AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997
REGISTRATION NO. 333-16451
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SAC TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
MINNESOTA 3577 41-1741861
State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
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)
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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) 338-3965
TELEPHONE: (612) 340-5555 FACSIMILE: (612) 330-0959
FACSIMILE: (612) 340-5584
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED 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>
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ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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<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 JANUARY 10, 1997
1,100,000 SHARES
[LOGO]
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 $0.51 $5.49
Total(3) .............. $6,600,000 $561,000 $6,039,000
(1) The Company has agreed to pay the Underwriter a nonaccountable expense
allowance equal to 2% of the gross proceeds of this offering, and has
agreed to issue to the Underwriter a five-year warrant to purchase up to
44,496 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
$367,000 (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, $617,100 and $6,642,900,
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
[PHOTO OF SACMAN UNIT WHICH IS A RECTANGULAR-SHAPED BOX APPROXIMATELY 3" H X 3"
W X 5.75" L AND RESEMBLES A COMPUTER MOUSE WITH A FINGERPRINT-SIZED WINDOW IN
THE CENTER FOR PLACING AND VERIFYING A FINGERPRINT.]
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, and distributes
fingerprint identification products for use in general commercial and consumer
market applications. The Company is a development stage enterprise that was
formed in 1993 and has yet to generate any commercial sales, significant
revenues, or profits. See "Business--General."
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 and testing of its initial
automated fingerprint identification product called SACMan(tm). SACMan and
related products 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. The Company's technology
also has potential application in other markets including law enforcement and
financial credit transaction markets which belong to Jasper Consulting, Inc.
("Jasper") by agreement. Furthermore, the Company plans to develop some limited
manufacturing and assembly capability and to contract for outside manufacturing
and assembly of its products, as needed. See "Business--General," "--Technology
License," and "--Market."
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 SACMan(tm) and SAC_App products have undergone extensive internal
and external testing and are believed to be ready for commercial scale
production, sale and use. The Company has not yet completed final development or
commenced testing of its SAC_Remote product, developed principally for use in
restricting door entry access to a specific set of individuals, or SAC_Encrypt
products; however, the initial hardware design of these products has been
completed. It is anticipated that development and testing of the SAC_Remote and
SAC_Encrypt products will be completed in early to mid 1997, at which time the
product is expected to be made available for commercial release. See
"Business--Products."
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. Many of these competitors have substantially greater resources and
experience in developing and marketing access control products. The Company has
yet to manufacture, market, or sell any of its products on a commercial basis.
Based on field testing, available pricing information of product components, and
its current sales price, the Company believes its products are reliable and will
be affordable in its targeted markets.
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 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 symbol... SACM
CUSIP Number............................. 78386P 10 4
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<CAPTION>
SUMMARY FINANCIAL DATA
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 $5,562,369
Total assets 6,598 24,139 325,577 5,880,577
Stockholders' equity
(deficit) (5,628) (125,188) 136,918 5,808,918
</TABLE>
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(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 adjusted exercise price of $6.00 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 44,496 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. The Company had net losses of $86,386 and
$517,399 during the year ended December 31, 1995 and nine months ended September
30, 1996, respectively. Since inception through September 30, 1996, the Company
has had accumulated losses of $645,666 and negative cash flow from operations of
$718,566. All of the Company's revenues to date were derived from the
reimbursement of development costs and other services provided to Jasper. In
addition, the Company has yet to make any commercial sales of its products and
has never successfully marketed a product. Furthermore, 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."
RIGHTS TO CERTAIN TECHNOLOGY NOT OWNED BY COMPANY. 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.
Therefore, the Company does not exclusively own all of the technology
incorporated into its products, including SACMan. In addition, pursuant to its
agreement with Jasper, the Company only has rights to use and sell the FIDS
Technology in industrial, commercial, and consumer "access control" applications
including, without limitation, access to buildings, apartments, offices, and
other facilities, appliances, information, resources, computers, and computer
networks. In all other markets, sale and use of the FIDS Technology belongs to
Jasper. The success of the Company, therefore, will depend on its ability to
exploit each of these technologies in its limited market areas. Furthermore, 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 a 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 FIDS technology in the Company's products. See
"Business--Technology License."
LIMITED 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 EXPERIENCE; NO MARKET ACCEPTANCE. The Company
has recently begun marketing its SACMan(tm) product and has yet to make any
commercial sales of SACMan or other products. 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 whether the Company's products can be sold at a profitable price
and the extent to which consumers acquire, adopt, and continue to use them.
There can be no assurance that the Company's products will gain wide acceptance
in its targeted markets or that the Company will be able to effectively market
its products. See "Business--Marketing and Sales."
LIMITED MANUFACTURING EXPERIENCE. To date, the Company's SACMan and SAC_App
products have only been manufactured in limited quantities and have not been
manufactured on a commercial scale. As a result, there can be no assurance that
the Company will not encounter difficulties in obtaining reliable and affordable
contract manufacturing assistance and/or in scaling up its manufacturing
capabilities, including problems involving production yields, per-unit
manufacturing costs, quality control, component supply, and shortages of
qualified manufacturing personnel. Any such difficulties could also result in
the inability of the Company to satisfy any customer demand for its products in
a cost-effective manner and would likely have a material adverse effect on the
Company.
PRODUCTS ARE CURRENTLY UNDER DEVELOPMENT; NO COMMERCIAL SALES OR USES TO
DATE. The Company has only recently begun to focus on marketing and selling its
SACMan and SAC_App products. In addition, the Company has not yet completed
final development of its other products. Therefore, no commercial sales or uses
of the Company's products have been made. Given this absence of sales and need
for additional development on many of its products, there can be no assurance
that the Company will be able to complete the development of and/or successfully
introduce its products to the Company's markets. See "Business--Products"
"--Market," and "--Marketing and Sales."
POTENTIAL INABILITY TO ADAPT TO 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."
SIGNIFICANT 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."
POTENTIAL PRODUCT LIABILITY CLAIMS. 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.
IMMEDIATE AND SUBSTANTIAL DILUTION TO PURCHASERS. Purchasers of the Shares
offered hereby will experience immediate and substantial dilution of $4.39 per
share in the net tangible book value of the Shares based on the anticipated
Price to Public. See "Dilution."
DILUTION FROM 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."
POTENTIAL INABILITY TO MANAGE GROWTH EFFECTIVELY. 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 DETERMINATION OF 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."
POSSIBLE INABILITY TO MAINTAIN QUOTATION BY NASDAQ; POTENTIAL 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.
EFFECT ON MARKET PRICE OF 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 50,000 shares of Common Stock underlying
warrants issued in conjunction with bridge financing will be eligible for sale
under Rule 144 two years after exercise of the warrants. The 41,639 shares of
Common Stock issued to the Underwriter in connection with a private placement
and bridge financing arrangement will be eligible for sale under Rule 144 the
earlier of: (i) two years after the exercise of the warrants, or (ii) two years
after issuance of such warrant, if a cashless exercise is effected by the
Underwriter pursuant to the terms of such warrant. 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."
LIMITED EXPERIENCE OF THE UNDERWRITER. The Underwriter commenced business
in May 1994, and has completed only one public offering to date. The
Underwriter's relative inexperience in conducting public offerings could have an
adverse effect on the "due diligence" investigation of the Company which the
Underwriter has conducted, although the Underwriter believes that such
investigation has been thorough on its part. Moreover, although the Underwriter
believes it has exercised care in establishing the Price to Public of the Shares
offered hereby, the Underwriter's inexperience in establishing the price of the
Shares in this offering, and possibly in acting as a market-maker after the
effective date of this offering, could have an adverse effect on the market
value of the Shares offered hereby following the completion of this offering.
See "Underwriting."
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:
APPROXIMATE PERCENTAGE OF
AMOUNT OF APPROXIMATE
NET PROCEEDS NET PROCEEDS
------------ ------------
Selling, General and
Administrative ..................... $2,500,000 44%
Research and Product Development .... 1,300,000 23
Repayment of Notes Payable .......... 367,000 6
Capital Expenditures ................ 200,000 4
Working Capital ..................... 1,305,000 23
---------- ---
Total ............................. $5,672,000 100%
========== ===
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.
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 $250,000. The line of credit agreement bears interest
at 1% above the prime rate of interest and expires January 1998.
The Company also intends to use a portion of the proceeds to repay a
$117,000 noninterest bearing note to Richard T. Fiskum, the President, Chief
Operating Officer, and a Director of the Company. This note payable originated
in connection with an August 1995 purchase of optics technology from Mr. Fiskum
and is collateralized by a $117,000 account receivable from Jasper. See "Certain
Transactions."
CAPITAL EXPENDITURES. The Company intends to use approximately $200,000 of
the proceeds to purchase "pick and place" semi-automated assembly line
components to meet additional prototype/pre-production test requirements in 1997
and 1998, as well as other general capital expenditures.
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 $590,700. 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 $5,804,404, or $1.61 per share. This represents an
immediate increase in net tangible book value of $1.56 per share to existing
stockholders and an immediate dilution in net tangible book value of $1.61 per
share to new investors of Common Stock in this offering, as illustrated by the
following table:
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 1.56
-----
Pro forma net tangible book value after offering 1.61
-----
Dilution to new investors $4.39
=====
- -------------------------
(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
SHARES PURCHASED(1) CONSIDERATION PAID AVERAGE
-------------------- -------------------- 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 adjusted exercise price of $6.00 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
44,496 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 6,436,005
Deficit accumulated during the development stage ............. (663,175) (663,175)
--------- ----------
Total Stockholder's Equity and Capitalization ............. $ 136,918 $5,808,918
========= ==========
</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 adjusted exercise price of $6.00 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
44,496 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 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 commercial product sales to date and the Company's revenues to date
have been derived exclusively 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 access control
markets. Jasper has the right to exploit FIDS technology in all other markets
including specifically financial services, law enforcement, national
identification systems, and personal identification systems for government and
medical applications. 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 principally due to additional salaries and
wages for marketing and administrative personnel, the development of certain
promotional materials, and increased attendance at trade shows.
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. Working capital increased $224,205 during the nine months ended
September 30, 1996 to $90,369, as compared to a deficit of $133,836 as of
December 31, 1995. This increase is primarily attributable to cash received from
sales of common stock discussed below, offset by operating losses during the
nine months ended September 30, 1996.
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 1995 for total cash consideration of $138,000 plus non-cash
consideration of $170,174.
The Company has a $250,000 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, 1998.
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 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 adjusted weighted average
exercise prices of $3.82 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 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. SACMan(tm) is the fifth generation of product based on
the Company's technologies, each generation of which has undergone both internal
and external testing. 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 anticipated 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 access control markets. Jasper has the right to exploit FIDS technology in
all other markets including specifically financial services, law enforcement,
national identification systems, and personal identification systems for
government and medical applications, which market rights belong to Jasper. The
Company believes it has, to date, performed all of its material obligations
under its license agreement with Jasper. These obligations include product
research and development, payment and reporting of royalties, and payment of
specified amounts upon a transfer of the technology, as well as certain
indemnification and confidentiality obligations. Were the Company to fail to
perform these obligations, 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 a
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 FIDS technology in the
Company's products. See "Business--Technology License."
The Company has not yet developed any mass commercial manufacturing and
assembly capacity; however, the Company has acquired a semi-automated assembly
line to meet anticipated initial product demand. The Company currently intends
to qualify and use outside manufacturing contractors to satisfy production
requirements as they exceed its internal capacities.
As indicated above, the Company's technology also has potential application
in both the law enforcement and financial credit transaction markets, which
belong 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.
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 gross margin of twenty percent, pursuant to the provisions of a
separate OEM agreement between Jasper and the Company. 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 all other
market 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 and market several products which
address industry-specific security applications. The Company also plans to
develop some limited manufacturing and product assembly capability and to
contract for outside manufacturing and assembly of its products, as needed. The
products are intended to provide controlled access to information, resources,
and facilities. The company's SACMan(tm) and SAC_App products have undergone
extensive internal and external testing and are believed to be ready for
commercial scale production, sale and use. The Company has not yet completed
final development or commenced testing of its SAC_Remote and SAC_Encrypt
products; however, the initial hardware design of these products has been
completed. These products are intended for use with software based upon the
software used in the SACMan(tm). It is anticipated that development and testing
of the SAC_Remote and SAC_Encrypt products will be completed in early to mid
1997, at which time the product is expected to be made available for commercial
release. 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.
The Company's products use a camera to take a visual image of an
approximately one-half inch by one-half inch area of a fingerprint. The image is
produced at an effective resolution of approximately 1000 dots per inch (DPI).
The products then make several passes on the image to optimize and clarify it.
Subsequently the products identify distinguishing characteristics of a
fingerprint; these characteristics include ridges, valleys, loops, double loops,
spirals, ovals/circles, bifurcations, rods, arches, deltas, and core locations.
These distinguishing characteristics are mapped by the Company's technology such
that the product can verify whether the characteristics match those of a known
fingerprint. The technology is designed to perform, in a consistent and
efficient manner, either one to one (1:1) verification to detect and match the
fingerprint information to a single fingerprint or one to many (1:N)
verification to match a fingerprint to any of a number of fingerprints in a
database.
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 identify
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 by
incorporating 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, apartment buildings, and office
complexes 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, scheduled for
release in early to mid 1997, will provide for the encryption/de-encryption of
local applications programs by controlling all access to 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 billion market in the United
States during 1994.
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.
The Company has developed marketing literature for its SACMan product and
has displayed its SACMan product at the American Society for Industrial Security
(ASIS) conference in September 1996 and at COMDEX (an annual computer products
convention) in November 1996. The Company has also displayed its product at the
Internet Firewalls Conference in October 1996 and plans to participate in the
Consumer Electronic Show (CES) in January 1997. The Company believes it has
generated significant interest of prospective dealers for its products and has
maintained an extensive inquiry list of interested parties.
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. Many of these competitors have substantially greater resources and
experience in developing and marketing biometric products.
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 higher than that
anticipated for SACMan(tm). In part, this may be attributable to the fact that
several of its competitors are integrating other manufacturers' hardware and/or
software and, as such, may be forced to bear higher component costs and
technology licensing fees, as well as greater selling expenses. Of the companies
specifically targeting consumer application markets, many are projecting product
availability during 1997 or 1998. While the Company has yet to manufacture,
market, or sell any of its products on a commercial basis, based on field
testing, available pricing information of product components, and its current
sales price, the Company believes its products are reliable and will be
affordable in its targeted markets.
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 on a full-time basis. Four
are primarily involved in research, development, and technical support, two are
principally involved in research, development, and administrative matters, two
are principally involved in administrative and finance matters, and one is
principally involved in sales and marketing efforts. The Company also employs a
part-time employee who 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 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 Chairman 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; (iii) determines the persons to whom and the time or
times at which options or stock awards shall be granted pursuant to the Plan;
(iv) determines the number of shares subject to each option or stock award
granted under the Plan; and (v) authorizes and directs the issuance of the
common shares upon stock awards and the exercise of options granted pursuant to
the Plan. See "Management--1996 Stock Option Plan."
EXECUTIVE COMPENSATION
The following table provides certain summary information for the past three
years ended December 31, 1994, 1995, and 1996, concerning executive compensation
paid or accrued by the Company to the Company's Chief Executive Officer. Other
than as listed below, no executive officers salary and bonus compensation for
1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- -------------------
FISCAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) UNDERLYING OPTIONS
- --------------------------- ------ ------ ----- -------- ------------------
<S> <C> <C> <C> <C> <C>
Barry M. Wendt .............. 1996 $97,672 $-- $7,614 None
(Chief Executive Officer) 1995 40,584 -- 1,621 None
1994 17,533 -- -- None
</TABLE>
- ---------------------
(1) Includes group health insurance premiums and a vehicle allowance.
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 Employment Agreements (which
expire on December 31, 2001) 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 will receive options to purchase 25,000 shares of common
stock which will vest 20% annually over five years. Five years after the initial
grant of an option to a non-employee director, and every fifth year thereafter,
non-employee directors who remain on the Board shall automatically be granted
additional options to purchase 25,000 shares of Common Stock which shall vest
20% on May 1 of each year over a period of five years. All options granted to
non-employee directors shall have an exercise price equal to 100% of the fair
market value of a share of the Company's Common stock which, if the stock is
traded on the NASDAQ National Market System or an over-the-counter market price
is reported, shall be equal to the average of the reported bid and asked prices
as of the date of valuation determination.
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 Stock Option Plan also provides for the acceleration of the vesting of
unvested options upon a "Change of Control" of the Company. A Change of Control
is defined in the Stock Option Plan to include (i) a sale or transfer of
substantially all of the Company's assets; (ii) the dissolution or liquidation
of the Company; (iii) a merger or consolidation to which the Company is a party
and after which the prior shareholders of the Company hold less than 50% of the
shares of the surviving entity; (iv) if any person becomes a "beneficial owner"
of more than 50% of the combined voting power of the Company's outstanding
securities; (v) the incumbent directors cease to constitute at least a majority
of the Board; or (vi) a change in control of the Company which would otherwise
be reportable under Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended.
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 (110% of the fair market value, in the
case of grants to Shareholders beneficially owning more than 10% of the voting
control of the Company). 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
approximately $300 per month. The Company provides standard health insurance
coverage to its officers, directors and employees.
CERTAIN TRANSACTIONS
In January 1993 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. The parties to this Agreement have agreed that its provisions will
terminate upon the effective date of this Offering.
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.
In August 1995 the Company purchased certain optics technology from Richard
T. Fiskum pursuant to a non-interest bearing note issued to Mr. Fiskum by the
Company. The note is collateralized by a $117,000 receivable from Jasper. The
Company currently intends to use a portion of the proceeds from this offering to
repay the amounts owing to Mr. Fiskum under this note.
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. This price was commensurate with the then aforementioned most
recent sales price of the Company's Common Stock to Mr. Fiskum. See
"Business--Company History."
On May 10, 1996, Barry M. Wendt, Richard T. Fiskum, Benedict A. Wittig and
Gary E. Wendt each executed Employment Agreements with the Company (terminating
on December 31, 2001), 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 approximately
$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 on June 28,
1996 as part 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 divided 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, approximately $200,000 was represented by the
conversion of the Bridge Loans described immediately above. The Underwriter
received a commission and expense allowance in an approximate amount of $110,279
and a warrant to purchase 41,639 shares of common stock which has an adjusted
exercise price of $6.00 per share.
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 Richard T. 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(2)
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.
(2) Gary E. Wendt also maintains a residence at 3738 St. Phillip Court, North
Las Vegas, Nevada 89031.
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"). 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 44,496 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 adjusted
exercise price of $6.00 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. The 50,000 shares of Common Stock referenced in above item (d) will
be eligible for sale under Rule 144 two years after exercise of the warrants.
The 41,639 shares of Common Stock referenced in above item (e) will be eligible
for sale under Rule 144 the earlier of: (i) two years after the exercise of the
warrants or (ii) two years after issuance of such warrant, if a cashless
exercise is effected by the Underwriter pursuant to the terms of such warrant.
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 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 voting common stock. The Board can issue
voting 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.
There are presently no undesignated shares subject to designation as
preferred stock by the Board. In order to create additional, undesignated
shares, the Company's shareholders would be required to approve an amendment to
the Articles of Incorporation authorizing such action. Any undesignated shares
created in such manner will be subject to designation as preferred stock by the
Board. The Board will have the authority, in most instances without further
shareholder action, to issue from time to time all, or any part of, the
undesignated shares. Undesignated shares will be issuable in one or more classes
or series and the Board will be authorized to determine the designation and
number of shares in each class or series and to fix the dividend, redemption,
liquidation, refinement, conversions and voting rights, if any, of each class or
series and any other right and preferences thereof. In the event the Company's
shareholders vote to amend the Articles of Incorporation to provide for
undesignated shares, any undesignated shares which may subsequently be issued
may have disproportionately high voting rights or class voting rights, may be
convertible into shares of Common Stock, and may rank prior to the shares of
Common Stock as to payment of dividends and to the distribution of assets upon
liquidation or dissolution. The further consent of the holders of Common Stock
(beyond amending the Articles of Incorporation) would not be required for any
such issuance of the undesignated shares.
The existence of any such undesignated shares may have the effect of
discouraging an attempt, through acquisition of a substantial number of Common
Stock, to acquire control of the Company with a view to effecting a merger, sale
or exchange of assets or similar transaction. The Board, without further
shareholder approval, could issue shares of preferred stock with voting and
conversion rights which could adversely affect the voting power of the Common
Stock.
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 an adjusted exercise price of $6.00 per share.
The Company has agreed to sell to the Underwriter in connection with this
offering a warrant to purchase up to 44,496 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 Firstar Trust Company.
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 $0.51 per Share. The Company has
agreed to pay the Underwriter a nonaccountable expense allowance of 2% of the
aggregate public offering price of the Shares sold to the public. The
Underwriter may reallow all or a portion of the underwriting discount and
expense allowance to selected dealers with regard to Shares sold by them in this
offering. 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 for a
period of thirty days after the closing of the sale of the Shares offered
hereunder. 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
$0.51 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 44,496 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 owns warrants to purchase 41,639 shares of the Company's
common stock at an adjusted exercise price of $6.00 per share, which were issued
as part of the Underwriter's compensation for a private offering of common stock
which concluded in July, 1996. A person associated with the Underwriter owns
5,000 shares of the Company's common stock which was acquired in the Company's
private offering in July, 1996. A person associated with another broker-dealer
owns 12,615 shares of the Company's common stock and a warrant to purchase 6,250
shares of such common stock both of which were acquired in a private offering of
the Company's convertible notes and warrants in May, 1996.
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.
The Price to Public of the Shares offered hereby were determined by negotiations
between the Company and the Underwriter, and is based upon such factors as the
amount required by the Company for working capital, to discharge indebtedness,
to acquire capital equipment to begin manufacturing, to begin marketing its
products, and to engage in further research and development, and upon a
comparison with then-current market prices of publicly-traded common stock of
other companies in the finger-print identification industry.
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, and the Company has a deficit accumulated
during the development stage and a deficit in working capital as of December 31,
1995 that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note B. The financial statements do not include any adjustments that might
result from this uncertainty.
DIVINE, SCHERZER & BRODY, LTD.
St. Paul, Minnesota
October 18, 1996 (except for notes E and L, as to which the date is December 18,
1996, and note G, as to which the date is January 9, 1997)
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 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 (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 COMMON STOCK
------------------- ------------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <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) 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) ..................................... -- -- -- -- -- --
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
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
Net loss for the nine months ended September
30, 1996 (unaudited) ............................ -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ---------
Balance as of September 30, 1996 (unaudited) . -- $ -- -- $ -- 2,508,750 $ 25,088
========= ========== ========= ========== ========= ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
CONTRIBUTED DEVELOPMENT
CAPITAL STAGE TOTAL
----------- ----------- -----
<S> <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) ........................ -- -- --
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) ............................ 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) ............. 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) . $ 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)
YEARS ENDED DECEMBER 31, THROUGH NINE MONTHS THROUGH
-------------------------- 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 belong to 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.
<TABLE>
<CAPTION>
NOTE C -- EQUIPMENT AND FURNITURE AND FIXTURES
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
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
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
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 for borrowings of up to $150,000 at 1% above the prime
rate of interest. During December 1996, the agreement was amended to provide for
borrowings of up to $250,000 at the same rate of interest and to extend the
maturity date of the agreement to January 1998. The agreement requires paydown
of outstanding balances to $100 for thirty days, is collateralized by
substantially all assets and is guaranteed by three stockholders. The agreement
contains covenants limiting additional indebtedness, change in ownership, and
mergers and sale of company assets, among other matters.
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 June 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. No warrants have been exercised
through September 30, 1996 (unaudited). 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(1) 2001
------
Balance September 30, 1996 (unaudited) ............... 91,639
======
Total exercisable at $2.00 per share at September
30, 1996 (unaudited) ................................ 50,000
======
</TABLE>
(1) See "Initial Public Offering" below for discussion of an adjustment to the
exercise price of the warrants from $2.40 to $6.00 in the event of a
successful completion of the Company's planned initial public offering.
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. The
original terms of the letter of intent provided for payment of a ten percent
(10%) commission and a three percent (3%) non-accountable expense allowance from
the gross proceeds, and also provided for a five-year warrant to purchase
110,000 shares of common stock at an exercise price of 120% of the offering
price per share.
During January 1997, the Agent consented to modify the terms of the letter
of intent as follows:
* The commission was reduced to eight and one-half percent (8.5%) of the
gross proceeds.
* The non-accountable expense allowance was reduced to two percent (2%)
of the gross proceeds.
* The five year warrant to purchase 110,000 shares of common stock at an
exercise price of 120% of the offering price per share was reduced to
a warrant to purchase 44,496 shares of common stock under similar
terms.
Additionally, in connection with the above, the Agent consented to adjust
the exercise price of their warrant to purchase 41,639 shares of common stock
from $2.40 per share to $6.00 per share upon successful completion of the
Company's planned initial public offering.
NOTE H -- INCOME TAXES
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
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)
-------- -------- ---------
$ -- $ -- $ --
======== ======== =========
</TABLE>
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.
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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Research and development:
Optics technology (note E)... $ -- $117,000 $117,000
Other ....................... 15,421 -- 290,000
------- -------- --------
$15,421 $117,000 $407,000
======= ======== ========
</TABLE>
Total costs incurred pursuant to the development arrangement with Jasper
were as follows:
Year ended December 31,
1994 ....................................... $ 72,199
1995 ....................................... 236,891
Nine months ended September 30,
1995 ....................................... 228,583
1996 ....................................... 72,471
January 7, 1993 (date of inception) through
December 31, 1995 .......................... 331,647
September 30, 1996 (unaudited) ............. 404,118
FIDS LICENSE AGREEMENT WITH JASPER
The Company's underlying 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
YEARS ENDED OF INCEPTION) NINE MONTHS OF INCEPTION)
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>
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 costs associated with such commitment
to be approximately $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 10
Dilution 11
Dividend Policy 12
Capitalization 12
Selected Financial Data 13
Management's Discussion and Analysis of
Financial Condition and
Results of Operations 14
Business 17
Management 23
Certain Transactions 26
Principal Shareholders 28
Shares Eligible for Future Sale 29
Description of Securities 30
Underwriting 32
Legal Matters 33
Experts 33
Additional Information 33
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 ........ 60,000
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 ....................... 11,574
--------
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,
approximately $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 an adjusted exercise price of $6.00 per share.
ITEM 27. EXHIBITS.
EXHIBIT
NO. EXHIBITS
--- --------
1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant and
Lockup Agreement attached)
1.2 Form of Selected Dealer Agreement
*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
5.1 Opinion of Doherty, Rumble & Butler Professional Association
*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.)
23.3 Consent of Merritt, Furber & Timmer
*24.1 Power of Attorney (included in the signature page to the Registration
Statement)
- ------------------------
* PREVIOUSLY FILED
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
Amendment to Registration Statement to be signed on its behalf by the
undersigned, in the City of Minneapolis, State of Minnesota on January 9, 1997.
SAC TECHNOLOGIES, INC.
By /S/ BARRY M. WENDT
----------------------------------
Barry M. Wendt,
CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement was signed by the following persons in
the capacities stated below on January 9, 1997.
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 Accounting Officer)
Gary E. Wendt
/S/ BENEDICT A. WITTIG* Secretary, Director
- -------------------------------
Benedict A. Wittig
*Barry M. Wendt, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named directors and officers of the small
business issuer pursuant to a power of attorney duly executed by such person.
By
- --------------------------------
Barry M. Wendt, Attorney-in-fact
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
--- ----------- ----
1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant and
Lockup Agreement attached)
1.2 Form of Selected Dealer Agreement
*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
5.1 Opinion of Doherty, Rumble & Butler Professional Association
*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.)
23.3 Consent of Merritt, Furber & Timmer
*24.1 Power of Attorney (included in the signature page to the Registration
Statement)
- ------------------------
* previously filed
Underwriting Agreement
_____________, 1997
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 I
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. 333-16451, (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 claims 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 material 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 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 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 hereto
at a purchase price of $5.49 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 $5.49 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 $6.00 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 or otherwise providing evidence of the sale of the Shares and
Warrants 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., or such other time and
place as the parties mutually agree, 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 and
reduced by 41,639 Shares subject to that certain warrant issued by the Company
to the Underwriter heretofore, and by an additional 23,8650 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 2% 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 Firstar
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 satisfactory to
the Underwriter, who is qualified and experienced in the financial reporting and
disclosure obligations 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 it 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 it 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 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 Underwriter. 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 Underwriter or any person
controlling it 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 Underwriter or such controlling person. In case any
such action shall be brought against the Underwriters or any such controlling
person and the Underwriter 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
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 UNDERWRITER'S 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 February 14, 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), and an opinion as to the due
authorization, execution, and delivery of this Agreement, 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 in good 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 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 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 [except that no opinion
need be expressed as to financial statements contained in the
Registration Statement or Prospectus].
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
UNDERWRITER'S REPRESENTATIONS, WARRANTIES, AND COVENANTS
The Underwriter 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.
10.04. EXERCISE PRICE OF WARRANT. The Underwriter will exercise the
Warrant for 41,639 Shares referred to in section 3.06 herein at a price of $6.00
per share, subject to adjustment as provided in such Warrant for such events as
splits, reverse splits, recapitalizations, as described therein.
SECTION 11
NOTICE
11.01. 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
Secure Access Control Technologies, Inc.
4444 West 76th Street
Suite 600
Edina, MN 55435
with a copy to:
Stephen E. Smith, Esq. or Daniel R. Tenenbaum, Esq.
Doherty, Rumble, & Butler
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402.
11.02. 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 at the address set out at the
beginning of this Agreement, with a copy to:
Tuschner & Company, Inc.
Attention: John Tuschner
Suite 800, One Financial Plaza
120 South Sixth Street
Minneapolis, MN 55402
Michael L. Berde, Esq. or Kevin S. Spreng, Esq.
Merritt, Furber & Timmer
2100 Metropolitan Centre
333 South Seventh Street
Minneapolis, MN 55402.
SECTION 12
MISCELLANEOUS
12.01. 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.
12.02. 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.
12.03. 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.
12.04. 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.
12.05. 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 $7.20 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 of 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
_________ SHARES
_________________, INC
COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
1. We as the Underwriter named in the Prospectus referred to below (the
"Underwriter"), have agreed to purchase, subject to the terms and conditions set
forth in the Underwriting Agreement referred to in the Prospectus (the
"Underwriting Agreement"), from, a Minnesota corporation (the "Company"), an
aggregate of ___________ shares of Common Stock of the Company (the "Firm
Shares"). In addition, the Underwriter has been granted an option to purchase
from the Company up to an aggregate of an additional _________ shares of Common
Stock of the Company (the "Option Shares"), to cover over-allotments in
connection with the sale of the Firm Shares. The Firm Shares and the Option
Shares are hereinafter collectively called the "Shares." The Shares and the
terms upon which they are to be offered for sale by the several Underwriters are
more particularity described in the enclosed Prospectus.
2. The Shares are to be offered to the public by the Underwriter at a
price of $_.00 per share (hereinafter called the "Public Offering Price") and in
accordance with the terms of offering set forth in the Prospectus.
3. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Shares for sale to (a) certain dealers which are
members of the National Association of Securities Dealers, Inc. (the "NASD") and
which agree to comply with the provisions of Rules 2420, 2730, 2740, and 2750 of
the NASD Conduct Rules (the "NASD Rules") and (b) foreign dealers or
institutions ineligible for membership in the NASD which agree (i) not to resell
the Shares to purchasers in, or to persons who are nationals or residents of,
the United States of America, or when there is a public demand for the Shares,
to persons specified as those to whom members of the NASD participating in a
distribution may not sell; and (ii) to comply, as though such foreign dealer or
institution were a member of the NASD, with the NASD's interpretation with
respect to free-riding and withholding and with the foregoing Sections of the
NASD Rules, to the extent applicable to foreign nonmember brokers or dealers,
(such dealers and institutions agreeing to purchase Shares hereinafter referred
to as "Selected Dealers") at the Public Offering Price less a selling concession
of $____ per share, payable as hereinafter provided, out of which concession an
amount not exceeding $___ per share may be reallowed by Selected Dealers to
members of the NASD or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. This offering is made subject to
delivery of the Shares and their acceptance by us, to the approval of all legal
matters by counsel and to the terms and conditions herein set forth. Some or all
of the Underwriters may be included among the Selected Dealers. The Underwriter
has agreed that, during the term of this Agreement, it will be governed by the
terms and conditions hereof whether or not such Underwriter is included among
the Selected Dealers.
4. We may buy Shares from, or sell Shares to, any Selected Dealer, or
any other Underwriter, and any Selected Dealer may buy Shares from, or sell
Shares to, any other Selected Dealer or any Underwriter at the Public Offering
Price less all or any part of the concession. After the initial public offering
we may change the Public Offering Price, the concession and the reallowance.
5. If prior to the termination of this Agreement, we purchase or
contract to purchase, in the open market or otherwise, for the account of the
Underwriter any Shares purchased by you hereunder, you agree to pay us on demand
for our account an amount equal to the concession on such Shares. In addition,
we may charge you with any transfer taxes and broker's commission or dealer's
mark-up paid in connection with such purchase or contract to purchase.
6. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the public offering of the
Shares.
7. If you desire to purchase any of the Shares, your indication of
interest should reach us promptly by telephone or facsimile at the offices of
Tuschner & Company, Inc., Suite 800, One Financial Plaza, 120 South Sixth
Street, Minneapolis, Minnesota 55402. We reserve the right to reject all
subscriptions in whole or in part, to make allotments and to close the
subscription books at any time without notice. The Shares allotted to you will
be confirmed, subject to the terms and conditions of this Agreement.
8. The privilege of purchasing the Shares is extended to you only on
behalf of the Underwriter to those Selected Dealers that may lawfully sell the
Shares in your state.
9. Any of the Shares purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of the
offering thereof set forth herein and in the Prospectus, subject to the
securities laws of the various states. Neither you nor any other person is or
has been authorized to give any information or to make any representations in
connection with the sale of the Shares other than as contained in the
Prospectus.
10. This Agreement will terminate when we shall have determined that
the public offering of the Shares has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this Agreement
will terminate at the close of business on the 30th full business day after the
date hereof; provided, however, that we shall have the right to extend this
Agreement for, an additional period or periods not exceeding 30 full business
days in the aggregate upon telegraphic notice to you.
11. For the purpose of stabilizing the market in the Common Stock of
the Company, we have been authorized to make purchases and sales thereof, in the
open market or otherwise, and, in arranging for sale of the Shares, to
over-allot.
12. You agree to advise us from time to time upon request, prior to the
termination of this Agreement, of the number of Shares purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Shares shall be needed to make delivery of Shares sold or
over-allotted for the account of the Underwriter, you will, forthwith upon our
request, grant to us for our account the right, exercisable promptly after
receipt of notice from you that such right has been granted, to purchase, at the
Public Offering Price less the selling concession or such part thereof as we
shall determine, such number of Shares owned by you as shall have been specified
in our request.
13. On becoming a Selected Dealer, and in offering and selling the
Shares, you agree (which agreement shall also be for the benefit of the Company)
to comply with all applicable requirements of the Securities Act of 1933, as
amended (the "Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). You confirm that you are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution or preliminary and final prospectuses
for securities of an issuer and confirm that you have complied and will comply
therewith.
14. Upon request, you will be informed as to the jurisdictions in which
we have been advised that the Shares have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but we do not
assume any obligation or responsibility as to the right of any Selected Dealer
to sell the Shares in any jurisdiction or as to any sale therein. You authorize
us to file on your benefit a New York Notice, if required.
15. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
16. No Selected Dealer is authorized to act as our agent, or otherwise
to act on our behalf in offering or selling the Shares to the public or
otherwise.
17. We shall not be under any liability for or in respect of the value,
validity or form of the Shares, or delivery of the certificates for the Shares,
or the performance by anyone of any agreement on such person's part, or the
qualification of the Shares for sale under the laws of any jurisdiction, or for
or in respect of any matter connected with this Agreement, except for lack of
good faith and for obligations expressly assumed by us in this Agreement. The
foregoing provisions shall not be deemed a waiver of any liability imposed under
the Act.
18. Payment for the Shares sold to you hereunder is to be made at the
Public Offering Price, less selling concession, on or about ________, 199__, or
such later date as we may advise, by certified or official bank check, payable
to the order of Tuschner and Company, Inc., in current funds, at such place as
we shall specify on one day's notice to you against delivery of certificates for
the Shares. Notwithstanding the foregoing, if transactions in the Shares can be
settled through the facilities of The Depository Trust Company, payment for and
delivery of the Shares purchased by you hereunder will be made through the
facilities of The Depository Trust Company, if you are a member, unless you have
otherwise notified us prior to the date specified in our facsimile or telegram
to you, or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions you may send us prior to
such specified date.
19. Notice to us should be addressed to us c/o John M. Tuschner,
Tuschner and Company, Inc., Suite 800, One Financial Plaza, 120 South Sixth
Street, Minneapolis, Minnesota 55402. Notices to you shall be deemed to have
been duly given if sent by telefacsimile, telegraphed or mailed to you at the
address to which this letter is addressed.
20. This Agreement shall be governed by the internal laws of the State
of Minnesota, without giving effect to the principles thereof relating to the
conflict of laws.
21. If you desire to purchase any of the Shares, please confirm your
subscription by signing and returning to us your confirmation overleaf on the
duplicate copy of this letter enclosed herewith even though you have previously
advised us thereof by telephone or telefacsimile.
Very truly yours,
TUSCHNER AND COMPANY, INC.
By:________________________
Dated: ________________________
CONFIRMATION
We confirm our agreement to purchase ________ shares of Common Stock of
________ Corporation (the "Shares"), subject to all the terms and conditions set
forth in the foregoing Selected Dealers Agreement. We hereby acknowledge receipt
of the Prospectus. We further state that in purchasing the Shares, we have
relied upon the Prospectus and upon no other statement whatsoever, whether
written or oral. We hereby confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (a) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (b) a dealer with its principal place of business located outside the
United Sates, its territories and its possessions and not registered as a broker
or dealer under the Securities Exchange Act of 1934 who hereby agrees not to
make any sales within the Unites States, its territories or its possessions or
to persons who are nationals thereof or resident therein. We hereby agree to
comply with the provisions of NASD Rules 2420, 2730, 2740, and 2750 and, if we
are a foreign dealer and not a member of the NASD, we also agree to comply with
the NASD's interpretation with respect to free-riding and withholding, to
comply, as though we were a member of the NASD, with the provisions of the above
NASD Rules as those Rules apply to non-member foreign dealers.
Dated:____________, 1997
----------------------------------
(Print corporate or firm name of
Selected Dealer)
----------------------------------
(Signature of authorized officer or partner)
----------------------------------
(Print name of person signing)
Address:
----------------------------------
----------------------------------
[LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
SAC TECHNOLOGIES, INC.
NUMBER SHARES
- ------ ------
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
CUSIP 78386P 10 4
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE, OF
SAC TECHNOLOGIES, INC.
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTRAR.
WITNESS THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
/s/ Benedict A. Wittig /s/ Barry Wendt
SECRETARY CHIEF EXECUTIVE OFFICER
Countersigned and Registered:
FIRSTAR TRUST COMPANY
Transfer Agent and Registrar
By
Authorized Signature
- -------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UTMA - ___________ Custodian __________
(Cust) (Minor)
TEN ENT - as tenants by entireties under Uniform Transfer to Minors
JT TEN - as joint tenants with right Act ____________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
- -------------------------------------------------------------------------------
FOR VALUE RECEIVED ____________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________ SHARES OF THE
CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT _________________________________________________________
_________________________________________________________ATTORNEY TO TRANSFER
THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED _______________________________________________
_______________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE GUARANTEED
(612) 340-5555
January 9, 1997
EXHIBIT 5.1
SAC Technologies Inc.
4444 West 76th Street
Suite 600
Edina, Minnesota 55435
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have acted on behalf of SAC Technologies, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
SB-2, File No. 333-16451, (the "Registration Statement") filed by the Company
with the Securities and Exchange Commission relating to (i) 1,100,000 shares of
common stock, $.01 par value, the ("Shares"), (ii) an underwriter's warrant to
purchase 110,000 shares of common stock (the "Underwriter's Warrant"), and (iii)
an aggregate 110,000 shares of the common stock issuable upon exercise of the
Underwriter's Warrant (the "Underwriter's Warrant Shares"), all of which are to
be issued by the Company. Upon examination of such corporate documents and
records as we have deemed necessary or advisable for the purposes hereof and
including and in reliance upon certain certificates by the Company, it is our
opinion that:
1. The Company is a validly existing corporation in good
standing under the laws of the State of Minnesota.
2. The Shares, Underwriter's Warrant and the Underwriter's
Warrant Shares, when issued and sold as contemplated in the
Regisstration Statement, will be validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
DOHERTY RUMBLE & BUTLER
PROFESSIONAL ASSOCIATION
/s/ Stephen E. Smith
Stephen E. Smith
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 18, 1996 (except for notes E and L, as
to which the date is December 18, 1996, and note G, as to which the date is
January 9, 1997), 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
January 9, 1997
EXHIBIT 23.3
January 9, 1997
SAC Technologies, Inc.
4444 West 76th Street, Suite 600
Edina, MN 55435
Gentlemen:
We consent to the inclusion of our name as counsel to the Underwriter under the
caption "Legal Matters" in the Company's Registration Statement No.
333-16451.
Very truly yours,
MERRITT, FURBER & TIMMER
/s/ Merritt, Furber & Timmer
