AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO.
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SAC TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
MINNESOTA 3577 41-1741861
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
4444 WEST 76TH STREET, SUITE 600, EDINA, MINNESOTA 55435
(612) 835-7080
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
MR. BARRY M. WENDT
CHIEF EXECUTIVE OFFICER
SAC TECHNOLOGIES, INC.
4444 WEST 76TH STREET, SUITE 600
EDINA, MINNESOTA 55435
TELEPHONE: (612) 835-7080 FACSIMILE: (612) 835-6620
(Name, address and telephone number of agent for service)
COPIES TO:
STEPHEN E. SMITH, ESQ. MICHAEL L. BERDE, ESQ.
DANIEL R. TENENBAUM, ESQ. KEVIN S. SPRENG, ESQ.
DOHERTY, RUMBLE & BUTLER, PROFESSIONAL MERRITT, FURBER & TIMMER
ASSOCIATION 2100 METROPOLITAN CENTRE
3500 FIFTH STREET TOWERS 333 SOUTH SEVENTH STREET
150 SOUTH FIFTH STREET MINNEAPOLIS, MINNESOTA 55402
MINNEAPOLIS, MINNESOTA 55402-4235 TELEPHONE: (612) 338-3695
TELEPHONE: (612) 340-5555 FACSIMILE: (612) 330-0959
FACSIMILE: (612) 340-5584
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
1,210,000
Common Stock, $0.01 par value shares(2) $6.00 $7,260,000 $2,200
Underwriters Warrant to purchase shares
of Common Stock (3) 1 $ 100 $ 0(4)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Includes the Underwriter's over-allotment option to purchase up to 110,000
shares.
(3) Represents a warrant to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the Shares to be sold by the Company to
the public hereunder.
(4) None, pursuant to Rule 457(g).
THE SMALL BUSINESS ISSUER HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE SMALL
BUSINESS ISSUER SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
SAC TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 502(f) OF REGULATION S-B
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page; Underwriting and Plan of
Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters,
and Control Persons Risk Factors; Management; Principal Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management Principal Shareholders
12. Description of Securities Summary; Description of Securities
13. Interest of Named Experts and Counsel Experts; Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Description of Securities; Underwriting
15. Organization Within Last Five Years Summary; Business
16. Description of Business Summary; Risk Factors; Business
17. Management's Discussion and Analysis or
Plan of Operation Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Divided Policy; Shares Available for Future Sale; and
Description of Securities
21. Executive Compensation Management
22. Financial Statements Summary; Capitalization; Selected Historical and Pro Forma
Financial Data; Index to Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1996
1,100,000 SHARES
[LOGO] SAC TECHNOLOGIES, INC.
SAC TECHNOLOGIES, INC.
COMMON STOCK
SAC Technologies, Inc. (the "Company") is offering hereby 1,100,000 shares
(the "Shares") of the Company's $0.01 par value common stock. The Price to
Public is expected to be $6.00 per share. See "Risk Factors -- Arbitrary
Offering Price; No Prior Public Market; Possible Volatility of Stock Price."
Prior to this offering, there has been no public market for the Shares, and no
assurance can be given that any such market will exist or develop upon
completion of this offering or, if developed, will be maintained. The initial
offering price of the Shares offered hereby has been arbitrarily determined by
negotiations between the Company and Tuschner & Company, Inc. (the
"Underwriter"). See "Underwriting." The Company has applied for listing of the
Shares on the Nasdaq SmallCap Market under the symbol "SACM."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING
ON PAGE 3 AND "DILUTION" ON PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)(2)
Per Share $6.00 $0.60 $5.40
Total(3) $6,600,000 $660,000 $5,940,000
(1) The Company has agreed to pay the Underwriter a nonaccountable expense
allowance equal to 3% of the gross proceeds of this offering, and has
agreed to issue to the Underwriter a five-year warrant to purchase
110,000 shares of common stock at 120% of the Price to Public. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$433,000 (including the nonaccountable expense allowance referenced in Note
1 above).
(3) The Company has granted the Underwriter a 30-day option to purchase up to
an aggregate of 110,000 additional shares of common stock solely to cover
over-allotments, if any, at the per share Price to Public less the
Underwriting Discount. If the Underwriter exercises this option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
in the aggregate will be $7,260,000, $726,000 and $6,534,000,
respectively. See "Underwriting."
The Shares are offered by the Underwriter subject to prior sale when, as and if
delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, correct or modify the offering and
to reject an order in whole or in part. It is expected that delivery of the
certificates representing shares of common stock will be made at the offices of
the Underwriter in Minneapolis, Minnesota on , 1997.
TUSCHNER & COMPANY, INC.
The date of this Prospectus is , 1997
[PHOTOGRAPH OF SACMAN UNIT]
TRADEMARKS
SACMan is an unregistered trademark of the Company. This Prospectus also
contains names and marks of other companies.
IN CONNECTION WITH THIS OFFERING, THIS UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS, INCLUDING INFORMATION UNDER "RISK FACTORS." UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE
UNDERWRITER'S OVER-ALLOTMENT OPTION AND (II) REFLECTS THE COMPANY'S NINE-FOR-TWO
STOCK SPLIT IN APRIL, 1996. SEE "DESCRIPTION OF SECURITIES" AND "UNDERWRITING."
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" FOR INFORMATION PROSPECTIVE INVESTORS SHOULD CONSIDER.
THE COMPANY
SAC Technologies, Inc. (the "Company") develops, markets, distributes,
manufactures, and assembles fingerprint identification products for use in
general commercial and consumer market applications. It is generally recognized
that fingerprint patterns are unique to each individual. However, manual
fingerprint analysis is time-consuming, tedious, and potentially unreliable. The
Company's focus has been to develop automated fingerprint identification
products for the access control market which are portable, easily integrated
with existing applications, and affordable for mass commercial uses. See
"Business--General."
The Company has completed the development of its initial automated fingerprint
identification product called SACMan(tm). The Company's products, including
SACMan, are designed to provide controlled access to information, resources, and
facilities. The Company plans to market its products for a variety of different
applications including information access control, computer network access
control, and facility access control. SACMan is principally intended to control
access to information resources, allowing only those individuals whose
fingerprints are included in a fingerprint database access to computers,
computer networks, and/or specific applications. The Company's SAC_Remote
product is being developed principally for use in restricting door entry access
to a specific set of individuals. Also, the Company's technology has potential
application in both law enforcement and financial credit transaction markets
which are reserved to Jasper Consulting, Inc. ("Jasper") by agreement. See
"Business-- Technology License," "--Products" and "--Market."
The Company believes its principal competition will come from existing methods
of restricting access to facilities, such as pass cards, personal identification
numbers, password access, locks and keys, as well as from other companies
involved in the development, manufacture, and marketing of fingerprint biometric
products. The Company's products will also be competing for market share with
other biometric technologies including hand geometry, facial recognition, iris
scanning, retinal scanning, signature verification, and voice analysis. While
many of these competitors have substantially greater resources and experience in
developing and marketing access control products, the Company believes that its
technologies provide a biometric solution which is both more reliable and less
expensive than the biometric technologies of its competitors. See
"Business--Competition."
The Company's underlying technology consists of: (i) optic technology which
captures the image of a fingerprint ("Optic Technology"); (ii) hardware and
software which translates and standardizes the image of the fingerprint for
computer analysis ("Biometric Solution"); (iii) a license to certain software
which classifies the fingerprint and matches it to an existing database ("FIDS
Technology"); and (iv) SAC_App application database development software which
can be used to enter, sort, structure, manipulate, and manage a database of
fingerprint models. See "Business--Technology License."
The Company is a development stage enterprise that was formed in 1993 and has
yet to generate any significant revenues or profits.
The Company began operations and was incorporated under the laws of the State of
Minnesota in January, 1993. The Company's principal office is located at Suite
600, 4444 West 76th Street, Edina, Minnesota 55435 and its telephone number is
(612) 835-7080. The Company also leases space at 4620 South Valley View Road,
Suite A1, Las Vegas, Nevada 89103, which it plans to use for marketing and
showroom purposes. The Company's fiscal year ends December 31.
See "Business--Property."
THE OFFERING
COMMON STOCK OFFERED 1,100,000 Shares
COMMON STOCK OUTSTANDING(1)
BEFORE THE OFFERING 2,508,750 shares
AFTER THE OFFERING (PRO FORMA)(2) 3,608,750 shares
USE OF PROCEEDS For sales and marketing activities,
research and development and working
capital. See "Use of Proceeds."
PROPOSED NASDAQ SMALLCAP MARKET SACM
SYMBOL
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE 1993, (DATE
OF INCEPTION) NINE MONTHS ENDED OF INCEPTION)
YEAR ENDED DECEMBER 31 THROUGH SEPTEMBER 30 THROUGH
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA
Revenues $107,000 $229,070 $ 353,057 $ 153,374 -- $ 353,057
Costs and Other
Expenses 118,285 315,456 481,324 276,169 490,488 971,812
Loss From Operations (11,285) (86,386) (128,267) (122,795) (490,488) (618,755)
Net Loss (11,285) (86,386) (128,267) (122,795) (517,399) (645,666)
Loss Per Share -- (.03) (.05) (.05) (.20) (.24)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
1994 1995 ACTUAL PRO FORMA(1)(2)(3)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATE
Working capital (deficit) (5,628) (133,836) 90,369 5,491,369
Total assets 6,598 24,139 325,577 5,715,577
Stockholders' equity
(deficit) (5,628) (125,188) 136,918 5,643,918
</TABLE>
- ---------------------------
(1) Does not include (a) 50,000 shares of Common Stock which may be issued
upon exercise of warrants issued to the investors in connection with bridge
financing arrangements at an exercise price of $2.00 per share; (b) 41,639
shares of Common Stock which may be issued upon exercise of warrants issued
to the Underwriter in connection with a private placement and bridge
financing arrangements at an exercise price of $2.40 per share; (c) 375,000
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan, 173,000 shares of which are currently issued at a weighted
average exercise price of $2.23 per share and none of which are exercisable
within 60 days from the date hereof; and (d) up to 110,000 shares of Common
Stock issuable upon exercise of warrants which may be issued to the
Underwriter in connection with the sale of the Shares included in this
offering.
(2) Adjusted to give effect to the sale of the 1,100,000 shares offered
hereby at an assumed initial public offering price of $6.00 per share,
net of anticipated Underwriter discounts and offering expenses. Assumes
no exercise of the Underwriter's option to purchase 110,000 shares of
common stock to cover overallotments. See "Use of Proceeds."
(3) Adjusted to give effect to the anticipated application of the net proceeds
from this offering, including the repayment of certain liabilities.
RISK FACTORS
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SHOULD ONLY BE CONSIDERED BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE PURCHASERS OF THE SHARES SHOULD ALSO CONSIDER THE RISK
FACTORS SET FORTH BELOW IN CONNECTION WITH THE OTHER INFORMATION FURNISHED
HEREIN.
DEVELOPMENT STAGE COMPANY, LIMITED OPERATING HISTORY AND GOING CONCERN. The
Company is a development stage enterprise, formed in 1993, which has yet to
generate any significant revenues or profits and, since inception through
September 30, 1996, has had accumulated losses of $645,666 and negative cash
flow from operations of $718,566. In addition, the Company has never
successfully marketed a product and its officers have limited experience in the
operation and development of a business like the Company's. The Company
anticipates net losses will continue for the foreseeable future. There can be no
assurance that the Company will be able to generate significant revenues or
operate successfully. The report of the Company's independent certified public
accountants on the Company's financial statements contains an explanatory
paragraph concerning the Company's ability to continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Financial Statements."
TECHNOLOGY. The FIDS Technology used in the Company's principal product
offerings is owned by Jasper and licensed by the Company. The Company's
Biometric Solution and Optic Technology are owned by it, subject to an exclusive
worldwide license which has been granted to Jasper Consulting, Inc. ("Jasper")
to use and sell products in certain markets. Accordingly, the Company does not
exclusively own all of the technology incorporated into its products, including
SACMan(tm) and does not have complete rights to exploit its technology in all
markets. The success of the Company, therefore, will depend on its ability to
exploit each of these technologies in its market areas. If the Company fails to
perform its obligations under the license agreement with Jasper, it could lose a
critical portion of the technology necessary for the manufacture of its
products. While the Company believes it may be able to utilize other currently
available software to classify and match the fingerprint or may be able to
develop such software with its own internal resources, there can be no assurance
that such other software will be available to the Company on favorable terms, if
at all, that the Company will have the technical ability to develop its own
software, or that such software will ultimately serve as an adequate substitute
for the Company's current products. See "Business--Technology License."
INTELLECTUAL PROPERTY PROTECTION. The Company has applied for a patent directed
to the Optic Technology and Biometric Solution; however, none of the mentioned
technologies are patented by the Company. There can be no assurances given that
any patents will ever issue, or that, if issued, the Company would have the
resources to protect any such issued patent. The Company believes that its
technology described does not infringe upon patents held by others, but the
Company cannot give any assurances that such infringements do not exist. See
"Business--Technology Rights."
While the Company believes it will not be necessary to acquire additional
technologies in order to market its current planned products, there is no
assurance that the person or organization owning any additionally required
technologies will grant licenses to the Company at all, or, if licenses are
available, that the terms and conditions of such licenses will be acceptable to
the Company.
LIMITED SALES AND MARKETING; MARKET ACCEPTANCE. The Company has recently begun
marketing its SACMan(tm) product and has yet to make any significant sales of
such product. The Company's employees have limited experience in marketing such
a product and no distribution system has been developed. While the Company has
plans for developing a significant marketing and sales effort, along with
accessing various distribution channels, there can be no assurance that such
efforts will be successful or that the Company will be able to attract and
retain qualified individuals with marketing and sales expertise. The Company's
future success will depend, among other factors, upon the extent to which
consumers in the new markets acquire, adopt, and continue to use the Company's
products. There can be no assurance that the Company's products will gain wide
acceptance in these markets. See "Business-- Marketing and Sales."
CHANGES IN TECHNOLOGY. The access control market is subject to rapid
technological change and intense competition. There can be no assurance that the
Company will be able to keep pace with this change. The Company's products could
become subject to technological obsolescence and there can be no assurance that
the Company will be able to adapt to rapidly changing technology. If the Company
is unable for technological or other reasons to develop products on a timely
basis in response to technological changes, or if the Company's products or
product enhancements do not achieve market acceptance, the Company's business
would be materially and adversely affected.
LIMITED SOURCES OF SUPPLY. The Company has only limited agreements with
vendors to supply components and subassemblies on a continuing basis. Should
production requirements increase, the need for additional components and
subassemblies will increase. In the future, the Company will attempt to (i)
consummate formal supply agreement relationships, although there can be no
assurance that it will be able to do so, and (ii) obtain multiple sources of
supply for most of its components, although it may be necessary to have limited
sources of supply for certain components. Should a key supplier be unwilling or
unable to supply any such components or subassemblies in a timely manner, the
Company would be materially adversely affected. See "Business--Marketing and
Sales."
DISCRETIONARY USE OF PROCEEDS. The manner in which the proceeds of this offering
will be used is based upon the current state of the Company's business
operations, its current plans, and current economic and industry conditions.
These estimates are subject to change based upon material factors such as
unanticipated levels and types of competition, adverse market trends, and new
business opportunities. A significant portion of the net proceeds of this
offering have not been designated for any specific use other than as working
capital. Such proceeds may be utilized for one or more purposes at the Company's
discretion. There can be no assurance that the Company will ultimately use the
proceeds as described or will adequately find the most efficient use of the
proceeds raised hereby. See "Use of Proceeds."
NEED FOR ADDITIONAL FUNDS. The Company expects that, subsequent to this
offering, it may need to raise substantial additional capital to fund the
ongoing development and expansion of its business, including its research,
development, marketing and sales efforts, and to attain profitability. There is
no assurance that any additional funds needed will be available to the Company
on favorable terms, or at all. Although based on assumptions that the Company
considers reasonable, there is also no assurance that the Company's estimate of
its anticipated liquidity needs is accurate or that new business developments or
other unforeseen events will not occur, resulting in the need to raise
additional funds. In addition, it is probable that raising additional funds will
result in a substantial additional dilution and reduction in returns, if any, to
investors. See "Dilution, "Use of Proceeds," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION. The Company is engaged in a rapidly evolving field. Competition
from other companies is intense and expected to increase. Many of the Company's
competitors have substantially greater resources, research and development
staffs, sales and marketing staffs, and facilities than does the Company. In
addition, other recently developed technologies are, or may in the future be,
the basis of competitive products. There can be no assurance that the Company's
competitors will not develop technologies and products that are more effective
than those being developed by the Company or that would render the Company's
technology and products obsolete or noncompetitive. See "Business--
Competition."
PRODUCT LIABILITY; INSURANCE. The Company faces an inherent business risk of
exposure to product liability claims in the event that the use of its products
are alleged to have resulted in injuries or losses related to their manufacture
and use. Although the Company hopes to employ provisions limiting liability in
contractual relationships with customers, there can be no assurance that the
Company will be able to effectively avoid significant liability exposure. The
Company does not currently maintain any product liability insurance. The Company
may attempt to obtain insurance to minimize the impact of any potential product
liability; however, there can be no assurance that the Company will be able to
obtain such insurance on acceptable terms, or at all. Consequently, a product
liability claim or recall or other claims with respect to any uninsured
liabilities could have a material adverse effect on the business or financial
condition of the Company.
DILUTION. Purchasers of the Shares offered hereby will experience immediate
and substantial dilution of $4.44 per share in the net tangible book value of
the Shares based on the anticipated Price to Public. See "Dilution."
OUTSTANDING WARRANTS AND OPTIONS. The Company currently has outstanding warrants
and options to purchase 264,639 shares of the Common Stock (excluding the
Underwriter's Warrants issued in connection with this offering), all of which
are exercisable at prices significantly below the Price to Public of the Shares
in this offering. Exercise in the future of such warrants and options may result
in additional dilution to purchasers in this offering. See "Dilution" and
"Description of Securities."
ABSENCE OF DIVIDENDS. The Company has never declared or paid a cash dividend
on its common stock. The Company intends to retain any earnings for use in
the operation and expansion of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future, including on
the Shares offered hereby. See "Dividend Policy."
DEPENDENCE ON KEY PERSONNEL. The Company's operations are materially
dependent upon the services of Mr. Barry M. Wendt, the Chief Executive
Officer of the Company and the co-inventor of SACMan(tm) and its underlying
components, Mr. Richard T. Fiskum, the President of the Company and the
co-inventor of the Optic Technology, Mr. Gary E. Wendt, the Chief Financial
Officer of the Company, and Mr. Benedict A. Wittig, Director of Systems Software
and co-inventor of SACMan(tm) and the Biometric Solution. The loss of the
services of any of these individuals would materially and adversely affect the
Company's business. The Company has agreements with these individuals
prohibiting competition with the Company for a period of three years if the
Company terminates an individual's employment for "cause" (as defined in the
agreements), and a period of two years if an individual voluntarily terminates
employment. There can be no assurance that the Company will retain the four
individuals in its employ, or that it will successfully attract and retain
additional or replacement personnel with the requisite experience and
capabilities to enable the Company to profitably and effectively evaluate,
develop, and market the Company's product line. The Company does not currently
maintain any key man insurance on any of its officers. See "Management."
MANAGEMENT OF GROWTH. The Company hopes to significantly expand its business, in
part with the proceeds of this offering. Such anticipated expansion will likely
place further demands on the Company's existing management and operations. The
Company's future growth and profitability will depend, in part, on its ability
to successfully manage a growing sales force and implement management and
operating systems which react efficiently and timely to short and long-term
trends or changes in its business. There can be no assurance that the Company
will be able to effectively manage any expansion of its business. See "Use of
Proceeds" and "Management."
CONTROL BY EXISTING MANAGEMENT. The Company's directors and officers will
own, after this offering, approximately 57% of the Company's outstanding
capital stock and will be able to control the Company's business and affairs,
including electing directors, appointing officers and determining officers'
compensation. See "Management;" "Principal Shareholders;" and "Description of
Securities."
LIMITATIONS OF LIABILITY. The Company's Articles of Incorporation provide, as
permitted by Minnesota law, that a director of the Company shall not be
personally liable to its shareholders for monetary damages for breach of his or
her fiduciary duty of care as a director, with certain exceptions. In addition,
the Company's bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Minnesota law. See "Description of
Securities--Indemnification."
MINNESOTA ANTI-TAKEOVER LAW. Certain provisions of the Minnesota Business
Corporation Act restrict the voting rights of a shareholder who acquired the
Company's shares in a "control share acquisition," and limit the Company's
ability to engage in a "business combination" with an "interested
shareholder." The effect of these provisions could be to impede or deter a
bidder for the Company's shares. See "Description of Securities--Minnesota
Anti-Takeover Law."
ARBITRARY OFFERING PRICE; NO PRIOR PUBLIC MARKET FOR SHARES; POSSIBLE VOLATILITY
OF STOCK PRICE. The Price to Public of the Shares in this offering has been
arbitrarily determined by negotiation between the Company and the Underwriter.
Such offering price should not be considered an indication of the actual value
of the Company, as it bears no relationship to the Company's assets, book value,
earnings, net worth or other financial statement criteria of value. There is
presently no market, private or public, for the Company's securities and there
can be no assurance that a trading market will ever develop, or if developed,
that it will be maintained. There can be no assurance that purchasers will be
able to resell Shares at the offering price or at any price. Following this
offering, the market price for the Common Stock may be highly volatile, and may
therefore decrease significantly, depending on a number of factors including
operating results and competitive forces, as well as market acceptance in the
Company's market areas. The stock market generally has experienced extreme price
and volume fluctuations that have particularly affected the market price of many
companies for reasons unrelated to the operating performance of or announcements
by the companies, and these broad market fluctuations and other general market
conditions may adversely affect the market price of the Company's Common Stock,
including the Shares offered hereby. See "Underwriting."
QUOTATION BY NASDAQ; APPLICABILITY OF "PENNY STOCK RULES;" POSSIBLE IMPACT ON
LIQUIDITY OF STOCK. The Common Stock has been approved for quotation on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
SmallCap Market. There can be no assurance that such approval will be
maintained. To maintain its listing after its initial inclusion on Nasdaq, the
Company must, in addition to other requirements, have total assets of at least
$2 million, capital and surplus of at least $1 million, a minimum bid price of
at least $1.00 and a market value for its publicly held shares of at least
$200,000. If the Company fails to satisfy the Nasdaq requirements to maintain
listing on Nasdaq in the future, the Common Stock will likely be quoted only in
the local over-the-counter "pink sheets" and may also be reported on the Nasdaq
OTC Bulletin Board. In the event of delisting of the Common Stock, the public
trading market for the Common Stock could be adversely affected. If the Common
Stock is subsequently delisted for failure to meet the Nasdaq maintenance
requirements, the Common Stock would be subject to the rules promulgated under
the Securities Exchange Act of 1934 relating to "penny stocks." These rules
require brokers who sell securities subject to such rules to persons other than
established customers and "institutional accredited investors" to complete
certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning the risks of trading in the
security. These rules may restrict the ability of brokers to sell the Common
Stock and may affect the ability of purchasers in this offering to sell their
Shares in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of significant amounts of Common Stock in
the public market or the perception that such sales will occur could adversely
affect the market price of the Common Stock or the future ability of the Company
to raise capital through an offering of its equity securities. Of the 3,608,750
shares of Common Stock to be outstanding upon completion of this offering, only
the 1,100,000 shares offered hereby will be eligible for immediate sale in the
public market without restriction with the exception of shares held by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act. The remaining 2,508,750 shares of Common Stock held by existing
stockholders upon completion of this offering will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Of these shares,
2,058,750 are currently held by affiliates, 1,440,000 of which would be eligible
for resale in the open market pursuant to Rules 144 and 701 under the Securities
Act beginning 90 days after the date of this Prospectus. An additional 618,750
shares will become eligible for resale under Rule 144 on or prior to December
31, 1997 and an additional 450,000 shares will become eligible for resale under
Rule 144 between January 1, 1998 and December 31, 1999. The Company and certain
of its stockholders (representing 2,058,750 of such restricted shares) have
agreed that they will not sell, directly or indirectly, any Common Stock,
without the prior written consent of the Underwriter, for a period of one year
from the date of this Prospectus. In addition, certain stockholders and warrant
holders have the right, subject to certain conditions, to participate in future
Company registrations and to cause the Company to register certain shares of
Common Stock owned by them upon exercise of currently outstanding options and
warrants. See "Shares Eligible for Future Sale."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby are
estimated to be $5,507,000 after deduction of the Underwriting discount, the
Underwriter's nonaccountable expense allowance and estimated expenses of this
offering payable by the Company. This would increase to approximately $6,081,200
if the Underwriter's over-allotment option is exercised in full. There is no
assurance that such over-allotment option will be exercised. The Company intends
to use the net proceeds from this offering, assuming no exercise of the
Underwriter's over-allotment option, in the following approximate amounts:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
AMOUNT OF APPROXIMATE
NET PROCEEDS NET PROCEEDS
<S> <C> <C>
Repayment of Notes Payable $ 267,000 5%
Capital Expenditures 200,000 4
Selling, General and Administrative 2,500,000 45
Research and Product Development 1,300,000 24
Working Capital 1,240,000 22
Total $5,507,000 100%
</TABLE>
REPAYMENT OF NOTES PAYABLE. The Company intends to use a portion of the proceeds
to repay amounts expected to be outstanding under its line of credit agreement
with a bank of $150,000. The line of credit agreement bears interest at 1% above
the prime rate of interest and expires January 1997.
The Company also intends to use a portion of the proceeds to repay a $117,000
noninterest bearing note to a stockholder. This note payable originated in
connection with an August 1995 purchase of optics technology from this
stockholder and is collateralized by a $117,000 receivable from Jasper. See
"Certain Transactions."
CAPITAL EXPENDITURES. The Company intends to use a portion of the proceeds to
purchase a "pick and place" semi-automated assembly line for
prototype/pre-production test runs in December 1996 for approximately $36,000.
Additional items will be added to this line in 1997 and 1998 for approximately
$164,000 to meet additional prototype/pre-production test requirements.
SELLING, GENERAL AND ADMINISTRATIVE. The Company plans to expand its customer
support staff to meet the demands of an increasing number of customers actively
developing markets based on the Company's products. In addition, the Company
plans to increase its press relations and trade show activities as it broadens
its market focus, and also plans to engage a controller.
RESEARCH AND PRODUCT DEVELOPMENT. Due to increased requirements for product
enhancements options and development of new products, the Company plans to
hire four to seven software developers, technical writers, and similar
personnel.
WORKING CAPITAL. The remaining net proceeds will be used for general working
capital purposes, including the purchase of inventory, contract
manufacturing, financing of accounts receivable and the payment of salaries
and increased overhead expenses related to the anticipated expansion of the
Company's operations.
The foregoing represents the Company's best estimate of its allocation of the
net proceeds of this offering, based upon the current state of its business
operations, its current plans and current economic and industry conditions.
These estimates are subject to change based upon material factors such as
unanticipated levels and types of competition, adverse market trends and new
business opportunities. Any material revisions in the allocation of proceeds
will be made at the discretion of the Board of Directors. The Company believes
the net proceeds from this offering will be sufficient to meet the Company's
capital needs through approximately mid-1998. Pending the use of the proceeds of
this offering, the Company intends to invest the proceeds in short-term, high
quality, interest-bearing instruments. If the Underwriter exercises the
over-allotment option in full, the Company will realize additional net proceeds
of $574,200. Such additional net proceeds will be added to the Company's working
capital.
DILUTION
The net tangible book value of the Company as of September 30, 1996 was $118,176
or approximately $0.05 per share. "Net tangible book value" represents the
amount of tangible assets less all liabilities. After giving effect to the sale
of 1,100,000 shares of Common Stock included in this offering (assuming an
offering price of $6.00 per share) and the application of the estimated net
proceeds therefrom, the net tangible book value of the Company as of September
30, 1996 would have been $5,639,404, or $1.56 per share. This represents an
immediate increase in net tangible book value of $1.51 per share to existing
stockholders and an immediate dilution in net tangible book value of $1.56 per
share to new investors of Common Stock in this offering, as illustrated by the
following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share(1) $6.00
Net tangible book value per share at September 30, 1996 $0.05
Increase per share attributable to new investors 1.51
Pro forma net tangible book value after offering 1.56
Dilution to new investors $4.44
</TABLE>
- --------------------------
(1) Before deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company.
The following table sets forth the number of shares of Common Stock purchased
from the Company through September 30, 1996, the total consideration paid and
the average price per share paid by the existing stockholders and to be paid by
the purchasers of shares in this offering:
<TABLE>
<CAPTION>
TOTAL CASH AVERAGE
SHARES PURCHASED(1) CONSIDERATION PAID PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing
Stockholders 2,508,750 69.5% $1,176,844 15.1% $0.47
New Investors 1,100,000 30.5 6,600,000 84.9% $6.00
Total 3,608,750 100.0% $7,776,844 100.0%
</TABLE>
- --------------------------
(1) Does not include (a) 50,000 shares of Common Stock which may be issued
upon exercise of warrants issued to the investors in connection with bridge
financing arrangements at an exercise price of $2.00 per share; (b) 41,639
shares of Common Stock which may be issued upon exercise of warrants issued
to the Underwriter in connection with a private placement and bridge
financing arrangements at an exercise price of $2.40 per share; (c) 375,000
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan, 173,000 shares of which are currently issued at a weighted
average exercise price of $2.23 per share and none of which are exercisable
within 60 days from the date hereof; and (d) up to 110,000 shares of Common
Stock issuable upon exercise of warrants which may be issued to the
Underwriter in connection with the sale of the Shares included in this
offering.
DIVIDEND POLICY
For the foreseeable future, the Company does not intend to pay any cash
dividends. The Company presently expects to retain its earnings, if any, to
finance the development and expansion of its business. The payment by the
Company of cash dividends, if any, on its common stock in the future is subject
to the discretion of the Board.
CAPITALIZATION
The following table sets forth the actual shareholders' equity (deficit) at
September 30, 1996 and pro forma capitalization of the Company at September 30,
1996, as adjusted to reflect the net proceeds from the sale of the Shares
assuming a $6.00 per Share price. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
ACTUAL PRO FORMA(1)
(UNAUDITED)
<S> <C> <C>
Stockholders' equity (deficit):
Common stock, $.01 par value: 20,000,000 shares
authorized; 2,508,750 shares issued and outstanding
(actual);
and 3,608,750 shares issued and outstanding (pro forma); $ 25,088 $ 36,088
Additional contributed capital 775,005 6,271,005
Deficit accumulated during the development stage (663,175) (663,175)
Total Stockholder's Equity and Capitalization $ 136,918 $5,643,918
</TABLE>
- -------------------------
(1) Does not include (a) 50,000 shares of Common Stock which may be issued
upon exercise of warrants issued to the investors in connection with bridge
financing arrangements at an exercise price of $2.00 per share; (b) 41,639
shares of Common Stock which may be issued upon exercise of warrants issued
to the Underwriter in connection with a private placement and bridge
financing arrangements at an exercise price of $2.40 per share; (c) 375,000
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan, 173,000 shares of which are currently issued at a weighted
average exercise price of $2.23 per share and none of which are exercisable
within 60 days from the date hereof; and (d) up to 110,000 shares of Common
Stock issuable upon exercise of warrants which may be issued to the
Underwriter in connection with the sale of the Shares included in this
offering.
SELECTED FINANCIAL DATA
The following selected financial data of the Company have been derived from its
financial statements. The financial statements at December 31, 1994 and 1995
have been audited by Divine, Scherzer & Brody, Ltd. The data set forth below
should be read in conjunction with the financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE NINE MONTHS ENDED 1993 (DATE
OF INCEPTION) NINE MONTHS ENDED OF INCEPTION)
YEARS ENDED DECEMBER 31 THROUGH SEPTEMBER 30, THROUGH
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA
Revenues $107,000 $229,070 $ 353,057 $ 153,374 -- $ 353,057
Costs and other expenses
Costs of Other Services 33,154 28,799 61,953 28,799 -- 61,953
Selling, General and
Administrative 12,932 35,849 73,806 18,787 164,437 238,243
Research and development 72,199 250,808 345,565 228,583 326,051 671,616
118,285 315,456 481,324 276,169 490,488 971,812
Loss from Operations (11,285) (86,386) (128,267) (122,795) (490,488) (618,755)
Interest Expense, Net -- -- -- -- (26,911) (26,911)
Net Loss $(11,285) $(86,386) $(128,267) $(122,795) $(517,399) $(645,666)
Loss Per Share $ -- $ (.03) $ (.05) $ (.05) $ (.20) $ (.24)
</TABLE>
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
(UNAUDITED)
SELECTED BALANCE SHEET DATA
Working capital (deficit) $(5,628) $(133,836) $ 90,369
Total assets 6,598 24,139 325,577
Stockholders' equity
(deficit) (5,628) (125,188) 136,918
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS. FUTURE OPERATING
RESULTS ARE SUBJECT TO FLUCTUATIONS NOT WITHIN THE CONTROL OF THE COMPANY. THE
FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THE PROSPECTUS, THE RISK FACTORS SECTION OF THIS
PROSPECTUS, AND THE OTHER INFORMATION CONTAINED IN THE PROSPECTUS.
OVERVIEW
The Company was incorporated in 1993 to develop real-time, stand-alone systems
capable of identifying individuals through automated fingerprint analysis for
use in controlling access to resources, information and facilities. From
inception through most of 1996 the Company's development efforts, which by
agreement were to be funded by Jasper Consulting, Inc. ("Jasper"), were
principally focused on the development of its fingerprint identification and
analysis products. In the second half of 1996, the Company shifted its principal
focus from development to marketing and sales of its products. However, there
have been no significant product sales to date and the Company's revenues to
date have been derived principally through its development arrangement with
Jasper or from other services provided to Jasper.
The Company's more significant current product offerings incorporate FIDS
Technology, a technology developed by the Company for Jasper, with other
technologies developed by the Company. The Company has a world-wide license
agreement with Jasper for use of the FIDS Technology in all markets except for
financial services, law enforcement, national identification systems, and
personal identification systems for government and medical applications, which
market rights are reserved for Jasper. If the Company fails to perform its
obligations under the license agreement with Jasper, it could lose a critical
portion of the technology necessary for the manufacture of its products. While
the Company believes it may be able to utilize other currently available
software to classify and match the fingerprint or may be required to develop
such software with its own internal resources, there can be no assurance that
such other software will be available to the Company on favorable terms, if at
all, that the Company will have the technical ability to develop its own
software, or that such software will ultimately serve as an adequate substitute
for the Company's products. See "Business--Company History" and "--Technology
License."
The Company also has completed development of a Set Top Box, which provides for
basic personal computer functions and Internet access via a wireless keyboard
and a conventional television set. However, the Company does not believe that
the promotion and marketing of the Set Top Box is within its focus and,
accordingly, conveyed the technology in exchange for a 50% ownership interest in
the initial equity of Inter-Con/PC, Inc. ("Inter-Con") a development stage
Company. See "Business--Set Top Box Technology."
The Company's focus in the near term is to market its products primarily in the
following application areas: controlled access to appliances, information
resources, computers, computer networks, as well as apartments, offices and
other facilities. The Company anticipates adding approximately 14 employees
through 1998. The Company anticipates ongoing research and development expenses
during 1997 at a level greater than that experienced for the nine months ended
September 30, 1996. The Company anticipates selling, general and administrative
expenses will increase significantly in connection with its transition to
marketing and selling its products.
The Company is considered a development stage enterprise for accounting
purposes. Results achieved to date are not indicative of future results
primarily because the Company has shifted its focus from the development of its
products to the marketing and selling of its products. The Company may continue
to sustain operating losses for the foreseeable future. Management believes
existing cash reserves and availability under its line of credit agreement with
a bank will not be adequate to last beyond early 1997. The Company believes that
if the Shares offered hereby are sold at the $6.00 offering price, the proceeds
from this offering will be sufficient to fund operations through approximately
mid- 1998. See "Use of Proceeds" for discussion of anticipated use of proceeds
related to this offering. There can be no assurance this offering will be
successful.
By agreement, Jasper is obligated to pay a royalty to the Company for sales of
certain products and the Company has the exclusive right to manufacture products
sold by Jasper, subject to a predetermined pricing structure. However, the
Company is not relying on these potential sources of revenue or its interest in
Inter-Con previously described to significantly impact its results of
operations.
DEVELOPMENT STAGE RESULTS OF OPERATIONS
Revenues of $353,057 from inception (January 7, 1993) through September 30, 1996
were from reimbursement of development costs and other services provided to
Jasper. Jasper agreed to fund development of SACMan(tm) and related products
through April 1996. As more fully discussed in the Company's notes to financial
statements for the years ended December 31, 1994 and 1995, the Company has
recognized revenue from Jasper on the cash method, as collectibility of amounts
billed is not assured.
As of September 30, 1996, there were $407,000 of billings outstanding from
Jasper which have not yet been recognized for financial reporting purposes.
Jasper has agreed to allow the Company to offset future product royalties due to
Jasper, if any, against these unrecognized receivables. In addition, the Company
may also charge an additional $800 for each product manufactured by the Company
for Jasper in order to accelerate payment of the outstanding balance. The
Company has sold no products which would require payment of royalties to Jasper.
The Company has no orders to manufacture products on behalf of Jasper. No
assurance can be given that future sales subject to payment of royalty to Jasper
or orders to manufacture products on behalf of Jasper will occur in amounts
sufficient to offset the uncollected billings above, if at all.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996:
Revenues were $153,374 during the nine months ended September 30, 1995 as
compared to no revenues recognized during the same period in 1996. The decline
is attributable to the timing of collection of fees received under its
development arrangement with Jasper. There were $117,000 and $290,000 of
billings to Jasper during the nine months ended September 30, 1995 and 1996,
respectively, which remain outstanding and which have not yet been recognized
for financial reporting purposes as of such dates.
Selling, general and administrative expense increased $145,650 to $164,437
during the nine months ended September 30, 1996, as compared to $18,787 for the
same period in 1995. The increase is attributable to the Company beginning to
market its products in 1996.
Research and development expense increased $97,468 to $326,051 during the
nine months ended September 30, 1996 as compared to $228,583 for 1995. The
increase is attributable to increased development activity to commercialize
certain of its products.
No interest expense was incurred for the nine months ended September 30, 1995
and interest expense was $30,591 during the same period in 1996. The increase
was attributable to borrowings under the Company's line of credit agreement with
a bank and borrowings under convertible bridge notes issued during 1996, which
were subsequently converted to common stock.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995:
Revenues increased $122,070 to $229,070 during 1995 as compared to $107,000 for
1994. The increase is attributable to fees collected from increased development
activity of the Company's products under its development arrangement with
Jasper. There were $15,421 and $117,000 of billings to Jasper during 1994 and
1995, respectively, which remain outstanding and which have not yet been
recognized for financial statement purposes as of such dates.
Research and development expense increased $178,609 to $250,808 during 1995 as
compared to $72,199 for 1994. The increase is attributable to increased
development activity to commercialize certain of its products.
LIQUIDITY AND CAPITAL RESOURCES
Total cash used in operating activities from inception (January 7, 1993) through
September 30, 1996 was $718,566 and is principally due to operating losses. As
of September 30, 1996 the Company had working capital $90,369.
The Company's capital requirements have been principally met through the
issuance of 2,508,750 shares (after effect of a nine-for-two stock split during
April 1996) of common stock for gross proceeds of $1,201,844 (includes issuance
of $200,000 of convertible bridge notes during 1996 subsequently converted into
common stock), net of a buyout of all of Jasper's common stock during August and
December 1996 for total cash consideration of $138,000 plus non-cash
consideration of $170,174.
The Company has a $150,000 revolving credit agreement with a bank. Interest is
at 1% above the prime rate of interest. The agreement is collateralized by
substantially all assets of the Company and guaranteed by three stockholders.
The agreement expires in January, 1997. The Company does not anticipate any
problems in renewing this agreement.
In connection with the Company's contribution of the "Set Top Box" technology to
Inter-Con in November 1996, the Company agreed to complete development of
certain "Set Top Box" related products at an estimated future cost to the
Company of approximately $30,000. The Company has also entered into a technical
support agreement with Inter-Con for which the Company will provide technical
support to Inter-Con for a fee of up to $20,000 per month. See "Business--Set
Top Box Technology."
During July 1996 the Company has issued stock options to employees and
consultants to purchase an aggregate of 173,000 shares of common stock at
weighted average exercise prices of $2.23 per share. Also, during July and
August 1996, in connection with a private offering of common stock and issuance
of convertible bridge notes (which were subsequently converted to common stock),
warrants to purchase 91,639 shares of common stock at weighted average exercise
prices of $2.18 per share were issued.
RECENTLY ISSUED ACCOUNTING STANDARD
The Company accounts for stock options and other equity instruments in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Effective in fiscal 1996, the Company will account for stock options in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation." SFAS No. 123 establishes accounting
standards for organizations that have stock based employee compensation plans.
Generally, the statement defines a fair value based method of accounting for
these plans which requires the measurement of compensation costs at the grant
date and recognition of such costs over the service period, which is usually the
vesting period. The Company will continue to value its options under APB Opinion
No. 25 and will comply with the disclosure requirements of SFAS No. 123.
BUSINESS
GENERAL
Incorporated in 1993, SAC Technologies, Inc. (the "Company") develops,
manufactures, markets, assembles, and distributes fingerprint identification
products for use in general commercial and consumer market applications. It has
been generally recognized since the late nineteenth century that fingerprint
patterns are unique to each individual. However, manual fingerprint analysis is
time-consuming, tedious, and potentially unreliable. The Company's goal has been
to develop automated fingerprint identification products which are portable,
easily integrated with existing applications, and affordable for mass
commercialization.
The Company's underlying technology consists of (i) optic technology which
captures the image of a fingerprint ("Optic Technology"); (ii) hardware and
software which translates and standardizes the image of the fingerprint for
computer analysis ("Biometric Solution"); (iii) a license to certain software
which classifies the fingerprint and matches it to an existing database ("FIDS
Technology"); and (iv) SAC_App, an application generator development package
which facilitates integration of the Company's products for vertical market
applications. Utilizing these technologies, the Company has continued the
development of its initial automated fingerprint identification products. Its
initial product, SACMan(tm), is principally targeted to control access to
information resources such that only individuals comprising an approved
fingerprint database are allowed access to computers, computer networks, and/or
specific applications. The Company's SAC_Remote product, currently scheduled for
release in early 1997, is designed principally for use in restricting door entry
access to a specific set of individuals.
The Company's more significant current product offerings incorporate FIDS
Technology, a technology developed by the Company for Jasper Consulting, Inc.
("Jasper") with other technologies developed by the Company. The Company has a
world-wide license agreement with Jasper for use of the FIDS Technology in all
markets except for financial services, law enforcement, national identification
systems, and personal identification systems for government and medical
applications, which market rights are reserved for Jasper. If the Company fails
to perform its obligations under the license agreement with Jasper, it could
lose a critical portion of the technology necessary for the manufacture of its
products. While the Company believes it may be able to utilize other currently
available software to classify and match the fingerprint or may be able to
develop such software with its own internal resources, there can be no assurance
that such other software will be available to the Company on favorable terms, if
at all, that the Company will have the technical ability to develop such
software on its own, or that such software will ultimately serve as an adequate
substitute for the Company's products.
As indicated above, the Company's technology also has potential application in
both the law enforcement and financial credit transaction markets, which are
reserved to Jasper by agreement subject to the payment of a royalty to the
Company. Law enforcement application users could use the Company's products to
compare a live scan or latent fingerprint to an on-line database of
fingerprints. In financial credit transaction applications, a live scan would be
compared to either an on-line database or to a fingerprint stored on a card
(magnetic stripe or smart card) for real-time verification of the consumer and
concurrent approval or disapproval of the transaction. See "Business--Technology
License" and "--Market."
COMPANY HISTORY
In 1992 Jasper engaged North Country Business Products, an office supply company
located in Bemidji, Minnesota, in discussions about the possibility of
developing an automated fingerprint identification device. North Country
Business Products began a search for someone who could engineer and develop such
a product. Barry M. Wendt, the Company's CEO, was contacted and determined that
the automation of such a process was within his abilities. Consequently, in
1993, a new company, BBG Engineering, Inc. ("BBG") was formed by Jasper and Mr.
Wendt, along with Benedict A. Wittig and Gary E. Wendt for the purpose of
developing an automated fingerprint identification systems (BBG subsequently
changed its name to SAC Technologies, Inc.). Jasper agreed, in consideration of
an assignment of the patent rights to the FIDS technology, to fund the
development of a fingerprint identification system.
By mid-summer of 1993, BBG completed the development of the initial concepts for
electronic analysis of fingerprints. Pursuant to the Company's agreement with
Jasper, initial patent applications were filed by Jasper in the fall of 1993.
Also, in the fall of 1993 the Company acquired the Optic Technology from Richard
Fiskum to be used in conjunction with and as an integral part of the fingerprint
analysis system. Subsequently, the Company redeemed all of the shares of the
Company owned by Jasper. It was also at this time that the Company finalized the
original intention of its underlying understandings with Jasper with respect to
a licensing agreement (the "Jasper Agreement"). From inception through most of
1996 the Company's development efforts, which by agreement were to be funded by
Jasper, were principally focused on the development of its fingerprint
identification and analysis products. See "Business--Technology License," and
"Certain Transactions."
TECHNOLOGY LICENSE
The Company's technology consists of knowledge and information relating to
computer hardware and software which is used to create an automated process of
imaging a fingerprint, formatting the fingerprint for computer analysis, and
identifying and verifying the print relative to an existing database of
fingerprint information. The Optic Technology and the Company's Biometric
Solution are owned by the Company, subject to an exclusive worldwide license
which has been granted to Jasper to use and sell products in certain markets.
The FIDS Technology used for fingerprint analysis is owned by Jasper, subject to
an exclusive worldwide license which has been granted to the Company to make
products for all markets and to use and sell products in certain markets.
For products utilizing FIDS Technology the Jasper Agreement provides that the
Company will be paid a royalty of $30.00 for each product sold by Jasper, that
Jasper will be paid a royalty of $30.50 for each product sold by the Company,
and that all of Jasper's product requirements may be made by the Company at a
specified gross margin. The Jasper Agreement exclusively reserves to the Company
the access control market and applications including, but not limited to, the
control of access to buildings, apartments, offices and other facilities,
appliances, information resources, computers, and computer networks. The Jasper
Agreement exclusively reserves to Jasper other areas including, but not limited
to, credit card clearing, check clearing and other such financial applications,
law enforcement, national identification systems, immigration control,
automobiles, medical patient identification systems, and personnel
identification systems for federal and state government applications.
Pursuant to the Jasper Agreement, either Jasper or the Company may transfer or
license its rights to FIDS Technology, with the consent of the other party. Any
consideration received with respect to a transfer of FIDS Technology within
Jasper's field of use, will be divided as follows: (i) 10% to Jasper for
purposes of funding any legal fees and costs incurred with respect to the
transfer or claims; (ii) 10% to the Company for purposes of funding ongoing
research and development expenses with respect to the FIDS Technology, Optic
Technology, or Biometric Solution; (iii) 48% to Jasper without restriction; and
(iv) 32% to the Company without restriction. Any consideration received with
respect to a transfer of FIDS Technology within the Company's field of use, will
be divided as follows: (i) 10% to Jasper for purposes of funding any legal fees
and costs incurred with respect to the transfer or claims; (ii) 10% to the
Company for purposes of funding ongoing research and development expenses with
respect to the FIDS Technology, Optic Technology, or Biometric Solution; (iii)
48% to the Company without restriction; and (iv) 32% to Jasper without
restriction.
PRODUCTS
The Company's current plan is to develop, manufacture and market several
products which address industry-specific security applications. The products are
intended to provide controlled access to information, resources, and facilities.
Although the Company does not expect to derive any significant short-term
revenue from the markets serviced by Jasper, the Company also plans to package
its products for sale by Jasper to the consumer credit verification and
validation, law enforcement applications, and national identification systems
markets.
PRINCIPAL PRODUCTS
Each SACMan(tm) unit scans and analyzes a fingerprint in approximately three
seconds and generates an identification code which can be used to locate the
owner of the print from an online database located on an attached personal
computer. The SACMan(tm) can verify the identity of a computer user desiring
access and allow or stop the user from accessing a computer, computer network,
or specific application. SACMan(tm) incorporates most functions of existing
logic cards into a peripheral system believed by the Company to be both simple
and able to be priced for broad consumer use. The Company currently plans to
make this product available in desk-top and wall-mount enclosures created for
cost-effective uses in existing mass marketplaces.
The Company hopes to complete development in the near term of its SAC_Remote
product, currently scheduled for release in early 1997. SAC_Remote is designed
to restrict door access through fingerprint identification and adds local
processing capability to the basic unit to allow for analysis and database
comparison without the necessity of an attached personal computer. These units
will include a communication port for complex facility access control
configurations such as hotels and motels which have many access points and a
continually changing database of users.
OTHER PRODUCTS
The Company has also developed its SAC_App application database development
software which can be used to enter, sort, structure, manipulate, and manage a
database of fingerprint models. The product has been designed to facilitate the
rapid integration of the Company's technology into a wide variety of
markets and to provide for simple application definition through a menu
selection process.
Finally, the SAC_Encrypt computer data security system, also scheduled for
release in early 1997, is designed to provide for the encryption/de-encryption
of local applications programs by controlling all data files and networks
according to a user's unique fingerprint key, thereby controlling all data
movement and peripherals (e.g. disk drives, network cards and printers) within a
computer system.
INTELLECTUAL PROPERTY PROTECTION
While the Company has filed a patent application relating to both the Optic
Technology and Biometric Solution components of its technology, no patents have
yet been issued or indicated as allowable. In addition, although Jasper has
filed certain patent applications with the United States Patent & Trademark
Office with respect to FIDS Technology, no patent has yet issued and,
accordingly, none of the technologies described herein are currently patented by
the Company. Part of the Company's technology consists of software or hardware
implementations of software ("firmware"). The Company intends to take measures
to ensure copyright protection for its software and firmware releases prior to
distribution. Also, the firmware/software is serialized to ensure that only
matched sets will function together. This provides both a mechanism to combat
cloning of the Company's products and a method for standardizing products. The
Company believes it has developed common law trademark rights in the term
SACMan(tm) but has not filed a state or federal trademark application. The
Company does not claim any additional trademarks.
MARKET
The Company believes that its products will have a broad range of possible
applications relating to high technology security solutions. The potential
applications for secure access control include the following:
i. General access control--Every doorway presently utilizing any form of
controlled access represents a possible sale opportunity for the
Company. Secure access control was estimated by Security Management
Magazine (January, 1996) to be a $1.22 billion market in the United
States during 1995; approximately 40% of this is attributable to
maintenance of existing access control systems.
ii. Information resource and network access control--Every existing
computer network and stand-alone computer system represents an
opportunity for use of the Company's technology, which could provide a
cost effective method for securing information resources.
In addition, the Company may derive revenue from the efforts of Jasper in those
longer-term, markets reserved for Jasper under the Jasper Agreement. For
example, credit card companies currently have approximately 39 million
participating merchants, each of whom could benefit from units at retail check
out counters for verification of credit card users' identities. However, the
Company is not relying on these potential sources of revenue to significantly
impact its results of operations.
MARKETING AND SALES
The Company currently plans to market its products through various distributors,
original equipment manufacturers ("OEMS"), dealers, value added resellers, as
well as directly to end users. Marketing plans include direct mailing,
telemarketing, trade show presentations, advertising in trade publications, and
catalog sales. The Company plans to develop an effective strategy for
identifying the major purchasing entities in each of its target markets and
determining the appropriate medium for reaching such entities.
A majority of the Company's sales are expected to be made through qualified
volume resellers, consisting primarily of distributors, OEMS, and system
integrators. Sales to end users are likely to be made through existing retail
electronics distribution channels so that the Company can attempt to optimally
allocate its technical support resources to volume users. The Company currently
plans to develop support teams for each product with each team consisting of a
sales/marketing individual, a software engineer, and a hardware engineer. These
teams are to be developed early in the product cycle to provide for active
involvement in all the development and marketing of a particular product
including market research, product definition, user documentation, and
subsequent support and evaluation.
COMPETITION
In addition to existing commonplace methods of restricting access to facilities
such as pass cards, personal identification numbers, password access, and locks
and keys, there are numerous companies involved in the development, manufacture,
and marketing of fingerprint biometric products to government, law enforcement,
prison, and consumer markets. Some of these companies include Computer Research
Labs, Digital Biometrics, Inc., Printrak International, Identicator, Identix,
Fingermatrix, Inc., Mytec Technologies, Inc., The National Registry, Sandia
Labs, Fujitsu, Biometric Identification, Inc., and Ultrascan, Inc. While many of
these competitors have substantially greater resources and experience in
developing and marketing biometric products, the Company believes that its
technologies provide a biometric solution which is both more reliable and less
expensive than the biometric technologies of its competitors.
There are currently two types of biometric products on the market, verification
and identification. In verification, the user supplies a personal identification
number or password coupled with some form of biometric characteristic which is
then verified against the user's "Model-Template." In identification, the user
supplies a biometric characteristic only which is then verified against an
on-line database to determine the users's identity. Identification products can
eliminate ALIAS's (multiple IDs for one user) and as such are much more
difficult to develop. The Company's believes its products are true identity
products which are designed to be used in real time operation.
Most current automated fingerprint product offerings are primarily targeted to
government and law enforcement applications at a price level of at least twice
as much as SACMan(tm). This is, in part, attributable to the fact that several
of the listed competitors are integrating other manufacturers hardware and/or
software and, as such, are forced to bear higher costs and licensing fees. Of
the companies specifically targeting consumer application markets, most are
projecting product availability sometime in 1997 or 1998. Of those Companies
which do have affordable products currently for consumer applications, in the
Company's opinion, these competing products are currently less reliable and more
expensive than the Company's products.
With current non-biometric technologies the user must typically posses a key,
card, or bit of information such as an personal identification number or
password. These systems are easily defeated by obtaining possession of the key,
card, or password, or by counterfeiting the key or card. The Company's products
will also be competing for market share with other biometric technologies
including hand geometry, facial recognition, iris scanning, retinal scanning,
signature verification, and voice analysis, as well as existing
lock/security/card technology. Some of the perceived disadvantages of these
technologies are as follows:
* Hand geometry devices are subject to physical changes which makes them less
than ideal for large database sizes, where identification versus verification
is required. The devices are also typically large and, therefore, difficult
to integrate into many applications.
* Facial recognition technology can be fooled by photographs and is typically
cost prohibitive, thereby limiting its application in mass-market
applications.
* Iris scanning has remained costly, subject to user motion, and requires large
"Model Template" sizes for data storage.
* Retinal scanning has also remained expensive and is subject to user health
concerns over laser scanning of the retina.
* Signature verification is subject to user physical changes over time and is
susceptible to forgery.
* Voice analysis is subject to user physical changes and can be forged through
the use of devices capable of recording and altering individual voices.
SET TOP BOX TECHNOLOGY
The Company also has developed a computer technology which consists of a small
box which can be placed on top of a television set (the "Set Top Box") which
performs basic personal computer functions, including word processor,
spreadsheet, and database functions, as well as Internet access. With simple
connections to a phone line for communications and a television for display
purposes, the Set Top Box provides for low-cost home computing. The user
communicates with the unit via an infra-red keyboard and track-ball mouse.
The Company does not believe that the promotion and marketing of the Set Top Box
is within its primary focus and, accordingly, conveyed the technology to another
company, Inter-Con/PC, Inc. ("Inter-Con") in exchange for fifty percent (50%) of
the initial equity of Inter-Con. The Company also negotiated a short-term
royalty of two percent (2%) of net revenues from Inter-Con. The royalty
obligation of Inter-Con will terminate on the earlier of November 1, 2002, or
the completion by Inter-Con of a public offering of its common stock. It is not
currently anticipated that any member of the Company's board of directors or
executive officer of the Company will be a member of the board of directors or
an executive officer of Inter-Con. The Company does, however, pursuant to a
shareholder control agreement, have a short-term right to elect two members to a
five-person board of directors of Inter-Con.
The Company has also executed a technical support agreement with Inter-Con
wherein the Company agrees to advise and consult for three years with the
technical staff of Inter-Con in exchange for payment of technical support fees.
Because Inter-Con is a development stage company, faces significant competition
in its market, and has yet to raise the capital required to execute its business
plan, or even to pay the aforesaid technical support fees to the Company, the
Company is not expecting that its partial ownership of Inter-Con, or its
contractual relationships with Inter-Con, will result in any major benefit to
the Company, and the success of the Company is not viewed as a function of the
success of Inter-Con.
EMPLOYEES
The Company currently employs nine individuals, eight of whom are employed on a
full-time basis. Of the full-time employees, four are primarily involved in
research, development, and technical support, two are principally involved in
research, development, and administrative matters, one is principally involved
in administrative and finance matters, and one is principally involved in sales
and marketing efforts. The part time employee is principally involved in
administrative and finance matters.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business.
PROPERTY
The Company leases approximately 2,000 square feet of space at 4444 West 76th
Street, Suite 600, Edina, Minnesota 55435. The Company plans to use this space
for ongoing research and development. The lease is a three-year lease
terminating on August 31, 1998. During the term of the lease, the monthly rental
increases from $1,792 to $1,875. The Company also leases approximately 1,200
square feet of space at 4620 South Valley View Road, Suite A1, Las Vegas, Nevada
89103. The Company currently plans to use this space for marketing and showroom
facilities. The lease is a one-year lease terminating on May 31, 1997, with a
monthly rent of approximately $1,200. In addition, the Company leases an
apartment in Minneapolis, Minnesota, for use by the Company's officers,
directors, and sales staff as needed. The Company plans to locate additional
facilities for both marketing and manufacturing efforts.
MANAGEMENT
Certain information about the Company's executive management and members of the
Board of Directors is presented in the table below.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
<S> <C> <C> <C>
Barry M. Wendt(1) 49 Chief Executive Officer, Chairman of the Board 1993
Richard T. Fiskum(1) 46 President, Chief Operating Officer, Director 1995
Gary E. Wendt(1) 55 Chief Financial Officer, Director 1993
Benedict A. Wittig(1) 54 Secretary, Director 1993
</TABLE>
- -------------------------
(1) Member of the Committee for the 1996 Stock Option Plan
BARRY M. WENDT, Chief Executive Officer and Chairman of the Board since
inception of the Company, manages engineering and marketing. From 1993 to 1994
Mr. Wendt also acted as the part-time and temporary Chief Executive Officer of
Esprit Technologies, Inc., a computer manufacturer which produced high speed PCs
marketed primarily to government and industry in the midwest. From 1988 to 1995
Mr. Wendt worked for (and was the CEO from 1992 to 1995 of) The Technology
Congress, Ltd., a service bureau which supported primarily Fortune 500 companies
in CAD/CAM/CAE laser plotting, scanning, and electrical testing with emphasis on
photo-tooling for the fabrication industry. The Technology Congress, Ltd. filed
for protection under Chapter 11 of the United States Bankruptcy Code in August,
1994 and was ultimately liquidated under Chapter 7 of the Bankruptcy Code in
July, 1995. From 1985 to 1988 Mr. Wendt was the President and owner of BMW
Research, a sole proprietorship specializing in the independent research and
development of contract design of electronic products. Mr. Wendt was President
of Custom Computer Systems, Inc., a company specializing in the design,
manufacture, and sale of small business computer systems. Mr. Wendt received a
Bachelor of Science degree in Electronic Engineering from Florida International
University, a diploma in RF and Consumer Electronic systems from the De Vry
Institute of Technology, and an Associate of Science in Electronic Engineering
from Gulf Coast Community College. Mr. Wendt is the brother of Gary E. Wendt,
Chief Financial Officer and a Director of the Company.
RICHARD T. FISKUM, President, Chief Operating Officer, and a Director since
August, 1995, manages and has an active role in the development of imaging
systems and oversees and directs all manufacturing operations. From 1980 to
1996, Mr. Fiskum was Chief Executive Officer of Industrial Research and
Development, Inc., an enterprise wholly owned by Mr. Fiskum specializing in
prototype to production process development and manufacturing of precision
glass, ceramic, and plastic components and assemblies for industrial and medical
applications. From 1975 to 1980 he was a Vice President of Litchfield Precision
Components, Inc., a manufacturer of chemically milled glass and metal
components. Mr. Fiskum attended Moorhead State University where he studied
physics, chemistry, mathematics, and computer science.
GARY E. WENDT, Chief Financial Officer and a Director of the Company since
inception, prepares the Company's financial reports and administers
accounting operations. From 1993 to 1994 Mr. Wendt was Treasurer and Chief
Financial Officer of Esprit Technologies, Inc., a computer manufacturer which
produced high speed PCs and marketed primarily to government and industry in
the midwest. From 1988 to 1995 he was Secretary-Treasurer and Chief Financial
Officer of The Technology Congress, Ltd. The Technology Congress, Ltd. filed
for protection under Chapter 11 of the United States Bankruptcy Code in
August, 1994, and was ultimately liquidated under Chapter 7 of the Bankruptcy
Code in July, 1995. From 1979-1985 Mr. Wendt was a systems analyst for Custom
Computer Systems, Inc. Mr. Wendt attended Metropolitan State University,
North Hennepin Community College, and the Academy of Accountancy where he was
certified in public accounting. Mr. Wendt is not a Certified Public
Accountant. Mr. Wendt is the brother of Barry M. Wendt, Chief Executive
Officer and Chair of the Board of the Company.
BENEDICT A. WITTIG, Director of Systems Software, Secretary and a member of the
Company's Board of Directors since inception, manages all software projects and
is actively involved in software development. From 1993 to 1994 Mr. Wittig was a
Systems Software Manager for Esprit Technologies, Inc., a computer manufacturer
which produced high speed PCs and marketed primarily to government and industry
in the midwest. From 1983 to 1993, Mr. Wittig was an independent software
developer specializing in software systems for processor controlled hardware.
Prior to 1983, he worked as Staff Systems Programmer for Northern Telecom, Inc.
and as Diagnostic Programmer for Control Data Corporation. Mr. Wittig received
both a Master of Science in Electronic Engineering and a Bachelor of Science in
Electronic Engineering from the University of Missouri.
All of the foregoing individuals have executed employment agreements and
noncompetition letters containing nondisclosure obligations and, except as
prohibited by law, the obligation to assign to the Company all ideas and
inventions which relate indirectly or directly to the Company's business.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has a Committee for administration of its 1996 Stock Option Plan (the
"Plan"), composed of all four of the current officers and directors which (i)
administers the Plan; (ii) determines the purchase price of the common stock
covered by each option; determines the persons to whom and the time or times at
which options or stock awards shall be granted pursuant to the Plan; (iii)
determines the number of shares subject to each option or stock award granted
under the Plan; and (iv) authorizes and directs the issuance of the common
shares upon stock awards and the exercise of options granted pursuant to the
Plan. See "1996 Stock Option Plan."
EXECUTIVE COMPENSATION
The following table provides certain summary information for the past two years
ended December 31, 1994 and 1995 concerning executive compensation paid or
accrued by the Company to the Company's Chief Executive Officer. No executive
officers salary and bonus compensation for 1995 exceeded $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
FISCAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
<S> <C> <C> <C> <C>
Barry M. Wendt 1996 $105,842
(Chief Executive Officer) 1995 42,205 -- None
1994 17,533 -- None
</TABLE>
Additional columns required by Securities and Exchange Commission rules to be
included in the foregoing table, and certain additional tables required by such
rules, have been omitted because no compensation required to be disclosed
therein was paid or awarded to the Named Executive Officers.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 10, 1996, the Company entered into a five-year Employment Agreement with
each of the Company's officers: Barry M. Wendt, Chief Executive Officer; Richard
T. Fiskum, President; Benedict A. Wittig, Director of Systems Software; and Gary
E. Wendt, Chief Financial Officer. The terms of the Employment Agreements for
each of the above individuals are substantially the same, with differences only
as to base salary. Each officer and director may be terminated only for "cause"
as that term is defined in the Employment Agreements. In the event of
"constructive termination" as defined in the Employment Agreements, including
such matters as an adverse change in an employee's status or position in the
Company, a reduction of such employee's base salary other than for austerity
purposes, or the breach by the Company of any of its other contractual
obligations for other than austerity reasons, the employee's noncompetition
obligations lapse, and the employee's salary will be continued for up to five
years and three months salary (as of September 30, 1996) reduced by one month
each month thereafter until December 31, 2001, at which time the amount of
severance is two years. The Employment Agreements also contain confidentiality
obligations and incorporate a Non-Competition Letter. The Non-Competition Letter
prohibits each of the four individuals from competing with the Company for a
period of three years if the Company terminates the employment of any one of the
said individuals for cause, and a period of two years if any individual
voluntarily terminates employment. Except as may be prohibited by law, during
the term of the Employment Agreements, each of the said employees are obligated
to disclose and assign to the Company all ideas, inventions and business plans
developed by each of them which relate directly or indirectly to the Company's
business.
OUTSIDE DIRECTOR COMPENSATION
Members of the Board have received no cash compensation for serving on the
Board. Pursuant to the Company's 1996 Stock Option Plan, each future
non-employee Director may receive options to purchase 25,000 shares of common
stock which will vest 20% annually for five years.
1996 STOCK OPTION PLAN
The Company's Board of Directors and shareholders adopted the 1996 Stock Option
Plan on May 1, 1996 (the "Stock Option Plan"). The Stock Option Plan provides
for the reservation of 375,000 shares of Common Stock for issuance pursuant to
the exercise of stock options which may be granted to employees, officers,
directors and consultants of the Company, and permits granting both incentive
stock options (as defined under Section 422 of the Code) and options which do
not qualify as incentive stock options ("nonqualified stock options").
The Plan is administered by a committee appointed by the Board of Directors of
the Company (the "Committee"). The Committee, by action of a majority of its
members, has the authority to establish rules for administering and interpreting
the Plan. The Committee has the authority to select individuals to whom awards
are granted and the timing of such awards; to adopt, amend, and rescind
administrative and interpretive rules and regulations relating to the Plan; and
to make all other determinations necessary or advisable for administering the
Plan. The committee shall be under no duty to provide terms of like duration for
options granted under the Plan, but the term of an incentive stock option may
not extend more than ten (10) years from the date of granting of such option.
The exercise price per share of stock purchasable under any incentive stock
option granted pursuant to the Stock Option Plan will be determined by the
Committee, but shall not be less than 100% of the fair market value of the stock
on the date of the grant of such option. The option price for options granted
under the Stock Option Plan which do not qualify as incentive stock options
shall also be determined by the Committee, but may not be less than 50% of the
fair market value of the Common Stock at the date of granting of such option.
No option granted under the Plan is transferable by an optionee, other than by
will or the laws of descent or distribution. With few exceptions, during the
lifetime of an optionee the option shall be exercisable only by such optionee.
The foregoing is a brief summary of the provisions of the Plan and does not
purport to be a complete statement of its respective terms and conditions.
OTHER EMPLOYEE BENEFITS
Each officer and director of the Company receives a vehicle allowance of $300
per month. The Company provides standard health insurance packages to its
officers, directors and employees.
CERTAIN TRANSACTIONS
On August 4, 1995, Barry M. Wendt and Benedict A. Wittig, officers and directors
of the Company, each received 618,750 shares (137,500 shares prior to the stock
split) of the Company's Class A and Class B common stock in a recapitalization
of their previous equity interests in the Company. Concurrently, Gary E. Wendt,
a third officer and director, received 202,500 shares (45,000 shares prior to
the stock split) of the Company's Class A and Class B common stock in a
recapitalization of his previous interests in the Company. Each of these
individuals had previously paid $1.00 for their interests in the Company. On
April 24, 1996, all of these shares were converted into shares of common stock
of one class.
On August 4, 1995, Richard T. Fiskum, an officer and director of the Company,
purchased 472,500 shares (105,000 shares prior to the split) of the Company's
Class A and Class B common stock for $225,000. Also, on December 22, 1995 Mr.
Fiskum purchased an additional 146,250 shares (32,500 shares prior to the split)
of the Company's Class A and Class B common stock for $50,000. On April 24,
1996, all of these shares were converted into shares of common stock of one
class.
On August 4, 1995, the then existing shareholders of the Company and the Company
entered into a Stock Purchase Agreement which requires each shareholder desiring
to sell his shares in the Company to a non-shareholder to first offer such
shares to the Company. The Company was granted a sixty-day option to acquire the
shares at the price determined by the selling shareholder. If the Company did
not exercise its option, then the other shareholders, pro rata, had a subsequent
thirty-day option to acquire the same. If neither option was exercised, then the
selling shareholder could sell his shares to any third party.
During August and December, 1995 the Company repurchased all of the shares of
common stock held by Jasper for a total price of $308,174, of which $138,000
was paid in cash. See "Business--Company History."
On May 10, 1996, Barry M. Wendt, Richard T. Fiskum, Benedict A. Wittig and Gary
E. Wendt each executed a five-year Employment Agreement with the Company, each
of which may be terminated for "cause" as that term is defined in the Employment
Agreements. In the event of a "constructive termination" as defined in the
Employment Agreements, including such matters as an adverse change in an
employee's status or position in the Company, a reduction of such employee's
base salary other than for austerity purposes, or the breach by the Company of
any of its other contractual obligations for other than austerity reasons, the
employee's noncompetition obligations lapse, and the employee's salary will be
continued for up to five years and three months salary (as of September 30,
1996) reduced by one month each month thereafter until December 31, 2001, at
which time the amount of severance is two years. The Employment Agreements also
contain confidentiality obligations and incorporate a Non-Competition Letter.
The Non-Competition Letter prohibits each of the four individuals from competing
with the Company for a period of three years if the Company terminates his
employment for cause, and a period of two years if said individual voluntarily
terminates his employment. Finally, except as may be prohibited by law, during
the term of the Employment Agreements, each of the said employees are obligated
to disclose and assign to the Company all ideas, inventions and business plans
developed by each of them which relate directly or indirectly to the Company's
business.
On May 17, 1996, the Company, with the Underwriter as its selling agent,
completed the Bridge Loan pursuant to which it raised a total of $200,000, less
a commission and expense allowance to the Underwriter in this offering, then
acting as the Company's selling agent, of $8,660. Investors in the Bridge Loan
received a promissory note bearing interest at a rate of eight percent (8%) (the
"Convertible Note"). Each Convertible Note converted into shares of the
Company's Common Stock at a price of $2.00 per share upon completion of the
private placement described below. The lenders in the Bridge Loan also received
warrants to purchase (at a price of $2.00 per share) a number of shares of the
Company's Common Stock equal to one-half the principle amount of each
Convertible Note by $2.00.
On July 17, 1996, the Company, with the Underwriter as its selling agent,
completed a $900,000 private placement of its Common Stock at a per share price
of $2.00. Of this $900,000, $200,000 was represented by the conversion of the
Bridge Loans described immediately above.
The Company intends to contract with Industrial Research & Development, Inc.
("IR-D"), a company wholly owned by Richard T. Fiskum, to manufacture initial
prototypes and pre-production optics assemblies. The arrangement with IR-D is
not intended to be a long-term or exclusive relationship and will be structured
on a competitive basis.
During Mr. Fiskum's development of the Optic Technology, he purchased certain
inventory and supplies totalling approximately $70,000. Mr. Fiskum believes
these items could be used in the manufacture of products for Jasper. The
Company and Mr. Fiskum have an understanding whereby if such inventory and
supplies are needed by the Company, the Company will purchase such items from
Mr. Fiskum at a fair price, as determined in good faith by the parties.
Other than as listed above, the Company has not entered into any other material
transactions with any of its officers, directors or affiliates. If any future
transactions between the Company and its officers, directors or affiliates are
entered into in the future, they will provide terms at least as favorable as
could be obtained from unaffiliated third parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth the information as of September 30, 1996,
regarding beneficial ownership of the Company's common stock as adjusted to
reflect the sale of the Shares, for (i) all directors and each executive
officers named in the Summary Compensation table set forth in "Management," (ii)
all directors and executive officers as a group and (iii) each person known by
the Company to be the beneficial owner of 5% or more of the outstanding shares
of common stock of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BEFORE BEFORE NUMBER PERCENT
<S> <C> <C> <C> <C>
Barry M. Wendt(1)
7201 York Avenue South
Apartment 211
Edina, MN 55435 618,750 24.66 618,750 17.14
Richard T. Fiskum
28690 -- 660th Avenue
Litchfield, MN 55355 618,750 24.66 618,750 17.14
Gary E. Wendt
1950 Sixth Lane
Elk River, MN 55330 202,500 8.07 202,500 5.61
Benedict A. Wittig
10264 Scarborough Circle
Bloomington, MN 55432 618,750 24.66 618,750 17.14
All officers and Directors
as a group (4 persons) 2,058,750 82.05 2,058,750 57.03
</TABLE>
- --------------------------
(1) Barry M. Wendt also maintains a residence at 9708 Park Brook Avenue, Las
Vegas, Nevada 89134.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding 3,608,750
shares of common stock (or 3,718,750 shares of common stock if the Underwriter's
over-allotment option is exercised in full). Of these shares, the 1,210,000
Shares being sold in this offering (if the over-allotment option is exercised in
full) will be freely tradable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), subject to the lock-up described below.
In addition, subsequent to the date hereof, the Company may file a Registration
Statement on Form S-8 (the "S-8 Registration Statement") to register the 375,000
shares underlying the Company's 1996 Stock Option Plan. Shares issued upon
exercise of options and awards pursuant to the 1996 Stock Option Plan may be
freely tradeable once the S-8 Registration Statement becomes effective. Sales of
substantial amounts of common stock in the public market could adversely affect
the then prevailing market price. See "Description of Securities."
Of the 2,508,750 shares of common stock currently outstanding, none have been
registered under the Securities Act, and all are "restricted securities" under
Rule 144 of the Securities Act (the "Restricted Shares") and may not be sold in
the absence of a registration under the Securities Act unless an exemption from
registration is available, including an exemption contained in Rule 144. The
1,440,000 of the shares held by certain founders have been held for more than
two years and may be transferred upon the expiration of the lock-up period
described below, subject to Rule 144 and any state law imposed escrow
requirements. The shares held by Mr. Fiskum must be held for a minimum of two
years before they can be sold pursuant to Rule 144, and will not become eligible
for resale thereunder until the middle of 1997 and later.
The Company has obtained lock-up agreements from Messrs. Barry M. Wendt, Richard
Fiskum, Gary T. Wendt and Benedict A. Wittig. In the lock-up agreement each
shareholder agrees not to sell, offer to sell, contract to sell, or otherwise
transfer or dispose of any shares of common stock they own after consummation of
this offering for a period of one year after the date of this Prospectus without
the written consent of the Underwriter. See "Underwriting."
In general, under Rule 144 as currently in effect, a holder of Restricted Shares
who has beneficially owned such shares for at least two years (including the
holding period of any prior owner other than an affiliate of the Company) is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of common stock
(approximately 36,088 shares immediately after this offering) not including: (a)
375,000 shares reserved for issuance under the Company's 1996 Stock Option Plan;
(b) up to 110,000 shares issuable upon exercise of the Underwriter's Warrant;
(c) 110,000 shares issuable pursuant to the Underwriter's over-allotment option;
(d) 50,000 shares of Common Stock which may be issued upon exercise of warrants
issued to the investors in connection with bridge financing arrangements at an
exercise price of $2.00 per share; and (e) 41,639 shares of Common Stock which
may be issued upon exercise of warrants issued to the Underwriter in connection
with a private placement and bridge financing arrangements at an exercise price
of $2.40 per share; or (ii) the average weekly trading volume of the common
stock in the public market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person who is not an affiliate of the Company at any time during the
90 days preceding a sale and who beneficially owns shares that were not acquired
from the Company or an affiliate of the Company within the past three years is
entitled to sell such shares under Rule 144(k) without regard to volume
limitations, manner of sale provisions, notice requirements or the availability
of current public information concerning the Company. Under Rule 701, shares
privately issued under certain compensatory stock-based plans, may be resold
under Rule 144 by nonaffiliates subject only to the manner of sale requirements,
and by affiliates without regard to the two-year holding period requirement,
commencing 90 days after the date of this Prospectus.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of capital stock,
$0.01 par value, of which 2,508,750 shares are outstanding and beneficially
owned by 66 holders of record as of the date of this Prospectus. The Company
may, but to this day has not, established multiple classes and series of stock.
Holders of common stock are entitled to receive such dividends as are declared
by the Company's Board, out of funds legally available for the payment of
dividends. The Company expects to retain any earnings to finance the development
of its business. Accordingly, the Company does not anticipate payment of any
dividends on the common stock, for the foreseeable future. In the event of any
liquidation, dissolution or winding-up of the Company, the holders of common
stock will be entitled to receive a pro rata share of the net assets of the
Company remaining after payment, or provision for payment, of the debts and
other liabilities of the Company; provided, no assurance can be given that there
will be any net assets of the Company remaining for such a pro rata distribution
to the holders of the common stock after the payment or provision for payment,
of the debts and other liabilities of the Company.
Holders of common stock are entitled to one vote per share in all matters to be
voted upon by shareholders. There is no cumulative voting for the election of
Directors, which means that the holders of shares entitled to exercise more than
50% of the voting rights in an election of Directors, are able to elect all of
the Directors standing for election. Holders of common stock have no preemptive
rights to subscribe for or to purchase any additional shares of common stock, or
other obligations convertible into shares of common stock, which may hereafter
be issued by the Company.
All of the outstanding shares of common stock, and the Shares to be sold
pursuant to this offering, are validly issued and will be fully paid and
non-assessable. Holders of common stock of the Company are not liable for
further calls or assessments.
UNDESIGNATED COMMON SHARES
The Board has the authority, in most instances, without further shareholder
action, to issue, from time to time, all or any part of the 16,391,250
authorized but unissued shares of undesignated common stock. The Board can issue
undesignated common stock in one or more classes or series, and the Board has
authority to determine the designation and number of shares, in each class or
series, and to fix the dividend, redemption, liquidation, retirement, conversion
and voting rights, if any, of each class or series, and any other rights and
preferences thereof.
STOCK OPTIONS AND WARRANTS
The Company has reserved 375,000 shares of its common stock for issuance
pursuant to its 1996 Stock Option Plan and has granted options for the purchase
of 173,000 shares under the Plan. None of these 173,000 options granted are
exercisable within 60 days from the date of this Prospectus. See
"Management--1996 Stock Option Plan."
The Company issued to the investors, in connection with the May 17, 1996 Bridge
Loan, warrants to purchase 50,000 shares of common stock, at $2.00 per share.
The Company issued to the Underwriter, in connection with the July, 1996 private
placement and May 17, 1996 Bridge Loan, warrants to purchase 41,639 shares of
common stock, at $2.40 per share.
The Company has agreed to sell to the Underwriter in connection with this
offering a warrant to purchase 110,000 shares of common stock, exercisable
for a period of four years commencing one year from the date of this
Prospectus, at an exercise price of, $7.20 per share. See "Underwriting."
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673 of
the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless the control share acquisition is approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, cause the acquiring
person to have voting power in the election of directors to exceed any one of
the following thresholds of ownership: 20%, 33-1/3% or 50%. In general, Section
302A.673 prohibits a publicly-held Minnesota corporation from engaging in a
"business combination" with an "interested shareholder" for a period of four
years after the date of transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's voting stock.
INDEMNIFICATION
The Company's Bylaws and the provisions of the Minnesota Business Corporation
Act, which govern the actions of the Company, provide that present and former
directors and officers of the Company shall be indemnified against certain
liabilities and expenses which any of them may incur as a result of being, or
having been, an officer of the Company. Indemnification is contingent upon
certain conditions being met, including, that the person: has not been
previously indemnified by another party for the same matter; has acted in good
faith; has received no improper personal benefit; and, in the case of a criminal
proceeding, has no reason to believe that the conduct complained of was unlawful
and reasonably believed that the conduct complained of was in the best interests
of the Company, or in certain circumstances, reasonably believed that, the
conduct complained of was not opposed to the best interests of the Company.
In addition, the Company's Articles of Incorporation provide that a director of
the Company shall not be liable for monetary damages for a breach of such
director's fiduciary duty, except for a breach of the duty of loyalty, acts not
in good faith or in knowing violation of law, violations of state securities
laws, or for actions from which the director derived an improper personal
benefit. The Company has not obtained directors and officers liability
insurance.
Insofar as the indemnification of liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions of its Articles of Incorporation, Bylaws and the
provision of the Minnesota Business Corporation Act, or otherwise, the Company
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Transfer Agent and Registrar
The Company's transfer agent is American Stock Transfer and Trust.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to the Underwriter,
and the Underwriter has agreed to purchase from the Company the 1,100,000 Shares
offered hereby. The Underwriter has been in business as a broker-dealer only
since May of 1994 and to date, has completed only one prior public offering.
The Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent. The nature of the Underwriter's
obligation is that it is committed to purchase all Shares offered hereby if any
of the Shares are purchased.
The Company has been advised by the Underwriter that the Underwriter proposes to
offer the Shares directly to the public at the Price to Public set forth on the
cover page of this Prospectus and to certain securities dealers who are members
of the National Association of Securities Dealers, at such price less usual and
customary commissions. The Underwriter shall purchase the Shares from the
Company at the Price to Public set forth on the cover page of this Prospectus
less an underwriting discount of $0.60 per Share. The Company has agreed to pay
the Underwriter a nonaccountable expense allowance of 3% of the aggregate public
offering price of the Shares sold to the public. After the initial public
offering of the Shares, the offering price of the Shares and other selling terms
may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not later than
thirty days after the date of this Prospectus, and subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase up to 110,000
additional shares of common stock at the Price to Public, less the underwriting
discount of $0.60 per Share. The Underwriter may exercise such option only to
cover over-allotments made in connection with the sale of the Shares offered
hereby.
The Company has agreed to issue to the Underwriter, for nominal consideration, a
warrant (the "Warrant") to purchase up to 110,000 shares of the Company's common
stock. The Warrant is not exercisable during the first year after the date of
this Prospectus and thereafter is exercisable at a price per share equal to
$7.20 for a period of four years. The Warrant contains customary antidilution
provisions and obligates the Company to register the shares underlying the
Warrant under the Securities Act once at the election of the holders and at any
other time the Company has a registration statement pending under the Securities
Act. The Underwriter's Warrant also includes "cashless" exercise provisions
entitling the holder to convert the Warrant into shares of common stock. For a
period of one year from the date of this Prospectus, the Warrant will be
restricted from sale, transfer, assignment or hypothecation, except to persons
that are officers or partners of the Underwriter.
The Underwriter has informed the Company that the Underwriter does not intend to
confirm sales of the Shares to any accounts over which it exercises
discretionary authority.
The Company has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act.
The Underwriter has required that Messrs. Barry M. Wendt, Richard T. Fiskum,
Gary E. Wendt and Benedict A. Wittig agree not to offer, sell or contract to
sell or otherwise dispose of, directly or indirectly, any of the shares of
common stock or any other security convertible into or exchangeable for shares
of common stock which they legally or beneficially own after consummation of
this offering (without the prior written consent of the Underwriter) for a
period of one year after the date of this Prospectus.
Prior to this offering, there has been no public market for the Shares.
Consequently, the Price to Public was determined through negotiation between the
Company and the Underwriter and bears no relation to the Company's current
earnings, book value, net worth or financial statement criteria of value. There
can be no assurance that the price at which the Shares will sell in the public
market after this offering will not be lower than the initial Price to Public.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for the Company by Doherty, Rumble & Butler Professional Association,
Minneapolis, Minnesota. Certain legal matters in connection with this offering
will be passed upon for the Underwriter by Merritt, Furber & Timmer,
Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995,
appearing in this Prospectus and Registration Statement have been audited by
Divine, Scherzer & Brody Ltd., independent certified public accountants, as set
forth in their report (which includes an explanatory paragraph with respect to
the Company's ability to continue as a going concern) appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such report
and the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the WASHINGTON, D.C. Office of the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form SB-2
under the Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to the Company
and the Common Stock, reference is made to such Registration Statement and
exhibits. Statements made in this Prospectus as to the contents of any contract,
agreement or other documents referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved. The Registration Statement and
exhibits may be inspected without charge and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material may be obtained at prescribed rates from the
Commission's Public Reference Section at the same address. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding issuers which, like the Company,
file electronically with the Commission. The address of such site is
http://www.sec.gov.
The Company currently is not a reporting company. After completion of this
offering, the Company intends to make available to its shareholders annual
reports containing financial statements audited by its independent accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Balance Sheets F-3
Statements of Operations F-4
Statement of Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SAC Technologies, Inc.
We have audited the accompanying balance sheets of SAC Technologies, Inc. (a
Minnesota corporation in the development stage) as of December 31, 1994 and 1995
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the two years in the period ended December 31, 1995, and
the period January 7, 1993 (date of inception) through December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SAC Technologies, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995, and the period
January 7, 1993 (date of inception) through December 31, 1995, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, as discussed in Note B to the financial
statements, the Company is in the development stage and has not generated
significant revenues since inception; the Company has a deficit accumulated
during the development stage and a deficit in working capital as of December 31,
1995; and substantial doubt exists as to the Company's continuation as a going
concern. Continuation is dependent upon the success of future operations and
obtaining additional financing. We are not in a position to express an opinion
as to the Company's ability to attain successful future operations and the
effect such operations may have on financing requirements. Except for the effect
of such future operations, the financing contemplated by the offering set forth
in this prospectus should enable the Company to meet its cash flow needs in the
amounts set forth under "Use of Proceeds" elsewhere herein.
/S/ DIVINE, SCHERZER & BRODY, LTD.
St. Paul, Minnesota
October 18, 1996 (except for notes E, G and L,
as to which the date is November 14, 1996)
SAC TECHNOLOGIES, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS (NOTE B)
ASSETS (NOTE E)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (note A3) $ 1,049 $ 5,221 $ 173,300
Inventories (note A4) 5,549 5,613 81,544
Prepaid expenses -- 4,657 24,184
-------- --------- ---------
Total current assets 6,598 15,491 279,028
EQUIPMENT AND FURNITURE AND FIXTURES -
AT COST, less accumulated depreciation (notes A5 and C) -- 6,415 22,924
OTHER ASSETS (notes A5, A6 and D) -- 2,233 23,625
-------- --------- ---------
$ 6,598 $ 24,139 $ 325,577
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable (note E) $ -- $ 142,000 $ 117,000
Accounts payable (note I) 10,723 6,304 63,292
Accrued liabilities 1,503 1,023 8,367
-------- --------- ---------
Total current liabilities 12,226 149,327 188,659
COMMITMENTS AND CONTINGENCIES
(notes F, I and L) -- -- --
STOCKHOLDERS' EQUITY (DEFICIT) (notes E and G)
Common stock -- authorized,
20,000,000 shares of $.01 par value
Class A -- issued and outstanding,
1,125,000, 1,029,375 and 0 shares 11,250 10,294 --
Class B -- issued and outstanding,
1,125,000, 1,029,375 and 0 shares 11,250 10,294 --
Common stock -- issued and outstanding,
0, 0 and 2,508,750 shares -- -- 25,088
Additional contributed capital 13,753 -- 775,005
Deficit accumulated during the development stage (41,881) (145,776) (663,175)
-------- --------- ---------
(5,628) (125,188) 136,918
-------- --------- ---------
$ 6,598 $ 24,139 $ 325,577
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
SAC TECHNOLOGIES, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS (NOTE B)
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE NINE MONTHS 1993 (DATE
YEARS ENDED DECEMBER 31, OF INCEPTION) ENDED SEPTEMBER 30, OF INCEPTION)
THROUGH THROUGH
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues (notes A2 and I)
Reimbursed research and
development $ 76,000 $145,320 $ 238,306 $ 69,623 $ -- $ 238,306
Other services 31,000 83,751 114,751 83,751 -- 114,751
-------- -------- --------- --------- --------- ---------
107,000 229,070 353,057 153,374 -- 353,057
Costs and other expenses (note I)
Cost of other services 33,154 28,799 61,953 28,799 -- 61,953
Selling, general and
administrative 12,932 35,849 73,806 18,787 164,437 238,243
Research and development (note A7) 72,199 250,808 345,565 228,583 326,051 671,616
-------- -------- --------- --------- --------- ---------
118,285 315,456 481,324 276,169 490,488 971,812
-------- -------- --------- --------- --------- ---------
Operating loss (11,285) (86,386) (128,267) (122,795) (490,488) (618,755)
Other income (expense)
Interest income -- -- -- -- 3,680 3,680
Interest expense -- -- -- -- (30,591) (30,591)
-------- -------- --------- --------- --------- ---------
-- -- -- -- (26,911) (26,911)
-------- -------- --------- --------- --------- ---------
NET LOSS $(11,285) $(86,386) $(128,267) $(122,795) $(517,399) $(645,666)
======== ======== ========= ========= ========= =========
Loss per common share (note A8) $ -- $ (.03) $ (.05) $ (.05) $ (.20) $ (.24)
====== ======== ========= ========= ========= =========
Weighted average number of shares
outstanding (note A8) 2,717,067 2,712,351 2,715,486 2,717,067 2,574,728 2,687,190
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
SAC TECHNOLOGIES, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (NOTES B, E AND G)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sales of common stock January 7, 1993 787,500 $ 7,875 787,500 $ 7,875
Sale of common stock January 7, 1993
at $.04 per share 337,500 3,375 337,500 3,375
Contribution of services -- -- -- --
Net loss for the period from January 7, 1993
(date of inception) through December 31, 1993 -- -- -- --
Net loss for the year ended December 31, 1994 -- -- -- --
--------- ---------- --------- ----------
Balance as of December 31, 1994 1,125,000 11,250 1,125,000 11,250
Redemption of director and officers common
stock August 4, 1995 at $0 per share (67,500) (675) (67,500) (675)
Sale of common stock August 4, 1995
at $.48 per share 236,250 2,363 236,250 2,363
Redemption of common stock August 4, 1995
at $.47 per share (168,750) (1,688) (168,750) (1,688)
Sale of common stock December 22, 1995
at $.34 per share 73,125 732 73,125 732
Redemption of common stock December 22, 1995
at $.44 per share (168,750) (1,688) (168,750) (1,688)
Net loss for the year ended December 31, 1995 -- -- -- --
--------- ---------- --------- ----------
Balance as of December 31, 1995 1,029,375 10,294 1,029,375 10,294
Conversion of Class A and B common stock into
common stock (unaudited) (1,029,375) (10,294) (1,029,375) (10,294)
Issuance of detachable warrants on May 17, 1996,
in connection with bridge financing arrangements,
valued at $25,000, to purchase an aggregate of
50,000 shares of common stock at $2.00 per share
(unaudited) -- -- -- --
Sales of common stock during June and July, 1996
at $2.00 per share, less offering costs of
$124,663 (unaudited) -- -- -- --
Conversion of bridge notes plus accrued
interest of $1,841 to common stock on June 28,
1996 at $2.00 per share (unaudited) -- -- -- --
Net loss for the nine months ended September
30, 1996 (unaudited) -- -- -- --
--------- ---------- --------- ----------
Balance as of September 30, 1996 (unaudited) -- $ -- -- $ --
========= ========== ========= ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK CONTRIBUTED DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
<S> <C> <C> <C> <C> <C>
Sales of common stock January 7, 1993 -- $ -- $ (15,747) $ -- $ 3
Sale of common stock January 7, 1993
at $.04 per share -- -- 18,250 -- 25,000
Contribution of services -- -- 11,250 -- 11,250
Net loss for the period from January 7, 1993
(date of inception) through December 31, 1993 -- -- -- (30,596) (30,596)
Net loss for the year ended December 31, 1994 -- -- -- (11,285) (11,285)
--------- ---------- ---------- ---------- --------
Balance as of December 31, 1994 -- -- 13,753 (41,881) (5,628)
Redemption of director and officers common
stock August 4, 1995 at $0 per share -- -- 1,350 -- --
Sale of common stock August 4, 1995
at $.48 per share -- -- 220,274 -- 225,000
Redemption of common stock August 4, 1995
at $.47 per share -- -- (154,798) -- (158,174)
Sale of common stock December 22, 1995
at $.34 per share -- -- 48,536 -- 50,000
Redemption of common stock December 22, 1995
at $.44 per share -- -- (129,115) (17,509) (150,000)
Net loss for the year ended December 31, 1995 -- -- -- (86,386) (86,386)
--------- ---------- ---------- ---------- --------
Balance as of December 31, 1995 -- -- -- (145,776) (125,188)
Conversion of Class A and B common stock into
common stock (unaudited) 2,058,750 20,588 -- -- --
Issuance of detachable warrants on May 17, 1996,
in connection with bridge financing arrangements,
valued at $25,000, to purchase an aggregate of
50,000 shares of common stock at $2.00 per share
(unaudited) -- -- 25,000 -- 25,000
Sales of common stock during June and July, 1996
at $2.00 per share, less offering costs of
$124,663 (unaudited) 349,080 3,491 570,006 -- 573,497
Conversion of bridge notes plus accrued
interest of $1,841 to common stock on June 28,
1996 at $2.00 per share (unaudited) 100,920 1,009 179,999 -- 181,008
Net loss for the nine months ended September
30, 1996 (unaudited) -- -- -- (517,399) (517,399)
--------- ---------- ---------- ---------- --------
Balance as of September 30, 1996 (unaudited) 2,508,750 $ 25,088 $ 775,005 $ (663,175) $ 136,918
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
SAC TECHNOLOGIES, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS (NOTES A3, B AND J)
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE 1993(DATE
OF INCEPTION) OF INCEPTION)
THROUGH NINE MONTHS THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and
Cash Equivalents
Cash flows from operating activities
Net loss $ (11,285) $ (86,386) $ (128,267) $ (122,795) $ (517,399) $ (645,666)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation (note A5) -- 509 509 200 2,584 3,093
Amortization (note A5) -- -- -- -- -- --
Revenues realized due to offset of
billings against a stock repurchase -- (170,174) (170,174) (88,174) -- (170,174)
Research and development -- 117,000 117,000 117,000 -- 117,000
Contribution of services -- -- 11,250 -- -- 11,250
Change in assets and liabilities:
Inventories (3,705) (64) (5,613) 31 (75,931) (81,544)
Prepaid expenses -- (4,657) (4,657) (10,435) (19,527) (24,184)
Accounts payable 10,028 (4,419) 6,304 (10,723) 56,988 63,292
Accrued liabilities 1,479 (480) 1,023 (503) 7,344 8,367
----------- ----------- ----------- ----------- ----------- -----------
7,802 (62,285) (44,358) 7,396 (28,542) (79,900)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in
operating activities (3,483) (148,671) (172,625) (115,399) (545,941) (718,566)
Cash flows from investing activities
Capital expenditures -- (6,924) (6,924) (6,200) (19,093) (26,017)
Security deposits -- (2,233) (2,233) (2,233) (2,650) (4,883)
Patents and trademarks -- -- -- -- (4,514) (4,514)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used for
investing activities -- (9,157) (9,157) (8,433) (26,257) (35,414)
Cash flows from financing activities
Net borrowings (repayments) under
short-term borrowing agreements -- 25,000 25,000 -- (25,000) --
Deferred offering costs -- -- -- -- (14,228) (14,228)
Sales of common stock -- 275,000 300,003 225,000 754,505 1,054,508
Issuance of warrants -- -- -- -- 25,000 25,000
Redemption of common stock -- (138,000) (138,000) (70,000) -- (138,000)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities -- 162,000 187,003 155,000 740,277 927,280
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash (3,483) 4,172 5,221 31,168 168,079 173,300
Cash and cash equivalents at beginning of
period 4,532 1,049 -- 1,049 5,221 --
----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period $ 1,049 $ 5,221 $ 5,221 $ 32,217 $ 173,300 $ 173,300
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
SAC TECHNOLOGIES, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1995 (audited) and
nine months ended September 30, 1995 and 1996 (unaudited)
NOTE A -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS
SAC Technologies, Inc. (formerly B.B.G. Engineering, Inc.) was incorporated
in Minnesota in January 1993 to develop real time, stand-alone systems
capable of identifying individuals through automated fingerprint analysis for
use in controlling access to resources, information and facilities. The
Company is a development stage enterprise that conducts its operations from
Minnesota and Las Vegas. From inception through most of 1996 the Company's
development efforts, which by agreement (see note I) were to be funded by
Jasper Consulting, Inc. ("Jasper"), were principally focused on the
development of its fingerprint identification and analysis products. In the
second half of 1996, the Company shifted its principal focus from development
to marketing and sales of its products. Jasper was a stockholder of the
Company from inception through December 1995.
The Company's more significant current product offerings incorporate the
Company's "Optic Technology" and "Biometric Solution" with "FIDS Technology."
The "FIDS Technology" was developed by the Company for Jasper (see note I). The
Company has licensed the "FIDS Technology" from Jasper. The Company has a
world-wide license agreement with Jasper for use of the FIDS technology in all
markets except for financial services, law enforcement, national identification
systems, and personal identification systems for government and medical
applications, which market rights are reserved for Jasper. In addition, Jasper
has a worldwide license agreement with the Company for use of the "Optics
Technology" and "Biometric Solution" technology within Jasper's above described
markets.
The Company also has completed development of a Set Top Box, which provides for
basic personal computer functions and Internet access via a wireless keyboard
and a conventional television set. However, the Company does not believe that
the promotion and marketing of the Set Top Box is within its focus and,
accordingly, conveyed the technology in exchange for a 50% ownership interest in
the initial equity of Inter-Con/PC, Inc. ("Inter-Con"), a development stage
company during October 1996. See note L for additional information.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. UNAUDITED INTERIM INFORMATION
In the opinion of management, the unaudited September 30, 1995 and 1996
interim financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The results
of operations for these periods are not necessarily indicative of future
results.
2. REVENUE RECOGNITION
Revenue is recognized from product sales and services when a product is shipped
or the services are provided, the sales price is fixed, and when collection is
considered probable. Where collectibility is considered doubtful, revenue is
recognized on the basis of cash received (see note I).
3. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
5. DEPRECIATION AND AMORTIZATION
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated services lives of five to
seven years using the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes. Deferred income taxes are
provided for these differences.
Amortization of the discount on debt issuance is provided for on the interest
method over the term of the debt. Amortization of finance costs is provided over
the respective term of the debt agreement.
Costs associated with patents and trademarks are capitalized and amortized
over sixty months or the remaining life of the patent or trademark, whichever
is shorter.
6. OTHER ASSETS
Deferred offering costs consist of legal fees and related expenses in
connection with a proposed initial public offering of the Company's common
stock (note G). Should the offering prove unsuccessful, the deferred costs,
as well as any additional expenses to be incurred, will be charged to
operations.
7. RESEARCH AND DEVELOPMENT EXPENDITURES
All costs related to development of new products are charged to expense as
incurred. Such costs are required to be expensed until technological feasibility
and proven marketability of the product are established. There have been no
costs capitalized post technological feasibility.
8. LOSS PER SHARE
Loss per common share is determined by dividing the net loss by the weighted
average number of shares of common stock and common stock equivalents
outstanding.
Under Securities and Exchange Commission rules for initial public offerings,
common stock equivalents for all periods presented include shares sold or
options or warrants granted within twelve months prior to the date of the
Company's initial public offering at per share prices less than that of the
initial public offering (assumed to be $6.00 per share) even if the impact is
antidilutive.
9. INCOME TAXES
The Company provides for income taxes based on income reported for financial
reporting purposes. Certain charges to earnings differ as to timing from
those deducted for tax purposes; these relate primarily to revenue
recognition and net operating loss carry forwards. The tax effect of these
differences are recorded as deferred income taxes.
10. ACCOUNTING FOR STOCK BASED COMPENSATION
No accounting recognition is given to employee stock options issued at fair
market value or greater until they are exercised, at which time the proceeds are
credited to the capital accounts. With respect to non-statutory compensatory
options, the Company may recognize a tax benefit upon exercise of these options
in an amount equal to the excess of the fair market value of the common stock
over the option price on the day of the exercise. With respect to incentive
stock options, tax benefits arising from disqualifying dispositions are
recognized at the time of disposition. Tax benefits related to stock options are
credited to additional contributed capital.
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation," issued in October 1995 and effective for fiscal
years beginning after December 15, 1995, encourages, but does not require, a
fair value based method of accounting for employee stock options or similar
equity instruments. As permitted under the new standard, the Company will
continue to account for employee stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." See note G
for further information.
11. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B -- DEVELOPMENT STAGE ENTERPRISE AND GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company is a development stage
enterprise with no significant sales of its products. There can be no assurance
that the Company will be able to generate significant sales of its products.
Additionally, the Company has a deficit accumulated during the development stage
of $663,175 (unaudited) as of September 30, 1996. Management anticipates net
losses will continue for the foreseeable future. Management believes existing
cash and availability under it's line of credit agreement with a bank will not
be adequate to last beyond early 1997. Additional financing, which may not be
available, will be necessary during the period required to complete development
and enhancement of the Company's products and to develop markets for the
Company's products.
The matters described in the preceding paragraph raise substantial doubt about
the Company's ability to continue as a going concern. Recoverability of a major
portion of the recorded asset amounts shown in the accompanying balance sheet is
dependent upon the Company advancing beyond the development stage and continuing
its operations, which in turn is dependent upon the Company's ability to obtain
additional financing, meet its financing requirements on a continuing basis, and
succeed in its future operations. The accompanying financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue in existence.
During May through July 1996, the Company raised $900,000 of gross proceeds
through bridge financing arrangements and through a private offering of its
common stock. Additionally, the Company plans to raise additional funds to
support operations through a $6,600,000 (before deduction of offering costs)
"firm commitment" initial public offering of its common stock (see note G).
Management believes that if the gross proceeds are raised (of which there can be
no assurance), the proceeds will be adequate to fund operations through
approximately mid-1998.
NOTE C -- EQUIPMENT AND FURNITURE AND FIXTURES
DECEMBER 31, SEPTEMBER 30,
1995 1996
(UNAUDITED)
Equipment $6,924 $25,017
Furniture and Fixtures -- 1,000
------ -------
6,924 26,017
Accumulated depreciation (509) (3,093)
------ -------
$6,415 $22,924
====== =======
NOTE D -- OTHER ASSETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
(UNAUDITED)
Deferred offering costs $ -- $14,228
Patents -- 4,514
Security deposits 2,233 4,883
------ -------
$2,233 $23,625
====== =======
NOTE E -- NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
(UNAUDITED)
<S> <C> <C>
Non-interest bearing demand note payable to stockholder with
interest imputed at 8%; collateralized by a $117,000
receivable
from Jasper (note I) $117,000 $117,000
Unsecured note payable to stockholder bearing interest at 9%;
interest and principle due 60 days after closing on financing
equal to or greater than $200,000 25,000 --
-------- --------
$142,000 $117,000
======== ========
</TABLE>
During January 1996, the Company entered into a revolving line of credit
agreement with a bank. The agreement provides for borrowings of up to $150,000
at 1% above the prime rate of interest. The agreement requires paydown of
outstanding balances to $100 for thirty days, is collateralized by substantially
all assets, is guaranteed by three stockholders, and expires in January 1997.
The agreement contains covenants limiting additional indebtedness, change in
ownership, and mergers and sale of company assets, among other matters. As of
September 30, 1996, the Company was not in compliance with certain covenants
which have been subsequently waived by the lender.
In connection with issuance of $200,000 of 8% convertible bridge notes in May
1996, the Company issued warrants to purchase 50,000 shares of common stock (see
note G). A total of $25,000 was assigned as the value of the warrants and a
corresponding $25,000 discount on debt issuance was recorded.
During July and August 1996, the convertible bridge note holders converted the
bridge notes and $1,841 of related accrued interest at $2.00 per share into
100,920 shares of common stock. In connection with this conversion, the
unamortized discount on convertible bridge notes of $20,833 was also transferred
to stockholders' equity.
NOTE F -- COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company operates from leased facilities under noncancelable operating leases
that expire during August 1998 for its Minnesota location and May 1997 for its
Nevada location. The Company pays for property taxes, maintenance, insurance,
and other occupancy expense applicable to the leased premises.
Minimum rental commitments of non-cancelable operating leases are approximately
as follows:
Year ending December 31,
1996 $30,000
1997 29,000
1998 15,000
-------
$74,000
=======
Rental expense was as follows:
Year ended December 31,
1994 $ 6,000
1995 11,094
January 7, 1993 (date of inception) through December 31,
1995 17,094
Nine months ended September 30, (unaudited)
1995 5,190
1996 27,220
January 7, 1993 (date of inception) through
September 30, 1996 (unaudited) 44,314
EMPLOYMENT AGREEMENTS
The Company has employment agreements with four individuals. The employment
agreements contain non-compete clauses that prohibit the employees from being
employed by a competitor of the Company. The non-compete clause is in effect for
two years for voluntary terminations and three years for terminations with
cause. In the event of "constructive termination," as defined, the agreements
provide each employee with up to five years and three months salary (as of
September 30, 1996) reduced by one month each month thereafter until December
31, 2001, at which time the amount of severance is two years. As of September
30, 1996, the aggregate commitment approximates $1,638,000 (unaudited).
NOTE G -- STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL AND STOCK SPLIT
Originally, the Company authorized 1,000,000 shares of capital stock. The
Company's Class A and Class B common stock are identical in all terms except the
Class A stock has voting privileges. In April 1996, the articles of
incorporation were amended and restated to authorize 20,000,000 shares of $.01
par value common stock. The existing shares of Class A and Class B common stock
were converted into the new $.01 par value common stock. Concurrently, the
Company declared a nine for two stock split in the form of a stock dividend. The
financial statements and accompanying notes for the periods presented have been
restated for the changes in the authorized capital stock and the stock split.
During August 1995, the Company redeemed 67,500 shares each of Class A and Class
B common stock at no cost from its then existing stockholders.
1996 STOCK OPTION PLAN During May 1996, the Board of Directors and stockholders
of the Company adopted the 1996 Stock Option Plan (the Plan). Under the Plan,
375,000 shares of common stock are reserved for issuance to employees, officers,
directors, and consultants of the Company at exercise prices which may not be
below 100% of fair market value for incentive stock options and 50% for all
others. Pursuant to the Plan, the term of incentive stock options and
nonstatutory stock options granted may not exceed ten years. Options issued
under the Plan vest pursuant to the terms of stock option agreements with the
recipients. The Plan terminates in May 2006.
The Plan contains a director option formula option arrangement. Pursuant to the
formula arrangement, each non-employee director, upon election to the board of
directors, will be granted options to purchase shares of common stock equal to
25,000 multiplied by a percentage, the numerator is the total months remaining
between grant date and May 2001 and the denominator is 60 months. The formula
arrangement is reset every five years (again in May 2001) whereby the numerator
becomes the number of months remaining between grant date and May 2006. The
options vest annually during May at 5,000 shares per year except the first
partial year vested amount represents that portion applicable to one twelfth of
the total number of months from grant date to the following May.
In the event of a change in control, as defined, all options outstanding vest
immediately and are exercisable for their remaining terms. During July 1996, the
Company issued stock options to employees, consultants and directors as follows:
TOTAL OPTIONS PRICE
OUTSTANDING PER SHARE
Balance December 31, 1995 -- $ --
Nonstatutory stock options
(unaudited) 15,000 2.00
Nonstatutory stock options
(unaudited) 114,500 2.25
Incentive stock options (unaudited) 43,500 2.25
-------
Balance September 30, 1996 (unaudited) 173,000
=======
No stock options are exercisable at September 30, 1996, nor have any options
been exercised.
COMMON STOCK WARRANTS
The Company issued warrants to purchase shares of common stock to convertible
bridge noteholders in May 1996 and to the underwriter of a private stock
offering that was completed in July 1996. Warrant activity is summarized as
follows:
<TABLE>
<CAPTION>
PRICE
OUTSTANDING PER SHARE EXPIRATION DATE
<S> <C> <C> <C>
Balance December 31, 1995 -- $ -- --
Granted to bridge noteholders (unaudited) 50,000 2.00 1999
Granted to underwriter (unaudited) 41,639 2.40 2001
------
Balance September 30, 1996 (unaudited) 91,639
=== ==== ======
Total exercisable at $2.00 per share at September
30, 1996 (unaudited) 50,000
======
</TABLE>
No warrants have been exercised through September 30, 1996 (unaudited).
INITIAL PUBLIC OFFERING
The Company has entered into a non-binding letter of intent with Tuschner &
Company (the "Agent") whereby the Agent intends, on a "firm commitment" basis,
to sell 1,100,000 shares of the Company's common stock (subject to an increase
to 1,210,000 shares for a 110,000 share over-allotment) at $6.00 per share. As
compensation for the Agent's services, the Company will pay the Agent a cash
commission equal to ten percent (10%) of the gross sale proceeds received from
investors. In addition, the Company will pay the Agent a non-accountable expense
allowance of up to three percent (3%) of gross proceeds received from investors.
Pursuant to the letter of intent, the Company will sell to the Agent, for a
nominal consideration, a five-year warrant (the "Agent's Warrant") to purchase
110,000 shares of common stock of the Company at an exercise price of 120% of
the offering price per share.
NOTE H -- INCOME TAXES
Deferred taxes consist of the following:
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
(UNAUDITED)
Revenue recognition $ 4,000 $ 30,000 $ 153,000
Net operating loss carryforwards 6,000 3,000 89,000
-------- -------- --------
10,000 33,000 242,000
Less valuation allowance (10,000) (33,000) (242,000)
-------- -------- --------
$ -- $ -- $ --
======== ======== =========
Valuation allowances have been recorded due to uncertainty of realization of
deferred tax assets principally due to the development stage nature and
operating loss history of the Company. However, the valuation allowances could
be reduced or eliminated based on future earnings and future estimates of
taxable income.
As of December 31, 1995, the Company had federal and Minnesota net operating
loss carryforwards of approximately $10,000. Net operating loss carryforwards
available to offset future taxable income may be subject to the limitations
under Section 382 of the Internal Revenue Code due to changes in the equity
ownership of the Company.
NOTE I -- RELATED PARTY TRANSACTIONS
RESEARCH AND DEVELOPMENT ARRANGEMENT WITH JASPER
Jasper agreed to fund research and development for the Company's products from
inception through April 1996 principally in consideration of an assignment of
the patent rights to the FIDS Technology. Research and development funding after
this date was the responsibility of the Company.
The Company has billed various amounts for reimbursement under the development
arrangement with Jasper. Jasper has not paid the majority of these billings. The
Company believes Jasper does not have the financial wherewithal to pay for such
amounts. The Company has an agreement with Jasper, whereby the Company may
offset future product royalties (see below) due to Jasper, if any, against
outstanding billings. The Company may also charge an additional $800 for each
product manufactured by the Company for Jasper.
RESEARCH AND DEVELOPMENT ARRANGEMENT WITH JASPER (CONTINUED)
The Company has sold no products which would require payment of royalties to
Jasper. The Company has no orders to manufacture products on behalf of Jasper.
No assurance can be given that future sales subject to payment of royalty to
Jasper or orders to manufacture products on behalf of Jasper will occur in
amounts sufficient to offset the uncollected billings, if at all. Therefore,
realizability of outstanding billings to Jasper are not assured and have not
been recognized. Should outstanding billings to Jasper be collected in the
future, they will be reflected in income upon receipt.
The following summarizes outstanding billings to Jasper:
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
(UNAUDITED)
Research and development:
Optics technology (note E) $ -- $117,000 $117,000
Other 15,421 -- 290,000
------- -------- -------
$15,421 $117,000 $407,000
======= ======== ========
FIDS LICENSE AGREEMENT WITH JASPER
The Company's underling technology consists of "Optic Technology," "Biometric
Solution" technology, "FIDS Technology," and "SAC_App." To the extent
patentable, Jasper has patent rights to the "FIDS Technology" and the Company
maintains the patent rights to the other technologies.
The following are the more significant terms and conditions of the FIDS license
arrangement with Jasper:
* The Company and Jasper have exclusive world wide license rights to each
other's technologies as defined (see note A).
* The Company is to pay a $30.50 per unit royalty to Jasper for all sales made
by the Company of products utilizing the "FIDS Technology."
* The Company is to receive a $30.00 per unit royalty from Jasper for sales
made by Jasper of products utilizing the "FIDS Technology."
* Jasper receives all rights to future modifications or improvements made by
the Company to the "FIDS Technology."
* The Company may not sell, assign, or transfer its "FIDS Technology" or
grant sublicenses without consent of Jasper. In the event of sale,
assignment, transfer, or sublicense of "FIDS Technology" by the Company,
42% of any sales proceeds are required to be remitted to Jasper and 10% to
be retained to fund ongoing development. Additionally, in the event of
sale, assignment, transfer, or sublicense of "FIDS Technology" by Jasper,
42% of any sales proceeds are required to be remitted to the Company, with
10% of such amount to be utilized to fund ongoing development.
* The term of the agreement expires the later of April 2016 or the date of the
last patent to expire (as of September 30, 1996 no patents were issued, and
none can be assured of being issued).
There was no royalty income or expense during the periods presented.
OTHER TRANSACTIONS OR AGREEMENTS WITH JASPER
The Company has the exclusive right to manufacture certain products sold by
Jasper during the term of the license agreement discussed above. Repayment of
amounts due are subject to 45 day payment terms.
Total accounts payable to Jasper were $6,304 as of December 31, 1995.
OTHER TRANSACTIONS
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE 1993 (DATE
OF INCEPTION) NINE MONTHS OF INCEPTION)
YEARS ENDED DECEMBER 31, THROUGH ENDED SEPTEMBER 30, THROUGH
DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues from Jasper $107,000 $229,070 $353,057 $153,374 $ -- $353,057
Purchase of optics technology
(see below) -- 117,000 117,000 117,000 -- 117,000
Payments for rent, assembly, and
computer aided design services
from an affiliate 48,893 22,156 77,049 22,156 -- 77,049
Equipment purchased from stockholder -- 5,000 5,000 5,000 -- 5,000
</TABLE>
During August 1995, the Company purchased certain elements of its "Optic
Technology" from an individual who also purchased common stock of the Company.
The total purchase price of $117,000 was agreed to be reimbursed by Jasper. See
note F for information on related party notes payable.
NOTE J -- SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
JANUARY 7, JANUARY 7,
1993 (DATE 1993 (DATE
OF INCEPTION) OF INCEPTION)
YEARS ENDED THROUGH NINE MONTHS THROUGH
DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
1. Cash Paid for Interest Expense and
Income Taxes
Interest $ -- $ -- $ -- $ -- $19,415 $ 19,415
Income taxes -- -- -- -- -- --
2. Noncash Financing Activities
Common stock repurchases -- 170,174 170,174 88,174 -- 170,174
</TABLE>
NOTE K -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as of
December 31, 1994 and 1995, and September 30, 1996 (unaudited) as required by
FASB Statement 107. Such information, which pertains to the Company's financial
instruments, is based on the requirements set forth in that Statement and does
not purport to represent the aggregate net fair value of the Company. All
material financial instruments as of December 31, 1994 and 1995 and September
30, 1996 (unaudited), for which it is practicable to estimate the value,
approximated fair value because of the short maturity of those instruments.
NOTE L -- SUBSEQUENT EVENT
During October 1996, the Company contributed its "Set Top Box" technology to
Inter-Con for a 50% ownership interest in the initial equity of Inter-Con.
Inter-Con is a development stage enterprise founded in June 1996 to market and
distribute the "Set Top Box" and related products.
The Company will receive a 2% royalty on sales of Inter-Con through November
2002 or until Inter-Con becomes a public company, as defined. The Company has
also entered into a technical support agreement with Inter-Con for technical
support to Inter-Con for a fee of up to $20,000 per month. The technical support
agreement expires October 31, 1999, however, it is subject to three successive
one year periods at Inter-Con's option.
The Company is obligated to complete development of certain products for
Inter-Con. The Company believes the total future costs associated with such
commitment as of November 14, 1996 approximates $30,000.
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO PURCHASE BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 9
Dilution 10
Dividend Policy 11
Capitalization 11
Selected Financial Data 12
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 13
Business 16
Management 21
Certain Transactions 24
Principal Shareholders 25
Shares Eligible for Future Sale 26
Description of Securities 27
Underwriting 29
Legal Matters 30
Experts 30
Additional Information 30
Index to Financial Statements F-1
Until _________________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
1,100,000 SHARES
[LOGO] SAC TECHNOLOGIES, INC.
SAC TECHNOLOGIES, INC.
COMMON STOCK
PROSPECTUS
TUSCHNER & COMPANY, INC.
, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS:
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The small business issuer's Bylaws provide for the indemnification of certain
corporate agents, including the small business issuer's directors, officers and
employees. The indemnification provided to the Company's directors, officers and
employees includes coverage for amounts actually and reasonably incurred by such
individuals in connection with proceedings arising by reason of each such
individual's status as an officer, director or employee. The amount for which
the director, employee or officer is to be indemnified includes expenses,
including attorney's fees, judgments, fines and amounts paid in settlement of
claims.
The Company is governed by the provisions of Sections 302A.671 and 302A.673 of
the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless the control share acquisition is approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, cause the acquiring
person to have voting power in the election of directors to exceed any one of
the following thresholds of ownership: 20%, 33-1/3% or 50%. In general, Section
302A.673 prohibits a publicly-held Minnesota corporation from engaging in a
"business combination" with an "interested shareholder" for a period of four
years after the date of transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's voting stock.
The small business issuer does not carry any directors' and officers' liability
insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee $ 2,200
NASD filing fee 1,226
Nasdaq SmallCap Market listing fee 5,000
Accounting fees and expenses 50,000
Legal fees and expenses 125,000
Printing expenses 15,000
Blue Sky fees and expenses 10,000
Transfer agent fees and expenses 5,000
Miscellaneous 21,574
--------
Total $235,000
========
Except for the SEC registration fees and the Nasdaq fees, all of the
foregoing expenses have been estimated. The Selling Shareholders will not
bear any of the expenses of this offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the small business issuer has sold the following
securities pursuant to exemptions from registration under the Securities Act.
All such sales were made in reliance upon the exemptions from registration
provided under Section 4(2) or Regulation D of the Securities Act of 1933, as
amended (the "Securities Act") and related state securities laws. Unless
otherwise stated, all shares were issued directly by the Company, no
underwriters were involved, and no discount, commission or other transaction
related remuneration was paid.
On August 4, 1995, the Company issued 618,750 shares in the aggregate of the
Company's Class A and Class B common stock (137,500 shares prior to the stock
split) each to Barry M. Wendt and Benedict A. Wittig, officers and directors of
the Company, in a recapitalization of their previous equity interests in the
Company. Concurrently, the Company issued 202,500 shares of the Company's Class
A and Class B common stock (45,000 shares prior to the stock split) to Gary E.
Wendt, a third officer and director, in a recapitalization of his previous
interests in the Company. Each of these individuals had previously paid $1.00
for their interests in the Company. On April 24, 1996, all of these shares were
converted into shares of common stock of one class.
On August 4, 1995, the Company issued and sold 472,500 shares of the Company's
Class A and Class B common stock (105,000 shares prior to the split) to Richard
T. Fiskum, an officer and director of the Company. In addition, on December 22,
1995, the Company issued and sold an additional 146,250 shares of the Company's
Class A and Class B common stock (132,500 shares prior to the split) to Mr.
Fiskum for a total consideration of $50,000. On April 24, 1996, all of these
shares were converted into shares of common stock of one class.
During August and December, 1995 the Company repurchased all of the shares of
common stock held by Jasper Consulting, Inc. for a total price of $308,174,
of which $138,000 was paid in cash. See "Business--Technology Rights."
On May 17, 1996, the Company issued and sold, in connection with a bridge loan,
an aggregate of $200,000 of eight percent promissory notes which may, at the
option of the holder, be converted into shares of the Company's Common Stock at
a price of $2.00 (the "Convertible Note"). Each Convertible Note converted into
shares of the Company's Common Stock at a price of $2.00 per share upon
completion of the private placement described below. The lenders in the Bridge
Loan also received warrants to purchase (at a price of $2.00 per share) a number
of shares of the Company's Common Stock equal to one-half the principle amount
of each Convertible Note by $2.00. The Underwriter acted as the selling agent
for the Bridge Loan and received a commission and expense allowance in the
amount of $8,660.
On July 17, 1996, the Company completed the issuance and sale, in connection
with a private placement of its Common Stock, an aggregate amount of $900,000 of
its Common Stock at a per share price of $2.00. Of this $900,000, $200,000 was
represented by the conversion of the Bridge Loans described immediately above.
The Underwriter acted as the selling agent for the private placement and
received a commission and expense allowance in an approximate amount of $110,279
and a warrant to purchase 41,639 shares of common stock at $2.40 per share.
ITEM 27. EXHIBITS.
EXHIBIT
NO. EXHIBITS
1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant
and Lockup Agreement attached)
3.1 Amended and Restated Articles of Incorporation of small business
issuer
3.2 Amended and Restated Bylaws of small business issuer
4.1 Specimen of Common Stock Certificate (to be filed by Amendment)
5.1 Opinion of Doherty, Rumble & Butler Professional Association (to be
filed by Amendment)
10.1 SAC Technologies, Inc. 1996 Stock Option Plan
10.2 License and Marketing Agreement by and among Harinder S. Takhar,
Barry M. Wendt, Benedict A. Wittig and Richard T. Fiskum, Jasper
Consulting, Inc. and the Company dated April 26, 1996 (with OEM
Agreement by and between Jasper Consulting, Inc. and the Company
dated April 26, 1996 attached as Exhibit A)
10.3 Employment Agreement by and between Barry M. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective May
10, 1996 attached as Exhibit A)
10.4 Employment Agreement by and between Richard T. Fiskum and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.5 Employment Agreement by and between Gary E. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective May
10, 1996 attached as Exhibit A)
10.6 Employment Agreement by and between Benedict A. Wittig and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.7 Technical Support and Cooperative Development Agreement by and
between the Company and Inter-Con/PC, Inc. effective November 1,
1996 (with Exhibits A-C)
11.1 Computation of Loss per share
23.1 Consent of Divine, Scherzer & Brody, Ltd.
23.2 Consent of Doherty, Rumble & Butler Professional Association (to be
included in Exhibit 5.1.) (to be filed by Amendment)
23.3 Consent of Merritt, Furber & Timmer (to be filed by Amendment)
24.1 Power of Attorney (included in the signature page to the
Registration Statement)
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by SECTION 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) To include any additional or changed material information on
the plan of distribution;
(2) To, for determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business
issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the small
business issuer certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Minneapolis, State of Minnesota on November 19, 1996.
SAC TECHNOLOGIES, INC.
By /s/ BARRY M. WENDT
-----------------------------------
Barry M. Wendt,
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Barry
M. Wendt, such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution for such person and in such persons'
name, place and stead, in any and all capacities, to sign the Registration
Statement on Form SB-2 of SAC Technologies, Inc. and any or all amendments
(including post-effective amendments) to the Registration Statement, and to file
the same, with all exhibits hereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
stated below on November 19, 1996.
SIGNATURE TITLE
/S/ BARRY M. WENDT Chief Executive Officer, Director
- -------------------------------- (Principal Executive Officer)
Barry M. Wendt
/S/ RICHARD T. FISKUM President, Director
- --------------------------------
Richard T. Fiskum
/S/ GARY E. WENDT Chief Financial Officer, Director
- -------------------------------- (Principal Financial Officer)
Gary E. Wendt
/S/ BENEDICT A. WITTIG Secretary, Director
- --------------------------------
Benedict A. Wittig
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant
and Lockup Agreement attached)
3.1 Amended and Restated Articles of Incorporation of small business
issuer
3.2 Amended and Restated Bylaws of small business issuer
4.1 Specimen of Common Stock Certificate (to be filed by Amendment)
5.1 Opinion of Doherty, Rumble & Butler Professional Association (to be
filed by Amendment)
10.1 SAC Technologies, Inc. 1996 Stock Option Plan
10.2 License and Marketing Agreement by and among Harinder S. Takhar,
Barry M. Wendt, Benedict A. Wittig and Richard T. Fiskum, Jasper
Consulting, Inc. and the Company dated April 26, 1996 (with OEM
Agreement by and between Jasper Consulting, Inc. and the Company
dated April 26, 1996 attached as Exhibit A)
10.3 Employment Agreement by and between Barry M. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective May
10, 1996 attached as Exhibit A)
10.4 Employment Agreement by and between Richard T. Fiskum and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.5 Employment Agreement by and between Gary E. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective May
10, 1996 attached as Exhibit A)
10.6 Employment Agreement by and between Benedict A. Wittig and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.7 Technical Support and Cooperative Development Agreement by and
between the Company and Inter-Con/PC, Inc. effective November 1,
1996 (with Exhibits A-C)
11.1 Computation of Loss per share
23.1 Consent of Divine, Scherzer & Brody, Ltd.
23.2 Consent of Doherty, Rumble & Butler Professional Association (to be
included in Exhibit 5.1.) (to be filed by Amendment)
23.3 Consent of Merritt, Furber & Timmer (to be filed by Amendment)
24.1 Power of Attorney (included in the signature page to the
Registration Statement)
Underwriting Agreement
_____________, 1996
Tuschner & Company, Inc.
120 South Sixth Street
Suite 800, One Financial Plaza
Minneapolis, MN 55402
Gentlemen,
SAC Technologies, Inc., a Minnesota corporation (the "Company"), hereby
confirms its agreement with you (the "Underwriter") as follows:
SECTION 1
DESCRIPTION OF SECURITIES
The Company's authorized and outstanding capitalization when the
offering of the securities contemplated hereby is permitted to commence and at
the Closing Date (hereinafter defined), will be as set forth in the Registration
Statement and Prospectus included therein (hereinafter defined). The Company
proposes to issue and sell to the Underwriter in a public offering under the
Securities Act of 1933 an aggregate of 1,100,000 shares of its authorized $0.01
par value common Shares (the "Shares"), on the terms as hereinafter set forth.
The Underwriter shall also have an over-allotment option to purchase up to an
additional 110,000 shares as provided in Section 3.01 hereof.
The Company proposes to issue and sell to the Underwriter on the
Closing Date, for $0.01 each, warrants (the "Warrants") to purchase shares of
the Company's common Shares (the "Warrant Shares") as provided in Section 3.03
hereof.
SECTION 2
REPRESENTATIONS, AND WARRANTIES OF THE COMPANY
In order to induce the Underwriter to enter into this Agreement, the
Company hereby covenants, represents, and warrants to and agrees with the
Underwriter, as of the date hereof and as of each Closing Date, as if the
Closing Date were substituted for the date hereof, as follows:
2.01. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
on Form SB-2 File No. __, (the "Registration Statement") with respect to the
Shares, the related Prospectus, Copies of which have heretofore been delivered
by the Company to the Underwriter, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and said Registration
Statement has been filed with the Commission under the Act; one or more
amendments to said Registration Statement, copies of which have heretofore been
delivered to the Underwriter, has or have heretofore been filed; and the Company
may file on or prior to the effective date additional amendments to said
Registration Statement, including the final Prospectus. Included in such
Registration Statement are an additional 110,000 shares of the Company's Common
Shares, which shares are reserved against exercise of the Underwriter's Warrants
to be granted by the Company, as more particularly described hereinafter.
As used in this Agreement, the term "Registration Statement" refers to
and means said Registration Statement on Form SB-2 and all amendments thereto,
including the Prospectus; any preliminary and any amended or supplementary
Prospectus; and all exhibits and financial statements. The term "Prospectus"
refers to and means the Prospectus included in the Registration Statement when
it becomes effective; and any "Preliminary Prospectus" which term refers to and
means any prospectus included in said Registration Statement before it becomes
effective. The terms "effective date" and "effective" refer to the date the
Commission declares the Registration Statement effective pursuant to Section 8
of the Act.
2.02. ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Shares, and the Registration Statement and each
Preliminary Prospectus and Prospectus has conformed in all material respects
with the requirements of the Act and the applicable Regulations thereunder and
has not included at the time of filing any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein not
misleading. When the Registration Statement becomes effective and on the Closing
Date (as hereinafter defined), the Registration Statement and Prospectus and any
further amendments or supplements thereto will contain all statements which are
required to be stated therein in accordance with the Act and the Regulations for
the purposes of the proposed public offering of the Shares, and all statements
of material fact contained in the Registration Statement and Prospectus are and
will be true and correct, and neither the Registration Statement nor the
Prospectus does or will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, the Company does not
make any representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus or Preliminary Prospectus in
reliance upon written information furnished on behalf of the Underwriter
specifically for use therein.
2.03. FINANCIAL STATEMENTS. The financial statements of the Company
together with related schedules and notes as set forth in the Registration
Statement and Prospectus present fairly the financial position of the Company
and the results of its operations and the changes in its financial position at
the respective dates and for the respective periods for which they apply; such
financial statements have been prepared in accordance with the Regulations and
generally accepted accounting principles consistently applied throughout the
periods concerned except as otherwise stated therein.
2.04. INDEPENDENT PUBLIC ACCOUNTANT. Divine, Scherger & Brody, Ltd.,
which has certified or shall certify certain of the financial statements filed
or to be filed with the Commission as part of the Registration Statement and
Prospectus, are independent certified public accountants within the meaning of
the Act and the Regulations.
2.05. NO MATERIAL ADVERSE CHANGE. Except as may be reflected in or
contemplated by the Registration Statement or the Prospectus, subsequent to the
dates as of which information is given in the Registration Statement and
Prospectus, (i) the Company has no contingent liabilities or cliams and has
received no threats of such claims or liabilities; (ii) there has not been any
material adverse change in the condition, financial or otherwise, of the Company
or in its business taken as a whole; (iii) there has not been any material
transaction entered into by the Company other than transactions in the ordinary
course of business which do not, in the aggregate, have a material adverse
effect in the condition, financial or otherwise, or business of the Company;
(iv) the Company has not incurred any material obligations, contingent or
otherwise; (vi) there shall not have been nor will there be any change in the
capital stock or long-term debt (except current payments) of the Company; and
(v) the Company has not and will not have paid or declared any dividends or
other distributions on its common shares; and (vi) the Company has not and will
not have committed to any of the foregoing.
2.06. NO DEFAULTS. The Company is not in any default in the performance
of any obligation, agreement, or condition contained in any debenture, note, or
other evidence of indebtedness, or any indenture or loan agreement of the
Company, or any other agreement or commitment to which the Company is a party or
by which it or its properties are bound. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated, and
compliance with the terms of this Agreement will not conflict with or result in
a breach of, or give any party the right to accumulate or terminate under, any
of the terms, conditions, or provisions of or constitute a breach, violation, or
default under: the articles of incorporation, as amended, or bylaws of the
Company; any note, indenture, mortgage, deed of trust, or other agreement or
instrument to which the Company is a party or by which it or any of its property
is bound; or any existing law, order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality, agency or body,
arbitration tribunal or court, domestic or foreign, having jurisdiction over the
Company or its property. The consent, approval, authorization, or order of any
court or governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.07. INCORPORATION AND STANDING. The Company is duly incorporated and
validly existing in good standing as a corporation under the laws of Minnesota
with authorized and outstanding capital stock as set forth in the Registration
Statement and the Prospectus, and with full power and authority (corporate and
other) to own its property and conduct its business, present and proposed, as
described in the Registration Statement and Prospectus; the Company has full
power and authority to enter into this Agreement and has taken all necessary
corporate action to authorize the execution of this Agreement and the
Underwriter's Warrant and the issuance of the Shares and the Warrant Shares. The
Company is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which it owns or leases real property or transacts business
requiring such qualification except where failure to qualify as such would not
have a material adverse effect on the Company's business or financial or other
condition. The Company has no subsidiaries other than as shown in the
Registration Statement.
2.08. LEGALITY OF OUTSTANDING SHARES. The outstanding capital stock of
the Company has been duly and validly authorized and issued and is fully paid
and nonassessable, and conforms to all statements with regard thereto contained
in the Registration Statement and Prospectus. No sales of securities have been
made by the Company in violation of the registration and prospectus delivery
provisions of the Act.
2.09. LEGALITY OF SHARES, WARRANT SHARES AND WARRANTS. The Shares and
Warrant Shares have been duly and validly authorized and, when issued and
delivered against payment therefor as provided in this Agreement, will be
validly issued, fully paid, and nonassessable. The Shares and Warrant Shares,
upon issuance, will not be subject to the preemptive rights of any shareholders
of the Company; the Underwriter's Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable in
accordance with the terms thereof, except as enforcement may be limited by
bankruptcy or similar laws of general application affecting cereditors' rights,
and except as the availability of equitable remedies requires the exercise of
judicial discretion, and except as enforcement of the indemnification provisions
therein may be limited by Federal and state securities laws. A sufficient number
of shares of Common Stock have been reserved for issuance upon exercise of the
Warrants. The Shares and Warrants will conform to all statements with regard
thereto in the Registration Statement and Prospectus.
2.10. PRIOR SALES. No securities of the Company, of an affiliate or of
a predecessor of the Company have been sold within one year prior to the date
hereof, except as set forth in Part II of the Registration Statement.
2.11. LITIGATION. Except as set forth in the Registration Statement and
Prospectus, there is no action, suit or proceeding before any court or
governmental agency, authority or body pending or to the knowledge of the
Company threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), the business,
or the prospects of the Company, or would materially affect the properties or
assets of the Company.
2.12. WARRANTS. Upon delivery of and payment for the Warrants to be
sold by the Company as set forth in Section 3.03 of this Agreement, the
Underwriter and the Underwriter's designees will receive good and marketable
title thereto, free and clear of all liens, encumbrances, charges and claims
whatsoever; and the Company will have on the effective date of the Registration
Statement and at the time of delivery of such Warrants full legal right and
power and all authorization and approval required by law to sell, and deliver
such Warrants in the manner provided hereunder.
2.13. NO FINDERS. There is no outstanding claim (and no basis for any
claim) for services in the nature of a finder's fee or origination fee with
respect to the sale of the Shares hereunder.
2.14. EXHIBITS. There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the Act or by
the Regulations which have not been so filed and each contract to which the
Company is a party and to which reference is made in the Prospectus has been
duly and validly executed, is in full force and effect in all material respects
in accordance with their respective terms, none of such contracts have been
assigned by the Company; and the Company knows of no present situation or
condition or fact which would prevent compliance with the terms of such
contracts, as amended to date. Except for amendments or modifications of such
contracts in the ordinary course of business, the Company has no intention of
exercising any right which it may have to cancel any of its obligations under
any of such contracts, and has no knowledge that any other party to any of such
contracts has any intention not to render full performance under such contracts.
2.15. TAX RETURNS. The Company has filed all federal and state tax
returns which are required to be filed by it and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
2.16. PROPERTY. Except as otherwise set forth in or contemplated by the
Registration Statement and Prospectus, the Company has good title or a valid
leasehold interest, free and clear of all liens, encumbrances, and defects,
except liens for current taxes not due and payable, to all property and assets
which are described in the Registration Statement and the Prospectus as being
owned or leased by the Company, subject only to such exceptions which are not
material and which do not adversely affect the financial or other condition,
business, or prospects of the Company.
2.17. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding, and legally enforceable obligation of the
Company, except as enforcement may be limited by bankruptcy or similar laws of
general application affecting creditors' rights, except as the availability of
equitable remedies requires the exercise of judicial discretion, and except as
enforcement of the indemnification provisions herein may be limited by Federal
or state securities laws.
SECTION 3
PURCHASE AND SALE OF THE SHARES
3.01. PURCHASE OF SHARES AND OVER-ALLOTMENT OPTION. The Company hereby
agrees to sell to the Underwriter and the Underwriter agrees to purchase from
the Company upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, the Shares at a
purchase price of $_____ per share.
The Company hereby grants to the Underwriter an option (the
"Over-Allotment Option") for a period of 30 days after Closing to purchase at a
purchase price of $_____ per share up to 110,000 additional shares of Shares
(the "Option Shares") in order to cover over- allotments.
3.02. PUBLIC OFFERING PRICE. After the Commission notifies the Company
that the Registration Statement has become effective, the Underwriters propose
to offer the Shares and the Option Shares (if the Over-Allotment Option is
exercised) to the public at a public offering price of $_______ per share, as
set forth in the Registration Statement. The Underwriters may allow such
concessions and discounts upon sales to selected dealers as may be determined
from time to time by the Underwriter.
3.03. PAYMENT FOR SHARES. Payment for the Shares (including Option
Shares) which the Underwriter agrees to purchase shall be made to the Company or
its order by certified or official bank check or checks, or by wire transfer in
the amount of the purchase price by or on behalf of the Underwriter at the
offices of the Underwriter set forth above in Minneapolis, Minnesota upon
delivery to the Underwriter of certificates for shares and Warrants in
definitive form in such numbers and registered in such names as the Underwriter
requests in writing at least one full business days prior to such delivery.
3.04. CLOSING. The time and date of delivery and payment hereunder is
herein called the "Closing Date" and shall take place at the office of the
Underwriter at the address set forth above at 2:00 P.M. on the third business
day following the effective date. Should the Underwriter elect to exercise any
part of the over-allotment option pursuant to Section 3.01 herein-above, the
time and date of delivery and payment for said over- allotment shares shall be
as mutually agreed, but not later than the 30th calendar day after the "Closing
Date." Said date is hereinafter referred to as the "Over-Allotment Closing
Date," and shall be a Closing Date for the purposes of Section 8 herein.
3.05. INSPECTION OF CERTIFICATES. For the purpose of expediting the
checking and packaging of the certificates for Shares and Warrants, the Company
agrees to make the certificates and Warrants available for inspection by the
Underwriter at the office of the Underwriter set forth above in Minneapolis,
Minnesota at least one full business day prior to the proposed delivery date.
3.06. SALE OF WARRANTS. The Company will sell and deliver to the
Underwriter at a purchase price of $0.01 per Warrant, Warrants, dated the date
of Closing, substantially in the form of Exhibit A, attached hereto and by this
reference incorporated herein, evidencing the right of the Underwriter to
purchase such number of Warrant Shares equal to ten percent (10%) of the number
of Shares purchased by the Underwriter (exclusive of the Option Shares) at the
price per share and upon the terms and conditions provided in the Warrants. The
Company shall not be obligated to sell and deliver the Warrants, and the
Underwriter will not be obligated to purchase and pay for the Warrants, except
upon payment for the shares pursuant to Subsection 3.03 hereof.
3.07. UNDERWRITER'S EXPENSE ALLOWANCE. It is understood that the
Company shall reimburse the Underwriter for its expenses on a nonaccountable
basis in the amount of 3% of the gross proceeds of the offering, including
proceeds from the sale of the Over-Allotment Shares. At the Closing and, if
applicable, on the Over-Allotment Closing Date, the Company shall pay to the
Underwriter the unpaid balance of such allowance to defray the expenses incurred
by the Underwriter in connection with the offering. The Underwriter shall be
solely responsible for all expenses incurred by it in connection with the
offering including, but not limited to, the expenses of its own counsel except
as set forth in subsection 5.07 hereof.
3.08. REPRESENTATIONS AS OF THE CLOSING DATE. The Company warrants,
covenants, and represents that as of the Closing Date the representations herein
contained and the statements contained in all the certificates theretofore or
simultaneously delivered by any party to another, pursuant to this Agreement,
shall in all material respects be true and correct.
3.09. POST-CLOSING INFORMATION. The Underwriter covenants that
reasonably promptly after the Closing Date, it will supply the Company with all
information required from the Underwriters for the completion of Form SR and
such additional information as the Company may reasonably request to be supplied
to the securities commissions of such states in which the Shares has been
qualified for sale.
3.10. RE-OFFERS BY SELECTED DEALERS. On each sale by the Underwriters
of any of the Shares to selected dealers, the Underwriter shall require the
selected dealer purchasing any such Shares to agree to re-offer the same on the
terms and conditions of the offering set forth in the Registration Statement and
Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.01. DELIVERY OF REGISTRATION STATEMENTS. The Company shall deliver to
the Underwriter without charge four signed copies of the Registration Statement,
including all financial statements and exhibits filed therewith and any
amendments or supplements thereto, and shall deliver without charge to the
Underwriter ten conformed copies of the Registration Statement and any amendment
or supplement thereto, including such financial statements and exhibits. The
signed copies of the Registration Statement so furnished to the Underwriter will
include signed copies of any and all consents and certificates of the
independent public accountant certifying to the financial statements included in
the Registration Statement and Prospectus and signed copies of any and all
consents and certificates of any other persons whose profession gives authority
to statements made by them and who are named in the Registration Statement or
Prospectus as having prepared, certified, or reviewed any part thereof.
4.02. DELIVERY OF PRELIMINARY PROSPECTUS. The Company will deliver to
the Underwriter, without charge, as many copies of each Preliminary Prospectus
filed with the Commission conforming to Item 501(a)(8) of Regulation S-B as may
be required by the Underwriters. The Company consents to the use of such
documents by the Underwriters and by dealers prior to the effective date of the
Registration Statement. The Company will deliver at its expense such copies of
the Preliminary Prospectus as the Underwriter may deem necessary in order to
recirculate the Preliminary Prospectus and/or to permit compliance with the
provisions of Rule 15c-2(8)(b) of the Commission. For purposes of the paragraph,
the term "Preliminary Prospectus" shall be deemed to include after the effective
date of the Registration Statement a Rule 430A subject to completion prospectus,
and the Company will deliver to the Underwriter, after the effective date at its
expense, such copies of the Rule 430A subject to completion prospectus the
underwriter deems necessary in connection with the offering.
4.03. DELIVERY OF PROSPECTUS. The Company will deliver at its expense
as many printed copies of the Prospectus as the Underwriter may require for the
purposes contemplated by this Agreement and shall deliver said printed copies of
the Prospectus to the Underwriter as soon as practicable on effectiveness of
this Agreement, but in no event more than one business day after the effective
date of this Agreement. The Company will deliver such additional copies at its
expense as may be necessary to permit dealers to comply with the requirements of
Rule 174. If the Underwriter determines to use a Term Sheet together with a
prospectus subject to completion in accordance with Rule 434 to satisfy the
prospectus delivery requirement, the Company shall furnish the Underwriter with
such number of copies of the Term Sheet meeting the requirements of Rule 434 and
will file such number of copies of the Commission as required by Rule 424(b) to
permit the Underwriter to deliver the final prospectus to purchasers in the
offering in this manner.
4.04. FURTHER AMENDMENTS AND SUPPLEMENTS. If during such period of time
as in the opinion of the Underwriter or its counsel, a Prospectus relating to
this offering is required to be delivered under the Act, any event occurs or any
event known to the Company relating to or affecting the Company shall occur as a
result of which the Registration Statement would include an untrue statement of
a material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time after the effective date of
the Registration Statement to amend or supplement the Registration Statement or
the Prospectus to comply with the Act, the Company will forthwith notify the
Underwriter thereof and prepare and file with the Commission such further
amendment to the Registration Statement or Prospectus as may be required, and
will furnish and deliver to the Underwriter and to others whose names and
addresses are designated by the Underwriter, all at the cost of the Company, a
reasonable number of copies of the amended Registration Statement or amended or
supplemented Prospectus which, as so amended or supplemented, will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the Statements therein not misleading in the light of
the circumstances under which they were made when it is delivered to a purchaser
or prospective purchaser, and which will comply in all respects with the Act.
4.05. USE OF PROSPECTUS. The Company authorizes the Underwriters, in
connection with the distribution of the Shares, and all dealers to whom any of
the Shares may be sold by the Underwriters, to use the Prospectus as from time
to time amended or supplemented, in connection with the offering and sale of the
Shares and in accordance with the applicable provisions of the Act and the
applicable Regulations and applicable state blue sky or state securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Underwriters that:
5.01. OBJECTION OF UNDERWRITER TO AMENDMENTS OR SUPPLEMENTS. After the
date hereof, the Company will not at any time, whether before or after the
effective date of the Registration Statement, file any Registration Statement or
amendment or supplement to the Registration Statement or Prospectus unless and
until a copy of such Registration Statement or amendment or supplement has been
previously furnished to the Underwriter within a reasonable time period prior to
the proposed filing thereof, or of which the Underwriter or counsel for the
Underwriter has reasonably objected to, in writing, on the ground that such
Registration Statement or amendment or supplement is not in compliance with the
Act or the Regulations.
5.02. COMPANY'S BEST-EFFORTS TO CAUSE REGISTRATION STATEMENT TO BECOME
EFFECTIVE. The Company will use its best efforts to cause the Registration
Statement and any post effective amendment subsequently filed to become
effective as promptly as reasonably practicable and will promptly advise the
Underwriter, and will confirm such advice in writing: (i) when the Registration
Statement shall have become effective and when any amendment thereto shall have
become effective and when any amendment of or supplement to the Prospectus shall
be filed with the Commission; (ii) when the Commission shall make a request or
suggestion for any amendment to the Registration Statement or the Prospectus or
for additional information and the nature and substance thereof; (iii) of the
issuance by the Commission of an order suspending the effectiveness of the
Registration Statement pursuant to Section 8 of the Act or of the initiation of
any proceedings for that purpose; (iv) of the happening of any event which in
the judgment of the Company makes any material statement in the Registration
Statement or Prospectus untrue or of the omission of any material fact which
makes the statements made therein misleading, or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any of such purposes.
The Company will use every reasonable effort to prevent the issuance of any such
order or of any order preventing or suspending such use, to prevent any such
refusal to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the termination
of any such suspension.
5.03. PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The Company
will prepare and file promptly with the Commission, upon request of the
Underwriter, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to counsel to the Company, as in the opinion of
counsel to the Underwriter and of counsel to the Company may be necessary in
connection with the offering or distribution of the Shares and will use its best
efforts to cause the same to become effective as promptly as possible.
5.04. PUBLICITY. The Company will issue no press releases or other form
of publicity, prior to the effective date, without the prior consent of the
Underwriter.
5.05. BLUE-SKY QUALIFICATION. The Company will, when and as requested
by the Underwriter, use reasonable efforts to qualify the Shares or such part
thereof as the Underwriter may determine for sale under the so-called blue sky
laws of the State of Minnesota, and of so many other states as the Underwriter
may reasonably request, and to continue such qualification in effect so long as
required for the purposes of the distribution of the Shares; provided, however,
the Company shall not be required to make a blue sky filing in any state which
would require that shares representing so-called "cheap stock" be escrowed for
more than two years.
5.06. FINANCIAL STATEMENTS. The Company will, at its own expense,
prepare and give, and will continue to give, such financial statements and other
information to and as may be required by the Commission or by the proper public
bodies of the states in which the Shares may be qualified.
5.07. ACCELERATION. The Company will not request acceleration of the
effectiveness of the Registration Statement without the Underwriter's prior
consent.
5.08. REPORTS AND FINANCIAL STATEMENTS TO THE UNDERWRITER. During the
period of five years from the Closing Date, the Company will deliver to the
Underwriter, copies of each annual report of the Company, and will deliver to
the Underwriter: (i) within 90 days after the close of each fiscal year of the
Company, a financial report of the Company and its subsidiaries, if any, on a
consolidated basis, and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as of the end
of the preceding fiscal year, an income statement, a statement of changes in
financial condition and an analysis of shareholders' equity covering such fiscal
year, and all to be in reasonable detail and certified by independent public
accountants for the Company; (ii) within 45 days after the end of each quarterly
fiscal period of the Company other than the last quarterly fiscal period in any
fiscal year, copies of the consolidated income statement and statement of
changes in financial condition for that period, and the balance sheet as of the
end of that period of the Company and its subsidiaries, if any, and the income
statement, statement of changes in financial condition, and the balance sheet of
each unconsolidated subsidiary, if any, of the Company for that period, all
subject to year-end adjustment, certified by the principal financial or
accounting officer of the Company; (iii) copies of all other statements,
documents, or other information which the Company shall mail or otherwise make
available to any class of its security holders, or shall file with Commission;
and (iv) upon request in writing from the Underwriter, furnish to the
Underwriter such other information as may reasonably be requested and which may
be properly disclosed to the Underwriter with reference to the property,
business, and affairs of the Company and its subsidiaries, if any.
5.09. EXPENSES PAID BY THE COMPANY. The Company will pay, whether or
not the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization of the Shares and their issue and
delivery to the Underwriter; any original issue taxes in connection therewith;
all transfer taxes, if any, incident to the initial sale of the Shares to the
public; the fees and expenses of the Company's counsel and accountants; the
costs and expenses incident to the preparation, printing and filing under the
Act and with the National Association of Securities Dealers, Inc. of the
Registration Statement, any Preliminary Prospectus, and the Prospectus and any
amendments or supplements thereto, the cost of printing, reproducing, and filing
all exhibits to the Registration Statement, the underwriting documents, and the
Selected Dealers Agreement; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement and copies of the Prospectus as
herein provided; the cost of "tombstone" or other similar advertising permitted
under the Act; and the cost of qualifying the Shares under the state securities
or Blue Sky laws as provided in Section 5.04 herein, including expenses and
disbursements of the Underwriter incurred in connection with such qualification.
5.10. REPORTS TO SHAREHOLDERS. During the period of five years from the
Closing Date, the Company will, as promptly as possible, not to exceed 120 days,
after each annual fiscal period, render and distribute reports to its
shareholders which will include audited statements of its operations and changes
of financial position during such period and its balance sheet as of the end of
such period, as to which statements the Company's independent certified public
accountants shall have rendered an opinion.
5.11. SECTION 11(a) FINANCIALS. The Company will make generally
available to its security holders and will deliver to the Underwriter, as soon
as practicable, but in no event later than the first day of the sixteenth full
calendar month following the effective date of the Registration Statement, an
earnings statement (as to which no opinion need be rendered but which will
satisfy the provisions of Section 11(a) of the Act) covering a period of at
least 12 months beginning after the effective date of the Registration
Statement.
5.12. POST-EFFECTIVE AVAILABILITY OF PROSPECTUS. Within the time during
which the Prospectus is required to be delivered under the Act, the Company will
comply, at its own expense, with all requirements imposed upon it by the Act, as
now or hereafter amended, by the Rules and Regulations, as from time to time may
be in force, and by any order of the Commission, so far as necessary to permit
the continuance of sales or dealings in the Shares.
5.13. APPLICATION OF PROCEEDS. The Company will apply the net proceeds
from the sale of the Shares substantially in the manner set forth in the
Registration Statement and Prospectus.
5.14. UNDERTAKINGS OF CERTAIN SHAREHOLDERS. The Company will deliver to
the Underwriter, prior to or simultaneously with the execution of this
Agreement, the undertaking of each officer, director, and each employee of the
Company who owns five percent (5%) or more of shares of the Company (based on
the number of shares to be outstanding prior to the completion of the offering)
that such person shall not directly or indirectly offer or sell to the public
any portion of the shares owned prior to the effective date of this Agreement or
hereafter acquired by exercise of an option for a period of twelve months from
the effective date of the Registration Statement without the Underwriter's prior
written consent.
5.15. DELIVERY OF DOCUMENTS. At the Closing, the Company will deliver
to the Underwriter true and correct copies of the articles of incorporation and
certificate of incorporation of the Company and all amendments thereto, all such
copies to be certified by the Secretary of State of the State of Minnesota; true
and correct copies of the bylaws of the Company and of the minutes of all
meetings of the directors and shareholders of the Company held prior to the
Closing Date which in any way relate to the subject matter of this Agreement,
certified by the Company's Secretary.
5.16. COOPERATION WITH UNDERWRITER'S DUE DILIGENCE. At all times prior
to any Closing Date, the Company will cooperate with the Underwriter and its
counsel in such investigation as the Underwriter may make or cause to be made of
all the properties, business, and operations of the Company in connection with
the purchase and public offering of the Shares, and the Company will make
available to the Underwriter in connection therewith such documents and
information in its possession as the Underwriter or its counsel may reasonably
request.
5.17. NO SALE PERIOD. No offering, sale, or other disposition of any
common Shares, equity, or long-term debt will be made within one year after the
effective date of the Prospectus, directly or indirectly, by the Company,
otherwise than hereunder or with the Underwriter's consent (not to be
unreasonably withheld).
5.18. APPOINTMENT OF TRANSFER AGENT. The Company has appointed the
American Stock Transfer and Trust Company as Transfer Agent for the Shares
subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the effective date without first
obtaining the written consent of the Underwriter, which consent shall not be
unreasonably withheld.
5.19. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company will use all
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Underwriters in Section 8 hereof.
5.20. FILINGS OF FORM SR. The Company agrees to file with the
Commission all required reports on Form SR in accordance with the provisions of
Rule 463 promulgated under the Act and to provide a copy of such reports to the
Underwriter and its counsel.
5.21. REGISTRATION UNDER THE EXCHANGE ACT. The Company shall, as soon
as practicable, but not later than 90 days after the effective date, register
the class of equity securities which constitutes the Shares by filing with the
Securities and Exchange Commission a registration statement (and such copies
thereof as the Commission may require) with respect to such security, containing
such information and documents as the Commission may specify comparable to that
which is required in an application to register a security pursuant to
subsection (g) of Section 12 of the Securities Exchange Act of 1934, as amended.
5.22. APPLICATION TO MOODY'S. The Company shall, within 60 days after
the effective date, apply for listing in Standard and Poor's or Moody's
Over-the-Counter Manual and shall use its best efforts to have the Company
listed in such manuals.
5.23. PUBLIC RELATIONS. After the effective date the Company will
engage a firm reasonably acceptable to the Underwriter for assistance in
conducting the Company's investor relations.
5.24. APPLICATION TO NASDAQ. The Company shall apply for entry of the
Company's common stock on the NASD automated quotation system ("small-cap"
listing) and shall in such event use its best efforts to have its common stock
continue to be quoted on that system.
5.25 ENGAGEMENT OF COMPTROLLER. Within ninety (90 ) days after the
Closing, engage a comptroller or similar employee, reasonably staisfactory to
the Underwriter, who is qualified and experienced in the financial reporting and
disclosure oblications of publicly-held companies.
SECTION 6
INDEMNIFICATION
6.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless the Underwriter, and each person who controls the Underwriter
within the meaning of Section 15 of the Act against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act or any other statute or at common law and to
reimburse persons indemnified as above for any legal or other expenses
(including the cost of any investigation and preparation) incurred by them in
connection with any litigation, whether or not resulting in any liability, but
only insofar as such losses, claims, damages, liabilities and litigation arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto
or any application or other document filed in order to qualify the Shares under
the Blue Sky or securities laws of the states where filings were made, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, all
as of the date when the Registration Statement or such amendment, as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the indemnity agreement contained in this subsection 6.01 shall not apply
to amounts paid in settlement of any such litigation if such settlements are
effected without the consent of the Company, nor shall it apply to the
Underwriter or any person controlling the Underwriter in respect of any such
losses, claims, damages, liabilities, or actions arising out of or based upon
any such untrue statements or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information peculiarly within the knowledge of the Underwriter and furnished in
writing to the Company by the Underwriter specifically for use in connection
with the preparation of the Registration Statement and Prospectus or any such
amendment or supplement thereto. This indemnity agreement is in addition to any
other liability which the Company may otherwise have to the Underwriters. The
Underwriter agrees within ten days after the receipt by it of written notice of
the commencement of any action against them or against any person controlling
them as aforesaid, in respect of which indemnity may be sought from the Company
on account of the indemnity agreement contained in this subsection 6.01 to
notify the Company in writing of the commencement thereof. The failure of the
Underwriter so to notify the Company of any such action shall relieve the
Company from any liability which it may have to the Underwriters or any person
controlling them as aforesaid on account of the indemnity agreement contained in
this subsection 6.01, but shall not relieve the Company from any other liability
which it may have to the Underwriters or such controlling person. In case any
such action shall be brought against the Underwriters or any such controlling
person and the Underwriters shall notify the Company of the commencement
thereof, the Company shall be entitled to participate in (and, to the extent
that it shall wish, to direct) the defense thereof at its own expense, but such
defense shall be conducted by counsel of recognized standing and reasonably
satisfactory to the Underwriter or such controlling person or persons, defendant
or defendants in such litigation. The Company agrees to notify the Underwriter
promptly of commencement of any litigation or proceedings against it or any of
its officers or directors, of which it may be advised, in connection with the
issue and sale of any of its securities and to furnish to the Underwriter, at
its request, copies of all pleadings therein and permit the Underwriter to be an
observer therein and apprise the Underwriter of all developments therein, all at
the Company's expense. Provided, however, that in no event shall the
indemnification agreement contained in this Section 6.01 inure to the benefit of
any Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages, liabilities or actions arising from the sale of the
Shares upon the public offering to any person by such Underwriter if such
losses, claims, damages, liabilities or actions arise out of, or are based upon,
an untrue statement or omission or alleged untrue statement or omission in a
Preliminary Prospectus and if the Prospectus shall correct the untrue statement
or omission, or the alleged untrue statement or omission, which is the basis of
the loss, claim, damage, liability or action for which indemnification is
sought, and a copy of the Prospectus had not been sent or given to such person
at or prior to the confirmation of such sale to him in any case where such
delivery is required by the Securities Act, unless such failure to deliver the
Prospectus was a result of non-compliance by the Company with Section 4.03
hereof.
6.02. INDEMNIFICATION BY UNDERWRITER. The Underwriter agrees, to the
extent of and in the same manner as set forth in subsection 6.01 above, to
indemnify and hold harmless the Company, the directors of the Company and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act with respect to any statement in or omission from the Registration Statement
or any amendment thereto, or the Prospectus (as amended or as supplemented, if
amended or supplemented as aforesaid) or any application or other document filed
in any state or jurisdiction in order to qualify the Shares under the blue sky
or securities laws thereof, or any information furnished pursuant to Section
3.09 hereof, if such statement or omission was made in reliance upon information
peculiarly within its knowledge and furnished in writing to the Company by the
Underwriter on its behalf specifically for use in connection with the
preparation thereof or supplement thereto. The Underwriter shall not be liable
for amounts paid in settlement of any such litigation if such settlement was
effected without the consent of the Underwriter. In case of commencement of any
action in respect of which indemnity may be sought from the Underwriter on
account of the indemnity agreement contained in this subsection 6.02, each
person agreed to be indemnified by the Underwriter shall have the same
obligation to notify the Underwriter as the Underwriter have toward the Company
in subsection 6.01 above, subject to the same loss of indemnity in the event
such notice is not given, and the Underwriter shall have the same right to
participate in (and, to the extent that it shall wish, to direct) the defense of
such action at its own expense, but such defense shall be conducted by counsel
of recognized standing and satisfactory to the Company. The Underwriter agrees
to notify the Company promptly of the commencement of any litigation or
proceeding against the Underwriter,, or against any such controlling person, of
which it may be advised, in connection with the issue and sale of any of the
securities of the Company, and to furnish to the Company at its request copies
of all pleadings therein and apprise it of all the developments therein, all at
the Underwriter's expense, and permit the Company to be an observer therein.
6.03 CONTRIBUTION. If the indemnification provided for in this Section
6 is unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to therein, then each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages, expenses
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect not only (i) the relative benefits received by the
Company on the one hand and the Underwriter on the other from the offering of
the Shares, but also (ii) the relative fault of the Company and the Underwriter
in connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities (or action in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriter on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses other than the nonaccountable expense
allowance payable by the Company to the Underwriter) received by the Company
bear to the total underwriting commissions and expense allowance received by the
Underwriter in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriter, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriter agree that it would not
be just and equitable if contribution pursuant to this Section 6.03 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 6.03. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, expenses or liabilities (or actions in respect
thereof) referred to above in this Section 6.03 shall he deemed to include any
legal or other expenses to which such indemnified party would be entitled if
Section 6.01 and 6.02 were applied. Notwithstanding the provisions of this
Section 6.03, the Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price which the Shares underwritten by
it and distributed to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission plus the Underwriter's
proportionate share of such legal or other expenses; and any punitive or
exemplary damages if the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by or statements made by the Underwriter. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11 of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 7
EFFECTIVENESS OF AGREEMENT
This Agreement shall become effective upon release by the Underwriter
of the Shares for offering after the effective date. The time of the release by
the Underwriter of the Shares for offering, for the purposes of this Section 7,
shall mean the time of the release by the Underwriter of the Shares for public
sale pursuant to the Registration Statement. The Underwriter agrees to notify
the Company immediately after the Underwriter shall have released the Shares
that this Agreement has become effective. This Agreement shall, nevertheless,
become effective at such time earlier than the time specified above, after the
effective date, as the Underwriter may determine by notice to the Company.
SECTION 8
CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS
The Underwriters' obligations hereunder to purchase the Shares and to
make payment to the Company hereunder on the Closing Date shall be subject to
the accuracy, as of the Closing Date, of the representations and warranties on
the part of the Company herein contained, to the performance by the Company of
all its agreements herein contained, to the fulfillment of or compliance by the
Company with all covenants and conditions hereof, and to the following
additional conditions:
8.01. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective on or prior to 12:00 Noon Minneapolis
time, on January 31, 1997, or such later date as the Underwriter may agree to.
On or prior to the Closing Date, no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement or the Prospectus nor any amendment thereto shall have
been filed to which counsel to the Underwriter shall have reasonably objected in
writing or have not given their consent.
8.02. ACCURACY OF REGISTRATION STATEMENT. The Underwriter shall not
have disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of counsel to the Underwriter, is
material, or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein, or is necessary to make the
statements therein not misleading.
8.03. CASUALTY AND OTHER CALAMITY. Between the date hereof and the
Closing Date, the Company shall not have sustained any loss on account of fire,
explosion, flood, accident, calamity or any other cause, of such character as
materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance and neither the
President nor any other officer of the Company shall have suffered any injury or
disability of a nature which would materially adversely affect his ability to
properly function as an officer and director of the Company.
8.04. LITIGATION AND OTHER PROCEEDINGS. Between the date hereof and the
Closing Date, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, patents, operations or financial condition or
income of the Company considered as an entity.
8.05. LACK OF MATERIAL CHANGE. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement and prior to the Closing Date, the Company: (a) shall have conducted
its business in the ordinary course as the same was being conducted on the date
of the last audited balance sheet included in the Registration Statement, (b)
except in the ordinary course of its business, the Company shall not have
incurred any liabilities or obligations (direct or contingent) or disposed of
any of its assets, or entered into any material transaction or suffered or
experienced any materially adverse change in its condition, financial or
otherwise, and (c) there shall have been no material adverse change in the
condition (financial or otherwise), business, or prospects of the Company. At
the Closing Date, the capital stock, and stockholder's equity of the Company
shall be substantially the same as at the date of the last audited balance sheet
included in the Registration Statement, without considering the proceeds from
the sale of the Shares, other than as may be set forth in the Prospectus, and
except as the stockholder's equity reflects the result of continued losses from
operations.
8.06. REVIEW BY AND OPINION OF UNDERWRITER'S COUNSEL. The authorization
of the Shares, the Warrants, the Warrant Shares, the Registration Statement, and
the Prospectus and all corporate proceedings and other legal matters incident
thereto and to this Agreement shall be reasonably satisfactory in all respects
to counsel to the Underwriter. The Underwriter shall have received an opinion
dated as of the Closing Date from its counsel, substantially in the form of the
opinion called for by Section 8.07(viii), qualified in such manner as the
Underwriter may deem acceptable.
8.07. OPINION OF COUNSEL. The Company (which term shall include any
subsidiaries of the Company) shall have furnished to the Underwriter the
opinion, dated the Closing Date, addressed to the Underwriter, from Doherty,
Rumble & Butler, counsel to the Company, to the effect that based upon a review
by them of the Registration Statement, the Prospectus, the Company's Articles of
incorporation, bylaws, and relevant corporate proceedings, an examination of
such statutes they deem necessary, and such other investigation by such counsel
as they deem necessary to express such opinion:
(i) The Company has been duly incorporated and is a validly existing
corporation ingood standing under the laws of Minnesota, with full
corporate power and authority to own and operate its properties and to
carry on its business as set forth in the Registration Statement and
Prospectus.
(ii) The Company is not required to qualify or register as a foreign
corporation in any state, and there are no jurisdictions in which the
Company's ownership of property or its conduct of business requires
such qualification or registration and where the failure to so qualify
would have a material adverse effect on its operations.
(iii) The Company has authorized and outstanding capital capital stock
as set forth in the Registration Statement and Prospectus; the
outstanding capital stock of the Company, the Shares, and the
Underwriter's Warrants conform to the statements concerning them in the
Registration Statement and Prospectus; the outstanding capital stock of
the Company has been duly and validly issued and is fully-paid and
nonassessable and contain no preemptive rights; the Shares have been,
and the Warrant Shares issuable upon due exercise of the Warrants will
be, when delivered against payment, duly and validly authorized and,
upon issuance thereof and payment therefor in accordance with this
Agreement and the Warrants, will be duly and validly issued, fully
paid, and nonassessable, and will not be subject to the preemptive
rights of any shareholder of the Company.
(iv) The Underwriter's Warrants have been duly and validly authorized
and issued and are valid and binding instruments enforceable against
the Company in accordance with their terms, except as enforcement may
be limited by bankruptcy or similar laws affecting creditors' rights
general application affecting creditors' rights, except as the
availability of equitable remedies requires the exercise of judicial
discretion, and except as enforcement of the indemnification provisions
therein may be limited by federal or state securities laws.
(v) A sufficient number of shares of the Company's common stock have
been duly reserved for issuance upon exercise of the Underwriter's
Warrants.
(vi) No consents, approvals, authorizations, or orders of agencies,
officers, or other regulatory authorities are known to such counsel
which are necessary for the valid authorization, issue, or sale of the
Shares and Warrant Shares hereunder, except as required under the Act
or blue sky or state securities laws.
(vii) The issuance and sale of the Shares, the Warrants, the Warrant
Shares, and the consummation of the transactions herein contemplated
and compliance with the terms of this Agreement will not conflict with
or result in a breach of any of the terms, conditions, or provisions of
or constitute a default under the articles of incorporation or bylaws
of the Company, or under any note, indenture, mortgage, deed of trust,
or other agreement or instrument known to such counsel after reasonable
investigation to which the Company is a party or by which the Company
or any of its property is bound, or under any existing law (provided
this paragraph shall not relate to federal or state securities laws),
order, rule, regulation, writ, injunction, or decree known to such
counsel of any government, governmental instrumentality, agency, body,
arbitration tribunal, or court, domestic or foreign, having
jurisdiction over the Company or its property.
(viii) The Registration Statement has become effective under the Act
and, to the best knowledge of such counsel after reasonable
investigation, no order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated by the
Commission under the Act or by any authority acting under any state
securities or blue-sky law; and the Registration Statement and
Prospectus, and each amendment and supplement thereto, comply as to
form in all material respects with the requirements of the Act and the
Regulations thereunder, and such counsel is familiar with all contracts
referred to in the Registration Statement or Prospectus and such
contracts are sufficiently summarized or disclosed therein or filed as
exhibits thereto as required, and such counsel, after a reasonable
investigation, does not know of any contracts required to be summarized
or disclosed or filed, and such counsel, after a reasonable
investigation, does not know of any legal or governmental proceedings
pending or threatened to which the Company is the subject of such a
character required to be disclosed in the Registration Statement or the
Prospectus which are not disclosed and properly described therein.
(ix) This Agreement has been duly authorized and executed by the
Company and is a valid and binding agreement of the Company and is
enforceable against the Company in accordance with its terms, (except
that no opinion need be expressed as to financial statements contained
in the Registration Statement or Prospectus); except as enforcement may
be limited by bankruptcy or similar laws affecting creditors' rights
general application affecting creditors' rights and except as the
availability of equitable remedies requires the exercise of judicial
discretion, and except as enforcement of the indemnification provisions
therein may be limited by federal or state securities laws.
(x) After a reasonable investigation such counsel has no reason to
believe that either the Registration Statement nor the Prospectus or
any such amendment or supplement 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 in
light of the circumstances under which made.
As to routine factual matters such as the issuance of stock
certificates and receipt of payment therefor, the states in which the Company
transacts business, the adoption of resolutions reflected by the Company's
minute book and the like, such counsel may rely on the certificate of an
appropriate officer of the Company. Such opinion shall also cover such other
matters incident to the transactions contemplated by this Agreement as the
Underwriter shall reasonably request.
8.08.01. ACCOUNTANT'S COMFORT LETTER. The Underwriter shall have
received a letter addressed to it and dated the date of this Agreement and the
Closing Date, respectively, from Divine, Scherzer & Brody, Ltd., independent
public accountants for the Company, stating that (i) with respect to the Company
they are independent public accountants within the meaning of the Act and the
applicable Regulations thereunder and the response to Item 509 of Regulation S-B
as reflected by the Registration Statement is correct insofar as it relates to
them; (ii) in their opinion, the financial statements of the Company examined by
them at all dates and for all periods referred to in their opinion and included
in the Registration Statement and Prospectus, comply in all material respects
with the applicable accounting requirements of the Act and the Regulations
thereunder with respect to registration statements on Form S-B2; (iii) on the
basis of certain indicated procedures (but not an examination in accordance with
generally accepted accounting principles), including examinations of the
instruments of the Company set forth under "Capitalization" in the Prospectus, a
reading of the latest available interim unaudited financial statements of the
Company, whether or not appearing in the Prospectus, inquiries of the officers
of the Company or other persons responsible for its financial and accounting
matters regarding the specific items for which representations are requested
below, and a reading of the minute books of the Company, nothing has come to
their attention which would cause them to believe that during the period from
the last audited balance sheet included in the Registration Statement to a
specified date not more than five days prior to the date of such letter (a)
there has been any change in the capital stock or other securities of the
Company or any payment or declaration of any dividend or other distribution in
respect thereof or exchange therefor from that shown on its audited balance
sheets or in the debt of the Company from that shown or contemplated under
"Capitalization" in the Registration Statement or Prospectus other than as set
forth in or contemplated by the Registration Statement or Prospectus; (b) there
have been any material decreases in net current assets, or net assets as
compared with amounts shown in the last audited balance sheet included in the
Prospectus so as to make said financial statements misleading; and (c) on the
basis of the indicated procedures and discussions referred to in clause (iii)
above, nothing has come to their attention which, in their judgment, would cause
them to believe or indicate that (1) the unaudited financial statements and
schedules set forth in the Registration Statement and Prospectus do not present
fairly the financial position and results of the Company for the periods
indicated, in conformity with the generally accepted accounting principles
applied on a consistent basis with the audited financial statements, and (2) the
dollar amounts, percentages and other financial information set forth in the
Registration Statement and Prospectus under the captions "Prospectus Summary,"
"Risk Factors," "Dilution," "Capitalization," "Executive Compensation," "1996
Stock Option Plan," "Principal Shareholders," and "Certain Transactions," are
not in agreement with the Company's general ledger, financial records, or
computations made by the Company therefrom.
8.08.02. CONFORMED COPIES OF ACCOUNTANT'S LETTER. The Underwriter shall
be furnished without charge, in addition to the original signed copies, such
number of signed or photostatic or conformed copies of such letters as the
Underwriter shall reasonably request.
8.09. OFFICERS' CERTIFICATE. The Company shall have furnished to the
Underwriter a certificate by the chief executive officer and chief financial
officer, dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company in this Agreement
are true and correct at and as of the Closing Date, and the Company has
complied with all the agreements and has satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing
Date.
(ii) The Registration Statement has become effective and no order
suspending the effectiveness of the Registration Statement has been
issued and to the best of the knowledge of the respective signers, no
proceeding for that purpose has been initiated or is threatened by the
Commission.
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and
supplements thereto, and the Registration Statement and the Prospectus
and any amendments and supplements thereto contain all statements
required to be stated therein, and all statements contained therein are
true and correct, and neither the Registration Statement nor Prospectus
nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or a
supplemented Prospectus which has not been so set forth.
(iv) Except as set forth in the Registration Statement and Prospectus
since the respective dates as of which the periods for which
information is given in the Registration Statement and Prospectus and
prior to the date of such certificate, (a) there has not been any
material adverse change, financial or otherwise, in the financial or
other condition, business, or prospects of the Company, and (b) the
Company has not incurred any liabilities, direct or contingent, or
entered into any transactions, otherwise than in the ordinary course of
business.
(v) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, no dividends or
distribution whatever have been declared and/or paid on or with respect
to the common Shares of the Company.
8.10. TENDER OF DELIVERY OF SHARES. All of the Shares being offered by
the Company and the Warrants being purchased from the Company by the Underwriter
shall be tendered for delivery in accordance with the terms and provisions of
this Agreement.
8.11. BLUE-SKY QUALIFICATION. The Shares shall be qualified in such
states as the Underwriter may reasonably request pursuant to Section 5.04, and
each such qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date.
8.12. APPROVAL OF UNDERWRITER'S COUNSEL. All opinions, letters,
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Underwriter, whose approval
shall not be unreasonably withheld. The suggested form of such documents shall
be provided to the counsel for the Underwriter at least one business day before
the Closing Date. The Underwriter's counsel will provide a written memorandum
stating such closing documents which he deems necessary for their review. Such
memorandum shall be delivered five business days before the Closing Date to
counsel for the Company.
8.13. OFFICERS' CERTIFICATE AS A COMPANY REPRESENTATIVE. Any
certificate signed by an officer of the Company and delivered to the Underwriter
or to counsel for the Underwriter will be deemed a representation and warranty
by the Company to the Underwriter as to the statements made therein.
SECTION 9
TERMINATION
9.01. TERMINATION BECAUSE OF NON-COMPLIANCE. This Agreement may be
terminated by the Underwriter by notice to the Company in the event that the
Company shall have failed or been unable to comply with any of the terms,
conditions or provisions of this Agreement on the part of the Company to be
performed, complied with or fulfilled (including but not limited to those
specified in Sections 2, 3, 4, 5, and 8 hereof) within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Underwriter in writing.
9.02. MARKET OUT TERMINATION. This Agreement may be terminated by the
Underwriter by notice to the Company at any time if, in the judgment of the
Underwriter, payment for and delivery of the Shares is rendered impracticable or
inadvisable because (i) trading in securities generally on the New York Shares
Exchange, American Shares Exchange, or NASDAQ shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Colorado shall have been declared by either federal or state
authorities, or (iii) there shall have occurred a war or other national
calamity, or a crisis or change in political, financial, or economic conditions,
the effect of which on the financial markets of the United States is such as it
would be undesirable, impracticable or inadvisable in the judgment of the
Underwriter to proceed or continue with this Agreement or with the public
offering. Notice of such termination may be given to the Company by telegram,
telecopy or telephone and shall subsequently be confirmed by letter.
9.03. EFFECT OF TERMINATION HEREUNDER. Any termination of this
Agreement pursuant to this Section 9 shall be without liability of any character
(including, but not limited to, loss of anticipated profits or consequential
damages) on the part of any party thereto, except that the Company shall remain
obligated to pay the costs and expenses provided to be paid by it specified in
Section 5.07; and the Company and the Underwriter shall be obligated to pay,
respectively, all losses, claims, damages or liabilities, joint or several,
under Section 6.01 in the case of the Company and Section 6.02 in the case of
the Underwriter.
SECTION 10
UNDERWRITERS' REPRESENTATIONS AND WARRANTIES
The Underwriters represents and warrants to and agrees with the Company that:
10.01. REGISTRATION AS BROKER-DEALER AND MEMBER OF NASD. The
Underwriter is and each selected dealer will be (a) registered as a broker-
dealer with the Securities and Exchange Commission, (b) registered as a broker-
dealer in all states in which it conducts business, and (c) is a member in good
standing of the National Association of Securities Dealers, Inc.
10.02. NO PENDING PROCEEDINGS. There is not now pending or threatened
against the Underwriter any action or proceeding of which it has been advised,
either in any court of competent jurisdiction, before the Securities and
Exchange Commission or any state securities commission concerning its activities
as a broker or dealer, nor has the Underwriter been named as a "cause" in any
such action or proceeding.
10.03. COMPANY'S RIGHT TO TERMINATE. In the event any action or
proceeding of the type referred to in subparagraph 10.02 above shall be
instituted or threatened against the Underwriter at any time prior to the
effective date hereunder, or in the event there shall be filed by or against it
in any court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of its assets or if it makes an assignment
for the benefit of creditors, the Company shall have the right on three days'
written notice to the Underwriter to terminate this Agreement without any
liability to the Underwriter of any kind except for the payment of all expenses
as provided herein.
SECTION 11
RIGHT OF FIRST REFUSAL
11.01. CONSULTATION WITH UNDERWRITER. For a period of three years from
the date of the definitive prospectus, the Company and its officers and
directors agree to consult with Tuschner in respect of any prospective or actual
public or private offering of securities of the Company (as such term is defined
in this subsection I 1.01) for cash other than to employees.
For the purposes of this Section 11, the term, "securities of the
Company" shall be deemed to include any debt or equity securities of the Company
other than debt securities secured by chattel mortgages or equipment or property
of the Company, the maturity date of which is less than two years, and which are
offered by the Company for sale or sold by the Company only to commercial banks,
insurance companies, recognized finance companies or pension trusts. Also
specifically excluded are public offerings and/or private offerings of the
Company's shares in exchange for properties, assets or Shares of other
individuals or corporations. The Company shall not be required to consult with
the Underwriter concerning any borrowings from banks and institutional lenders
or concerning financing under any equipment leasing or similar arrangements.
11.02 UNDERWRITER'S RIGHT OF FIRST REFUSAL. For a period of three years
from the date of the definitive prospectus, the Company will not enter into an
agreement for any public or private offering for cash (other than to employees)
of any securities of the Company as defined above in Section 11.01 to or through
any person, firm or corporation other than the Underwriter unless and until the
Company shall have first negotiated for the sale of the Company's securities
with or offered to sell its securities to the Underwriter. The Company shall
notify the Underwriter in writing of the Company's intention to offer its
securities in a covered offering and the terms (including the price to the
Underwriter or other method of determining the underwriting discount or fee) and
conditions of the proposed offering. The Underwriter shall then have 30 days
from the date it receives such written notice from the Company to decide whether
it wishes to participate as Manager, Co-Manager, or otherwise, as determined by
the Underwriter, in the proposed offering. If the Underwriter determines that it
does not wish to participate in the proposed offering, then it shall so notify
the Company of its intention in writing within such 30-day period. The Company
may within a period of 30 days from the date of receipt of such notice then
enter into a letter of intent for the public sale or, as appropriate, a contract
for the private sale, of any of its securities through any other person, firm or
corporation on the same general terms and conditions as those which were
tendered to the Underwriter. Provided, however, as to a public offering, if a
definitive underwriting agreement with a firm commitment is not executed by the
Company with such third party within 90 days thereafter, all the rights of the
Underwriter hereunder shall be reinstated. Nothing in this Agreement shall be
construed as granting the continuation of such preferential right on the part of
the Underwriter beyond such three-year period. The Company shall not be required
to consult with the Underwriter concerning any borrowings from banks and
institutional lenders or concerning financing under any equipment leasing or
similar arrangements.
SECTION 12
NOTICE
Except as otherwise expressly provided in this Agreement:
12.01. NOTICE TO THE COMPANY. Whenever notice is required by the
provisions of this Underwriting Agreement to be given to the Company, such
notice shall be in writing addressed to the Company as follows:
Barry Wendt
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, MN 55435
with a copy to:
Stephen E. Smith, Esq. or
Daniel R Tenenbaum Esq.
Doberty, Rumble & Butler
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402
12.02. NOTICE TO THE UNDERWRITER. Whenever notice is required by the
provisions of this Agreement to be given to the Underwriters, such notice shall
be given in writing addressed to the Underwriter, John M. Tuschner, at the
address set out at the beginning of this Agreement, attention John M. Tuschner
with a copy to:
Michael L. Berde, Esq. or
Kevin S. Spreng, Esq.
Merrith, Furber & Timmer
2100 Metropolitan Centre
Minneapolis, MN 55402
SECTION 13
MISCELLANEOUS
13.01. BENEFIT. This Agreement is made solely for the benefit of the
Underwriter, the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the Act, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares.
13.02. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
its officers as set forth in or made pursuant to this Agreement and the
indemnity agreements of the Company and the Underwriter contained in Section 6
hereof shall survive and remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or the Underwriters or any
such officer or director thereof or any controlling person of the Company or of
the Underwriter, (ii) delivery of or payment for the Shares, (iii) the Closing
Date, and (iv) any successor of the Company and the Underwriter or any
controlling person, officer or director thereof, as the case may be, shall be
entitled to the benefits hereof.
13.03. GOVERNING LAW. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the State
of Minnesota.
13.04. UNDERWRITER'S INFORMATION. The statements with respect to the
public offering of the Shares on the cover page of the Prospectus and under the
caption "Underwriting" in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in subsection 2.02
hereof, in subsection 6.01 hereof and subsection 6.02 hereof.
13.05. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the Agreement
between you and the Company.
Very truly yours,
SAC TECHNOLOGIES, INC.
ATTEST:
By_________________________________
___________________, President
_______________________________________
WE HEREBY CONFIRM AS OF THE DATE HEREOF
THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE COMPANY AND US.
___________________________________
TUSCHNER & COMPANY, INC.
By_________________________________
Its________________________________
Exhibit A
RESTRICTION ON TRANSFER
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE LAW AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF (1) A LAWFUL EXEMPTION FROM SUCH REGISTRATION OR (2) SUCH
REGISTRATION.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF SAC TECHNOLOGIES, INC.
This Certifies that, for value received, Tuschner & Company, Inc., or
its permitted assigns (the "Holder"), is entitled, upon the terms and subject to
the conditions hereafter set forth, to subscribe for and purchase from SAC
Technologies, Inc., a Minnesota corporation (the "Company"), __________________
(______) fully paid and nonassessable shares of the Company's Common Stock,
$0.01 par value (the "Common Stock"). The number and exercise price of the
securities that may be purchased upon the exercise of this Stock Purchase
Warrant (the "Warrant") are subject to adjustment as provided herein.
Section 1 Exercise Period
The purchase rights represented by this Warrant are exercisable by the
Holder, in whole or in part, at any time or from time to time on or after the
first anniversary hereof and on or before the fifth anniversary hereof (the
"Exercise Period").
Section 2 Exercise Price
The price per share for purchase of the Common Stock upon exercise of
the Warrant shall initially be one hundred twenty percent (120%) per share of
the "Price to Public" of the shares sold pursuant to the Company's Registration
Statement No. _______ (the "Exercise Price"). Such initial Exercise Price shall
be subject to adjustment as provided in Section 8 hereof.
Section 3 Exercise of Warrant
During the Exercise Period, the Warrant shall be exercised, in whole or
in part and from time to time, by the surrender of this Warrant and the Notice
of Exercise annexed hereto duly executed at the office of the Company, in Edina,
Minnesota (or such other office or agency of the Company as it may designate)
and upon payment of the Exercise Price of the shares thereby purchased (payment
to be by check or bank draft payable to the order of the Company). Upon
exercise, the Holder shall be entitled to receive, within a reasonable time, one
or more certificates, issued in the Holder's name or in such name or names as
the Holder may direct, for the number of shares of Common Stock so purchased.
The shares so purchased shall be deemed to be issued as of the close of business
on the date on which this Warrant shall have been exercised.
The Company covenants that all shares of Common Stock that are issued
upon the exercise of rights represented by this Warrant will be fully paid,
nonassessable, and free from all taxes, liens, and changes in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
Section 4 No Fractional Shares or Scrip
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. In lieu thereof, a cash payment shall
be made equal to such fraction multiplied by the Exercise Price per share as
then in effect.
Section 5 Charges, Taxes, and Expenses
Issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company.
Section 6 No Rights as Shareholders
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to exercise and payment of the
Exercise Price in accordance with Section 3 hereof.
Section 7 Registration Rights
7.1 Certain Definitions. As used in this Section 7, the following terms
shall have the following respective meanings:
1. "Commission" means the Securities and Exchange Commission,
or any other federal agency at the time administering the 1933 Act.
2. "1933 Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time,
be in effect.
3. "Registration Statement" means a registration statement
filed by the Company with the Commission for a public offering and sale
of securities of the Company.
4. "Registrable Shares" means the shares of Common Stock
issued or issuable upon exercise of the Warrant.
5. "Registration Expenses" means all expenses incurred by the
Company in compliance with Subsections 7.2 and 7.3 hereof, including,
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, exchange listing fees, the expense of any special
audits incident to or required by any such registration, fees of the
custodian for the selling Stockholders, transfer agent fees, all
travel, lodging, and reasonable living expenses incurred by the Company
in marketing the shares registered in such registration, and the
expenses associated with the Company's obligations under Subsection 7.5
hereof.
6. "Selling Expenses" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Shares and
all fees and disbursements of counsel, accountants, and experts for any
selling Stockholder.
7. "Stockholder" means the holder of (1) the Warrant or (2)
Common Stock obtained upon exercise of the Warrant.
7.2 Demand Registration.
(a) At any time during the Exercise Period (following the
Company's initial public offering of its securities under the 1933 Act
or Regulation A thereunder), a Stockholder or Stockholders holding more
than 50 percent of the Registrable Shares then outstanding may request
the Company, in writing, to effect the registration, under the 1933
Act, of Registrable Shares owned by such Stockholder or Stockholders,
pursuant to a public offering to be filed on a Form S-3 Registration
Statement (or, if such Registration Statement is not available, such
other form of Registration Statement as may be selected by the Company
in its sole discretion), and to be managed by an investment banking
firm to be selected by the Company pursuant to Subsection 7.8 hereof.
Such request shall indicate the number of Registrable Shares proposed
to be sold by the requesting Stockholder or Stockholders and indicate
that the requesting Stockholder or Stockholders propose to enter into a
"firm commitment" underwriting agreement with such investment banking
firm contemplating immediate resale to the public of such Registrable
Shares. Upon receipt of any such request, the Company shall promptly
give written notice of such proposed registration to all Stockholders.
Such Stockholders shall have the right, by giving written notice to the
Company within twenty days after the Company provided its notice, to
elect to have included in such registration such of their Registrable
Shares as such Stockholders may request in such notice of election,
subject to the limitations set forth in Subsection 7.2(f) hereof.
Thereupon, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration of all Registrable Shares that
the Company has been requested to register.
(b) The Company shall be required to effect only one
registration pursuant to Subsection 7.2(a) hereof. In no event shall
the Company be required to effect such registration within three months
after the effective date of any other Registration Statement of the
Company (except a Registration Statement on Form S-8 or Form S-4 or any
successor forms thereto).
7.3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement at any time and from time to time during the Exercise Period
(following the Company's initial public offering of its securities
under the 1933 Act or Regulation A thereunder), except on Forms S-4 or
S-8, it will, prior to such filing, on three occasions give written
notice to all Stockholders of its intention to do so and, upon the
written request of a Stockholder or Stockholders given within twenty
days after the Company provides such notice, the Company shall, subject
to Subsection 7.3(b) hereof, use its best efforts to cause all
Registrable Shares that the Company has been requested by such
Stockholder or Stockholders to register to be registered under the 1933
Act; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Subsection 7.3
without obligation to any Stockholder, except, in the case of a
registration that is withdrawn, to pay counsel fees and expenses
incurred by the Stockholders in connection with such withdrawn
registration.
(b) If the offering to which the proposed registration under
this Subsection 7.3 relates is to be distributed by or through an
underwriter or underwriters, and if in the opinion of the managing
underwriter the registration of all, or part, of the Registrable Shares
that the Stockholders have requested to be included would materially
and adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of Registrable
Shares, if any, that the managing underwriter believes may be sold
without causing such adverse effect. If the number of Registrable
Shares to be included in the underwriting in accordance with the
foregoing is less than the number of shares that the Stockholders have
requested to be included, then the Stockholders who have requested
registration shall participate in the underwriting pro rata based on
their total ownership of Registrable Shares and if any Stockholder
would thus be entitled to include more shares than such Stockholder
requested to be registered, the excess shall be allocated among other
requesting Stockholders pro rata based on their total ownership of
Registrable Shares. By accepting this Warrant, the Holder agrees that
if requested by such underwriter, the Holder and/or its assigns will
sell any Registrable Shares that are subject to the Registration
Statement to or through such underwriters at the same price to be paid
to the Company or other selling stockholders if the Company or other
selling stockholders are offering Common Stock.
(c) In the event that the Company proceeds to register
Registrable Shares pursuant to a request made under this Subsection
7.3, the Holder, if a Stockholder who sells Registrable Shares in such
registered offering, agrees to sign such supplemental agreements as the
Company and/or the managing underwriter shall request, restricting such
Stockholder from selling or offering for sale any Registrable Shares
(other than those being sold pursuant to the Registration Statement)
for a period of up to ninety days after the effective date of such
Registration Statement, provided that all officers, directors, and
5-percent-or-greater shareholders also sign such agreements. The
Company may impose stop-transfer instructions with respect to the
Registrable Shares subject to the foregoing restriction until the end
of the required period.
7.4 Exemption From Registration.
Notwithstanding any provision in Subsections 7.2 and 7.3 of this
Warrant, the Company shall not be required to cause a Registration Statement to
be filed with respect to any Registrable Shares, if at the time of the Company's
receipt of a request to register Registrable Shares, the entire number of
Registrable Shares proposed to be sold by the requesting Stockholders may be
sold by them, in the manner proposed by them, pursuant to Rule 144 promulgated
under the 1933 Act (or any successor rule) (Rule 144) within not more than
ninety days from the date of such receipt (based on the number of shares of
Common Stock outstanding on the date of such opinion and the average weekly
trading volume for such Common Stock for the four weeks preceding the date of
such receipt, if applicable).
7.5 Registration Procedures.
If and whenever the Company is required by Subsection 7.2 or 7.3 of
this Warrant to use its best-efforts to effect the registration of any of the
Registrable Shares under the 1933 Act, the Company shall:
(a) File with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause
that Registration Statement to become and remain effective;
(b) As expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement
and the prospectus included in the Registration Statement as may be
necessary to keep the Registration Statement effective for a period
sufficient to effect the sale of the Registrable Securities, but in any
event not more than ninety days from the effective date;
(c) As expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements
of the 1933 Act, and such other documents as the selling Stockholder
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by the selling Stockholder;
(d) As expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration
Statement under the securities or Blue Sky laws of such states or
jurisdictions as the managing underwriter deems appropriate, and do any
and all other acts and things that may be necessary or desirable to
enable the selling Stockholder to consummate the public sale or other
disposition in such jurisdictions of the Registrable Shares owned by
the selling Stockholder; provided, however, that the Company shall not
be required in connection with this Subsection 7.5 to qualify as a
foreign corporation or execute a general consent to service of process
in any jurisdiction; and
(e) Enter into an underwriting agreement with the underwriters
designated pursuant to Subsection 7.8 hereof containing customary terms
including representations, covenants, indemnification, and contribution
provisions.
If the Company has delivered preliminary or final prospectuses to a
selling Stockholder and, after having done so, the prospectus must be amended to
comply with the requirements of the 1933 Act, the Company shall promptly notify
the selling Stockholder and, by accepting this Warrant, the Holder agrees to
cease making offers of Registrable Shares immediately upon such request and to
return all prospectuses to the Company. The Company shall promptly provide the
selling Stockholder with revised prospectuses and, following receipt of the
revised prospectuses the selling Stockholder shall be free to resume making
offers of the Registrable Shares.
By accepting this Warrant, the Holder and/or its assigns agree not to
participate in a registration unless such Stockholder (a) completes and executes
all questionnaires, indemnities, underwriting agreements, and other documents
required under the terms of any underwriting arrangement relating to such
registration or under any applicable rules and regulations of the Commission and
(b) provides to the Company in writing such information as the Company may
reasonably require from such Stockholder (i) for inclusion in the Registration
Statement relating to such registration, (ii) describing the manner and
circumstances of the proposed sale or transfer of Registrable Shares by such
Holder, and (iii) to enable the Company to determine if an exemption provided
for in this Warrant from the Company's obligation to file a Registration
Statement may be applicable.
7.6 Allocation of Expenses.
All Registration Expenses incurred in connection with any registration
pursuant to this Section 7 shall be borne by the Company, and all Selling
Expenses shall be borne individually and pro rata by the selling Stockholder(s)
on the basis of the number of their shares so registered; provided, however,
that the Company shall not be required to pay the Registration Expenses of a
selling Stockholder if, as a result of the withdrawal of a request for
registration by such selling Stockholder, the registration statement does not
become effective, in which case such selling Stockholder shall bear his own
Registration Expenses pro rata on the basis of the number of shares so included
in the registration request (except for the fees of any counsel for the selling
Stockholders, which shall be borne only by the persons whom such counsel
represented, pro rata on the basis of the number of their shares so included in
the registration request).
7.7 Indemnification.
(a) In the event of any registration of any of the Registrable Shares
under the 1933 Act pursuant to this Warrant, the Company will indemnify and hold
harmless the seller of such Registrable Shares, each underwriter of such
Registrable Shares, and each other person, if any, who controls such seller or
underwriter within the meaning of the 1933 Act against any losses, claims,
damages, or liabilities, joint or several, to which such seller, underwriter, or
controlling person may become subject under the 1933 Act, or otherwise, insofar
as such losses, claims, damages, or liabilities, or actions in respect thereof,
arise out of or are based on any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement under which such
Registrable Shares were registered under the 1933 Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to such Registration Statement, or arise out of or are
based on the omission or alleged omission of a material fact or facts required
to be stated therein or necessary to make the statements therein not misleading;
and the Company will reimburse such seller, underwriter, and each such
controlling person for any legal or any other expenses reasonably incurred by
such seller, underwriter, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability, or action arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission made in
such Registration Statement, preliminary prospectus, or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by or
on behalf of such seller, underwriter, or controlling person specifically for
use in the preparation thereof.
(b) By accepting this Warrant, the Holder agrees that in the event of
any registration of any of the Holder's and/or its assigns' Registrable Shares
under the 1933 Act, such Stockholder will indemnify and hold harmless the
Company, each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter (if any) of the Company's
Registrable Shares covered by any Registration Statement, and each person, if
any, who controls the Company or any such underwriter within the meaning of the
1933 Act, against any losses, claims, damages, or liabilities, joint or several,
to which the Company or any such director and officer, underwriter, or
controlling person may become subject under the 1933 Act, insofar as such
losses, claims, damages, liabilities, or actions in respect thereof arise out of
or are based on any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the 1933 Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based on any
omission or alleged omission of a material fact or facts required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company, and each such director and officer, underwriter, and
controlling person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability, or action, in each case to the extent, but only to the extent, that
the statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such Holder,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment, or supplement.
(c) Each party entitled to indemnification under this Subsection 7.7
(Indemnified Party) shall give notice to the party required to provide
indemnification (Indemnifying Party) promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense. The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Subsection 7.7 only if such failure is prejudicial to
the ability of the Indemnifying Party to defend such action, and such failure
shall in no event relieve the Indemnifying Party of any liability that it may
have to any Indemnified Party otherwise than under this Subsection 7.7. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d)(1) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7.7 is
for any reason held, by a court of competent jurisdiction, to be unenforceable
as to any party entitled to indemnity, the Company shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted) to which
the holder hereof, or of the common stock purchased upon exercise hereof, or any
controlling person of the foregoing may be subject in such proportion as is
appropriate to reflect the relative fault of the Company, on the one hand, and
of such holders or controlling persons on the other, in connection with the
statements or omissions which resulted in such loss, claim, damage, liability or
expense, as well as any other relevant equitable considerations. The relative
fault of the Company, on the one hand, and of the holder hereof or such holder's
controlling person on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, on the one hand, or by the holder or controlling person
on the other, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(d)(2) The Company and the holder hereof agree that it would not be
just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
actually and 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 1933
Act), or guilty of misstating or misrepresenting a material fact or failing to
state a material fact shall be entitled to contribution, as to any liability
arising from such fraudulent misrepresentation or omission from any person who
was not guilty of such fraudulent misrepresentation or omission.
7.8 Designation of Underwriter.
The Company shall have the right to designate the managing underwriter,
which underwriter shall be an investment banking firm having an established
reputation.
7.9 Amendments.
The provisions of this Section 7 may be modified or amended at any time
and from time to time by an agreement or consent in writing executed by the
Company and the holders of at least a majority of the Registrable Shares,
excluding any Registrable Shares than have been publicly sold prior thereto.
7.10 Rule 144 Requirements.
The Company shall undertake to make publicly available, pursuant to
Rule 144 of the Commission under the 1933 Act, such information as is necessary
to enable the Stockholders to make sales of Registrable Shares pursuant to that
Rule.
Section 8 Adjustments
8.1 Adjustment of the Exercise Price for Stock Splits, Reverse Stock
Splits, and Stock Dividends. In the event that the outstanding shares of Common
Stock shall be subdivided (split), combined (reverse split), by reclassification
or otherwise, or in the event of any dividend payable on the Common Stock in
shares of Common Stock, the applicable Exercise Price and the number of shares
of Common Stock available for purchase in effect immediately prior to such
subdivision, combination, or dividend shall be proportionately adjusted.
8.2 Adjustment for Capital Reorganizations, Dividends. If at any time
there shall be a capital reorganization of the Company's Common Stock or a
merger, exchange of shares, or consolidation of the Company with or into another
corporation, or the sale of the Company's properties and assets as, or
substantially as, an entirety to any other person, or if the Company shall
declare a dividend payable in securities or property (other than in cash or
Common Stock) then, as part of such reorganization, merger, exchange of shares,
consolidation, sale or dividend, lawful and adequate provision shall be made so
that the Holder of this Warrant shall thereafter be entitled to receive, on
exercise of this Warrant during the period specified in this Warrant and on
payment of the Exercise Price then in effect, the number of shares of stock or
other securities or property of the Company, or of the successor corporation
resulting from such merger, exchange of shares, or consolidation, to which a
holder of the Common Stock deliverable on exercise of this Warrant would have
been entitled on such capital reorganization, merger, exchange of shares,
consolidation, sale, or dividend if this Warrant had been exercised immediately
before that capital reorganization, merger, exchange of shares, consolidation,
sale, or dividend. In any such case, appropriate adjustment, as determined in
good faith by the Board, shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder of this
Warrant after the reorganization, merger, exchange of shares, consolidation,
sale, or dividend to the end that provisions of this Warrant (including
adjustment of the Exercise Price then in effect and the number of shares
purchasable on exercise of this Warrant, but without any change in the aggregate
Exercise Price) shall be applicable after that event, as near as reasonably may
be, in relation to any shares or other securities or property deliverable after
that event on exercise of this Warrant.
8.3 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 8, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any Holder, furnish or cause to be furnished to such
Holder, a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares of Common Stock and the amount, if any, of other property that
at the time would be received upon the exercise of the Warrant.
8.4 Notices of Record Date. In the event of any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receiving any dividend
(other than a cash dividend that is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to each Holder at least
ten days prior to the date specified for the taking of a record, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
Section 9 Sale or Transfer of the Warrant; Legend
The Warrant, and any shares of Common Stock of the Company purchased
upon exercise of the Warrant, shall not be sold or transferred unless either (i)
they first shall have been registered under the 1933 Act, or (ii) the Company
first shall have been furnished with an opinion of legal counsel reasonably
satisfactory to the Company to the effect that such sale or transfer is exempt
from the registration requirements of the 1933 Act. Each certificate
representing any Warrant and any such share that has not been registered and
that has not been sold pursuant to an exemption that permits removal of the
legend shall bear a legend substantially in the form appearing on the first page
of this Warrant. For twelve months from date, this warrant is not transferable
except to officers of the Holder.
Upon the request of a holder of a certificate representing any Warrant
or any such share, the Company shall remove the foregoing legend from the
certificate or issue to such holder a new certificate therefor free of any
transfer legend, if, with such request, the Company shall have received either
(i) an opinion of counsel reasonably satisfactory to the Company to the effect
that such legend may be removed from such certificate or (ii) if the present
Paragraph (k) of Rule 144 or a substantially similar successor rule remains in
force and effect, representations from the holder that such holder is not then,
and has not been during the preceding three months, an affiliate of the Company
and that such holder has beneficially owned the security (within the meaning of
Rule 144) for three years or more.
Such Warrant and shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
Section 10 Additional Right to Convert Warrant
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time it is
exercisable, but prior to its expiration, into shares of Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Warrant Exercise Price) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Company Common Stock immediately prior to
the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Holder will purchase
pursuant to such conversion and (ii) a place and date is not less than one or
more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") or the NASDAQ National Market System,
then the average closing or last sale prices, respectively reported for
the ten (10) business days immediately preceding the Determination
Date, and
(ii) If the Company's Common Stock is not traded on an
exchange or is quoted on an exchange or on NASDAQ or the NASDAQ
National Market System but is traded on the over-the counter market,
then the average closing bid and asked prices reported for the ten (10)
business days immediately preceding the Determination Date, and
(iii) If the Company's Common Stock is not traded on the
over-the-counter market, then the Fair Market Value as determined
reasonably and in good faith by the Company's Board of Directors.
Section 11 Loss, Theft, Destruction, or Mutilation of Warrant
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and in case of
loss, theft, or destruction of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation in lieu of this Warrant.
Section 12 Saturdays, Sundays, Holidays, Etc.
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding day that is not a legal holiday.
Section 13 Authorized Shares
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon the
exercise of any purchase rights under this Warrant.
Section 14 Issue Date
The provisions of this Warrant shall be construed and shall be given
effect in all respects as if it had been issued and delivered by the Company on
the date hereof. This Warrant shall be binding upon any successors or assigns of
the Company.
Section 15 Governing Law
This Warrant shall constitute a contract under the laws of the state of
Minnesota and for all purposes shall be construed in accordance with and
governed by the laws of said state.
IN WITNESS WHEREOF, SAC Technologies, Inc. has caused this Warrant to
be executed by its duly authorized officer.
Dated as of ___________________, 199_
SAC TECHNOLOGIES, INC.
By: _____________________________
Chief Executive Officer
NOTICE OF EXERCISE
To: SAC Technologies, Inc.
1. Pursuant to the terms of the attached Warrant, the undersigned hereby elects
to purchase ______________ shares of Common Stock of SAC Technologies, Inc. (the
"Company"), and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares o
Common Stock, in the name of the undersigned or in such other name(s) as
is/are specified immediately below or, if necessary, on an attachment
hereto: [List names and addresses.]
3. In the event of partial exercise, please reissue an appropriate Warrant
exercisable into the remaining shares to the undersigned.
4. The undersigned represents that such shares shall not be sold or transferred
unless either (a) they first shall have been registered under the Securities Act
1933 and applicable state law or (b) the Company first shall have been furnished
with an opinion of legal counsel reasonably satisfactory to the Company to the
effect that such sale or transfer is exempt from the foregoing registration
requirements. The undersigned consents to a legend imprinted on certificates
representing the shares purchased hereby noting the foregoing restrictions.
Date: ___________________
______________________________________
Signature of Warrant Holder
______________________________________
Name of Warrant Holder
NOTICE OF ASSIGNMENT
To: SAC Technologies, Inc.
1. The undersigned hereby assigns the right to purchase the common
stock of SAC Technologies, Inc. represented by the attached Warrant:
[ ] in whole, or
[ ] for ________________ shares,
to:
________________________________________
Name
________________________________________
Street Address
________________________________________
City, State, Zip Code
________________________________________
Social Security or Tax ID Number
(attach additional sheets for further assignees)
2. In the event of partial assignment, please reissue an appropriate
Warrant exercisable into the remaining shares to the undersigned.
Date: ___________________
________________________________________
Signature of Warrant Holder
________________________________________
Name of Warrant Holder
LOCKUP AGREEMENT
TUSCHNER & COMPANY, INC.
One Financial Plaza
120 South Sixth Street, Suite 800
Minneapolis, Minnesota 55402
Re: SAC Technologies, Inc.
Ladies and Gentlemen:
The undersigned, a beneficial owner of common stock par value $.01 per
share (the "Common Stock") of SAC Technologies, Inc. (the "Company"),
understands that the Company intends to file or has filed with the Securities
and Exchange Commission a registration statement on Form SB-2 (the "Registration
Statement") for the registration of 1,100,000 shares, (plus up to an additional
110,000 share subject to the Underwriter's over-allotment option) (the
"Shares"). The undersigned further understands that the Company, as issuer, and
Tuschner & Company, Inc. (the "Underwriter") contemplates entering into an
underwriting agreement in connection with the public offering of the Shares by
the Underwriter.
In order to induce the Underwriter to proceed with the public offering,
the undersigned agrees, for the benefit of the Company and the Underwriter, that
should such public offering be effectuated, the undersigned will not, without
the prior written consent of the Underwriter, during the (1) year period
commencing on the effective date of the Registration Statement:
(i) sell, pledge, hypothecate, transfer or otherwise dispose of, or
agree to sell, pledge, hypothecate, transfer or otherwise dispose of
any shares of Common Stock of the Company beneficially held by the
undersigned, whether such shares are held on such effective date or
thereafter acquired;
(ii) sell, pledge, hypothecate, transfer or otherwise dispose of, or
agree to sell, pledge, hypothecate, transfer or otherwise dispose of
any options, rights or warrants to purchase shares of Common Stock of
the Company beneficially held by the undersigned, whether such options,
rights or warrants are held on such effective date or thereafter
acquired; or
(iii) sell or grant, or agree to sell or grant, options, rights or
warrants with respect to any such shares of Common Stock;
other than by gifts to donees who agree in writing to be bound by the same
restriction, or by will or the laws of descent.
Dated: Very truly yours,
Print Name:_____________________________
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SAC TECHNOLOGIES, INC.
The undersigned, the Chief Executive Officer of SAC
Technologies, Inc., a Minnesota business corporation organized under the
provisions of Minnesota Statutes Chapter 302A, pursuant to a resolution adopted
in accordance with Minnesota Statutes, Sections 302A.239 and 302A.441 on April
24, 1996, and pursuant to Minnesota Statutes Section 302A.139 hereby amends and
restates the Articles of Incorporation of the Corporation by adoption of the
following Amended and Restated Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation shall be:
SAC Technologies, Inc.
ARTICLE II
PURPOSE AND POWERS
The Corporation is organized for general business purposes,
with unlimited power to engage in any lawful act concerning any and all lawful
business for which a corporation may be organized under the provisions of the
Minnesota Statutes, Chapter 302A and to do any and all things reasonably
necessary or incidental to accomplish such purposes.
ARTICLE III
DURATION
The duration of the Corporation is perpetual.
ARTICLE IV
REGISTERED OFFICE
The address of the registered office of the Corporation shall
be:
SAC Technologies, Inc.
4444 West 76th Street, Suite 600
Edina, Minnesota 55453
ARTICLE V
AUTHORIZED SHARES
The Corporation is authorized to issue an aggregate total of
Twenty Million (20,000,000) shares of voting common capital stock having a par
value of $0.01 per share. The Board of Directors may establish multiple classes
and series of stock.
ARTICLE VI
NO PRE-EMPTIVE RIGHTS
Shareholders shall have no pre-emptive rights with respect to
the shares of the Corporation.
ARTICLE VII
NO CUMULATIVE VOTING
Shareholders shall not be entitled to cumulate their votes for
the election of directors.
ARTICLE VIII
BOARD OF DIRECTORS
The business of the Corporation shall be managed by a Board of
Directors of not less than four (4) directors nor more than seven (7) directors.
ARTICLE IX
BYLAWS
The Board of Directors may from time to time by a vote of a
majority of its members, make, adopt, alter, amend or rescind all or any of the
Bylaws of the Corporation, subject to the power of the shareholders, as
prescribed by statute, to change or repeal such Bylaws.
ARTICLE X
WRITTEN ACTIONS
Unless approval by the shareholders is required, action by the
Board of Directors may be taken by written action signed by the number of
directors that would be required to take the same action at a meeting of the
Board of Directors at which all directors were present.
ARTICLE XI
DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for (i) liability based on a breach of the
duty of loyalty to the Corporation or the shareholders; (ii) liability for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) liability based on the payment of an improper
dividend or an improper repurchase of the Corporation Stock under Section 559 of
the Minnesota Business Corporation Act (MN Stat. Chapter 302A) or in violation
of federal or state securities laws; (iv) liability for any transaction from
which the director derived an improper personal benefit; or (v) liability for
any act or omission occurring prior to the date that this article becomes
effective. If Minnesota law is amended or otherwise modified to authorize the
further elimination or limitation of the liability of directors, then the
liability of the directors of the Corporation, in addition to the limitation of
personal liability provided herein, shall be limited to the fullest extent
permitted by such amended or otherwise modified Minnesota law.
ARTICLE XII
AMENDMENT OF ARTICLES OF INCORPORATION
These Amended and Restated Articles of Incorporation may be
amended at any meeting of the Corporation's shareholders by an affirmative vote
of the holders of a majority of the voting power of the shares entitled to vote.
IN WITNESS WHEREOF, the undersigned sole member of the Board
of Directors and sole shareholder of the Corporation has executed these Amended
and Restated Articles of Incorporation this 24th day of April, 1996.
/s/ Barry M. Wendt
-----------------------------------
Barry M. Wendt
Chief Executive Officer
AMENDED AND RESTATED BYLAWS
OF
SAC TECHNOLOGIES, INC.
--------------------------
I. SHAREHOLDERS
1. REGULAR MEETINGS. The Corporation may hold a regular
meeting of the Corporation's shareholders not more than once annually. In the
event a regular meeting of the shareholders has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding 3% or
more of all voting shares of the Corporation may demand, pursuant to Minnesota
Statutes ss.302A.431, Subdivision 2, that a regular meeting be held.
Notwithstanding the foregoing, the failure of the Corporation to hold a regular
meeting in the absence of a demand by a shareholder or shareholders owning 3% or
more of the voting shares of the Corporation to hold such a meeting, shall not
affect the status of the directors or officers of the Corporation or the status
of the Corporation to continue as an operating entity.
2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called for any purpose or purposes at any time by the Chief Executive
Officer, Chief Financial Officer, two or more directors, or by one or more
shareholders holding 10% or more of the voting power of the shareholders.
3. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the shareholders may be taken without a meeting by
written action signed by all of the shareholders entitled to vote on such
action. Any written action may be taken in counterparts. The written action
shall be effective on the date on which the required written authorization is
obtained from the last such shareholder, unless a different effective date is
provided in the written action.
4. MEETING OF ALL SHAREHOLDERS. In the event all the
shareholders meet at any time and place, either within or outside the State of
Minnesota, and consent to a holding of a meeting at such time and place, such
meeting shall be valid without call or notice.
5. VOTING BY BALLOT. Voting on any question or in any election
may be by voice vote unless the presiding officer shall order, or the holders of
ten percent of the shares entitled to vote at a meeting shall demand, that
voting be by secret ballot.
6. NOTICE OF MEETING. Written or printed notice stating the
place, date, and hour of any meeting of the shareholders, shall be delivered
personally or by first class mail to each shareholder entitled to vote at such
meeting not less than ten (10) days before a regular meeting and three (3) days
before a special meeting; and in either case, not more than sixty (60) days
before the meeting. Notice of a special meeting of the shareholders shall also
contain a statement of the purposes of the meeting. Notice shall be given by or
at the direction of the Chief Executive Officer, or Secretary, or by such other
officer, person or persons entitled to call the meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States Mail,
addressed to the shareholder at the address appearing on the records of the
Corporation, with postage thereon prepaid. Notice may be waived before, during,
or after any meeting by any shareholder. The waiver may be oral, written, or by
attendance at the meeting; provided, however, that attendance at a meeting
will not constitute a waiver of notice if the shareholder attends the meeting
for the purpose of objecting to the meeting itself or, at the meeting, objects
to the consideration of a particular item prior to the voting thereon.
7. QUORUM. A majority of the outstanding shares entitled to
vote, represented in person or by proxy, shall constitute a quorum for the
transaction of business. In the absence of a quorum, a majority of such shares
represented at the meeting may adjourn the meeting from time to time without
notice other than by announcement at the meeting at the time of its adjournment.
The shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
8. RECORD DATE. For the purpose of determining shareholders
entitled to notice of, or to vote at, any meeting of the shareholders, or to
receive payment of any dividend, or for any other purpose, the Board of
Directors may fix in advance a date, such date being not less than ten (10) days
prior to a regular meeting or three (3) days prior to a special meeting, and in
either case, not more than sixty (60) days immediately preceding such meeting.
If no record date is fixed, the record date shall be the date of the meeting or,
in the case of a dividend, the effective date of the Board of Directors'
resolution declaring the dividend.
9. VOTING OF SHARES. Each shareholder of record or such
shareholder's legal proxy shall be entitled to one vote for each voting share
standing in such shareholder's name as reflected on the stock transfer books of
the Corporation as of the record date. Unless specifically provided otherwise in
statute, the Articles of Incorporation or these Bylaws, all actions put to a
vote of the shareholders shall be deemed approved by the affirmative vote of a
majority of the outstanding shares.
10. PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by such
shareholder's duly authorized attorney-in-fact. Such proxy shall be filed with
the Secretary of the Corporation at or before the time of the meeting. A proxy
shall be valid for the period specified in the proxy or, if no expiration date
is provided in the proxy, for a period not to exceed eleven (11) months from the
date of its execution. A proxy's authority shall not be revoked by the death or
dissolution of the maker unless, before the vote is cast and the authority
exercised, written notice of such death or dissolution is given to the
Corporation.
11. ORDER OF BUSINESS. The order of business at meetings of
shareholders shall be (1) proof of due notice of meeting, or waiver of notice;
(2) determination of quorum; (3) election of directors, appointment of auditor,
and/or such other business to be conducted; (4) reports of any officers or
committees; and (5) adjournment. All meetings of the shareholders shall be
conducted according to Robert's Rules of Order, latest version.
12. ADJOURNMENT. If any meeting of the shareholders be
adjourned to another time or place, no notice as to such adjourned meeting need
be given other than by announcement at the meeting at the time of its
adjournment.
II. DIRECTORS
1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by the Board of Directors.
2. NUMBER AND TENURE. The initial Board of Directors shall be
elected by the incorporator. Thereafter, the Board of Directors shall determine
the number of directors which shall not be less than four (4) nor more than
seven (7). Any newly created directorships shall be filled by the Board of
Directors. Each director elected by the shareholders, and each director elected
by the Board of Directors to fill a newly created directorship, shall serve an
indefinite term not in excess of five (5) years until such director's successor
is elected and qualified, or in the event classes have been determined, until
the tenure for the class has been completed; provided, however, that in no event
shall the tenure of any class of the Board of Directors exceed five (5) years.
Notwithstanding the foregoing, a director's term shall expire upon death,
resignation, removal or disqualification.
3. VACANCIES. Any vacancy occurring on the Board of Directors
by reason of death, resignation, removal, disqualification, or otherwise, may be
filled by the remaining directors though less than a quorum; provided, however,
that vacancies on the Board resulting from any newly created directorships may
only be filled by unanimous vote of the directors serving at the time of the
increase. Each director so elected shall hold office until the next election for
the class for which such director was chosen or until such director's successor
is elected and qualified.
4. MEETINGS. Meetings of the Board of Directors shall be held
as determined from time to time by a majority of the Board of Directors, or by
or at the request of the Chief Executive Officer or any member.
5. NOTICE OF MEETINGS. Notice of any meeting shall be given
at least three (3) days prior thereto by written notice stating the date, time,
and place of the meeting and shall be delivered personally or mailed to each
director at such director's last known address, or given by telephone,
telegraph, or facsimile. If mailed, such notice shall be deemed to be delivered
upon being deposited in the United States Mail so addressed, with postage
thereon prepaid. A director may waive notice of any meeting before, during, or
after the meeting and the waiver may be written, oral or by attendance. The
attendance of a director at any meeting and participation therein shall
constitute a waiver of notice of such meeting unless a director attends such
meeting for the purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened and such director does not
thereafter participate in the meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Directors need be specified in
the notice or waiver of notice for such meeting. No notice need be provided of
any meeting which is adjourned and later reconvened other than by announcement
at the meeting at which adjournment is taken.
6. TELEPHONIC MEETINGS. Any meeting of the Board of Directors
may be held via telephonic communication and shall be subject to the provisions
of these Amended and Restated Bylaws.
7. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business.
8. ACT OF BOARD. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless otherwise provided herein.
9. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a Board meeting. If the
director is not present at the meeting, consent or opposition to a proposal
shall constitute presence for purposes of determining the existence of a quorum
for those issues for which written consent or opposition is given, but not for
any other purpose.
10. ACTION WITHOUT MEETING. Any action which is required or
may be taken at a meeting of the Board of Directors may be taken by written
action signed by all of the directors; provided, however, that pursuant to the
Articles of Incorporation, any action other than an action requiring shareholder
approval may be taken by written action signed by the number of directors that
would be required to take the same action at a meeting of the Board of Directors
at which all directors were present. Any written action may be taken in
counterparts. Such written action shall be effective on the date when signed by
the required number of directors, or such other effective date as set forth
therein.
11. RESIGNATION. A member of the Board of Directors may resign
at any time by giving written notice to the Corporation. The resignation is
effective without acceptance when it is given to the Corporation, unless the
notice specifies a later time.
12. REMOVAL BY SHAREHOLDERS. Any one or all of the members of
the Board of Directors may be removed at any time, with or without cause, by an
affirmative vote of the holders of a majority of the voting power of the shares.
This provision does not limit or restrict removal by any other means permitted
by law.
13. REMOVAL BY DIRECTORS. Any one or more of the members of
the Board of Directors may be removed at any time, with or without cause, by
affirmative vote of a majority of the remaining members in accordance with the
provisions of Minnesota Statute ss.302A.223. This provision does not limit or
restrict removal by any other means permitted by law.
14. CHAIRPERSON OF THE BOARD. The members of the Board of
Directors may elect from among them one of the members to be Chairperson of the
Board who, if elected, shall preside at all meetings of the Board of Directors
and of the shareholders. The Chairperson is subject to the control of the Board
of Directors, may be removed by the Board of Directors, and must perform the
duties that are assigned by the Board of Directors.
15. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers, consultants, or otherwise. By resolution by the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors.
16. PRESUMPTION OF ASSENT. For purposes of any liability as a
director, a director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless:
a. Such director objects at the beginning of the
meeting to the transaction of business because the meeting is not
lawfully called or convened and does not thereafter participate in the
meeting;
b. Such director votes against the action at the
meeting; or
c. Such director is prohibited from voting at the
meeting due to a conflict of interest.
17. ORDER OF BUSINESS. At the request of any member of the
Board of Directors in attendance at any meeting, the order of business shall be
(1) calling of roll and determination of quorum; (2) proof of due notice of
meeting, or waiver of notice; (3) reading and disposal of any unapproved
minutes; (4) filling of any vacancies or expansion of number of board members;
(5) unfinished business; (6) new business; and (7) adjournment; and the meetings
or debate on any issue brought before the Board of Directors shall be conducted
in accordance with Robert's Rules of Order, latest revision.
18. COMMITTEES. The Board of Directors may establish
committees of the Board of Directors having the authority of the Board of
Directors in the management of the business and affairs of the Corporation to
the extent delegated by the Board of Directors. Committee members must be
natural persons. A majority of the members of a committee shall be a quorum for
the transaction of business. The provisions of this Article II provide for the
conduct of committee meetings and members of committees to the same extent as
they apply to the Board of Directors and the members of the Board of Directors.
III. OFFICERS
1. NUMBER AND TENURE. The Corporation shall at all times have
at least two officers: a Chief Executive Officer and a Chief Financial Officer.
The Corporation may also have a President, a Chief Operating Officer, a
Treasurer, one or more Vice Presidents, a Secretary, and such assistant
treasurers, assistant secretaries or other officers as may be elected or
appointed by the Board of Directors. Each officer shall have the powers, rights,
duties, and responsibilities described in these Bylaws or delegated pursuant to
the procedures described in these Bylaws. Additional officers and the duties to
be performed by each shall be as determined by the Board of Directors or, in the
event the Board does not act, by the Chief Executive Officer. Any two or more
offices may be held by the same person. Each officer shall hold office
commencing on the date of his election or appointment and ending on the date
such officer's successor is elected or appointed, or upon death, resignation,
removal, or disqualification.
2. REMOVAL. Any officer or agent of the Corporation may be
removed with or without cause at any time, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. An officer
elected or appointed by the Board of Directors may be removed by a resolution
approved by the affirmative vote of a majority of the directors present. An
officer appointed by the Chief Executive Officer may also be removed by the
Chief Executive Officer. Election or appointment of an officer shall not, by
itself, create any contract rights in favor of the officer.
3. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled as provided
in Article III, Section 1.
4. CHIEF EXECUTIVE OFFICER. In the absence of the Chairperson
of the Board, the Chief Executive Officer shall preside at all meetings of the
Board of Directors and of the shareholders. The Chief Executive Officer may sign
and deliver in the name of the Corporation any deeds, mortgages, bonds,
contracts, securities or other instruments pertaining to the business of the
Corporation, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated by
the Board of Directors to some other officer or agent of the Corporation. The
Chief Executive Officer shall act in a supervisory capacity as to the other
officers of the Corporation and shall be responsible for the overall management
of the business and the direction of the Corporation. The Chief Executive
Officer shall see that all orders and resolutions of the Board of Directors are
carried into effect. The Chief Executive Officer shall maintain records of, and,
whenever necessary, certify all proceedings of the Board of Directors and of the
shareholders, unless a Secretary has been elected or appointed hereunder. The
Chief Executive Officer shall perform any other duties prescribed by the Board
of Directors.
5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or arrange for the maintaining of accurate financial records for the
Corporation and deposit all money, drafts, and checks in the name of and to the
credit of the Corporation in the banks and depositories designated by the Board
of Directors. The Chief Financial Officer shall disburse corporate funds, and
issue checks and drafts in the name of the Corporation, as permitted by the
Board of Directors, and shall render to the Chief Executive Officer and the
Board of Directors, whenever requested, an account of all transactions by the
Chief Financial Officer and of the financial condition of the Corporation. The
Chief Financial Officer shall perform any other duties prescribed by the Board
of Directors or, in the event the Board of Directors does not otherwise
designate, by the Chief Executive Officer.
6. PRESIDENT. In the absence of the Chief Executive Officer or
in the event of the Chief Executive Officer's inability to act, the President
shall perform all duties of the Chief Executive Officer, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The President shall also be the Chief Operating Officer
of the Corporation, and shall perform such duties as from time to time may be
assigned by the Board of Directors or, in the event the Board of Directors does
not otherwise designate, by the Chief Executive Officer. The President shall be
elected by the Board of Directors or, in the event the Board of Directors does
not act, may be appointed by the Chief Executive Officer.
7. VICE PRESIDENT. In the absence of the President or in the
event of the President's inability to act, the Vice President (or if there be
more than one Vice President, then the Vice Presidents in order designated, or
in the absence of any designation, then in the order of their election or
appointment) shall perform all duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall be elected by the Board of Directors or, in
the event the Board of Directors does not act, may be appointed by the Chief
Executive Officer. The Vice Presidents shall perform such duties as from time to
time may be assigned by the Board of Directors or, in the event the Board of
Directors does not otherwise designate, by the Chief Executive Officer.
8. SECRETARY. The Secretary shall keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that purpose; see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; be custodian of the
Corporation's records; keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholders; have
general charge of the stock transfer books of the Corporation; and in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned by the Board of Directors or, in the event the
Board of Directors does not otherwise designate, by the President. The Secretary
shall be elected by the Board of Directors or, in the event the Board does not
act, may be appointed by the President.
9. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors or by agreement of the President and
Treasurer if the Board of Directors fails to act. No officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
10. RESIGNATION. An officer or agent may resign at any time by
giving written notice to the Corporation. The resignation is effective without
acceptance when it is given to the Corporation, unless the resignation specifies
Directors for a later effective date.
11. REMOVAL. An officer or agent may be removed at any time,
with or without cause, by the Board of Directors, subject to the provisions of
any employment agreements. The removal is without prejudice to any contract
rights the officer may have.
12. VACANCIES. A vacancy in office because of death,
resignation, removal, disqualification, or other cause may, and in the case of a
vacancy in the office of the Chief Executive Officer or Chief Financial Officer
must, be filled by the Board of Directors for the unexpired portion of the term.
13. DELEGATION. Any officer may, without the approval of the
Board of Directors, delegate some or all powers and duties of his or her office
to other persons provided such delegation is in writing.
IV. INDEMNIFICATION
1. INDEMNIFICATION. The Corporation shall be authorized to the
fullest extent permitted by Minnesota Statutes, Section 302A.521, as it may be
amended, to indemnify any person against expenses and liabilities arising by
reason of the fact that the person is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
2. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any indemnified person in that person's official capacity
against any liability asserted against that person and incurred by that person
in such capacity whether or not the Corporation would have been required to
indemnify the person against the liability under Section 1 of this Article.
V. SHARES
1. CERTIFICATES. All shares of the Corporation's stock shall
be certificated shares. Certificates representing shares of the Corporation
shall be in such form as may be determined by the Board of Directors or those
actually used in the event the Board of Directors fails to act. Such
certificates shall be signed by the Chief Executive Officer and the Chief
Financial Officer or Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified, and shall state the name of the
Corporation, that it is organized under the laws of Minnesota, the name of the
person or entity to whom the shares are issued, the number and class of shares,
and the designation of the series, if any, that the certificate represents. The
name of the person or entity to whom the shares represented thereby issued with
the number of shares and date of issue shall be entered on the books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be cancelled and no new certificates shall be issued until the former
certificates for a like number of shares shall have been surrendered and
cancelled except in the case of a lost, destroyed, or mutilated certificate, in
which case a new certificate may be issued upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
2. TRANSFERS OF SHARES. Transfers of shares of the Corporation
shall be made upon the books of the Corporation only by the shareholder of
record thereof or by such shareholder's legal representative, who shall be
required to furnish proper evidence of authority to transfer. Shares shall be
reissued in the name of the transferee only upon the transfer on the books of
the Corporation.
VI. OTHER PROVISIONS
1. DIVIDENDS. The Board of Directors may from time to time
declare and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions authorized by the Board of Directors
and not prohibited by law.
2. NOTICE AND PLACE OF MEETING. When any notice required or
permitted to be given under the provisions of these Bylaws, the Articles of
Incorporation, or Chapter 302A of the Minnesota Business Corporations Act fails
to specify a location for a meeting, the location shall be deemed to be the
principal executive office of the Corporation.
3. AMENDMENTS. These Bylaws may be altered, amended, or
repealed and new bylaws may be adopted at any meeting of the Board of Directors
of the Corporation by a majority vote of the directors present at the meeting
subject to quorum requirements and to the statutory power of the shareholders to
adopt, amend, or repeal bylaws adopted, amended, or repealed by the Board of
Directors.
4. ARTICLES OF INCORPORATION CONTROLLING. In all respects, the
Corporation's Amended and Restated Articles of Incorporation are controlling and
shall have precedence over the provisions of these Amended and Restated Bylaws.
These Bylaws were passed and adopted by the Board of Directors on
April 24th, 1996.
/s/ Benedict A. Wittig
-------------------------------
Secretary
SAC TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
(AS ADOPTED AS OF MAY 1, 1996)
1. Purpose of Plan.
The purpose of the SAC Technologies, Inc. 1996 Stock Option Plan (the
"Plan") is to advance the interests of SAC Technologies, Inc. (the "Company")
and its stockholders by enabling the Company and its Subsidiaries to attract and
retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute to
the achievement by the Company of its economic objectives.
2. Definitions.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
1 "Board" means the Board of Directors of the Company.
2 "Broker Exercise Notice" means a written notice pursuant to
which a Participant, upon exercise of an Option, irrevocably instructs a broker
or dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
3 "Change in Control" means an event described in Section 9.1 of
the Plan.
4 "Code" means the Internal Revenue Code of 1986, as amended.
5 "Committee" means the group of individuals administering the
Plan, as provided in Section 3 of the Plan.
6 "Common Stock" means the common stock of the Company, $.01
par value, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
7 "Disability" means the disability of the Participant such as
would entitle the Participant to receive disability income benefits pursuant to
the long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of Section
22(e)(3) of the Code.
8 "Eligible Recipients" means all employees (including, without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee consultants and independent contractors of the
Company or any Subsidiary.
9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10 "Fair Market Value" means, with respect to the Common Stock,
as of any date:
a) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on
the NASDAQ National Market System, the average of the reported high and
low sale prices of the Common Stock on such exchange or by the NASDAQ
National Market System as of such date (or, if no shares were traded on
such day, as of the next preceding day on which there was such a
trade); or
b) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market
System, and bid and asked prices therefor in the over-the-counter
market are reported by the NASDAQ System or the National Quotation
Bureau, Inc. (or any comparable reporting service), the average of the
closing bid and asked prices as of such date (or, if no shares were
traded on such day, as of the next preceding day on which there was
such a trade), as so reported by the NASDAQ System, or, if not so
reported thereon, as reported by the National Quotation Bureau, Inc.
(or such comparable reporting service); or
c) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National Market
System, and such bid and asked prices are not so reported, such price
as the Committee determines in good faith in the exercise of its
reasonable discretion.
11 "Incentive Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
12 "Non-Employee Director" means any member of the Board of
Directors or any officer of the Company who is not an employee of the Company or
any Subsidiary.
13 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that
does not qualify as an Incentive Stock Option.
14 "Option" means an Incentive Stock Option or a Non-Statutory
Stock Option.
15 "Participant" means an Eligible Recipient who receives one or
more Options under the Plan.
16 "Previously Acquired Shares" means shares of Common Stock that
are already owned by the Participant or, with respect to any Option, that are to
be issued upon the grant, exercise or vesting of such Option.
17 "Retirement" means normal or approved early termination of
employment or service pursuant to and in accordance with the regular
retirement/pension plan or practice of the Company or Subsidiary then covering
the Participant, provided that if the Participant is not covered by any such
plan or practice, the Participant will be deemed to be covered by the Company's
plan or practice for purposes of this determination.
18 "Securities Act" means the Securities Act of 1933, as amended.
19 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
20 "Tax Date" means the date any withholding tax obligation
arises under the Code for a Participant with respect to an Option.
3. Plan Administration.
1 The Committee. The Plan will be administered by the Board, all
of whom will be "disinterested persons" within the meaning of Rule 16b-3 under
the Exchange Act, or by a committee consisting solely of members of the Board
who are such "disinterested persons." The number of members of the Committee
shall be determined from time to time by the Board but in no event shall the
number of members of the Committee be less than the minimum number required to
maintain the Plan's compliance with Rule 16b-3 under the Exchange Act. As used
in this Plan, the term "Committee" will refer to the Board or to such a
committee, if established. To the extent consistent with corporate law, the
Committee may delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however, that only the
Committee may exercise such duties, power and authority with respect to Eligible
Recipients who are subject to Section 16 of the Exchange Act. The Committee may
exercise its duties, power and authority under the Plan in its sole and absolute
discretion without the consent of any Participant or other party, unless the
Plan specifically provides otherwise. Each determination, interpretation or
other action made or taken by the Committee pursuant to the provisions of the
Plan will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under the Plan.
2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee will have the authority to determine all provisions
of Options as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan, including, without limitation,
the following: (i) the Eligible Recipients to be selected as
Participants; (ii) the nature and extent of the Options to be made to
each Participant (including the number of shares of Common Stock to be
subject to each Option, any exercise price, the manner in which Options
will vest or become exercisable) and the form of written agreement, if
any, evidencing such Option; (iii) the time or times when Options will
be granted; (iv) the duration of each Option; and (v) the restrictions
and other conditions to which the payment or vesting of Options may be
subject. In addition, the Committee will have the authority under the
Plan in its sole discretion to pay the economic value of any Option in
the form of cash, Common Stock or any combination of both.
(b) The Committee will have the authority under the Plan to
amend or modify the terms of any outstanding Option in any manner,
including, without limitation, the authority to modify the number of
shares or other terms and conditions of an Option, extend the term of
an Option, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Option, accept the surrender
of any outstanding Option or, to the extent not previously exercised or
vested, authorize the grant of new Options in substitution for
surrendered Options; provided, however that the amended or modified
terms are permitted by the Plan as then in effect and that any
Participant adversely affected by such amended or modified terms has
consented to such amendment or modification. No amendment or
modification to an Option, however, whether pursuant to this Section
3.2 or any other provisions of the Plan, will be deemed to be a regrant
of such Option for purposes of this Plan.
4. Shares Available for Issuance.
1 Maximum Number of Shares. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock that
will be available for issuance under the Plan will be 375,000 shares.
2 Accounting for Options. Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Options will be applied to
reduce the maximum number of shares of Common Stock remaining available for
issuance under the Plan. Any shares of Common Stock that are subject to an
Option that lapses, expires, is forfeited or for any reason is terminated
unexercised will automatically again become available for issuance under the
Plan.
3 Adjustments to Shares and Options. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities available for issuance under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind and
exercise price of securities subject to outstanding Options.
5. Participation.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Options, as may be determined by the Committee. Options will be deemed to be
granted as of the date specified in the grant resolution of the Committee, which
date will be the date of any related agreement with the Participant.
6. Options.
1 Grant. An Eligible Recipient may be granted one or more
Options under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee. The Committee may designate whether an Option is to
be considered an Incentive Stock Option or a Non-Statutory Stock Option.
2 Exercise Price. The per share price to be paid by a
Participant upon exercise of an Option will be determined by the Committee in
its discretion at the time of the Option grant, provided that (a) such price
will not be less than 100% of the Fair Market Value of one share of Common Stock
on the date of grant with respect to an Incentive Stock Option (110% of the Fair
Market Value if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company), and (b) such price will not be less than 50% of the
Fair Market Value of one share of Common Stock on the date of grant with respect
to a Non-Statutory Stock Option.
3 Exercisability and Duration. An Option will become
exercisable at such times and in such installments as may be determined by the
Committee at the time of grant; provided, however, that no Incentive Stock
Option may be exercisable after 10 years from its date of grant (five years from
its date of grant if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company).
4 Payment of Exercise Price. The total purchase price of the
shares to be purchased upon exercise of an Option will be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee may allow such payments to be made, in whole or in part and upon such
terms and conditions as may be established by the Committee, by tender of a
Broker Exercise Notice, Previously Acquired Shares, by withholding from the
shares issuable upon exercise of the option shares of Common Stock valued at
Fair Market Value, a promissory note or by a combination of such methods.
5 Manner of Exercise. An Option may be exercised by a
Participant in whole or in part from time to time, subject to the conditions
contained in the Plan and in the agreement evidencing such Option, by delivery
in person, by facsimile or electronic transmission or through the mail of
written notice of exercise to the Company (Attention: Chief Executive Officer)
at its principal executive office and by paying in full the total exercise price
for the shares of Common Stock to be purchased in accordance with Section 6.4 of
the Plan.
6 Aggregate Limitation of Stock Subject to Incentive Stock
Options. To the extent that the aggregate Fair Market Value (determined as of
the date an Incentive Stock Option is granted) of the shares of Common Stock
with respect to which incentive stock options (within the meaning of Section 422
of the Code) are exercisable for the first time by a Participant during any
calendar year (under the Plan and any other incentive stock option plans of the
Company or any subsidiary or parent corporation of the Company (within the
meaning of the Code)) exceeds $100,000 (or such other amount as may be
prescribed by the Code from time to time), such excess Options will be treated
as Non-Statutory Stock Options. The determination will be made by taking
incentive stock options into account in the order in which they were granted. If
such excess only applies to a portion of an incentive stock option, the
Committee will designate which shares will be treated as shares to be acquired
upon exercise of an incentive stock option.
7 Automatic Grants to Non-Employee Directors.
a) Grant of Options. Upon the effective date of the Plan, each
Non- Employee Director as of such date who is not by separate agreement
otherwise compensated will be granted automatically a Non-Statutory
Stock Option to purchase 25,000 shares of Common Stock (subject to
adjustment as provided in Section 4.3 of the Plan), which will become
exercisable, on an annual cumulative basis, with respect to 20% of the
shares covered by such Option beginning on May 1, 1997 and on May 1 of
each year thereafter, provided that such Non-Employee Director is a
director or officer on such date. In addition, each Non-Employee
Director who is initially elected to the Board or elected to office
(whether at a regular or special meeting of the stockholders of the
Company or by the Board) after the effective date of the Plan who is
not by separate agreement otherwise compensated will be granted
automatically a Non-Statutory Stock Option to purchase a pro rata
portion (on a monthly basis) of 25,000 shares of Common Stock (subject
to adjustment as provided in Section 4.3 of the Plan), which will
become exercisable, on an annual cumulative basis, with respect to 20%
of the shares covered by such Option beginning on May 1 immediately
following such initial election to the Board or to office and on May 1
of each year thereafter, provided that such Non- Employee Director is a
director or officer on such date. Five years after the initial grant
of an option to a Non-Employee Director, and every fifth year
thereafter, Non-Employee Directors shall automatically be granted
additional Options to purchase 25,000 shares of Common Stock upon the
reelection of the Non-Employee to the Board or to office.
b) Option Exercise Price. The per share price to be paid by
the Non-Employee Director at the time such an Option is exercised will
be 100% of the Fair Market Value of one share of Common Stock on the
date the Option is granted.
c) Duration of Options. Each such Option will terminate ten
years after its date of grant.
d) Effect of Termination of Directorship. In the event a
Non-Employee Director's service as a director or officer of the Company
is terminated for any reason, all such Options then held by the
Non-Employee Director will remain exercisable to the extent exercisable
as of such termination of service, but in no event will any such Option
remain exercisable after its expiration date. Such Options will not be
subject to the termination provisions of Section 7 of the Plan.
e) Manner of Option Exercise; Payment. An Option may be
exercised by a Non-Employee Director in whole or in part from time to
time, subject to the conditions contained in the Plan and in the
agreement evidencing such Option, by giving written notice of exercise
to the Company at its principal executive office (such notice to
specify the particular Option that is being exercised and the number of
shares with respect to which the Option is being exercised) accompanied
by payment of the total purchase price of the shares to be purchased
under the Option. The total purchase price of the shares to be
purchased upon exercise of an Option will be paid as set forth in
Section 6.4 above; provided, however, that the Committee may not allow
payment by any means which would violate the provisions of Rule 16b-3
under the Exchange Act.
f) Non-Discretionary Grants. Options granted to Non-Employee
Directors pursuant to this Section 6.7 are intended to qualify as
"formula awards" within the meaning of Rule 16b-3 under the Exchange
Act. As a result, other than as provided in Section 12 of the Plan, the
Committee will not have the authority to amend the eligibility
requirements for, or modify the terms or accelerate the vesting of,
such Options (including, without limitation, the authority to modify
the rights of Non-Employee Directors in connection with termination of
service as a director or a change in control of the Company) if such
amendments, modifications or acceleration of vesting would disqualify
such Options from treatment as "formula awards."
7. Effect of Termination of Employment or Other Service.
1 Termination Due to Death, Disability or Retirement. In the
event a Participant's employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or Retirement, all
outstanding Options then held by the Participant will remain exercisable to the
extent exercisable as of such termination for a period of one year after such
termination (but in no event after the expiration date of any such Option).
2 Termination for Reasons Other than Death, Disability or
Retirement.
a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason other
than death, Disability or Retirement, or a Participant is in the employ
or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary
of the Company (unless the Participant continues in the employ or
service of the Company or another Subsidiary), all rights of the
Participant under the Plan and any agreements evidencing an Option will
immediately terminate without notice of any kind, and no Options then
held by the Participant will thereafter be exercisable; provided,
however, that if such termination is due to any reason other than
termination by the Company or any Subsidiary for "cause," all
outstanding Options then held by such Participant will remain
exercisable to the extent exercisable as of such termination for a
period of three months after such termination (but in no event after
the expiration date of any such Option).
b) For purposes of this Section 7.2, "cause" (as determined by
the Committee) will be as defined in any employment or other agreement
or policy applicable to the Participant or, if no such agreement or
policy exists, will mean (i) dishonesty, fraud, misrepresentation,
embezzlement or deliberate injury or attempted injury, in each case
related to the Company or any Subsidiary, (ii) any unlawful or criminal
activity of a serious nature, (iii) any intentional and deliberate
breach of a duty or duties that, individually or in the aggregate, are
material in relation to the Participant's overall duties, or (iv) any
material breach of any employment, service, confidentiality or
non-compete agreement entered into with the Company or any Subsidiary.
3 Modification of Rights Upon Termination. Notwithstanding the
other provisions of this Section 7, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the Committee
may in its discretion (which may be exercised at any time on or after the date
of grant, including following such termination) cause Options (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of employment
or service in the manner determined by the Committee; provided, however, that no
Option may remain exercisable beyond its expiration date.
4 Date of Termination of Employment or Other Service. Unless
the Committee otherwise determines, a Participant's employment or other service
will, for purposes of the Plan, be deemed to have terminated on the date
recorded on the personnel or other records of the Company or the Subsidiary for
which the Participant provides employment or other service, as determined by the
Committee based upon such records.
8. Payment of Withholding Taxes.
1 General Rules. The Company is entitled to (a) withhold and
deduct from future wages of the Participant (or from other amounts that may be
due and owing to the Participant from the Company or a Subsidiary), or make
other arrangements for the collection of, all legally required amounts necessary
to satisfy any and all federal, state and local withholding and
employment-related tax requirements attributable to an Option, including,
without limitation, the grant, exercise or vesting of, or payment of dividends
with respect to, an Option or a disqualifying disposition of stock received upon
exercise of an Incentive Stock Option, or (b) require the Participant promptly
to remit the amount of such withholding to the Company before taking any action,
including issuing any shares of Common Stock, with respect to an Option.
2 Special Rules. The Committee may, upon terms and conditions
established by the Committee, permit or require a Participant to satisfy, in
whole or in part, any withholding or employment-related tax obligation described
in Section 8.1 of the Plan by electing to tender Previously Acquired Shares, a
Broker Exercise Notice or a promissory note (on terms acceptable to the
Committee in its sole discretion), or by a combination of such methods.
9. Change in Control.
1 Change in Control. For purposes of this Section 9.1, a
"Change in Control" of the Company will mean the following:
a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
b) the approval by the stockholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company;
c) a merger or consolidation to which the Company is a party
if the stockholders of the Company immediately prior to the effective
date of such merger or consolidation have "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), immediately following
the effective date of such merger or consolidation, of securities of
the surviving corporation representing 50% or less of the combined
voting power of the surviving corporation's then outstanding securities
ordinarily having the right to vote at elections of directors.
d) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the combined voting power of
the Company's outstanding securities ordinarily having the right to
vote at elections of directors;
e) the Incumbent Directors cease for any reason to constitute
at least a majority of the Board; or
f) a change in control of the Company of a nature that would
be required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such
reporting requirements.
2 Incumbent Directors. For purposes of this Section 9,
"Incumbent Directors" of the Company means any individuals who are members of
the board on the effective date of the Plan and any individual who subsequently
becomes a member of the Board whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
Incumbent Directors (either by specific vote or by approval of the Company's
proxy statement in which such individual is named as a nominee for director
without objection to such nomination).
3 Acceleration of Vesting. Without limiting the authority of
the Committee under Section 3.2 of the Plan, if a Change in Control of the
Company occurs, then all outstanding Options will become immediately exercisable
in full and will remain exercisable for the remainder of their terms, regardless
of whether the Participant to whom such Options have been granted remains in the
employ or service of the Company or any Subsidiary.
4 Cash Payment for Options. If a Change in Control of the
Company occurs, then the Committee, if approved by the Committee either in an
agreement evidencing an Option at the time of grant or at any time after the
grant of an Option, may determine that some or all Participants holding
outstanding Options will receive, with respect to some or all of the shares of
Common Stock subject to such Options, as of the effective date of any such
Change in Control of the Company, cash in an amount equal to the excess of the
Fair Market Value of such shares immediately prior to the effective date of such
Change in Control of the Company over the exercise price per share of such
Options.
5 Limitation on Change in Control Payments. Notwithstanding
anything in Section 9.3 or 9.4 of the Plan to the contrary, if, with respect to
a Participant, the acceleration of the vesting of an Option as provided in
Section 9.3 or the payment of cash in exchange for all or part of an Option as
provided in Section 9.4 (which acceleration or payment could be deemed a
"payment" within the meaning of Section 280G(b)(2) of the Code), together with
any other payments which such Participant has the right to receive from the
Company or any corporation that is a member of an "affiliated group" (as defined
in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of
which the Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), then the payments to such
Participant pursuant to Section 9.3 or 9.4 will be reduced to the largest amount
as will result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code; provided, however, that if such Participant
is subject to a separate agreement with the Company or a Subsidiary that
specifically provides that payments attributable to one or more forms of
employee stock incentives or to payments made in lieu of employee stock
incentives will not reduce any other payments under such agreement, even if it
would constitute an excess parachute payment, or provides that the Participant
will have the discretion to determine which payments will be reduced in order to
avoid an excess parachute payment, then the limitations of this Section 9.5 will
to that extent, not apply.
10. Rights of Eligible Recipients and Participants, Transferability.
1 Employment or Service. Nothing in the Plan will interfere
with or limit in any way the right of the Company or any Subsidiary to terminate
the employment or service of any Eligible Recipient or Participant at any time,
nor confer upon any Eligible Recipient or Participant any right to continue in
the employ or service of the Company or any Subsidiary.
2 Rights as a Stockholder. As a holder of Options, a
Participant will have no rights as a stockholder unless and until such Options
are exercised for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except as otherwise
provided in the Plan, no adjustment will be made for dividends or distributions
with respect to such Options as to which there is a record date preceding the
date the Participant becomes the holder of record of such shares, except as the
Committee may determine.
3 Restrictions on Transfer. Except pursuant to testamentary
will or the laws of descent and distribution or as otherwise expressly permitted
by the Plan, no right or interest of any Participant in an Option prior to the
exercise or vesting of such Option will be assignable or transferable, or
subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a beneficiary
to receive an Option upon such Participant's death, and in the event of a
Participant's death, payment of any amounts due under the Plan will be made to,
and exercise of any Options (to the extent permitted pursuant to Section 7 of
the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
4 Non-Exclusivity of the Plan. Nothing contained in the Plan
is intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
11. Securities Law and Other Restrictions.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Options granted under the Plan, unless (a) there is in effect with respect to
such shares a registration statement under the Securities Act and any applicable
state securities laws or an exemption from such registration under the
Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee deems necessary or advisable. The Company may condition such
issuance, sale or transfer upon the receipt of any representations or agreements
from the parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable by
the Company in order to comply with such securities law or other restrictions.
12. Plan Amendment, Modification and Termination.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Options under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that (a) the
Board will not have the authority to amend the eligibility requirements for
Options granted pursuant to Section 6.7 of the Plan, or to modify the number of
shares, exercise price, exercisability, duration, manner of payment or other
terms with respect to such Options, more than once every six months, other than
to comply with changes in the Code, the Employee Retirement Income Security Act
or the rules promulgated thereunder; and (b) no amendments to the Plan will be
effective without approval of the stockholders of the Company if stockholder
approval of the amendment is then required pursuant to Rule 16b-3 under the
Exchange Act, Section 422 of the Code or the rules of the applicable NASD or any
stock exchange. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Option without the consent of the affected
Participant; provided, however, that this sentence will not impair the right of
the Committee to take whatever action it deems appropriate under Sections
3.2(c), 4.3 and 9 of the Plan.
13. Effective Date and Duration of the Plan.
The Plan is effective as of May 1, 1996, the date it was adopted by the
Board, subject to approval by the Company's stockholders. The Plan will
terminate at midnight on May 1, 2005, and may be terminated prior to such time
by Board action, and no Option will be granted after such termination. Options
outstanding upon termination of the Plan may continue to be exercised, or become
free of restrictions, in accordance with their terms.
14. Miscellaneous.
1 Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota.
2 Successors and Assigns. The Plan will be binding upon and
inure to the benefit of the successors and permitted assigns of the Company and
the Participants.
LICENSING AND MARKETING AGREEMENT
THIS AGREEMENT is made and entered into this 26th day of
April, 1996, by and among HARINDER S. TAKHAR, BARRY M. WENDT, BENEDICT A.
WITTIG and RICHARD T. FISKUM (collectively hereinafter referred to as
"INVENTORS"), JASPER CONSULTING, INC., a Minnesota corporation with offices in
Bemidji, Minnesota (hereinafter referred to as "JASPER"), and SAC TECHNOLOGIES,
INC., a Minnesota corporation, formerly known as BBG Engineering, Inc., and
sometimes doing business as "Secure Access Control Technologies, Inc."
(hereinafter referred to as "SAC").
RECITALS
From time to time INVENTORS, JASPER and SAC (hereinafter
referred to individually as "PARTY," or as the "PARTIES" if more than one is
referred to) have entered into various agreements and understandings regarding
their relationship, each with the other, concerning the ownership, manufacture,
commercialization and exploitation of technologies known as "OPTIC TECHNOLOGY"
and "FIDS TECHNOLOGY" (each as hereinafter defined), including but not limited
to agreements dated November 24, 1992, January 13, 1994, August 4, 1995,
December 6, 1995 and March 6, 1996. It is the purpose and intent of this
instrument to consolidate in one instrument, and concurrently supersede and
replace, all of the agreements and understandings reached and entered into
between and among the PARTIES prior to the date hereof.
ARTICLE I
DEFINITIONS
1.1 "FIDS TECHNOLOGY" means and refers to all knowledge,
information and know-how, whether patentable or not, now in existence or
hereafter acquired, relating to computer hardware and software technology used
to create an automated process of analyzing a fingerprint, and identifying and
verifying the person whose fingerprint it is, originally created by the
INVENTORS other than Richard T. Fiskum, including but not limited to, that
knowledge, information and know-how described in and comprising U.S. Patent
Application Nos. 08/152,974; 08/249,796; 08/473,754; and 08/483,934, and any
improvements, or modifications thereto. FIDS TECHNOLOGY does not include OPTIC
TECHNOLOGY, STBS, or any other technology or products owned or developed by SAC.
1.2 "OPTIC TECHNOLOGY" means and refers to all knowledge,
information and know-how, whether patentable or not, now in existence or
hereafter acquired, relating to any imaging or optic sciences, solutions,
systems or applications, originally created by Barry M. Wendt and Richard T.
Fiskum, which are and were intended to be used in conjunction with FIDS
TECHNOLOGY.
1.3 "SAC TECHNOLOGIES BIOMETRIC SOLUTION" or "STBS" means and
refers to all knowledge, information and know-how, whether patentable or not,
now in existence, or hereafter acquired or provided by SAC if SAC has been
instrumental in acquiring or providing the same, relating to the technological
process by which FIDS TECHNOLOGY and OPTIC TECHNOLOGY are combined to create an
automated process of analyzing and imaging a fingerprint, and identifying and
verifying the person whose fingerprint it is, including but not limited to
application/database development software and networking software, and which
technology will always be provided in a serialized chip set calibrated to a
specific imaging system. STBS will also include an electronic
registration/activation system for purposes of tracking and protecting the use
of PRODUCTS and TECHNOLOGY.
1.4 "TECHNOLOGY" used alone means and refers to FIDS
TECHNOLOGY, OPTIC TECHNOLOGY and STBS.
1.5 "PRODUCT" or "PRODUCTS" means and refers to any finished
single unit which is intended for industrial, commercial or personal use by an
end user without any changes or modifications, and which incorporates STBS, FIDS
TECHNOLOGY and OPTIC TECHNOLOGY.
1.6 "SAC FIELD OF USE" means and refers to all markets in the
world where PRODUCTS may be sold for use in industrial, commercial and consumer
"access control" applications, including, but not limited to, the control of
access to buildings, apartments, offices, and other facilities, appliances,
information, resources, computers and computer networks.
1.7 "JASPER FIELD OF USE" means and refers to all markets in
the world where PRODUCTS may be sold for uses other than industrial, commercial
and consumer "access control," including but not being limited to, credit card
clearing, check clearing and other such financial applications, law enforcement,
national identification systems, immigration control, automobiles, medical
patient identification systems, and personnel identification systems for federal
and state government applications.
1.8 "SALE(S)" means and refers to any transfer of a PRODUCT
for consideration, and a SALE shall be deemed to have occurred when the
consideration is received.
1.9 "AFFILIATE(S)" means and refers to any third party to
which FIDS TECHNOLOGY is transferred pursuant to Article IV, or any third party
which is owned or controlled by the PARTY referred to, or which owns or controls
the PARTY referred to. "Owned or controlled" means that through ownership or
contract, the party in control can elect or otherwise determine the majority of
the board of directors. A transferee of FIDS TECHNOLOGY to a third party within
JASPER FIELD OF USE shall be an Affiliate of JASPER, and a transferee of FIDS
TECHNOLOGY to a third party within SAC FIELD OF USE shall be an Affiliate of
SAC.
1.10 "OPTION BOARDS" means and refers to a CPU card, network
card or other accessory card which may be used in PRODUCTS. Optics assemblies,
solution chip sets and the system main board are not "OPTION BOARDS."
ARTICLE II
OWNERSHIP OF TECHNOLOGY
2.1 It is agreed and understood by all PARTIES that JASPER is
the sole owner of FIDS TECHNOLOGY. It is agreed and understood by all PARTIES
that SAC is the sole owner of OPTIC TECHNOLOGY and STBS, and each PARTY agrees
to execute such instruments of conveyance as may from time to time be required
in order to perfect title accordingly.
2.2. Each PARTY shall promptly disclose to the other any
improvements conceived or reduced to practice which relates to the other's
technology.
2.3 JASPER agrees that it will not sell, assign or otherwise
transfer FIDS TECHNOLOGY or any interest therein to any third party without the
consent of SAC. SAC agrees that it will not sell, assign or otherwise transfer
OPTIC TECHNOLOGY or STBS or any interest therein to any third party without the
consent of JASPER.
2.4 SAC shall be primarily responsible for all research and
development activities related to FIDS TECHNOLOGY and PRODUCTS. PRODUCTS
contemplated by this Agreement include but are not limited to (1) low cost
PRODUCTS incorporating TECHNOLOGY; and (2) add on configurations which will
allow for multiple PRODUCTS to be tied to a single personal computer and a
combination of local and remote units. New versions of PRODUCTS may be developed
by SAC from time to time including, but not limited to, the redesign of the
current FIDS TECHNOLOGY so as to port to a cost effective, open personal
computer architecture with such PRODUCTS to be available as an add on peripheral
for both local and remote configuration and with components of such systems to
include key pad interfaces, display interfaces, network interfaces, and base
software that will be incorporated into any such PRODUCTS or PRODUCT systems.
SAC will use its best effort to complete all such PRODUCTS for use in SAC FIELD
OF USE and JASPER FIELD OF USE. All present, future versions, and any
modifications or improvements to the FIDS TECHNOLOGY or to PRODUCTS shall be
within the scope of this Agreement and the PARTIES shall have the same rights
and obligations with respect to any such new versions of PRODUCTS or FIDS
TECHNOLOGY as they have with respect to any current FIDS TECHNOLOGY or PRODUCTS.
All present, future versions, and any modifications or improvements to FIDS
TECHNOLOGY whether developed by SAC or any third party will be included in the
license to SAC hereinafter, and made available to JASPER at no additional cost,
and JASPER will retain all ownership and intellectual property rights in such
versions. JASPER may, at its sole discretion, share in any research and
development costs associated with the FIDS TECHNOLOGY and PRODUCTS.
2.5 All source code, data, information, know-how, techniques,
processes, materials, computer programs, files, manual databases, hardware,
firmware, or documentation or any discoveries, inventions, and improvements,
whether or not patentable or copyrightable, conceived, made, first reduced to
practice, developed by or for SAC or JASPER with respect to FIDS TECHNOLOGY
("Developments") shall promptly be disclosed and submitted without delay to
JASPER. JASPER and SAC shall maintain all such Developments as confidential and
proprietary information of JASPER provided, however, JASPER and/or SAC may use
such Developments to support any PRODUCTS, and may license such Developments to
third parties for the limited purpose of the development and support of PRODUCTS
or as necessary to commercialize PRODUCTS, all in accordance with the terms and
conditions of this Agreement. JASPER reserves the exclusive right to acquire any
patents or other intellectual property protection in such Developments, and SAC
will provide reasonable assistance to JASPER as necessary to obtain and perfect
such rights, subject to the reimbursement by JASPER of any out of pocket
expenses of SAC.
2.6 SAC shall perform at the request of JASPER all lawful acts
and execute, acknowledge, and deliver all instruments, including assignments,
deemed necessary, useful, or appropriate by JASPER to vest in JASPER the entire
right, title and interest in and to such Developments and obtain and record
title thereto and to enable JASPER to prepare, file, and prosecute applications
for and obtain patents, copyrights and other forms of industrial property
protection thereon, as well as continuations, divisions, continuations-in-part,
additions, reissues, renewals, and extensions thereof, as JASPER at any time
deems useful or desirable to preserve such interests in any and all countries
selected by JASPER, and to obtain and record title to patents, copyrights and
other forms of industrial property protection and applications thereof so that
JASPER shall be the sole and absolute owner thereof in any and all countries in
which JASPER may desire such protection. As used herein, "industrial property"
includes patents and copyrights as well as any other form of industrial or
intellectual property protection which is presently available or applicable, or
which may become available or application, to Developments, including
developments in expression of data and computer software. Any reasonable
additional costs to SAC required to satisfy the obligations of this Subsection
will be reimbursed to SAC by JASPER.
2.7 To the extent permitted by law, any Development including
software, that generates copyrightable material shall fall within the enumerated
categories of ss. 101 of the 1976 Copyright Act definition of "work for hire"
subsection (2) and thus be considered a "work made for hire:, and SAC
acknowledges that by so considering any Development as a "work made for hire"
that JASPER shall own all right, title and interest in and to any copyright
associated with such Development. To the extent under applicable law that such
work may not be deemed a "work made for hire" SAC hereby expressly assigns and
agrees to assign JASPER all right, title and interest in and to SAC's copyright
for such work. SAC shall execute and deliver to JASPER such instruments of
transfer and take other such actin that JASPER may reasonably request,
including, without limitation, such assignments and other documents required to
vest in JASPER the entire right, title and interest in and to any copyright
associated with such Development.
ARTICLE III
LICENSE GRANTS
3.1 Subject to the terms and conditions set forth herein,
JASPER hereby grants to SAC and SAC hereby accepts from JASPER, an exclusive
worldwide license to use FIDS TECHNOLOGY to: (a) make PRODUCTS; (b) use and sell
PRODUCTS within the SAC FIELD OF USE; and (c) sell PRODUCTS exclusively to
JASPER with respect to JASPER FIELD OF USE.
3.2 Subject to the terms and conditions set forth herein, SAC
hereby grants to JASPER and JASPER hereby accepts from SAC, an exclusive
worldwide license to use and sell PRODUCTS within the JASPER FIELD OF USE which
incorporate OPTICS TECHNOLOGY and STBS.
3.3 The exclusive licenses granted herein shall terminate upon
the termination of this Agreement in accordance with Article VII.
3.4 No PARTY will have the right to grant sublicenses without
the consent of the other PARTY. Any sublicenses granted to third parties shall
be subject in all applicable respects to the provisions of this Agreement.
3.5 JASPER will refer all SALES opportunities within SAC FIELD
OF USE to SAC, and SAC will refer to all SALES opportunities within JASPER FIELD
OF USE to JASPER.
3.6 All PRODUCTS made and sold to JASPER with respect to
JASPER FIELD OF USE shall be made and sold in accordance with the terms and
conditions of the OEM AGREEMENT attached hereto as EXHIBIT A.
ARTICLE IV
TECHNOLOGY TRANSFERS; PAYMENTS
4.1 Notwithstanding the grant of an exclusive license to SAC
to use FIDS TECHNOLOGY to make, use and sell PRODUCTS as described in Article
III, subject to and with the consent of SAC, JASPER shall have the exclusive
right to sublicense or otherwise transfer, subject to the terms of this
Agreement, FIDS TECHNOLOGY within the JASPER FIELD OF USE, and subject to and
with the consent of JASPER, SAC shall have the exclusive right to sublicense or
otherwise transfer, subject to the terms of this Agreement, FIDS TECHNOLOGY
within the SAC FIELD OF USE.
4.2 With respect to any license or transfers of FIDS
TECHNOLOGY pursuant to this Article IV, any consideration received for the same
shall be divided as follows:
(a) With respect to a transfer of FIDS
TECHNOLOGY within JASPER FIELD OF USE:
(i) 10% to JASPER for purposes of funding
any legal fees and costs incurred with
respect to the transfer or claims subsequent
and with respect thereto;
(ii) 10% to SAC for purposes of funding
ongoing research and development expenses
with respect to TECHNOLOGY;
(iii) 48% to JASPER without restriction;
(iv) 32% to SAC without restriction;
(b) With respect to a transfer of FIDS
TECHNOLOGY within SAC FIELD OF USE:
(i) 10% to JASPER for purposes of funding
any legal fees and costs incurred with
respect to the transfer or claims subsequent
and with respect thereto;
(ii) 10% to SAC for purposes of funding
ongoing research and development expenses
with respect to TECHNOLOGY;
(iii) 48% to SAC without restriction;
(iv) 32% to JASPER without restriction;
ARTICLE V
ROYALTIES, REPORTS AND RECORDS
5.1 JASPER shall pay to SAC a running royalty in the amount of
Thirty Dollars ($30.00) with respect to each SALE of a PRODUCT within JASPER
FIELD OF USE by JASPER or an AFFILIATE of JASPER, and SAC shall pay to JASPER a
running royalty in the amount of Thirty Dollars and 50/100 ($30.50) with respect
to each SALE of a PRODUCT within SAC FIELD OF USE by SAC or an AFFILIATE of SAC.
5.2 Royalties shall be payable only once with respect to each
SALE of a PRODUCT regardless of the number of patented or nonpatented portions
of TECHNOLOGY or improvements thereto incorporated in the PRODUCT.
5.3 Royalty payments payable on account of PRODUCT SALES in
any month shall be made in United States Dollars on or before the end of the
month next following the month in which the subject PRODUCT SALE occurs. Each
such payment shall be accompanied by a report setting forth separately the SALES
of PRODUCTS occurring during the preceding month. Royalty checks shall be mailed
to the address specified in Article XI. Any currency translations that are
necessary to calculate payments shall be made at the average exchange rate
quoted by First Bank National Association, Minneapolis, Minnesota, for the month
in which the SALE occurred. In the event that foreign monies are not capable of
export to the United States, the PARTY paying the royalty payment shall escrow
the same on behalf of the PARTY to which the royalty is due at the paying
PARTY's sole risk and expense. SAC shall be responsible for the payment of all
royalties due hereunder by its AFFILIATES, and JASPER shall be responsible for
the payment of all royalties due hereunder by its AFFILIATES.
5.4 JASPER, SAC and their respective AFFILIATES shall keep and
maintain records of SALES which shall be open to inspection at reasonable times
by a certified public accountant chosen by the PARTY to which royalties are to
be paid on such SALES. Such records will include the name of the third party to
which the SALE was made, the number of PRODUCTS purchased, the payment terms and
the payments received. Such inspection shall be made at the expense of the
inspecting PARTY unless the inspection results in the additional payment of at
least $5,000 in royalties to the inspecting PARTY, in which event the expense of
the inspection shall be paid by the PARTY which was the subject of the
inspection. The records required by this paragraph shall be maintained and
available for inspection for a period of five (5) years following the month to
which they pertain.
ARTICLE VI
INFRINGEMENT
6.1 In the event that JASPER or SAC determines that a third
party is making, using or selling a product that may infringe on PRODUCTS or
TECHNOLOGY, it will promptly notify the other party in writing. JASPER may, at
its sole option, bring suit at its sole cost and expense against such alleged
infringer. In the event JASPER decides to bring suit, it shall give prompt
written notice to SAC of that fact. All recoveries in such suit shall inure to
the benefit of JASPER, except that SAC shall have the right to elect to pay up
to fifty percent (50%) of the litigation costs and receive a percentage of any
recovery equal to the percentage of litigation costs paid. SAC must make such
election within ninety (90) days of its receipt of notice that JASPER has
decided to bring suit. SAC shall also have the right to choose to be represented
by separate counsel in any such suit. If JASPER elects not to bring a suit
against the alleged infringer, it shall promptly notify SAC of that fact and SAC
shall have the right to commence such action at its own cost and expense, in
which case any recoveries shall inure to the benefit of SAC; provided, however,
that JASPER shall have the reciprocal right of contribution and recovery, and to
elect to have separate counsel.
6.2 In the event that JASPER, SAC or any AFFILIATE is sued by
a third party charging patent infringement for the manufacture, use or sale of
PRODUCT or TECHNOLOGY, all PARTIES shall promptly be notified. JASPER shall
promptly undertake the defense of the same at its sole and exclusive cost, and
SAC, to the extent the same is appropriate, shall use its best efforts to remove
from TECHNOLOGY any element thereof deemed to be infringing.
6.3 If any PARTY or any AFFILIATE is required to pay a royalty
to other than a PARTY as a result of a final judgment or settlement in order to
make and/or sell PRODUCTS or TECHNOLOGY, then in that event, the amount of the
same shall be deemed a credit against any royalty owed by one PARTY to another
PARTY hereunder.
ARTICLE VII
TERM AND TERMINATION
7.1 Unless renewed by mutual agreement or terminated pursuant
to the terms of paragraph 7.2, the term of this Agreement shall commence as of
the date hereof and shall end with the expiration of the last to expire of any
patent covering TECHNOLOGY; or, if no patent covers TECHNOLOGY, the term of this
Agreement shall end on the twentieth anniversary of the date hereof.
7.2 This Agreement may be terminated prior to the expiration
of its term in any one of the following manners:
(a) Breach. If one party has breached a
provision of this Agreement, the non-breaching party may terminate this
Agreement by giving written notice to the breaching party describing the breach;
provided, however, if the breach is curable, such termination shall not be
effective unless and until such breach remains uncured for a period of sixty
(60) days after delivery of the notice.
(b) Insolvency. Either party may terminate this
Agreement effective upon written notice to the other in the event the other
party:
(i) makes a general assignment for the
benefit of creditors;
(ii) files a voluntary petition for
bankruptcy or has filed against it an
involuntary petition for bankruptcy which is
not discharged within ninety (90) days;
(iii) applies for the appointment of a
receiver or trustee for any
substantial portion of its property or
assets; or
(iv) permits the appointment of any such
receiver or trustee who is not discharged
within a period of ninety (90) days after
such appointment.
7.3 Upon termination of this Agreement for any reason,
including the end of term as specified above, nothing herein shall be construed
to release any PARTY from any obligation which matured prior to the effective
date of termination. Any PARTY and its AFFILIATES may after the effective date
of such termination sell all PRODUCTS in stock and complete construction of all
PRODUCTS in the process of manufacture at the time of termination and sell the
same, provided that royalties on such PRODUCTS are paid as specified in this
Agreement.
ARTICLE VIII
CONFIDENTIAL INFORMATION
8.1 Anything in this Agreement to the contrary
notwithstanding, any and all knowledge, know-how, practices, process, or other
information (hereinafter referred to as "Confidential Information") disclosed or
submitted in writing or in other tangible form which is designated as
Confidential Information to any PARTY by any other PARTY shall be received and
maintained by the receiving PARTY(IES) in strict confidence and shall not be
disclosed to any third party. Furthermore, no PARTY shall use said Confidential
Information for any purpose other than those purposes specified in this
Agreement. The PARTIES may disclose Confidential Information to employees
requiring access thereto for the purposes of this Agreement provided, however,
that prior to making any such disclosures each such employee shall be apprised
of the duty and obligation to maintain Confidential Information in confidence
and not to use such information for any purpose other than in accordance with
the terms and conditions of this Agreement. No PARTY will be held financially
liable for any inadvertent disclosure, but each will agree to use its reasonable
efforts not to disclose any Confidential Information.
8.2 Nothing contained herein will in any way restrict or
impair any receiving PARTY's right to use, disclose, or otherwise deal with any
Confidential Information which at the time of its receipt:
(a) is generally available in the public domain,
or thereafter becomes available to the public through no act of the receiving
PARTY; or
(b) was independently known prior to receipt
thereof, or made available to such receiving PARTY as a matter of lawful right
by a third party.
8.3 The above obligations for Confidential Information shall
be in effect for the duration of, and for a period of six (6) years from and
after the termination of, this Agreement.
8.4 Any wording to the contrary notwithstanding, after first
informing the other PARTY of its intent to do so, any PARTY may make disclosures
of Confidential Information as may be required by any Federal, State or
Municipal authority having jurisdiction over the party. The PARTIES agree that
they will use their best efforts to persuade the appropriate authority that
because of the nature of the Confidential Information that the Confidential
Information not be disclosed.
8.5 SAC will maintain a copy of its Confidential Information.
JASPER will have right of access to SAC's Confidential Information for the
purposes of patent submission as it pertains to FIDS TECHNOLOGY, patent
maintenance, defense, or for the fabrication or manufacture of OPTION BOARDS for
JASPER FIELD OF USE.
ARTICLE IX
PUBLICATION
9.1 No PARTY shall have the right to publish any information
about TECHNOLOGY without first securing the consent of all other PARTIES.
ARTICLE X
INDEMNIFICATION
10.1 JASPER agrees to indemnify all other PARTIES and hold all
other PARTIES harmless against all liabilities, demands, damages. expenses, or
losses arising from the manufacture, use, or sale of PRODUCTS or TECHNOLOGY if
such losses are occasioned by the inclusion of FIDS TECHNOLOGY therein.
10.2 Except as set forth in Exhibit A attached hereto, SAC
agrees to indemnify all other PARTIES and hold all other PARTIES harmless
against all liabilities, demands, damages, expenses, or losses arising from the
manufacture, use or sale of PRODUCTS or TECHNOLOGY if such losses are occasioned
by the inclusion of OPTIC TECHNOLOGY or STBS therein.
10.3 The provisions of this Article shall survive termination
of this Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Each PARTY hereby assures the other PARTY that it will
comply with all United States export controls as set forth in the Export
Administration Regulations, 15 C.F.R. 770 et seq.
11.2 This Agreement shall be governed by the Laws of the
State of Minnesota.
11.3 For purposes of mailings of notices, payments, or other
communications, the addresses of the parties are given below.
In the case of JASPER and HARINDER S. TAKHAR:
403 - 4th Street N.W.
Suite 200, P.O. Box 1005
Bemidji, MN 56619-1005
In the case of SAC and all other PARTIES:
4444 West 76th Street
Suite 600
Edina, MN 55435
11.4 No term or provision of this Agreement shall be waived
and no breach excused, unless such waiver or consent shall be in writing and
signed by the PARTY claimed to have waived or consented. No waiver of a breach
shall be deemed to be a waiver of a different or subsequent breach.
11.5 This Agreement may not be modified, changed or terminated
orally. No change, modification, addition or amendment shall be valid unless in
writing and signed by all of the PARTIES.
11.6 This Agreement, including Exhibit A attached hereto,
constitutes and contains the entire Agreement of the PARTIES respecting the
subject matter hereof and supersedes any and all prior negotiations,
correspondence, understanding, and agreements, whether written or oral, between
the parties respecting the subject matter hereof.
11.7 Nothing contained in this Agreement, or in any other
document or instrument made in connection with this transaction, shall be deemed
or construed to create a partnership, tenancy-in-common, joint tenancy, joint
venture, other common enterprise or co-ownership by or among the PARTIES or any
of them.
11.8 Whenever any PARTY's approval or consent shall be
required herein, such approval or consent shall not be arbitrarily or
unreasonably conditioned, delayed or withheld and shall be deemed to have been
given, unless within ten (10) days of a PARTY's request therefor, the requested
PARTY notifies the requesting PARTY that the requested PARTY is denying such
approval or consent, stating in such notice the reasonable grounds therefor.
11.9 All communications, demands, notices or objections
permitted or required to be given or served under this Agreement shall be in
writing and shall be deemed to have been duly given or served if delivered in
person or deposited in the United States mail, postage prepaid, for mailing by
certified or registered mail, return receipt requested, and addressed to a PARTY
to the address set forth herein. Any PARTY may change his/its address by giving
notice in writing, stating his/its new address to all other PARTIES as provided
in the foregoing manner. Commencing on the tenth day after the giving of such
notice, such newly designated address shall be such PARTY's address for the
purpose of all communications, demands, notices or objections permitted or
required to be given or served under this Agreement.
11.10 This Agreement shall be binding upon and inure to the
benefit of the PARTIES hereto and their respective heirs, representatives,
successors and assigns; provided that no PARTY shall assign any right or
obligation hereunder in whole or in part, without the prior consent of the other
PARTIES, and any attempt to do so shall be void; provided further, however, that
any permitted assignment shall not release the primary obligor from the
responsibility of performing the obligation unless the obligor is specifically
released from such obligation.
11.11 The invalidity or unenforceability of any provision in
this Agreement or the application thereof to any person or circumstances shall
not affect or impair the validity or enforceability of any other provision
herein.
11.12 Any dispute, controversy or claim arising out of or in
connection with this Agreement, except for questions of fraud or questions
concerning the validity and enforceability of this Agreement or any of the
rights herein, shall be determined and settled by arbitration in Minneapolis,
Minnesota, or other place mutually agreed upon by the PARTIES pursuant to the
Rules then in effect of the American Arbitration Association as modified by this
Section. Any award rendered shall be final and conclusive upon the PARTIES and a
judgment thereon may be entered in a court having competent jurisdiction.
The PARTY submitting such dispute shall request and the
American Arbitration Association shall (i) appoint a group of three (3) neutral
arbitrators who are knowledgeable in the area of technology licensing and
contract law; (ii) direct the arbitrators to follow substantive rules of law and
the Federal Rules of Evidence and to determine the issue by majority vote; (iii)
allow for the PARTIES to request discovery pursuant to the rules then in effect
under the Federal Rules of Civil Procedure for a period not to exceed ninety
(90) days; (iv) require the testimony to be transcribed; and (v) require the
award to be accompanied by findings of fact and a statement of reasons for the
decision.
All costs and expenses, including attorneys' fees, of all
PARTIES incurred in any dispute which is determined and/or settled by
arbitration pursuant to this Section shall be borne by the PARTY determined to
be liable in respect of such dispute; provided, however, that if complete
liability is not assessed against any one PARTY, the PARTIES shall share the
total costs in proportion to their respective amounts of liability so assessed.
IN WITNESS WHEREOF, the PARTIES have caused this Agreement to
be executed effective the day and year first above written.
SAC TECHNOLOGIES, INC.
By /s/ BARRY M. WENDT /s/ BARRY M. WENDT
----------------------- ----------------------------
Its CEO BARRY M. WENDT
-----------------------
/s/ BENEDICT A. WITTIG
----------------------------
BENEDICT A. WITTIG
/s/ RICHARD T. FISKUM
JASPER CONSULTING, INC. ----------------------------
RICHARD T. FISKUM
/s/ HARINDER S. TAKHAR
By /s/ HARINDER S. TAKHAR ----------------------------
----------------------- HARINDER S. TAKHAR
Its Pres/CEO
-----------------------
OEM AGREEMENT
EFFECTIVE DATE: April 26, 1996
PARTIES:
SAC Technologies, Inc.
4444 West 76th Street, Suite 600
Edina, Minnesota 55435 ("SAC")
Jasper Consulting, Inc.
403 - 4th Street N.W., Suite 200
Bemidji, Minnesota 56601 ("JASPER")
RECITALS:
A. SAC and JASPER are parties to a certain Licensing and Marketing
Agreement ("License Agreement") of even date herewith which, INTER ALIA,
describes the distribution rights of the parties regarding products representing
an automated process of analyzing and imaging fingerprints in a cost effective
manner.
B. JASPER desires to have SAC manufacture such products for JASPER as
are for use in JASPER FIELD OF USE and as directed by JASPER under the terms and
conditions of this OEM Agreement.
AGREEMENT:
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the words "PRODUCT(S)",
"FIDS TECHNOLOGY," and other capitalized terms used but not defined in this
Agreement shall have the meanings assigned to them in the License Agreement,
which definitions shall survive any termination of the License Agreement.
2. Manufacturing.
a. Purchase Requirements of PRODUCTS. PRODUCTS to be
manufactured by SAC on behalf of JASPER shall be PRODUCTS for use in
JASPER FIELD OF USE and shall be identified by mutual agreement between
the parties from time to time and set forth on Attachment A to this
Agreement. During the term of this Agreement, JASPER agrees to purchase
all of its requirements of PRODUCTS from SAC except for OPTION BOARDS
or enclosures which JASPER may elect to manufacture for JASPER FIELD OF
USE. The parties understand and acknowledge that this Agreement is not
a purchase order for any PRODUCT. JASPER will not be obligated to pay
for or take delivery of, and SAC will not be obligated to produce and
deliver, any PRODUCTS except pursuant to JASPER's purchase orders.
b. Serialization of PRODUCTS. All PRODUCTS produced by SAC
will be serialized not only as part of the quality control process, but
also to ensure protection of the technology at an embedded hardware
level. SAC will control the serialization of these embedded chip sets
and the chip sets in turn will be keyed to specific serialized
software.
c. Applicable Specifications. SAC shall produce and package
PRODUCTS pursuant to specifications agreed upon by the parties and set
forth in writing from time to time on Attachment A attached hereto (the
"Specifications"). Any written modifications to, or upgrading of, the
Specifications provided by JASPER to SAC with respect to a specific
purchase order shall, upon acceptance of SAC, be added to Attachment A
and incorporated in PRODUCTS produced by SAC after its receipt of such
modifications or upgrades.
d. Rolling Estimates. JASPER shall deliver to SAC on the first
day of each calendar quarter during the term of this Agreement its best
estimate of its requirements for PRODUCTS (on a per customer basis)
during the next twelve (12) month period on a quarter by quarter basis.
Such estimates shall not constitute firm purchase orders by JASPER.
e. SAC's Obligation to Manufacture. SAC agrees to manufacture
PRODUCTS ordered by JASPER; provided, however, that SAC shall not be
obligated to manufacture any PRODUCT in a particular quarter in
quantities which exceed one hundred ten percent (110%) of the quarterly
forecast of such PRODUCT submitted by JASPER at the commencement of the
quarter prior to such quarter unless such an order has been accepted in
writing by SAC.
f. Custom Products. SAC is hereby granted the first right of
refusal to perform custom design or integration projects for JASPER.
Should SAC elect not to perform or participate with any specific custom
project then JASPER may locate other resources to perform such custom
project provided that all confidentiality clauses and provisions of
this agreement are adhered to, and provided further, that SAC's
election not to perform a specific custom project shall not prejudice
its first right of refusal with respect to a later custom project.
3. Labels and Packaging.
a. Label and Package Design. JASPER will supply SAC with the
labeling and package design for all PRODUCTS and SAC agrees to package
PRODUCTS in accordance therewith. JASPER shall be entirely responsible
for such labeling and package design.
b. Purchase of Packaging Materials. SAC will order packaging
for PRODUCTS from its suppliers according to the minimum order
requirements of such suppliers in reliance on JASPER's forecasts. The
price of such packaging shall be added to the purchase price of
PRODUCTS. JASPER shall pay SAC for any extra charges or assessments
incurred by SAC for less-than-minimum or other non-standard size
packaging orders requested by JASPER.
c. Discontinuance of Packaging. JASPER shall pay SAC promptly
for any packaging purchased by SAC for PRODUCTS if such packaging is
discontinued by JASPER for any reason whatsoever or has remained unused
by SAC for a period of six (6) months; provided, however, that JASPER
shall not be required to pay SAC for any packaging which was designed
by SAC and which was also found to be unusable or defective.
4. Purchase Orders.
a. Applicable Terms and Conditions. The terms and conditions
of this Agreement shall apply to all purchase orders for PRODUCTS
submitted by JASPER to SAC. No terms and conditions contained on any
quotation or purchase order for PRODUCTS submitted by JASPER (except
the terms specified in subparagraph b below) or contained on any
acceptance or invoice form submitted by SAC, which are inconsistent
with or in addition to the terms and conditions of this Agreement shall
apply to such quotation or resulting purchase order, unless the parties
agree otherwise in a written document separate from the quotation,
purchase order, acceptance document or invoice.
b. Placement of Orders. JASPER shall place its orders for
PRODUCTS by delivery of a written purchase order to SAC. Each purchase
order shall specify the quantity, identity and delivery and shipment
instructions for the ordered PRODUCTS and any modified or upgraded
Specifications. JASPER shall not cancel orders for PRODUCTS or return
any PRODUCTS ordered by it without SAC's prior written consent;
provided, however, that upon receipt of written request by SAC from
JASPER that JASPER desires to change, reduce or otherwise curtail any
subject purchase order, SAC will respond to JASPER's request with
respect to any PRODUCTS the manufacture of which was not commenced at
the time of the receipt of the written request. No change order or
curtailment request shall be effective with respect to completed
PRODUCTS, or PRODUCTS which are in process at the time the written
request is received by SAC.
5. Price and Payment.
a. Price. The purchase price to JASPER for PRODUCTS shall be
as set forth on Attachment B, and as may be modified from time to time
in writing between the parties, in order to provide SAC with a
manufacturing gross margin of twenty percent (20%), determined as the
product of 1.2 multiplied by the sum of SAC's accountable direct costs
for materials, labor and overhead burden associated with the
manufacturing process.
b. Taxes and Shipping Costs. The purchase price for PRODUCTS
shall not include any sales, use, excise or other taxes or any shipping
or freight insurance costs due with respect to PRODUCTS. JASPER shall
reimburse SAC or shall pay directly for all such taxes, shipping and
insurance costs.
c. Payment. JASPER shall pay SAC for PRODUCTS within forty-
five (45) days of the date of SAC's invoice. If JASPER does not pay
its invoices when due, SAC reserves the right to require payment in
advance, by COD, or otherwise change credit terms by delivery of
written notice to JASPER.
d. Letter of Credit. Payment for each purchase order shall be
by confirmed irrevocable letter of credit drawn on a bank acceptable to
SAC in the amount of the purchase order. At the discretion of SAC, SAC
may extend payment terms on other than letter of credit, but shall
reserve the right to insist upon payment by letter of credit at any
time.
6. Shipment, Delivery and Acceptance.
a. Shipment and Risk of Loss. SAC shall deliver PRODUCTS
F.O.B. SAC's manufacturing location to the place designated for
shipment and by the carrier specified by JASPER on its purchase order.
Title to and risk of loss of PRODUCTS shall pass to JASPER upon
delivery of the same to the carrier designated by JASPER, or if not
designated by JASPER to the carrier selected by SAC. The carrier shall
be deemed to be JASPER's agent and JASPER shall make all claims with
respect to damage in transit against the responsible carrier.
b. Delivery Dates. JASPER shall submit its purchase orders to
SAC at least ninety (90) days prior to any delivery date requested in
such purchase order. SAC agrees to use its reasonable efforts to meet
such delivery dates. However, as for PRODUCTS that are custom ordered
by JASPER, pursuant to modified or upgraded Specifications, and
therefore not commonly manufactured by SAC, such delivery dates are
deemed to be estimates only and SAC shall not be in breach of this
Agreement or the purchase order or otherwise be liable to JASPER if it
fails to meet such delivery dates.
c. Inspection. JASPER shall inspect all PRODUCTS immediately
after arrival and shall notify SAC in writing within thirty (30) days
after receipt of any shortages, non-conformance with the purchase order
or any other failure under this Agreement, and SAC, as soon as is
practicable, shall rectify the shortage, non-conformance or other
failure. JASPER shall return any non-conforming or failed PRODUCT to
SAC for inspection at JASPER's cost, and the cost of shipment shall be
a credit against future PRODUCT purchases. After such time period, SAC
shall not be liable for any non-conformance of PRODUCTS which JASPER
could reasonably have discovered within such time period, and no
PRODUCTS shall be returned to SAC (for reason of shortage,
non-conformance, or any other failure discoverable upon inspection by
JASPER) without SAC's prior written or telefaxed consent or return
material authorization.
d. Force Majeure. SAC shall not be liable to JASPER for any
breach of this Agreement or any purchase order for PRODUCTS caused in
whole or in part by any contingency beyond SAC's reasonable control,
including without limitation, acts of God, acts of any government or
any agency or subdivision thereof, or shortage or inability to secure
labor, fuel, energy, raw materials, supplies or machinery at reasonable
prices from regular sources.
7. Warranty.
a. Limited Warranty. SAC represents and warrants to JASPER
that all PRODUCTS will be manufactured in accordance with the
Specifications and with all applicable federal, state, and local laws
and regulations governing the manufacture of such PRODUCTS
(the "Limited Warranty").
b. Notification of Defect. In order to recover under the
Limited Warranty, JASPER must send SAC written notice of a defect not
discoverable upon inspection as provided in Section 6.c. above (setting
forth the problem in reasonable detail) within one (1) year from the
date of shipment or within sixty (60) days after the date of discovery,
whichever is sooner. Upon SAC's written request and return material
authorization, JASPER shall return the alleged defective PRODUCT to
SAC, freight and insurance prepaid by JASPER, for inspection. SAC will
not be responsible for damage due to improper packing or shipment of
such PRODUCT, provided such packing or shipment meets JASPER's
requirements or is otherwise in accordance with SAC's usual packing and
shipping of PRODUCTS of a similar nature, but SAC shall be responsible
for damage due to SAC's negligence in packing or shipping such PRODUCT.
c. Remedy for Breach of Warranty. SAC's sole obligation in
the event of a breach of the Limited Warranty shall be, at its
option, to repair or replace such defective PRODUCT or to refund the
purchase price paid by JASPER to SAC for such PRODUCT.
d. Limitation of Warranty. THE LIMITED WARRANTY DOES NOT COVER
ANY PARTS WHICH BY THEIR NATURE MAY NOT FUNCTION FOR A FULL YEAR. THE
LIMITED WARRANTY DOES NOT INCLUDE ANY FAILURE DUE TO ACCIDENTAL
BREAKAGE. THE LIMITED WARRANTY SHALL AUTOMATICALLY TERMINATE IF: (i)
THE LABEL OR SERIAL NUMBER IS REMOVED FROM PRODUCT; (ii) PRODUCT OR ITS
PARTS ARE NOT PROPERLY MAINTAINED OR ARE MISUSED, ABUSED, NEGLECTED,
DAMAGED IN TRANSIT, ALTERED OR USED FOR A PURPOSE NOT INTENDED; (iii)
PRODUCT IS USED WITH IMPROPER ELECTRICAL CURRENT, IS STORED, MOVED,
INSTALLED, MAINTAINED OR OPERATED CONTRARY TO SAC'S WRITTEN
INSTRUCTIONS OR IS IMPROPERLY INTERFACED WITH CUSTOMER SUPPLIED
INSTRUMENTATION OR SOFTWARE; (iv) PARTS ARE USED WITH PRODUCT WHICH ARE
NOT SUPPLIED BY SAC; OR (v) PRODUCT OR PARTS ARE SERVICED BY ANY PARTY
OTHER THAN DISTRIBUTOR OR SERVICE CENTER APPROVED BY BOTH JASPER AND
SAC AS AN AUTHORIZED DISTRIBUTOR OR SERVICE CENTER.
e. Disclaimer of Warranty. EXCEPT AS EXPRESSLY PROVIDED IN
THIS SECTION 7, SAC MAKES NO REPRESENTATION OR WARRANTY TO JASPER OF
ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PRODUCTS, WHETHER AS
TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, WARRANTIES
ARISING FROM A COURSE OF DEALING OR USAGE OR TRADE OR ANY OTHER MATTER.
NO EMPLOYEE, REPRESENTATIVE OR AGENT OF SAC HAS ANY AUTHORITY TO BIND
SAC TO ANY AFFIRMATION, REPRESENTATION OR WARRANTY EXCEPT AS STATED IN
THIS WRITTEN WARRANTY POLICY.
f. Limitation of Remedy. SAC SHALL HAVE NO LIABILITY TO ANY
PERSON FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY DESCRIPTION, WHETHER ARISING OUT OF WARRANTY OR OTHER CONTRACT,
NEGLIGENCE OR OTHER TORT, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION,
DAMAGES RESULTING FROM THE NON-OPERATION OF PRODUCTS, LOSS OF RESEARCH
OR PRODUCTION, OR LOSS OF SALES OF PRODUCTS. UNDER NO CIRCUMSTANCES
SHALL SAC'S LIABILITY HEREUNDER TO JASPER OR ANY OTHER PERSON EXCEED
THE PURCHASE PRICE FOR PRODUCTS RECEIVED BY SAC FROM JASPER.
8. Indemnification by SAC. SAC agrees to indemnify, defend and hold
JASPER and its officers, directors, successors and assignees harmless from any
and all claims, liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) suffered or incurred by any
of them resulting from, arising out of or relating to any claim of personal
injury, property damage or other damage or injury arising from the negligent
manufacture of PRODUCTS by SAC, provided however, that JASPER first notify SAC
of the existence of any such claim, and allow SAC to participate in the defense
of such claim.
9. Indemnification by JASPER. JASPER agrees to indemnify, defend, and
hold SAC and its officers, directors, successors and assignees harmless from and
against all claims, liabilities, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) suffered or incurred by SAC
resulting from:
a. a third party claim of infringement of proprietary rights
with respect to the manufacture, use, or sale of PRODUCTS on account of
their incorporating FIDS TECHNOLOGY or with respect to the use of the
labels and packaging proposed by JASPER for use on PRODUCTS; or
b. any claim of personal injury, property damage or other
damage or injury arising from the use of PRODUCTS, other than those
claims specifically referred to in Section 8 above.
JASPER shall take all necessary precautions to ensure that its activities with
respect to the manufacture, use and sale of PRODUCTS are performed in accordance
with all federal, state, and local laws and regulations governing such
activities.
10. Confidentiality. The care and treatment of the confidential
information of the parties under this OEM Agreement shall be as addressed in
Article VIII of the License Agreement.
11. Term and Termination.
a. Term. This Agreement shall commence as of the date set
forth on the first page of this Agreement and shall continue for a
period commensurate with the License Agreement.
b. Termination as to Specific PRODUCTS. Either party may
terminate this Agreement as to any specific PRODUCT, effective
immediately upon delivery of written notice to the other party, if the
manufacture of, or substantially all of JASPER's requirements for, such
PRODUCT is restricted by order of any state or federal governmental
agency.
12. Effect of Termination. The parties shall take the following actions
upon the effective date of expiration or termination of this Agreement for
whatever reason:
a. Existing Purchase Orders. SAC shall complete manufacture
of and JASPER shall take delivery of and pay for all PRODUCTS subject
to purchase orders which were accepted by SAC on or prior to the
effective date of expiration or termination.
b. Packaging. SAC shall deliver to JASPER all of its
inventory of PRODUCT packaging purchased for the benefit of JASPER as
aforesaid, and JASPER shall reimburse SAC its direct cost for (i) any
inventory of JASPER's packaging for PRODUCTS; (ii) any JASPER packaging
for PRODUCTS which SAC has ordered and cannot cancel within ten (10)
days after delivery of an invoice for the same, and (iii) any
reasonable penalties resulting from SAC's cancellation of an order for
JASPER packaging.
c. Serialization. In the event that SAC is unable to perform
the serialization requirements of paragraph 2.b. above adequately for
JASPER'S needs, as reasonably determined by JASPER according to the
provisions hereof, JASPER may organize its own resources to provide
these functions; provided, however, that in all events SAC will control
the serialization of chip sets for protection of FIDS TECHNOLOGY and
the manufacture of optics imaging assemblies.
d. Survival of Provisions. The obligations of the parties
under Sections 8 and 9 shall survive the expiration and termination of
this Agreement and shall continue in full force and effect.
13. General Provisions.
a. Incorporation by Reference. The provisions of Article XI
of the License Agreement are hereby incorporated herein by this
reference.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
JASPER CONSULTING, INC.
By /s/ Harinder S. Yakhar
------------------------------------
Its Pres/CEO
---------------------------------
SAC TECHNOLOGIES, INC.
By /s/ Barry M. Wendt
------------------------------------
Its CEO
---------------------------------
ATTACHMENT A
TO
OEM AGREEMENT
1. (Product and Specification)
2. (Product and Specification)
ATTACHMENT B
TO
OEM AGREEMENT
1. Product Price
2. Product Price
Credits and Deferrals of Purchase Price
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 10th
day of May, 1996, by and between the individual named on the signature page
hereof, having the address set forth on such signature page ("Executive"), and
SAC TECHNOLOGIES, INC., a Minnesota corporation (the "Company"), with offices at
4444 West 76th Street, Suite 600, Edina, Minnesota 55435.
W I T N E S E T H:
The Company wishes to employ Executive, and Executive desires
to be employed by the Company, all on the terms, and subject to the conditions,
hereinafter set forth.
Contemporaneously herewith, Executive has executed and
delivered to the Company a Non-Competition Letter (the "Non-Competition
Agreement"), a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the premises, of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Employment; Term. (a) The Company hereby employs Executive,
and Executive hereby accepts such employment, and agrees to serve the Company,
upon the terms and conditions hereinafter set forth, for a term commencing on
the date hereof and (unless sooner terminated as hereinafter provided) expiring
on December 31, 2001 (such term of employment being hereinafter referred to as
the "term of full time employment"). During the term of full time employment,
Executive shall devote his full time and attention and best efforts to the
business and affairs of the Company and will faithfully and diligently perform,
in a competent and professional manner and to the best of his ability, all of
his duties and responsibilities hereunder.
(b) Position; Authority. During the term of full time
employment, Executive shall hold the title(s) and office(s) of, and serve in the
position(s) of, those office(s) of the Company set forth on the signature page
hereof. Subject to the provisions of the Company's Restated Articles of
Incorporation and By-Laws, and to the ultimate control of the Board of Directors
of the Company, to whom he shall report, Executive shall have the duties,
responsibilities and authority appropriate to his office(s) and title(s), as
understood and best practiced, generally, in the business community in
Minnesota, as well as those duties and responsibilities of an executive nature
as may from time to time be assigned to him by the Board of Directors of the
Company.
(c) Board of Directors. During the term of full time
employment, Executive shall be elected as a member of the Board of Directors of
the Company.
(d) Conduct. During the term of this Agreement, Executive will
not conduct himself in any manner which would tend to harm the reputation or
goodwill of the Company in the biometrics industry or the financial world.
(e) Place of Employment. Except with his prior consent,
Executive shall not be required to relocate outside of the Minneapolis/St. Paul
vicinity; provided that Executive shall undertake all travel required in
connection with the performance of his duties hereunder.
2. Compensation. (a) Salary. During the term of this
Agreement, the Company shall pay Executive the initial salary set forth on the
signature page hereof in semi-monthly installments, subject to all applicable
withholdings (the "Base Salary"). For periods commencing on January 1, 1997, and
on each January 1 thereafter, the Board shall review Executive's Base Salary and
may increase the same for any future period.
(b) Bonus Plan. During the term of full time employment,
Executive shall be entitled to participate in such Bonus Plans as may from time
to time be established by the Board of Directors, provided that the same shall
be based on both the gross revenue and net income before tax performance of the
Company.
(c) Expenses. In addition to the compensation provided above,
the Company shall reimburse Executive for all reasonable and necessary vouchered
business and entertainment expenses incurred by him during the term of this
Agreement, in the performance of his duties and responsibilities under this
Agreement in accordance with the Company's policies as from time to time in
effect. Executive shall submit appropriate substantiation of such expenses
monthly in arrears.
(d) Perquisites and Benefits. During the term of full time
employment, Executive shall be entitled to continue to participate in such
benefit programs and receive such perquisites as may from time to time be
established by the Company.
(e) Expiration of Agreement without Renewal. Executive's term
of full time employment hereunder shall be automatically renewed from year to
year from and after December 31, 2001 for consecutive one year terms unless
Executive has received a written notice of termination at least six months prior
to the end of the initial term of full time employment or the end of renewal
period in conformity with the provisions hereof.
3. Termination. (a) The Executive's term of full time
employment hereunder may be terminated only for "cause" (as hereinafter
provided) by implementation of the following process. Any member of the Board of
Directors shall first bring the issue before the Board for full discussion, it
being understood and agreed that, for this purpose, provided that forty-eight
hours' actual notice shall have been given by the Board member calling the
meeting to all other Board members and a bona fide effort to have all directors
present shall have been made, the absence of any shareholder-employee then
acting as a Director from attendance at such meeting shall not defeat the
existence of a quorum for the purposes of dealing with the issue of termination,
and notwithstanding any provision in the Company's Restated Articles of
Incorporation or By-Laws to the contrary, a quorum for such purpose shall be
deemed present at such meeting despite any such absences. In the event that at
such meeting the Board shall determine to terminate Executive's term of full
time employment for "cause," then the Executive's term of full time employment
shall terminate immediately upon written notice to Executive specifying the
subparagraph below ((i) - (v)) which best describes the "cause" relied upon and
specifying with particularity the nature of the "cause" (whereupon the term of
this Agreement shall be terminated without further obligation of the Company to
Executive, subject to Executive's rights to seek a judicial determination that
his dismissal was wrongful. As used herein, "cause" shall mean and include only:
(i) Executive's repeated failure or refusal to
perform or observe, in any material respect,
his duties, responsibilities or obligations
as provided herein, if such breach is not
cured, if curable, within ten days after
written notice thereof to Executive by the
Company;
(ii) Any dishonesty affecting the Company, or any
customer or employee of any of the
foregoing;
(iii) Excessive use of alcohol (unless the same is
the result of diagnosed alcoholism), or use
of illegal drugs, interfering with
performance of Executive's obligations under
this Agreement, continuing after warning;
(iv) Conviction of a felony or of any crime
involving misrepresentation, moral turpitude
or fraud; or
(v) Commission by Executive of any willful or
intentional act which could reasonably be
expected to materially injure the
reputation, business or business
relationships of the Company and/or
Executive, if such breach is not cured, if
curable, within ten days after written
notice thereof to Executive by the Company.
(b) The following acts of the Company shall constitute
constructive termination giving rise to the following rights of Executive: (i)
an adverse change in Executive's status or position in the Company such as a
diminution of Executive's duties, responsibilities or authority without
Executive's consent; (ii) a reduction by the Company in Executive's Base Salary
for other than austerity reasons; (iii) the taking of any action by the Company
which would materially adversely affect the physical conditions existing prior
to the date of this Agreement in or under which Executive performs his duties
hereunder; or (iv) the failure of the Company to comply with any material
provision of this Agreement other than for austerity reasons which has not been
cured within ten (10) calendar days after notice of such noncompliance has been
given by Executive to the Company. In the event of constructive termination as
aforesaid, Executive shall be entitled to have his Base Salary continued for a
period of years or portions thereof, equal to the greater of (i) the number of
years or portions thereof which are remaining between the date hereof and
December 31, 2001; or (ii) two years; and Executive shall furthermore be
released from any obligations under the Non-Competition Agreement.
(c) This Agreement shall terminate forthwith upon the death or
disability of Executive. As used herein the term "disability" shall mean the
inability of Executive to perform, in all material respects, his duties and
responsibilities contemplated under this Agreement for a period of more than 365
calendar days, whether or not continuous, during the term hereof, due to
physical or mental incapacity or impairment (including diagnosed alcoholism). A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Board of Directors of the Company; provided that if
Executive and the Board of Directors of the Company cannot agree as to a
physician, then each shall select a physician and these two together shall
select a third physician, whose sole determination as to disability shall be
binding on all parties.
(d) Executive may voluntarily terminate Executive's employment
hereunder at any time upon six (6) months prior written notice. During such
notice period, Executive shall continue his full time duties hereunder only at
the request of the Company.
(e) The termination by the Company of this Agreement shall be
without prejudice to any claim which the Company or Executive may have, at law
or in equity, arising out of or in connection with the events giving rise to
such termination.
4. Confidential Information.
(a) Definition. As used herein the term "Confidential
Information" shall mean and include any and all confidential, proprietary,
secret or non-public information related in any way to the business or
operations, present or future, of the Company, or any customer (as such term is
defined in the Non-Competition Agreement) of the Company, which is now, or in
the future shall become, known to Executive as a result of his relationship with
the Company; provided, that Executive's commitment hereunder with respect to
Confidential Information shall not extend to any part of such Confidential
Information which:
(i) was known by Executive prior to its
disclosure to him, through no wrongful act
of any person;
(ii) was known or available to the public prior
to its disclosure to Executive;
(iii) becomes known or available to the public
subsequent to disclosure to Executive
through no wrongful act of any person; or
(iv) was disclosed to Executive at any time by a
third party having a bona fide right to
disclose such information to Executive.
(b) Confidential Information to be kept in Confidence.
Executive acknowledges that the Confidential Information was acquired and/or
developed by the owner thereof at great expense, is a special, valuable and
unique asset of the owner thereof, and represents the sole and exclusive
property of the owner thereof. Executive has obtained and in the course of his
employment with the Company will continue to obtain, Confidential Information
and personal knowledge of and influence over customers of the Company. Executive
further acknowledges that, under appropriate circumstances, his rendering of
services to the Company's customers will necessarily require his knowledge,
development and use of certain Confidential Information of the Company, and his
disclosure to customers and others requiring knowledge thereof in the proper
performance of their duties for the Company or customers, of certain
Confidential Information of the Company (such as, without limitation, marketing
plans, budgets, designs, customer preferences and policies, and identity of
appropriate personnel of customers with sufficient authority to influence a
shift in suppliers). Executive acknowledges that any wrongful use or disclosure
of any Confidential Information would greatly damage the owner thereof, causing
it irreparable injury. Executive covenants and agrees that, at all times during
the term of this Agreement and for a period of three (3) years thereafter, he
shall not, directly or indirectly, publish, divulge or disclose, in whole or in
part, or suffer the use by any third party, for his own benefit or the benefit
of any person, any Confidential Information, other than:
(i) in the due course of performing his duties
on behalf of the Company, but then only to
officers, employees or others acting on
behalf of the Company, or any customer,
where the duties of such person require such
disclosure;
(ii) upon the prior express written instructions
of the Board of Directors of the Company; or
(iii) as may be required by law;
provided, that in the event that any Confidential Information shall be subject
to a restriction extending beyond the expiration of such three (3) year period,
Executive shall abide by such restriction during said extended period. Executive
shall at all times abide by the Company's policies and regulations with respect
to the protection of its Confidential Information, as in effect from time to
time.
(c) Materials; Return at Termination. Executive acknowledges
and agrees that all copies of all memoranda, documents, data, records, notes and
other written information in his possession or under his control, which contain
or pertain to any Confidential Information, shall at all times be the sole and
exclusive property of the Company. In the event Executive's employment
terminates for any reason, Executive shall promptly deliver to the Company all
copies of all such materials in his possession or under his control.
(d) Confidential Information of Others. Executive will not
inappropriately use, disclose to the Company or induce the Company to use any
confidential, proprietary, secret or non-public information or documents in his
possession belonging to any third party (other than customers). Executive
represents and warrants that his employment with the Company will not require
him to violate any obligation to or confidence with another.
(e) Specific Performance; Injunctive Relief. The parties
recognize, acknowledge and agree that, if Executive breaches any of the
foregoing provisions of this Section 4, the Company will suffer irreparable
injury, and money damages will not provide an adequate remedy to the Company.
Accordingly, Executive agrees that, in any such event, the Company shall be
entitled to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, without being required to post a bond or other
security and without having to prove the inadequacy of the available remedies at
law. In addition, the Company shall be entitled to avail itself of all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it sustains by reason of such breach.
5. Intellectual Property. (a) During the term of this
Agreement, Executive will disclose to the Company all ideas, inventions and
business plans developed by him which relate directly or indirectly to the
Company's business, including without limitation any process, operation, product
or improvement which may be patentable or copyrightable. Executive agrees that
all of the foregoing will be the sole and exclusive property of the Company and
that he will at the Company's request and cost do whatever is necessary to
secure the rights thereto, by patent, copyright or otherwise, for the benefit of
the Company. Executive, to the extent that Executive has the legal right to do
so, hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of the foregoing.
(b) It is further agreed and the Executive is hereby notified
that the agreement in subparagraph (a) above does not apply to any such ideas,
inventions and business plans for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on the Executive's own time, and
(i) which do not relate (aa) directly to the
business of the Company, or (bb) to the
Company's actual or demonstrably anticipated
research and development, or
(ii) which do not result from any work performed
by the Executive for the Company.
6. Life Insurance. Executive agrees that the Company shall
have the right to obtain life insurance on Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof. Executive
shall (a) cooperate fully with the Company in obtaining such life insurance, (b)
sign any necessary consents, applications and other related forms or documents
and (c) take any required medical examinations.
7. Notices.
All notices hereunder shall be given in writing by personal
delivery by registered or certified mail, return receipt requested, postage
prepaid or by hand delivery addressed to the parties at the following respective
addresses or at such other address as may be designated in writing by either
party to the other in the manner set forth herein:
If to the Company:
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
in each case with a copy to:
Doherty Rumble & Butler Professional Association
3500 Fifth Street Towers
150 South Fifth Street
St. Paul, Minnesota 55402
Attention: Stephen E. Smith, Esq.
If to Executive:
To his address as set forth on
the signature page hereof
Notices which are hand delivered shall be effective on the date of delivery.
Notices delivered by mail or otherwise as aforesaid shall be deemed effectively
given upon the third calendar day subsequent to the postmark date thereof.
8. Miscellaneous. (a) The failure of either party at any time
to require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for the
provision of unique services by Executive, and Executive's rights and
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by Executive. In the event of any attempted assignment or transfer
of rights hereunder by Executive contrary to the provisions hereof, the Company
shall have no further liability for payments hereunder. The rights and
obligations of the Company hereunder shall be binding upon and run in favor of
the successors and assigns of the Company.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
(d) This Agreement has been made, shall be interpreted and
enforced in accordance with, and shall be governed in all respects by, the laws
of the State of Minnesota.
(e) Any judicial proceeding brought against any of the parties
to this Agreement or any dispute arising out of this Agreement or any matter
related hereto shall be brought in the courts of the State of Minnesota
(including the United States District Court for the District of Minnesota), and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts for himself or itself the exclusive jurisdiction of the
aforesaid courts, and agrees that service on him or it by mail shall constitute
good and valid personal service, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
(f) This Agreement (which includes the Exhibits hereto) sets
forth the entire understanding between the parties as to the subject matter of
this Agreement and merges and supersedes all prior agreements (including without
limitation any prior employment agreement to which Company and Executive are
parties, which the parties hereby expressly agree shall be deemed terminated
without obligation of any party thereto upon the effectiveness of this
Agreement), commitments, representations, writings and discussions between the
parties with respect to that subject matter. This Agreement may be terminated,
altered, modified or changed only by a written instrument signed by both parties
hereto.
(g) The provisions of this Agreement which by their terms call
for performance subsequent to termination of this Agreement or termination of
Executive's employment hereunder (including without limitation the provisions of
paragraphs 4 and 5 hereof), shall survive such termination.
(h) The Executive represents and warrants that he is not party
to or subject to any agreement, covenant, understanding, or under any
obligation, contractual or otherwise, to any firm, person or corporation, which
would prevent his employment by the Company or adversely affect his ability to
serve as an employee of the Company, as herein contemplated.
IN WITNESS WHEREOF, Executive and the Company have executed
this Agreement as of the date first above written.
Attest: SAC TECHNOLOGIES, INC.
/s/ Gary E. Wendt By: /s/ Richard T. Fiskum
------------------------------------
Authorized Signature
Witness: EXECUTIVE:
/s/ Benedict A. Wittig /s/ Barry M. Wendt
----------------------------------------
Name: Barry M. Wendt
Address: 9708 Park Brook Avenue
Las Vegas, NV 89134
Office(s): Chief Executive Officer,
Director of Research
Initial Salary: $98,000
NON-COMPETITION LETTER
May 10, 1996
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
Dear Sirs:
Contemporaneously herewith, I am entering into an employment agreement with
SAC Technologies, Inc., A Minnesota corporation. As used herein, the term the
"Company" shall mean and include SAC Technologies, Inc., together with all of
its parents, subsidiaries and affiliated companies from time to time.
I execute this letter in consideration of the Company's entering into a
long term employment agreement with me, and also to induce third party investors
to invest in the Company, a corporation in which I am a major shareholder.
Accordingly, in consideration of and reliance upon the foregoing:
1. I hereby covenant and agree that, during my term of employment with the
Company and thereafter during the "Non-Competition Period," I will not, directly
or indirectly:
(a) attempt, in any manner, to solicit from any customer (such term as
used throughout this letter agreement have the meaning ascribed to it
below) of the Company (except on behalf of the Company), business of the
type performed by the Company or to persuade any customer of the Company to
cease to do business or to reduce the amount of business which any customer
has customarily done or contemplates doing with the Company, whether or not
the relationship between the Company and such customer was originally
established in whole or in part through my efforts; or
(b) employ or attempt to employ or assist anyone else to employ any
person who is then or at any time during the preceding year was in the
Company's employ; or
(c) render any services of the type rendered by the Company to its
customers to or for any customer of the Company, unless such services are
rendered as an employee or consultant of the Company; or
(d) control, manage, operate, be employed or engaged by, or otherwise
participate or engage in business as, or own any interest in, or be
connected in any manner with, directly or indirectly, any Entity (as
defined below), whether as an individual proprietor, partner, shareholder,
joint venturer, officer, director, consultant, finder, broker, employee,
trustee, or in any other manner whatsoever, except for the Company, if such
Entity is engaged in any business in the United States of the type and
character engaged in and competitive with that conducted by the Company;
provided, however, that nothing contained in this clause shall be deemed to
prohibit me from owning less than 2% of the shares of a publicly held
corporation engaged in any such business.
As used in this letter agreement, the term (a) "Entity" shall mean an individual
proprietorship, partnership, corporation, joint venture, trust or any other form
of business entity; and (b) "customer" shall mean and include (1) anyone who is
then a customer of the Company, (2) anyone who was a customer at any time during
the one year period immediately preceding the date of termination of my
employment with the Company, and (3) any prospective customer to whom the
Company had made a presentation (or similar offering of services) within the one
year period immediately preceding the date of such termination.
2. I acknowledge and agree (i) that the services rendered and to be
rendered by me for the Company are of a special, unique, extraordinary and
intellectual character, (ii) that I have and will continue to develop a personal
acquaintanceship and relationship with the Company's customers, as well as an
intimate knowledge of those customers' affairs and requirements, which may
constitute the Company's primary or only contact with such customers, (iii) that
the Company's relationships with established customers are likely to be placed
in my hands and (iv) that my position with the Company places me in a position
of utmost confidence and trust with respect to the customers and employees of
the Company. I also acknowledge that the customers serviced by the Company are
located throughout the United States and accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
area. Consequently, I agree that it is fair, reasonable and necessary for the
protection of the business, operations, assets and reputation of the Company
that I make the covenants contained herein.
3. I acknowledge and agree that the covenants made by me above are of the
essence of this letter agreement and in the event of breach or contemplated
breach of any of the covenants and agreements herein continued, the Company
shall in addition to all other remedies available at law or in equity have the
right to both temporary and permanent injunctions and damages with respect to
any such actual or contemplated breach.
4. Each of the covenants and agreements set forth in this letter agreement
are separate and independent covenants, each of which has been separately
bargained for. The provisions of this covenant shall be enforced to the fullest
extent permissible. Should the whole or any part or provision of any such
separate covenants be held or declared invalid, such invalidity shall not in any
way affect the validity of any other covenant or agreement herein or of any part
or provision of the same covenant not also held or declared invalid. If any
covenant shall be found to be invalid but would be valid if some part thereof
were deleted or the period or area of application reduced, then such covenant
shall apply with such minimum modification as may be necessary to make it valid
and effective.
5. I hereby acknowledge receipt of fair and adequate consideration for my
covenants made and given herein, and agree that the "Non-Competition Period" for
purposes hereof, is defined as:
(a) In the event of the constructive termination of my employment
with the Company by the Company without "cause," the period ending on the
date of such constructive termination;
(b) In the event of the termination of my employment with the Company
by the Company with "cause," the period commencing on the effective date of
my termination and ending on the third December 31 next following the date
of my termination; and
(c) In the event of the termination of my employment with the Company
by me voluntarily, the period commencing on the effective date of my
termination and ending on the second anniversary thereof.
6. Nothing contained in this letter agreement shall limit my ability to
deal with the Company's customers in connection with business activities
unrelated to, and non-competitive with, the business activities of the Company
from and after the date hereof.
7. This letter agreement may be assigned either in whole or in part and
without the consent of the undersigned by the Company to any affiliate of the
Company, or any successor to all or any substantial part of the assets, business
or property of the Company. This letter agreement is not assignable either in
whole or in part by the undersigned. The interpretation and enforcement of this
letter agreement is to be construed and the legal relations between the parties
determined in accordance with the laws of the State of Minnesota applicable to
contracts made in and to be wholly performed within such state. Any judicial
proceeding brought against me or any dispute arising out of this letter
agreement or any matter related hereto shall be brought in the courts of the
State of Minnesota (including the United States District Court for the State of
Minnesota), and, by execution and delivery of this letter agreement, I accept
the exclusive jurisdiction of the aforesaid courts, and agree that service on me
by mail shall constitute good and valid personal service, and irrevocably agree
to be bound by any judgment rendered thereby in connection with this letter
agreement.
Very truly yours,
/s/ Barry M. Wendt
- ------------------------------
Name: Barry M. Wendt
Address: 9708 Park Brook Ave.
Las Vegas, NV. 89134
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 10th
day of May, 1996, by and between the individual named on the signature page
hereof, having the address set forth on such signature page ("Executive"), and
SAC TECHNOLOGIES, INC., a Minnesota corporation (the "Company"), with offices at
4444 West 76th Street, Suite 600, Edina, Minnesota 55435.
W I T N E S E T H:
The Company wishes to employ Executive, and Executive desires
to be employed by the Company, all on the terms, and subject to the conditions,
hereinafter set forth.
Contemporaneously herewith, Executive has executed and
delivered to the Company a Non-Competition Letter (the "Non-Competition
Agreement"), a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the premises, of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Employment; Term. (a) The Company hereby employs Executive,
and Executive hereby accepts such employment, and agrees to serve the Company,
upon the terms and conditions hereinafter set forth, for a term commencing on
the date hereof and (unless sooner terminated as hereinafter provided) expiring
on December 31, 2001 (such term of employment being hereinafter referred to as
the "term of full time employment"). During the term of full time employment,
Executive shall devote his full time and attention and best efforts to the
business and affairs of the Company and will faithfully and diligently perform,
in a competent and professional manner and to the best of his ability, all of
his duties and responsibilities hereunder.
(b) Position; Authority. During the term of full time
employment, Executive shall hold the title(s) and office(s) of, and serve in the
position(s) of, those office(s) of the Company set forth on the signature page
hereof. Subject to the provisions of the Company's Restated Articles of
Incorporation and By-Laws, and to the ultimate control of the Board of Directors
of the Company, to whom he shall report, Executive shall have the duties,
responsibilities and authority appropriate to his office(s) and title(s), as
understood and best practiced, generally, in the business community in
Minnesota, as well as those duties and responsibilities of an executive nature
as may from time to time be assigned to him by the Board of Directors of the
Company.
(c) Board of Directors. During the term of full time
employment, Executive shall be elected as a member of the Board of Directors of
the Company.
(d) Conduct. During the term of this Agreement, Executive will
not conduct himself in any manner which would tend to harm the reputation or
goodwill of the Company in the biometrics industry or the financial world.
(e) Place of Employment. Except with his prior consent,
Executive shall not be required to relocate outside of the Minneapolis/St. Paul
vicinity; provided that Executive shall undertake all travel required in
connection with the performance of his duties hereunder.
2. Compensation. (a) Salary. During the term of this
Agreement, the Company shall pay Executive the initial salary set forth on the
signature page hereof in semi-monthly installments, subject to all applicable
withholdings (the "Base Salary"). For periods commencing on January 1, 1997, and
on each January 1 thereafter, the Board shall review Executive's Base Salary and
may increase the same for any future period.
(b) Bonus Plan. During the term of full time employment,
Executive shall be entitled to participate in such Bonus Plans as may from time
to time be established by the Board of Directors, provided that the same shall
be based on both the gross revenue and net income before tax performance of the
Company.
(c) Expenses. In addition to the compensation provided above,
the Company shall reimburse Executive for all reasonable and necessary vouchered
business and entertainment expenses incurred by him during the term of this
Agreement, in the performance of his duties and responsibilities under this
Agreement in accordance with the Company's policies as from time to time in
effect. Executive shall submit appropriate substantiation of such expenses
monthly in arrears.
(d) Perquisites and Benefits. During the term of full time
employment, Executive shall be entitled to continue to participate in such
benefit programs and receive such perquisites as may from time to time be
established by the Company.
(e) Expiration of Agreement without Renewal. Executive's term
of full time employment hereunder shall be automatically renewed from year to
year from and after December 31, 2001 for consecutive one year terms unless
Executive has received a written notice of termination at least six months prior
to the end of the initial term of full time employment or the end of renewal
period in conformity with the provisions hereof.
3. Termination. (a) The Executive's term of full time
employment hereunder may be terminated only for "cause" (as hereinafter
provided) by implementation of the following process. Any member of the Board of
Directors shall first bring the issue before the Board for full discussion, it
being understood and agreed that, for this purpose, provided that forty-eight
hours' actual notice shall have been given by the Board member calling the
meeting to all other Board members and a bona fide effort to have all directors
present shall have been made, the absence of any shareholder-employee then
acting as a Director from attendance at such meeting shall not defeat the
existence of a quorum for the purposes of dealing with the issue of termination,
and notwithstanding any provision in the Company's Restated Articles of
Incorporation or By-Laws to the contrary, a quorum for such purpose shall be
deemed present at such meeting despite any such absences. In the event that at
such meeting the Board shall determine to terminate Executive's term of full
time employment for "cause," then the Executive's term of full time employment
shall terminate immediately upon written notice to Executive specifying the
subparagraph below ((i) - (v)) which best describes the "cause" relied upon and
specifying with particularity the nature of the "cause" (whereupon the term of
this Agreement shall be terminated without further obligation of the Company to
Executive, subject to Executive's rights to seek a judicial determination that
his dismissal was wrongful. As used herein, "cause" shall mean and include only:
(i) Executive's repeated failure or refusal to
perform or observe, in any material respect,
his duties, responsibilities or obligations
as provided herein, if such breach is not
cured, if curable, within ten days after
written notice thereof to Executive by the
Company;
(ii) Any dishonesty affecting the Company, or any
customer or employee of any of the
foregoing;
(iii) Excessive use of alcohol (unless the same is
the result of diagnosed alcoholism), or use
of illegal drugs, interfering with
performance of Executive's obligations under
this Agreement, continuing after warning;
(iv) Conviction of a felony or of any crime
involving misrepresentation, moral turpitude
or fraud; or
(v) Commission by Executive of any willful or
intentional act which could reasonably be
expected to materially injure the
reputation, business or business
relationships of the Company and/or
Executive, if such breach is not cured, if
curable, within ten days after written
notice thereof to Executive by the Company.
(b) The following acts of the Company shall constitute
constructive termination giving rise to the following rights of Executive: (i)
an adverse change in Executive's status or position in the Company such as a
diminution of Executive's duties, responsibilities or authority without
Executive's consent; (ii) a reduction by the Company in Executive's Base Salary
for other than austerity reasons; (iii) the taking of any action by the Company
which would materially adversely affect the physical conditions existing prior
to the date of this Agreement in or under which Executive performs his duties
hereunder; or (iv) the failure of the Company to comply with any material
provision of this Agreement other than for austerity reasons which has not been
cured within ten (10) calendar days after notice of such noncompliance has been
given by Executive to the Company. In the event of constructive termination as
aforesaid, Executive shall be entitled to have his Base Salary continued for a
period of years or portions thereof, equal to the greater of (i) the number of
years or portions thereof which are remaining between the date hereof and
December 31, 2001; or (ii) two years; and Executive shall furthermore be
released from any obligations under the Non-Competition Agreement.
(c) This Agreement shall terminate forthwith upon the death or
disability of Executive. As used herein the term "disability" shall mean the
inability of Executive to perform, in all material respects, his duties and
responsibilities contemplated under this Agreement for a period of more than 365
calendar days, whether or not continuous, during the term hereof, due to
physical or mental incapacity or impairment (including diagnosed alcoholism). A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Board of Directors of the Company; provided that if
Executive and the Board of Directors of the Company cannot agree as to a
physician, then each shall select a physician and these two together shall
select a third physician, whose sole determination as to disability shall be
binding on all parties.
(d) Executive may voluntarily terminate Executive's employment
hereunder at any time upon six (6) months prior written notice. During such
notice period, Executive shall continue his full time duties hereunder only at
the request of the Company.
(e) The termination by the Company of this Agreement shall be
without prejudice to any claim which the Company or Executive may have, at law
or in equity, arising out of or in connection with the events giving rise to
such termination.
4. Confidential Information.
(a) Definition. As used herein the term "Confidential
Information" shall mean and include any and all confidential, proprietary,
secret or non-public information related in any way to the business or
operations, present or future, of the Company, or any customer (as such term is
defined in the Non-Competition Agreement) of the Company, which is now, or in
the future shall become, known to Executive as a result of his relationship with
the Company; provided, that Executive's commitment hereunder with respect to
Confidential Information shall not extend to any part of such Confidential
Information which:
(i) was known by Executive prior to its
disclosure to him, through no wrongful act
of any person;
(ii) was known or available to the public prior
to its disclosure to Executive;
(iii) becomes known or available to the public
subsequent to disclosure to Executive
through no wrongful act of any person; or
(iv) was disclosed to Executive at any time by a
third party having a bona fide right to
disclose such information to Executive.
(b) Confidential Information to be kept in Confidence.
Executive acknowledges that the Confidential Information was acquired and/or
developed by the owner thereof at great expense, is a special, valuable and
unique asset of the owner thereof, and represents the sole and exclusive
property of the owner thereof. Executive has obtained and in the course of his
employment with the Company will continue to obtain, Confidential Information
and personal knowledge of and influence over customers of the Company. Executive
further acknowledges that, under appropriate circumstances, his rendering of
services to the Company's customers will necessarily require his knowledge,
development and use of certain Confidential Information of the Company, and his
disclosure to customers and others requiring knowledge thereof in the proper
performance of their duties for the Company or customers, of certain
Confidential Information of the Company (such as, without limitation, marketing
plans, budgets, designs, customer preferences and policies, and identity of
appropriate personnel of customers with sufficient authority to influence a
shift in suppliers). Executive acknowledges that any wrongful use or disclosure
of any Confidential Information would greatly damage the owner thereof, causing
it irreparable injury. Executive covenants and agrees that, at all times during
the term of this Agreement and for a period of three (3) years thereafter, he
shall not, directly or indirectly, publish, divulge or disclose, in whole or in
part, or suffer the use by any third party, for his own benefit or the benefit
of any person, any Confidential Information, other than:
(i) in the due course of performing his duties
on behalf of the Company, but then only to
officers, employees or others acting on
behalf of the Company, or any customer,
where the duties of such person require such
disclosure;
(ii) upon the prior express written instructions
of the Board of Directors of the Company; or
(iii) as may be required by law;
provided, that in the event that any Confidential Information shall be subject
to a restriction extending beyond the expiration of such three (3) year period,
Executive shall abide by such restriction during said extended period. Executive
shall at all times abide by the Company's policies and regulations with respect
to the protection of its Confidential Information, as in effect from time to
time.
(c) Materials; Return at Termination. Executive acknowledges
and agrees that all copies of all memoranda, documents, data, records, notes and
other written information in his possession or under his control, which contain
or pertain to any Confidential Information, shall at all times be the sole and
exclusive property of the Company. In the event Executive's employment
terminates for any reason, Executive shall promptly deliver to the Company all
copies of all such materials in his possession or under his control.
(d) Confidential Information of Others. Executive will not
inappropriately use, disclose to the Company or induce the Company to use any
confidential, proprietary, secret or non-public information or documents in his
possession belonging to any third party (other than customers). Executive
represents and warrants that his employment with the Company will not require
him to violate any obligation to or confidence with another.
(e) Specific Performance; Injunctive Relief. The parties
recognize, acknowledge and agree that, if Executive breaches any of the
foregoing provisions of this Section 4, the Company will suffer irreparable
injury, and money damages will not provide an adequate remedy to the Company.
Accordingly, Executive agrees that, in any such event, the Company shall be
entitled to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, without being required to post a bond or other
security and without having to prove the inadequacy of the available remedies at
law. In addition, the Company shall be entitled to avail itself of all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it sustains by reason of such breach.
5. Intellectual Property. (a) During the term of this
Agreement, Executive will disclose to the Company all ideas, inventions and
business plans developed by him which relate directly or indirectly to the
Company's business, including without limitation any process, operation, product
or improvement which may be patentable or copyrightable. Executive agrees that
all of the foregoing will be the sole and exclusive property of the Company and
that he will at the Company's request and cost do whatever is necessary to
secure the rights thereto, by patent, copyright or otherwise, for the benefit of
the Company. Executive, to the extent that Executive has the legal right to do
so, hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of the foregoing.
(b) It is further agreed and the Executive is hereby notified
that the agreement in subparagraph (a) above does not apply to any such ideas,
inventions and business plans for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on the Executive's own time, and
(i) which do not relate (aa) directly to the
business of the Company, or (bb) to the
Company's actual or demonstrably anticipated
research and development, or
(ii) which do not result from any work performed
by the Executive for the Company.
6. Life Insurance. Executive agrees that the Company shall
have the right to obtain life insurance on Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof. Executive
shall (a) cooperate fully with the Company in obtaining such life insurance, (b)
sign any necessary consents, applications and other related forms or documents
and (c) take any required medical examinations.
7. Notices.
All notices hereunder shall be given in writing by personal
delivery by registered or certified mail, return receipt requested, postage
prepaid or by hand delivery addressed to the parties at the following respective
addresses or at such other address as may be designated in writing by either
party to the other in the manner set forth herein:
If to the Company:
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
in each case with a copy to:
Doherty Rumble & Butler Professional Association
3500 Fifth Street Towers
150 South Fifth Street
St. Paul, Minnesota 55402
Attention: Stephen E. Smith, Esq.
If to Executive:
To his address as set forth on
the signature page hereof
Notices which are hand delivered shall be effective on the date of delivery.
Notices delivered by mail or otherwise as aforesaid shall be deemed effectively
given upon the third calendar day subsequent to the postmark date thereof.
8. Miscellaneous. (a) The failure of either party at any time
to require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for the
provision of unique services by Executive, and Executive's rights and
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by Executive. In the event of any attempted assignment or transfer
of rights hereunder by Executive contrary to the provisions hereof, the Company
shall have no further liability for payments hereunder. The rights and
obligations of the Company hereunder shall be binding upon and run in favor of
the successors and assigns of the Company.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
(d) This Agreement has been made, shall be interpreted and
enforced in accordance with, and shall be governed in all respects by, the laws
of the State of Minnesota.
(e) Any judicial proceeding brought against any of the parties
to this Agreement or any dispute arising out of this Agreement or any matter
related hereto shall be brought in the courts of the State of Minnesota
(including the United States District Court for the District of Minnesota), and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts for himself or itself the exclusive jurisdiction of the
aforesaid courts, and agrees that service on him or it by mail shall constitute
good and valid personal service, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
(f) This Agreement (which includes the Exhibits hereto) sets
forth the entire understanding between the parties as to the subject matter of
this Agreement and merges and supersedes all prior agreements (including without
limitation any prior employment agreement to which Company and Executive are
parties, which the parties hereby expressly agree shall be deemed terminated
without obligation of any party thereto upon the effectiveness of this
Agreement), commitments, representations, writings and discussions between the
parties with respect to that subject matter. This Agreement may be terminated,
altered, modified or changed only by a written instrument signed by both parties
hereto.
(g) The provisions of this Agreement which by their terms call
for performance subsequent to termination of this Agreement or termination of
Executive's employment hereunder (including without limitation the provisions of
paragraphs 4 and 5 hereof), shall survive such termination.
(h) The Executive represents and warrants that he is not party
to or subject to any agreement, covenant, understanding, or under any
obligation, contractual or otherwise, to any firm, person or corporation, which
would prevent his employment by the Company or adversely affect his ability to
serve as an employee of the Company, as herein contemplated.
IN WITNESS WHEREOF, Executive and the Company have executed
this Agreement as of the date first above written.
Attest: SAC TECHNOLOGIES, INC.
/s/ Gary E. Wendt By: /s/ Barry Wendt
------------------------------------
Authorized Signature
Witness: EXECUTIVE:
/s/ Benedict A. Wittig /s/ Richard T. Fiskum
----------------------------------------
Name: Richard T. Fiskum
Address: 28690 - 660th Avenue
Litchfield, MN 55355
Office(s): Director of Imaging
Technology, President, Chief
Operating Executive
Initial Salary: $78,000
NON-COMPETITION LETTER
May 10, 1996
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
Dear Sirs:
Contemporaneously herewith, I am entering into an employment agreement with
SAC Technologies, Inc., A Minnesota corporation. As used herein, the term the
"Company" shall mean and include SAC Technologies, Inc., together with all of
its parents, subsidiaries and affiliated companies from time to time.
I execute this letter in consideration of the Company's entering into a
long term employment agreement with me, and also to induce third party investors
to invest in the Company, a corporation in which I am a major shareholder.
Accordingly, in consideration of and reliance upon the foregoing:
1. I hereby covenant and agree that, during my term of employment with the
Company and thereafter during the "Non-Competition Period," I will not, directly
or indirectly:
(a) attempt, in any manner, to solicit from any customer (such term as
used throughout this letter agreement have the meaning ascribed to it
below) of the Company (except on behalf of the Company), business of the
type performed by the Company or to persuade any customer of the Company to
cease to do business or to reduce the amount of business which any customer
has customarily done or contemplates doing with the Company, whether or not
the relationship between the Company and such customer was originally
established in whole or in part through my efforts; or
(b) employ or attempt to employ or assist anyone else to employ any
person who is then or at any time during the preceding year was in the
Company's employ; or
(c) render any services of the type rendered by the Company to its
customers to or for any customer of the Company, unless such services are
rendered as an employee or consultant of the Company; or
(d) control, manage, operate, be employed or engaged by, or otherwise
participate or engage in business as, or own any interest in, or be
connected in any manner with, directly or indirectly, any Entity (as
defined below), whether as an individual proprietor, partner, shareholder,
joint venturer, officer, director, consultant, finder, broker, employee,
trustee, or in any other manner whatsoever, except for the Company, if such
Entity is engaged in any business in the United States of the type and
character engaged in and competitive with that conducted by the Company;
provided, however, that nothing contained in this clause shall be deemed to
prohibit me from owning less than 2% of the shares of a publicly held
corporation engaged in any such business.
As used in this letter agreement, the term (a) "Entity" shall mean an individual
proprietorship, partnership, corporation, joint venture, trust or any other form
of business entity; and (b) "customer" shall mean and include (1) anyone who is
then a customer of the Company, (2) anyone who was a customer at any time during
the one year period immediately preceding the date of termination of my
employment with the Company, and (3) any prospective customer to whom the
Company had made a presentation (or similar offering of services) within the one
year period immediately preceding the date of such termination.
2. I acknowledge and agree (i) that the services rendered and to be
rendered by me for the Company are of a special, unique, extraordinary and
intellectual character, (ii) that I have and will continue to develop a personal
acquaintanceship and relationship with the Company's customers, as well as an
intimate knowledge of those customers' affairs and requirements, which may
constitute the Company's primary or only contact with such customers, (iii) that
the Company's relationships with established customers are likely to be placed
in my hands and (iv) that my position with the Company places me in a position
of utmost confidence and trust with respect to the customers and employees of
the Company. I also acknowledge that the customers serviced by the Company are
located throughout the United States and accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
area. Consequently, I agree that it is fair, reasonable and necessary for the
protection of the business, operations, assets and reputation of the Company
that I make the covenants contained herein.
3. I acknowledge and agree that the covenants made by me above are of the
essence of this letter agreement and in the event of breach or contemplated
breach of any of the covenants and agreements herein continued, the Company
shall in addition to all other remedies available at law or in equity have the
right to both temporary and permanent injunctions and damages with respect to
any such actual or contemplated breach.
4. Each of the covenants and agreements set forth in this letter agreement
are separate and independent covenants, each of which has been separately
bargained for. The provisions of this covenant shall be enforced to the fullest
extent permissible. Should the whole or any part or provision of any such
separate covenants be held or declared invalid, such invalidity shall not in any
way affect the validity of any other covenant or agreement herein or of any part
or provision of the same covenant not also held or declared invalid. If any
covenant shall be found to be invalid but would be valid if some part thereof
were deleted or the period or area of application reduced, then such covenant
shall apply with such minimum modification as may be necessary to make it valid
and effective.
5. I hereby acknowledge receipt of fair and adequate consideration for my
covenants made and given herein, and agree that the "Non-Competition Period" for
purposes hereof, is defined as:
(a) In the event of the constructive termination of my employment
with the Company by the Company without "cause," the period ending on the
date of such constructive termination;
(b) In the event of the termination of my employment with the Company
by the Company with "cause," the period commencing on the effective date of
my termination and ending on the third December 31 next following the date
of my termination; and
(c) In the event of the termination of my employment with the Company
by me voluntarily, the period commencing on the effective date of my
termination and ending on the second anniversary thereof.
6. Nothing contained in this letter agreement shall limit my ability to
deal with the Company's customers in connection with business activities
unrelated to, and non-competitive with, the business activities of the Company
from and after the date hereof.
7. This letter agreement may be assigned either in whole or in part and
without the consent of the undersigned by the Company to any affiliate of the
Company, or any successor to all or any substantial part of the assets, business
or property of the Company. This letter agreement is not assignable either in
whole or in part by the undersigned. The interpretation and enforcement of this
letter agreement is to be construed and the legal relations between the parties
determined in accordance with the laws of the State of Minnesota applicable to
contracts made in and to be wholly performed within such state. Any judicial
proceeding brought against me or any dispute arising out of this letter
agreement or any matter related hereto shall be brought in the courts of the
State of Minnesota (including the United States District Court for the State of
Minnesota), and, by execution and delivery of this letter agreement, I accept
the exclusive jurisdiction of the aforesaid courts, and agree that service on me
by mail shall constitute good and valid personal service, and irrevocably agree
to be bound by any judgment rendered thereby in connection with this letter
agreement.
Very truly yours,
/s/ Richard T. Fiskum
- ------------------------------
Name: Richard T. Fiskum
Address: 28690 - 660th Avenue
Litchfield, MN 55355
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 10th
day of May, 1996, by and between the individual named on the signature page
hereof, having the address set forth on such signature page ("Executive"), and
SAC TECHNOLOGIES, INC., a Minnesota corporation (the "Company"), with offices at
4444 West 76th Street, Suite 600, Edina, Minnesota 55435.
W I T N E S E T H:
The Company wishes to employ Executive, and Executive desires
to be employed by the Company, all on the terms, and subject to the conditions,
hereinafter set forth.
Contemporaneously herewith, Executive has executed and
delivered to the Company a Non-Competition Letter (the "Non-Competition
Agreement"), a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the premises, of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Employment; Term. (a) The Company hereby employs Executive,
and Executive hereby accepts such employment, and agrees to serve the Company,
upon the terms and conditions hereinafter set forth, for a term commencing on
the date hereof and (unless sooner terminated as hereinafter provided) expiring
on December 31, 2001 (such term of employment being hereinafter referred to as
the "term of full time employment"). During the term of full time employment,
Executive shall devote his full time and attention and best efforts to the
business and affairs of the Company and will faithfully and diligently perform,
in a competent and professional manner and to the best of his ability, all of
his duties and responsibilities hereunder.
(b) Position; Authority. During the term of full time
employment, Executive shall hold the title(s) and office(s) of, and serve in the
position(s) of, those office(s) of the Company set forth on the signature page
hereof. Subject to the provisions of the Company's Restated Articles of
Incorporation and By-Laws, and to the ultimate control of the Board of Directors
of the Company, to whom he shall report, Executive shall have the duties,
responsibilities and authority appropriate to his office(s) and title(s), as
understood and best practiced, generally, in the business community in
Minnesota, as well as those duties and responsibilities of an executive nature
as may from time to time be assigned to him by the Board of Directors of the
Company.
(c) Board of Directors. During the term of full time
employment, Executive shall be elected as a member of the Board of Directors of
the Company.
(d) Conduct. During the term of this Agreement, Executive will
not conduct himself in any manner which would tend to harm the reputation or
goodwill of the Company in the biometrics industry or the financial world.
(e) Place of Employment. Except with his prior consent,
Executive shall not be required to relocate outside of the Minneapolis/St. Paul
vicinity; provided that Executive shall undertake all travel required in
connection with the performance of his duties hereunder.
2. Compensation. (a) Salary. During the term of this
Agreement, the Company shall pay Executive the initial salary set forth on the
signature page hereof in semi-monthly installments, subject to all applicable
withholdings (the "Base Salary"). For periods commencing on January 1, 1997, and
on each January 1 thereafter, the Board shall review Executive's Base Salary and
may increase the same for any future period.
(b) Bonus Plan. During the term of full time employment,
Executive shall be entitled to participate in such Bonus Plans as may from time
to time be established by the Board of Directors, provided that the same shall
be based on both the gross revenue and net income before tax performance of the
Company.
(c) Expenses. In addition to the compensation provided above,
the Company shall reimburse Executive for all reasonable and necessary vouchered
business and entertainment expenses incurred by him during the term of this
Agreement, in the performance of his duties and responsibilities under this
Agreement in accordance with the Company's policies as from time to time in
effect. Executive shall submit appropriate substantiation of such expenses
monthly in arrears.
(d) Perquisites and Benefits. During the term of full time
employment, Executive shall be entitled to continue to participate in such
benefit programs and receive such perquisites as may from time to time be
established by the Company.
(e) Expiration of Agreement without Renewal. Executive's term
of full time employment hereunder shall be automatically renewed from year to
year from and after December 31, 2001 for consecutive one year terms unless
Executive has received a written notice of termination at least six months prior
to the end of the initial term of full time employment or the end of renewal
period in conformity with the provisions hereof.
3. Termination. (a) The Executive's term of full time
employment hereunder may be terminated only for "cause" (as hereinafter
provided) by implementation of the following process. Any member of the Board of
Directors shall first bring the issue before the Board for full discussion, it
being understood and agreed that, for this purpose, provided that forty-eight
hours' actual notice shall have been given by the Board member calling the
meeting to all other Board members and a bona fide effort to have all directors
present shall have been made, the absence of any shareholder-employee then
acting as a Director from attendance at such meeting shall not defeat the
existence of a quorum for the purposes of dealing with the issue of termination,
and notwithstanding any provision in the Company's Restated Articles of
Incorporation or By-Laws to the contrary, a quorum for such purpose shall be
deemed present at such meeting despite any such absences. In the event that at
such meeting the Board shall determine to terminate Executive's term of full
time employment for "cause," then the Executive's term of full time employment
shall terminate immediately upon written notice to Executive specifying the
subparagraph below ((i) - (v)) which best describes the "cause" relied upon and
specifying with particularity the nature of the "cause" (whereupon the term of
this Agreement shall be terminated without further obligation of the Company to
Executive, subject to Executive's rights to seek a judicial determination that
his dismissal was wrongful. As used herein, "cause" shall mean and include only:
(i) Executive's repeated failure or refusal to
perform or observe, in any material respect,
his duties, responsibilities or obligations
as provided herein, if such breach is not
cured, if curable, within ten days after
written notice thereof to Executive by the
Company;
(ii) Any dishonesty affecting the Company, or any
customer or employee of any of the
foregoing;
(iii) Excessive use of alcohol (unless the same is
the result of diagnosed alcoholism), or use
of illegal drugs, interfering with
performance of Executive's obligations under
this Agreement, continuing after warning;
(iv) Conviction of a felony or of any crime
involving misrepresentation, moral turpitude
or fraud; or
(v) Commission by Executive of any willful or
intentional act which could reasonably be
expected to materially injure the
reputation, business or business
relationships of the Company and/or
Executive, if such breach is not cured, if
curable, within ten days after written
notice thereof to Executive by the Company.
(b) The following acts of the Company shall constitute
constructive termination giving rise to the following rights of Executive: (i)
an adverse change in Executive's status or position in the Company such as a
diminution of Executive's duties, responsibilities or authority without
Executive's consent; (ii) a reduction by the Company in Executive's Base Salary
for other than austerity reasons; (iii) the taking of any action by the Company
which would materially adversely affect the physical conditions existing prior
to the date of this Agreement in or under which Executive performs his duties
hereunder; or (iv) the failure of the Company to comply with any material
provision of this Agreement other than for austerity reasons which has not been
cured within ten (10) calendar days after notice of such noncompliance has been
given by Executive to the Company. In the event of constructive termination as
aforesaid, Executive shall be entitled to have his Base Salary continued for a
period of years or portions thereof, equal to the greater of (i) the number of
years or portions thereof which are remaining between the date hereof and
December 31, 2001; or (ii) two years; and Executive shall furthermore be
released from any obligations under the Non-Competition Agreement.
(c) This Agreement shall terminate forthwith upon the death or
disability of Executive. As used herein the term "disability" shall mean the
inability of Executive to perform, in all material respects, his duties and
responsibilities contemplated under this Agreement for a period of more than 365
calendar days, whether or not continuous, during the term hereof, due to
physical or mental incapacity or impairment (including diagnosed alcoholism). A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Board of Directors of the Company; provided that if
Executive and the Board of Directors of the Company cannot agree as to a
physician, then each shall select a physician and these two together shall
select a third physician, whose sole determination as to disability shall be
binding on all parties.
(d) Executive may voluntarily terminate Executive's employment
hereunder at any time upon six (6) months prior written notice. During such
notice period, Executive shall continue his full time duties hereunder only at
the request of the Company.
(e) The termination by the Company of this Agreement shall be
without prejudice to any claim which the Company or Executive may have, at law
or in equity, arising out of or in connection with the events giving rise to
such termination.
4. Confidential Information.
(a) Definition. As used herein the term "Confidential
Information" shall mean and include any and all confidential, proprietary,
secret or non-public information related in any way to the business or
operations, present or future, of the Company, or any customer (as such term is
defined in the Non-Competition Agreement) of the Company, which is now, or in
the future shall become, known to Executive as a result of his relationship with
the Company; provided, that Executive's commitment hereunder with respect to
Confidential Information shall not extend to any part of such Confidential
Information which:
(i) was known by Executive prior to its
disclosure to him, through no wrongful act
of any person;
(ii) was known or available to the public prior
to its disclosure to Executive;
(iii) becomes known or available to the public
subsequent to disclosure to Executive
through no wrongful act of any person; or
(iv) was disclosed to Executive at any time by a
third party having a bona fide right to
disclose such information to Executive.
(b) Confidential Information to be kept in Confidence.
Executive acknowledges that the Confidential Information was acquired and/or
developed by the owner thereof at great expense, is a special, valuable and
unique asset of the owner thereof, and represents the sole and exclusive
property of the owner thereof. Executive has obtained and in the course of his
employment with the Company will continue to obtain, Confidential Information
and personal knowledge of and influence over customers of the Company. Executive
further acknowledges that, under appropriate circumstances, his rendering of
services to the Company's customers will necessarily require his knowledge,
development and use of certain Confidential Information of the Company, and his
disclosure to customers and others requiring knowledge thereof in the proper
performance of their duties for the Company or customers, of certain
Confidential Information of the Company (such as, without limitation, marketing
plans, budgets, designs, customer preferences and policies, and identity of
appropriate personnel of customers with sufficient authority to influence a
shift in suppliers). Executive acknowledges that any wrongful use or disclosure
of any Confidential Information would greatly damage the owner thereof, causing
it irreparable injury. Executive covenants and agrees that, at all times during
the term of this Agreement and for a period of three (3) years thereafter, he
shall not, directly or indirectly, publish, divulge or disclose, in whole or in
part, or suffer the use by any third party, for his own benefit or the benefit
of any person, any Confidential Information, other than:
(i) in the due course of performing his duties
on behalf of the Company, but then only to
officers, employees or others acting on
behalf of the Company, or any customer,
where the duties of such person require such
disclosure;
(ii) upon the prior express written instructions
of the Board of Directors of the Company; or
(iii) as may be required by law;
provided, that in the event that any Confidential Information shall be subject
to a restriction extending beyond the expiration of such three (3) year period,
Executive shall abide by such restriction during said extended period. Executive
shall at all times abide by the Company's policies and regulations with respect
to the protection of its Confidential Information, as in effect from time to
time.
(c) Materials; Return at Termination. Executive acknowledges
and agrees that all copies of all memoranda, documents, data, records, notes and
other written information in his possession or under his control, which contain
or pertain to any Confidential Information, shall at all times be the sole and
exclusive property of the Company. In the event Executive's employment
terminates for any reason, Executive shall promptly deliver to the Company all
copies of all such materials in his possession or under his control.
(d) Confidential Information of Others. Executive will not
inappropriately use, disclose to the Company or induce the Company to use any
confidential, proprietary, secret or non-public information or documents in his
possession belonging to any third party (other than customers). Executive
represents and warrants that his employment with the Company will not require
him to violate any obligation to or confidence with another.
(e) Specific Performance; Injunctive Relief. The parties
recognize, acknowledge and agree that, if Executive breaches any of the
foregoing provisions of this Section 4, the Company will suffer irreparable
injury, and money damages will not provide an adequate remedy to the Company.
Accordingly, Executive agrees that, in any such event, the Company shall be
entitled to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, without being required to post a bond or other
security and without having to prove the inadequacy of the available remedies at
law. In addition, the Company shall be entitled to avail itself of all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it sustains by reason of such breach.
5. Intellectual Property. (a) During the term of this
Agreement, Executive will disclose to the Company all ideas, inventions and
business plans developed by him which relate directly or indirectly to the
Company's business, including without limitation any process, operation, product
or improvement which may be patentable or copyrightable. Executive agrees that
all of the foregoing will be the sole and exclusive property of the Company and
that he will at the Company's request and cost do whatever is necessary to
secure the rights thereto, by patent, copyright or otherwise, for the benefit of
the Company. Executive, to the extent that Executive has the legal right to do
so, hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of the foregoing.
(b) It is further agreed and the Executive is hereby notified
that the agreement in subparagraph (a) above does not apply to any such ideas,
inventions and business plans for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on the Executive's own time, and
(i) which do not relate (aa) directly to the
business of the Company, or (bb) to the
Company's actual or demonstrably anticipated
research and development, or
(ii) which do not result from any work performed
by the Executive for the Company.
6. Life Insurance. Executive agrees that the Company shall
have the right to obtain life insurance on Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof. Executive
shall (a) cooperate fully with the Company in obtaining such life insurance, (b)
sign any necessary consents, applications and other related forms or documents
and (c) take any required medical examinations.
7. Notices.
All notices hereunder shall be given in writing by personal
delivery by registered or certified mail, return receipt requested, postage
prepaid or by hand delivery addressed to the parties at the following respective
addresses or at such other address as may be designated in writing by either
party to the other in the manner set forth herein:
If to the Company:
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
in each case with a copy to:
Doherty Rumble & Butler Professional Association
3500 Fifth Street Towers
150 South Fifth Street
St. Paul, Minnesota 55402
Attention: Stephen E. Smith, Esq.
If to Executive:
To his address as set forth on
the signature page hereof
Notices which are hand delivered shall be effective on the date of delivery.
Notices delivered by mail or otherwise as aforesaid shall be deemed effectively
given upon the third calendar day subsequent to the postmark date thereof.
8. Miscellaneous. (a) The failure of either party at any time
to require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for the
provision of unique services by Executive, and Executive's rights and
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by Executive. In the event of any attempted assignment or transfer
of rights hereunder by Executive contrary to the provisions hereof, the Company
shall have no further liability for payments hereunder. The rights and
obligations of the Company hereunder shall be binding upon and run in favor of
the successors and assigns of the Company.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
(d) This Agreement has been made, shall be interpreted and
enforced in accordance with, and shall be governed in all respects by, the laws
of the State of Minnesota.
(e) Any judicial proceeding brought against any of the parties
to this Agreement or any dispute arising out of this Agreement or any matter
related hereto shall be brought in the courts of the State of Minnesota
(including the United States District Court for the District of Minnesota), and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts for himself or itself the exclusive jurisdiction of the
aforesaid courts, and agrees that service on him or it by mail shall constitute
good and valid personal service, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
(f) This Agreement (which includes the Exhibits hereto) sets
forth the entire understanding between the parties as to the subject matter of
this Agreement and merges and supersedes all prior agreements (including without
limitation any prior employment agreement to which Company and Executive are
parties, which the parties hereby expressly agree shall be deemed terminated
without obligation of any party thereto upon the effectiveness of this
Agreement), commitments, representations, writings and discussions between the
parties with respect to that subject matter. This Agreement may be terminated,
altered, modified or changed only by a written instrument signed by both parties
hereto.
(g) The provisions of this Agreement which by their terms call
for performance subsequent to termination of this Agreement or termination of
Executive's employment hereunder (including without limitation the provisions of
paragraphs 4 and 5 hereof), shall survive such termination.
(h) The Executive represents and warrants that he is not party
to or subject to any agreement, covenant, understanding, or under any
obligation, contractual or otherwise, to any firm, person or corporation, which
would prevent his employment by the Company or adversely affect his ability to
serve as an employee of the Company, as herein contemplated.
IN WITNESS WHEREOF, Executive and the Company have executed
this Agreement as of the date first above written.
Attest: SAC TECHNOLOGIES, INC.
/s/ Barry Wendt By: /s/ Richard T. Fiskum
------------------------------------
Authorized Signature
Witness: EXECUTIVE:
/s/ Benedict A. Wittig /s/ Gary E. Wendt
----------------------------------------
Name: Gary E. Wendt
Address: 1950 - 6th Lane
Elk River, MN 55330
Office(s): Chief Financial Officer
Initial Salary: $58,000
NON-COMPETITION LETTER
May 10, 1996
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
Dear Sirs:
Contemporaneously herewith, I am entering into an employment agreement with
SAC Technologies, Inc., A Minnesota corporation. As used herein, the term the
"Company" shall mean and include SAC Technologies, Inc., together with all of
its parents, subsidiaries and affiliated companies from time to time.
I execute this letter in consideration of the Company's entering into a
long term employment agreement with me, and also to induce third party investors
to invest in the Company, a corporation in which I am a major shareholder.
Accordingly, in consideration of and reliance upon the foregoing:
1. I hereby covenant and agree that, during my term of employment with the
Company and thereafter during the "Non-Competition Period," I will not, directly
or indirectly:
(a) attempt, in any manner, to solicit from any customer (such term as
used throughout this letter agreement have the meaning ascribed to it
below) of the Company (except on behalf of the Company), business of the
type performed by the Company or to persuade any customer of the Company to
cease to do business or to reduce the amount of business which any customer
has customarily done or contemplates doing with the Company, whether or not
the relationship between the Company and such customer was originally
established in whole or in part through my efforts; or
(b) employ or attempt to employ or assist anyone else to employ any
person who is then or at any time during the preceding year was in the
Company's employ; or
(c) render any services of the type rendered by the Company to its
customers to or for any customer of the Company, unless such services are
rendered as an employee or consultant of the Company; or
(d) control, manage, operate, be employed or engaged by, or otherwise
participate or engage in business as, or own any interest in, or be
connected in any manner with, directly or indirectly, any Entity (as
defined below), whether as an individual proprietor, partner, shareholder,
joint venturer, officer, director, consultant, finder, broker, employee,
trustee, or in any other manner whatsoever, except for the Company, if such
Entity is engaged in any business in the United States of the type and
character engaged in and competitive with that conducted by the Company;
provided, however, that nothing contained in this clause shall be deemed to
prohibit me from owning less than 2% of the shares of a publicly held
corporation engaged in any such business.
As used in this letter agreement, the term (a) "Entity" shall mean an individual
proprietorship, partnership, corporation, joint venture, trust or any other form
of business entity; and (b) "customer" shall mean and include (1) anyone who is
then a customer of the Company, (2) anyone who was a customer at any time during
the one year period immediately preceding the date of termination of my
employment with the Company, and (3) any prospective customer to whom the
Company had made a presentation (or similar offering of services) within the one
year period immediately preceding the date of such termination.
2. I acknowledge and agree (i) that the services rendered and to be
rendered by me for the Company are of a special, unique, extraordinary and
intellectual character, (ii) that I have and will continue to develop a personal
acquaintanceship and relationship with the Company's customers, as well as an
intimate knowledge of those customers' affairs and requirements, which may
constitute the Company's primary or only contact with such customers, (iii) that
the Company's relationships with established customers are likely to be placed
in my hands and (iv) that my position with the Company places me in a position
of utmost confidence and trust with respect to the customers and employees of
the Company. I also acknowledge that the customers serviced by the Company are
located throughout the United States and accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
area. Consequently, I agree that it is fair, reasonable and necessary for the
protection of the business, operations, assets and reputation of the Company
that I make the covenants contained herein.
3. I acknowledge and agree that the covenants made by me above are of the
essence of this letter agreement and in the event of breach or contemplated
breach of any of the covenants and agreements herein continued, the Company
shall in addition to all other remedies available at law or in equity have the
right to both temporary and permanent injunctions and damages with respect to
any such actual or contemplated breach.
4. Each of the covenants and agreements set forth in this letter agreement
are separate and independent covenants, each of which has been separately
bargained for. The provisions of this covenant shall be enforced to the fullest
extent permissible. Should the whole or any part or provision of any such
separate covenants be held or declared invalid, such invalidity shall not in any
way affect the validity of any other covenant or agreement herein or of any part
or provision of the same covenant not also held or declared invalid. If any
covenant shall be found to be invalid but would be valid if some part thereof
were deleted or the period or area of application reduced, then such covenant
shall apply with such minimum modification as may be necessary to make it valid
and effective.
5. I hereby acknowledge receipt of fair and adequate consideration for my
covenants made and given herein, and agree that the "Non-Competition Period" for
purposes hereof, is defined as:
(a) In the event of the constructive termination of my employment
with the Company by the Company without "cause," the period ending on the
date of such constructive termination;
(b) In the event of the termination of my employment with the Company
by the Company with "cause," the period commencing on the effective date of
my termination and ending on the third December 31 next following the date
of my termination; and
(c) In the event of the termination of my employment with the Company
by me voluntarily, the period commencing on the effective date of my
termination and ending on the second anniversary thereof.
6. Nothing contained in this letter agreement shall limit my ability to
deal with the Company's customers in connection with business activities
unrelated to, and non-competitive with, the business activities of the Company
from and after the date hereof.
7. This letter agreement may be assigned either in whole or in part and
without the consent of the undersigned by the Company to any affiliate of the
Company, or any successor to all or any substantial part of the assets, business
or property of the Company. This letter agreement is not assignable either in
whole or in part by the undersigned. The interpretation and enforcement of this
letter agreement is to be construed and the legal relations between the parties
determined in accordance with the laws of the State of Minnesota applicable to
contracts made in and to be wholly performed within such state. Any judicial
proceeding brought against me or any dispute arising out of this letter
agreement or any matter related hereto shall be brought in the courts of the
State of Minnesota (including the United States District Court for the State of
Minnesota), and, by execution and delivery of this letter agreement, I accept
the exclusive jurisdiction of the aforesaid courts, and agree that service on me
by mail shall constitute good and valid personal service, and irrevocably agree
to be bound by any judgment rendered thereby in connection with this letter
agreement.
Very truly yours,
/s/ Gary E. Wendt
- ------------------------------
Name: Gary E. Wendt
Address: 1950 - 6th Lane
Elk River, MN 55330
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of the 10th
day of May, 1996, by and between the individual named on the signature page
hereof, having the address set forth on such signature page ("Executive"), and
SAC TECHNOLOGIES, INC., a Minnesota corporation (the "Company"), with offices at
4444 West 76th Street, Suite 600, Edina, Minnesota 55435.
W I T N E S E T H:
The Company wishes to employ Executive, and Executive desires
to be employed by the Company, all on the terms, and subject to the conditions,
hereinafter set forth.
Contemporaneously herewith, Executive has executed and
delivered to the Company a Non-Competition Letter (the "Non-Competition
Agreement"), a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the premises, of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Employment; Term. (a) The Company hereby employs Executive,
and Executive hereby accepts such employment, and agrees to serve the Company,
upon the terms and conditions hereinafter set forth, for a term commencing on
the date hereof and (unless sooner terminated as hereinafter provided) expiring
on December 31, 2001 (such term of employment being hereinafter referred to as
the "term of full time employment"). During the term of full time employment,
Executive shall devote his full time and attention and best efforts to the
business and affairs of the Company and will faithfully and diligently perform,
in a competent and professional manner and to the best of his ability, all of
his duties and responsibilities hereunder.
(b) Position; Authority. During the term of full time
employment, Executive shall hold the title(s) and office(s) of, and serve in the
position(s) of, those office(s) of the Company set forth on the signature page
hereof. Subject to the provisions of the Company's Restated Articles of
Incorporation and By-Laws, and to the ultimate control of the Board of Directors
of the Company, to whom he shall report, Executive shall have the duties,
responsibilities and authority appropriate to his office(s) and title(s), as
understood and best practiced, generally, in the business community in
Minnesota, as well as those duties and responsibilities of an executive nature
as may from time to time be assigned to him by the Board of Directors of the
Company.
(c) Board of Directors. During the term of full time
employment, Executive shall be elected as a member of the Board of Directors of
the Company.
(d) Conduct. During the term of this Agreement, Executive will
not conduct himself in any manner which would tend to harm the reputation or
goodwill of the Company in the biometrics industry or the financial world.
(e) Place of Employment. Except with his prior consent,
Executive shall not be required to relocate outside of the Minneapolis/St. Paul
vicinity; provided that Executive shall undertake all travel required in
connection with the performance of his duties hereunder.
2. Compensation. (a) Salary. During the term of this
Agreement, the Company shall pay Executive the initial salary set forth on the
signature page hereof in semi-monthly installments, subject to all applicable
withholdings (the "Base Salary"). For periods commencing on January 1, 1997, and
on each January 1 thereafter, the Board shall review Executive's Base Salary and
may increase the same for any future period.
(b) Bonus Plan. During the term of full time employment,
Executive shall be entitled to participate in such Bonus Plans as may from time
to time be established by the Board of Directors, provided that the same shall
be based on both the gross revenue and net income before tax performance of the
Company.
(c) Expenses. In addition to the compensation provided above,
the Company shall reimburse Executive for all reasonable and necessary vouchered
business and entertainment expenses incurred by him during the term of this
Agreement, in the performance of his duties and responsibilities under this
Agreement in accordance with the Company's policies as from time to time in
effect. Executive shall submit appropriate substantiation of such expenses
monthly in arrears.
(d) Perquisites and Benefits. During the term of full time
employment, Executive shall be entitled to continue to participate in such
benefit programs and receive such perquisites as may from time to time be
established by the Company.
(e) Expiration of Agreement without Renewal. Executive's term
of full time employment hereunder shall be automatically renewed from year to
year from and after December 31, 2001 for consecutive one year terms unless
Executive has received a written notice of termination at least six months prior
to the end of the initial term of full time employment or the end of renewal
period in conformity with the provisions hereof.
3. Termination. (a) The Executive's term of full time
employment hereunder may be terminated only for "cause" (as hereinafter
provided) by implementation of the following process. Any member of the Board of
Directors shall first bring the issue before the Board for full discussion, it
being understood and agreed that, for this purpose, provided that forty-eight
hours' actual notice shall have been given by the Board member calling the
meeting to all other Board members and a bona fide effort to have all directors
present shall have been made, the absence of any shareholder-employee then
acting as a Director from attendance at such meeting shall not defeat the
existence of a quorum for the purposes of dealing with the issue of termination,
and notwithstanding any provision in the Company's Restated Articles of
Incorporation or By-Laws to the contrary, a quorum for such purpose shall be
deemed present at such meeting despite any such absences. In the event that at
such meeting the Board shall determine to terminate Executive's term of full
time employment for "cause," then the Executive's term of full time employment
shall terminate immediately upon written notice to Executive specifying the
subparagraph below ((i) - (v)) which best describes the "cause" relied upon and
specifying with particularity the nature of the "cause" (whereupon the term of
this Agreement shall be terminated without further obligation of the Company to
Executive, subject to Executive's rights to seek a judicial determination that
his dismissal was wrongful. As used herein, "cause" shall mean and include only:
(i) Executive's repeated failure or refusal to
perform or observe, in any material respect,
his duties, responsibilities or obligations
as provided herein, if such breach is not
cured, if curable, within ten days after
written notice thereof to Executive by the
Company;
(ii) Any dishonesty affecting the Company, or any
customer or employee of any of the
foregoing;
(iii) Excessive use of alcohol (unless the same is
the result of diagnosed alcoholism), or use
of illegal drugs, interfering with
performance of Executive's obligations under
this Agreement, continuing after warning;
(iv) Conviction of a felony or of any crime
involving misrepresentation, moral turpitude
or fraud; or
(v) Commission by Executive of any willful or
intentional act which could reasonably be
expected to materially injure the
reputation, business or business
relationships of the Company and/or
Executive, if such breach is not cured, if
curable, within ten days after written
notice thereof to Executive by the Company.
(b) The following acts of the Company shall constitute
constructive termination giving rise to the following rights of Executive: (i)
an adverse change in Executive's status or position in the Company such as a
diminution of Executive's duties, responsibilities or authority without
Executive's consent; (ii) a reduction by the Company in Executive's Base Salary
for other than austerity reasons; (iii) the taking of any action by the Company
which would materially adversely affect the physical conditions existing prior
to the date of this Agreement in or under which Executive performs his duties
hereunder; or (iv) the failure of the Company to comply with any material
provision of this Agreement other than for austerity reasons which has not been
cured within ten (10) calendar days after notice of such noncompliance has been
given by Executive to the Company. In the event of constructive termination as
aforesaid, Executive shall be entitled to have his Base Salary continued for a
period of years or portions thereof, equal to the greater of (i) the number of
years or portions thereof which are remaining between the date hereof and
December 31, 2001; or (ii) two years; and Executive shall furthermore be
released from any obligations under the Non-Competition Agreement.
(c) This Agreement shall terminate forthwith upon the death or
disability of Executive. As used herein the term "disability" shall mean the
inability of Executive to perform, in all material respects, his duties and
responsibilities contemplated under this Agreement for a period of more than 365
calendar days, whether or not continuous, during the term hereof, due to
physical or mental incapacity or impairment (including diagnosed alcoholism). A
determination of disability shall be made by a physician satisfactory to both
the Executive and the Board of Directors of the Company; provided that if
Executive and the Board of Directors of the Company cannot agree as to a
physician, then each shall select a physician and these two together shall
select a third physician, whose sole determination as to disability shall be
binding on all parties.
(d) Executive may voluntarily terminate Executive's employment
hereunder at any time upon six (6) months prior written notice. During such
notice period, Executive shall continue his full time duties hereunder only at
the request of the Company.
(e) The termination by the Company of this Agreement shall be
without prejudice to any claim which the Company or Executive may have, at law
or in equity, arising out of or in connection with the events giving rise to
such termination.
4. Confidential Information.
(a) Definition. As used herein the term "Confidential
Information" shall mean and include any and all confidential, proprietary,
secret or non-public information related in any way to the business or
operations, present or future, of the Company, or any customer (as such term is
defined in the Non-Competition Agreement) of the Company, which is now, or in
the future shall become, known to Executive as a result of his relationship with
the Company; provided, that Executive's commitment hereunder with respect to
Confidential Information shall not extend to any part of such Confidential
Information which:
(i) was known by Executive prior to its
disclosure to him, through no wrongful act
of any person;
(ii) was known or available to the public prior
to its disclosure to Executive;
(iii) becomes known or available to the public
subsequent to disclosure to Executive
through no wrongful act of any person; or
(iv) was disclosed to Executive at any time by a
third party having a bona fide right to
disclose such information to Executive.
(b) Confidential Information to be kept in Confidence.
Executive acknowledges that the Confidential Information was acquired and/or
developed by the owner thereof at great expense, is a special, valuable and
unique asset of the owner thereof, and represents the sole and exclusive
property of the owner thereof. Executive has obtained and in the course of his
employment with the Company will continue to obtain, Confidential Information
and personal knowledge of and influence over customers of the Company. Executive
further acknowledges that, under appropriate circumstances, his rendering of
services to the Company's customers will necessarily require his knowledge,
development and use of certain Confidential Information of the Company, and his
disclosure to customers and others requiring knowledge thereof in the proper
performance of their duties for the Company or customers, of certain
Confidential Information of the Company (such as, without limitation, marketing
plans, budgets, designs, customer preferences and policies, and identity of
appropriate personnel of customers with sufficient authority to influence a
shift in suppliers). Executive acknowledges that any wrongful use or disclosure
of any Confidential Information would greatly damage the owner thereof, causing
it irreparable injury. Executive covenants and agrees that, at all times during
the term of this Agreement and for a period of three (3) years thereafter, he
shall not, directly or indirectly, publish, divulge or disclose, in whole or in
part, or suffer the use by any third party, for his own benefit or the benefit
of any person, any Confidential Information, other than:
(i) in the due course of performing his duties
on behalf of the Company, but then only to
officers, employees or others acting on
behalf of the Company, or any customer,
where the duties of such person require such
disclosure;
(ii) upon the prior express written instructions
of the Board of Directors of the Company; or
(iii) as may be required by law;
provided, that in the event that any Confidential Information shall be subject
to a restriction extending beyond the expiration of such three (3) year period,
Executive shall abide by such restriction during said extended period. Executive
shall at all times abide by the Company's policies and regulations with respect
to the protection of its Confidential Information, as in effect from time to
time.
(c) Materials; Return at Termination. Executive acknowledges
and agrees that all copies of all memoranda, documents, data, records, notes and
other written information in his possession or under his control, which contain
or pertain to any Confidential Information, shall at all times be the sole and
exclusive property of the Company. In the event Executive's employment
terminates for any reason, Executive shall promptly deliver to the Company all
copies of all such materials in his possession or under his control.
(d) Confidential Information of Others. Executive will not
inappropriately use, disclose to the Company or induce the Company to use any
confidential, proprietary, secret or non-public information or documents in his
possession belonging to any third party (other than customers). Executive
represents and warrants that his employment with the Company will not require
him to violate any obligation to or confidence with another.
(e) Specific Performance; Injunctive Relief. The parties
recognize, acknowledge and agree that, if Executive breaches any of the
foregoing provisions of this Section 4, the Company will suffer irreparable
injury, and money damages will not provide an adequate remedy to the Company.
Accordingly, Executive agrees that, in any such event, the Company shall be
entitled to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction, without being required to post a bond or other
security and without having to prove the inadequacy of the available remedies at
law. In addition, the Company shall be entitled to avail itself of all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it sustains by reason of such breach.
5. Intellectual Property. (a) During the term of this
Agreement, Executive will disclose to the Company all ideas, inventions and
business plans developed by him which relate directly or indirectly to the
Company's business, including without limitation any process, operation, product
or improvement which may be patentable or copyrightable. Executive agrees that
all of the foregoing will be the sole and exclusive property of the Company and
that he will at the Company's request and cost do whatever is necessary to
secure the rights thereto, by patent, copyright or otherwise, for the benefit of
the Company. Executive, to the extent that Executive has the legal right to do
so, hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of the foregoing.
(b) It is further agreed and the Executive is hereby notified
that the agreement in subparagraph (a) above does not apply to any such ideas,
inventions and business plans for which no equipment, supplies, facility or
confidential information of the Company was used and which was developed
entirely on the Executive's own time, and
(i) which do not relate (aa) directly to the
business of the Company, or (bb) to the
Company's actual or demonstrably anticipated
research and development, or
(ii) which do not result from any work performed
by the Executive for the Company.
6. Life Insurance. Executive agrees that the Company shall
have the right to obtain life insurance on Executive's life, at the Company's
sole expense and with the Company as the sole beneficiary thereof. Executive
shall (a) cooperate fully with the Company in obtaining such life insurance, (b)
sign any necessary consents, applications and other related forms or documents
and (c) take any required medical examinations.
7. Notices.
All notices hereunder shall be given in writing by personal
delivery by registered or certified mail, return receipt requested, postage
prepaid or by hand delivery addressed to the parties at the following respective
addresses or at such other address as may be designated in writing by either
party to the other in the manner set forth herein:
If to the Company:
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
in each case with a copy to:
Doherty Rumble & Butler Professional Association
3500 Fifth Street Towers
150 South Fifth Street
St. Paul, Minnesota 55402
Attention: Stephen E. Smith, Esq.
If to Executive:
To his address as set forth on
the signature page hereof
Notices which are hand delivered shall be effective on the date of delivery.
Notices delivered by mail or otherwise as aforesaid shall be deemed effectively
given upon the third calendar day subsequent to the postmark date thereof.
8. Miscellaneous. (a) The failure of either party at any time
to require performance by the other party of any provision hereunder shall in no
way affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any subsequent
breach of such provision or as a waiver of the provision itself.
(b) This Agreement is a personal contract calling for the
provision of unique services by Executive, and Executive's rights and
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by Executive. In the event of any attempted assignment or transfer
of rights hereunder by Executive contrary to the provisions hereof, the Company
shall have no further liability for payments hereunder. The rights and
obligations of the Company hereunder shall be binding upon and run in favor of
the successors and assigns of the Company.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
(d) This Agreement has been made, shall be interpreted and
enforced in accordance with, and shall be governed in all respects by, the laws
of the State of Minnesota.
(e) Any judicial proceeding brought against any of the parties
to this Agreement or any dispute arising out of this Agreement or any matter
related hereto shall be brought in the courts of the State of Minnesota
(including the United States District Court for the District of Minnesota), and,
by execution and delivery of this Agreement, each of the parties to this
Agreement accepts for himself or itself the exclusive jurisdiction of the
aforesaid courts, and agrees that service on him or it by mail shall constitute
good and valid personal service, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.
(f) This Agreement (which includes the Exhibits hereto) sets
forth the entire understanding between the parties as to the subject matter of
this Agreement and merges and supersedes all prior agreements (including without
limitation any prior employment agreement to which Company and Executive are
parties, which the parties hereby expressly agree shall be deemed terminated
without obligation of any party thereto upon the effectiveness of this
Agreement), commitments, representations, writings and discussions between the
parties with respect to that subject matter. This Agreement may be terminated,
altered, modified or changed only by a written instrument signed by both parties
hereto.
(g) The provisions of this Agreement which by their terms call
for performance subsequent to termination of this Agreement or termination of
Executive's employment hereunder (including without limitation the provisions of
paragraphs 4 and 5 hereof), shall survive such termination.
(h) The Executive represents and warrants that he is not party
to or subject to any agreement, covenant, understanding, or under any
obligation, contractual or otherwise, to any firm, person or corporation, which
would prevent his employment by the Company or adversely affect his ability to
serve as an employee of the Company, as herein contemplated.
IN WITNESS WHEREOF, Executive and the Company have executed
this Agreement as of the date first above written.
Attest: SAC TECHNOLOGIES, INC.
/s/ Barry M. Wendt By: /s/ Richard T. Fiskum
------------------------------------
Authorized Signature
Witness: EXECUTIVE:
/s/ Benedict A. Wittig /s/ Benedict A. Wittig
----------------------------------------
Name: Benedict A. Wittig
Address: 10264 Scarborough Circle
Bloomington, MN 55432
Office(s): Director of Software
Engineering, Secretary
Initial Salary: $78,000
NON-COMPETITION LETTER
May 10, 1996
SAC Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
Dear Sirs:
Contemporaneously herewith, I am entering into an employment agreement with
SAC Technologies, Inc., A Minnesota corporation. As used herein, the term the
"Company" shall mean and include SAC Technologies, Inc., together with all of
its parents, subsidiaries and affiliated companies from time to time.
I execute this letter in consideration of the Company's entering into a
long term employment agreement with me, and also to induce third party investors
to invest in the Company, a corporation in which I am a major shareholder.
Accordingly, in consideration of and reliance upon the foregoing:
1. I hereby covenant and agree that, during my term of employment with the
Company and thereafter during the "Non-Competition Period," I will not, directly
or indirectly:
(a) attempt, in any manner, to solicit from any customer (such term as
used throughout this letter agreement have the meaning ascribed to it
below) of the Company (except on behalf of the Company), business of the
type performed by the Company or to persuade any customer of the Company to
cease to do business or to reduce the amount of business which any customer
has customarily done or contemplates doing with the Company, whether or not
the relationship between the Company and such customer was originally
established in whole or in part through my efforts; or
(b) employ or attempt to employ or assist anyone else to employ any
person who is then or at any time during the preceding year was in the
Company's employ; or
(c) render any services of the type rendered by the Company to its
customers to or for any customer of the Company, unless such services are
rendered as an employee or consultant of the Company; or
(d) control, manage, operate, be employed or engaged by, or otherwise
participate or engage in business as, or own any interest in, or be
connected in any manner with, directly or indirectly, any Entity (as
defined below), whether as an individual proprietor, partner, shareholder,
joint venturer, officer, director, consultant, finder, broker, employee,
trustee, or in any other manner whatsoever, except for the Company, if such
Entity is engaged in any business in the United States of the type and
character engaged in and competitive with that conducted by the Company;
provided, however, that nothing contained in this clause shall be deemed to
prohibit me from owning less than 2% of the shares of a publicly held
corporation engaged in any such business.
As used in this letter agreement, the term (a) "Entity" shall mean an individual
proprietorship, partnership, corporation, joint venture, trust or any other form
of business entity; and (b) "customer" shall mean and include (1) anyone who is
then a customer of the Company, (2) anyone who was a customer at any time during
the one year period immediately preceding the date of termination of my
employment with the Company, and (3) any prospective customer to whom the
Company had made a presentation (or similar offering of services) within the one
year period immediately preceding the date of such termination.
2. I acknowledge and agree (i) that the services rendered and to be
rendered by me for the Company are of a special, unique, extraordinary and
intellectual character, (ii) that I have and will continue to develop a personal
acquaintanceship and relationship with the Company's customers, as well as an
intimate knowledge of those customers' affairs and requirements, which may
constitute the Company's primary or only contact with such customers, (iii) that
the Company's relationships with established customers are likely to be placed
in my hands and (iv) that my position with the Company places me in a position
of utmost confidence and trust with respect to the customers and employees of
the Company. I also acknowledge that the customers serviced by the Company are
located throughout the United States and accordingly, it is reasonable that the
restrictive covenants set forth above are not limited by specific geographic
area. Consequently, I agree that it is fair, reasonable and necessary for the
protection of the business, operations, assets and reputation of the Company
that I make the covenants contained herein.
3. I acknowledge and agree that the covenants made by me above are of the
essence of this letter agreement and in the event of breach or contemplated
breach of any of the covenants and agreements herein continued, the Company
shall in addition to all other remedies available at law or in equity have the
right to both temporary and permanent injunctions and damages with respect to
any such actual or contemplated breach.
4. Each of the covenants and agreements set forth in this letter agreement
are separate and independent covenants, each of which has been separately
bargained for. The provisions of this covenant shall be enforced to the fullest
extent permissible. Should the whole or any part or provision of any such
separate covenants be held or declared invalid, such invalidity shall not in any
way affect the validity of any other covenant or agreement herein or of any part
or provision of the same covenant not also held or declared invalid. If any
covenant shall be found to be invalid but would be valid if some part thereof
were deleted or the period or area of application reduced, then such covenant
shall apply with such minimum modification as may be necessary to make it valid
and effective.
5. I hereby acknowledge receipt of fair and adequate consideration for my
covenants made and given herein, and agree that the "Non-Competition Period" for
purposes hereof, is defined as:
(a) In the event of the constructive termination of my employment
with the Company by the Company without "cause," the period ending on the
date of such constructive termination;
(b) In the event of the termination of my employment with the Company
by the Company with "cause," the period commencing on the effective date of
my termination and ending on the third December 31 next following the date
of my termination; and
(c) In the event of the termination of my employment with the Company
by me voluntarily, the period commencing on the effective date of my
termination and ending on the second anniversary thereof.
6. Nothing contained in this letter agreement shall limit my ability to
deal with the Company's customers in connection with business activities
unrelated to, and non-competitive with, the business activities of the Company
from and after the date hereof.
7. This letter agreement may be assigned either in whole or in part and
without the consent of the undersigned by the Company to any affiliate of the
Company, or any successor to all or any substantial part of the assets, business
or property of the Company. This letter agreement is not assignable either in
whole or in part by the undersigned. The interpretation and enforcement of this
letter agreement is to be construed and the legal relations between the parties
determined in accordance with the laws of the State of Minnesota applicable to
contracts made in and to be wholly performed within such state. Any judicial
proceeding brought against me or any dispute arising out of this letter
agreement or any matter related hereto shall be brought in the courts of the
State of Minnesota (including the United States District Court for the State of
Minnesota), and, by execution and delivery of this letter agreement, I accept
the exclusive jurisdiction of the aforesaid courts, and agree that service on me
by mail shall constitute good and valid personal service, and irrevocably agree
to be bound by any judgment rendered thereby in connection with this letter
agreement.
Very truly yours,
/s/ Benedict A. Wittig
- ------------------------------
Name: Benedict A. Wittig
Address: 10264 Scarborough Circle
Bloomington, MN 55432
TECHNICAL SUPPORT AND COOPERATIVE DEVELOPMENT AGREEMENT
Effective the 1st day of November, 1996, in consideration of the mutual
covenants hereinafter set forth, SAC Technologies, Inc. ("SAC") and
Inter-Con/PC, Inc. ("Inter-Con"), intending to be legally bound, hereby covenant
and agree as follows:
SECTION 1 - PRODUCT DEFINITION
1.1 SAC shall use its best efforts to provide technical support
to the following products (the "Products") for the benefit of
Inter-Con:
1.1.1 Inter-Con PC Units - the Inter-Con PC Units will
consist of a main-board which supports 1-33 megabyte
of Dram with embedded VGA and I/O interfaces
consisting of floppy disk interface, fixed
disk/CD-ROM interface, 2 serial ports and 1 parallel
port. (See Specifications attached as Exhibit A (the
"Specifications")).
1.1.2 Mux-Panel - a system which allows for economic
connection of up to 256 simultaneous users to a PC
Compatible, Internet Access Switch, File Server,
Switching Network, and/or Computer Network, via
direct connect serial cards or modem cards that plug
into the Mux-Panel. The system will be expandable (in
16-slot increments) with a total of 16 external I/O
modules and one or more Data-Cops in the PC
Compatible, Internet Access Switch, File Server,
Switching Network, and/or Computer Network. (See
Specifications attached as Exhibit B (the
"Specifications")).
1.1.3 Data-Cop - a system for PC Compatible, Internet
Access Switch, File Server, Switching Network, and/or
Computer Network to connect up to 256 simultaneous
users via a standard hardware modem interface in a PC
Compatible, Internet Access Switch, File Server,
Switching Network, and/or Computer Network. The
Data-Cop will control modem port functions, packetize
data with encryption/de-encryption, and provide for
traffic routing through packet-ID/Command functions.
(See Specifications attached as Exhibit C (the
"Specifications")).
1.2 If either party proposes a change to the Specifications of the
Products, the other party will reasonably and in good faith consider
and discuss with the proposing party the proposed change. In the event
the parties mutually agree on a proposed change, the same, and the cost
of the same, shall be the subject of a subsequently negotiated
development agreement. SAC shall cooperate to the fullest reasonable
extent with Inter-Con regarding questions and design with respect to
its manufacturers.
SECTION 2 - PRODUCTS TO BE DESIGNED AND DEVELOPED
2.1 SAC is hereby contracted to design, develop and deliver to
Inter-Con the Mux Panel and Data-Cop Products as described in
Paragraphs 1.1.2 and 1.1.3 in accordance with the specifications in
Exhibits B and C hereof.
SECTION 3 - OBLIGATIONS OF INTER-CON IN TECHNICAL SUPPORT OF PRODUCTS
3.1 Inter-Con shall take the following actions in connection with the
technical support of the Products:
3.1.1 Advise and consult about the Products and their
applications.
3.1.2 Make available adequate laboratory space and
qualified personnel to participate in the technical
support of the Products at Inter-Con's location.
3.1.3 Advise and consult regarding the manufacturing of the
Products including, but not limited to, the design of
the Products for manufacturing efficiency and cost
reduction, as well as the ease of conducting quality
assurance and testing.
3.1.4 Advise and consult regarding competitive products and
new technical improvements and innovations to enable
the Products to remain competitive.
3.1.5 Advise and consult on the selection of independent
contract manufacturers.
3.1.6 Provide technical support to insure that the Products
designed by SAC comply with the Consumer Safety Act
of 1972.
SECTION 4 - OWNERSHIP OF THE PRODUCTS
4.1 Inter-Con shall own all right, title and interest (including patent
rights, copyrights, trade secrets rights, mask work rights and other
rights throughout the world) in the Products.
4.2 Inter-Con will use its best efforts to obtain appropriate patents
from the U.S. patent office unless, based on the advice of SAC's patent
counsel, SAC and Inter-Con mutually determine in good faith that it is
not desirable to patent any part or all of the Products.
4.3 Inter-Con shall own any and all rights, title and interest in the
marketing, licensing, development, manufacture and distribution of the
Products.
SECTION 5 - TECHNICAL SUPPORT OBLIGATIONS
5.1 As part of SAC's technical support of the Products, SAC will
endeavor to cause the Products to operate in substantially the same
manner as described in the Specifications. SAC, at its own expense,
upon receipt of written notice from Inter-Con, will endeavor to make
all adjustments and modifications necessary to cause the Products to so
operate and furnish the documentation and other material as to the
modification to Inter-Con.
5.2 SAC shall further be obligated to provide the following:
5.2.1 Advise and consult about the Products and their
applications.
5.2.2 Advise and consult regarding the manufacturing of the
Products including, but not limited to, the design of
the Products for manufacturing efficiency and cost
reduction, as well as the ease of conducting quality
assurance and testing.
5.2.3 Advise and consult regarding competitive products and
new technical improvements and innovations to enable
the Products to remain competitive.
5.2.4 Advise and consult on the selection of independent
contract manufacturers.
5.3 With the approval of Inter-Con, which approval shall not be
unreasonably withheld, and as the second aspect of SAC's technical
support of the Products, SAC may suggest suitable and durable
substitute components to the extent any specific components of the
Product are not suitable or durable or are not available because of
obsolescence, short supply or other reasons. If any such suggested
substitution requires redesign of the Products, then such redesign
shall be deemed to be a change to the Specifications of the Products.
SAC shall furnish appropriate documentation as to substituted
components.
5.4 SAC's technical support of the Products shall be to and for the
benefit of Inter-Con only, and (except as otherwise agreed to by SAC
and Inter-Con) shall not be to or for the benefit of any of Inter-Con's
customers.
5.5 In the event changes to the Specifications become necessary or
otherwise requested, the same shall not be part of SAC's obligations of
technical support, but instead shall be the subject of a subsequent and
mutually agreed upon development agreement.
SECTION 6 - INTER-CON'S PAYMENTS TO SAC
6.1 Inter-Con shall pay to SAC commencing on the first day of the month
next following the month in which the Inter-Con PC Unit described in
Section 1.1.1 has been fully developed in accordance with the
Specifications the amount of $15,566 per month as a retainer and fee
for the ongoing technical support of the Products during the first six
(6) months (November 1, 1996 to May 1, 1997) and for the next thirty
(30) months, a fee of $11,667 per month during the term of this
Agreement. Such payment shall accrue from November 1, 1996, but shall
not be payable until Inter-Con has received the minimum amount of
proceeds from the Initial Bridge Financing contemplated by Inter-Con.
6.1.1 An additional $4,167 shall be paid monthly commencing
on the first day of the month next following the
month in which the Mux Panel has been developed, in
accordance with the Specifications delivered to
Inter-Con and upon test found to meet the
Specifications by Inter-Con. Payment shall be only
due and payable as a fee for ongoing technical
support of the Mux Panel and shall terminate on the
termination of this Agreement.
6.1.2 An additional $4,167 shall be paid monthly commencing
on the first day of the month next following the
month in which the Data-Cop has been developed in
accordance with the Specifications delivered to
Inter-Con and upon test found to meet the
Specifications by Inter-Con. Payment shall only be
due and payable as a fee for ongoing technical
support of the Data-Cop and shall terminate on the
termination of this Agreement.
6.1.3 There will be no consideration paid to SAC in
addition to the technical amount set forth in
Sections 6.1.1 and 6.1.2 for the development, design
and delivery of either the Mux Panel or Data-Cop.
6.2 At such time as SAC is no longer providing technical support with
respect to any one of the Products, the monthly technical support
payment shall terminate with respect to such Products.
6.3 In addition to the aforesaid technical support payment, Inter-Con
shall pay to SAC quarterly on or before the 28th day next following the
end of each calendar quarter a royalty equal to two (2%) percent of the
net revenues collected by Inter-Con from the sale or lease of Products
for the subject quarter. Net revenues of the Products shall mean
revenues actually received from the sale less any allowances actually
made or taken for return shipping and insurance costs actually paid,
cash discounts, sales, use, value added and similar taxes and duties
and similar governmental assessments on Products as shipped. These
royalty payments shall terminate on the earlier of: (a) the sixth (6th)
anniversary date; or (b) at such time as Inter-Con files a registration
statement under Section 5 of the Securities and Exchange Act of 1933,
as amended, and as a result thereof Inter-Con completes an initial
public offering or in any other manner Inter-Con becomes a publicly
traded company. The foregoing royalty payments shall survive the
termination of this Agreement regardless of the cause of the
termination of the Agreement.
SECTION 7 - TERM
7.1 The term of this Agreement shall continue until October 31, 1999,
and at Inter-Con's option may be renewed for three (3) successive
one-year periods; provided, however, written notice is given to SAC
exercising its option to renew for each one-year period prior to the
expiration of each one-year period renewal.
SECTION 8 - USE AND PROTECTION OF PROPRIETARY INFORMATION
8.1 SAC acknowledges and agrees that all code, inventions, algorithms,
know-how, ideas, software, and all other business, technical and
financial information relating to the Products ("Proprietary
Information") embody proprietary information of substantial value to
Inter-Con. However, Inter-Con and SAC acknowledge and agree that the
code, inventions, algorithms, knowledge, ideas, and software included
in the Proprietary Information may be used by SAC in the development of
other non-competitive products. Accordingly, SAC agrees that it will
not use the Proprietary Information itself or for the benefit of any
other person to develop products which would compete directly or
indirectly with any of the Products or any improvements of such
Products and SAC shall maintain all Inter-Con business and financial
information in confidence and shall neither use, copy or disclose, nor
permit any personnel of SAC to use, copy, or disclose, such business
and financial information for any purpose not specifically authorized
under this Agreement or otherwise. In the event that Inter-Con or any
successor or assign of Inter-Con for any reason abandons either the
business of marketing, distributing or manufacturing the Products or
similar products for a period of twelve (12) consecutive months, then
the foregoing non-competition covenant agreement of SAC contained
herein shall be null, void and of no further force and effect.
8.2 SAC shall require that the Products' software and hardware design
documents be kept in separate, secure drawers, cabinets, or storage
rooms, subject to restricted access by only select, authorized persons.
8.3 SAC acknowledges that any use or disclosure of Proprietary
Information by SAC or its personnel in a manner not authorized by this
Agreement would likely cause Inter-Con irreparable damage that could
not be fully remedied by monetary damages. The parties therefore agree
that Inter-Con shall have the right to obtain such injunctive or other
equitable relief from a court of competent jurisdiction as may be
necessary or appropriate to prevent such unauthorized or unlawful
action.
8.4 Notwithstanding anything to the contrary, the provisions of this
Section 8 shall not apply to information which: (i) is or has become
readily available without restriction through no fault of the receiving
party or its employees or agents; (ii) is received without restriction
from a third party lawfully in possession of such information and
lawfully empowered to disclose such information; or (iii) was
rightfully in the possession of the receiving party without restriction
prior to its disclosure by the other party.
8.5 The provisions of this Section 8 shall survive termination of this
Agreement.
SECTION 9 - FORCE MAJEURE AND EXCUSABLE DELAYS
9.1 Neither party shall be liable for any costs or damages attributable
to nonperformance (including delays on the part of SAC in making
deliveries hereunder) arising out any "Event of Force Majeure," which
shall consist of any cause not within its reasonable control and not
due to its fault or negligence.
9.2 Each party shall give the other party prompt notice of the
occurrence of any Event of Force Majeure that is expected to cause
delay hereunder, and the date of performance by any such party shall be
extended for a period not exceeding the period of delay caused by the
Event of Force Majeure identified in such notice.
SECTION 10 - TERMINATION
10.1 This Agreement may be terminated as follows:
10.1.1 If SAC fails to discharge any material
obligation or remedy any default under this
Agreement for a period of more than 60 days
after Inter-Con has given SAC written notice
of such failure then Inter-Con may terminate
this Agreement by giving written notice to
SAC.
10.1.2 If Inter-Con fails to discharge any material
obligation or remedy any default under this
Agreement for a period of more than 60 days
after SAC has given Inter-Con written notice
of such failure then SAC may terminate this
Agreement by giving written notice to
Inter-Con.
10.2 If this Agreement is terminated by either party in accordance with
this Section 10:
10.2.1 Inter-Con shall have no further obligation
to pay any money to SAC nor any further
obligation to cooperate in the continued
development of the Products by SAC, and SAC
shall have no further obligation to support
the Products or cooperate in the continued
development of them.
10.2.2 Inter-Con shall have ownership of SAC's
software and hardware designs as they exist
on the date of termination with respect to
the Products.
10.3 In addition to any other rights and remedies contained in
Sections 10.2.1, 10.2.2 and 10.2.3, either party shall have all other
rights and remedies under applicable law, all of which rights and
remedies shall be cumulative and non-exclusive to the extent permitted
by law. In addition, certain obligations of each party under this
Agreement are unique. If any party should default in its obligation
under this Agreement, the parties acknowledge that in certain
circumstances which are reasonably determined by a party, it would be
extremely impractical to measure the resulting damages, and
accordingly, the non-defaulting party, in addition to any other
available rights or remedies set forth in the preceding sentence may
sue in equity for specific performance and the parties each expressly
waive the defense that a remedy in damages will be adequate.
10.4 Should any litigation be commenced between Inter-Con and SAC
concerning this Agreement, the prevailing party in such litigation will
be entitled in addition to such other relief as may be granted, to a
reasonable sum as and for its attorneys fees and court costs in such
litigation which shall be determined by the court in such litigation as
any separate action brought for that purpose.
SECTION 11 - MISCELLANEOUS
11.1 This Agreement shall be binding upon the successors and assigns of
the parties hereto; provided, however, that no assignment shall be made
by either party without the prior written consent of the other party.
Any attempt by either party to assign this Agreement or any of the
rights or duties hereunder contrary to the foregoing provision shall be
void.
11.2 Any notice permitted or required under this Agreement shall be
deemed given when mailed by certified mail, return receipt requested,
postage prepaid, or when dispatched by telegram or facsimile (and
followed by a written confirmation mailed by certified mail, return
receipt requested, postage prepaid, within 4 hours after such
dispatch). Mail shall be addressed as follows:
if to Inter-Con: if to SAC:
7667 Equitable Drive, Suite 101 4444 West 76th Street, Suite 600
Eden Prairie, MN 55344 Edina, MN 55435
or to either party at such other address as shall have notified the
other pursuant to this Section 11.2
11.3 This Agreement constitutes the entire agreement between SAC and
Inter-Con with respect to SAC's development and support of the Products
for Inter-Con, and supersedes all prior oral or written agreements and
understandings and may be modified or amended only in a writing signed
by the parties. No representation, promise, inducement, or statement of
intention has been made or relied upon by any party hereto that is not
set forth in this Agreement and the exhibit referred to herein.
11.4 Inter-Con shall pay directly to SAC's attorneys reasonable costs
and fees in connection with the negotiation, execution and delivery of
this Agreement.
11.5 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Minnesota in all respects. If
any term of this Agreement conflicts with the law, all other terms of
this Agreement shall remain in effect and enforceable. Any suit,
action, litigation or other proceeding in connection with this
Agreement, or the agreements and documents executed and delivered
hereunder, will be brought, prosecuted and resolved solely in the state
or federal courts located in Hennepin County, Minnesota, and each party
hereby waives any objections it may have to the personal jurisdiction
of such courts.
11.6 The provisions of this Agreement which on their face anticipate
their survival, including but not limited to the provisions of Sections
6.3 (to the extent provided therein) and 8 of this Agreement, shall
survive the expiration or termination of this Agreement. The parties
hereto agree that each party's obligations herein are unique and that
upon breach of any such agreement, damages or other remedy at law may
be inadequate. Therefore, the rights and obligations of the parties
under this Agreement may be enforceable by appropriate equitable relief
such as specific performance, restraining orders and preliminary or
permanent injunctions. Such remedy shall, however, be cumulative and
not exclusive and shall be in addition to any other remedies which any
party may have under this Agreement or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized corporate officers as of the day and year
first above written.
INTER-CON/PC, INC. SAC TECHNOLOGIES, INC.
By:/s/ illegible By: /s/ Barry Wendt
---------------------------- --------------------------------
Its: CEO Its: CEO
---------------------------- --------------------------------
EXHIBIT A
INTER-CON/PC
SET TOP BOX Specification
The Inter-Con/PC Set Top consists of a main-board which supports 1-33 Meg/Byte
Dram with embedded VGA and I/O interfaces consisting of floppy disk interface,
fixed disk/CD Rom interface, 2 serial ports and 1 parallel port.
The unit supports booting from ROM and running either ROM resident or disk
resident DOS/Windows applications.
The system is based on a 486DX2-100 Mhz or faster CPU with additional embedded
logic and components consisting of the following:
1 MEG/on board DRAM Memory with SIMM expansion connector.
2 MEG/on board FLASH Memory for embedded or down-loadable applications.
VGA to NTSC for driving a TV and software pan & zoom - via - wireless infra-red
keyboard/w-mouse control.
Security system interface for home or business application such as interfacing
to infra-red motion sensors.
Embedded hardware serialization for product & application protection.
14.4 baud modem with RJ-11 interfaces for external line.
Wireless Keyboard Interface, (Infra-red).
Wireless Infra-red Keyboard, W/Track Ball Mouse.
ISA expansion, 2 slots.
One - 3 1/2" floppy disk drive
Case and Power supply. Commercial Unit size of 8" Wide by 10" Deep and 2 1/4"
High.
- -------------------------------------------------------------------------------
SAC TECHNOLOGIES, Inc.________________ Inter-Con/PC, Inc._______________
DATE: October 24, 1996
DISTRIBUTED BY:
INTER-CON/PC, INC.
7667 Equitable Drive, Suite 101
Eden Prairie, MN 55344
(612) 975-0001 Office (612) 975-9099 Fax
EXHIBIT B
MUX-PANEL SPECIFICATION
* Support connection of up to 256 users via direct connection serial cards,
modem cards or "Data-Cops".
* Modular-design back panel consisting of 16 ISA card slots each, which can
be connected to form a 16 back panel that supports 256 users.
* Each back panel provides support for 16 ISA cards as detailed in Item No. 1
with a local back panel CPU which provides for data routing between users
connected to the Mux- Panel and/or from the Mux-Panel to a locally
connected PC via a Data-Cop installed in the PC.
* Local firmware (each back panel) which provides for intelligent background
data routing transparent to the local PC. Firmware will recognize special
Inter-Con/PC packet protocol headers for data routing purposes.
* Each user's installed communication hardware will appear as a standard
PC-COM Port to the Mux-Panel system.
EXHIBIT C
DATA-COP SPECIFICATION
* Uses 1 standard ISA-PC slot.
* Appears as 256 consecutive comm ports to the host-PC.
* Performs data packetizing/de-packetizing, data encryption/de-encryption,
data compression/de-compression and standard hardware modem data flow
functions.
* Provides for local PC to Mux-Panel interface.
* Provides for Mux-Panel to Mux-Panel data routing.
<TABLE>
<CAPTION>
Exhibit 11.1
Statement Re: Computation of Loss per Common Share
January 7, January 7,
1993 (date of 1993 (date of
inception) Nine months inception)
Years ended December 31, through ended September 30, through
-------------------------- December 31, ------------------------- September 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding 2,250,000 2,245,284 2,248,419 2,250,000 2,205,485 2,239,788
SAB No. 83-
For common stock sold at prices
less than the initial offering
price during the 12 months
preceding the initial public
offering using the treasury
method 300,000 300,000 300,000 300,000 202,176 280,335
For stock options and warrants
granted at exercise prices
less than the initial offering
price during the 12 months
preceding the initial public
offering using the treasury
method 167,067 167,067 167,067 167,067 167,067 167,067
----------- ----------- ----------- ----------- ----------- -----------
2,717,067 2,712,351 2,715,486 2,717,067 2,574,728 2,687,190
=========== =========== =========== =========== =========== ===========
Net Loss $ (11,285) $ (86,386) $ (128,267) $ (122,795) $ (517,399) $ (645,666)
=========== =========== =========== =========== =========== ===========
Loss per common share $ -- $ (.03) $ (.05) $ (.05) $ (.20) $ (.24)
=========== =========== =========== =========== =========== ===========
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 18, 1996 (except for notes E, G and L,
as to which the date is November 14, 1996), accompanying the financial
statements of SAC Technologies, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the captions "Selected Financial Data" and "Experts".
/s/ Divine, Scherzer & Brody, Ltd.
St. Paul, Minnesota
November 19, 1996
