-----------------------
Thomas J. Colatosti
President and Chief Executive Officer
[SEAL]
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
warrant for the purchase of Shares of Common Stock of Viisage Technology, Inc.
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
________________________ whose address is ________________________ and, if such
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
___________________________________
(Name of Registered owner)
___________________________________
(Signature of Registered Owner)
___________________________________
(Street Address)
___________________________________
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
<TABLE>
<CAPTION>
Name and Address of Assignee No. of Shares of
- ---------------------------- ----------------
Common Stock
------------
<S> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _______________
attorney-in-fact to register such transfer on the books of _______________
maintained for the purpose, with full power of substitution in the premises.
Dated:_____________________ Print Name:____________________________
Signature: ____________________________
Witness: ______________________________
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
Exhibit 10.25
Securities Purchase Agreement
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 10,
2000, among Viisage Technology, Inc., a Delaware corporation (the "Company"),
and the investors signatory hereto (each such investor is a "Purchaser" and all
such investors are, collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers,
severally and not jointly, desire to purchase from the Company, shares of the
Company's common stock, $.001 par value per share (the "Common Stock"), and
certain other securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase an aggregate of 391,917 shares of
Common Stock (the "Shares") for an aggregate purchase price of $4,000,000. The
closing of the purchase and sale of the Shares (the "Closing") shall take place
at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date."
(ii) At the Closing, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1) a
stock certificate representing 62.50% of the number of Shares indicated below
such Purchaser's name on the signature page of this Agreement, registered in the
name of such Purchaser, (2) a Common Stock purchase warrant, in the form of
Exhibit A, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire shares of Common Stock upon the terms
and in such number as set forth therein (each an "Adjustable Warrant"), (3) a
Common Stock purchase warrant, in the form of Exhibit B, registered in the name
of such Purchaser, pursuant to which such Purchaser shall have the right to
acquire the number of shares of Common Stock indicated below such Purchaser's
name on the signature page of this Agreement, upon the terms and at the exercise
price set forth therein (each, a "Closing Warrant" and together with the
Adjustable Warrants, the "Warrants"), (4) the legal opinion of Finnegan, Hickey,
Dinsmoor & Johnson, P.C., outside counsel to the Company, substantially in the
form of Exhibit C, (5) an executed Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit D (the
"Registration Rights Agreement"), (6) the Transfer Agent Instructions, in the
form of Exhibit E, executed by the Company and delivered to and acknowledged by
the Company's transfer agent (the "Transfer Agent Instructions"), (7) an
executed Escrow Agreement in the form of Exhibit F (the "Escrow
<PAGE>
Agreement") of even date hereof, among the Company, Cardinal Securities, LLC and
The Bank of New York (the "Escrow Agent") and (8) an executed Letter Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit G (the "Letter Agreement"); and (B) each Purchaser shall deliver to the
Escrow Agent for delivery in accordance with the Escrow Agreement): (1) 62.50%
of the purchase price indicated below such Purchaser's name on the signature
page to this Agreement in United States dollars in immediately available funds
by wire transfer as designated in the Escrow Agreement for such purpose, and (2)
an executed Registration Rights Agreement and Letter Agreement.
(iii) On the second (2nd) Trading Day following the date that the
Underlying Shares Registration Statement (as defined herein) is declared
effective by the Commission (as defined herein), (A) the Company will, against
delivery of the amounts set forth in clause (B) in this paragraph, deliver to
each Purchaser, a stock certificate representing 37.50% of the number of Shares
indicated below such Purchaser's name on the signature page of this Agreement
(subject to equitable adjustment for stock splits, recombinations and similar
events), registered in the name of such Purchaser, and (B) each Purchaser will
deliver to the Escrow Agent, for delivery in accordance with the Escrow
Agreement, 37.50% of the purchase price indicated below such Purchaser's name on
the signature page to this Agreement in United States dollars in immediately
available funds by wire transfer to an account designated for such purpose,
pursuant to the Escrow Agreement.
1.2 Certain Defined Terms. For purposes of this Agreement,"Trading Day" and
"Per Share Market Value" shall have the meanings set forth in Exhibit A and
"Business Day" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York or the Commonwealth of Massachusetts generally are authorized
or required by law or other governmental action to close. A "Person" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries. The Company is duly qualified to do business and is
in good standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Transfer Agent Instructions, the Letter Agreement, the Escrow Agreement or the
Warrants
-2-
<PAGE>
(collectively, the "Transaction Documents"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company, taken as a whole, or (z) adversely
impair the Company's ability to perform fully on a timely basis its obligations
under any of the Transaction Documents (any of (x), (y) or (z), a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. The Company is not in violation of any of the provisions of its
respective articles or certificate of incorporation, by-laws or other charter or
organizational documents.
(c) Capitalization. The number of authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as a result of the purchase and sale of the Shares and the
Warrants and except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.
(d) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the terms hereof and the Warrants,
shall have been duly and validly issued, fully paid and nonassessable, free and
clear of all liens, encumbrances and rights of first refusal of any kind
(collectively, "Liens"). The Company has reserved a number of duly authorized
number of shares of Common Stock for issuance hereunder upon exercise of the
Warrants that is not less than the sum of (i) the Shares to be issued hereunder;
(ii) the number of shares of Common Stock issuable upon exercise of the
Adjustable Warrants on the First Vesting Date (as defined in the Adjustable
Warrant), assuming for such purposes that, on the First Vesting Date, (A) the
Applicable Share Number (as defined in the Adjustable Warrant) equals the entire
number of Shares purchased hereunder and (B) the Adjustment Price (as defined in
the Adjustable Warrant) equals 50% of the Per Share Market Value on the Trading
Day immediately preceding the Closing Date, and (iii) the number of shares of
Common Stock as are issuable upon exercise in full of the Closing Warrants (the
number of shares of Common Stock contemplated in (i), (ii) and (iii), the
"Initial Minimum"). The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the "Underlying Shares." The Shares, the
Warrants and the Underlying Shares are collectively referred to herein as, the
"Securities."
-3-
<PAGE>
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's certificate of incorporation, bylaws or
other charter documents (each as amended through the date hereof), or (ii)
subject to obtaining the Required Approvals (as defined below), conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company debt or otherwise) or other understanding to which the
Company is a party or by which any property or asset of the Company is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected; except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filings required pursuant to Section 3.10, (ii) the filing with the
Securities and Exchange Commission (the "Commission") of a registration
statement meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Shares and the Underlying Shares by the
Purchasers (the "Underlying Shares Registration Statement"), (iii) the
application(s) to the NASDAQ National Market ("NASDAQ") for the listing of the
Shares and the Underlying Shares with NASDAQ (and with any other national
securities exchange of market in which the Common Stock is then listed) in the
time and manner required thereby, (iv) applicable Blue Sky filings, and (v) in
all other cases where the failure to obtain such consent, waiver, authorization
or order, or to give such notice or make such filing or registration could not
have or result in, individually or in the aggregate, a Material Adverse Effect
(the items described in clauses (i)-(v) are collectively, the "Required
Approvals").
(g) Litigation; Proceedings. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an "Action") which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. The Company is not in default under or in
violation of (and no event has occurred which has not been waived which, with
notice or lapse of time or both, would result in a default by the Company
under), nor has the Company received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit agreement or
any
-4-
<PAGE>
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is in violation of any statute, rule
or regulation of any governmental authority, in each case of clauses (i), (ii)
or (iii) above, except as could not individually or in the aggregate, have or
result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on its
behalf has taken or is, to the knowledge of the Company, contemplating taking
any action which could subject the offering, issuance or sale of the Securities
to the registration requirements of the Securities Act including soliciting any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(j) SEC Documents; Financial Statements. Except as disclosed in Schedule
2.1(j), the Company has filed all reports required to be filed by it under the
Exchange Act of 1934, as amended (the "Exchange Act"), including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials being collectively referred to herein as the "SEC
Documents" and, together with the Schedules to this Agreement, the "Disclosure
Materials") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Documents prior to the expiration of any such
extension. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Documents, when filed, contained any untrue statement of a
material fact or omitted 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. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. Since September 30, 1999, except as specifically disclosed in
the SEC Documents, (a) there has been no event, occurrence or development that
has or that could result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option
-5-
<PAGE>
plans) with respect to its capital stock, or purchased, redeemed (or made any
agreements to purchase or redeem) any shares of its capital stock.
(k) Investment Company. The Company is not, and is not an Affiliate (as
defined in Rule 405 under the Securities Act) of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable to Cardinal Securities,
LLC by the Company, no fees or commissions will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchasers, their employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting on
the Company's behalf has solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. Commencing on May 1, 2000, the Company will be
eligible to register its Common Stock for resale under Form S-3 promulgated on
the Securities Act.
(o) Listing and Maintenance Requirements. Except as disclosed in Schedule
2.1(o), the Company has not, in the two years preceding the date hereof received
notice (written or oral) from NASDAQ or any other stock exchange, market or
trading facility on which the Common Stock is or has been listed (or on which it
has been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange, market or trading
facility. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(p) Patents and Trademarks. The Company has adequate rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and rights which are necessary or material for
use in connection with their respective business as described in the SEC
Documents and which the failure to so have would have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). The Company has not received
any written notice of on outstanding claim that the Intellectual Property Rights
used by the Company violates or infringes upon the rights of any Person, to the
best knowledge of the Company. All such Intellectual Property Rights are
enforceable and to the best knowledge of the Company, there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(q) Regulatory Permits. The Company possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses as
described in the SEC Documents, except where the failure to possess
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such permits could not, individually or in the aggregate, have or result in a
Material Adverse Effect ("Material Permits"), and the Company has not received
any notice of proceedings relating to the revocation or modification of any
Material Permit.
(r) Title. The Company has good and marketable title in fee simple to all
real property owned by them which is material to the business of the Company and
good and marketable title in all personal property owned by them which is
material to the business of the Company, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company. Any real property and facilities held under lease by the Company
and is held by it under valid, subsisting and enforceable leases of which the
Company is in compliance and does not interfere with the use made and proposed
to be made of such property and buildings by the Company.
(s) Registration Rights; Rights of Participation. Except as set forth on
Schedule 6(b) to the Registration Rights Agreement, the Company has not granted
or agreed to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied. Except as set
forth on Schedule 6(b) to the Registration Rights Agreement, no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents.
(t) Absence of Certain Proceedings. Except as described in the SEC
Documents, (i) there is no Action pending or, to the knowledge of the Company,
threatened against the Company, in any such case wherein an unfavorable
decision, ruling or finding could have or result in a Material Adverse Effect;
(ii) neither the Company, nor any director or officer thereof, is or has been
the subject of any Action involving (A) a claim of violation of or liability
under federal or state securities laws or (B) a claim of breach of fiduciary
duty; (iii) the Company does not have pending before the Commission any request
for confidential treatment of information and the Company has no knowledge of
any expected such request that would be made prior to the Effectiveness Date (as
defined in the Registration Rights Agreement); and (iv) there has not been, and
to the best of the Company's knowledge there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company.
(u) Labor Relations. No material labor problem exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company.
(v) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or its agents or counsel
with any information that constitutes or might constitute material non-public
information. The Company understands and confirms that the Purchasers shall be
relying on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Schedules
to this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
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2.2 Representations and Warranties of the Purchasers. Each Purchaser hereby
for itself and for no other Purchaser, represents and warrants to the Company as
follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (which is set forth below such Purchaser name on the signature to
this Agreement) with the requisite corporate or partnership power and authority
to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase by
such Purchaser of the Securities hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this Agreement, the
Escrow Agreement and the Registration Rights Agreement has been duly executed by
such Purchaser at its address (which is set forth below such Purchaser name on
the signature to this Agreement), and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable federal and state securities laws or under an exemption from such
registration. While it is the intention of such Purchaser to hold the
Securities, nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and at each exercise date
under its respective Warrants, it will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act. Such Purchaser has not been formed
solely for the purpose of acquiring the Securities.
(d) Experience of such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of such Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges that it has reviewed
the Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
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informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the Securities
as a result of or subsequent to any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act, and in compliance with any
applicable federal and state securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
Notwithstanding the foregoing, the Company, without requiring a legal opinion as
described in the immediately preceding sentence, hereby consents to and agrees
to register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of Securities by a Purchaser to an
Affiliate of such Purchaser or to one or more funds or managed accounts under
common management with such Purchaser, and any transfer among any such
Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
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(b) The Purchasers agree to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
Neither the Shares nor Underlying Shares shall contain the legend set forth
above nor any other legend at any time while an Underlying Shares Registration
Statement is effective under the Securities Act or, in the event there is not an
effective Underlying Shares Registration Statement at such time if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the date that such Underlying Shares Registration Statement is declared
effective by the Commission (the "Effective Date"). The Company agrees that
following the Effective Date, it will, no later than three (3) Trading Days
following the delivery by a Purchaser to the Company of a certificate or
certificates representing Shares, deliver to such Purchaser an identical
certificate or certificates representing such Shares which shall be free from
such legend. The Company further agrees that if any Shares or Underlying Shares
are issued with a legend in accordance with this Section 3.1(b), it will, within
three (3) Trading Days after request therefor by a Purchaser, provide such
Purchaser with a certificate or certificates representing such Shares or
Underlying Shares, free from such legend at such time as such legend would not
have been required under this Section 3.1(b) had such issuance occurred on the
date of such request. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of Underlying Shares upon exercise of the Warrants will result in dilution of
the outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares upon exercise of the Warrants pursuant to the terms
thereof is unconditional and absolute (subject to the limitations set forth in
the Warrants) regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchasers to sell the Securities under Rule 144 promulgated under
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the Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
causing its attorneys to render and deliver any legal opinion required in order
to permit a Purchaser to sell Underlying Shares under Rule 144 upon notice of an
intention to sell or other form of notice having a similar effect. Upon the
request of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of the NASDAQ.
3.5 Increase in Authorized Shares. If on any date the Company would be, if
a notice of exercise were to be delivered on such date, precluded from issuing
the sum of (i) 200% of the number of Underlying Shares then issuable upon
exercise in full of the Adjustable Warrants and (ii) the number of Underlying
Shares issuable upon exercise in full of the Closing Warrants (the "Current
Required Minimum") due to the unavailability of a sufficient number of
authorized but unissued or reserved shares of Common Stock, then the Board of
Directors of the Company shall promptly (and in any case, within 30 Business
Days from such date) prepare and mail to the stockholders of the Company proxy
materials requesting authorization to amend the Company's certificate or
articles of incorporation to increase the number of shares of Common Stock which
the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchasers in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its issuance, exercise and reservation of shares obligations as set forth
in this Agreement and the Warrants (the sum of (x) the number of shares of
Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments other
than the Warrants, and (y) the Current Required Minimum, shall be a reasonable
number). In connection therewith, the Board of Directors shall (a) adopt proper
resolutions authorizing such increase, (b) recommend to and otherwise use its
best efforts to promptly and duly obtain stockholder approval to carry out such
resolutions (and hold a special meeting of the stockholders no later than the
earlier to occur of the 60th day after delivery of the proxy materials relating
to such meeting and the 90th day after request by a holder of Warrants to issue
the number of Underlying Shares in accordance with the terms hereof) and (c)
within five (5) Business Days of obtaining such stockholder authorization, file
an appropriate amendment to the Company's certificate or articles of
incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) To the extent
required by NASDAQ and such other national securities exchange of market or
trading or quotation facility on which the Common Stock is then listed for
trading, the Company shall (i) in the time and manner required by the NASDAQ and
such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed for trading, prepare and file
with the NASDAQ (and such other national securities exchange or market or
trading or quotation facility on
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which the Common Stock is then listed for trading) an additional shares listing
application covering a number of shares of Common Stock which is not less than
the Initial Minimum, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on the NASDAQ (as well as on any such
other national securities exchange or market or trading or quotation facility on
which the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchasers evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares issuable upon exercise of the then unexercised portion of the Warrants
exceeds 85% of the number of Underlying Shares previously listed on account
thereof with the NASDAQ (and any such other required exchanges), then the
Company shall take the necessary actions to immediately list a number of
Underlying Shares as equals no less than the then Current Required Minimum with
respect thereto.
(b) The Company shall maintain a reserve of shares of Common Stock for
issuance upon exercise in full of the Warrants in accordance with the Warrants,
in such amount as may be required to fulfill its obligations in full under the
Transaction Documents, which reserve shall equal no less than the then Current
Required Minimum.
3.7 Exercise Procedures. The Transfer Agent Instructions and Form of
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the exercise of the Warrants, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise the Warrants.
3.8 Right of First Refusal; Subsequent Registrations. (a) The Company shall
not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over the life thereof convertible into or exchangeable for Common Stock, or any
other transaction intended to be exempt or not subject to registration under the
Securities Act (a "Subsequent Placement") until the 120th Trading Day following
the Effective Date provided, that such 120 Trading Day period shall be extended
for the number of Trading Days during such period (A) in which trading in the
Common Stock is suspended by the NASDAQ or such market or quotation system on
which the Common Stock is then listed, or (B) during which the Underlying Shares
Registration Statement is not effective, or (C) during which the prospectus
included in the Underlying Shares Registration Statement may not be used by the
holders thereof for the resale of Underlying Shares, except (i) the granting of
options or warrants to employees, officers, directors, or information technology
consultants of the Company, (ii) shares of Common Stock issuable upon exercise
of currently outstanding options and warrants and upon conversion of any
currently outstanding convertible securities or debt of the Company, in each
case to the extent disclosed in Schedule 2.1(c) but not with respect to any
amendment or modification thereof, (iii) shares of Common Stock issuable upon
exercise of the Warrants in accordance with the terms thereof and (iv) the
granting of warrants to acquire up to an aggregate of 50,000 shares of Common
Stock at a price per share of Common Stock equal to or greater than the market
price of the Common Stock on the date of the issuance thereof, in connection
with bona fide debt, credit or equipment financing transactions but shall not
include transactions in which the Company is issuing warrants to an entity whose
primary business is investing in securities,
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unless (A) the Company delivers to each Purchaser a written notice (the
"Subsequent Placement Notice") of its intention to effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected, and attached to which shall be a term sheet or similar document
relating thereto and (B) such Purchaser shall not have notified the Company by
6:30 p.m. (New York City time) on the fifth (5th)Trading Day after its receipt
of the Subsequent Placement Notice of its willingness to cause such Purchaser to
provide (or to cause its sole designee to provide), subject to completion of
mutually acceptable documentation, financing to the Company on the same terms
set forth in the Subsequent Placement Notice. If the Purchasers shall fail to
notify the Company of their intention to enter into such negotiations within
such time period, the Company may effect the Subsequent Placement substantially
upon the terms and to the Persons (or Affiliates of such Persons) set forth in
the Subsequent Placement Notice; provided, that the Company shall provide the
Purchasers with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this Section (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro-rata portion of the aggregate number of Shares
purchased by such Purchaser under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice. The rights of the
Purchasers under this Section shall apply to each Subsequent Placement
contemplated by the Company or such Subsidiary, regardless of any prior waivers
or non-participation.
(b) Except for Shares, Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered,
and securities of the Company as set forth in Schedule 6(b) of the
Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
Common Stock permitted to be issued pursuant to paragraph (a)(i) - (iv) of
Section 3.8 (a), the Company shall not for a period of 90 Trading Days after the
Effective Date, without the prior written consent of the Purchasers (i) issue or
sell any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) file a
registration statement for the issuance or resale of any securities of the
Company. Any days after the Effective Date that a Purchaser is not permitted or
unable to utilize the prospectus or otherwise to resell Shares or Underlying
Shares under the Underlying Shares Registration Statement shall be added to such
90 Trading Day period for the purposes of this Section.
3.9 Certain Securities Laws Disclosures; Publicity. The Company shall, on
the Closing Date, issue a press release acceptable to the Purchasers disclosing
the transactions contemplated hereby and provide a copy thereof to the
Purchasers promptly after the filing thereof. No filing or disclosure may be
made that mentions the Purchasers by name without the prior consent of the
Purchasers. The Company and the Purchasers shall consult with each other in
issuing any press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the
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transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the names of the Purchasers, or include the
names of the Purchasers in any filing with the Commission, or any regulatory
agency, trading facility or stock market without the prior written consent of
the Purchasers, except to the extent such disclosure (but not any disclosure as
to the controlling Persons thereof) is required by law, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.
3.10 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital and general corporate purposes
and not for the redemption of any shares of the Company's Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, each as described in
Schedule 2.1(c) hereof, provided, that no such restriction shall exist with
respect to the net proceeds from the sale of either the First Additional
Securities (as defined in the Letter Agreement) or the Second Additional
Securities (as defined in the Letter Agreement), pursuant to the terms of the
Letter Agreement.
3.11 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
3.12 Certain Trading Restrictions. Each Purchaser agrees that from the
period commencing on the Closing Date and ending on the Expiration Date (as
defined in the Adjustable
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Warrants) it will not, during the 25 Trading Days preceding each Vesting Date
(as defined in the Adjustable Warrants), enter into any net short sales.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall reimburse the
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman up to $25,000 for the preparation and negotiation of the Transaction
Documents. The amount contemplated by the immediately preceding sentence shall
be retained by the Purchasers and shall not be delivered to the Company at the
Closing. Other than the amount contemplated herein and except as otherwise set
forth in the Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents, together with
the Exhibits and Schedules thereto and the Transfer Agent Instructions, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service and marked for next Business Day delivery,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: Viisage Technology, Inc.
30 Porter Road
Littleton, MA 01460
Fax: (978) 952-2225
Attn: Chief Executive Officer
With a copy to: Finnegan, Hickey, Dinsmoor & Johnson, P.C.
175 Federal Street
Boston, MA 02110
Facsimile No.: (617) 422-6080
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<PAGE>
Attn: Charles J. Johnson, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature
pages hereto
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. The corporate laws of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
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<PAGE>
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and exercise of the
Warrants.
4.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
4.13 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
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SIGNATURE PAGES FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
--------------------------
Name: Thomas J. Colatosti
Title: President and Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOWS]
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
------------------------
Name: Kenneth L. Henderson, Esq.
Title: Attorney In Fact
Purchase Price for Shares: $4,000,000
Number of Shares to be acquired: 391,917
Warrant Shares subject to Closing
Warrant: 97,979
Jurisdiction of Organization: British Virgin Islands
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. B.V.I.
With a copy to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq. and Eric L. Cohen, Esq.
<PAGE>
Exhibit 10.26
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 10, 2000, among Viisage Technology, Inc., a Delaware
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are defined in
the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Adjustable Warrants" shall have the meaning set forth in the Purchase
Agreement.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" " shall have the meaning set forth in the Purchase
Agreement.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
"Closing Warrants" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 par value, or such
securities that such stock shall hereafter be reclassified into.
"Effectiveness Date" means the 90th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means May 5, 2000.
<PAGE>
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the Shares and (ii) the shares of Common
Stock issuable upon exercise in full of the Warrants.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
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<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock issued to the Purchasers on the
Closing Date pursuant to the Purchase Agreement.
"Special Counsel" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Vesting Date" shall have the meaning set forth in the Adjustable Warrants.
"Warrants" means the Closing Warrants and the Adjustable Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a "Shelf" Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith as the Holders may consent) and shall contain
(except if otherwise directed by the Holders) the "Plan of Distribution"
attached hereto as Annex A. The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is two years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Holders (the
"Effectiveness Period"), provided, that the Company shall not be deemed to have
used its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) In order to account for the fact that the number of shares of Common
Stock that are issuable upon exercise of the Adjustable Warrants is determined
in part upon the market price of the Common Stock on a Vesting Date, the initial
Registration Statement to be filed hereunder shall include (but not be limited
to) a number of shares of Common Stock equal to no less than the sum of (i) the
number of shares issuable upon exercise of the Adjustable Warrants on the First
Vesting Date (as defined in the Adjustable Warrants) assuming, for the purposes
of this subsection that, on the First Vesting Date: (A) the Adjustment Price (as
defined in the Adjustable Warrants) is 50% of the Per Share Market Value for the
Trading Day immediately preceding the Closing Date and (B) the Applicable Share
Number (as defined in the Adjustable Warrants) equals
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the entire number of Shares purchased under the Purchase Agreement, (ii) the
number of shares issuable upon exercise in full of the Closing Warrants and
(iii) the Shares.
(c) If (a) the initial Registration Statement is not filed on or prior to
the Filing Date (if the Company files such Registration Statement without
affording the Holder the opportunity to review and comment on the same as
required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (a)), or (b) the Company fails to file with the Commission
a request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed," or not subject to further review,
or (c) the initial Registration Statement filed hereunder is not declared
effective by the Commission on or prior to the Effectiveness Date, or (d) after
a Registration Statement is filed with and declared effective by the Commission,
such Registration Statement ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period
without being succeeded within ten days by an amendment to such Registration
Statement or by a subsequent Registration Statement filed with and declared
effective by the Commission, or (e) the Common Stock shall be delisted or
suspended from trading on the Nasdaq National Market ("NASDAQ") or on the New
York Stock Exchange, American Stock Exchange or Nasdaq SmallCap Market (each, a
"Subsequent Market") for more than three days (which need not be consecutive
days), or (f) the exercise rights of the Holders pursuant to the Warrants are
suspended for any reason, or (g) an amendment to a Registration Statement is not
filed by the Company with the Commission within ten days of the Commission's
notifying the Company that such amendment is required in order for such
Registration Statement to be declared effective (any such failure or breach
being referred to as an "Event," and for purposes of clauses (a), (c), (f) the
date on which such Event occurs, or for purposes of clause (b) the date on which
such five day period is exceeded, or for purposes of clauses (d) and (g) the
date which such 10 day-period is exceeded, or for purposes of clause (e) the
date on which such three day-period is exceeded, being referred to as "Event
Date"), then, on the Event Date and each monthly anniversary thereof until the
applicable Event is cured, the Company shall pay to each Holder 2.0% of the
purchase price paid by such Holder pursuant to the Purchase Agreement, in cash,
as liquidated damages and not as a penalty. If the Company fails to pay any
liquidated damages pursuant to this Section in full within seven (7) days after
the date payable, the Company will pay interest thereon at a rate of 18% per
annum (or such lesser maximum amount that is permitted to be paid by applicable
law) to the Holder, accruing daily from the date such liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full. The
liquidated damages pursuant to the terms hereof shall apply on a pro-rata basis
for any portion of a month prior to the cure of an Event.
3. Registration Procedures
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Not less than five Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders and their Special Counsel copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated
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by reference) will be subject to the review of such Holders and their Special
Counsel, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of respective counsel to such to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities and their Special Counsel shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible, and in any event within ten days, to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto and as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) File additional Registration Statements if the number of Registrable
Securities at any time exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement. The Company shall have twenty days to
file such additional Registration Statements after such requirement notice of
which is given by the Holders.
(d) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than five Business Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of
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<PAGE>
any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event or passage of time that makes the financial statements
included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(f) Furnish to each Holder and their Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and their Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and their
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.
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(j) Upon the occurrence of any event contemplated by Section 3(d)(vi), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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.
(k) Comply with all applicable rules and regulations of the Commission.
(l) The Company may require each selling Holder to furnish to the Company a
certified statement as to the number of shares of Common Stock beneficially
owned by such Holder and, if requested by the Commission, the controlling person
thereof and such information as the Company may reasonably request in connection
with the Registration Statement.
4. Registration Expenses. All reasonable fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence may (other than with respect to subsection (iv) hereof which shall be
included) include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ and any Subsequent Market on which the
Common Stock is then listed for trading, and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (in the case of the latter, up to a
maximum of $7,500), (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. Indemnification
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(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an
occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use
by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(e).
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
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(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified
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<PAGE>
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. 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.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person.
(c) No Piggyback on Registrations. Except as and to the extent specified in
Schedule 6(b) hereto, neither the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration
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<PAGE>
Statement other than the Registrable Securities, and the Company shall not after
the date hereof enter into any agreement providing any such right to any of its
security holders.
(d) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.
(e) Discontinued Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Sections 3(d)(ii), 3(d)(iii),
3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(j), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(f) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered.
(h) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
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<PAGE>
(i) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: Viisage Technology, Inc.
30 Porter Road
Littleton, MA 01460
Fax: (978) 952-2225
Attn: Chief Financial Officer
With copies to: Finnegan, Hickey, Dinsmoor & Johnson, P.C.
175 Federal Street
Boston, MA 02110
Facsimile No.: 617-422-6080
Attn: Charles J. Johnson, Esq.
If to a Purchaser:
To the address set forth under such Purchaser's
name on the signature pages hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(j) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.
(k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
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<PAGE>
(l) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(m) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(o) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(p) Shares Held by the Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
(q) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each
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<PAGE>
Purchaser shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
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SIGNATURE PAGES TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
----------------------------------
Name: Thomas J. Colatosti
Title: President and Chief Executive Officer
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASER TO FOLLOW]
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
---------------------------------------
Name: Kenneth L. Henderson, Esq.
Title: Attorney In Fact
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla, BVI
With copies to:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
and Eric L. Cohen, Esq.
<PAGE>
Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including up to $7,500 of the fees and disbursements
of counsel to the Selling Stockholders.
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The Company has agreed to indemnify the Selling Stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
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<PAGE>
Exhibit 10.27
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
VIISAGE TECHNOLOGY, INC.
WARRANT
Warrant No. CW-1 Dated: March 10, 2000
Viisage Technology, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Strong River Investments, Inc. or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 97,979 shares of common
stock, $.001 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $11.7656 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including March 10, 2005 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this Warrant
in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Transfer Agent or
to the Company at its address for notice
<PAGE>
set forth in Section 12. Upon any such registration or transfer, a new warrant
to purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the rights
and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the Holder
to the office of the Company at its address for notice set forth in Section 12
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 6:30 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 6:30
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. Prior to the
Expiration Date, the Company may not call or otherwise redeem this Warrant
without the prior written consent of the Holder.
(b) Upon surrender of this Warrant, with the Form of Election to Purchase
attached hereto duly completed and signed, to the Company at its address for
notice set forth in Section 12 and upon payment of the Exercise Price multiplied
by the number of Warrant Shares that the Holder intends to purchase hereunder,
in the manner provided hereunder, all as specified by the Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise (as defined herein)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends except
(i) either in the event that a registration statement covering the resale of the
Warrant Shares and naming the Holder as a selling stockholder thereunder is not
then effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant. The Company
shall, upon request of the Holder, if available, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii)
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<PAGE>
payment of the Exercise Price for the number of Warrant Shares so indicated by
the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from time
to time, for a portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the Effectiveness Period (as
defined in the Registration Rights Agreement, of even date herewith, between the
Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 10 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon
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<PAGE>
the exercise of this entire Warrant, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8. Upon each such adjustment of the Exercise
Price pursuant to this Section 8, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is converted into other
securities, cash or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities or property equal
to the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification or
share exchange. The terms of any such reclassification or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification or share exchange.
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<PAGE>
(c) If the Company, at any time while this Warrant is outstanding, shall
distribute to all holders of Common Stock (and not to holders of this Warrant)
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security (excluding those referred to in Sections 8(a), (b) and
(d)), then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If the Company or any subsidiary thereof, as applicable with respect to
Common Stock Equivalents (as defined below), at any time while this Warrant is
outstanding, shall, other than in connection with: (i) the granting of options
or warrants to employees, officers, directors, or information technology
consultants of the Company, (ii) shares of Common Stock issuable upon exercise
of currently outstanding options and warrants and upon conversion of any
currently outstanding convertible securities or debt of the Company (other than
shares of the Company's Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock (collectively, the "Preferred Stock")), in each case
to the extent disclosed in Schedule 2.1(c) to the Purchase Agreement of even
date hereof pursuant to which this Warrant was issued but not with respect to
any amendment or modification thereof, (iii) shares of Common Stock issuable
upon exercise of the Adjustable Warrants (as defined in the Purchase Agreement)
in accordance with the terms thereof, and (iv) the granting of warrants to
acquire up to an aggregate of 50,000 shares of Common Stock at a price per share
of Common Stock equal to or greater than the market price of the Common Stock on
the date of the issuance thereof, in connection with bona fide debt, credit or
equipment financing transactions but shall not include transactions in which the
Company is issuing warrants to an entity whose primary business is investing in
securities, issue shares of Common Stock or rights, warrants, options or other
securities or debt that is convertible into or exchangeable for shares of Common
Stock ("Common Stock Equivalents"), entitling any person to acquire shares of
Common Stock at a price per share less than 115% of the closing sales price of
the Common Stock on the date hereof (the "Trigger Price") (if the holder of the
Common Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price less than the Trigger Price, such issuance shall be deemed to
have occurred for less than the Trigger Price), then the Exercise Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of such Common
Stock or such Common Stock Equivalents plus the number of shares of Common Stock
which the offering price for such shares of Common Stock or Common Stock
Equivalents would purchase at the Trigger Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such
-5-
<PAGE>
issuance plus the number of shares of Common Stock so issued or issuable,
provided, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Exercise
Price pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Exercise Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Exercise Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Exercise Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised. Notwithstanding anything
herein to the contrary, all of the issued and outstanding shares of the
Preferred Stock on the date hereof shall be considered Common Stock Equivalents
and the Exercise Price shall be subject to adjustment in relation thereto
pursuant to the terms hereof.
(e) In case of any (1) merger or consolidation of the Company with or into
another Person, or (2) sale by the Company of more than one-half of the assets
of the Company (on a book value basis) in one or a series of related
transactions, the Holder shall have the right thereafter to exercise this
Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the Common Stock for which this Warrant could have been exercised
immediately prior to such merger, consolidation or sales would have been
entitled. The terms of any such merger, sale or consolidation shall include such
terms so as continue to give the Holder the right to receive the securities,
cash and property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to successive such
events.
(f) For the purposes of this Section 8, the following clauses shall also be
applicable:
(i) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B)
to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
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<PAGE>
(ii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g) All calculations under this Section 8 shall be made to the nearest cent
or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price is adjusted pursuant to Section 8(c) above,
the Holder, after receipt of the determination by the Appraiser, shall have the
right to select an additional appraiser (which shall be a nationally recognized
accounting firm), in which case the adjustment shall be equal to the average of
the adjustments recommended by each of the Appraiser and such appraiser. The
Holder shall promptly mail or cause to be mailed to the Company, a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such adjustment shall become
effective immediately after the record date mentioned above.
(i) If:
(i) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution, liquidation
or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 20 calendar days prior
to the applicable record or effective date
-7-
<PAGE>
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up; provided, however, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
9. Payment of Exercise Price. The Holder shall pay the Exercise Price in
one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately available funds;
or
(b) Cashless Exercise. The Holder may surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined
as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined
-8-
<PAGE>
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules promulgated thereunder) in excess of
4.999% of the then issued and outstanding shares of Common Stock, including
shares issuable upon such exercise and held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of an exercise
hereunder, unless the exercise at issue would result in the issuance of shares
of Common Stock in excess of 4.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular exercise hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of this Warrant is exercisable shall be the
responsibility and obligation of the Holder. If the Holder has delivered a Form
of Election to Purchase for a number of Warrant Shares that, without regard to
any other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the exercise for the
maximum portion of this Warrant permitted to be exercised on such Date of
Exercise in accordance with the periods described herein and, at the option of
the Holder, either keep the portion of the Warrant tendered for exercise in
excess of the permitted amount hereunder for future exercises or return such
excess portion of the Warrant to the Holder. The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such exercise
and held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 9.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance with the periods described
herein and, at the option of the Holder, either keep the portion of the Warrant
tendered for exercise in excess of the permitted amount hereunder for future
exercises or return such excess portion of the Warrant to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
-9-
<PAGE>
11. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section, be issuable on
the exercise of this Warrant, the Company shall pay an amount in cash equal to
the Exercise Price multiplied by such fraction.
12. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
30 Porter Road, Littleton, MA 01460, facsimile: (978) 952-2225, attention Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.
13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal
-10-
<PAGE>
or equitable right, remedy or cause under this Warrant. This Warrant shall inure
to the sole and exclusive benefit of the Company and the Holder.
(c) The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
----------------------------------
Name: Thomas J. Colatosti
Title: President and Chief Executive Officer
-12-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Viisage Technology, Inc..:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.001 par value per share, of Viisage Technology, Inc.
(the "Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
----------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ____________, ___ Name of Holder:
(Print)____________________________
(By:)______________________________
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Viisage Technology,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Viisage Technology, Inc. with full power
of substitution in the premises.
Dated:
_______________, ____
----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
----------------------------------------
Address of Transferee
----------------------------------------
----------------------------------------
In the presence of:
- ------------------------------
<PAGE>
Exhibit 10.28
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
VIISAGE TECHNOLOGY, INC.
WARRANT
Warrant No. AW-1 Dated: March 10, 2000
Viisage Technology, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Strong River Investments, Inc. or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company the total number of shares of common stock,
$.001 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") calculated pursuant
to Section 3 of this Warrant (subject to adjustment for certain events as set
forth herein) at an exercise price equal to $.001 per share (as adjusted from
time to time as provided in Section 8, the "Exercise Price"), at the times set
forth herein through and including the 25th Business Day (as defined in Exhibit
A) following the Third Vesting Date (as defined herein) (the "Expiration Date"),
and subject to the following terms and conditions (certain terms used herein are
defined in Exhibit A attached hereto):
1. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers. The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at the address specified in Section 13.
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New
<PAGE>
Warrant evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a holder of a Warrant.
3. Duration, Vesting and Exercise.
(a) The vesting of the Warrant Shares which the Holder is permitted to
acquire pursuant to this Warrant shall occur on the dates set forth below. On
each such date, this Warrant shall vest on a cumulative basis with respect to a
number of Warrant Shares calculated pursuant to Section 3(b) below. Only the
Warrant Shares that have vested may be acquired upon exercise of this Warrant.
(i) The first vesting date (the "First Vesting Date") shall be the
120th day following the Closing Date (as defined in Exhibit A), provided,
that, at the Holder's option, the First Vesting Date may be delayed up to
December 31, 2000;
(ii) The second vesting date (the "Second Vesting Date") shall be the
25th Trading Day following the First Vesting Date; and
(iii) The third vesting date (the "Third Vesting Date") shall be the
25th Trading Day following the Second Vesting Date.
Each of the First Vesting Date, Second Vesting Date, and Third Vesting Date
shall be referred to herein as a "Vesting Date."
(b) On each Vesting Date and during the twenty four Trading Days following
such Vesting Date, this Warrant shall vest and become exercisable with respect
to the number of Warrant Shares calculated in accordance with the following
formula:
(Applicable Share Number) x [(Purchase Price/0. 92) - (Adjustment Price)]
Adjustment Price
If the number calculated in accordance with the foregoing formula is zero
or a negative number, no Warrant Shares shall vest hereunder for such Vesting
Date and the Holder shall not be obligated to transfer any shares of Common
Stock to the Company. In addition, the Holder shall not be obligated to transfer
any shares of Common Stock to the Company and the number Warrant Shares
exercisable hereunder which shall have previously vested will not decrease.
(c) Notwithstanding anything herein to the contrary, if, after the
Effective Date, the average of the Per Share Market Values (as defined in
Exhibit A) for 20 consecutive Trading Days is greater than 140% of the Purchase
Price (as defined in Exhibit A) (which number shall be subject to equitable
adjustment for stock splits, recombinations and similar events), this Warrant
shall not vest with respect to any additional Warrant Shares but will remain in
effect as to any Warrant Shares which have vested prior thereto.
-2-
<PAGE>
(d) Notwithstanding anything herein to the contrary, if on any Vesting Date
the Adjustment Price shall be less than 70% of the Purchase Price (the "Floor
Price"), then on such Vesting Date: (i) this Warrant shall vest with respect to
the Warrant Shares pursuant to Section 3(a) and (b) hereof, provided, that the
Adjustment Price pursuant to the formula set forth in Section 3(b) shall,
exclusively for purposes of this Section 3(d)(i), equal the Floor Price (such
number of Warrant Shares, the "Initial Shares") and (ii) with respect to the
Warrant Shares whose vesting would result in a vesting of Warrant Shares in
excess of the Initial Shares, the Company will have the option to elect by
written notice (the "Notice") delivered to the Holder no later than twenty (20)
Trading Days prior to the applicable Vesting Date to either (x) pay to the
Holder, in cash (the "Cash Payment"), within three (3) Trading Days from the
Vesting Date at issue, an amount equal to the product obtained by multiplying
(A) the applicable Adjustment Price and (B) the difference between the number of
Warrant Shares which would have otherwise vested on such Vesting Date pursuant
to Section 3(a) and (b) hereof and the Initial Shares (such number of Warrant
Shares, the "Subsequent Shares") or (y) allow this Warrant to vest with respect
to the Subsequent Shares. A failure by the Company to deliver the Notice to the
Holder pursuant to the terms of this Section shall constitute an election by the
Company to allow this Warrant to vest as to the Subsequent Shares pursuant to
the terms hereof. If the Company shall fail to pay the Cash Payment in full to
the Holder by the third (3rd) Trading Day from the Vesting Date at issue, then,
at the election of the Holder, the Company shall either (x) pay to the Holder
$5,000 per day until the Cash Payment and all additional payments due hereunder
are paid in full, or (y) allow this Warrant to vest with respect to the
Subsequent Shares.
(e) Notwithstanding the foregoing provisions of this Section 3, at any time
during the period between the Closing Date and the Expiration Date, within ten
(10) Trading Days following the occurrence of any of the following events (each,
an "Event"), the Holder shall have the option to elect, by providing the Company
with a notice (an "Event Vesting Notice"), to have this Warrant vest with
respect to those Warrant Shares that have not yet already vested:
(i) upon the occurrence of any of (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of in excess of 1/3 of the voting securities
of the Company, (ii) a replacement of more than one-half of the members of
the Company's board of directors which is not approved by those individuals
who are members of the board of directors on the date hereof in one or a
series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of
the assets of the Company in one or a series of related transactions,
unless following such transaction or series of transactions, the holders of
the Company's securities prior to the first such transaction continue to
hold at least 2/3 of the securities of the surviving entity or acquirer of
such assets or (iv) the execution by the Company of an agreement to which
the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii);
(ii) immediately prior to an assignment by the Company for the benefit
of creditors or commencement of a voluntary case under Title 11 of the
United States Code, or an entering into of an order for relief in an
involuntary case under Title 11 of the United States Code, or adoption by
the Company of a plan of liquidation or dissolution;
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(iii) five (5) Business Days prior to the proposed consummation with
respect to the Company of a "Rule 13e-3 transaction" as defined in Rule
13e-3 under the Exchange Act (or, if necessary, such earlier date as the
Company shall determine in good faith to be required in order for the
Holder to be able to participate in such transaction), it being agreed that
the Holder will receive actual notice of the 13e-3 Statement filed with the
Commission;
(iv) For any period of three consecutive (3) Trading Days commencing
on or after the date of issuance of this Warrant, there shall be no closing
bid price on the Common Stock on the Nasdaq (as defined in Exhibit A) or a
Subsequent Market (as defined in Exhibit A);
(v) The Common Stock fails to be listed or quoted for trading on the
Nasdaq or a Subsequent Market or for a period of three consecutive (3)
Trading Days;
(vi) After the Effective Date, a holder of Registrable Securities (as
defined in the Registration Rights Agreement) is unable or not permitted to
sell Registrable Securities under the Underlying Shares Registration
Statement (as defined in Exhibit A) for any reason for five (5) or more
days (whether or not consecutive); or
(vii) The Company shall fail or default in the timely performance of
any material obligation under the Transaction Documents and such failure or
default shall continue uncured for a period of five (5) Business Days after
the date on which notice of such failure or default is first given to the
Company.
In the event the Holder delivers an Event Vesting Notice, this Warrant
shall vest with respect to the number of Warrant Shares calculated in accordance
with the formula set forth in Section 3(b), provided, that for purposes of such
calculation, (A) the Adjustment Price shall be deemed to mean the average of the
Per Share Market Values for any 10 Trading Days (which need not be consecutive)
during the 25 consecutive Trading Days preceding the date of the Event, as
selected by the Holder and (B) the Applicable Share Number shall be deemed to
mean 100% of the number of shares of Common Stock purchased by the Holder
pursuant to the Purchase Agreement.
(f) Subject to Sections 3(a) and (b), this Warrant shall be exercisable by
the registered Holder on any Business Day before 6:30 P.M., New York City time,
at any time and from time to time on or after the date hereof to and including
the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date,
the portion of this Warrant not exercised prior thereto shall be and become void
and of no value.
(g) Subject to Sections 3(a) and (b), this Warrant shall be exercisable,
either in its entirety or, from time to time, for a portion of the number of
Warrant Shares. If less than all of the Warrant Shares which may be purchased
under this Warrant are exercised at any time, the Company shall issue or cause
to be issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.
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4. Delivery of Warrant Shares.
(a) Upon surrender of this Warrant, with the Form of Election to Purchase
attached hereto duly completed and signed, to the Company at its address for
notice set forth in Section 12 and upon payment of the Exercise Price multiplied
by the number of Warrant Shares that the Holder intends to purchase hereunder,
in the manner provided hereunder, all as specified by the Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later than 3
business days after the Date of Exercise (as defined herein)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends except
(i) either in the event that a registration statement covering the resale of the
Warrant Shares and naming the Holder as a selling stockholder thereunder is not
then effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant. The Company
shall, upon request of the Holder, if available, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
A "Date of Exercise" means the date on which the Holders shall have
delivered to the Company (i) this Warrant (or any New Warrant, as applicable),
with the Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
(b) If the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 4(a) by the
third (3rd) Trading Day after the Date of Exercise, the Company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $5,000 for
each day after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to deliver certificates representing shares of
Common Stock upon exercise within the period specified herein and the Holder
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(c) In addition to any other rights available to the Holder, if the Company
fails to deliver to the Holder certificate or certificates representing the
Warrant Shares pursuant to Section 4(a) by the third (3rd) Trading Day after the
Date of Exercise, and if after such third (3rd) Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a "Buy-In"), then the Company shall
pay (1) in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for
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the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver pursuant to Section 4(b) to deliver to the Holder in connection with the
exercise at issue by (B) the Per Share Market Value at the time of the
obligation giving rise to such purchase obligation and (2) deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations under Section 4(b).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of
Common Stock with a market price on the date of exercise totaled $10,000, under
clause (A) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(d) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. If the
Company breaches its obligations under this Warrant, then, in addition to any
other liabilities the Company may have hereunder and under applicable law, the
Company shall pay or reimburse the Holder on demand for all costs of collection
and enforcement (including reasonable attorneys fees and expenses).
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of
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persons other than the Holder (taking into account the adjustments and
restrictions of Section 8). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section. Upon each such adjustment of the Exercise
Price pursuant to this Section, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(i) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate)
or otherwise make a distribution or distributions on shares of its Common
Stock or on any other class of capital stock payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into
a smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and
of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(ii) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the
right thereafter to exercise this Warrant only into the shares of stock and
other securities and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property equal to the amount of Warrant Shares such
Holder would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification or share exchange. The terms of
any such reclassification or share exchange shall include such terms so as
to continue to give to the Holder the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any
such reclassification or share exchange.
(iii) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
Sections 8(i), (ii) and (iv)), then in each such case the Exercise Price
shall be determined by
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multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Exercise Price determined as of
the record date mentioned above, and of which the numerator shall be such
Exercise Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(iv) If the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while
this Warrant is outstanding, shall, other than in connection with: (i) the
granting of options or warrants to employees, officers, directors, or
information technology consultants of the Company, (ii) shares of Common
Stock issuable upon exercise of currently outstanding options and warrants
and upon conversion of any currently outstanding convertible securities or
debt of the Company (other than shares of the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
(collectively, the "Preferred Stock")), in each case to the extent
disclosed in Schedule 2.1(c) to the Purchase Agreement of even date hereof
pursuant to which this Warrant was issued but not with respect to any
amendment or modification thereof, (iii) shares of Common Stock issuable
upon exercise of the Closing Warrants (as defined in the Purchase
Agreement) in accordance with the terms thereof, and (iv) the granting of
warrants to acquire up to an aggregate of 50,000 shares of Common Stock at
a price per share of Common Stock equal to or greater than the market price
of the Common Stock on the date of the issuance thereof, in connection with
bona fide debt, credit or equipment financing transactions but shall not
include transactions in which the Company is issuing warrants to an entity
whose primary business is investing in securities, issue shares of Common
Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any person to acquire shares of Common Stock at a
price per share less than 115% of the closing sales price of the Common
Stock on the date hereof (the "Trigger Price") (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price less than the Trigger Price, such
issuance shall be deemed to have occurred for less than the Trigger Price),
then the Exercise Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such Common Stock or such Common Stock Equivalents
plus the number of shares of Common Stock which the offering price for such
shares of Common Stock or Common Stock Equivalents would purchase at the
Trigger Price, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable, provided,
that for purposes hereof, all shares of Common Stock that are issuable upon
conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. However, upon the expiration of any
Common Stock Equivalents the issuance of which resulted in an adjustment in
the Exercise Price pursuant to this Section, if any such Common Stock
Equivalents
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shall expire and shall not have been exercised, the Exercise Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Exercise Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Exercise Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such Common Stock Equivalents actually exercised.
Notwithstanding anything herein to the contrary, all of the issued and
outstanding shares of the Preferred Stock on the date hereof shall be considered
Common Stock Equivalents and the Exercise Price shall be subject to adjustment
in relation thereto pursuant to the terms hereof.
(v) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of
the assets of the Company (on a book value basis) in one or a series of
related transactions, the Holder shall have the right thereafter to
exercise this Warrant for the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common
Stock following such merger, consolidation or sale, and the Holder shall be
entitled upon such event or series of related events to receive such amount
of securities, cash and property as the Common Stock for which this Warrant
could have been exercised immediately prior to such merger, consolidation
or sales would have been entitled. The terms of any such merger, sale or
consolidation shall include such terms so as continue to give the Holder
the right to receive the securities, cash and property set forth in this
Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(vi) For the purposes of this Section 8, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or
(B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(vii) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(viii) Whenever the Exercise Price is adjusted pursuant to Section
8(iii) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case the
adjustment shall be equal to the average of the adjustments recommended by
each of the Appraiser and such
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appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(ix) If (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; (ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; (iii) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall cause to be mailed to each Holder at their last addresses as they
shall appear upon the Warrant Register, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.
9. Payment of Exercise Price. The Holder shall pay the Exercise Price in
one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately available funds;
or
(b) Cashless Exercise. The Holder may surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined
as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
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A = the average of the closing sale prices of the Common
Stock for the five (5) trading days immediately prior to
(but not including) the Date of Exercise as reported by
Bloomberg Information Systems, Inc. (or any successor to
its function of reporting stock prices).
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such exercise
and held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 4.999% of
the then outstanding shares of Common Stock without regard to any other shares
which may be beneficially owned by the Holder or an affiliate thereof, the
Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance with the periods described
herein and, at the option of the Holder, either keep the portion of the Warrant
tendered for exercise in excess of the permitted amount hereunder for future
exercises or return such excess portion of the Warrant to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such exercise
and held by such Holder after application of this Section. Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 9.999% of
the then outstanding shares of Common Stock without regard
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to any other shares which may be beneficially owned by the Holder or an
affiliate thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will limit any
particular exercise hereunder and to the extent that the Holder determines that
the limitation contained in this Section applies, the determination of which
portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that, without regard to any other shares
that the Holder or its affiliates may beneficially own, would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and, at the option of the Holder, either keep
the portion of the Warrant tendered for exercise in excess of the permitted
amount hereunder for future exercises or return such excess portion of the
Warrant to the Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 61 days
prior notice to the Company. Other Holders shall be unaffected by any such
waiver.
(c) If the Company Stock is then listed for trading on the Nasdaq or the
Nasdaq SmallCap Market and the Company has not obtained the Shareholder Approval
(as defined below), then the Company may not issue in excess of the product of
(i) 1,937,453 Warrant Shares upon exercise of this Warrant and (ii) the quotient
obtained by dividing (x) the number of shares of Common Stock issued and sold to
the original Holder on the Closing Date by (y) the number of shares of Common
Stock issued and sold by the Company on the Closing Date (such number of shares,
the "Issuable Maximum"). The Issuable Maximum equals 19.999% of the number of
shares of Common Stock outstanding multiplied by the quotient obtained by
dividing (x) the number of shares of Common Stock issued and sold to the
original Holder on the Closing Date by (y) the number of shares of Common Stock
issued and sold by the Company on the Closing Date. If any Holder shall no
longer hold Warrants then such Holder's remaining portion of the Issuable
Maximum shall be allocated pro-rata among the remaining Holders. If on any Date
of Exercise (A) the Company Stock is listed for trading on the Nasdaq or the
Nasdaq SmallCap Market, (B) the Exercise Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
exercise in full of this Warrant, together with any shares of Common Stock
previously issued upon exercise of this Warrant, would equal or exceed the
Issuable Maximum, and (C) the Company shall not have previously obtained the
vote of shareholders, if any, as may be required by the applicable rules and
regulations of the Nasdaq Stock Market to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum pursuant to the terms hereof (the
"Shareholder Approval"), then the Company shall issue to the Holder a number of
shares of Common Stock equal to the Issuable Maximum and, with respect to the
shares whose issuance would result in an issuance of shares of Common Stock in
excess of the Issuable Maximum, (the "Excess Warrant Shares"), the Holder shall
have the option to require the Company to either (1) use its best efforts to
obtain the Shareholder Approval applicable to such issuance as soon as possible,
but in any event no later than 60 days after such request (such 60th day, the
"Target Date") or (2) pay to the Holder, within one (1) Trading Day from the
request therefor, an amount in cash equal to the product of (x) the Excess
Warrant Shares multiplied by (y) the closing sales price of the Common Stock on
(a) the Target Date or (b) the Date of Exercise giving rise to the obligation to
seek Shareholder Approval, whichever is greater (the "Cash Payment"). In the
event the Holder has elected to require the Company to seek the Shareholder
Approval pursuant to clause (1) of the
-12-
<PAGE>
immediately preceding sentence and the Company does not obtain the Shareholder
Approval on or prior to the Target Date, then, on the Target Date, the Company
shall pay the Cash Payment to the Holder. If the Company fails to pay the Cash
Payment in full pursuant to this Section within seven (7) days after the date
payable, the Company will pay interest on such amount at a rate of 18% per
annum, or such lesser maximum amount that is permitted to be paid by applicable
law, to the Holder, accruing daily from the date payable until such amount, plus
all such interest thereon, is paid in full. The Company and the Holder
understand and agree that shares of Common Stock issued upon exercise of this
Warrant and then held by the Holder or an affiliate thereof may not cast votes
or be deemed outstanding for purposes of any vote to obtain the Shareholder
Approval.
12. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 14, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
13. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 P.M. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 P.M. (New York City time) on any date and earlier than
11:59 P.M. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
30 Porter Road, Littleton, MA 01460, facsimile: (978) 952-2225, attention Chief
Executive Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.
14. Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent under
this Warrant without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed (by first
class mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
-13-
<PAGE>
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
-14-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
VIISAGE TECHNOLOGY, INC.
By: /s/ Thomas J. Colatosti
---------------------------
Name: Thomas J. Colatosti
Title: President and Chief Executive Officer
-15-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Viisage Technology, Inc.
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock ("Common Stock"), $.001 par value per share, of Viisage
Technology, Inc. and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: Name of Holder:
_________________, _______
(Print)_______________________________
(By:)_________________________________
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Viisage Technology,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Viisage Technology, Inc. with full power
of substitution in the premises.
Dated:
_____________________, _______
___________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
___________________________________________
Address of Transferee
___________________________________________
___________________________________________
In the presence of:
________________________
<PAGE>
Exhibit A
(i) "Adjustment Price" means the average of the Per Share Market Values for
any 10 Trading Days (which need not be consecutive) during the 25 consecutive
Trading Days preceding a Vesting Date, as selected by the Holder (which may
include Trading Days prior to the Effective Date).
(ii) "Applicable Share Number" means 1/3 of the number of shares of Common
Stock purchased by the Holder pursuant to the Purchase Agreement.
(iii) "Business Day" shall have the meaning set forth in the Purchase
Agreement.
(iv) "Closing Date" shall have the meaning set forth in the Purchase
Agreement.
(v) "Commission" means the Securities and Exchange Commission.
(vi) "Effective Date" the date on which the Underlying Shares Registration
Statement is first declared effective by the Commission.
(vii) "Nasdaq" means the Nasdaq National Market.
(viii) "Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq or on
any Subsequent Market on which the Common Stock is then listed or quoted, as
reported by Bloomberg Information Services, Inc. (or any successor entity
succeeding to its function of reporting prices), or if there is no such price on
such date, then the closing bid price on the Nasdaq or on such Subsequent Market
on the date nearest preceding such date, as reported by Bloomberg Information
Services, Inc. (or any successor entity succeeding to its function of reporting
prices), or (b) if the Common Stock is not then listed or quoted on the Nasdaq
or a Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Holders of a majority
of the applicable Warrant Shares.
(ix) "Purchase Agreement" means the Securities Purchase Agreement, dated
the date hereof to which the Company and the original Holder are parties and
pursuant to which this Warrant was issued.
(x) "Purchase Price" means $10.2063 (which number shall be subject to
equitable adjustment for stock splits, recombinations and similar events).
(xi) "Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof to which the Company and the original Holder
are parties.
(xii) "Subsequent Market" shall mean any of the New York Stock Exchange,
American Stock Exchange, Inc or Nasdaq SmallCap Market.
(xiii) "Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq or on the Subsequent Market on which the Common Stock is then listed
or quoted, as the case may be, or (b) if the Common Stock s not listed on the
Nasdaq or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin
<PAGE>
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean a Business Day.
(xiv) "Transaction Documents"shall have the meaning set forth in the
Purchase Agreement.
(xv) "Underlying Shares Registration Statement" shall have the meaning
ascribed to it in the Purchase Agreement.
<PAGE>
Exhibit 10.29
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. B.V.I.
March 10, 2000
Viisage Technology, Inc.
30 Porter Road
Littleton, MA 01460
Attention: President
Re: Viisage Technology, Inc. (the "Company").
Gentlemen:
Reference is made to the Securities Purchase Agreement (the "Purchase
Agreement"), of even date hereof, between the Company and the undersigned (the
"Purchasers"), pursuant to which the Company will issue and sell to the
Purchasers (i) an aggregate of 391,917 shares of Common Stock (the "Initial
Shares"), (ii) Common Stock purchase warrants, each in the form of Exhibit A to
the Purchase Agreement, pursuant to which the holder thereof shall have the
right, under certain circumstances described therein, to acquire shares of
Common Stock upon the terms set forth therein (the "Initial Adjustable Warrant")
and (iii) Common Stock purchase warrants, each in the form of Exhibit D to the
Purchase Agreement, pursuant to which the holder thereof shall have the right,
under certain circumstances described therein, to acquire shares of Common Stock
upon the terms set forth therein (the "Initial Closing Warrants" and together
with the Initial Adjustable Warrants, the "Initial Warrants"), for an aggregate
purchase price of $4,000,000. Capitalized terms used and not otherwise defined
in this letter that are defined in the Purchase Agreement shall have the
meanings set forth in the Purchase Agreement. The Initial Warrants and the
Initial Shares are sometimes collectively referred to herein as the "Initial
Securities."
The Purchasers shall, severally and not jointly, commit, subject to and
upon the terms and conditions hereof, to purchase from the Company, and the
Company shall sell to the Purchasers (A) on the First Additional Closing Date
(as defined herein): (i) up to [ ] shares of
- ----------
(1) The number which equals $3,000,000 divided by 115% of the average of the
Per Share Market Values for the ten Trading Days preceding the First
Additional Closing Date.
<PAGE>
Common Stock (the "First Additional Shares"), (ii) additional Initial Adjustable
Warrants (the "First Additional Adjustable Warrants") and (iii) additional
Initial Closing Warrants pursuant to which the holders thereof shall have the
right at any time and from time to time thereafter through the fifth anniversary
of the First Additional Closing (as defined herein) to acquire an aggregate of
up to [ ] shares of Common Stock (the "First Additional Closing Warrants"), for
an aggregate purchase price of up to $3,000,000 (the "First Additional Purchase
Price"), provided, that the First Additional Purchase Price shall not exceed 5%
of the market capitalization of the Common Stock on the First Additional Closing
Date and (B) on the Second Additional Closing Date (as defined herein): (i) up
to [ ] shares of Common Stock (the "Second Additional Shares"), (ii) additional
Initial Adjustable Warrants (the "Second Additional Adjustable Warrants" and
together with the First Additional Adjustable Warrants, the "Additional
Adjustable Warrants") and (iii) additional Initial Closing Warrants pursuant to
which the holders thereof shall have the right at any time and from time to time
thereafter through the fifth anniversary of the Second Additional Closing (as
defined herein) to acquire an aggregate of up to [ ] shares of Common Stock (the
"Second Additional Closing Warrants" and together with the First Additional
Closing Warrants, the "Additional Closing Warrants"), for an aggregate purchase
price of up to $3,000,000 (the "Second Additional Purchase Price"), provided,
that the Second Additional Purchase Price shall not exceed 5% of the market
capitalization of the Common Stock on the Second Additional Closing Date.
The commitment of the Purchasers set forth in this letter is subject to the
terms, conditions and qualifications set forth below:
1. Form of Additional Adjustable Warrants. The Additional Adjustable
Warrants shall be identical to the Initial Adjustable Warrants except that (A)
for purposes of the First Additional Adjustable Warrants, the Purchase Price (as
defined in the Initial Adjustable Warrants) shall equal 115% of the average of
the Per Share Market Values for the ten Trading Days preceding the First
Additional Closing Date and (B) for purposes of the Second Additional Adjustable
Warrants, the Purchase Price shall equal 115% of the average of the Per Share
Market Values for the ten Trading Days preceding the Second Additional Closing
Date.
2. Form of Additional Closing Warrants. The Additional Closing Warrants
shall be identical to the Initial Closing Warrants except that the Exercise
Price (as defined in the Initial Closing Warrants) applicable to (i) the First
Additional Closing Warrants shall be equal to 125% of
- ----------
(2) The number which equals 25% of $3,000,000 divided by 115% of the average of
the Per Share Market Values for the ten Trading Days preceding the First
Additional Closing Date.
(3) The number which equals $3,000,000 divided by 115% of the average of the
Per Share Market Values for the ten Trading Days preceding the Second
Additional Closing Date
(4) The number which equals 25% of $3,000,000 divided by 115% of the average of
the Per Share Market Values for the ten Trading Days preceding the Second
Additional Closing Date.
<PAGE>
the average of the closing bid prices of the Common Stock for the five (5)
Trading Days immediately preceding the First Additional Closing Date and (ii)
the Second Additional Closing Warrants shall be equal to 125% of the average of
the closing bid prices of the Common Stock for the five (5) Trading Days
immediately preceding the Second Additional Closing Date.
3. First Additional Documentation. In order to effectuate a purchase and
sale of the First Additional Shares, the First Additional Adjustable Warrants
and the First Additional Closing Warrants (collectively, the "First Additional
Securities"), prior to their issuance, the Company and the Purchasers shall
enter into the following agreements: (a) a securities purchase agreement
identical to the Purchase Agreement, mutatis mutandis and shall include updated
Schedules (the "First Additional Purchase Agreement") and (b) a registration
rights agreement identical to the Registration Rights Agreement, mutatis
mutandis and shall include updated Schedules (the "First Additional Registration
Rights Agreement", and together with the First Additional Purchase Agreement,
the First Additional Adjustable Warrants and the First Additional Closing
Warrants, collectively the "First Additional Transaction Documents"). The
Purchasers shall prepare the First Additional Transaction Documents.
4. Second Additional Documentation. In order to effectuate a purchase and
sale of the Second Additional Shares, the Second Additional Adjustable Warrants
and the Second Additional Closing Warrants (collectively, the "Second Additional
Securities"), prior to their issuance, the Company and the Purchasers shall
enter into the following agreements: (a) a securities purchase agreement
identical to the Purchase Agreement, mutatis mutandis and shall include updated
Schedules (the "Second Additional Purchase Agreement") and (b) a registration
rights agreement identical to the Registration Rights Agreement, mutatis
mutandis and shall include updated Schedules (the "Second Additional
Registration Rights Agreement", and together with the Second Additional Purchase
Agreement, the Second Additional Adjustable Warrants and the Second Additional
Closing Warrants, collectively the "Second Additional Transaction Documents").
The Purchasers shall prepare the Second Additional Transaction Documents.
5. The First Additional Closing. (i) The Purchasers and the Company shall
each have the right to deliver a written notice to the other (the "First
Additional Financing Notice") requiring such other party to either sell or buy
(severally and not jointly), as the case may be, the First Additional Securities
for the First Additional Purchase Price, provided, that the Company may, in its
sole discretion, elect not to sell the First Additional Securities if the number
which equals 115% of the average of the Per Share Market Values for the ten
Trading Days preceding the First Additional Closing Date is lower than $10.2063.
The First Additional Financing Notice may be delivered no earlier than {150} 182
days following the Closing Date and no later than {170} 212 days following the
Closing Date, or as otherwise agreed to by the parties hereto. At the First
Additional Closing each Purchaser shall (subject to the terms and conditions
herein) purchase such portion of the First Additional Securities as equals such
Purchaser's pro-rata portion of the Initial Securities issued and sold at the
Closing. The closing of the purchase and sale of the First Additional Securities
(the "First Additional Closing") shall take place at the offices of Robinson
Silverman,1290 Avenue of the Americas, New York, New York 10104, on the fifth
(5th) Business Day after the First Additional Financing Notice is received by
the Purchasers or the Company, as
<PAGE>
the case may be, or on such other date as otherwise agreed to by the parties
hereto, provided, that in no case shall the First Additional Closing take place
unless and until all of the conditions listed in Section 7 of this letter shall
have been satisfied by the Company or waived by the Purchasers. The date of the
First Additional Closing is hereinafter referred to as the "First Additional
Closing Date." Notwithstanding anything to the contrary contained in this
letter, each Purchaser may, prior to the First Additional Closing Date,
designate an Affiliate thereof to acquire all or any portion of the First
Additional Securities.
(ii) At the First Additional Closing, the parties shall deliver or shall cause
to be delivered the following: (a) the Company shall deliver to (x) each
Purchaser or its designated Affiliate: (1) the number of First Additional Shares
equal to such Purchaser's pro rata portion of the Initial Shares issued and sold
at the Closing, registered in the name of such Purchaser or its designated
Affiliate, (2) a First Additional Adjustable Warrant registered in the name of
such Purchaser or its designated Affiliate, (3) a First Additional Closing
Warrant registered in the name of such Purchaser or its designated Affiliate,
entitling the holder thereof to purchase such number of shares of Common Stock
as equals such Purchaser's pro-rata portion of the shares of Common Stock
underlying the Initial Closing Warrants issued and sold at the Closing, (4) a
legal opinion in form and substance acceptable to the Purchasers and (5)
executed First Additional Transaction Documents and the Transfer Agent
Instructions relating to the First Additional Securities, and (y) Robinson
Silverman, up to $25,000 for the legal fees and expenses incurred by the
Purchasers to prepare the First Additional Transaction Documents, which amount
shall be deducted by the Purchasers from the First Additional Purchase Price and
shall be paid directly to Robinson Silverman and (b) each Purchaser shall
deliver to the Company (1) its pro rata portion of the First Additional Purchase
Price, in United States dollars in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose prior to the
First Additional Closing Date and (2) the executed First Additional Transaction
Documents.
6. The Second Additional Closing. (i) The Purchasers and the Company shall
each have the right to deliver a written notice to the other (the "Second
Additional Financing Notice") requiring such other party to either sell or buy
(severally and not jointly), as the case may be, the Second Additional
Securities for the Second Additional Purchase Price provided, that the Company
may, in its sole discretion, elect not to sell the Second Additional Securities.
The Second Additional Financing Notice may be delivered no earlier than 120 days
following the First Additional Closing Date and no later than 140 days following
the First Additional Closing Date, or as otherwise agreed to by the parties
hereto. At the Second Additional Closing (as defined herein) each Purchaser
shall (subject to the terms and conditions herein) purchase such portion of the
Second Additional Securities as equals such Purchaser's pro-rata portion of the
Initial Securities issued and sold at the Closing. The closing of the purchase
and sale of the Second Additional Securities (the "Second Additional Closing")
shall take place at the offices of Robinson Silverman,1290 Avenue of the
Americas, New York, New York 10104, on the fifth (5th) Business Day after the
Second Additional Financing Notice is received by the Purchasers or the Company,
as the case may be, or on such other date as otherwise agreed to by the parties
hereto, provided, that in no case shall the Second Additional Closing take place
unless and until all of the conditions listed in Section 8 of this letter shall
have been satisfied by the Company or waived by the Purchasers. The date of the
Second
<PAGE>
Additional Closing is hereinafter referred to as the "Second Additional Closing
Date." Notwithstanding anything to the contrary contained in this letter, each
Purchaser may, prior to the Second Additional Closing Date, designate an
Affiliate thereof to acquire all or any portion of the Second Additional
Securities.
(ii) At the Second Additional Closing, the parties shall deliver or shall cause
to be delivered the following: (a) the Company shall deliver to (x) each
Purchaser or its designated Affiliate, (1) the number of Second Additional
Shares equal to such Purchaser's pro rata portion of the Initial Shares issued
and sold at the Closing, registered in the name of such Purchaser or its
designated Affiliate, (2) a Second Additional Adjustable Warrant registered in
the name of such Purchaser or its designated Affiliate, (3) a Second Additional
Closing Warrant registered in the name of such Purchaser or its designated
Affiliate, entitling the holder thereof to purchase such number of shares of
Common Stock as equals such Purchaser's pro-rata portion of the shares of Common
Stock underlying the Initial Closing Warrants issued and sold at the Closing,
(4) a legal opinion in form and substance acceptable to the Purchasers, and (5)
executed Second Additional Transaction Documents and the Transfer Agent
Instructions relating to the Second Additional Securities, and (y) Robinson
Silverman, up to $25,000 for the legal fees and expenses incurred by the
Purchasers to prepare the Second Additional Transaction Documents, which amount
shall be deducted by the Purchasers from the Second Additional Purchase Price
and shall be paid directly to Robinson Silverman and (b) each Purchaser shall
deliver to the Company (1) its pro rata portion of the Second Additional
Purchase Price, in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose
prior to the Second Additional Closing Date and (2) the executed Second
Additional Transaction Documents.
7. Conditions precedent to the First Additional Closing. Notwithstanding
anything to the contrary contained in this letter, the commitment of a Purchaser
to purchase acquire the First Additional Securities is subject to the
satisfaction or waiver by the Purchasers of each of the following conditions:
(a) Closing of Initial Shares and Initial Warrants. The Closing shall have
occurred;
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained in the Purchase
Agreement shall be true and correct as of the date when made and as of the First
Additional Closing Date as though made on and as of the First Additional Closing
Date (other than representations and warranties which relate to a specific date
(which shall not include representations and warranties relating to the "date
hereof") which representations and warranties shall be true as of such specific
date), as evidenced by an Officer's certificate attesting to such effect to be
delivered by the Company to the Purchasers at the First Additional Closing;
(c) Performance by the Company. The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by the
Transaction
<PAGE>
Documents to be performed, satisfied or complied with by the Company between the
Closing Date and the First Additional Closing Date and no Event (as defined in
the Registration Rights Agreement ) shall have occurred which has not been cured
to the satisfaction of the Purchasers;
(d) Underlying Shares Registration Statement. The Underlying Shares
Registration Statement shall have been declared effective under the Securities
Act by the Commission and shall have remained effective at all times, not
subject to any actual or threatened stop order or subject to any actual or
threatened suspension at any time prior to the First Additional Closing Date;
(e) No Injunction. Since the Closing Date, no statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated, amended, modified or endorsed by any court of governmental
authority of competent jurisdiction or governmental authority, stock market or
trading facility which prohibits the consummation of any of the transactions
contemplated by the First Additional Transaction Documents or makes
impracticable the transactions contemplated thereby;
(f) Adverse Changes. Since the Closing Date, no event or series of events
which reasonably would be expected to have or result in a Material Adverse
Effect shall have occurred;
(g) No Suspensions of Trading in Common Stock. The trading in the Common
Stock shall not have been suspended by the Commission or on the NASDAQ at any
time since the Closing Date;
(h) Listing of Common Stock. The Common Stock shall have been at all times
since the Closing Date listed for trading on the NASDAQ;
(i) Shares of Common Stock. The Company shall have duly reserved the number
of shares of Common Stock as required by the First Additional Transaction
Documents to be reserved for issuance upon exercise of the First Additional
Adjustable Warrants and the First Additional Closing Warrants;
(j) Performance of Exercise Obligations. The Company shall have timely
complied with its exercise and delivery requirements under the Initial Warrants;
(k) Closing Threshold. For the ten (10) Trading Days immediately preceding
the date of the First Additional Financing Notice, the average daily trading
volume of the Common Stock on the NASDAQ shall be at least 100,000 shares and
the average of the Per Share Market Value for such ten (10) Trading Day period
shall be greater than $6.00 (subject to equitable adjustments for stock splits,
recombinations and similar events);
<PAGE>
(l) Shareholder Approval. No approval of the shareholders of the Company
shall be required under the rules of the Nasdaq Stock Market or such other
exchange or trading facility or which the Common Stock is the traded or listed
for trading in order to issue a minimum of 200% of the shares of Common Stock
issuable upon exercise of the First Additional Adjustable Warrants (assuming
such exercise occurred on the First Additional Closing Date); and
(m) Deliveries pursuant to First Additional Transaction Documents. At the
First Additional Closing, the Company shall deliver the First Additional
Securities and executed First Additional Transaction Documents and Transfer
Agent Instructions relating to the First Additional Securities in the forms
contemplated by this letter.
8. Conditions precedent to the Second Additional Closing. Notwithstanding
anything to the contrary contained in this letter, the commitment of a Purchaser
to purchase acquire the Second Additional Securities is subject to the
satisfaction or waiver by the Purchasers of each of the following conditions:
(a) Closing of the First Additional Securities. The First Additional
Closing shall have occurred;
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained in the Purchase
Agreement shall be true and correct as of the date when made and as of the
Second Additional Closing Date as though made on and as of the Second Additional
Closing Date (other than representations and warranties which relate to a
specific date (which shall not include representations and warranties relating
to the "date hereof") which representations and warranties shall be true as of
such specific date), as evidenced by an Officer's certificate attesting to such
effect to be delivered by the Company to the Purchasers at the Second Additional
Closing;
(c) Performance by the Company. The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by the
Transaction Documents and the First Additional Transaction Documents to be
performed, satisfied or complied with by the Company between the Closing Date
and the Second Additional Closing Date and no Event shall have occurred which
has not been cured to the satisfaction of the Purchasers;
(d) Second Underlying Shares Registration Statement. The registration
statement filed pursuant to the First Additional Registration Rights Agreement
shall have been declared effective under the Securities Act by the Commission
and shall have remained effective at all times, not subject to any actual or
threatened stop order or subject to any actual or threatened suspension at any
time prior to the Second Additional Closing Date;
(e) No Injunction. Since the Closing Date, no statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated, amended, modified or endorsed by any court of governmental
authority of competent jurisdiction
<PAGE>
or governmental authority, stock market or trading facility which prohibits the
consummation of any of the transactions contemplated by the Second Additional
Transaction Documents or makes impracticable the transactions contemplated
thereby;
(f) Adverse Changes. Since the Closing Date, no event or series of events
which, in the sole opinion of the Purchasers, could have or result in a Material
Adverse Effect shall have occurred;
(g) No Suspensions of Trading in Common Stock. The trading in the Common
Stock shall not have been suspended by the Commission or on the NASDAQ at any
time since the Closing Date;
(h) Listing of Common Stock. The Common Stock shall have been at all times
since the Closing Date listed for trading on the NASDAQ;
(i) Shares of Common Stock. The Company shall have duly reserved the number
of shares of Common Stock as required by the Second Additional Transaction
Documents to be reserved for issuance upon exercise of the Second Additional
Adjustable Warrants and the Second Additional Closing Warrants;
(j) Performance of Exercise Obligations. The Company shall have timely
complied with its exercise and delivery requirements under the First Additional
Adjustable Warrants and the First Additional Closing Warrants;
(k) Closing Threshold. For the ten (10) Trading Days immediately preceding
the date of the Second Additional Financing Notice, the average daily trading
volume of the Common Stock on the NASDAQ shall be at least 100,000 shares and
the average of the Per Share Market Value for such ten (10) Trading Day period
shall be greater than $6.00 (subject to equitable adjustments for stock splits,
recombinations and similar events);
(l) Shareholder Approval. No approval of the shareholders of the Company
shall be required under the rules of the Nasdaq Stock Market or such other
exchange or trading facility or which the Common Stock is the traded or listed
for trading in order to issue a minimum of 200% of the shares of Common Stock
issuable upon exercise of the Second Additional Adjustable Warrants (assuming
such exercise occurred on the Second Additional Closing Date); and
(m) Deliveries pursuant to Second Additional Transaction Documents. At the
Second Additional Closing, the Company shall deliver the Second Additional
Securities and executed Second Additional Transaction Documents and Transfer
Agent Instructions relating to the Second Additional Securities in the forms
contemplated by this letter.
<PAGE>
9. Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including,
without limitation, the rights arising out of this letter or out of the either
the First Additional Transaction Documents or the Second Additional Transaction
Documents, if any, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose.
10. Governing Law. This letter shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof.
11. Execution. This letter may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
<PAGE>
Please indicate your agreement with the foregoing by executing a
countersigned copy of this letter and returning the same to our attention,
whereupon effective immediately thereafter this letter shall become a legally
valid and binding agreement between the Purchasers and the Company.
We look forward to our continuing relationship.
Sincerely,
Strong River Investments, Inc.
By: /s/ Kenneth L. Henderson
----------------------------------
Name: Kenneth L. Henderson, Esq.
Title: Attorney In Fact
Agreed and accepted
March 10, 2000
Viisage Technology, Inc.
By: /s/ Thomas J. Colatosti
-------------------------------
Name: Thomas J. Colatosti
Title: President and Chief Executive Officer
<PAGE>
EXHIBT 23.1
Consent of Independent Public Accountants
-----------------------------------------
We hereby consent to the incorporation by reference of our report dated
February 4, 2000 relating to the financial statements of Viisage Technology,
Inc. (the "Company") appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 into the Company's previously filed
Registration Statements on Form S-8 (No.'s 333-28695, 333-42485 and 333-90177)
BDO Seidman, LLP
Boston, Massachusetts
March 30, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
registration statements on Form S-8 (no.'s 333-28695, 333-42485 and 333-90177).
Arthur Andersen LLP
Boston, Massachusetts
March 24, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Viisage Technology, Inc., hereby
jointly and severally constitute and appoint Thomas J. Colatosti and Charles J.
Johnson, and each of them singly, our true and lawful attorneys with full power
to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Annual Report on Form 10-K filed herewith and
any and all amendments to said Registration Statement and generally to do all
such things in our names and on our behalf in our capacities as officers and
directors to enable Viisage Technology, Inc. to comply with the Securities Act
of 1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all signatures as they may be signed
by our said attorneys, or any of them, to said Registration Statement and all
amendments thereto.
Signature Title
- --------- -----
By: /s/ Denis K. Berube Chairman of the Board of Directors
-------------------
Denis K. Berube
By: /s/ Thomas J. Colatosti President and Chief Executive Officer
-----------------------
Thomas J. Colatosti (Principal Executive Officer and Principal
Financial and Accounting Officer)
By: /s/ Charles J. Johnson Secretary and Director
----------------------
Charles J. Johnson
By: /s/ Harriet Mouchly-Weiss Director
-------------------------
Harriet Mouchly-Weiss
By: /s/ Peter Nessen Director
----------------
Peter Nessen
By: /s/ Thomas J. Reilly Director
--------------------
Thomas J. Reilly
By: /s/ Charles E. Levine Director
---------------------
Charles E. Levine
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<CURRENT-ASSETS> 26,718
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<DEPRECIATION> 10,108
<TOTAL-ASSETS> 44,680
<CURRENT-LIABILITIES> 13,169
<BONDS> 0
0
2,782
<COMMON> 9
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<TOTAL-LIABILITY-AND-EQUITY> 44,680
<SALES> 19,297
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<CGS> 15,131
<TOTAL-COSTS> 2,931
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