<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
AMERICAN CARD TECHNOLOGY, INC.
(Name of Small Business Issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 06-1403123
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
(612)929-5249
(Address and Telephone Number of Principal Executive Offices and Address of
Principal Place of Business or Intended Principal Place of Business.)
RAYMOND FINDLEY, JR.
1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
(612)929-5249
(Name, Address and Telephone Number of Agent for Service)
--------------------------
COPIES TO:
R. JOHN BARTZ, ESQ.
Bartz & Bartz
Southdale Office Centre
6750 France Avenue South, Suite 350
Edina, MN. 55435
(612) 920-3959 (612) 920 6494 (Fax)
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
--------------------------
If any of the Securities being registered in 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. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock $.001 par value................ 420,000 $17.00 $7,140,000 $2,107
Total....................................... $7,140,000 $2,107
</TABLE>
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of computing the registration fee.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
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.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 4, 1998
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD, BUILDING 1462, SUITE 200, MARIETTA, GEORGIA 30067 (612)
929-5249
420,000 SHARES (MAXIMUM OFFERING)
294,200 SHARES (MINIMUM OFFERING)
COMMON STOCK (PAR VALUE $.001)
$17.00 PER SHARE
------------------
All of the shares of Common Stock, par value $.001 (the "Common Stock"),
offered hereby are being sold by American Card Technology, Inc. ("the Company").
Prior to this Offering there has been no public market for the Common Stock. See
"Underwriting" for a discussion of factors considered in determining the initial
public offering price. This Offering is being made by the Company's Underwriter,
Rockcrest Securities L.L.C. of Dallas, Texas (the "Underwriter") on a "best
efforts" basis. There can be no assurance that the minimum number of shares will
be sold. If 294,200 shares (the minimum offering) are not sold within one
hundred eighty (180) days following commencement of the public offering, the
offering will terminate automatically and all funds paid for shares will be
returned to the purchasers without deductions and without interest. See
"Introductory Statement," "Risk Factors" and "Underwriting".
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"
BEGINNING ON PAGE 9 AND "DILUTION" ON PAGE 20.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS & PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) THE COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $17.00 $1.70 $15.30
Total Minimum(294,200 shares)............................ $5,001,400 $500,140 $4,501,260
Total Maximum(3)(420,000 shares)......................... $7,140,000 $714,000 $6,426,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) The Company will have prepaid costs and expenses of the Offering totaling
$400,000, which sum represents estimated legal, accounting, copying,
advertising, underwriting and other miscellaneous items.
(3) The Company has granted to the Underwriter an option, exercisable within 210
days after the effective date of this Prospectus, to purchase up to 42,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriter exercises this option in full, the Price to Public will
total $7,854,000, the Underwriting Discount will total $785,400 and the
Proceeds to Company will total $7,068,600. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, and subject
to the right of the Underwriter to reject any order in whole or in part and to
withdraw, cancel or modify this offer without notice. It is expected that
delivery of the shares of Common Stock will be made at the offices of Rockcrest
Securities L.L.C. in Dallas, Texas on or about 1998, subject to the
minimum offering being attained ($5,001,400) or thereafter against payment
therefor in immediately available funds.
------------------------
ROCKCREST SECURITIES L.L.C.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
AVAILABLE INFORMATION
INVESTORS SHOULD CAREFULLY REVIEW THE FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THIS PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of this Offering, the Company will become subject to such requirements
and, in accordance therewith, will file periodic reports, proxy materials and
other information with the Securities and Exchange Commission (the
"Commission"). In addition, the Company will furnish its stockholders with
annual reports containing audited financial statements certified by its
independent accountants and such interim reports containing unaudited financial
information as it may determine to be necessary or desirable. The Company will
provide without charge to each person who receives a copy of this Prospectus,
upon written or oral request, a copy of any of the information that is
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such request should be directed to
American Card Technology, Inc., 1355 Terrell Mill Road, Building 1462, Suite
200, Marietta, Georgia 30067.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus, and if given or made, such information or representation must not be
relied upon as having been authorized by the Company or by any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the shares of Common Stock offered hereby, nor does
it constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstance create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY. THE STATEMENTS CONTAINED IN THIS
PROSPECTUS WHICH ARE NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE DESCRIBED
UNDER "RISK FACTORS." THERE CAN BE NO ASSURANCE THAT THE MINIMUM NUMBER OF
SHARES WILL BE SOLD. IF THE MINIMUM OFFERING IS NOT SOLD WITHIN ONE HUNDRED
EIGHTY (180) DAYS FOLLOWING THE COMMENCEMENT OF THIS OFFERING, THE OFFERING WILL
TERMINATE AUTOMATICALLY AND ALL FUNDS PAID FOR SHARES WILL BE RETURNED TO THE
PURCHASERS WITHOUT DEDUCTIONS AND WITHOUT INTEREST. UNLESS OTHERWISE INDICATED,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING ALL SHARE AND PER SHARE
DATA AND INFORMATION RELATING TO THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING, ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION TO
PURCHASE 42,000 ADDITIONAL SHARES OF COMMON STOCK. SEE "UNDERWRITING."
THE COMPANY
American Card Technology, Inc. (the "Company"), a development stage company
incorporated in June 1994, was organized to design, develop and market high
security, flexible, multiple application smart card systems. A smart card is a
credit card-sized plastic card containing a microchip that provides the card
with memory storage capabilities in a secure environment and, in advanced
versions such as the Company's, enables the card to perform data processing
functions. Smart card systems are typically used by government agencies or
commercial enterprises (the "System Sponsor") to store, access and modify
participant or customer (the "User") information. The Company has received
United States Patent Number 5629508 with respect to its dual card access
technology and methods. The Company's proprietary smart card technology and
software enable System Sponsors to store data on a User's smart card, and enable
the System Sponsor, or a service provider authorized by the System Sponsor (the
"Authorized Service Provider") to access User information and read, input,
delete, modify and process such data. The Company designs its smart card systems
to perform functions for various target markets, such as employee licensing,
animal health and registration, frequent patron tracking, health care and
various government applications, and can design each system to perform various
functions in virtually any industry, depending on the System Sponsors' needs.
The dual card access technology incorporated in the Company's smart card
systems requires the simultaneous use of both a card issued to a User (a "User
Card") and a card issued to an Authorized Service Provider (an "Access Card") to
access the system. The information on the User's smart card cannot be accessed
or modified unless used in tandem with the Authorized Service Provider's card.
For example, a health maintenance organization ("HMO") could sponsor a system
whereby each User patient enrolled in the HMO would receive a smart card with
his or her medical records and insurance information stored on the card's
microprocessor chip. The HMO would issue Access Cards to its member physicians
as Authorized Service Providers and, when a patient visits any of these
HMO-affiliated physicians, the physician would be able to review and update the
patient's medical record and history. The Authorized Service Provider could be
issued separate Access Cards from the HMO allowing different functions for
different security levels. For example, the receptionist's Access Card may allow
access only to insurance information; the nurse's Access Card may allow the
nurse to view but not modify patient records; and the doctor's Access Card may
allow the doctor to access and update patient medical records. The dual card
access technology provides enhanced security for the information on the User
Card by preventing unauthorized persons from accessing or modifying such data
without the proper Access Card and allowing each Access Card to view or
manipulate only the information on the User Card which corresponds to that
Access Card's authorization level. Each System Sponsor determines how much
security it desires at each level, and the Company designs the smart card system
for that System Sponsor around those parameters. The Company believes that its
smart card systems, which offer the capability to perform multiple functions on
a single card, provide enhanced security and privacy protection not offered by
existing smart cards and
3
<PAGE>
position the Company to capitalize on perceived market opportunities for
information systems incorporating smart card technology.
Smart card technology is currently in wide use in Europe, the Pacific Rim,
Latin America and the Middle East. According to the market researcher Dataquest,
the microprocessor and memory based smart card market will grow from 544 million
cards in 1995 to 3.4 billion cards by 2001. Most smart cards currently in use
are low capacity memory-only phone cards that provide only data storage, reading
and deletion capabilities. More sophisticated smart cards, including the
Company's smart cards, are microprocessor-based and therefore have the ability
not only to store, read and delete data but also to add, modify and process
data. The Company believes that most microprocessor-based smart cards currently
in use were designed to perform functions for single purpose applications only,
such as pay television access control, medical or academic recordkeeping or
insurance claim processing. The Company believes that these smart cards
generally utilize multiple, alternative technologies, such as microchips, bar
codes and magnetic stripes simultaneously, or allow access by any Authorized
Service Provider to all the information included within the card. To the best of
the Company's knowledge there are no other cards in use or under development
that meet the same dual card access and multiple application specifications as
the Company's proprietary system. However there is no guarantee that such cards
which function in a similar or superior fashion to the Company's proprietary
system are not under development at this time. See "Competition" under "Risk
Factors."
Although the use of smart cards is increasing, most cards currently used in
electronic transactions are magnetic stripe cards, such as ordinary credit
cards. Such cards contain only limited information such as account numbers and
identification information, but cannot store or update additional information
such as current account balances. The Company believes that its proprietary
smart card systems, comprised of smart cards, read/write devices, other related
hardware and system software offer certain advantages over magnetic stripe cards
and existing smart card systems, including enhanced security features and
multiple function capabilities through the use of dual card access technology
and multiple application layering.
The Company's smart cards are uniquely designed to include multiple
application layers, with each layer enabling the performance of numerous
functions when activated by the proper Access Card. The Company's smart card
systems can provide different System Sponsors or Authorized Service Providers
with access to different application layers on one User's smart card. Therefore,
an HMO could store, on the same card that contains a User's medical records,
insurance claim records for access only by the HMO's benefits administrators.
Each application layer contains its own security feature and can only be
accessed or altered by the Authorized Service Provider holding the Access Card
programmed for that layer. By providing a System Sponsor the ability to add
applications over time, as well as allowing multiple System Sponsors to utilize
different layers of the same smart card for different purposes, the Company's
smart card systems will enable the cost per smart card to be allocated among
separate System Sponsors or different departments within a single System
Sponsor. The Company believes that these features position its smart card
systems as secure, cost-effective solutions for electronic transaction and
information processing.
To date, the Company has executed two contracts with the North American
Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an
internet-based regulatory tracking system that includes a database with
licensing information, infraction records and digital photographs of the
licensees in its jurisdictions. NAPRA is an organization comprised of eighteen
pari-mutuel wagering jurisdictions located in North America, including horse and
dog racing, jai alai and card rooms. In addition to the contracts with NAPRA,
the Company has developed and installed smart card based employee identification
and licensing systems in four NAPRA jurisdictions, the Birmingham Racing
Commission and the Macon County Race Course, both in Alabama, the Oregon Racing
Commission and the Idaho Racing Commission. These smart card systems control
on-site access and maintain state licensing information. The Company recently
submitted a proposal to an additional NAPRA jurisdiction, the Florida Department
of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart
card licensing system.
4
<PAGE>
The Company has completed a pilot program in New Jersey and Pennsylvania for
the issuance of "equine medical passport" smart cards for monitoring the
identity, interstate and intrastate movement and medical records of thoroughbred
horses. The Florida Department of Agriculture and Consumer Services Bureau of
Disease Control has proposed a similar pilot project anticipated to begin as
soon as possible. The Bureau of Disease Control is responsible for ensuring the
health and marketability of livestock in the state of Florida. To prevent the
spread of a deadly disease, the federal government requires any horse crossing
state lines to have a negative Coggins Report which evidences a negative test
result for Equine Infectious Anemia. A Coggins Report is valid for one year from
the issue date. Further, each state requires a valid health certificate for any
horse entering the state. The states of Florida, Georgia and Alabama have formed
an alliance whereby a special ninety (90) day pass authorized by any of the
three states can be used to cross state lines between these states. The proposed
Florida pilot program will involve a test "livestock medical passport" program
in which each of 100 animals will be implanted with an "electronic
identification transponder" used in conjunction with smart cards to verify each
animal's identity and federal and state medical certifications. This pilot
program will replace the required paper passports for horses crossing between
these states. Although completed programs in New Jersey and Pennsylvania
successfully tested the equine medical passport smart card system and similar
electronic transponder implants are in use which are not coordinated with smart
card technology, such equine medical passport pilot programs have not resulted
in any system sales to date. There can be no assurance that any of the Company's
pilot programs will result in system purchases by any potential System Sponsor.
The Company has entered into a Memorandum of Understanding with Traquer
Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian
gaming and wagering facilities in North America. Traquer has significant
expertise with the rules and regulations for Indian gaming environments. In
February 1998, the Company received its first order from Traquer to provide a
smart card based employee licensing system to an Indian tribe in Arizona. The
Company expects this system to be installed by August 1998.
The Company received a request from Foundation Health, a Florida based HMO,
to structure a smart card system to assist and expedite the verification of
patient insurance coverage by hospital employees. The pilot program involves
Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the
Company anticipates the initial phase will be installed by July 1998. Other
phases of this proposed project may include expanding the smart card based
verification capability to all Foundation Health member hospitals and Authorized
Service Providers in south Florida. The final phase may provide all Foundation
Health members with enhanced smart card member identification capabilities.
The Company has also been selected as a subcontractor to Paradigm 4 for the
proposed New York City Time Project. The City of New York has significant
problems tracking city employees and verifying the accuracy of actual hours
worked. This project will pilot a number of technologies, including the use of
smart cards, for time and attendance management and tracking of city employees.
The Company is negotiating an exclusive distributorship agreement with AVID
Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide
computerized tracking system for companion animals. Under the terms of the
agreement, AVID will have the right to sell a unique smart card based system
developed by the Company exclusively for AVID and to be used in conjunction with
AVID's radio frequency identification devices currently being sold worldwide to
veterinarians and other customers. Owners of animals will carry with them the
Company's smart card containing animal tracking information related to the
existing PETtrac identification system as well as other AVID related
applications, including animal records. There can be no assurance that the
Company will be successful in negotiating this agreement.
The Company's objective is to become a leading provider of smart card
systems to government and commercial System Sponsors requiring increasingly
complex, secure and cost-effective information processing systems. Although the
Company expects to continue to market smart card systems directly
5
<PAGE>
through its management and employees, including a recently appointed Director of
Sales, the Company intends to establish strategic marketing alliances and
licensing or other arrangements with systems integrators, value-added resellers
and other smart card vendors and may also retain the services of sales
representatives and marketing and other consultants. The Company anticipates
that, under certain circumstances, its smart card products will be bundled with
its strategic partners' products and services to create a complete integrated
system that can be marketed to potential System Sponsors. The Company will also
seek to provide complete integrated smart card solutions, on a turnkey basis, to
System Sponsors by providing all hardware and software elements required to
implement the system.
Since inception, the Company has been engaged principally in organizational
activities, including developing a business plan, hiring personnel and
developing and enhancing its smart card technology and software, and has only
recently commenced the limited marketing of its smart card systems. The Company
has generated limited revenues and incurred significant operating losses.
Therefore, the Company has a limited operating history upon which an evaluation
of its prospects can be made. The Company's prospects must be considered in
light of the risks, uncertainties, expenses, delays and difficulties associated
with the establishment of a new business in the evolving smart card industry, as
well as those risks encountered in the shift from development to
commercialization of new products based on innovative technologies. There can be
no assurance that the Company's smart card systems will ever gain market
acceptance, or that the Company will be able to successfully implement its
marketing strategies, generate meaningful revenues or ever achieve profitable
operations.
The Company was incorporated under the laws of the State of Delaware in June
1994. Unless otherwise indicated, all references to the Company include Canadian
Smart Card Technology Inc., its majority-owned subsidiary incorporated under the
laws of Ontario, Canada (the "Subsidiary"), which was created to exploit the
Company's technology in Canada. The Company's principal executive offices are
located at 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia
30067 and its telephone number is (770) 951-2284.
RECENT FINANCING
From July 1997 through January 1998, three directors, Raymond A. Roncari,
Harold Rothstein and Lawrence O. Perl, have provided loans to the Company in the
amounts of $320,000, $460,000 and $15,000, respectively (the "Stockholder
Loans"). These loans provided the Company with working capital and covered some
costs associated with this Offering. The Stockholder Loans are expected to be
repaid upon the closing of subsequent debt financing, but in no event later than
January 1, 2001.
In February and March 1998, the Company sold investment units to investors
for an aggregate of $1,500,000 in a private placement offering (the "1998
Private Placement"). Each unit consisted of (i) an unsecured, nonnegotiable
promissory note in the principal amount of $50,000 (the "Bridge Notes"), (A)
bearing interest at the rate of ten percent (10%) per annum, payable annually in
arrears, and (B) providing for a loan fee payable upon payoff of the Bridge Note
in an amount equal to $5,000 less interest accrued under the Bridge Note during
the first year through the date of payoff; (ii) 2,500 shares of Common Stock
(the "Bridge Shares"); and (iii) 2,500 bridge warrants, each bridge warrant
representing the right to purchase one share of Common Stock at a price of
eighty percent (80%) of the per share market price of the Common Stock on the
exercise date (the "Bridge Warrants"). In addition, Messrs. Roncari and
Rothstein entered into certain loan agreements (the "Director Loan Agreements")
committing each of them to loan $450,000 (for a total of $900,000) to the
Company to be used for working capital and certain costs of this Offering (the
"Director Loans"). In consideration for this commitment, Messrs. Rothstein and
Roncari were each granted 12,500 shares of Common Stock of the Company and
warrants to purchase 12,500 shares of Common Stock at an exercise price of
eighty percent (80%) of the market price of the Common Stock on the exercise
date (the "Commitment Warrants"). The Company intends to use a portion of the
proceeds from this Offering to repay certain loans and other indebtedness. The
Bridge Notes are to be repaid from the proceeds of the minimum offering, but in
no event later than
6
<PAGE>
March 3, 2001. The accrued interest due on the Bridge Notes is to be repaid in
two parts, $67,157 from the proceeds of the minimum offering and $109,589 from
the proceeds of the maximum offering, but in no event later than March 3, 2001.
The Director Loans are to be repaid upon closing of subsequent debt financing,
but in no event later than January 1, 2001. See "Use of Proceeds," "Plan of
Operation" and "Certain Transactions."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company
Minimum.................................... 294,200
Maximum(1)................................. 420,000
Common Stock to be outstanding after
Offering(2)
Minimum.................................... 2,819,200
Maximum(1)................................. 2,945,000
Use of Proceeds.............................. The Company intends to use the net proceeds
of this Offering for repayment of the Bridge
Notes; research and development; sales and
marketing; repayment of certain outstanding
obligations; and working capital and general
corporate purposes. See "Use of Proceeds."
Risk Factors................................. 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" and "Dilution."
Proposed Nasdaq symbol....................... Common Stock--"ACRD."
</TABLE>
- ------------------------
(1) Assumes the Underwriter does not execute any of its available 42,000
over-allotment shares.
(2) Does not include (i) 270,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Stock Option Plan, as defined herein; (ii) 30,000 shares of Common Stock
reserved for issuance upon exercise of options granted or available for
future grant under the Directors' Plan, as defined herein; (iii) 100,000
shares of Common Stock reserved for issuance upon exercise of the Shreveport
Option, as defined herein; (iv) 50,000 shares of Common Stock reserved for
issuance upon exercise of the Chapman Option, as defined herein; (v) 25,000
shares of Common Stock reserved for issuance upon exercise of the Commitment
Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon
exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock
reserved for issuance upon exercise of the Underwriter's Option, as defined
herein, to be granted at and conditioned upon the minimum offering; or
(viii) 100,000 shares of Common Stock reserved for issuance upon exercise of
the Beter Option, as defined herein, to be granted in the event of
subsequent debt financing negotiated by Lilly Beter Capital Group, Ltd.
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from and should
be read in conjunction with the financial statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 21, 1994
YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, (INCEPTION)
---------------------------- --------------------------- TO MAR 31,
1996 1997 1997 1998 1998
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................... $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
Cost of sales.......................... 16,279 86,995 -- 74,507 246,402
Research and development expense....... 167,000 260,000 55,000 174,000 781,000
General and administrative expense..... 919,546 1,176,885 331,311 554,587 3,739,792
Write-off of license fee............... 20,000 -- -- -- 168,000
Interest and financing costs, net...... 129,126 1,065,240 100,070 283,727 1,522,325
Net loss............................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512)
Net loss per share--basic and
diluted.............................. (.54) (.96) (.19) (.40)
Weighted average number of shares
outstanding.......................... 2,269,671 2,615,343 2,585,833 2,562,167
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
AS ADJUSTED FOR
DECEMBER 31, ----------------------------
1997 ACTUAL MINIMUM(1) MAXIMUM(2)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit)............................. $ (2,881,624) $ (1,764,588) $ 1,073,047 $ 2,918,620
Total assets.......................................... 594,536 890,440 3,356,118 4,571,269
Total liabilities..................................... 4,144,316 4,867,452 3,596,128 2,965,706
Total stockholders' equity (deficit).................. (3,549,780) (3,977,012) (240,010) 1,605,563
</TABLE>
- ------------------------
(1) Gives effect to the sale of the 294,200 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, including $1,500,000 representing the repayment of the Bridge
Notes plus $67,157 representing partial payment of accrued interest,
including a non-recurring charge of $45,833, plus a non-recurring charge of
$250,000 representing the unamortized loan discount, $68,425 representing
unamortized deferred financing costs associated with the 1998 Private
Placement and $400,000 representing prepaid costs of this Offering. See "Use
of Proceeds."
(2) Gives effect to the sale of the 420,000 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, $1,500,000 representing the repayment of the Bridge Notes plus
$176,746 representing payment of accrued interest, including a non-recurring
charge of $125,000, plus a non-recurring charge of $250,000 representing the
unamortized loan discount, $68,425 representing unamortized deferred
financing costs associated with the 1998 Private Placement, $600,000
representing repayment of all outstanding bank debt and $400,000
representing prepaid costs of this Offering. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
THE SECURITIES BEING OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK, INCLUDING, BUT NOT LIMITED TO, THOSE RISK FACTORS SET FORTH
BELOW, AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT IN THE
COMPANY, SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND
AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING.
THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "PLAN OF OPERATION" AND "BUSINESS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY. The Company was
organized in June 1994 and is in the development stage. Since inception, the
Company has been engaged principally in organizational activities, including
developing a business plan, hiring personnel and developing and enhancing its
proprietary smart card technology and software, and it has only recently
commenced the limited marketing of its smart card systems. Therefore, the
Company has a limited operating history upon which an evaluation of its
prospects can be made. The Company's prospects must be considered in light of
the risks, uncertainties, expenses, delays and difficulties associated with the
establishment of a new business in the evolving smart card industry, as well as
those risks encountered in the shift from development to commercialization of
new products based on innovative technologies. See "Plan of Operation."
LIMITED REVENUES; SIGNIFICANT AND CONTINUING LOSSES; ACCUMULATED DEFICIT;
EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS' REPORT. The Company has
generated limited revenues to date and does not expect to generate meaningful
revenues in the near future until such time, if ever, as its smart card systems
are successfully commercialized. The Company has incurred significant losses in
each operating period since its inception resulting in an accumulated deficit at
March 31, 1998 of $6,220,512 and losses are continuing through the date of this
Prospectus. Inasmuch as the Company will continue to have a high level of
operating expenses and will be required to make significant up-front
expenditures in connection with both the development of its business and the
commercialization of its smart card systems (including, without limitation,
salaries of executive, technical, marketing and other personnel), the Company
anticipates that it will continue to incur significant and increasing losses for
the foreseeable future until such time, if ever, as the Company is able to
generate sufficient revenues to finance its operations. The Company will also
incur non-recurring charges relating to the 1998 Private Placement of
approximately $364,258 upon closing of the minimum offering. The Company's
independent certified public accountants have included an explanatory paragraph
in their report stating that the Company's dependence on outside financing, lack
of existing commitments from lenders to provide necessary financing, lack of
sufficient working capital and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company's smart card systems will gain market acceptance, or
that the Company will be able to successfully implement its business strategy,
generate meaningful revenues or achieve profitable operations. See "Plan of
Operation" and Financial Statements.
UNCERTAINTY OF PROPOSED PLAN OF OPERATION. The success of the Company's
proposed plan of operation will be largely dependent upon market acceptance of
smart cards generally, as well as on the Company's ability to successfully
market its smart card systems by persuading potential System Sponsors of the
perceived benefits of its dual card access and multiple application layering
concepts (including the benefits to be derived from allocating total card
program costs among individual application layers within a card) and to develop
and commercialize further applications of its proprietary technology. In
addition, the Company's proposed plan of operation and prospects will be
dependent upon, among other things, the Company's ability to enter into
strategic marketing and licensing or other arrangements on a timely basis and on
favorable terms; establish satisfactory arrangements with sales representatives
and marketing consultants; hire and retain skilled management as well as
financial, technical, marketing and other personnel; successfully manage growth
(including monitoring operations, controlling costs and maintaining
9
<PAGE>
effective quality, inventory and service controls); and obtain adequate
financing when and as needed. The Company has limited experience in developing
new products based on innovative technology and there is limited information
available concerning the performance of the Company's technologies or market
acceptance of the Company's products. There can be no assurance that the Company
will be able to successfully implement its plan or that unanticipated expenses
or problems or technical difficulties will not occur which would result in
material delays in its implementation. Moreover, there can be no assurance that
the Company will have sufficient capacity to satisfy any increased demand for
its smart card products and technologies resulting from the Company's
implementation of its plan of operation. See "Plan of Operation" and "Business."
NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE. The smart card industry in
the United States is an emerging business characterized by an increasing and
substantial number of new market entrants that have introduced or are developing
an array of new products and services relating to electronic transactions and
information processing. Each of these entrants is or may be seeking to position
its products and services as the preferred method of effectuating highly
individualized, easy-to-use electronic transaction and information processing.
The success of the smart card industry depends, in large part, on the ability of
market participants to convince governmental authorities, commercial enterprises
and other potential System Sponsors to adopt a smart card system in lieu of
existing or alternative systems such as magnetic stripe card and paper-based
systems, thereby changing the way certain transaction and information processing
tasks are accomplished. In addition, due to the large capital and infrastructure
investment made by debit and credit card issuers and significantly lower costs
associated with the use of magnetic stripe cards, many potential System Sponsors
may be reluctant to convert to smart card technology in the near future.
Accordingly, there can be no assurance that there will be significant market
opportunities for smart card systems in the United States or that the acceptance
of smart card based systems in other countries will be sustained. The Company's
dual card access and multiple application layering technologies are new
concepts. As such, demand for and market acceptance of the Company's smart card
systems are subject to a high level of uncertainty. The Company has limited
marketing experience and limited financial, personnel and other resources to
undertake extensive marketing activities. Potential System Sponsors of the
Company's smart card systems, as well as the Company's potential strategic
partners, must be persuaded that the costs of adopting and implementing smart
card systems, in general, and, in particular, of adopting and implementing the
Company's smart card systems, which incorporate dual card access technology and
multiple application layering, are justified by the benefits to be derived
therefrom. Achieving market acceptance for the Company's products and services
will require significant efforts and expenditures by the Company to create
awareness, demand and interest by potential System Sponsors, strategic partners
and others regarding the perceived benefits of the Company's technologies,
including the possible allocation of costs among different System Sponsors
and/or departments of one or more System Sponsors. There can be no assurance
that the Company's smart card technology will prove to be economically viable
for a sufficient number of System Sponsors, that substantial markets will
develop, in the United States or elsewhere, for the Company's smart card systems
or that the Company will be able to meet its current marketing objectives,
succeed in positioning its cards and services as a preferred method of
delivering electronic transaction and information processing or achieve
significant market acceptance of its products. See "Business--Marketing and
Sales."
SIGNIFICANT CAPITAL REQUIREMENTS; WORKING CAPITAL DEFICIT; DEPENDENCE ON
PROCEEDS OF THIS OFFERING; POSSIBLE FUTURE FINANCING. The Company's capital
requirements have been and will continue to be significant. At March 31, 1998,
the Company had a working capital deficit of $1,764,588 due to, among other
things, costs associated with the development, commercialization and market
testing of the Company's smart card systems, including the development of the
Company's initial pilot programs. The Company has been dependent on the sales of
its securities to private investors (including the 1998 Private Placement), as
well as on capital contributions and loans from affiliates and certain financial
institutions guaranteed by certain stockholders of the Company. During the
period from inception through the date of this Prospectus, the Company has
raised capital in the estimated aggregate amount of $5,600,000
10
<PAGE>
(including approximately $5,000,000 through March 31, 1998) through such means.
The Company is dependent on and intends to use the proceeds of this Offering to
continue the implementation of its proposed plan of operation. The Company
anticipates, based on assumptions relating to its operations (including
assumptions regarding the Company's ability to meet its current marketing
objectives and the timing and costs associated therewith), that the net proceeds
of this Offering, together with projected cash flow from operations, will be
sufficient to fund the Company's operations and capital requirements for at
least twelve months following the consummation of this Offering. In the event
the Company's plans change, its assumptions change or prove to be inaccurate or
if the proceeds of this Offering prove to be insufficient to fund operations
(due to unanticipated expenses, technical difficulties, problems or otherwise),
the Company would be required to seek additional financing sooner than currently
anticipated. There can be no assurance that the proceeds of the minimum offering
will be sufficient to permit the Company to successfully further develop and
commercialize the Company's smart card technology or that any assumptions
relating to the Company's operations will prove to be accurate. In addition, any
implementation of the Company's business plans subsequent to the twelve month
period following this Offering may require proceeds greater than the proceeds of
this Offering or otherwise currently available to the Company. Further, if the
minimum closing of this Offering is delayed, the Company may not have sufficient
capital to fund operations and the anticipated expenses of this Offering. There
can be no assurance that additional financing will be available to the Company
on commercially reasonable terms, or at all. Although the Company believes it
may be able to raise at least a portion of its future financing requirements for
such period among its officers, directors and/or stockholders, no officer,
director or stockholder of the Company has made any further commitment to the
Company to provide any portion of the Company's future financing requirements
and there are no assurances that any officer, director or stockholder will do
so. At some future date, the Company intends to offer up to approximately $30
million in debt financing, to be negotiated by Lilly Beter Capital Group, Ltd.
("Beter"). Upon closing of such debt financing, Beter would receive warrants for
100,000 shares of Common Stock, at an exercise price equal to eighty percent
(80%) of the per share market price of Common Stock at the time of exercise (the
"Beter Option"). There can be no assurance that such additional financing, or
any other additional financing, will be available to the Company on reasonable
terms, or at all. Further, if such additional financing is attempted, there can
be no assurance that such additional financing, or any other additional
financing, will be successful. Any inability to obtain additional financing when
needed may have a material adverse effect on the Company, including requiring
the Company to curtail its activities and possibly causing the Company to cease
its operations. To the extent that the Company finances its operations through
the issuance of additional equity securities, any such issuance may involve
substantial dilution to the Company's then-existing stockholders. Additionally,
to the extent that the Company incurs indebtedness or issues debt securities,
the Company will be subject to all of the risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. See "Use of Proceeds," "Plan of Operation" and "Certain
Transactions."
LIMITED MARKETING CAPABILITIES AND EXPERIENCE; DEPENDENCE ON THIRD-PARTY
MARKETING ARRANGEMENTS. The Company has limited marketing capabilities,
experience and resources. To date, the Company has conducted only limited
marketing activities and has relied primarily on the efforts of its executive
officers in connection with such activities. It will be the role of the
Company's management and its Director of Sales to guide the Company from the
research and development phase to a company with full marketing and sales
strategies for direct and indirect sales. Although the Company expects to
continue to market smart card systems directly through the Company's management
and employees, the Company intends to establish strategic marketing alliances
and licensing or other arrangements with systems integrators, value-added
resellers and other smart card vendors and may also retain the services of sales
representatives and marketing and other consultants. The Company's success will
depend in part on its ability to enter into agreements with such third parties,
and on the ability and efforts of such third parties to successfully market the
Company's smart card systems. Moreover, marketing arrangements with third
11
<PAGE>
parties may require financial or other commitments by the Company. There can be
no assurance that the Company will be able, for financial or other reasons, to
enter into third-party marketing arrangements on commercially acceptable terms,
or at all. The failure of the Company to complete its third-party marketing
strategy or the failure of any such party to develop and sustain a market for
the Company's smart cards could have a material adverse effect on the Company.
Although the Company views third party marketing arrangements as a major factor
in the commercialization of its smart card systems, there can be no assurance
that any strategic partners, licensees or others would view an arrangement with
the Company as significant to their businesses. See "Business--Marketing and
Sales" and "Management."
COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The market for the Company's smart
card systems is characterized by intense competition. The market is currently
dominated by cards utilizing magnetic stripes, and is expected to be dominated
by magnetic stripe cards for the foreseeable future due to the lower costs of
production of such cards and the substantial capital and infrastructure
investments made by debit and credit card issuers in such cards. The Company
also competes with numerous well-established companies, including Gemplus, Bull
PTS (a unit of Groupe Bull), Schlumberger Electronic Transactions (a business
segment of Schlumberger Limited), Orga Kartensysteme GMBH, Giesecke & Devrient
and Mondex International, which design, manufacture and/or market smart card
systems. Although the Company believes its proprietary dual card access and
multiple application layering technologies will allow the Company to compete on
the basis of enhanced security, flexibility, scalability, cost-effectiveness and
quality, the Company's smart card systems incorporate new concepts and may be
unsuccessful even if they are superior to those of its competitors. In addition,
certain companies may be developing technologies or products of which the
Company may be unaware which may be functionally similar or superior to those
developed by the Company. Most of the Company's competitors and potential
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company and have established reputations relating to
the design, development, manufacture, marketing and service of smart card
systems. As the market for smart card systems grows, new competitors are likely
to emerge. Additional competition could adversely affect the Company's
operations. There can be no assurance that the Company will be able to compete
successfully, that competitors will not develop technologies or products that
render the Company's systems obsolete or less marketable or that the Company
will be able to successfully enhance its products or develop new products when
necessary. See "Business-- Competition."
TECHNOLOGICAL FACTORS. The Company's research and development efforts are
subject to all of the risks inherent in the development of new products and
technology (including unanticipated delays, expenses and difficulties). There
can be no assurance that the Company's products will satisfactorily perform the
functions for which they are designed, that they will meet applicable price or
performance objectives or that unanticipated technical or other problems will
not occur which would result in increased costs or material delays in the
development thereof. Furthermore, software products as complex as those
developed by the Company and incorporated into its smart card products may
contain errors or failures when installed, updated or enhanced. There can be no
assurance that, despite testing by the Company and by current and potential end
users, errors will not be found in new products after the delivery by the
Company, resulting in loss of or delay in market acceptance. See
"Business--Technology Overview" and "--Products."
The Company has entered into an agreement with SoftChip Israel Ltd. of
Jerusalem, Israel and its affiliate, SoftChip Technologies (3000) Ltd.
(collectively, "SoftChip"), to purchase the DVK-1 Chip Mask Operating System and
architecture ("DVK-1 System") for a purchase price of $100,000 and for SoftChip
to provide technical support and development to the Company for at least a
two-year period for an additional $450,000 plus royalties ranging from $.125 to
$.25 for each smart card sold by the Company that incorporates the DVK-1 System.
Upon its closing, which is scheduled to occur after the minimum closing of this
Offering, this agreement will provide the Company ownership of its own chip mask
and access to the technical resources needed to develop a completely new and
proprietary chip mask and operating system.
12
<PAGE>
The chip mask provides the basic instructions to the microchip and its internal
components and facilitates the orderly utilization of all of the microchip's
components and allows the device to be utilized. The Company has also executed a
purchase order with SoftChip for technical services for a monthly fee of
$18,000, which commenced December 1, 1997. The Company is obligated to pay the
amount payable under the purchase order, the purchase price and the fees for
technical support, no later than September 15, 1998, which will reduce the
amount of working capital available to the Company. Under the agreement,
ownership of the DVK-1 System will be transferred to the Company at closing upon
payment in full of the purchase price and technical support fees. If the closing
of the minimum offering is delayed beyond September 15, 1998, the Company
believes it may be able to reach a mutual agreement with SoftChip to extend the
closing date of the agreement, but there can be no assurance that the Company
will be able to reach such agreement with SoftChip, or that the Company will
ultimately secure ownership of the DVK-1 System if the closing of the minimum
offering is delayed beyond September 15, 1998. Additionally there can be no
assurance that ownership of the DVK-1 System will result in the successful
development of new technology. See "Plan of Operation" and
"Business--Intellectual Property."
PROPRIETARY RIGHTS. The Company's success will depend in part on its
ability to enforce its patents, protect trade secrets and operate without
infringing on the proprietary rights of others. The Company has received United
States patent number 5629508 with respect to its dual card access technology and
methods. The Company contemplates filing patent applications in selected foreign
jurisdictions where such filings would, in the Company's opinion, provide it
with a competitive advantage. The patent laws of other countries may differ from
those of the United States as to the patentability of the Company's products or
technology and the degree of protection afforded by foreign patents may be
different from that in the United States. The failure by the Company to obtain
any foreign patents could have a material adverse effect on the Company's
ability to successfully commercialize its smart card systems outside the U.S.
Even though the Company has been able to obtain a U.S. patent, there can be no
assurance that this patent will afford the Company commercially significant
protection for its technology. Other companies may independently develop
equivalent or superior technologies or products and may obtain patent or similar
rights with respect to them. The Company is not aware of any infringement by its
technology on the proprietary rights of others and has not received any notice
of claimed infringement. However, the Company has not conducted any
investigation as to possible infringement and there can be no assurance that
third parties will not assert infringement claims against the Company in
connection with its products, that any such assertion of infringement will not
result in litigation, or that the Company would prevail in such litigation.
Moreover, in the event that the Company's technology or proposed products were
deemed to infringe upon the rights of others, the Company would be required to
obtain licenses to utilize such technology. There can be no assurance that the
Company would be able to obtain such licenses in a timely manner on acceptable
terms and conditions, and the failure to do so could have a material adverse
effect on the Company. If the Company were unable to obtain such licenses, it
could encounter significant delays in product market introductions while it
attempted to design around the infringed upon patents or rights, or could find
the development, manufacture or sale of products requiring such license to be
foreclosed. In addition, patent disputes occur in the smart card and computer
industries and there can be no assurance that the Company will have the
financial resources to enforce or defend a patent infringement or proprietary
rights action. The Company has received a federal trademark registration for its
SMART-ID-Registered Trademark- mark and design and has applied for a federal
trademark registration for its Cheeze! mark. SMART-ID-Registered Trademark- is a
smart card based system that provides positive identification, transaction
tracking and the ability to layer multiple applications on a single smart card.
Cheeze! is a program currently used by eighteen pari-mutuel licensing
jurisdictions to photograph licensees and transmit the photograph and license
data to a central database, which is currently housed at the Company's offices.
The Company's use of its software, name and mark may be subject to challenge by
others, which, if successful, could have a material adverse effect on the
Company.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation
relating to its proprietary technology. However, such
13
<PAGE>
methods may not afford the Company complete protection and there can be no
assurance that others will not independently obtain access to the Company's
trade secrets and know-how or independently develop products or technologies
similar to those of the Company. Furthermore, although the Company has and
expects to have confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, there can be no assurance
that such arrangements will adequately protect the Company's trade secrets. See
"Business--Intellectual Property."
LENGTHY SALES CYCLE; POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The
Company's sales cycle is expected to commence at the time a prospective System
Sponsor demonstrates an interest in purchasing a smart card system from the
Company or issues a request for a proposal or information or takes similar
action and ends upon the installation of a smart card system for the System
Sponsor. The sales cycle will vary by System Sponsor and could extend for
periods of up to twelve months or more, depending upon, among other things, the
time required by the System Sponsor to complete a pilot test of the Company's
smart card system, make a determination regarding an acquisition thereof and
negotiate payment terms with the Company. The Company's operating results could
vary from period to period as a result of this fluctuation in the length of the
Company's sales cycle and as a result of fluctuations in the purchasing patterns
of potential System Sponsors, technological factors, variations in marketing
strategies for different target markets and non-recurring smart card system
sales. See "Plan of Operation--Possible Fluctuations in Operating Results."
POSSIBLE DEPENDENCE ON GOVERNMENT CONTRACTS. As part of its strategy, the
Company intends to market its smart card systems to government agencies in the
United States and Canada. If successful, the Company will become subject to the
special risks involving government contracts, including delays in funding,
lengthy review processes for awarding contracts, non-renewal, delay, termination
at the convenience of the government, reduction or modification of contracts in
the event of changes in the government's policies or as a result of budgetary
constraints and increased or unexpected costs resulting in losses, any or all of
which could have a material adverse effect on the Company.
The Company will also be required to obtain most potential government
contracts through the competitive bidding process. There can be no assurance
that the Company will be successful in having its bids accepted or, if accepted,
that awarded contracts will generate sufficient revenues to result in profitable
operations. The competitive bidding process is typically lengthy and often
results in the expenditure of financial and other resources in connection with
bids that are not accepted. Additionally, inherent in the competitive bidding
process is the risk that actual performance costs may exceed projected costs
upon which a submitted bid or contract price is based. To the extent that actual
costs exceed projected costs, the Company could incur losses, which could
adversely affect the Company's operating margins and results of operations.
Moreover, in most instances, the Company may be required to post bid and/or
performance bonds in connection with contracts with government agencies. Any
inability by the Company to obtain bonding coverage in sufficient amounts could
have a material adverse effect on the Company. See "Business--Government
Regulation and Industry Standards."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; ALLOCATION OF PROCEEDS TO PAY
CERTAIN OBLIGATIONS, INCLUDING INDEBTEDNESS TO PRINCIPAL STOCKHOLDERS; BENEFIT
TO RELATED PARTIES. Approximately $1,170,260 (26.0%) of the estimated net
proceeds of the minimum offering or $2,058,000 (32.1%) of the estimated net
proceeds of the maximum offering has been allocated to working capital and
general corporate purposes. Accordingly, the Company's management will have
broad discretion as to the application of such proceeds. In addition, the
Company intends to use approximately $1,567,000 (34.8%) of the estimated net
proceeds of the minimum offering or $2,277,000 (35.4%) of the estimated net
proceeds of the maximum offering to repay indebtedness (including all the Bridge
Notes to be repaid from the proceeds of the minimum offering and the accrued
interest due on the Bridge Notes, to be repaid in two parts, $67,157 from the
proceeds of the minimum offering and $109,589 from the proceeds of the maximum
offering; both the Notes and the interest are to be repaid no later than March
3, 2001) and satisfy pre-existing obligations and, therefore, such funds will be
unavailable to fund future growth. Included in the indebtedness to be
14
<PAGE>
repaid from the proceeds of the minimum offering are the Bridge Notes payable to
Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive Officer
and Chief Financial Officer, in the principal amount of $25,000, together with
accrued interest thereon, and Bridge Notes payable to Harold Rothstein and
Raymond A. Roncari, each a director of the Company, in the principal amounts of
$475,000 and $475,000, respectively. Included in the indebtedness to be repaid
from the proceeds of the maximum offering are the interest due on the Bridge
Notes payable to Messrs. Rothstein and Roncari. Included in certain outstanding
obligations to be repaid from the proceeds of the maximum offering is
approximately $42,000 payable to Lawrence Owen Associates, a corporation
wholly-owned by Mr. Perl, for use of office space and related services. In
addition, Mr. Rothstein has personally guaranteed and/or pledged personal assets
to secure the Company's indebtedness to Fleet National Bank, The Chase Manhattan
Bank and First Southern Bank, and Mr. Roncari has personally guaranteed all of
the Company's indebtedness to The First National Bank of Suffield. The Company
intends to use approximately $600,000 of the proceeds from the closing of the
maximum offering to repay this indebtedness; repayment of such indebtedness
will, in effect, release such guarantees or pledges. The Company will also use a
portion of the proceeds of the minimum and maximum offerings allocated to
working capital to pay compensation (including accrued compensation) of its
executive officers (for a total anticipated to be approximately $625,000 if the
minimum offering is reached and $1,400,000 if the maximum offering is reached,
during the twelve months following the date of this Prospectus). See "Use of
Proceeds," "Plan of Operation," "Management" and "Certain Transactions."
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The success of the Company will
be largely dependent on the personal efforts of Lawrence O. Perl, its Chairman
of the Board, Chief Executive Officer and Chief Financial Officer, Raymond
Findley, Jr., its President and Chief Operating Officer, Robert H. Dixon, its
Vice President of Technical Operations, Robert Cartagine, its recently appointed
Director of Sales, and other key personnel. Although the Company has entered
into an employment agreement with each of the above gentlemen, the loss of
services of any of these key personnel would have a material adverse effect on
the Company's business and prospects. The Company has obtained "key man"
insurance on the lives of Messrs. Perl and Findley in the amount of $2,000,000
each. In order to successfully implement and manage its proposed expansion, the
Company will be dependent upon, among other things, its ability to attract and
retain qualified managerial, technical and marketing personnel with experience
in business activities such as those contemplated by the Company. Competition
for qualified personnel is intense and there can be no assurance that the
Company will be able to hire or retain additional personnel. Any inability to
attract and retain qualified personnel would have a material adverse effect on
the Company. See "Management."
CONTROL BY MANAGEMENT. After the closing of this Offering, the Company's
directors and executive officers (or trusts created by or for such individuals
or their families) will beneficially own, in the aggregate, no less than
approximately 78.8 percent (if the minimum offering amount represents the final
closing amount) and no more than approximately 75.4 percent (if the maximum
offering amount represents the final closing amount) of the outstanding shares
of Common Stock (assuming no exercise of any warrants or other options).
Accordingly, such persons, acting together, will be in a position to elect the
directors, adopt amendments to the Company's Certificate of Incorporation (the
"Certificate") and By-Laws (the "By-Laws"), approve mergers and other
significant corporate transactions, including a sale of substantially all of the
Company's assets, and otherwise control the Company's affairs. Purchasers of the
shares of Common Stock offered hereby will be minority stockholders, and,
although entitled to vote on matters submitted for a vote of the stockholders,
will not control the outcome of such a vote. See "Management" and "Principal
Stockholders."
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The
Certificate, as amended, authorizes the Company's Board of Directors (the
"Board") to issue up to 1,000,000 shares of a class of preferred stock, par
value $.001 per share (the "Preferred Stock"). The Certificate authorizes the
Board to establish and issue, out of the authorized but unissued shares of
Preferred Stock, "blank check" preferred stock in
15
<PAGE>
one or more series. One or more of such series may be issued at any time or
times upon authorization of the Board. Without further approval of the
stockholders, the Board is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each new series of the Preferred Stock. The issuance of new series
of Preferred Stock could, among other results, adversely affect the voting power
of the holders of Common Stock and, under certain circumstances, could make it
more difficult for a third party to gain control of the Company, prevent or
substantially delay such a change of control, discourage bids for the Common
Stock at a premium, or otherwise adversely affect the market price of the Common
Stock. Preferred Stock could, for example, be issued quickly by the Board with
terms that are expressly designed to prevent or substantially delay a change of
control of the Company that could otherwise benefit stockholders or to make
removal of management more difficult. Although the Company has no current plans
to issue any Preferred Stock, there can be no assurance that the Board will not
decide to do so in the future. See "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors in this Offering will incur
immediate and substantial dilution of $17.15 per share (101%), if the minimum
offering is reached, or $16.51 per share (97%), if the maximum offering is
reached, between the adjusted net tangible book value per share after this
Offering and the initial public offering price of $17.00 per share. See
"Dilution."
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF MARKET PRICE OF COMMON STOCK; LIMITED STATE REGISTRATION. Prior
to this Offering, there has been no public trading market for the Common Stock.
Consequently, the initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter and is not
necessarily related to the Company's asset value, net worth or other criteria of
value. There can be no assurance that a regular trading market for the Common
Stock will develop after this Offering or that, if developed, it will be
sustained. The market price for the Company's securities following this Offering
may be highly volatile, as has been the case with the securities of other small
capitalization companies. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Factors such as the Company's financial results, announcements of
developments related to the Company's business and the introduction of products
and product enhancements by the Company or its competitors may have a
significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market in general, and the market for
securities of small capitalization stocks in particular, have experienced wide
price fluctuations which have often been unrelated to the operating performance
of such companies. The Underwriter will register this Offering in a limited
number of states, which may limit or prohibit possible resale of the Common
Stock in certain states in which the Offering is not registered. See
"Underwriting."
NO DIVIDENDS. The Company has never paid any cash or other dividends on its
Common Stock. Payment of dividends on the Common Stock is within the discretion
of the Board of Directors of the Company and will depend upon the Company's
earnings, capital requirements and financial condition, and on any other
relevant factors. For the foreseeable future, the Board of Directors intends to
retain future earnings, if any, to finance its business operations and does not
anticipate paying any cash dividends with respect to the Common Stock. In
addition, the payment of cash dividends may be limited or prohibited by the
terms of any future loan agreements or any Preferred Stock that may be issued by
the Company. See "Dividend Policy," "Plan of Operation--Liquidity and Capital
Resources" and "Description of Securities--Preferred Stock."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS. The Certificate
includes provisions to eliminate, to the full extent permitted by the Delaware
General Corporation Law (the "DGCL") as in effect from time to time, the
personal liability of directors of the Company for monetary damages under
certain circumstances. The Certificate and By-Laws also include provisions to
the effect that (subject to certain exceptions) the Company shall, to the
maximum extent permitted from time to time under the law of the
16
<PAGE>
State of Delaware, indemnify, and upon request shall advance expenses to, any
director or officer to the extent that such indemnification and advancement of
expenses is permitted under such law, as it may from time to time be in effect.
As a result of such provisions, stockholders may be unable to recover damages
against the directors and officers of the Company for actions taken by them that
constitute negligence, gross negligence or a violation of their fiduciary
duties. In anticipation of this Offering, the Board has authorized and directed
the Company to enter into indemnification agreements with each director of the
Company, pursuant to which the Company would, in general, (i) agree to indemnify
and hold harmless each director to the full extent permitted or authorized by
the DGCL as in effect from time to time and (ii) specify the various terms and
conditions relating to the advancement of expenses in connection with
indemnifiable claims. Each of the provisions described above may reduce the
likelihood of stockholders instituting derivative litigation against directors
and may discourage or deter stockholders from suing directors, officers,
employees and agents of the Company for (among other things) breaches of their
duty of care, even though such an action, if successful, might otherwise benefit
the Company and its stockholders. See "Management--Limitation of Liability and
Indemnification."
ADOPTION OF CERTAIN CHARTER AND BY-LAW PROVISIONS HAVING ANTI-TAKEOVER
EFFECTS. The Certificate and By-Laws contain various provisions which, under
certain circumstances, could make it more difficult for a third party to gain
control of the Company (e.g., by means of a tender offer), prevent or
substantially delay such a change of control, discourage bids for the Common
Stock at a premium, or otherwise adversely affect the market price of the Common
Stock. The Certificate provides that the Board will be classified into three
classes of directors, with each class serving a staggered three-year term. This
provision, together with the provision authorizing the Board to issue one or
more series of Preferred Stock, could make it more difficult for stockholders to
effect certain corporate actions that might facilitate a proposed acquisition of
the Company and could have the effect of delaying or preventing a change of
control of the Company. See "Description of Securities--Antitakeover
Provisions."
OUTSTANDING OPTIONS. As of the date of this Prospectus, the Company has
outstanding options to purchase 252,500 shares of Common Stock at an exercise
price of $12.00 per share. Further, the Company has granted warrants to purchase
(i) 50,000 shares of Common Stock at an exercise price equal to eighty percent
(80%) of the per share market price of Common Stock at the time of exercise to
Chapman Group, LLC (the "Chapman Option"); (ii) 25,000 shares to Messrs.
Rothstein and Roncari, in consideration for entering into their respective
Director Loan Agreements, at an exercise price equal to eighty percent (80%) of
the per share market price of Common Stock at the time of exercise, represented
by 12,500 warrants to purchase 12,500 shares of Common Stock to each of Messrs.
Rothstein and Roncari (collectively, the "Commitment Warrants"); and (iii)
75,000 shares to investors in a March 1998 private placement offering ("the 1998
Private Placement") at an exercise price equal to eighty percent (80%) of the
per share market price of Common Stock at the time of exercise (the "Bridge
Warrants"). At and conditioned upon the minimum offering, the Company will grant
warrants to purchase 100,000 shares of Common Stock to the Underwriter at an
exercise price equal to eighty percent (80%) of the per share market price of
Common Stock at the time of exercise (the "Underwriter's Option"). The Company
may, in the event of subsequent debt financing negotiated by Beter, grant to
Beter the Beter Option. Such option would be issued upon the closing of any such
debt financing. In addition, the Company plans to issue additional options to
acquire shares of Common Stock to employees and directors in the future.
Exercise of the foregoing options will have a dilutive effect on the Company's
stockholders. Furthermore, the terms upon which the Company may be able to
obtain additional equity financing may be adversely affected, since the holders
of the options, if they choose to exercise the options, can be expected to
exercise them at a time when the Company would likely be able to obtain any
needed capital on terms more favorable to the Company than those provided in the
options. See "Certain Transactions" and "Management--1996 Stock Option Plan" and
"--Nonemployee Directors' Stock Option Plan" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. The Company will have
between 2,819,200 shares, if the minimum is attained, and 2,945,000 shares, if
the maximum is attained, of Common Stock
17
<PAGE>
outstanding, of which the shares of Common Stock offered hereby (a minimum of
294,200 shares and a maximum of 420,000 shares) will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the remaining 2,525,000 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to an effective registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. The 2,525,000 restricted shares of Common
Stock will become eligible for sale under Rule 144, subject to certain volume
limitations prescribed by Rule 144 and to the contractual restrictions described
below, at various times commencing 90 days from the date of this Prospectus. The
Company has granted certain "piggyback" registration rights to the holders of
100,000 shares of Common Stock and the 100,000 shares of Common Stock underlying
the Bridge Warrants and the Commitment Warrants. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. All of the Company's officers, directors and stockholders
have agreed not to sell or otherwise dispose of (other than in a private
transfer) any of their shares of Common Stock for a period of 12 months from the
date of this Prospectus without the prior written consent of the Underwriter
(other than in the case of the Bridge Shares, as defined herein, and Bridge
Warrant Shares, as defined herein, which cannot be transferred during such
period even with the consent of the Underwriter). However, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Certain Transactions," "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; DISCLOSURE RELATING TO
LOW-PRICED STOCKS. The Company has submitted an application for listing on the
Nasdaq SmallCap Market ("Nasdaq") and it is currently anticipated that the
Company's Common Stock will be quoted on Nasdaq upon the completion of this
Offering. In order to continue to be listed on Nasdaq, however, the Company must
maintain $2,000,000 in net tangible assets, $35,000,000 in market capitalization
or $500,000 net income. In addition the Company must maintain 50,000 shares of
public float (shares not held directly or indirectly by any officer or director
of the Company or by any other person who is the beneficial owner of more than
ten percent (10%) of the total shares outstanding) with a minimum market value
of $4,000,000. In addition, continued inclusion requires two market makers, a
minimum bid price of $1.00 per share and at least 300 round lot shareholders
(holders of 100 shares or more). The failure to meet these maintenance criteria
in the future may result in the delisting of the Company's securities from
Nasdaq, and trading, if any, in the Company's securities would thereafter be
conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, if the Common Stock were to become delisted from trading on Nasdaq and
the trading price of the Common Stock was less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this Offering to sell the Common Stock in the secondary market.
18
<PAGE>
LACK OF PUBLIC MARKET; MINIMUM/MAXIMUM. Prior to this Offering, there has
been no public market for the Company's securities. Although the Common Stock
has applied for listing on the Nasdaq SmallCap Market, there can be no assurance
that an active public market will develop or be sustained. In addition, the
SmallCap Market may be significantly less liquid than the Nasdaq National
Market. If the Company fails to maintain the standards for quotation, the
Company's securities could be removed from the market and traded in the over the
counter market. As a result, an investor would find it more difficult to dispose
of, or obtain accurate quotations as to the price of, the securities.
There can be no assurance that the minimum number of shares will be sold. If
the minimum offering is not sold within one hundred eighty (180) days following
commencement of this Offering, the Offering will terminate automatically and all
funds paid for shares will be returned to the purchasers without deductions and
without interest. Even if the minimum number of shares is sold, there can be no
assurance that the maximum number of shares will be sold. If the minimum number
of shares is sold but the maximum number of shares is not sold, the Company
would be able to continue its operations for at least twelve months but the
proceeds from this Offering would be less than anticipated and could have a
material adverse effect on the Company's future operations.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $4,501,260 if the minimum
offering is attained and $6,426,000 if the maximum offering is attained
($7,068,600 if the Underwriter's over-allotment option is exercised in full).
The expenses of this Offering will have been prepaid by the Company to the
extent of $400,000 ($350,633 was prepaid as of March 31, 1998). The Company
expects to use the net proceeds (assuming no exercise of the Underwriter's
over-allotment option) approximately as follows:
APPLICATION OF PROCEEDS
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Repayment of indebtedness(1)....................................... $ 1,567,000 34.8% $ 2,277,000 35.4%
Sales and marketing(2)............................................. 315,000 7.0% 315,000 4.9%
Research and development(3)........................................ 1,124,000 25.0% 1,124,000 17.5%
Repayment of certain outstanding obligations(4).................... 325,000 7.2% 652,000 10.1%
Working capital and general corporate purposes(5).................. 1,170,260 26.0% 2,058,000 32.1%
------------ ----- ------------ -----
Total.............................................................. $ 4,501,260 100.0% $ 6,426,000 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>
- ------------------------
(1) The minimum offering figure represents the payment of the Bridge Notes,
together with partial payment of accrued interest in the aggregate amount of
$67,157. Included in the Bridge Notes to be repaid are $25,000, plus accrued
interest, payable to Lawrence O. Perl, the Company's Chairman of the Board,
Chief Executive Officer and Chief Financial Officer, $475,000 payable to
Harold Rothstein, a director of the Company, and $475,000 payable to Raymond
A. Roncari, a director of the Company. The maximum offering figure
represents all items paid in the minimum offering plus the payment of
accrued interest related to the Bridge Notes payable to Messrs. Rothstein
and Roncari, in the aggregate amount of $109,589, plus the repayment of bank
debt, in the aggregate amount of $600,000, which has been personally
guaranteed or secured with the private assets of Messrs. Roncari and
Rothstein. See "Plan of Operation" and "Certain Transactions."
(2) Consists of salaries of sales and marketing personnel, fees paid to
marketing consultants and anticipated costs and expenses associated with
sales presentations, preparation of marketing materials and attendance at
industry trade shows. See "Business--Marketing and Sales."
19
<PAGE>
(3) Represents a $712,000 payable to SoftChip in connection with the purchase of
the DVK-1 System and portion of anticipated costs associated with further
enhancement of the Company's proprietary technology as well as development
of system applications and pilot programs for potential System Sponsors. See
"Business--Research and Development."
(4) Consists of payment of certain past due obligations of the Company to
accountants, attorneys and consultants. Of the payments to attorneys,
$150,000 of the minimum offering and an estimated $250,000 of the maximum
offering represent partial payment of fees due to Cohn & Birnbaum P.C., the
firm's general corporate counsel. In addition, the Company intends to use
$42,000 of the proceeds from the maximum offering to repay a payable due to
Lawrence Owen Associates, a Company wholly owned by Mr. Perl. See
"Management."
(5) Includes amounts for the payment of compensation (including accrued
compensation) to executive officers, which is anticipated to be
approximately $1,400,000 during the twelve months following the date of this
Prospectus, as well as relocation expenses, rent, professional fees and
other operating expenses. Such payment for compensation is to paid in two
parts, $625,000 from the proceeds of the minimum offering and $775,000 from
the proceeds of the maximum offering, including accrued compensation in the
amount of $50,000 from the proceeds of the minimum offering and $500,000
from the proceeds of the maximum offering. See "Management."
DIVIDEND POLICY
The Company has never paid any cash or other dividends on its Common Stock.
Payment of dividends on the Common Stock is within the discretion of the Board
and will depend upon the Company's earnings, capital requirements and financial
condition, and on any other relevant factors. For the foreseeable future, the
Board of Directors intends to retain future earnings, if any, to finance its
business operations and does not anticipate paying any cash dividends with
respect to the Common Stock. In addition, the payment of cash dividends may be
limited or prohibited by the terms of any future loan agreements or any
Preferred Stock that may be issued by the Company. See "Plan of
Operation--Liquidity and Capital Resources" and "Description of
Securities--Preferred Stock."
DILUTION
The net tangible book value of the Company at March 31, 1998 was a deficit
of $4,566,092 (excludes intangible assets of $68,425 in deferred financing
costs, $170,022 in software development and $350,633 in deferred registration
costs), or $(1.81) per share of Common Stock. The difference between the initial
public offering price per share of Common Stock and the adjusted net tangible
book value per share of Common Stock after this Offering constitutes the
dilution to investors in this Offering. Net tangible book value per share on any
given date is determined by dividing the net tangible book value (total tangible
assets less total liabilities) of the Company on such date by the number of
shares of Common Stock outstanding on such date.
MINIMUM OFFERING
After giving effect to the sale by the Company of the 294,200 shares offered
hereby in the minimum offering, at an assumed initial public offering price of
$17.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses, the net tangible book value, as adjusted, of
the Company at March 31, 1998 would have been a deficit of approximately
$410,032, or $(0.15) per share, representing an immediate increase in such net
tangible book value of $1.66 per share to existing stockholders and an immediate
dilution in net tangible book value of $17.15 per share to purchasers of
20
<PAGE>
Common Stock in the minimum offering. The following table illustrates this per
share dilution applicable the minimum offering:
<TABLE>
<S> <C> <C> <C>
Initial public offering price....................... $ 17.00
Net tangible book value (deficit) before minimum
offering........................................ $ (1.81)
Increase attributable to new investors............ 1.66
---------
Adjusted pro-forma net tangible book value after
minimum offering.................................. (0.15)
---------
Dilution per share to new investors................. $ 17.15
---------
---------
</TABLE>
MAXIMUM OFFERING
After giving effect to the sale by the Company of the 420,000 shares offered
hereby in the maximum offering, at an assumed initial public offering price of
$17.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses, the net tangible book value as adjusted of
the Company at March 31, 1998 would have been approximately $1,435,541, or $0.49
per share, representing an immediate increase in such net tangible book value of
$2.30 per share to existing stockholders and an immediate dilution in net
tangible book value of $16.51 per share to purchasers of Common Stock in the
maximum offering. The following table illustrates this per share dilution
applicable the maximum offering:
<TABLE>
<CAPTION>
Initial public offering price....................... $ 17.00
<S> <C> <C> <C>
Net tangible book value (deficit) before maximum
offering........................................ $ (1.81)
Increase attributable to new investors............ 2.30
---------
Adjusted pro-forma net tangible book value after
maximum offering.................................. 0.49
---------
Dilution per share to new investors................. $ 16.51
---------
---------
</TABLE>
The following tables set forth as of March 31, 1998 a comparison between the
existing stockholders and the new investors in this Offering with respect to the
number of shares of Common Stock acquired from the Company, the percentage
ownership of such shares, the total consideration paid, the percentage of total
consideration paid and the average price per share:
MINIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 2,525,000 89.6% $ 2,243,500 31.0% $ 0.89
New Investors........................ 294,200 10.4 5,001,400 69.0 17.00
---------- ----- ------------ -----
Total.............................. 2,819,200 100.0% $ 7,244,900 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
21
<PAGE>
MAXIMUM OFFERING
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 2,525,000 85.7% $ 2,243,500 23.9% $ 0.89
New Investors........................ 420,000 14.3 7,140,000 76.1 17.00
---------- ----- ------------ -----
Total.............................. 2,945,000 100.0% $ 9,383,500 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The above tables assume no exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised in full, the new
investors will have paid $7,854,000 for 462,000 shares of Common Stock,
representing approximately 77.8 percent of the total consideration, for 15.5
percent of the total number of shares of Common Stock outstanding. The foregoing
table also assumes no exercise of any outstanding options. See "Management--1996
Stock Option Plan," "--Nonemployee Directors' Stock Option Plan," "Certain
Transactions" and "Underwriting."
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis, (ii) as adjusted to give effect to the sale of the minimum
offering of shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom, and (iii) as adjusted to give effect to the
sale of the maximum offering of shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
AS ADJUSTED FOR
----------------------------
ACTUAL MINIMUM(1) MAXIMUM(2)
------------- ------------- -------------
<S> <C> <C> <C>
Notes Payable........................................................ $ 2,179,956 $ 2,179,956 $ 1,579,956
Bridge Note.......................................................... 1,250,000(3) -- --
Stockholders' Equity (Deficit)
Preferred Stock, $.001 par value--1,000,000 shares authorized; no
shares issued and outstanding.................................... -- -- --
Common Stock, $.001 par value--20,000,000 shares authorized;
2,525,000 shares issued and outstanding, actual; 2,819,200, as
adjusted for the minimum offering; 2,945,000, as adjusted for the
maximum offering(4).............................................. 2,525 2,819 2,945
Additional paid-in capital......................................... 2,245,975 6,346,941 8,271,555
Stock subscriptions receivable..................................... (5,000) (5,000) (5,000)
Accumulated deficit during the development stage................... (6,220,512) (6,584,770) (6,663,937)
------------- ------------- -------------
Total stockholders' equity (deficit)............................. (3,977,012) (240,010) 1,605,563
------------- ------------- -------------
Total capitalization........................................... $ (547,056) $ 1,939,946 $ 3,185,519
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) Gives effect to the sale of the 294,200 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, including $1,500,000 representing the repayment of the Bridge
Notes plus $67,157 representing partial payment of accrued interest,
including a non-recurring charge of $45,833, plus a non-recurring charge of
$250,000 representing the unamortized loan discount, $68,425 representing
unamortized deferred financing costs associated with the 1998 Private
Placement and $400,000 representing prepaid costs of this Offering. See "Use
of Proceeds."
(2) Gives effect to the sale of the 420,000 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, $1,500,000 representing the repayment of the Bridge Notes plus
$176,746 representing payment of accrued interest, including a non-recurring
charge of $125,000, plus a non-recurring charge of $250,000 representing the
unamortized loan discount, $68,425 representing unamortized deferred
financing costs associated with the 1998 Private Placement, $600,000
representing repayment of all outstanding bank debt and $400,000
representing prepaid costs of this Offering. See "Use of Proceeds."
(3) Net of $250,000 loan discount.
(4) Does not include (i) 270,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Stock Option Plan; (ii) 30,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Directors' Plan; (iii) 100,000 shares of Common Stock reserved for issuance
upon exercise of the Shreveport Option; (iv) 50,000 shares of Common Stock
reserved for issuance upon exercise of the Chapman Option; (v) 25,000 shares
of Common Stock reserved for issuance upon exercise of the Commitment
Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon
exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock
reserved for issuance upon exercise of the
23
<PAGE>
Underwriter's Option, which warrants will be granted at and conditioned upon
the closing of the minimum offering; or (viii) 100,000 shares of Common
Stock reserved for issuance upon exercise of the Beter Option, which
warrants may be issued in the event of subsequent debt financing negotiated
by Beter. See "Management--1996 Stock Option Plan," "--Nonemployee
Directors' Stock Option Plan," "Certain Transactions," "Description of
Securities" and "Underwriting."
24
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1996
and 1997 and the balance sheet data at December 31, 1997 are derived from, and
are qualified by reference to, the Company's financial statements audited by BDO
Seidman, LLP included elsewhere in this Prospectus. The statement of operations
data for the three-month periods ended March 31, 1997 and 1998 and the period
from inception to March 31, 1998 and the balance sheet data at March 31, 1998
are derived from unaudited financial statements of the Company included
elsewhere in this Prospectus, which, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's results of operations for such periods and
financial condition at such date. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year or future periods.
The following data should be read in conjunction with the financial
statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
INCEPTION(1)
YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, TO MAR 31,
---------------------------- ---------------------------- -------------
1996 1997 1997 1998 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
Cost of sales......................... 16,279 86,995 -- 74,507 246,402
Research and development expense...... 167,000 260,000 55,000 174,000 781,000
General and administrative expense.... 919,546 1,176,885 331,311 554,587 3,739,792
Write-off of license fee.............. 20,000 -- -- -- 168,000
Interest and financing costs, net..... 129,126 1,065,240 100,070 283,727 1,522,325
Net loss(2)........................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512)
Net loss per share--basic and
diluted............................. (.54) (.96) (.19) (.40)
Weighted average number of shares
outstanding......................... 2,269,671 2,615,343 2,585,833 2,562,167
</TABLE>
- ------------------------
(1) The Company's date of inception is June 21, 1994.
(2) During the periods presented through June 30, 1996, the Company elected to
be treated as an S corporation for federal income tax purposes and,
accordingly, no provision for income taxes during such periods is reflected
in the Company's financial statements. The Company terminated its status as
an S corporation effective July 1, 1996. See Notes to Financial Statements.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
Working capital deficit................................... $ (2,881,624) $ (1,764,588)
Total assets.............................................. 594,536 890,440
Total liabilities......................................... 4,144,316 4,867,452
Total stockholders' deficit............................... (3,549,780) (3,977,012)
</TABLE>
25
<PAGE>
PLAN OF OPERATION
The Company was organized in June 1994 and is in the development stage.
Since inception, the Company has been engaged principally in organizational
activities, including developing a business plan, hiring personnel and
developing and enhancing its proprietary smart card technology and software, and
has only recently commenced the limited marketing of its smart card systems.
To date, the Company has developed and installed, on a limited basis,
employee identification and licensing smart card systems for the thoroughbred
racing industry. To date, the Company has executed two contracts with the North
American Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an
internet-based regulatory tracking system that includes a database with
licensing information, infractions records and digital photographs of the
licensees in its jurisdictions. NAPRA is an organization comprised of eighteen
pari-mutuel wagering jurisdictions located in North America, including horse and
dog racing, jai alai and card rooms. In addition to the contracts with NAPRA,
the Company has developed and installed smart card based employee identification
and licensing systems in four NAPRA jurisdictions, the Birmingham Racing
Commission and the Macon County Race Course, both in Alabama, the Oregon Racing
Commission and the Idaho Racing Commission. These smart card systems control
on-site access and maintain state licensing information. The Company recently
submitted a proposal to an additional NAPRA jurisdiction, the Florida Department
of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart
card licensing system.
In addition, the Company has completed a pilot program in New Jersey and
Pennsylvania for the issuance of "equine medical passport" smart cards for
monitoring the identity, interstate and intrastate movement and medical records
of thoroughbred horses. The Florida Department of Agriculture and Consumer
Services Bureau of Disease Control has proposed a similar pilot project
anticipated to begin as soon as possible. The Bureau of Disease Control is
responsible for ensuring the health and marketability of livestock in the state
of Florida. To prevent the spread of a deadly disease, the federal government
requires any horse crossing state lines to have a negative Coggins Report which
evidences a negative test result for Equine Infectious Anemia. A Coggins Report
is valid for one year from the issue date. Further, each state requires a valid
health certificate for any horse entering the state. The states of Florida,
Georgia and Alabama have formed an alliance whereby a special ninety (90) day
pass authorized by any of the three states can be used to cross state lines
between these states. The proposed Florida pilot program will involve a test
"livestock medical passport" program in which each of 100 animals will be
implanted with an "electronic identification transponder" used in conjunction
with smart cards to verify each animal's identity and federal and state medical
certifications. This pilot program will replace the required paper passports for
horses crossing between these states. Although completed programs in New Jersey
and Pennsylvania successfully tested the equine medical passport smart card
system and similar electronic transponder implants are in use which are not
coordinated with smart card technology, such equine medical passport pilot
programs have not resulted in any system sales to date. There can be no
assurance that any of the Company's pilot programs will result in system
purchases by any potential System Sponsor.
The Company has entered into a Memorandum of Understanding with Traquer
Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian
gaming and wagering facilities in North America. Traquer has significant
expertise with the rules and regulations for Indian gaming environments. In
February 1998, the Company received its first order from Traquer to provide a
smart card based employee licensing system to an Indian tribe in Arizona. This
system is expected to be installed by August 1998.
The Company received a request from Foundation Health, a Florida based HMO,
to structure a smart card system to assist and expedite the verification of
patient insurance coverage by hospital employees. The pilot program involves
Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the
Company anticipates the initial phase will be installed by July 1998. Other
phases of this proposed project may include expanding the smart card based
verification capability to all Foundation Health member hospitals
26
<PAGE>
and Authorized Service Providers in south Florida. The final phase may provide
all Foundation Health members with enhanced smart card member identification
capabilities.
The Company has also been selected as a subcontractor to Paradigm 4 for the
proposed New York City Time Project. The City of New York has significant
problems tracking city employees and verifying the accuracy of actual hours
worked. This project will pilot a number of technologies, including the use of
smart cards, for time and attendance management and tracking of city employees.
The Company is negotiating an exclusive distributorship agreement with AVID
Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide
computerized tracking system for companion animals. Under the terms of the
agreement, AVID will have the right to sell a unique smart card based system
developed by the Company exclusively for AVID and to be used in conjunction with
AVID's radio frequency identification devices currently being sold worldwide to
veterinarians and other customers. Owners of animals will carry with them the
Company's smart card containing animal tracking information related to the
existing PETtrac identification system as well as other AVID related
applications, including animal records. There can be no assurance that the
Company will be successful in negotiating this agreement.
The Company's objective is to become a leading provider of smart card
systems to government and commercial System Sponsors requiring increasingly
complex, secure and cost-effective information processing systems. The Company
intends to market its products through strategic marketing alliances and
licensing or other arrangements with systems integrators, value added resellers
and other smart card vendors. The Company anticipates that, under certain
circumstances, its smart card products will be bundled with its strategic
partners' products and services to create a complete integrated system that can
be marketed to potential System Sponsors. The Company will also seek to provide
complete smart card solutions, on a turnkey basis, to System Sponsors by
providing all of the hardware and software elements required to implement the
system.
The Company has generated limited revenues to date and does not expect to
generate meaningful revenues in the near future until such time, if ever, as its
smart card systems are successfully commercialized. The Company has incurred
significant losses in each operating period since its inception, resulting in an
accumulated deficit at March 31, 1998 of $6,220,512, and losses are continuing
through the date of this Prospectus. Inasmuch as the Company will continue to
have a high level of operating expenses and will be required to make significant
up-front expenditures in connection with both the development of its business
and the commercialization of its smart card systems (including, without
limitation, salaries of executive, technical, marketing and other personnel),
the Company anticipates that it will continue to incur significant and
increasing losses for the foreseeable future until such time, if ever, as the
Company is able to generate sufficient revenues to finance its operations. The
Company will also incur non-recurring charges relating to the 1998 Private
Placement of approximately $364,258 upon closing of the minimum offering. The
Company's independent certified public accountants have included an explanatory
paragraph in their report stating that the Company's dependence on outside
financing, lack of existing commitments from lenders to provide necessary
financing, lack of sufficient working capital and losses since inception raise
substantial doubt about the Company's ability to continue as a going concern.
The success of the Company's proposed plan of operation will be largely
dependent upon market acceptance of smart cards generally, as well as on the
Company's ability to successfully market its smart card systems by persuading
potential System Sponsors of the perceived benefits of its dual card access and
multiple application layering concepts (including the benefits to be derived
from allocating total card program costs among individual application layers
within a card) and to develop and commercialize further applications of its
proprietary technology. In addition, the Company's proposed plan of operation
and prospects will be dependent upon, among other things, the Company's ability
to enter into strategic marketing and licensing or other arrangements on a
timely basis and on favorable terms; establish satisfactory arrangements with
sales representatives and marketing consultants; hire and retain skilled
27
<PAGE>
management as well as financial, technical, marketing and other personnel;
successfully manage growth (including monitoring operations, controlling costs
and maintaining effective quality, inventory and service controls); and obtain
adequate financing when and as needed. The Company has limited experience in
developing new products based on innovative technology and there is limited
information available concerning the performance of the Company's technologies
or market acceptance of the Company's products. There can be no assurance that
the Company will be able to successfully implement its plan or that
unanticipated expenses or problems or technical difficulties will not occur
which would result in material delays in its implementation. Moreover, there can
be no assurance that the Company will have sufficient capacity to satisfy any
increased demand for its smart card products and technologies resulting from the
Company's implementation of its plan of operation.
As of the date of this Prospectus, the Company has ten full-time employees,
consisting of four executive officers and six employees engaged in engineering,
technical support, product development, marketing and sales, and administration,
including the Company's recently appointed Director of Sales. See "Management."
The Company also uses the resources of independent programmers and consultants
from time to time on an as needed basis. The Company anticipates that it will
hire additional sales and technical personnel to continue to implement the
Company's marketing and product development efforts and may engage independent
sales representatives and industry-specific marketing consultants to assist the
Company in marketing the Company's smart card systems to potential System
Sponsors.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash on hand of $155,437, a working
capital deficit of $1,764,588 and a stockholders' deficit of $3,977,012. The
Company's primary capital requirements will be to fund the Company's continuing
smart card system development and enhancement efforts, its sales and marketing
activities and the Company's working capital. The Company has historically
financed its capital requirements through the issuance of equity and debt
securities, contributions to capital and bank borrowings.
Since the inception of the Company, Lawrence O. Perl, the Chairman of the
Board, Chief Executive Officer and Chief Financial Officer of the Company, (both
individually and through The 1994 Perl Trust Indenture, a trust for the benefit
of the family of Lawrence O. Perl (the "Perl Trust")), Raymond Findley, the
Chief Operating Officer of the Company, Raymond A. Roncari, a director of the
Company, and Harold Rothstein, a director of the Company, (both individually and
through The Rothstein Family Trust, a trust for the benefit of the family of
Harold Rothstein (the "Rothstein Trust")), (each of the foregoing being referred
to individually as an "Original Stockholder"), have made the loans to the
Company in amounts aggregating $30,177, $15,177, $1,008,854 and $1,300,747,
respectively (the "Stockholder Loans"). The Stockholder Loans bear interest at
ten percent (10%) per annum and are to be repaid with the proceeds of subsequent
debt financing, but in no event later than January 1, 2001. These loans were to
provide the Company working capital and cover costs associated with this
Offering. See "Use of Proceeds," "Plan of Operation" and "Certain Transactions."
In March 1995, $250,000 of the then-outstanding principal amount of the
Stockholder Loans of each of Messrs. Rothstein and Roncari was recharacterized
as paid-in capital of the Company (the "Capital Contribution"). Pursuant to an
agreement among the Original Stockholders, the Capital Contribution was
allocated equally among the Original Stockholders, in consideration for which
Mr. Findley issued to Mr. Roncari and the Perl Trust issued to the Rothstein
Trust a promissory note in the amount of $125,000 (each, a "Capital Contribution
Note"). Mr. Findley and the Perl Trust subsequently transferred 25,000 shares of
Common Stock to Mr. Roncari and the Rothstein Trust, respectively, in
satisfaction of the indebtedness represented by the Capital Contribution Notes.
Upon the consummation of a January, 1997 private placement offering (the "1997
Private Placement"), $12,675 of the Perl Trust's Stockholder Loans, $12,675 of
Mr. Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and
$301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535,
44,652 and 60,278 shares of Common Stock, respectively. See "Certain
Transactions."
28
<PAGE>
From March through June of 1995, Joseph D. Basch, the President, Chief
Executive Officer and sole director of the Subsidiary, loaned the Company an
aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum
and were payable on demand. In July 1996, the Company and Mr. Basch entered into
an agreement pursuant to which the then-outstanding principal amount of the
loans, together with accrued interest thereon of approximately $30,000, was
converted into an aggregate of 240,000 shares of Common Stock.
In July, September and November 1996, the Company borrowed an aggregate of
$300,000 from The First National Bank of Suffield ("First Suffield"). Interest
accrues on such borrowings at the prime lending rate established by First
Suffield from time to time and is payable monthly. The aggregate outstanding
principal amount owed by the Company to First Suffield, together with accrued
interest thereon, is payable on September 1, 1998. Mr. Roncari has personally
guaranteed all of the Company's indebtedness to First Suffield. The loan
agreements prohibit the Company, except with the prior consent of First
Suffield, from paying dividends on its stock (other than dividends payable in
stock), merging or consolidating with another company or purchasing or retiring
any of its outstanding stock. The loan agreements also provide that it shall
constitute an event of default thereunder if, among other events, either the
Company or Mr. Roncari shall become insolvent or if First Suffield, in good
faith, deems that it has insufficient security with respect to the loans. This
debt is to be repaid from the proceeds of the maximum offering. See "Certain
Transactions."
From July through October 1996, the Company borrowed $150,000 from Fleet
National Bank ("Fleet"). Such amount is payable on demand. Interest accrues on
such borrowings at the prime lending rate established by Fleet from time to time
and is payable monthly. The Company's indebtedness to Fleet (the "Fleet Loan")
is personally guaranteed by Mr. Rothstein, and is secured by personal assets
pledged by Mr. Rothstein in the form of a certificate of deposit in the amount
of $150,000. This debt is to be repaid from the proceeds of the maximum
offering. See "Certain Transactions."
In October 1996, the Company borrowed $100,000 from The Chase Manhattan Bank
("Chase"). Such amount is payable on August 11, 1998. Interest accrues at the
prime lending rate established by Chase from time to time and is payable
monthly. The Company's indebtedness to Chase (the "Chase Loan") is secured by
personal assets pledged by Mr. Rothstein in the form of a certificate of deposit
in the amount of $105,000. This debt is to be repaid from the proceeds of the
maximum offering. See "Certain Transactions."
Mr. Rothstein has agreed with the Company that, in the event a demand is
made by Fleet with respect to the Fleet Loan and/or a demand is made by Chase
with respect to the Chase Loan prior to the earlier of the closing of the
maximum offering, subsequent debt financing or March 3, 2001, he shall either
(i) secure replacement financing to pay the amount so demanded or (ii)
personally satisfy the amount demanded, either through surrender of the
collateral previously pledged by him or through other means satisfactory to
Fleet and/or Chase, as the case may be. In the event Mr. Rothstein elects to
personally satisfy the demanded amount, the Company has agreed to reimburse Mr.
Rothstein for the full amount of such payment on the earlier of the closing of
the maximum offering, subsequent debt financing or March 3, 2001. See "Certain
Transactions."
In December 1996, the Company borrowed $50,000 from First Southern Bank
("FSB"). Such amount is payable on December 9, 1998 and bears interest at a rate
of 8.5% payable monthly. The Company's indebtedness to FSB is secured by
personal assets pledged by Mr. Rothstein in the form of a certificate of deposit
in the amount of $50,000. This debt is to be repaid from the proceeds of the
maximum offering. See "Certain Transactions."
In January 1997, pursuant to the 1997 Private Placement, the Company
completed the sale to 23 private investors (including certain officers and
directors of the Company) of 25 units (the "1997 Units"); each 1997 Unit
consisted of (i) an unsecured 9% non-negotiable bridge note in the principal
amount of $50,000 due on the earlier of the consummation of an initial public
offering or January 16, 1998 (the "1997
29
<PAGE>
Bridge Notes"); (ii) 5,000 bridge shares (the "1997 Bridge Shares"); and (iii)
25,000 bridge warrants, each bridge warrant representing the right to purchase
one share of Common Stock at an exercise price of $4.00 per share, subject to
adjustment in certain circumstances (the "1997 Bridge Warrants"). The purchase
price per 1997 Unit was $50,000. The Company received gross proceeds of
$1,250,000 from the sale of the 1997 Private Placement. After payment of
$125,000 in placement fees to the underwriting firm (not the Underwriter in this
Offering), which acted as placement agent for the Company with respect to the
1997 Private Placement, and other offering expenses of approximately $105,000,
the Company received net proceeds of approximately $1,020,000 in connection with
the 1997 Private Placement. The net proceeds from the 1997 Private Placement
were used in connection with the Company's operations, including to fund the
Company's research and development efforts, to fund its sales and marketing
activities, to repay certain outstanding obligations, and for working capital
and general corporate purposes.
From July 1997 through January 1998, three directors, Raymond A. Roncari,
Harold Rothstein and Lawrence O. Perl, provided the Stockholder Loans to the
Company in the amounts of $320,000, $460,000 and $15,000, respectively. These
Loans provided the Company working capital and covered some costs associated
with this Offering and are to be repaid with the proceeds of subsequent debt
financing, but in no event later than January 1, 2001.
In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) an unsecured non-negotiable promissory note in the principal amount of
$50,000 (the "Bridge Notes"), (A) bearing interest at the rate of ten percent
(10%) per annum, payable annually in arrears, and (B) providing for a loan fee
payable upon payoff of the Bridge Note in an amount equal to $5,000 less
interest accrued under the Bridge Note during the first year through the date of
payoff; (ii) 2,500 shares of Common Stock (the "Bridge Shares"); and (iii) 2,500
Bridge Warrants. The purchase price per Unit was $50,000. The Company received
gross proceeds of $1,500,000 from the sale of such Units. After payment of
approximately $10,000 in costs associated with the 1998 Private Placement, the
Company received net proceeds of approximately $1,490,000 in connection with the
1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to
exercise certain options to repurchase securities sold in the 1997 Private
Placement. Some holders of the 1997 Units chose to invest in the 1998 Private
Placement and defer all interest due them from the 1997 Units. The balance of
the net proceeds are being used for working capital and general corporate
purposes, as well as to fund some expenses of this Offering. The Bridge Notes,
together with accrued interest thereon, are due on the earlier of March 3, 2001
or the closing of an IPO by the Company. The Bridge Notes are to be repaid from
the proceeds of the minimum offering. The accrued interest due on the Bridge
Notes is to be repaid in two parts, $67,157 from the proceeds of the minimum
offering and $109,589 from the proceeds of the maximum offering, but in no event
later than March 3, 2001.
In conjunction with the closing of the 1998 Private Placement, the Company
entered into Director Loan Agreements with each of Harold Rothstein and Raymond
A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to
loan $450,000 (for a total of $900,000) to the Company to be used for working
capital and certain costs of this Offering. These amounts, together with
approximately $157,000 of the proceeds of the 1998 Private Placement, were used
to fund certain costs of this Offering and provide required working capital. In
consideration for this commitment, Messrs. Rothstein and Roncari were each
granted 12,500 shares of Common Stock of the Company and 12,500 Commitment
Warrants. Pursuant to each Director Loan Agreement, the Company has the right to
draw down advances from each of Messrs. Rothstein and Roncari (each a "Director
Lender") as funds are required and the Director Lender is obligated to so
advance funds within three (3) business days of any such request. Any amounts
advanced will bear interest at a rate of ten percent (10%) per annum. All
amounts so advanced, together with accrued interest thereon will be due and
payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of
subsequent debt financing.
30
<PAGE>
The Company's capital requirements have been and will continue to be
significant. The Company has been dependent on the sales of its securities to
private investors, as well as on capital contributions and loans from affiliates
and certain financial institutions guaranteed by certain stockholders of the
Company. During the period from inception through the date of this Prospectus,
the Company has raised capital through such means in the estimated aggregate
amount of $5,600,000 (including approximately $5,000,000 through March 31,
1998).
The Company is dependent on and intends to use the proceeds of this Offering
to continue the implementation of its proposed plan of operation. The Company
anticipates, based on assumptions relating to its current operations (including
assumptions regarding the Company's ability to meet its current marketing
objectives and the timing and costs associated therewith), that the proceeds of
this Offering, together with projected cash flow from operations, will be
sufficient to fund the Company's operations and capital requirements for at
least twelve months following the closing of the minimum offering. In the event
that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this Offering prove to be insufficient to fund
operations (due to unanticipated expenses, technical difficulties, problems or
otherwise), the Company would be required to seek additional financing sooner
than currently anticipated. There can be no assurance that the proceeds of this
Offering will be sufficient to permit the Company to successfully further
develop and commercialize the Company's smart card technology or that any
assumptions relating to the Company's operations will prove to be accurate. In
addition, any implementation of the Company's business plans subsequent to the
twelve month period following this Offering may require proceeds greater than
the proceeds of this Offering or otherwise currently available to the Company.
There can be no assurance that additional financing will be available to the
Company on commercially reasonable terms, or at all. Further, if the closing of
this Offering is delayed, the Company may not have sufficient capital to fund
operations and the anticipated expenses of this Offering. Although the Company
believes it may be able to raise at least a portion of the Company's future
financing requirements for such period among the officers, directors and/or
stockholders of the Company, no officer, director or stockholder of the Company
has made any further commitment to the Company to provide any portion of the
Company's future financing requirements and there are no assurances that any
officer, director or stockholder will do so. Any inability to obtain additional
financing when needed may have a material adverse effect on the Company,
including requiring the Company to curtail its activities and possibly causing
the Company to cease its operations. To the extent that the Company finances its
operations through the issuance of additional equity securities, any such
issuance would result in dilution of the interests of the Company's
then-existing stockholders. At some future date, the Company intends to offer up
to approximately $30 million in debt financing, to be negotiated by Beter. Upon
closing of such debt financing, Beter would receive the Beter Option. There can
be no assurance that such additional financing, or any other additional
financing, will be available to the Company on commercially reasonable terms, or
at all. Further, if such additional financing is attempted, there can be no
assurance that such additional financing, or any other additional financing,
will be successful. To the extent that the Company incurs indebtedness or issues
debt securities, the Company will be subject to all of the risks associated with
incurring substantial indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on any
such indebtedness.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS
The sales cycle for a prospective System Sponsor is expected to commence at
the time the prospective System Sponsor demonstrates an interest in purchasing a
smart card system from the Company or issues a request for a proposal or
information or takes similar action and ends upon the installation of a smart
card system for the System Sponsor. The sales cycle will vary by System Sponsor
and could extend for periods of up to twelve months or more, depending upon,
among other things, the time required by the System Sponsor to complete a pilot
test of the Company's smart card system, make a determination regarding an
acquisition thereof and negotiate payment terms with the Company. The Company's
operating results could vary from period to period as a result of this
fluctuation in the length of the Company's sales cycle and as a result of
fluctuations in the purchasing patterns of potential System Sponsors,
technological factors, variations in marketing strategies for different target
markets and non-recurring smart card system sales.
31
<PAGE>
BUSINESS
GENERAL
The Company, a development stage company, was organized to design, develop
and market high security, flexible, multiple application smart card systems. A
smart card is a credit card-sized plastic card containing a microchip that
provides the card with memory storage capabilities in a secure environment and,
in advanced versions such as the Company's, enables the card to perform data
processing functions. Smart card systems are typically used by government
agencies or commercial enterprises (the "System Sponsor") to store, access and
modify participant or customer (the "User") information. The Company's
proprietary smart card technology and software enable System Sponsors to store
data on a User's smart card, and enable the System Sponsor, or a service
provider authorized by the System Sponsor (the "Authorized Service Provider"),
to access User information and read, input, delete, modify and process such
data. The Company designs its smart card systems to perform functions for
various target markets, such as employee licensing, animal health and
registration, frequent patron tracking, health care and various government
agency applications and can design each system to perform various functions in
virtually any industry, depending on the System Sponsor's needs. The Company
believes that its smart card systems, which offer the capability to perform
multiple functions on a single card, provide enhanced security and privacy
protection not offered by existing smart cards and position the Company to
capitalize on perceived market opportunities for information systems
incorporating smart card technology.
INDUSTRY BACKGROUND
Smart card technology was developed in France in the mid 1970s and is
currently in wide use in Europe, the Pacific Rim, Latin America and the Middle
East. According to the market researcher Dataquest, the microprocessor and
memory based smart card market will grow from 544 million cards in 1995 to 3.4
billion cards by 2001. Most smart cards currently in use are low capacity
memory-only phone cards which provide only data storage, reading and deletion
capabilities. More sophisticated smart cards, including the Company's smart
cards, are microprocessor-based and therefore have the ability not only to
store, read and delete data but also to add, modify and process data. However,
the Company believes that most microprocessor-based smart cards currently in use
were designed to perform functions for single purpose applications only, such as
pay television access control, medical or academic recordkeeping or insurance
claim processing. The Company believes that these smart cards also generally
utilize multiple, alternative technologies such as microchips, bar codes and
magnetic stripes simultaneously, or allow access by any Authorized Service
Provider to all the information included within the card.
Most cards currently used in electronic transactions are magnetic stripe
cards, such as ordinary credit cards. Such cards contain only limited
information such as account numbers and identification information, but cannot
store or update additional information such as current account balances. The
Company believes that the market for smart cards in North America remains
relatively unexploited due to the large capital and infrastructure investments
made by debit and credit card issuers and the significantly lower costs
associated with the use of magnetic stripe cards. However, smart cards have
recently been introduced in the United States in a number of venues. For
example, a stored value card program designed to facilitate purchases from
participating vendors was used during the 1996 Summer Olympics. In addition, the
National Football League's Jacksonville Jaguars and the National Hockey League's
St. Louis Blues have each installed smart card systems to be used for the
purchase of concession items at their respective sports games. Government
Technology Magazine stated in a February 1996 issue that U.S. welfare reform
legislation mandates that every state replace its paper food stamp system with
an Electronic Benefit Transfer (EBT) scheme by the year 2002, consistent with
the government's push towards a paperless society. Pursuant to this mandate,
many states use magnetic stripe cards for their food stamp programs, and the
States of Mississippi, Ohio and Wyoming have each proposed plans to replace food
stamps with a card-based system to improve convenience and efficiency, as well
as to decrease fraud. A joint pilot program in Manhattan's Upper West Side
between MasterCard, Chase Manhattan Bank, VISA and
32
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Citibank brings the idea of electronic cash to New York consumers and merchants,
with almost 700 merchants participating in the program. The Company's smart
cards are based on concepts similar to these applications, but the Company's
cards can contain more information due to the Company's patented method of
multiple application layering. In addition, only the Company can utilize its
patented dual card access technology. The Company believes the enhanced security
features and multiple function capabilities of its cards take existing smart
card technology several steps further.
The Company believes that smart cards offer certain advantages over magnetic
stripe cards including the ability to store pages of information and update or
otherwise utilize data as circumstances require. In addition, while the data
contained on magnetic stripe cards is difficult to secure, smart cards can be
programmed to prevent manipulation of data stored in the card. A smart card can
also be programmed with an unalterable memory, prohibiting the writing of new
data on top of old data, and can be programmed to utilize public and private key
encryption algorithms to lower the risk of theft of sensitive data. Furthermore,
unlike magnetic stripe cards, most smart cards are extremely difficult and
expensive to alter, duplicate or reproduce. The Company believes that the
limitations of magnetic stripe cards will present significant market
opportunities in North America for smart card systems featuring enhanced
security and multiple application layering as electronic transactions, including
government benefits transfers, licensing and frequent patron tracking, become
more complex.
TECHNOLOGY OVERVIEW
The Company's proprietary smart card systems incorporate dual card access
technology and multiple application layering. The Company believes that these
components result in certain advantages over magnetic stripe cards and existing
smart card systems, including enhanced security features and multiple function
capabilities. The Company's patented dual card access technology (analogous to a
dual key system for access to a safe deposit box) requires the simultaneous use
of both a "User Card" and an "Access Card" to activate the system. User Cards
are issued by a System Sponsor (such as an HMO, welfare agency, state motor
vehicle department or retail store) to Users such as patients, benefits
recipients, drivers or customers. Access Cards are issued by the System Sponsor
to Authorized Service Providers affiliated with the particular System Sponsor
(such as HMO participating physicians, welfare administrators, police officers
and cashiers). Each User Card issued by the System Sponsor has stored within it
an individualized database containing User-specific information, which is stored
in a "common pool."
By virtue of the dual card access and multiple application layering features
of the Company's technology, a basic set of data carried on a single smart card
can be processed and configured according to the specific requirements of each
application layer of the card. As a result, a vast array of information and
electronic documents and reports can be generated for various categories of
System Sponsors and Authorized Service Providers, thereby substantially
increasing the potential number of uses for each card. For example, one User's
smart card provided by the Company could generate a medical history when
activated by an HMO's participating physician's Access Card, an insurance claim
record when activated by the HMO's benefits administrator's Access Card, a
welfare benefits record when activated by a welfare administrator's Access Card,
and a driver's license when activated by a police officer's Access Card. By
providing a System Sponsor with the ability to add applications over time and
allowing multiple System Sponsors to utilize different layers of the same smart
card, the Company's smart card systems will enable the cost per smart card to be
allocated among separate System Sponsors or different departments within a
single System Sponsor.
The Company's patented method of multiple application layering technology
allows an Access Card to retrieve from this common pool of information only the
data that the Access Card in use is programmed to access. The data stored on the
User Card is then displayed and processed in accordance with the requirements of
the application layer activated by the particular Access Card in use. This
process increases the potential number of uses of the User Card and enables a
single User Card to serve multiple System Sponsors as well as multiple
Authorized Service Providers within a single System Sponsor. The Company
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believes that these features position its smart card systems as secure,
cost-effective solutions for electronic transaction and information processing.
Generally, smart cards can incorporate advanced security features, ranging
in sophistication from a password, photograph or personal identification number
system to a fingerprint, retinal scan or facial geometry recognition system,
which are not found in magnetic stripe cards. The Company believes that the
multiple application layering feature of its smart card systems provide enhanced
security and privacy protection. Each application layer is separate, with
"firewall"-type safeguards to prevent unauthorized access to data in another
application layer. Moreover, each layer can be programmed with the level of
security appropriate to the sensitivity of the data contained in such layer. In
addition, the Company's systems establish an "audit trail" which will record
specific information regarding each instance in which data is accessed,
including the time, the date and the identity of the person accessing
information.
The Company's technology also permits easy adaptation and customization,
allowing the Company to provide a smart card system tailored to the System
Sponsor's needs. The Company's technology provides system scalability by
allowing a System Sponsor, over time, to increase the number of applications
performed by its smart cards, provide additional services or add other System
Sponsors. Furthermore, the Company's technology can support a communication
system in which messages and data updates can be sent between the System Sponsor
and the Authorized Service Provider and/or User, including messages that render
a card inoperable if no longer valid.
PRODUCTS
The Company was organized to design, develop and market high security,
flexible, multiple application smart card systems, which are comprised of the
following products:
SMART CARDS. The Company currently uses commercially available microchips
with varying amounts of memory, depending upon each System Sponsor's
requirements. The Company arranges for initial entry of database information on
the User Cards and authorized access codes on the Access Cards to the System
Sponsor's specifications.
READ/WRITE DEVICES. A read/write device is hardware that provides the data
interface between a smart card and the host computer, allowing data to be
transferred between a database and a smart card. Information can be uploaded and
downloaded between the Access Card and the User Card at any read/ write device
within the system. The Company's smart card systems utilize basic, relatively
inexpensive read/ write devices because certain functions that would otherwise
be performed by the read/write devices are performed by the software within the
Company's smart cards. In addition, because the Company's smart cards conform to
applicable industry standards, the cards are compatible with various types of
read/write devices currently in use.
PRINTERS. The Company utilizes smart card printers for printing images and
other information required to be displayed on the face of the smart cards. These
printers may also include a chip encoder that can write information to the chip
at the same time as the smart card is printed. Numerous such printers are
available in the industry.
CUSTOMIZED APPLICATION SOFTWARE. Each smart card system developed by the
Company, in order to perform the various applications included in that system,
requires customized application software to be written relating to the specific
tasks to be accomplished. Typically, such customized application software
includes software that performs certain basic functions, as well as software
that performs the specific functions required by the particular system. The
Company has developed software that performs the basic functions required to be
performed by all of the Company's smart card systems. By virtue of having
developed such software, the Company is able to create the customized
applications required for a particular system more quickly than if all of the
software necessary to implement the system were required to be developed for
each particular application. The Company's proprietary software has been
developed
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for use on a workstation personal computer. In addition, the Company is a member
of the Microsoft development team and participates in alpha and beta testing of
new Microsoft products. The Company's proprietary software is compatible with
Windows 3.x-TM-, Windows 95-TM-, Windows NT-TM-. and Windows 98-TM-.
The Company intends to provide each System Sponsor with a customized
configuration of its products based upon the System Sponsor's specific needs and
constraints, ranging from subsystems comprised of selected components which may
be integrated with products or systems provided by third parties, to complete
"turnkey" systems. Each System Sponsor will utilize system stations to
facilitate initial and ongoing operation of each system installed by the
Company. An issue station will issue personalized smart cards, and will be
comprised of one or more personal computers, video cameras for systems requiring
photographs on User Cards, read/write devices, card printers and system
software. An update station will implement necessary changes to the Company's
smart cards, such as updating of information or modification of an Authorized
Service Provider's ability to access particular User information, and will be
comprised of a personal computer, one or more read/write devices and system
software. One or more display stations will permit a User or Authorized Service
Provider to view information stored on a User Card, and will be comprised of a
personal computer, notebook computer and/or hand-held display device, read/write
devices and system software. One personal computer may in some cases function as
issue station, update station and display station, depending on the rights
encoded in the Access Card used. The Company anticipates that a System Sponsor
may, under certain circumstances, seek to utilize, or otherwise procure, its own
system station hardware. In such cases, the Company would expect to aid the
System Sponsor in integrating such hardware with the smart card system products
provided by the Company.
PRICING. The prices of the Company's products will depend on the System
Sponsor's specifications and requirements relating thereto (including the number
and type of application layers per card) and any applicable volume discounts.
The price of the Company's customized application software will depend upon
various factors, including the nature and complexity of the smart card products
and required system interfaces. The off-the-shelf products comprising the
balance of the components of the smart card systems offered by the Company
(including personal computers, notebook computers and hand-held display devices)
will be offered at then-prevailing market prices.
WARRANTY AND SERVICE. The Company offers a limited warranty covering both
parts and labor, pursuant to which the Company or its authorized service
representatives will make repairs and replace parts that become defective due to
normal use. The Company does not anticipate that the cost of servicing its smart
card systems will be material. Furthermore, substantially all component parts of
the Company's smart card systems will be covered by warranties from the
suppliers thereof. However, there can be no assurance that future warranty
expenses will not have an adverse effect on the Company.
TECHNICAL SUPPORT. The Company offers technical support to its System
Sponsors at no charge on a limited basis, as described in each individual System
Sponsor contract. Beyond the specified level, the Company charges an hourly rate
for additional technical support. The Company does not anticipate that the cost
of offering such technical support services will be material.
SMART CARD PRODUCT DEVELOPMENT
The Company believes there are numerous potential applications for its smart
card systems, including but not limited to the following:
EMPLOYEE LICENSING--Licensing and identifying employees in certain regulated
industries, including photo identification, time and attendance records,
specific database information required by the employer and access control to
secure areas.
ANIMAL HEALTH AND REGISTRATION--Tracking of lineage history, medical
information, identification, breed information, nutritional information,
performance data and history of interstate and intrastate movement of
thoroughbred horses and various other racing and show animals and domestic pets.
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GOVERNMENT APPLICATIONS--Issuing citizen photo identification and government
licenses (such as motor vehicle, professional and weapons licenses) and
maintaining and processing government entitlement information (including
Medicare, Medicaid and welfare information).
FREQUENT PATRON PROGRAMS AND TRACKING--Awarding of points, miles or other
credits for retail purchases and tracking of customer purchases to facilitate
more focused target marketing.
GAMING--Controlling and monitoring loss limits, employee licensing and
frequent player tracking.
HEALTH CARE--Simplifying and expediting the verification of patient
insurance coverage and maintaining paperless medical records by medical service
providers.
SOFT TRADING DESK--Reconfiguring the hardware and software of a securities
trading desk through the use of information embedded in each individual trader's
smart card to accommodate each trader's individual screen and information
preferences.
The Company has installed an employee licensing system for the Birmingham
Racing Commission. The agreement provides for the Company to deliver smart cards
and hardware in connection with the licensing and monitoring of racetrack
personnel and others. Pursuant to the agreement, the Company has developed a
licensing database containing more than 30 categories of information for each
licensee, including name, address, date and place of birth, height, weight,
employer's name, fines, rulings, suspensions and revocations. To date, the
Company has provided the Birmingham Racing Commission with over 15,000 smart
cards, a smart card printer and chip encoder and two (2) read/write devices. The
term of the agreement is five years, subject to early termination upon 30 days
notice to the Company. The Company may not terminate the license before
expiration of the five-year term of the agreement. The Company has installed a
similar system at the Macon County Race Course in Alabama under a separate
contract. See "Certain Transactions."
The Company has also installed an employee licensing system at the Oregon
Racing Commission and, to date, the Company has sold approximately 9,500 smart
cards and four (4) read/write devices to the Oregon Racing Commission. The
Company also has two contracts with NAPRA for a national licensing system that
includes a database for eighteen racing jurisdictions, including information on
licensing data, infractions and digital photographs.
In March 1998, the Company installed an employee licensing system at the
Idaho Racing Commission. The system utilizes approximately 1,500 processor cards
for mobile employees who travel between racing facilities, such as jockeys,
owners and trainers, plus over 2,000 memory only cards for stationary employees,
such as food vendors and ticket takers.
From June 1 to September 1, 1995, the Company conducted a pilot program at
Atlantic City Raceway and Monmouth Park in New Jersey and Philadelphia Park in
Pennsylvania involving the issuance of equine medical passport smart cards to
track the identity, movement and medical records of thoroughbred racehorses. To
prevent the spread of a deadly disease, the federal government requires any
horse crossing state lines to have a negative Coggins Report which evidences a
negative test result for Equine Infectious Anemia. A Coggins Report is valid for
one year from the issue date. Further, each state requires a valid health
certificate for any horse entering the state. Under the New Jersey and
Pennsylvania program, data on approximately 500 thoroughbred racehorses that
would otherwise have been provided in paper documents was entered into smart
cards provided by the Company and each track gatekeeper in the program utilized
a reader terminal that interfaced with the cards to determine whether particular
horses were eligible for entry on racetrack grounds. The pilot was co-sponsored
by The Jockey Club Racing Services, Inc. During the pilot program, the Company
issued approximately 500 equine medical passport smart cards. The Company is
currently developing enhancements to the smart card system utilized in the pilot
program in order to address certain operational issues that arose during the
program. Although the completed program successfully tested the equine medical
passport smart card system, such pilot program
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has not resulted in any system sales to date. There can be no assurances that
any of the Company's pilot programs will result in system purchases by any
potential System Sponsor.
The Florida Department of Agriculture and Consumer Services Bureau of
Disease Control has proposed a similar pilot project anticipated to begin as
soon as possible. The Bureau of Disease Control is responsible for ensuring the
health and marketability of livestock in the state of Florida The states of
Florida, Georgia and Alabama have formed an alliance whereby a special ninety
(90) day pass authorized by any of the three states can be used to cross state
lines between these states. The proposed Florida pilot program will involve a
test "livestock medical passport" program in which each of 100 animals will be
implanted with an "electronic identification transponder" used in conjunction
with smart cards to verify each animal's identity and federal and state medical
certifications. This pilot program will replace the required paper passports for
horses crossing between these states. Although completed programs in New Jersey
and Pennsylvania successfully tested the equine medical passport smart card
system and similar electronic transponder implants are in use which are not
coordinated with smart card technology, such equine medical passport pilot
programs have not resulted in any system sales to date.
The Company has entered into a Memorandum of Understanding with Traquer to
market the Company's smart card systems to Indian gaming and wagering facilities
in North America. Traquer has significant expertise with the rules and
regulations for Indian gaming environments. In February 1998, the Company
received its first order from Traquer to provide a smart card based employee
licensing system to an Indian tribe in Arizona. This system is expected to be
installed by August 1998.
The Company received a request from Foundation Health, a Florida based HMO,
to structure a smart card system to assist and expedite the verification of
patient insurance coverage by hospital employees. The pilot program involves
Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the
Company anticipates the initial phase will be installed by July 1998. Other
phases of this proposed project may include expanding the smart card based
verification capability to all Foundation Health member hospitals and Authorized
Service Providers in south Florida. The final phase may provide all Foundation
Health members with enhanced smart card member identification capabilities.
The Company has also been selected as a subcontractor to Paradigm 4 for the
proposed New York City Time Project. The City of New York has significant
problems tracking city employees and verifying the accuracy of actual hours
worked. This project will pilot a number of technologies, including the use of
smart cards, for time and attendance management and tracking of city employees.
The Company is negotiating an exclusive distributorship agreement with AVID
Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide
computerized tracking system for companion animals. Under the terms of the
agreement, AVID will have the right to sell a unique smart card based system
developed by the Company exclusively for AVID and to be used in conjunction with
AVID's radio frequency identification devices currently being sold worldwide to
veterinarians and other customers. Owners of animals will carry with them the
Company's smart card containing animal tracking information related to the
existing PETtrac identification system as well as other AVID related
applications, including animal records. There can be no assurance that the
Company will be successful in negotiating this agreement.
The Company, either alone or in conjunction with strategic partners, is
currently in discussions and negotiations with certain potential System Sponsors
regarding possible future smart card projects. The Company, through the
Subsidiary, has entered into a Memorandum of Understanding with SHL Systemhouse,
an international systems integrator owned by MCI, to form a joint venture for
the purpose of attempting to secure a project to develop a smart card system for
the Province of Ontario, Canada. There can be no assurance that any such
projects will be implemented or, if implemented, generate meaningful revenues.
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MARKETING AND SALES
The Company's objective is to become a leading provider of smart card
systems to government and commercial System Sponsors requiring increasingly
complex, secure and cost-effective information processing systems. Because the
Company believes there are numerous potential target markets for the Company's
smart card systems, the Company intends to market its products through multiple
channels, including through strategic marketing alliances and licensing or other
arrangements with systems integrators, value added resellers and other smart
card vendors. The Company believes that such arrangements will enable it to have
access to substantial numbers of potential smart card System Sponsors, and that
third-party partners can provide knowledge, experience and/or financial
resources appropriate to a specific market opportunity and may enhance the
Company's ability to achieve significant penetration in select markets,
especially in those involving government services. The Company anticipates that,
under certain circumstances, its smart card products will be bundled with its
strategic partners' products and services to create a complete integrated system
that can be marketed to potential System Sponsors. The Company will also seek to
provide complete smart card solutions, on a turnkey basis, to System Sponsors by
providing all of the hardware and software elements required to implement the
system.
The Company will seek to identify potential System Sponsors and strategic
partners and attempt to increase the visibility of the Company. It will be the
role of the Director of Sales, under the direction of management, to guide the
Company from the research and development phase to a company with full marketing
and sales strategies for direct and indirect sales. The Company intends to
market its smart card systems directly through its management and employees and
may also retain the services of third parties such as independent sales
representatives and marketing and other consultants. The Company utilizes
independent sales representatives in the United States and abroad, whose
relationships with the Company are generally governed by a written contract for
a specified term, subject to renewal under certain circumstances, and provides
for a limited exclusive territorial or industry representation, specified fees
or commissions and specified sales targets. The Company may, in the case of
potential System Sponsors within certain target industries, sell its systems
through marketing and other consultants with relationships in such industries.
The Company also plans to market its systems through sales brochures, direct
mailings, advertisements in trade publications and participation in industry
trade shows. The Company intends to utilize a portion of the proceeds of this
Offering to expand its marketing and sales activities.
RESEARCH AND DEVELOPMENT AND TECHNOLOGY PURCHASE
For the years ended December 31, 1996 and December 31, 1997, the Company
incurred costs relating to research and development activities in the
approximate amounts of $167,000 and $260,000, respectively. The Company intends
to utilize a portion of the proceeds of this Offering for research and
development, including $712,000 (of which $72,000 has been expensed through
March 31, 1998, $100,000 is expected to be capitalized and $540,000 is expected
to be expensed ratably over approximately a 2.5 year period) payable to SoftChip
in connection with the purchase of the DVK-1 System and the further enhancement
of the Company's proprietary technology as well as the development of system
applications and pilot programs for potential System Sponsors. The Company
further intends to pursue additional patents on various aspects of its
technology.
MANUFACTURING
The Company does not manufacture its own microprocessor chips or associated
hardware or assemble its own smart cards. Components for the Company's smart
cards, such as microprocessor chips and plastic cards as well as associated
hardware, may be purchased from a number of qualified electronic parts
manufacturers and distributors. The Company is under no obligation to purchase
any such components from any one particular manufacturer and therefore may
obtain quality components at the best possible prices the Company can find.
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COMPETITION
The market for the Company's smart card systems is characterized by intense
competition. The market is currently dominated by cards utilizing magnetic
stripes, and is expected to be dominated by magnetic stripe cards for the
foreseeable future due to the lower costs of production of such cards and the
substantial capital and infrastructure investments made by debit and credit card
issuers in such cards. The Company also competes with numerous well-established
companies, including Gemplus, Bull PTS (a unit of Groupe Bull), Schlumberger
Electronic Transactions (a business segment of Schlumberger Limited), Orga
Kartensysteme GMBH, Giesecke & Devrient and Mondex International, which design,
manufacture and/or market smart card systems. Although the Company believes that
its dual card access and multiple application layering technologies will allow
the Company to compete on the basis of enhanced security, flexibility,
scalability, cost-effectiveness and quality, the Company's smart card systems
incorporate new concepts and may be unsuccessful even if they are superior to
those of its competitors. In addition, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar or superior to those developed by the Company. Most of the
Company's competitors and potential competitors possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations relating to the design, development, manufacture,
marketing and service of smart card systems. As the market for smart card
systems grows, new competitors are likely to emerge. Additional competition
could adversely affect the Company's operations. Smart card technology competes
with other electronic transaction and information processing technologies,
including magnetic stripe cards, bar code cards, laser optical cards and radio
frequency contactless cards, as well as traditional methods of transaction and
information processing, whether effected or recorded on paper or otherwise.
GOVERNMENT REGULATION AND INDUSTRY STANDARDS
In the United States, the Company is not currently subject to direct
regulation other than federal and state regulations applicable to businesses
generally. However, changes in the regulatory environment relating to the smart
card industry could have an adverse effect on the Company's business.
Legislative proposals from federal and state government bodies in the area of
privacy rights could impose additional regulations and obligations upon all
smart card providers. The Company cannot predict the likelihood that any such
legislation will pass, nor the financial impact, if any, that any such
legislation may have. Moreover, the applicability to smart card System Sponsors
and Authorized Service Providers of existing laws governing issues such as
personal privacy is uncertain.
The Company believes that its smart card systems are currently in compliance
with the quality assurance standards of ISO-7816, an international standard
promulgated by the International Organization for Standardization, a worldwide
federation of standards bodies from approximately 100 countries. The European
Community and others have adopted these standards as their preferred quality
standards. However, as technological advances occur in the smart card industry,
other emerging standards may gain widespread acceptance. While compliance with
applicable and emerging standards is the responsibility of the Company's
suppliers, any failure on the part of the Company's suppliers to comply with
such standards could materially and adversely affect the Company's sales to
various System Sponsors and prevent the Company's expansion into certain
markets.
As part of its strategy, the Company intends to market its smart card
systems to government agencies in the United States and Canada. If successful,
the Company will become subject to the special risks involving government
contracts, including delays in funding, lengthy review processes for awarding
contracts, non-renewal, delay, termination at the convenience of the government,
reduction or modification of contracts in the event of changes in the
government's policies or as a result of budgetary constraints and increased or
unexpected costs resulting in losses.
The Company will also be required to obtain most potential government
contracts through the competitive bidding process. The competitive bidding
process is typically lengthy and often results in the
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expenditure of financial and other resources in connection with bids that are
not accepted. Additionally, inherent in the competitive bidding process is the
risk that actual performance costs may exceed projected costs upon which a
submitted bid or contract price is based. Moreover, in some instances, the
Company would be required to post bid and/or performance bonds in connection
with contracts with government agencies.
To the extent that the Company is able to successfully expand its operations
into foreign markets, the Company may become subject to trade restrictions
(including restrictions on the export of critical technology), export duties and
tariffs and international political and regulatory developments.
INTELLECTUAL PROPERTY
The Company's success will depend in part on its ability to enforce its
patents, protect trade secrets and operate without infringing on the proprietary
rights of others. The Company has received United States patent number 5629508
with respect to its dual card access technology and methods. In addition, the
Company has filed a continuation-in-part on its patent. If granted, this will
significantly expand the Company's intellectual property rights pertaining to
dual card-based data retrieval and access control. The Company contemplates
filing patent applications in selected foreign jurisdictions where such filings
would, in the Company's opinion, provide it with a competitive advantage. The
patent laws of other countries may differ from those of the United States as to
the patentability of the Company's products or technology and the degree of
protection afforded by foreign patents may be different from that in the United
States. The failure by the Company to obtain any foreign patents could have a
material adverse effect on the Company's ability to successfully commercialize
its smart card systems outside the U.S. Even though the Company has been able to
obtain a patent, there can be no assurance that this patent will afford the
Company commercially significant protection for its technology. Other companies
may independently develop equivalent or superior technologies or products and
may obtain patent or similar rights with respect to them. The Company is not
aware of any infringement by its technology on the proprietary rights of others
and has not received any notice of claimed infringement. However, the Company
has not conducted any investigation as to possible infringement and there can be
no assurance that third parties will not assert infringement claims against the
Company in connection with its products, that any such assertion of infringement
will not result in litigation, or that the Company would prevail in such
litigation. Moreover, in the event that the Company's technology or proposed
products were deemed to infringe upon the rights of others, the Company would be
required to obtain licenses to utilize such technology. There can be no
assurance that the Company would be able to obtain such licenses in a timely
manner on acceptable terms and conditions, or at all, and the failure to do so
could have a material adverse effect on the Company. If the Company were unable
to obtain such licenses, it could encounter significant delays in product market
introductions while it attempted to design around the infringed upon patents or
rights, or could find the development, manufacture or sale of products requiring
such license to be foreclosed. In addition, patent disputes occur in the smart
card and computer industries and there can be no assurance that the Company will
have the financial resources to enforce or defend a patent infringement or
proprietary rights action. In addition, the Company has received a federal
trademark registration for its SMART-ID-Registered Trademark- mark and design
and has applied for a federal trademark registration for its Cheeze! mark.
SMART-ID-Registered Trademark- is a smart card based system that provides
positive identification, transaction tracking and the ability to layer multiple
applications on a single smart card. Cheeze! is a program currently used by
eighteen pari-mutuel licensing jurisdictions to photograph licensees and
transmit the photograph and license data to a central database, which is
currently housed at the Company's offices. The Company's use of its software,
name and marks may be subject to challenge by others, which, if successful,
could have a material adverse effect on the Company.
The Company has entered into an agreement with SoftChip Israel Ltd. of
Jerusalem, Israel and its affiliate, SoftChip Technologies (3000) Ltd.
(collectively, "SoftChip"), to purchase the DVK-1 Chip Mask Operating System and
architecture ("DVK-1 System") for a purchase price of $100,000 and for SoftChip
to
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provide technical support and development to the Company for at least a two-year
period for an additional $450,000 plus royalties ranging from $.125 to $.25 for
each smart card sold by the Company that incorporates the DVK-1 System. Upon its
closing, which is scheduled to occur after the minimum closing of this Offering,
this agreement will provide the Company ownership of its own chip mask and
access to the technical resources needed to develop a completely new and
proprietary chip mask and operating system. The chip mask provides the basic
instructions to the microchip and its internal components and facilitates the
orderly utilization of all of the microchip's components and allows the device
to be utilized. The Company has also executed a purchase order with SoftChip for
technical services for a monthly fee of $18,000, which commenced December 1,
1997. The Company is obligated to pay the amount payable under the purchase
order, the purchase price and the fees for technical support, no later than
September 15, 1998, which will reduce the amount of working capital available to
the Company. Under the agreement, ownership of the DVK-1 System will be
transferred to the Company at closing upon payment in full of the purchase price
and technical support fees. If the closing of the minimum offering is delayed
beyond September 15, 1998, the Company believes it may be able to reach a mutual
agreement with SoftChip to extend the closing date of the agreement, but there
can be no assurance that the Company will be able to reach such agreement with
SoftChip, or that the Company will ultimately secure ownership of the DVK-1
System if the closing of the minimum offering is delayed beyond September 15,
1998. Additionally there can be no assurance that ownership of the DVK-1 System
will result in the successful development of new technology. See "Plan of
Operation" and "Business--Intellectual Property."
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation
relating to its proprietary technology. However, such methods may not afford the
Company complete protection and there can be no assurance that others will not
independently obtain access to the Company's trade secrets and know-how or
independently develop products or technologies similar to those of the Company.
Furthermore, although the Company has and expects to have confidentiality and
non-competition agreements with its employees and appropriate suppliers and
manufacturers, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets.
The Company purchases many of the hardware and non-proprietary software
components of its smart card systems through normal electronic and computer
distribution channels. Typically, such components are sold with standardized
license agreements containing non-negotiated terms, conditions and restrictions
established by the manufacturer.
EMPLOYEES
As of the date of this Prospectus, the Company had ten full-time employees,
consisting of four executive officers and six employees engaged in engineering,
technical support, product development, marketing and sales, including the
Company's recently appointed Director and Sales. See "Management." The Company
also uses the resources of independent programmers and consultants from time to
time on an as needed basis. The Company anticipates that it will hire additional
sales and technical personnel to continue to implement the Company's marketing
and product development efforts and may engage independent sales representatives
and industry-specific marketing consultants to assist the Company in marketing
the Company's smart card systems to potential System Sponsors.
FACILITIES
The Company leases, pursuant to a sublease, approximately 2,750 square feet
of office space at 1355 Terrell Mill Road, Marietta, Georgia. The sublease
commenced on January 1, 1997 and will continue through January 31, 2000.
Pursuant to the sublease, the Company is required to pay rent of approximately
$3,005 per month, increasing through the term of the sublease to approximately
$3,100 per month. The Company currently leases furniture and fixtures for such
facility at a rate of approximately $481 per month.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- ---- -----------------------------------------------------------
<S> <C> <C>
Lawrence O. Perl.......... 55 Chief Executive Officer, Chief Financial Officer, Chairman
of the Board & Director
Raymond Findley, Jr....... 49 President, Chief Operating Officer & Director
Robert H. Dixon........... 37 Vice President of Technical Operations
Lilly Beter............... 64 Secretary & Director
Harold Rothstein.......... 75 Director
Raymond A. Roncari........ 73 Director
Bruce R. Bonadies......... 55 Director
Gordon W. Walker.......... 56 Director
</TABLE>
LAWRENCE O. PERL, a co-founder of the Company, has served as Chairman of the
Board, Chief Executive Officer and a director of the Company since its inception
and currently serves as the Company's Chief Financial Officer. From April 1993
to June 1994, Mr. Perl served as Chief Executive Officer and a director of
McKinnie Systems, Inc. ("McKinnie"), a privately held supplier of computerized
management information systems to the pari-mutuel industry. From September 1984
through March 1993, Mr. Perl served as a financial consultant for Roncari
Industries, Inc., a privately held producer of quarry, asphalt and concrete
products. In addition, since August 1977, Mr. Perl has served as President of
Lawrence Owen Associates, Inc., a privately held hotel and financial consulting
firm, and, since 1978, has been affiliated with other privately held entities
engaged in hotel ownership and management.
RAYMOND FINDLEY, JR., a co-founder of the Company, has been President, Chief
Operating Officer and a director of the Company since its inception. From June
1990 to May 1994, Mr. Findley served as President and Chief Executive Officer of
Phoenix DataCrypt Systems, Inc., a privately held designer and developer of
smart card-based technology and business applications. From September 1988 to
April 1990, Mr. Findley was President and Chief Executive Officer of British
Telecom CBP, Inc., a developer and marketer of financial telecommunications and
trading systems.
ROBERT H. DIXON has been Vice President of Technical Operations of the
Company since July 1994. From September 1987 to July 1994, Mr. Dixon was
employed as software manager of McKinnie and from April 1984 to August 1987 Mr.
Dixon was employed as computer programmer by Tri-State Lighting, Inc., a
privately held lighting fixture manufacturer.
HAROLD ROTHSTEIN, a co-founder of the Company, has been a director of the
Company since January 1996. In 1967, Mr. Rothstein founded Utility Development
Corporation, a Connecticut-based privately held general contracting firm which
is primarily engaged in building federally insured multi-family and low-income
housing. Mr. Rothstein has served as the Chief Executive Officer of Utility
Development Corporation since its inception.
RAYMOND A. RONCARI, a co-founder of the Company, has been a director of the
Company since January 1996. From 1979 to July 1995, Mr. Roncari served as the
President and Chief Executive Officer of Roncari Industries, Inc., thereafter
serving as President and Chief Executive Officer of Tilcon-Roncari, Inc., a
partial successor-in-interest to Roncari Industries, Inc. until January 1997, at
which time he retired. Mr. Roncari continues to serve as President and Chief
Executive Officer of Roncari Industries, Inc. Mr. Roncari has also served as
Chairman, President and Chief Executive Officer of Roncari Development Co., a
real estate development company, since 1970 and of Roncari Associates, Inc., a
cargo facilities company, since 1980. In addition, from 1965 to 1985, Mr.
Roncari served as a director and Chairman of the Executive Committee of the
Northern Connecticut National Bank--Windsor Locks.
42
<PAGE>
LILLY BETER, newly appointed Secretary and member of the Board, is President
of Lilly Beter Capital Group, Ltd., with offices in Washington, D.C.,
Minneapolis, Minnesota and Century City, California. She co-founded the firm
over thirty years ago with her late husband, with whom she was also associated
in his law practice, providing government representation to clients. Ms. Beter
represents companies doing business in the Pacific Rim, South America, Europe
and the Caribbean. She is a member of the American League of Lobbyists and the
American Arbitration Association.
BRUCE R. BONADIES, a newly appointed member of the Board, retired in March
1998 from his position as Vice President, Business Development of Marriott
Health Care Services, a division of Marriott International. Mr. Bonadies has
held numerous positions with various Marriott companies since 1977, including
Senior Vice President of National Food Services and Facilities, Vice President
of Sales and Vice President of Area Sales, and Director of Sales, and is
currently president of Brandon Scott Associates, LLC, a recently formed sales
training and consulting company.
GORDON W. WALKER became a director of the Company in February 1997. Mr.
Walker serves as counsel to Miller Thomson, a Toronto, Ontario law firm. From
1978 to 1985, Mr. Walker held various government cabinet positions for the
Province of Ontario, including Minister of Correctional Services, Provincial
Secretary for Justice, Minister of Industry and Trade, and Minster of Consumer
and Commercial Relations. Between 1971 and 1985, Mr. Walker served three terms
as a member of the Ontario legislature.
Executive officers serve at the discretion of the Board. Directors of the
Company hold office until the expiration of the term for which they are elected
and until their respective successors have been elected and qualified, or until
their prior death, resignation or removal. The Board is classified into three
classes of directors, with each class serving a staggered three-year term.
Messrs. Bonadies and Findley and Ms. Beter are Class I directors, Messrs.
Roncari and Walker are Class II directors, and Messrs. Perl and Rothstein are
Class III directors. The terms of the Class I, Class II and Class III directors
will expire at the annual meetings of stockholders to be held in 2000, 1998, and
1999, respectively. The Company reimburses the directors for reasonable travel
expenses incurred in connection with their activities on behalf of the Company,
but does not pay its directors any fees for Board participation (although it may
do so in the future). Pursuant to the Nonemployee Directors' Stock Option Plan,
non-employee directors will automatically be granted each year, on the date of
the Company's annual meeting of stockholders, Non-incentive Options (as
hereinafter defined) to purchase 2,500 shares of Common Stock of the Company at
an exercise price equal to the fair market value thereof on the date of grant.
See "--Nonemployee Directors' Stock Option Plan."
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. Upon the consummation of this Offering, the Company will
establish an Audit Committee of the Board (the "Audit Committee") consisting of
at least two directors who are not employees of the Company. Audit Committee
members will meet regularly with the Company's financial management and
independent auditors to review the results of their examination, the scope of
audits and their opinions on the adequacy of internal controls and quality of
financial reporting.
COMPENSATION COMMITTEE. Upon the consummation of this Offering, the Company
will establish a Compensation Committee of the Board (the "Compensation
Committee") consisting of at least two directors who are not employees of the
Company. The Committee will make recommendations to the Board of Directors
concerning the salaries of all elected officers. In addition, the Compensation
Committee will administer the Company's Stock Option Plan and determine the
amounts of, and the individuals to whom, awards shall be made thereunder. See
"1996 Stock Option Plan."
EXECUTIVE COMMITTEE. Upon the consummation of this Offering, the Company
will establish an Executive Committee of the Board (the "Executive Committee").
The Executive Committee will have all the powers of the Board (except those
specifically reserved under the DGCL to the full Board of Directors) in the
management and direction of the business of the Company.
43
<PAGE>
ADVISOR TO THE BOARD
The Company has secured the services of Dr. Mary Mundinger as advisor to the
Board. Dr. Mundinger currently holds the position of Dean and Professor at the
School of Nursing, as well as an Associate Dean in the Faculty of Medicine, at
Columbia University in New York. She sits as a consultant and advisor to various
state and federal commissions including: The Federally Commissioned Committee to
advise the Department of Veteran Affairs on Innovations in Nursing, 1997; The
White House Steering Committee on Health, 1996; Co-Chair of the International
Society of Technology Assessment in Health Care, Nursing and Technology
Assessment Panel, 1993; and the Health Professions Review Group, appointed by
President Clinton to review proposals of the Health Reform Task Force, 1993. She
has authored two books on nursing and healthcare, as well as numerous articles
in various nursing journals and magazines. Dr. Mundinger is also on the Boards
of Directors of Cell Therapeutics, Inc. and United Healthcare. Her contacts and
experience are expected to be instrumental in promoting smart card technology in
the healthcare industry.
KEY EMPLOYEE INSURANCE
The Company has obtained "key man" insurance on the lives of Messrs. Perl
and Findley in the amount of two million dollars each.
OTHER KEY EMPLOYEE
ROBERT J. CARTAGINE, a 1984 graduate of New York University with a Business
Administration degree and a 1985 graduate of the New York Institute of
Technology with a Sales Management degree, brings several years of sales
experience to the Company as its newly appointed Director of Sales. He has
developed training syllabuses for the Regional Bell Operating Companies and was
employed for several years with Nynex, New York Telephone, Bell Atlantic and New
Jersey Bell as Northeast Regional Sales Director. Mr. Cartagine performed sales
services for the Company on a contract basis beginning in February 1998 and
became a regular employee in April 1998. Mr. Cartagine will enter into a
one-year employment agreement no later than the closing of the minimum offering.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation in each of the last three fiscal years paid to the person who
served as the Company's Chief Executive Officer and to the other officers of the
Company who earned $100,000 or more during such periods (collectively, the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR ANNUAL SALARY($) ALL OTHER COMPENSATION($)
- ------------------------------------------------------------- --------- ---------------- -----------------------------
<S> <C> <C> <C>
Lawrence O. Perl, ........................................... 1997 156,000(1) --
Chief Executive Officer 1996 200,000(2)
1995 192,308
Raymond Findley, Jr., ....................................... 1997 189,955(1) --
President and Chief Operating Officer 1996 200,000(2)
1995 192,308
</TABLE>
- ------------------------
(1) Does not include $94,000 and $60,045 in accrued but unpaid salary payable to
each of Messrs. Perl and Findley, respectively.
(2) Does not include $50,000 in accrued but unpaid salary payable to each of
Messrs. Perl and Findley.
44
<PAGE>
EMPLOYMENT AGREEMENTS
Each of the Company's officers, with the exception of Ms. Beter, has
executed a five-year employment agreement to be effective upon closing of the
minimum offering.
1996 STOCK OPTION PLAN
In order to attract, retain and motivate employees (including officers),
directors, consultants and other persons who perform substantial services for or
on behalf of the Company, the Company has adopted the 1996 Stock Option Plan
(the "Stock Option Plan"). Pursuant to the Stock Option Plan, stock options
covering an aggregate of 270,000 shares of the Company's Common Stock may be
granted to the foregoing persons. Under the Stock Option Plan, "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), may be granted to employees
(including officers), and non-incentive stock options ("Non-incentive Options")
may be granted to any such employee and to other persons (including directors)
who perform substantial services for or on behalf of the Company. Incentive
Options and Non-incentive Options are collectively referred to herein as "1996
Options."
The Stock Option Plan is administered by the Board or, at its discretion, by
the Compensation Committee. The Board or the Compensation Committee have
complete authority to administer and interpret the Stock Option Plan, to
determine the terms upon which 1996 Options may be granted, to prescribe, amend
and rescind such interpretations and determinations and to grant 1996 Options.
The Board or the Compensation Committee has the power to terminate or amend the
Stock Option Plan from time to time in such respects as it deems advisable,
except that no termination or amendment shall materially adversely affect any
outstanding Option without the consent of the grantee, and the approval of the
Company's stockholders will be required in respect of any amendment which would
(i) change the total number of shares subject to the Stock Option Plan or (ii)
change the designation or class of employees or other persons eligible to
receive Incentive Options or Non-incentive Options.
The price at which shares covered by a 1996 Option may be purchased pursuant
thereto shall be no less than the par value of such shares and no less than the
fair market value of such shares on the date of grant (the "Fair Market Value");
provided, however, that in the case of Incentive Options, if the optionee
directly or indirectly beneficially owns more than ten percent (10%) of the
total combined voting power of all of the outstanding voting stock of the
Company (a "10% Holder"), the purchase price shall not be less than one hundred
ten percent (110%) of the Fair Market Value on the date of grant. The Fair
Market Value will generally be equal to the last sale price quoted for shares of
Common Stock on Nasdaq on the date of grant. The purchase price of shares
issuable upon exercise of an option may be paid in cash or by delivery of shares
with a value equal to the exercise price of the option. The Company may also
loan the purchase price to the optionee, or guarantee third-party loans to the
optionee, on terms and conditions acceptable to the Board or the Compensation
Committee.
In the event the aggregate fair market value of the shares of Common Stock
(determined at the time the option is granted) with respect to which Incentive
Options are exercisable for the first time by the optionee during any calendar
year (under all such option plans maintained by the Company) exceeds $100,000,
then only the first $100,000 of such shares so purchased will be treated as
Incentive Options and any excess over $100,000 so purchased shall be treated as
Non-incentive Options. This rule shall be applied by taking 1996 Options into
account in the order or sequence in which they were granted.
The number of shares covered by an option is subject to adjustment for stock
splits, mergers, consolidations, combinations of shares, reorganizations and
recapitalizations. The 1996 Options are generally non-transferable except by
will or by the laws of descent and distribution, and in the case of employees,
with certain exceptions, may be exercised only so long as the optionee continues
to be employed by the Company. If the employee dies or becomes disabled, the
right to exercise the Option, to the extent then vested, continues for specified
periods. 1996 Options may be exercised within a period not
45
<PAGE>
exceeding ten years from the date of grant, except that the term of any
Incentive Options granted to a 10% Holder may not exceed five years from the
date of grant. The terms of Incentive Options are subject to additional
restrictions provided by the Stock Option Plan.
On February 2, 1998, Incentive Options to purchase an aggregate of 141,000
shares of Common Stock were granted under the Stock Option Plan, including
50,000 shares to Robert Dixon, an officer of the Company. All of such Incentive
Options, excluding an option to purchase 1,000 shares, which was canceled on
March 20, 1998, will be exercisable at a per share price equal to $12.00 and
will vest in annual installments of twenty-five percent (25%) beginning on March
15, 1998. No Non-incentive Options have been granted under the Stock Option
Plan.
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
In order to attract and retain the services of non-employee members of the
Board of Directors and to provide them with increased motivation and incentive
to exert their best efforts on behalf of the Company by enlarging their personal
stake in the Company, the Company has adopted the Nonemployee Directors' Stock
Option Plan (the "Directors' Plan"). Pursuant to the Directors' Plan, stock
options covering an aggregate of 30,000 shares of the Company's Common Stock may
be granted to such non-employee directors.
Pursuant to the Directors' Plan, each member of the Board of Directors of
the Company who is not an employee of the Company (or a subsidiary) (a
"Nonemployee Director") and who is elected or re-elected as a director of the
Company by the stockholders at any annual meeting of stockholders commencing
with the first annual meeting in 1999 will receive, as of the date of each such
election or re-election, options to purchase 2,500 shares of the Company's
Common Stock at the fair market value thereof on the date of grant. In addition,
each Nonemployee Director shall be granted options to purchase 2,500 shares of
Common Stock at each annual meeting of the Board during the term of such
Nonemployee Director's directorship. All options granted under the Directors'
Plan are to be Non-incentive Options.
On February 2, 1998, each Nonemployee Director was issued an option to
purchase 2,500 shares of Common Stock (aggregating 12,500 shares) at an exercise
price of $12.00 per share, pursuant to the Directors' Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 145 of the DGCL contains provisions entitling the Company's
directors and officers to indemnification from judgments, fines, amounts paid in
settlement, and reasonable expenses (including attorney's fees) as the result of
an action or proceeding in which they may be involved by reason of having been a
director or officer of the Company. In the Certificate, the Company has included
a provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its stockholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the DGCL as currently in effect, this provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of law, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not be to available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
The Certificate and By-Laws also include provisions to the effect that
(subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as it may from time to
46
<PAGE>
time be in effect. At present, the DGCL provides that, in order to be entitled
to indemnification, an individual must have acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the Company's best
interests.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this Prospectus
and as adjusted to reflect the sale by the Company of a minimum of 294,200 and a
maximum of 420,000 shares of Common Stock offered hereby and the exercise of the
options, based on information obtained from the persons named below, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
who is known by the Company to beneficially own more than five percent (5%) of
the outstanding shares of Common Stock, (ii) each director of the Company and
(iii) all of the Company's officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER MINIMUM OWNED AFTER MAXIMUM
OFFERING(2) OFFERING OFFERING
----------------------- ----------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT SHARES PERCENT SHARES PERCENT
- ----------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence O. Perl(3)............................ 481,285 19.1% 481,285 17.1% 481,285 16.3%
Raymond Findley................................ 480,035 19.0% 480,035 17.0% 480,035 16.3%
Harold Rothstein(4)............................ 626,528 24.8% 626,528 22.2% 626,528 21.3%
Raymond A. Roncari(5).......................... 610,902 24.2% 610,902 21.7% 610,902 20.7%
Lilly Beter(6)................................. 2,500 0.1% 2,500 0.1% 2,500 0.1%
Bruce Bonadies(7).............................. 3,750 0.1% 3,750 0.1% 3,750 0.1%
Gordon Walker(8)............................... 2,500 0.1% 2,500 0.1% 2,500 0.1%
Joseph Basch................................... 240,000 9.5% 240,000 8.5% 240,000 8.1%
All officers and directors as a group (eight
persons)..................................... 2,240,000 87.8% 2,240,000 78.8% 2,240,000 75.4%
</TABLE>
- ------------------------
Lawrence O. Perl, Raymond Findley, Harold Rothstein and Raymond A. Roncari
may be deemed "promoters" of the Company, as such term is defined under the
federal securities laws.
(1) The address for each such person is c/o American Card Technology, Inc., 1355
Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from the date of this Prospectus upon the exercise of options, warrants
or convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are held by such person (but not those held by any other person) and which
are exercisable within 60 days of the date of this Prospectus have been
exercised. Assumes 2,525,000 shares of Common Stock outstanding prior to
this Offering, 2,819,200 shares of Common Stock outstanding immediately
after the minimum offering and 2,945,000 shares of Common Stock outstanding
immediately after the maximum offering, before any consideration is given to
outstanding options, warrants or convertible securities.
(3) Includes 480,035 shares held by the Perl Trust, a family trust for the
benefit of the family of Lawrence O. Perl, of which Mr. Perl is a
beneficiary. As of May 1, 1998, the Perl Trust entered into a voting trust
agreement pursuant to which Bruce R. Bonadies was appointed the voting
trustee with
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<PAGE>
respect to the 480,035 shares held by the Perl Trust; such appointment shall
expire April 30, 1999. Does not include 1,250 shares issuable upon exercise
of warrants received in connection with the 1998 Private Placement.
(4) Includes 587,778 shares held by the Rothstein Trust, a family trust for the
benefit of the family of Harold Rothstein, and 2,500 shares issuable upon
exercise of the option issued pursuant to the Directors' Plan. As of May 1,
1998, the Rothstein Trust entered into a voting trust agreement with Lilly
Beter pursuant to which Ms. Beter was appointed the voting trustee with
respect to the 587,778 shares held by the Rothstein Trust; such appointment
shall expire April 30, 1999. Does not include 23,750 shares issuable upon
exercise of warrants received in connection with the 1998 Private Placement
or the 12,500 shares issuable upon exercise of his Commitment Warrants.
(5) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 23,750 shares issuable upon
exercise of warrants received in connection with the 1998 Private Placement
or 12,500 shares issuable upon exercise of his Commitment Warrants. Does not
include shares issuable upon exercise of an option to purchase 100,000
shares granted to Shreveport, pursuant to the Shreveport Option, which has
since been assigned to Mr. Roncari.
(6) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 100,000 shares issuable to Lilly
Beter Capital Group, Ltd., a firm owned and controlled by Ms. Beter, upon
exercise of the Beter Option to be granted upon the closing of subsequent
debt financing.
(7) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 1,250 shares issuable upon exercise
of warrants received in connection with the 1998 Private Placement.
(8) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan.
CERTAIN TRANSACTIONS
Pursuant to an agreement dated as of January 1, 1993, Shreveport Acquisition
Corp. ("Shreveport"), a corporation which was founded by Lawrence O. Perl, the
Chairman of the Board, Chief Executive Officer and Chief Financial Officer of
the Company, and Raymond A. Roncari, a director of the Company, and which was
owned by Mr. Perl, Mr. Roncari and Harold Rothstein, a director of the Company,
but was dissolved on December 31, 1997, acquired all of the outstanding stock of
McKinnie, a supplier of computerized management information systems to the
pari-mutuel industry, for a purchase price of $2 million, which was paid $75,000
in cash and $1,925,000 by delivery of a one-year promissory note which was
guaranteed by Mr. Roncari. Concurrently with such acquisition, McKinnie entered
into an agreement (the "McKinnie License Agreement") with Amazing Controls!,
Inc. and Phoenix DataCrypt Systems, Inc. ("Phoenix"), a company of which Raymond
Findley, Jr., the Company's President, Chief Operating Officer and a director,
was co-founder, President and Chief Executive Officer. Pursuant to the McKinnie
License Agreement, Phoenix granted to McKinnie an exclusive license to use, in
connection with McKinnie's management information systems, the smart card
technology and computer software owned or licensed by Phoenix (including
technology then licensed by Phoenix) for use in the pari-mutuel industry and
McKinnie agreed to purchase all of its smart card requirements from Phoenix, a
distributor of Amazing Controls!, Inc.'s smart cards.
In May 1994, Mr. Findley severed his relationship with Phoenix in order to
pursue smart card-related business opportunities with Messrs. Perl, Roncari and
Rothstein. In June 1994, Messrs. Findley, Perl, Roncari and Rothstein formed the
Company to develop and market smart card technology and applications. In order
to pursue their business plan, Messrs. Perl, Roncari and Rothstein elected to
divest themselves of control of McKinnie. In July 1994, Shreveport sold a 51%
equity interest in McKinnie to The Jockey Club Racing Services, Inc. ("The
Jockey Club"). In connection therewith, The Jockey Club agreed
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<PAGE>
to cause McKinnie to transfer to the Company all of McKinnie's rights to any
smart card technology, including certain software technology and all rights
under the McKinnie License Agreement. The Jockey Club purchased the balance of
the McKinnie stock from Shreveport effective December 31, 1997.
In December 1996, the Company issued to Shreveport the Shreveport Option to
purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share,
which has since been increased to $12.00 per share and assigned to Mr. Roncari.
The Shreveport Option is exercisable at any time during the five-year period
commencing the earlier of January 1, 1999 or 90 days following the closing of
the minimum offering. The Shreveport Option provides that upon exercise, in lieu
of a cash payment, the option may be exchanged for a number of shares of Common
Stock equal to (a) the total number of shares issuable upon exercise of such
option for cash, minus (b) a number of shares equal to the quotient of (i) the
aggregate exercise price of the exercised portion of the option, divided by (ii)
the then current market price of a share of Common Stock.
In connection with the formation of the Company in June 1994, each of the
Perl Trust, Mr. Roncari, the Rothstein Trust and Mr. Findley (collectively, the
"Original Stockholders") purchased 507,500 shares of Common Stock for a purchase
price of $250. In January 1995, each of the Original Stockholders sold to Robert
Dixon, the Company's Vice President of Technical Operations, 5,000 shares of
Common Stock for a purchase price of $1,250.
Since the inception of the Company, the Perl Trust and Messrs. Findley,
Roncari and Rothstein (either individually or through the Rothstein Trust) have
made the Stockholder Loans to the Company in amounts aggregating $30,177,
$15,177, $1,008,854 and $1,300,747, respectively. The Stockholder Loans bear
interest at ten percent (10%) per annum and are to be repaid from the proceeds
of subsequent debt financing, but in no event later than January 1, 2001. In
March 1995, $250,000 of the then-outstanding principal amount of the Stockholder
Loans of each of Messrs. Rothstein and Roncari was recharacterized as paid-in
capital of the Company. Pursuant to an agreement among the Original
Stockholders, the aggregate $500,000 Capital Contribution was allocated equally
among the Original Stockholders, in consideration for which Mr. Findley issued
to Mr. Roncari, and the Perl Trust issued to the Rothstein Trust, Capital
Contribution Notes, each in the amount of $125,000. Pursuant to the Debt
Conversion which occurred upon the consummation of the 1997 Private Placement in
January 1997, $12,675 of the Perl Trust's Stockholder Loans, $12,675 of Mr.
Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and
$301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535,
44,652 and 60,278 shares of Common Stock, respectively. Mr. Findley and the Perl
Trust subsequently transferred 25,000 shares of Common Stock to Mr. Roncari and
the Rothstein Trust, respectively, in satisfaction of the indebtedness
represented by the Capital Contribution Notes.
Pursuant to an agreement dated as of July 1, 1994, the Company agreed to pay
Lawrence Owen Associates, a corporation wholly owned by Mr. Perl, a monthly fee
of $1,000 in consideration for the use of office space in West Hartford,
Connecticut and for accounting and other general and administrative services.
The Company extended this arrangement until December 31, 1997, after which time
the agreement expired. Upon expiration $42,000 was due to Lawrence Owen
Associates from the Company.
From March through June 1995, Joseph D. Basch, the President, Chief
Executive Officer and sole director of the Subsidiary, loaned the Company an
aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum
and were payable on demand. In July 1996, the Company and Mr. Basch entered into
an agreement pursuant to which the then-outstanding principal amount of the
loans, together with accrued interest thereon of approximately $30,000, was
converted into an aggregate of 240,000 shares of Common Stock.
In January 1996, the Company sold 100,000 shares of Common Stock to Stephen
S. Weisglass at a price of $.25 per share. Mr. Weisglass became a director of
the Company in November 1996. In July 1997, Mr. Weisglass resigned from the
Board. His shares were subsequently transferred to Beter at the direction of the
Company, and then distributed as part of the 1998 Private Placement.
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<PAGE>
Mr. Rothstein has personally guaranteed all of the Company's indebtedness to
Fleet and has pledged personal assets in the form of a certificate of deposit in
the amount of $150,000 to secure such indebtedness; Mr. Roncari has personally
guaranteed all of the Company's indebtedness to First Suffield; and Mr.
Rothstein has pledged to Chase a certificate of deposit in the amount of
$105,000 to secure the Company's indebtedness to Chase. In addition, Mr.
Rothstein has agreed with the Company that, in the event a demand is made by
Fleet with respect to the Fleet Loan and/or a demand is made by Chase with
respect to the Chase Loan prior to the earlier of the closing of the maximum
offering, subsequent debt financing or March 3, 2001, he shall either (i) secure
replacement financing to pay the amount so demanded or (ii) personally satisfy
the amount demanded, either through surrender of the collateral previously
pledged by him or through other means satisfactory to Fleet and/or Chase, as the
case may be. In the event Mr. Rothstein elects to personally satisfy the
demanded amount, the Company has agreed to reimburse Mr. Rothstein for the full
amount of such payment on the earlier of the closing of the maximum offering,
subsequent debt financing or March 3, 2001. See "Plan of Operation--Liquidity
and Capital Resources."
In January 1997, pursuant to the 1997 Private Placement, the Company
completed the sale to 23 private investors (including certain officers and
directors of the Company) of 25 1997 Units. Each 1997 Unit consisted of (i) one
1997 Bridge Note; (ii) 5,000 1997 Bridge Shares; and (iii) 25,000 1997 Bridge
Warrants. The purchase price per 1997 Unit was $50,000. The Company received
gross proceeds of $1,250,000 from the sale of the 1997 Private Placement. After
payment of $125,000 in placement fees to Whale Securities, LP, the underwriting
firm ("Whale"), which acted as placement agent for the Company with respect to
the 1997 Private Placement, and other offering expenses of approximately
$105,000, the Company received net proceeds of approximately $1,020,000 in
connection with the 1997 Private Placement. The net proceeds from the 1997
Private Placement were used in connection with the Company's operations,
including to fund the Company's research and development efforts, to fund its
sales and marketing activities, to repay certain outstanding obligations, and
for working capital and general corporate purposes. It was anticipated that the
Company would shortly thereafter undertake an initial public offering
underwritten by Whale pursuant to a letter of intent between the Company and
Whale. However, Whale eventually declined to underwrite the initial public
offering, and in July of 1997, the Company commenced exploration of alternative
financing arrangements. In connection with that initiative, the Company retained
Beter as a consultant to work with the Company to obtain new financing. During
the course of the Company's discussions with Beter and a number of the
prospective underwriters, it became evident that the structure of the 1997
Private Placement was an impediment to additional financing. In order to meet
the requirements for the Company to undertake a best efforts initial public
offering to be underwritten by the Underwriter, it was necessary for the Company
to redeem the 1997 Units. The Company entered into a series of option agreements
dated November 19, 1997 to purchase the 1997 Units sold to investors for an
aggregate of $1,250,000 in the 1997 Private Placement. The 1997 Units were
redeemed with a portion of the net proceeds from the 1998 Private Placement.
In January 1997, in connection with the 1997 Private Placement, the Company
borrowed from Messrs. Perl, Rothstein and Roncari $175,000 and issued to them
1997 Bridge Notes in such aggregate principal amount, an aggregate of 17,500
1997 Bridge Shares and 87,500 1997 Bridge Warrants. Such 1997 Bridge Notes, 1997
Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as part
of the 1998 Private Placement.
In July 1997, the Company entered into a letter agreement with Beter to
arrange alternative financing for the Company, including an initial public
offering of approximately $5.0 million, which was modified to a minimum/maximum
offering of $5.0 million minimum and $7.14 million maximum. Under the agreement,
the Company may offer subsequent debt financing of up to $30 million negotiated
by Beter. At the closing of such debt financing, Beter would be granted a
warrant to acquire 100,000 shares of Common Stock at an exercise price equal to
eighty percent (80%) of the fair market value of the Common Stock at the date of
exercise. Such warrant shall have a term of five years. Also pursuant to the
agreement, Beter
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<PAGE>
has the right to designate one member of the Company's Board of Directors. Ms.
Beter presently fills such position. Upon fulfillment of its obligations, Beter
shall have a right of first refusal with respect to future debt placements by
the Company in excess of $6.0 million until July 2002.
Between July 1997 and Janaury 1998, Messrs. Rothstein, Roncari, and Perl
provided a portion of the Stockholder Loans to the Company in the amounts of
$460,000, $320,000, and $15,000, respectively. These loans were to provide the
Company working capital and cover costs associated with this Offering, and are
to be repaid from the proceeds of subsequent debt financing, but in no event
later than January 1, 2001. In addition, various employees of the Company have
deferred salary totaling approximately $440,000 as of March 31, 1998. Such
employees continue to defer salaries and such deferred salary amounts are to be
paid, together with interest at ten percent (10%), in two parts, $50,000 at the
closing of the minimum offering and the remainder, estimated to be $550,000 as
of July 31, 1998, from the proceeds of the maximum offering, but in no event
later than January 1, 2001.
In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge
Warrants. The purchase price per Unit was $50,000. The Company received gross
proceeds of $1,500,000 from the sale of such Units. After payment of
approximately $10,000 in costs associated with the 1998 Private Placement, the
Company received net proceeds of approximately $1,490,000 in connection with the
1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to
exercise certain options to repurchase securities sold in the 1997 Private
Placement. Some holders of the 1997 Units chose to invest in the 1998 Private
Placement and defer all interest due them from the 1997 Units; such holders
included Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive
Officer and Chief Financial Officer, Raymond A. Roncari, a director of the
Company, Harold Rothstein, a director of the Company and Bruce R. Bonadies, a
director of the Company. The balance of the net proceeds are being used for
working capital and general corporate purposes, as well as to fund some expenses
of this Offering.
In conjunction with the closing of the 1998 Private Placement, the Company
issued 25,000 shares of Common Stock and the Chapman Option to Chapman Group
LLC, a company affiliated with Cohn & Birnbaum P.C., general counsel to the
Company. These shares and options were issued in partial consideration for
services rendered by Cohn & Birnbaum P.C. from the date of the Company's
inception through the closing of an IPO by the Company and in consideration for
the deferral of fees at different times during such same time period.
In conjunction with the closing of the 1998 Private Placement, the Company
entered into Director Loan Agreements with each of Harold Rothstein and Raymond
A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to
loan $450,000 (for a total of $900,000) to the Company to be used for working
capital and certain costs of the anticipated IPO. These amounts, together with
approximately $155,000 of the proceeds of the 1998 Private Placement, were used
to fund certain costs of this Offering, and provide required working capital. In
consideration for this commitment, Messrs. Rothstein and Roncari were each
granted 12,500 shares of Common Stock of the Company and 12,500 Commitment
Warrants. Pursuant to each Director Loan Agreement, the Company has the right to
draw down advances from each of Messrs. Rothstein and Roncari (each a "Director
Lender") as funds are required and the Director Lender is obligated to so
advance funds within three (3) business days of any such request. Any amounts
advanced will bear interest at a rate of ten percent (10%) per annum. All
amounts so advanced, together with accrued interest thereon, will be due and
payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of
subsequent debt financing.
In May 1998, the Company entered into an Underwriting Agreement with the
Underwriter pursuant to which the Underwriter will be granted the Underwriter's
Option upon closing of the minimum offering.
As of May 1, 1998, the Perl Trust and the Rothstein Trust each entered into
a voting trust agremeent with Bruce R. Bonadies and Lilly Beter, respectively,
pursuant to which Mr. Bonadies and Ms. Beter were
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<PAGE>
appointed voting trustees with respect to the 480,035 shares held by the Perl
Trust and the 587,778 shares held by the Rothstein Trust, respectively. Pursuant
to the voting trust agreement, Mr. Bonadies and Ms. Beter are empowered to vote
these shares as voting trustees until April 30, 1999.
Although the Company believes that the foregoing transactions were on terms
no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% stockholders will be on terms no less
favorable to the Company than could be obtained from independent third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will be advantageous, that conflicts of
interest will not arise with respect thereto or that if conflicts do arise, they
will be resolved in favor of the Company.
DESCRIPTION OF SECURITIES
GENERAL
Upon completion of this Offering, the authorized capital stock of the
Company will consist of (i) if the minimum offering is reached, 20,000,000
shares of Common Stock, $.001 par value per share, of which 2,819,200 shares
will be outstanding and 1,000,000 shares of Preferred Stock, $.001 par value per
share, of which no shares will be outstanding, or (ii) if the maximum offering
is reached, 20,000,000 shares of Common Stock, $.001 par value per share, of
which 2,945,000 shares will be outstanding and 1,000,000 shares of Preferred
Stock, $.001 par value per share, of which no shares will be outstanding. The
following description of the securities of the Company and certain provisions of
the Certificate and By-Laws is a summary and, while all material provisions are
included, the following description is qualified in its entirety by the
provisions of the Certificate and By-Laws as currently in effect.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate does not provide
for cumulative voting for the election of directors. Holders of Common Stock
will be entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board out of funds legally available therefor, and will
be entitled to receive, pro rata, all assets of the Company available for
distribution to such holders upon liquidation. Holders of Common Stock have no
preemptive, subscription or redemption rights. The rights of the holders of the
Common Stock are subject to any rights that may be fixed for holders of
Preferred Stock, when and if any Preferred Stock is issued. All of the
outstanding shares of Common Stock are fully paid and non-assessable. Upon
issuance, all of the shares of Common Stock offered hereby will be fully paid
and nonassessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of Preferred Stock from
time to time in one or more series, which may rank senior to the Common Stock
with respect to payment of dividends and in the event of the liquidation,
dissolution or winding up of the Company. The Board has the power, without
stockholder approval, to issue shares of one or more series of Preferred Stock,
at any time, for such consideration and with such relative rights, privileges,
preferences and other terms as the Board may determine (including, but not
limited to, terms relating to dividend rates, redemption rates, liquidation
preferences and voting, sinking fund and conversion or other rights). The rights
and terms relating to any new series of Preferred Stock could adversely affect
the voting power or other rights of the holders of the Common Stock or could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company.
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WARRANTS ISSUED IN 1998 PRIVATE PLACEMENT
The Bridge Warrants and Commitment Warrants issued in connection with the
1998 Private Placement (collectively, the "Warrants") will be exercisable at any
time commencing on March 3, 1999 through and including March 3, 2003 at a price
per share of eighty percent (80%) of the per share market price of the Common
Stock on the exercise date, subject to adjustment. The Warrants provide that,
upon exercise, in lieu of a cash payment, the Warrants to be exercised may be
exchanged for a number of the warrant shares underlying the warrants (the
"Warrant Shares") equal to (a) the total number of Warrant Shares issuable upon
exercise of such Warrants for cash minus (b) a number of Warrant Shares equal to
the quotient of (i) the aggregate exercise price of the exercised Warrants,
divided by (ii) the then current market price of a share of the Company's Common
Stock.
The Warrants are redeemable by the Company at any time commencing on March
3, 2000, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third day prior to the date on which the Company gives notice
has been at least $18.00. The Warrants will be exercisable until the close of
business on the date fixed for redemption.
REGISTRATION RIGHTS
In connection with the 1998 Private Placement, the Company has agreed to
grant certain "piggyback" registration rights in connection with the Bridge
Shares and the Bridge Warrants and the Commitment Shares and Commitment
Warrants.
The Company has also agreed to include the Bridge Shares and the shares
underlying the Bridge Warrants (the "Bridge Warrant Shares") in any registration
statement (the "Post-IPO Registration Statement") which the Company prepares and
files with the Commission on a date following the one-year anniversary of the
closing of this Offering so as to permit the public trading of the Bridge Shares
and Bridge Warrant Shares pursuant thereto, subject to customary underwriter
cutbacks. Notwithstanding the foregoing, the holders of the Bridge Shares and
the Bridge Warrant Shares must agree not to sell any of such securities at least
until the expiration of any applicable holding period established by the NASD
and/ or any of the various state securities commissions in those states where
the anticipated IPO will be effected.
The Company shall bear all fees and expenses incurred in the preparation and
filing of the Post-IPO Registration Statement.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and thus subject to Section 203 of the
DGCL ("Section 203"), which is generally viewed as an anti-takeover statute. In
general, Section 203 prohibits a publicly traded Delaware corporation from
engaging in any "business combination" (as defined) with any "interested
stockholder" (as defined) for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least eighty-five percent (85%) of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (a)
by persons who are directors and also officers and (b) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent,
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<PAGE>
by the affirmative vote of at least 66% of the outstanding voting stock which is
not owned by the interested stockholder.
In general, Section 203 defines a "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition involving the
interested stockholder of ten percent (10%) or more of the assets of the
corporation; (iii) (subject to certain exceptions) any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation. In general, Section 203 defines an "interested
stockholder" as (a) any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation or (b) any entity or person
affiliated with or controlling or controlled by such entity or person.
The existence of Section 203 would be expected to have the effect of
discouraging takeover attempts involving the Company, including attempts that
might result in a premium over the market price of the Common Stock (if it is
then publicly traded).
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is The Bank of New York.
REPORTS TO STOCKHOLDERS
The Company intends to file, prior to the date of this Prospectus, an
application with the Commission to register the Common Stock under the
provisions of Section 12(g) of the Exchange Act. The Company has agreed with the
Underwriter that the Company will use its best efforts to continue to maintain
such registration. Such registration will require the Company to comply with
periodic reporting, proxy solicitation and certain other requirements of the
Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
From the proceeds of this Offering, assuming no exercise of the
Underwriter's over-allotment option, the Company will have 2,819,200 shares of
Common Stock outstanding if the minimum offering is reached and 2,945,000 shares
of Common Stock outstanding if the maximum offering is reached, of which the
minimum 294,200 and maximum 420,000 shares of Common Stock offered herein by the
Company will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an affiliate of the
Company (in general, a person who has a control relationship with the Company),
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act. All of the remaining 2,525,000 shares of Common Stock are deemed
to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption under
the Securities Act. The 2,525,000 restricted shares of Common Stock will become
eligible for sale under Rule 144, subject to the volume limitations prescribed
by Rule 144 and to the contractual restrictions described below, at various
times commencing 90 days from the date of this Prospectus.
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<PAGE>
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned restricted
shares of Common Stock beneficially for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the shares of Common Stock are quoted on Nasdaq, the average weekly trading
volume during the four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least the three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least one year is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
The Company shall grant the Underwriter "piggyback" registration rights with
respect to the Underwriter's Option and the shares of Common Stock and Warrants
underlying the Underwriter's Option. The Company has also granted certain
"piggyback" registration rights to the holders of 125,000 shares of Common Stock
and the 150,000 shares of Common Stock underlying the Warrants and the Chapman
Option.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period.
Prior to this Offering, there has been no market for the shares of Common
Stock and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of such securities for sale will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of shares of Common Stock may be sold in
the public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
UNDERWRITING
In May 1998, the Company entered into an Underwriting Agreement with the
Underwriter to underwrite this Offering on a best efforts basis. The Underwriter
has agreed, subject to the terms and conditions of the Underwriting Agreement,
to use its best efforts to sell the shares as the Company's agent. The
Underwriter will offer the shares on a "best efforts" basis, and has made no
firm commitment to purchase any of the shares.
The maximum number of shares to be offered, excluding over-allotment shares,
will be 420,000 shares, which if sold at the offering price will generate
proceeds to the Company, net of sales commissions, in the approximate amount of
$6,426,000. The minimum number of shares to be sold is 294,200, which if sold at
the offering price, would generate proceeds to the Company, net of sales
commissions, in the approximate amount of $4,501,260.
All funds received by the Underwriter with respect to the first 294,200
shares will be deposited with The Bank of New York as Escrow Agent. In the event
294,200 shares are not sold within 180 days from the commencement of this
Offering the funds in escrow will be refunded to the subscribers in full without
deductions and without interest. The shares are to be sold fully paid only.
Stock certificates will be issued to purchasers only if the proceeds from the
sale of 294,200 shares are released to the Company. Until such time as the funds
have been released from escrow and the certificates delivered to the purchasers
thereof, the purchasers will be deemed subscribers only and not shareholders.
The Underwriter is to receive a cash commission of $1.70 per share sold. In
addition, the Company has deposited with the Underwriter $25,000 to fund all
anticipated expenses of this Offering. In addition,
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<PAGE>
pursuant to the Underwriting Agreement, the Underwriter will be granted, upon
closing of this Offering, the Underwriter's Option, a five year option to
purchase 100,000 shares of Common Stock of the Company at a per share price
equal to eighty percent (80%) of the market price of the Common Stock at the
time of exercise. The Company shall grant the Underwriter "piggyback"
registration rights with respect to the Underwriter's Option and the shares of
Common Stock and Warrants underlying the Underwriter's Option.
The Company has granted to the Underwriter an option to purchase up to an
additional 42,000 shares of Common Stock at the same price per share as the
Company is receiving for the shares offered hereby. The Underwriter may exercise
this option only to cover over-allotments in the sale of the shares offered
hereby. To the extent the Underwriter exercises its option, these shares will be
offered to the public at the same per share price to the public set forth on the
cover page of this Prospectus, and the total price to the public, underwriting
discounts and commissions and proceeds to the Company will be increased
accordingly.
The obligations of the Underwriter are subject to certain terms and
conditions set forth in the Underwriting Agreement, including the right of the
Underwriter to terminate the Underwriting Agreement under the conditions and
circumstances set forth therein.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
Prior to the Offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price has been determined
by negotiation between the Company and the Underwriter and is not necessarily
related to the Company's asset value, net worth or other criteria of value.
There can be no assurance that a regular trading market for the Common Stock
will develop after this Offering or that, if developed, it will be sustained.
The market price for the Company's securities following this Offering may be
highly volatile, as has been the case with the securities of other small
capitalization companies. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Factors such as the Company's financial results, announcements of
developments related to the Company's business and the introduction of products
and product enhancements by the Company or its competitors may have a
significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market in general, and the market for
securities of small capitalization stocks in particular, have experienced wide
price fluctuations which have often been unrelated to the operating performance
of such companies.
The Underwriter expects to register this Offering in a limited number of
states, which action may limit or prohibit possible resale of the Common Stock
in certain states in which the Offering is not registered.
Under the terms of the Underwriting Agreement, the Company may not enter
into any securities offering for a period of one year without the prior written
consent of the Underwriter. The Underwriter has granted the Company written
consent to pursue up to $30 million in any subsequent debt financing negotiated
by Beter.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by the Law Offices of Bartz & Bartz, Southdale Office Centre, 6750
France Avenue South, Suite 350, Edina, Minnesota 55435. The validity of the
Common Stock offered hereby will be passed upon by the Underwriter by its
internal counsel.
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The Company is represented in general corporate matters by Cohn & Birnbaum
P.C., 100 Pearl Street, Hartford, Connecticut 06103-4500.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding uncertainties about the Company continuing as a going
concern) appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2, including
amendments thereto, under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules filed
therewith. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement, exhibits
and schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, each such statement being qualified in all respects by such reference.
The Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the Commission:
13th Floor, Seven World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained form the Public Reference Section of the
Commission, Washington, D.C. at prescribed rates. The Commission also maintains
a Web site at http://www.sec.gov that contains reports, proxy and information
statements. Such reports and other information may also be inspected at NASDAQ,
1735 K Street, N.W., Washington, D.C. 20006.
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AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED YEARS ENDED DECEMBER 31, 1996 AND 1997
PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) AND
PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998 (UNAUDITED)
F-1
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
CONTENTS
-------------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................. F-3
FINANCIAL STATEMENTS:
Balance sheets................................................................................... F-4
Statements of operations......................................................................... F-5
Statements of stockholders' deficit.............................................................. F-6
Statements of cash flows......................................................................... F-7 - F-8
Summary of significant accounting policies....................................................... F-9 - F-11
Notes to financial statements.................................................................... F-12 - F-16
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
American Card Technology, Inc.
We have audited the accompanying balance sheet of American Card Technology,
Inc. (a development stage company) as of December 31, 1997, and the related
statements of operations and cash flows for the years ended December 31, 1996
and 1997 and the statements of stockholders' deficit for each of the years
(period) from June 21, 1994 (inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Card Technology,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's dependence on outside financing, lack of
existing commitments from lenders to provide necessary financing, lack of
sufficient working capital, and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
New York, New York
March 10, 1998
F-3
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT:
Cash.............................................................................. $ 27,203 $ 155,437
Accounts receivable............................................................... 6,730 26,603
Inventory......................................................................... 3,918 1,735
Prepaid expenses and other current assets......................................... 11,657 20,708
Deferred financing costs.......................................................... 28,228 68,425
------------- -------------
TOTAL CURRENT ASSETS............................................................ 77,736 272,908
EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $69,692 AND $78,538................... 91,405 89,306
OTHER ASSETS:
Software development costs, net................................................... 188,913 170,022
Deferred registration and debt costs.............................................. 228,911 350,633
Other............................................................................. 7,571 7,571
------------- -------------
$ 594,536 $ 890,440
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Accounts payable.................................................................. $ 398,397 $ 583,833
Accrued interest expense.......................................................... 310,154 293,933
Accrued salary and benefits....................................................... 369,126 503,393
Other accrued expenses............................................................ 42,620 56,337
Notes payable to banks (Note 2)................................................... 600,000 600,000
Bridge financing notes payable (Note 4(a))........................................ 1,239,063 --
------------- -------------
TOTAL CURRENT LIABILITIES....................................................... 2,959,360 2,037,496
NOTES PAYABLE TO STOCKHOLDERS (NOTE 3).............................................. 1,184,956 1,579,956
BRIDGE FINANCING NOTES PAYABLE (NOTE 4(B)).......................................... -- 1,250,000
------------- -------------
TOTAL LIABILITIES............................................................... 4,144,316 4,867,452
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 5 AND 7)
STOCKHOLDERS' DEFICIT (NOTE 8):
Preferred stock, $.001 par value--shares authorized 1,000,000; none issued
Common stock, $.001 par value--shares authorized 20,000,000; issued and
outstanding 2,625,000 and 2,525,000............................................. 2,625 2,525
Additional paid-in capital........................................................ 1,670,875 2,245,975
Stock subscriptions receivable.................................................... (30,000) (5,000)
Accumulated deficit during the development stage.................................. (5,193,280) (6,220,512)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT..................................................... (3,549,780) (3,977,012)
------------- -------------
$ 594,536 $ 890,440
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-4
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1994
YEAR ENDED THREE MONTHS ENDED (INCEPTION)
DECEMBER 31, MARCH 31, TO
---------------------------- ---------------------------- MARCH 31,
1996 1997 1997 1998 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
COST OF SALES......................... 16,279 86,995 -- 74,507 246,402
------------- ------------- ------------- ------------- -------------
GROSS PROFIT (LOSS)................. 10,755 (10,083) -- (14,918) (9,395)
------------- ------------- ------------- ------------- -------------
EXPENSES:
General and administrative.......... 919,546 1,176,885 331,311 554,587 3,739,792
Research development................ 167,000 260,000 55,000 174,000 781,000
Write-off of license fee (Note 5)... 20,000 -- -- -- 168,000
Interest and financing costs, net
(Notes 2 and 3)................... 129,126 1,065,240 100,070 283,727 1,522,325
------------- ------------- ------------- ------------- -------------
1,235,672 2,502,125 486,381 1,012,314 6,211,117
------------- ------------- ------------- ------------- -------------
NET LOSS.............................. $ (1,224,917) $ (2,512,208) $ (486,381) $ (1,027,232) $ (6,220,512)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BASIC LOSS PER SHARE.................. $ (.54) $ (.96) $ (.19) $ (.40)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING......................... 2,269,671 2,615,343 2,585,833 2,562,167
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-5
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998
----------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DEFICIT DURING
--------------------- PAID-IN SUBSCRIPTIONS THE DEVELOPMENT
SHARES AMOUNT CAPITAL RECEIVABLE STAGE TOTAL
---------- --------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares to founders............... 2,030,000 $ 2,030 $ (1,030) $ (250) $ -- $ 750
Net loss..................................... -- -- -- -- (434,545) (434,545)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1994................... 2,030,000 2,030 (1,030) (250) (434,545) (433,795)
Capital contribution (conversion of loan).... -- -- 500,000 -- -- 500,000
Net loss..................................... -- -- -- -- (1,021,610) (1,021,610)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1995................... 2,030,000 2,030 498,970 (250) (1,456,155) (955,405)
Issuance of shares........................... 120,000 120 29,880 (30,000) -- --
Issuance of shares for debt.................. 240,000 240 329,760 -- -- 330,000
Net loss..................................... -- -- -- -- (1,224,917) (1,224,917)
Receipt of stock subscriptions............... -- -- -- 250 -- 250
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1996................... 2,390,000 2,390 858,610 (30,000) (2,681,072) (1,850,072)
Shares and warrants issued in connection with
the first bridge financing (Note 4(a))..... 125,000 125 262,375 -- -- 262,500
Issuance of shares for debt.................. 110,000 110 549,890 -- -- 550,000
Net loss..................................... -- -- -- -- (2,512,208) (2,512,208)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1997................... 2,625,000 2,625 1,670,875 (30,000) (5,193,280) (3,549,780)
Period ended March 31, 1998 (unaudited)
Forfeiture of shares......................... (100,000) (100) (24,900) 25,000 -- --
Shares and warrants redeemed in connection
with the first bridge financing (Note
4(a))...................................... (125,000) (125) 125 -- -- --
Shares and warrants issued in connection with
second bridge financing (Note 4(b))........ 75,000 75 299,925 -- -- 300,000
Issuance of shares for services rendered..... 25,000 25 199,975 -- -- 200,000
Issuance of shares for loan commitment....... 25,000 25 99,975 -- -- 100,000
Net loss..................................... -- -- -- -- (1,027,232) (1,027,232)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED).......... 2,525,000 $ 2,525 $ 2,245,975 $ (5,000) $ (6,220,512) $ (3,977,012)
---------- --------- ------------- ------------ --------------- -------------
---------- --------- ------------- ------------ --------------- -------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-6
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED JUNE 21, 1994
YEAR ENDED DECEMBER 31, MARCH 31, (INCEPTION)
------------------------ ---------------------- TO MARCH 31,
1996 1997 1997 1998 1998
----------- ----------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(1,224,917) $(2,512,208) $(486,381) $(1,027,232) $ (6,220,512)
----------- ----------- --------- ----------- -------------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 23,541 71,726 6,077 28,136 135,211
Amortization of deferred
financing costs.............. -- 220,417 95,833 23,278 243,695
Issuance of debt for services
rendered..................... -- -- -- -- 72,774
Issuance of stock for services
rendered..................... -- -- -- 200,000 200,000
Issuance of stock for loan
commitment................... -- -- -- 100,000 100,000
Deferred registration costs
written off.................. -- 352,966 -- -- 352,966
Amortization of bridge
financing discount........... -- 251,563 54,688 60,937 312,500
Changes in assets and
liabilities:
(Increase) decrease in
assets:
Accounts receivable........ -- (6,730) -- (19,873) (26,603)
Inventory.................. (1,813) (855) (12,539) 2,183 (1,735)
Prepaid expenses and other
current assets........... 5,676 (6,558) (20,236) (9,051) (20,708)
Other assets............... (6,991) 1,390 -- -- (7,571)
Increase (decrease) in
liabilities:
Accounts payable........... 320,810 942 (173,966) 185,436 583,833
Accrued expenses........... 219,391 458,850 53,505 131,763 883,663
----------- ----------- --------- ----------- -------------
TOTAL ADJUSTMENTS........ 560,614 1,343,711 3,362 702,809 2,828,025
----------- ----------- --------- ----------- -------------
NET CASH USED IN
OPERATING ACTIVITIES... (664,303) (1,168,497) (483,019) (324,423) (3,392,487)
----------- ----------- --------- ----------- -------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-7
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED PERIOD FROM
31, MARCH 31, JUNE 21, 1994
--------------------- ----------------------- (INCEPTION) TO
1996 1997 1997 1998 MARCH 31, 1998
--------- ---------- ---------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. $ (23,980) $ (78,231) $ (30,048) $ (7,146) $ (167,842)
Software development costs....... (110,152) (21,936) (10,968) -- (226,696)
--------- ---------- ---------- ----------- --------------
NET CASH USED IN INVESTING
ACTIVITIES................... (134,132) (100,167) (41,016) (7,146) (394,538)
--------- ---------- ---------- ----------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock......... 250 -- -- -- 1,000
Deferred registration
costs--original................ (200,711) (152,255) (29,289) -- (352,966)
Deferred registration
costs--current................. -- (228,912) (249,720) (121,721) (350,633)
Deferred financing costs......... -- (248,644) -- (63,476) (312,120)
Borrowings on line of credit..... 600,000 -- -- -- 600,000
Proceeds from the issuance of
notes to stockholders.......... 388,931 685,000 -- 417,500 2,889,681
Payments on notes to
stockholders................... -- (10,000) -- (22,500) (32,500)
Payments on bridge financing..... -- -- -- (1,250,000) (1,250,000)
Proceeds from the issuance of
bridge financing............... -- 1,250,000 1,250,000 1,500,000 2,750,000
--------- ---------- ---------- ----------- --------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES................... 788,470 1,295,189 970,991 459,803 3,942,462
--------- ---------- ---------- ----------- --------------
NET INCREASE (DECREASE) IN CASH.... (9,965) 26,525 446,956 128,234 155,437
CASH, BEGINNING OF PERIOD.......... 10,643 678 678 27,203 --
--------- ---------- ---------- ----------- --------------
CASH, END OF PERIOD................ $ 678 $ 27,203 $ 447,634 $ 155,437 $ 155,437
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest....................... $ 12,578 $ 53,076 $ 11,890 $ 105,570 $ 183,114
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------
Income taxes................... $ -- $ -- $ -- $ -- $ --
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING INFORMATION:
Loans totaling $500,000 were converted into capital contributions in 1995.
Notes receivable for $30,000 were obtained in 1996 in connection with the issuance of common
stock.
Loans payable of $300,000 and accrued interest of $30,000 were extinguished in 1996 with the
issuance of common stock.
Loans payable of $550,000 were extinguished in 1997 with the issuance of common stock.
Notes receivable of $25,000 were cancelled in 1998 upon forfeiture of common stock.
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-8
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
ORGANIZATION AND BUSINESS
The financial statements include the accounts of American Card Technology,
Inc. (a development stage company) (the "Company") and its majority-owned
Canadian subsidiary, which was formed in June 1996 and whose results of
operations have been immaterial through March 31, 1998. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company, a Delaware corporation, was incorporated on June 21, 1994 to
design, develop and market high security, flexible multiple application smart
card systems.
The Company is in the development stage and its activities to date have been
limited to organizational activities including developing a business plan,
hiring personnel and developing and enhancing its proprietary smart card
technology and software, and it has only recently commenced the limited
marketing of its smart card systems. Revenues to date, which have been received
from few customers, have been immaterial.
Certain stock splits were effected in 1996 (see Note 8) and reflected
retroactively in these financial statements.
REVENUE RECOGNITION
The Company recognizes revenue upon the shipment of products or the
performance of services.
USE OF ESTIMATES
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable, accrued expenses, short-term
notes payable to banks and the bridge financings approximate fair value because
of the short-term nature of these items. It was not considered practical to
determine the current fair value of the notes payable to stockholders and
affiliates.
EQUIPMENT
Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives (3 to 5 years) of the assets using
declining balance methods.
INCOME TAXES
The Company was an S corporation and, accordingly, income or losses were not
subject to corporate income taxes, rather the amounts of taxable income or loss
were passed through to its stockholders.
F-9
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
INCOME TAXES (CONTINUED)
In connection with the formation of a Canadian subsidiary in June 1996, the
Company became a C corporation. No taxes resulted from this change in tax
status. Deferred tax assets and/or liabilities are recorded for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of assets and liabilities. At December 31, 1997,
deferred tax assets of approximately $1,200,000 relating primarily to net
operating losses of approximately $2,741,000 (and which expire through 2012),
have been offset by a valuation reserve since the utilization of this asset
cannot be determined.
SOFTWARE DEVELOPMENT COSTS
Software development costs for products and certain product enhancements are
capitalized subsequent to the establishment of their technological feasibility
(as defined in Statement of Financial Accounting Standards ("SFAS") No. 86)
based upon the existence of working models of the products which are ready for
initial customer testing. Costs incurred prior to such technological feasibility
or subsequent to a product's general release to customers are expensed as
incurred. During 1995, the technological feasibility of the Company's basic
products was established and the Company incurred and capitalized costs totaling
$226,696 through June 30, 1997. Amortization of these costs commenced on July 1,
1997 and these costs are being amortized over 3 years. Amortization expense is
included in cost of sales and for the year ended December 31, 1997 and the three
months ended March 31, 1998 totalled $38,000 and $19,000, respectively.
DEFERRED COSTS
Costs associated with the first bridge financing described in Note 4(a) were
deferred and are being amortized, commencing in January 1997, over the life of
the debt (one year).
Costs associated with the second bridge financing described in Note 4(b)
have been deferred and are being amortized, commencing in February 1998, over
the anticipated life of the debt (six months).
Costs associated with an earlier planned initial public offering (totaling
$352,996) were written off in 1997 when the offering did not occur and are
included in interest and financing costs, net.
Costs associated with the Company's currently planned initial public
offering have been deferred and will be charged to equity upon the successful
closing of the offering or written off to expense if the offering is not
successful. Costs associated with the Company's planned debt offering have been
deferred and will be amortized over the life of the debt upon closing or
written-off to expense if the offering is not successful.
LOSS PER COMMON SHARE
Effective for the year ended December 31, 1997, the Company adopted SFAS No.
128, "Earnings Per Share" ("SFAS 128"). In accordance with SFAS 128, the Company
is required to provide basic and dilutive loss per common share information.
The basic loss per common share is computed by dividing the net loss
available to common shareholders by the weighted average number of common shares
outstanding.
F-10
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
LOSS PER COMMON SHARE (CONTINUED)
Diluted loss per common share is computed by dividing the net loss available
to common shareholders, adjusted on an as-if-converted basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
For the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1997 and 1998, potential dilutive securities had an anti-dilutive
effect and, accordingly, were not included in the calculation of diluted loss
per common share. The assumed exercise of options and warrants may impact
diluted earnings per common share in future periods.
The adoption of SFAS 128 had no effect on net loss per common share for the
year ended December 31, 1996, accordingly, no restatement was necessary.
LONG-LIVED ASSETS
Long-lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to their fair value. This policy is in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
which became effective for fiscal 1996. No write-downs have been necessary
through March 31, 1998.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of the Company's management, the balance sheet as of March
31, 1998, the statements of operations and cash flows for the three months ended
March 31, 1997 and 1998 (and the period from inception to March 31, 1998), and
the statement of stockholders' deficit for the three months ended March 31, 1998
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the information set forth therein. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the year ending December 31, 1998.
F-11
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of operations. Since inception, the Company has been involved
in organizational activities. The Company's ultimate ability to attain
profitable operations is dependent upon obtaining additional financing adequate
to complete its development activities, and to achieve a level of sales adequate
to support its cost structure. Through December 31, 1997, the Company has
incurred losses totaling $5,193,280 and, at December 31, 1997, has deficiencies
in working capital and equity of $2,881,624 and $3,549,780, respectively. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
In 1996, the Company entered into a letter of intent with an underwriter for
a private placement of debt and equity securities and a subsequent initial
public offering of equity securities. In January 1997, a private placement was
consummated (see Note 4(a)) and the Company received gross proceeds of
$1,250,000. Certain debt was converted to equity upon consummation of this
private placement (see Note 8). The initial public offering did not occur as
originally planned, and all costs previously deferred in connection with that
offering were written off.
In February 1998, a second private placement was consummated (see Note 4(b))
and the Company utilized substantially all of the gross proceeds of $1,500,000
to redeem the debt incurred and accrued interest thereon from the January 1997
private placement. The Company is currently attempting to raise capital from
various sources including an anticipated initial public offering ("IPO") and a
debt offering. In 1997, the Company entered into a letter of intent with another
underwriter for an initial public offering of equity securities. However, there
can be no assurance that the Company will be successful in consummating its
plans, or that such plans, if consummated, will enable the Company to attain
profitable operations or continue as a going concern.
2. NOTES PAYABLE TO BANKS
At December 31, 1997 and March 31, 1998, the Company had lines of credit
with banks. The loans bear interest at the respective banks' prime interest
rates and are due on demand or through December 1998. Borrowings of $300,000
under the lines of credit are secured by certificates of deposit of one of the
Company's stockholders held by the banks. Another stockholder has guaranteed the
balance of the loans.
3. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders totaling $1,184,956 at December 31, 1997 and
$1,579,956 at March 31, 1998, bear interest at 10% per annum and were payable on
demand. Subsequent to December 31, 1997, the terms of the notes were changed to
be due upon the earlier of January 1, 2001 or the closing of a debt offering by
the Company. Accordingly these notes have been classified as long-term debt.
These notes have been used to finance operations. Notes totaling $500,000 were
converted to equity in 1995 and notes totaling $550,000 were converted to equity
in January 1997.
F-12
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
In February 1998, in connection with the bridge financing (see Note 4(b)),
the Company entered into Director Loan Agreements with two shareholders pursuant
to which each of the shareholders committed to loan $450,000 ($900,000 in total)
to the Company to be used for working capital and certain costs of the
anticipated IPO. In consideration for this commitment, each of the shareholders
were granted 12,500 shares of common stock of the Company and warrants to
purchase 12,500 shares of common stock at an exercise price of 80% of the market
price of the common stock on the exercise date. Pursuant to each Director Loan
Agreement, the Company shall have the right to draw down advances from each of
the shareholders as funds are required. Any amounts advanced will bear interest
at a rate of ten percent (10%) per annum and will be due and payable in full on
the earlier of (i) January 1, 2001, and (ii) the closing of a debt offering by
the Company.
Interest expense to stockholders totaled approximately $114,000, $74,000,
$27,000 and $37,000 for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998, respectively.
4. BRIDGE FINANCING
(a) In January 1997, the Company received $1,020,000, net of costs of
$230,000, through a private placement of 25 units (the "1997 Units"), at a cost
of $50,000 per 1997 Unit. Each 1997 Unit consisted off: (i) an unsecured
nonnegotiable promissory note in the principal amount of $50,000, bearing
interest at the rate of 9% per annum, payable semi-annually in arrears, and
maturing on the earlier date to occur of: (a) the first anniversary of the
initial closing (the "Initial Bridge Closing") of such bridge financing; and (b)
the consummation of an IPO of the Company's securities registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended; (ii) 5,000 shares of common stock of the Company, and (iii) warrants
exercisable until the fifth anniversary of the Initial Bridge Closing to
purchase 25,000 shares of common stock (the "Bridge Warrant Shares") at an
exercise price of $4.00 per Bridge Warrant Share, subject to adjustment in
certain circumstances. A total of $262,500 of the private placement funds was
assigned to the value of the common stock and warrants, which resulted in an
effective interest rate of 30% on the notes.
In February 1998, the Company repurchased all of the 1997 Units and paid
related accrued interest with proceeds obtained from a second private placement
bridge financing (see Note 4(b)).
(b) In February 1998 the Company received $1,490,000, net of costs of
$10,000, through a private placement of 30 units (the "1998 Units"), at a cost
of $50,000 per 1998 Unit (each a "Bridge Note"). Substantially all of the
proceeds were utilized to repurchase the 1997 Units and related accrued interest
(see Note 4(a)). Each 1998 Unit consists of: (i) an unsecured nonnegotiable
promissory note in the principal amount of $50,000, bearing interest at the rate
of 10% per annum, payable annually in arrears, and providing for a loan fee
payable upon payoff of the Bridge Note in an amount equal to $5,000 less
interest accrued through the date of payoff. The Bridge Note shall mature on the
earlier date to occur of: (a) the third anniversary of the final closing (the
"Bridge Closing") of such bridge financing; and (b) the consummation of an IPO
of the Company's securities registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended; (ii) 2,500 shares
of common stock of the Company and (iii) warrants exercisable until the sixth
anniversary of the Bridge Closing to purchase 2,500
F-13
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. BRIDGE FINANCING (CONTINUED)
shares of common stock (the "Bridge Warrant Shares") at an exercise price of 80%
of the market price of the Company's common stock on the exercise date per
Bridge Warrant Share. A total of $300,000 of the private placement funds was
assigned to the value of the common stock and warrants.
5. LICENSE AGREEMENTS
(a) In 1995, the Company acquired a license for certain technology rights.
The total cost was $296,000; $148,000 of which was paid upon signing the
agreement and $148,000 which was payable in various amounts through December 31,
1996. Subsequent to June 30, 1996, the Company paid $20,000 under the agreement.
The recoverability of this fee was in question and, in 1996, the Company
determined that it would not utilize the technology acquired in this license and
terminated the agreement and future obligations thereunder. The licensor agreed
on December 2, 1996 to waive all future obligations, including the $128,000
remaining balance of the license fee.
In 1995, the Company wrote off the portion of the license fee paid in cash
($148,000) and recorded an asset and liability for the remaining balance due
under the agreement. In 1996, the asset was written off and the liability was
reduced by $128,000. The balance ($20,000) was expensed.
(b) In March 1998, the Company entered into an agreement with a company
located in Israel to purchase an operating system to be utilized with its smart
card systems. The operating system will cost $100,000 and provides for two years
of technical support and development costs of an additional $450,000 plus
royalties ranging from $.125 to $.25 for each smart card sold by the Company
that incorporates the operating system. In connection with the agreement, which
is contingent upon completing the transaction upon the earlier of (i) September
15, 1998 and (ii) the Company completing an anticipated IPO, the Company will
pay $18,000 per month for technical services related to the development of the
operating system. The monthly fees will be due, regardless of the completion of
an anticipated IPO, by September 1998. Through March 31, 1998, the Company has
incurred $72,000 relating to this agreement which are included in research and
development expense.
6. RELATED PARTY TRANSACTIONS
In addition to the notes payable to stockholders (see Note 3), the Company
has an agreement to pay a fee of $1,000 per month to a company owned by the
Company's chief executive officer (who is a major stockholder). The agreement
commenced July 1, 1994 and concluded December 31, 1997, and covered accounting
and various other general and administrative services performed for the Company.
At December 31, 1997 and March 31, 1998, $42,000 and $42,000, respectively, are
payable to this affiliate for these services.
7. COMMITMENTS
LEASE
The Company rents office space in Atlanta, Georgia. Commencing December
1996, the Company entered into a new lease which provides for annual rent of
approximately $36,000 through January 31, 2000.
F-14
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. COMMITMENTS (CONTINUED)
Rent charged to operations was approximately $17,000, $36,000, $9,000 and
$9,000 for the years ended December 31, 1996 and 1997, and the three months
ended March 31, 1997 and 1998, respectively.
EMPLOYMENT CONTRACTS
In 1998, the Company entered into employment agreements with three of its
executive officers. The agreements become effective upon the closing of the
Company's IPO and provide for aggregate salaries up to $700,000 per year for a
term of five years.
8. STOCKHOLDERS' DEFICIT
The Company's founders capitalized the Company in 1994 with $1,000. Certain
stockholders either individually or through trusts have loaned funds to the
Company since its incorporation. In 1995, loans totaling $500,000 were converted
to capital. In connection with the consummation in January 1997 of the private
placement for the financing, loans totaling $550,000 were converted to 110,000
shares of common stock ($5 per share) (see Note 3).
In January 1996, the Company sold 120,000 shares of stock for notes totaling
$30,000. The notes bear interest at 8% per annum and were payable on July 1,
1997. In 1998, 100,000 shares of stock were returned to the Company and the
related note, totaling $25,000, was forgiven.
In July 1996, the Company issued 240,000 shares of common stock to retire
the $300,000 note payable to an affiliate and related accrued interest of
$30,000 ($1.375 per share) (see Note 3).
On January 2, 1996, the Company effected a split of its common stock of
4.06-for-1. On December 11, 1996, the Company (i) increased its authorized
shares of common stock from 1,500 to 20,000,000, (ii) authorized 1,000,000
shares of preferred stock to be issued at the discretion of the Board of
Directors, (iii) changed the common stock from no par value to $.001 par value,
and (iv) effected a split of its common stock of 2,500-for-1. All share amounts
have been retroactively adjusted to reflect the stock splits.
In December 1996, the Company granted options to acquire 100,000 shares of
its common stock to an affiliate. The options have an exercise price of $5 per
share (subsequently increased to $12 per share), are immediately exercisable and
have a term of 10 years. The estimated fair value of these options at their date
of grant was immaterial.
In December 1996, the Company adopted the 1996 Stock Option Plan, pursuant
to which 270,000 shares of the Company's common stock may be granted to its
employees, directors and consultants. The option exercise price will be no less
than the fair value of the common stock at the date of grant. The options will
include vesting provisions and generally have ten year maturity periods. The
Company also adopted the 1996 Non-employee Director Stock Option Plan for its
non-employee directors pursuant to which 30,000 shares of common stock may be
granted. Through December 31, 1997, no options under either of these plans have
been granted.
In 1998, the Company issued 140,000 options under the 1996 Stock Option Plan
at an exercise price of $12.00 per share, which will vest over four years and
12,500 options under the 1996 Non-employee Director
F-15
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
8. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock Option Plan at an exercise price of $12.00, which vested upon issuance.
The fair value of the non-employee director options were immaterial.
In February 1998, the Company issued 25,000 shares of common stock and
warrants to purchase 50,000 shares of common stock, at an exercise price of 80%
of the market price of the common stock on the date of exercise, to an
affiliated company of the Company's general counsel in consideration for
services rendered. The Company expensed $200,000 in connection with this
transaction which has been included in general and administrative expenses.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS 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 A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 20
Dilution.................................................................. 20
Capitalization............................................................ 23
Selected Financial Data................................................... 25
Plan of Operation......................................................... 26
Business.................................................................. 32
Management................................................................ 42
Principal Stockholders.................................................... 48
Certain Transactions...................................................... 48
Description of Securities................................................. 52
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 57
Additional Information.................................................... 57
Index to Financial Statements............................................. F-2
</TABLE>
------------------------
UNTIL , 1998 (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.
AMERICAN CARD
TECHNOLOGY, INC.
MINIMUM OFFERING:
294,200 SHARES OF COMMON STOCK
MAXIMUM OFFERING:
420,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b) of the Delaware General Corporation Law ("Delaware Law")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the fullest extent permitted by Delaware Law.
Section 145 of Delaware Law ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by them in
connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believe to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense of settlement of such action or suit, provided such person meets the
standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of any claim where such person has been
found liable to the corporation, unless the Court of Chancery or the court in
which such action or suit was brought approves such indemnification and
determines that such person is fairly and reasonably entitled to be indemnified.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been informed 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.
The Company's Bylaws provide that the Company shall indemnify officers and
directors, and to the extent authorized by the Board of Directors, employees and
agents of the Company, to the fullest extent permitted by and in the manner
permissible under the laws of the State of Delaware. The Bylaws also permit the
Board of Directors to authorize the Company to purchase and maintain insurance
against any liability asserted against any director, officer, employee or agent
of the Company arising out of his capacity as such.
The Company has entered into and executed indemnity agreements with present
directors for indemnification to the fullest extent permitted by law.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses in connection with the
sale of the Common Stock. All amounts are estimated. The Company has prepaid all
such fees.
<TABLE>
<S> <C>
SEC Filing Fee.................................................... $ 2,107
Blue Sky Expenses................................................. 21,340
Accounting Fees and Expenses...................................... 40,000
Legal Fees and Expenses........................................... 75,000
Legal Writing (outsourced)........................................ 55,000
Postage........................................................... 34,000
Printing Fees..................................................... 50,000
Escrow Agent Fees................................................. 10,000
Transfer Agent Fees............................................... 10,000
Due Diligence Fees................................................ 52,000
Miscellaneous Fees................................................ 25,553
Underwriting Fees................................................. 25,000
TOTAL............................................................. $ 400,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has issued securities without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in the following
transactions:
In July 1996, loans to the registrant in the aggregate principal amount of
$300,000 (plus interest) made by the President, Chief Executive Officer and sole
director of a subsidiary of the Registrant were converted, pursuant to an
agreement between the Company and such individual, into an aggregate of 240,000
shares of Common Stock.
In December 1996, the Registrant issued to an entity owned by certain
affiliates and directors of the Registrant an option to purchase 100,000 shares
of Common Stock at an exercise price of $5.00 per share which has since been
increased to $12.00 per share and assigned to Mr. Roncari.
In connection with the Bridge Financing, in January 1997, loans in an
aggregate principal amount of $550,000 by the founders of the Registrant were
converted into an aggregate of 110,000 shares of Common Stock.
In January 1996, the Company sold 100,000 shares of Common Stock to Stephen
S. Weisglass at a price of $.25 per share. Mr. Weisglass became a director of
the Company in November 1996. In July 1997, Mr. Weisglass resigned from the
Board. His shares were subsequently transferred to Beter at the direction of the
Company, and then distributed as part of the 1998 Private Placement.
In January 1996 the Registrant sold 20,000 shares to Richard Shelton at a
price of $0.25 per share. The registrant received a note in the amount of $5,000
from Dr. Shelton.
In January 1997, pursuant to the 1997 Private Placement, the Company
completed the sale to 23 private investors (including certain officers and
directors of the Company) of 25 1997 Units. Each 1997 Unit consisted of (i) one
1997 Bridge Note; (ii) 5,000 1997 Bridge Shares; and (iii) 25,000 1997 Bridge
Warrants. The purchase price per 1997 Unit was $50,000. Such 1997 Bridge Notes,
1997 Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as
part of the 1998 Private Placement.
In January 1997, in connection with the 1997 Private Placement, the Company
borrowed from Messrs. Perl, Rothstein and Roncari $175,000 and issued to them
1997 Bridge Notes in such aggregate principal amount, an aggregate of 17,500
1997 Bridge Shares and 87,500 1997 Bridge Warrants. Such 1997
II-2
<PAGE>
Bridge Notes, 1997 Bridge Shares and 1997 Bridge Warrants were repurchased by
the Company as part of the 1998 Private Placement.
In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge
Warrants. The purchase price per Unit was $50,000
On March 15, 1995 Messrs. Roncari and Rothstein recharacterized $500,000 of
loans to the Registrant as paid in capital. This capital contribution was
allocated equally among the Original Stockholders in consideration for which
Messrs. Findley and Perl subsequently transferred 25,000 shares of common stock
to Mr. Roncari and the Rothstein Trust.
In conjunction with the closing of the 1998 Private Placement, the Company
issued 25,000 shares of Common Stock and the Chapman Option to Chapman Group
LLC, a company affiliated with Cohn & Birnbaum P.C., general counsel to the
Company. These shares and options were issued in partial consideration for
services rendered by Cohn & Birnbaum P.C. from the date of the Company's
inception through the closing of an IPO by the Company and in consideration for
the deferral of fees at different times during such same time period.
In conjunction with the closing of the 1998 Private Placement, the Company
entered into Director Loan Agreements with each of Harold Rothstein and Raymond
A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to
loan $450,000 (for a total of $900,000) to the Company to be used for working
capital and certain costs of the anticipated IPO. These amounts, together with
approximately $155,000 of the proceeds of the 1998 Private Placement, were used
to fund certain costs of this Offering, and provide required working capital. In
consideration for this commitment, Messrs. Rothstein and Roncari were each
granted 12,500 shares of Common Stock of the Company and 12,500 Commitment
Warrants.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C.
3.1 Articles of Incorporation of Registrant.
3.2 By-Laws of Registrant.
4.1 Sample Certificate for Common Stock.
5.1 Opinion of Counsel regarding Legality.
8.1 Opinion of BDO Seidman, LLP.
9.1 Voting Trust Agreement for Lawrence O. Perl.
9.2 Voting Trust Agreement for Harold Rothstein.
10.1 Employment Agreement between the Registrant and Lawrence O. Perl.
10.2 Employment Agreement between the Registrant and Raymond Findley, Jr.
10.3 Employment Agreement between the Registrant and Robert H. Dixon.
10.4 Escrow Agreement, Bank of New York.
10.7.1 Subscription Agreement for American Card Technology, Inc.
10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC.
10.7.3 Stock Option Agreement (warrant), Harold Rothstein.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.7.4 Stock Option Agreement (warrant), Raymond Roncari.
10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter.
10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein.
10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari.
10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies.
10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker.
10.8.6 1996 Nonemployee Director's Stock Option Plan.
10.8.7 1996 Stock Option Plan for Employees.
10.8.8 Director Loan Agreement, Harold Rothstein.
10.8.9 Director Loan Agreement, Raymond Roncari
10.9.1 Agreement with Softchip Israel and Registrant.
10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant.
10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp.
10.9.4 Stock Option Agreement for employee, Robert Dixon.
10.9.5 Stock Option Agreement for employee, Michael Pate.
10.9.6 Stock Option Agreement for employee, Robert Patten.
10.9.7 Stock Option Agreement for employee, Shawn Nixon.
10.9.8 Stock Option Agreement for employee, Jeremy Zela.
23.1 Consent of Independent Accountant, BDO Seidman, LLP.
23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1).
23.3 Consent of Underwriter, Rockcrest Securities L. L. C.
27.0 Financial Data Schedule.
99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Tech., Inc.
99.2 Rothstein personal guarantee.
</TABLE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act,
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set
forth in the Registration Statement, and
(iii) Include any additional or changed material information on the plan
of distribution;
(2) For determining liability under the Act, treat such post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-4
<PAGE>
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 forgoing 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, submitted to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Miami, Florida, on
April, 30, 1998.
AMERICAN CARD TECHNOLOGY, INC.
By: /s/ LAWRENCE O. PERL
-----------------------------------------
Lawrence O. Perl,
CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 was signed by the following persons in the
capacities and on the dates stated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ LAWRENCE O. PERL Chief Executive Officer,
- ------------------------------ Chief Financial Officer, April 30, 1998
Lawrence O. Perl Chairman of Board
/s/ RAYMOND FINDLEY, JR.
- ------------------------------ President, Chief Operating April 30, 1998
Raymond Findley, Jr. Officer, Director
/s/ HAROLD ROTHSTEIN
- ------------------------------ Director April 30, 1998
Harold Rothstein
/s/ RAYMOND RONCARI
- ------------------------------ Director April 30, 1998
Raymond Roncari
/s/ LILLY BETER
- ------------------------------ Corporate Secretary, April 30, 1998
Lilly Beter Director
/s/ BRUCE R. BONADIES
- ------------------------------ Director April 30, 1998
Bruce R. Bonadies
/s/ GORDON W.WALKER
- ------------------------------ Director April 30, 1998
Gordon W. Walker
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C.
3.1 Articles of Incorporation of Registrant.
3.2 By-Laws of Registrant.
4.1 Sample Certificate for Common Stock.
5.1 Opinion of Counsel regarding Legality.
8.1 Opinion of BDO Seidman, LLP.
9.1 Voting Trust Agreement for Lawrence O. Perl.
9.2 Voting Trust Agreement for Harold Rothstein.
10.1 Employment Agreement between the Registrant and Lawrence O. Perl.
10.2 Employment Agreement between the Registrant and Raymond Findley, Jr.
10.3 Employment Agreement between the Registrant and Robert H. Dixon.
10.4 Escrow Agreement, Bank of New York.
10.7.1 Subscription Agreement for American Card Technology, Inc.
10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC.
10.7.3 Stock Option Agreement (warrant), Harold Rothstein.
10.7.4 Stock Option Agreement (warrant), Raymond Roncari.
10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter.
10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein.
10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari.
10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies.
10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker.
10.8.6 1996 Nonemployee Director's Stock Option Plan.
10.8.7 1996 Stock Option Plan for Employees.
10.8.8 Director Loan Agreement, Harold Rothstein.
10.8.9 Director Loan Agreement, Raymond Roncari
10.9.1 Agreement with Softchip Israel and Registrant.
10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant.
10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp.
10.9.4 Stock Option Agreement for employee, Robert Dixon.
10.9.5 Stock Option Agreement for employee, Michael Pate.
10.9.6 Stock Option Agreement for employee, Robert Patten.
10.9.7 Stock Option Agreement for employee, Shawn Nixon.
10.9.8 Stock Option Agreement for employee, Jeremy Zela.
23.1 Consent of Independent Accountant, BDO Seidman, LLP.
23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1).
23.3 Consent of Underwriter, Rockcrest Securities L. L. C.
27.0 Financial Data Schedule.
99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Technology, Inc.
99.2 Rothstein personal guarantee.
</TABLE>
<PAGE>
EXHIBIT 1.1
UNDERWRITING AGREEMENT
ACTI
Page 1 of 24
ROCKCREST SECURITIES L.L.C.
3626 NORTH HALL STREET, SUITE 920
DALLAS, TEXAS 75219
James S. Harris member NASD
Principal and SIPC
AMERICAN CARD TECHNOLOGY, INC.
UNDERWRITING AGREEMENT
FOR REGULATION SB-2 OFFERING
"PUBLIC OFFERING"
May 1, 1998
American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, GA. 30067
Ladies and Gentlemen:
American Card Technology, Inc a Delaware corporation, including all of
its subsidiaries, (the "Company"), of Marietta, GA. hereby confirms its
agreement with Rockcrest Securities, L.L.C. and/or other members of the
Underwriting Group (the "Underwriter") as follows:
I. Description Of Securities
The Company's authorized and outstanding capitalization when the offering
of the securities contemplated hereby (the "Offering") is permitted to commence
and at the date of breaking of escrow and distribution of funds raised by the
Underwriter to the Company pursuant to the terms and conditions stated in the
prospectus prepared in connection with this Offering (the "Prospectus"), which
is the date of closing the offering, (the "Closing Date"), will be set forth in
the Prospectus included therein. The Company proposes to issue and sell to
qualified investors an aggregate of up to 420,000 shares of its authorized $.001
U.S. par value common stock (the "Stock") at a price of $17.00 U.S. per unit on
the terms as set forth in the Prospectus. The total aggregate shares shall not
exceed 20% of the equity of the Company at the time of the effective date.
<PAGE>
UNDERWRITING AGREEMENT
ACTI
Page 2 of 24
II. Representations And Warrants of the Company
In order to induce the Underwriter to enter into this Agreement, the
Company hereby represents and warrants to and agrees with the Underwriter as
follows:
2.01. Registration Statement/Prospectus.
A registration statement on Form SB-2, (File No. ___________) (the
"Registration Statement") as amended, with respect to the shares, including 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
(i) the requirements of the Securities Act of 1933, as amended (the "Act"); (ii)
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC"); and (iii) the laws and regulations of any other
state or jurisdiction in which such Registration Statement or Prospectus is
filed; said Registration Statement will be 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, with copies
delivered promptly to the Underwriter.
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 with all exhibits and financial statements, as it
becomes effective; the term "Prospectus" refers to and means the Prospectus
included in the Registration Statement when it becomes effective; and the term
"Preliminary Prospectus" 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 SEC declares the Registration Statement
effective pursuant to Section 8 of the Act.
2.02. Accuracy Of Offering Documents and Prospectus.
The SEC has not issued any order preventing or suspending the use of any
Prospectus with respect to the Stock, and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and the
applicable Rules and Regulations thereunder and to the best of the Company's
knowledge has not included at the time of filing or at the time of submission to
the Underwriter 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, 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 Rules and Regulations for the purposes of the
proposed SB-2 Offering, and all statements of material fact contained in the
Registration Statement and Prospectus will be true and correct, and neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make 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 in
reliance upon written information furnished on behalf of the Underwriter
specifically for use therein.
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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 will present
fairly the financial position of the Company and, where applicable, the results
of its operations and cash flows at the respective dates and for the respective
periods for which they apply; such financial statements have been prepared in
accordance with generally accepted principles of accounting consistently applied
throughout the periods concerned except as otherwise stated therein.
2.04. Independent Public Accountant.
The Public Accountant, which has, if required, certified or shall certify
all financial statements as part of the Registration Statement and Prospectus is
an independent certified public accountant within the meaning of the Act and the
Rules and Regulations.
2.05. No Material Adverse Change.
Except as may be reflected in or contemplated by the Registration
Statement or Prospectus, as the same may be amended, subsequent to the dates as
of which information is given in the Prospectus, and prior to the Closing Date,
(i) there shall not be any material adverse change in the condition, financial
or otherwise, of the Company or in its business taken as a whole; (ii) there
shall not have been any material transaction entered into by the Company other
than transactions in the ordinary course of business; (iii) the Company shall
not have incurred any material obligations, contingent or otherwise, which are
not disclosed in the Prospectus; (iv) 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 stock.
2.06. No Defaults.
The Company is not in any material default which has not been waived 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. 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 any of
the terms, conditions or provisions of, or constitute a 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 and at the Effective Date will be duly incorporated and
validly existing in good standing as a corporation, under the laws of the State
of Delaware with authorized and outstanding capital stock as set forth in the
Registration Statement and Prospectus, and with full power and authority to own
its property and conduct its business, present and proposed, as
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described in the Registration Statement and Prospectus; the Company has full
power and authority to enter into this Agreement; and 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. The Company has no subsidiaries other than as disclosed in the
Registration Statement and Prospectus.
2.08. Legality Of Outstanding Stock.
The outstanding common stock of the Company has been duly and validly
authorized, issued and is fully paid and nonassessable and will confirm 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 provisions of the Securities Act of 1933.
2.09. Legality Of Stock.
The Stock has 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 Stock, upon issuance, will not
be subject to the preemptive rights of any shareholders of the Company. The
Stock will conform to all statements with regard thereto in the Registration
Statement and Prospectus.
2.10. Prior Sales.
No securities of the Company, or of a predecessor of the Company, have
been sold except as set forth in the Prospectus.
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. Finder.
The Company knows of no outstanding claim for services in the nature of a
finder's fee or origination fee with respect to the sale of the Stock hereunder
resulting from its acts for which the Underwriter may be responsible.
2.13. Exhibits.
There will be no contracts or other documents which are required to be
filed as exhibits to the Registration Statement or Prospectus by the Act or by
the Rules and Regulations which will not be 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, and 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 annexed 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
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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.
2.14. Tax Returns.
The Company, where applicable, has filed all federal and state tax
returns which it is required to file and has paid all taxes shown on such
returns and on all assessments it has received 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.
2.15. Property.
Except as otherwise set forth in or contemplated by the Registration
Statement and Prospectus, the Company has good title, 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 by the Company, subject only to such
exceptions and qualifications as will be described in the Prospectus or which
are not material and do not adversely affect the present or prospective business
of the Company.
2.16. 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.
III. Best Efforts Offering
3.01. Statement Of Best Efforts.
Due to the dynamic aspects of the market, the Underwriter makes no
guarantees as to the success of the Offering, but agrees to use its best efforts
to bring the Offering to a successful close. The Underwriter shall market the
Stock to qualified investors in the manner the Underwriter determines to be the
best method, at the Underwriter's discretion.
3.02. No Liability of Underwriter.
In the event the Underwriter is unable to sell any portion of the Stock
in this Offering, the Underwriter shall in no way be liable for such unsold
portion.
IV. Prospectus
4.01. Delivery of Registration Statement.
As required, the Company will deliver to the Underwriter without charge
two 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 as many copies of
each Registration Statement and any amendment or supplement thereto as deemed
necessary by the Underwriter, including such financial statements, exhibits,
amendments and supplements. The signed copies of the Registration
Statement/Prospectus so furnished to the Underwriter will include signed copies
of any and all consents and certificates of
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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, at the Company's expense,
prior to the effective date of the Registration Statement as many printed copies
of the Preliminary Prospectus filed with the SEC bearing the red ink statement
required by SEC Rule 501 (c) (8) as the Underwriter may require for the purposes
contemplated by this Agreement. The Company consents to the lawful use of such
documents by the Underwriter and by dealers prior to the effective date of the
Registration Statement.
4.03. Delivery Of Prospectus.
The Company will deliver, at the Company's 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 on the effective date and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith.
4.04. Further Amendments and Supplements.
If during such period of time as in the opinion of the Underwriter or its
counsel an Prospectus relating to this financing 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 Prospectus as then
amended or supplemented 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 Prospectus to comply with the Act, the Company will
forthwith notify the Underwriter thereof and prepare and file with the SEC or
other State or jurisdiction, as may be required by law in a SB-2 Offering, such
further amendment or supplement to the Registration Statement and Prospectus and
furnish and deliver to the Underwriter, all at the cost of the Company, a
reasonable number of copies of the 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
Prospectus not misleading in light of the circumstance in which it is delivered
to a purchaser or prospective purchaser, and which will comply in all respects
with the Act, and in the event the Underwriter is required to deliver an
Prospectus 90 days or more after the date of the Regulation SB-2 Offering, the
Company will promptly upon request prepare such Prospectus or Prospectuss as may
be necessary to permit compliance with the requirements of Section 10 of the
Act.
4.05. Use Of Prospectus.
The Company authorizes the Underwriter in connection with the
distribution of the Stock to use the Prospectus, as from time to time amended or
supplemented, in connection with the offering and sale of the Stock and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable state blue sky or securities laws.
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V. Covenants Of the Company
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 or distribute to
any party any amendment or supplement to the Registration Statement or to the
Prospectus unless and until a copy of such amendment or supplement has been
previously furnished to the Underwriter within a reasonable time period prior to
the proposed filing or distribution thereof, or of which the Underwriter or
counsel for the Underwriter has reasonably objected to, in writing, on the
ground that such amendment or supplement is not in compliance with the Act or
the Rules and 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, if required by the Act, and any post-effective amendment subsequently
filed, to become effective as promptly as reasonably practicable and will
promptly advise the Underwriter, and 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 SEC; (ii) when the SEC 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 SEC 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 which requires any changes to be made 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 Stock for offering or sale in any jurisdiction, or 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 Of Amendments and Supplements.
The Company will promptly prepare and file promptly with the SEC, as
required and upon request of the Underwriter, such amendments or supplements to
the Registration Statement or Prospectus, in form satisfactory to counsel to the
Company, as may be necessary, in the opinion of the counsel to the Underwriter
and of counsel to the Company, in connection with the offering or distribution
of the Stock and will use its best efforts to cause the same to become effective
as promptly as possible.
5.04. Blue Sky Qualifications.
The Company will, when and as requested by the Underwriter, use
reasonable efforts to qualify the Stock or such part thereof as the Underwriter
may determine for sale under the so-called blue sky laws of the States of Texas,
Georgia, Colorado, Oklahoma, Idaho, Oregon, Louisiana, Kansas, Illinois,
Massachusetts, Florida, Washington, Nevada, California, Connecticut, New York
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
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the distribution of the Stock; 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 five years. The
Blue Sky work shall be undertaken by counsel selected by the Company and shall
be at the Company's expense.
5.05. Financial Statements.
The Company, at its own expense, will prepare and give and will continue
to prepare and give such financial statements and other information to and as
may be required by the SEC or any state, regulatory agency or jurisdiction in
which the Stock may be qualified.
5.06. Reports And Financial Statements to the Underwriter.
During the period of five years from the Closing Date, the Company will
deliver to the Underwriter (i) copies of each annual report of the Company; (ii)
copies of all reports it is required to file or make available pursuant to the
Investment Company Act of 1940, as amended (the "ICA"); (iii) 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
investors' equity covering such fiscal year, and all to be in reasonable detail
and, if required, certified by independent public accountants for the Company;
(iv) 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 of the Company and its subsidiaries, if
any, as of the end of that period and the income statement, statement of changes
in financial condition and 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; (v)
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 if required shall file with SEC; and (vi) 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.
If the Company shall fail to furnish the Underwriter with financial
statements as herein provided, within the times specified herein, the
Underwriter shall have the right to have such financial statements prepared by
independent public accountants of their own choosing and the Company agrees to
furnish such independent public accountants such data and assistance and access
to such records as they may reasonably require to enable them to prepare such
statements and to pay their reasonable fees and expenses in preparing the same,
pursuant to Section 5.08. below. In the event the monies described in Section
5.08. below are not deposited the Company agrees to hold the Underwriter
harmless if the Underwriter does not enforce the above listed rights.
5.07. Underwriter's Commission/Compensation.
Upon Closing, the Company shall pay to the Underwriter the Sales
Commission as set forth in theProspectus. This commission shall be ten percent
(10%) of the gross proceeds from
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the sale of the Stock pursuant to the Offering. In addition, upon closing of the
Offering, the Underwriter has a five year option to purchase 100,000 shares of
common stock at a 20% discount below market price, at the time of exercise.
5.08. Expenses Paid by the Company.
The Company and its officers agree to deposit with the Underwriter, upon
execution of this Agreement, a sufficient amount of money to fund all
anticipated expenses, and the initial amount of $ 25,000 U.S. has been
deposited. Rockcrest Capital Corporation performs all due diligence
investigations on behalf of the Underwriter. Subject to the limitations
described below in this section 5.08 (dealing with funds in excess of $25,000
U.S.) the Company and/or its officers will deposit such funds, whether or not
the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, to fund all costs and
expenses incident to the performance of its obligations under this Agreement,
including all expenses incident to the authorization of the Stock 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 Stock
to the qualified investors, the fees and expenses of the Company's counsel and
accountants, all travel costs incurred by the Underwriter's personnel in
connection with the Offering, the costs and expenses incident to the
preparation, printing and filing under the Act and with the National Association
of Securities Dealers, Inc., as necessary, of the Registration Statement and the
Prospectus and any amendments or supplements thereto, the cost of printing,
reproducing and filing, as necessary, the Registration Statement and Prospectus
and the underwriting documents, the cost of printing and furnishing to the
Underwriter copies of the Registration Statement and Prospectus, as well as any
amendments and/or supplements thereto, and the cost of qualifying the Stock
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, and any other expense deemed appropriate by the
Underwriter. Said monies have been deposited with the Underwriter. Not
withstanding the foregoing, any costs, fees, expenses, taxes and disbursements
in excess of $25,000 shall only be the obligation of the Company by mutual
written agreement between the parties and shall be paid by the Company promptly
on or before the agreed upon date. The Underwriter and the Company may reach a
mutual written agreement to revise the payment terms of any and all funds
requested by the Underwriter.
5.09. Reports To Investors.
During the period 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 investors which will include audited
statements of its operations and cash flows 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, if required, shall have rendered an
opinion.
5.10. 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 earning statement (as to which no opinion
need be rendered but which will satisfy the provisions of Section 11(a)
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of the Act) covering a period of at least 12 months beginning after the
effective date of the Registration Statement.
5.11. 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
SEC, so far as necessary to permit the continuance of sales or dealings in the
Stock.
5.12. Application Of Proceeds.
The Company will apply the net proceeds from the sale of the Stock
substantially in the manner set forth in the Prospectus.
5.13. Undertakings Of Certain Shareholders.
The Company will deliver to the Underwriter, prior to or simultaneously
with the execution of this Agreement an agreement executed by each officer,
director or shareholder of the Company stating that such person shall not
directly or indirectly offer or sell to qualified investors any portion of the
shares of Common Stock owned prior to the effective date of this Agreement for a
period of twelve months from the effective date of the Registration Statement
without the Underwriter's prior written consent.
5.14. Delivery Of Documents.
Prior to the funding of this Offering, the Company will deliver to the
Underwriter, at its own expense, 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 Delaware; true and correct copies of the bylaws of the Company and
of the minutes of all meetings of the directors and the shareholders of the
Company held prior to the Closing Date which in any way relate to the subject
matter of this Agreement; and true and correct copies of all material contracts
to which the Company is a part, other than contracts for the sale of products or
services in the normal course of business. True and correct copies of any and
all amendments to these instruments up to the Closing Date shall be provided to
the Underwriter at the expense of the Company.
5.15. Cooperation With Underwriter's Due Diligence.
At all times prior to the Closing Date, the Company will cooperate with
the Underwriter 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 this Offering, and the Company will make available to the Underwriter, in
connection therewith, such information in its possession as the Underwriter may
reasonably request.
5.16. No Sale Period.
No offering, sale or other disposition of any common stock, 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,
unless the Underwriter gives prior written consent.
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5.17. Appointment Of Transfer Agent.
The Company will appoint a transfer agent for the Stock subject to the
Closing. Once such agent has been appointed, 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.
5.18. 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
Underwriter in Section 8 hereof.
5.19. Filings Required.
The Company agrees to file with the SEC or any other state or
jurisdiction all reports required under the Act, the Rules and Regulations or
any other applicable law, and to provide a copy of such reports to the
Underwriter, including but not limited to the filing of Form SR with the SEC in
accordance with the provisions of Rule 463 promulgated under the Act.
5.20. Application To Moody's/ Standard & Poor's/ Dunn &Bradstreet
The Company will, within 120 days after the effective date, apply for
listing in Moody's Over-The-Counter Manual and/or Standard & Poor's and/or Dunn
& Bradstreet and shall use its best efforts to have the Company listed in such
manual. Whether the Company will apply for listing on one exchange or all three
will be decided by the Underwriter and the Company cooperatively.
5.21. Application To NASDAQ/Bulletin Board
The Company shall apply for entry of the Stock on the NASDAQ automated
quotation system and/or the Bulletin Board and shall in such event use its best
efforts to have its common stock quoted on that system.
5.22. Due Diligence Tour.
The Company has agreed to spend up to $100,000 for the due diligence
tour. The Company will follow the direction of the Underwriter regarding the
structure and the particulars of the due diligence tour. The Company and the
Underwriter will collectively decide the disposition of the due diligence tour.
VI. Indemnification
6.01. Indemnification By Company.
The Company agree to indemnify and hold harmless the Underwriter and each
person who controls the Underwriter within the meaning of Section 15 of the Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse persons indemnified as above for any legal or
other expenses (including the cost of any investigation and preparation)
incurred by them in connection with any litigation, whether or not resulting in
any liability, but only insofar as such losses, claims, damages, liabilities and
litigation arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in
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the Registration Statement or any amendment thereto or any application or other
document filed in order to qualify the Stock under the blue sky or securities
law of the states where the 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, in light of the circumstances under
which they were made, 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
Registration Statement (as amended or supplemented), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, 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 any Underwriter or any person
controlling any Underwriter in respect of such losses, claims, damages,
liabilities or actions arising out of or based upon any such untrue statements
or made in reliance upon information within the knowledge of the Underwriter and
furnished to the Company by the Underwriter for use in connection with the
preparation of the Registration Statement and the Prospectus or any such
amendment or supplement thereto. Furthermore, in the event the Company fails to
provide all funds properly requested by the Underwriter pursuant to this
Agreement in a timely manner as determined by the Underwriter in its sole
reasonable discretion, 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 claims arising out of this Agreement,
any breach of this Agreement by the Company or failure by the Company to perform
any authorized act under this Agreement, subject to the indemnity restrictions
contained in this Section 6.01., whether such claims are originated by the
Company, its officers, agents or assigns or by any other third party. This
indemnity agreement is in addition to any other liability which the Company may
otherwise have to the Underwriter. The Underwriter agrees that within ten days
after the receipt by the Underwriter 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 the Underwriter
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 Underwriter 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 subsection 6.01.
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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 Stock in this 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 actionfor
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 Act, unless such failure to
deliver the Prospectus was a result of non-compliance by the Company with
Sections 4.02. and 4.03. hereof. Provided, however, the Company's obligations to
indemnify hereunder shall not be applicable to any liability to which the
Underwriter is subject by reason of willful malfeasance, bad faith or gross
negligence in the performance of its duties or by reason of willful disregard of
its obligations and duties under this Agreement. Notwithstanding anything to the
contrary in this subsection 6.01. of this Agreement, no Underwriter shall be
indemnified by the Company against any liability by any such Underwriter to the
Company or its shareholders except in accordance with the guidelines set forth
in Release No. IC-11330 issued by the SEC on September 2, 1980.
6.02. Indemnification by Underwriter.
The Underwriter will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any violation by the Underwriter
in the sale of such securities of any applicable state or federal law or any
rule, regulation or instruction thereunder relating to violations based on
unauthorized statements by the Underwriter or any of their representatives,
provided that such violation is not based upon any violation of such law, rule,
regulation or instruction by the party claiming indemnification or inaccurate or
misleading information furnished by the Company or its representatives,
including information furnished to the Underwriter as contemplated herein. This
indemnity agreement shall be in addition to any liability which the Underwriter
may otherwise have.
6.03. Notice Of Litigation Against Underwriter.
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.
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VII. Effectiveness Of Contract
7.01. Date Of Effectiveness
This Agreement shall become effective immediately upon execution.The time
of the release by the Underwriter of the Stock for offering, for the purposes of
this Section VII., shall mean the time of the release by the Underwriter for
publication of the first advertisement which is subsequently published relating
to the Stock, or the time of the first delivery or mailing of copies of the
Prospectus relating to the Stock which are subsequently delivered, whichever
shall first occur. The Underwriter agrees to notify the Company immediately
after the Underwriter shall have taken any action, by release or otherwise,
whereby this Agreement shall have 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.
VIII. Conditions Of Underwriter's Obligations
The Underwriter's obligations hereunder to make payment to the Company
hereunder on the Closing Date shall be subject to the terms and conditions
stated in the Prospectus, and to the accuracy 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 Offering Documents.
The Offering Documents shall have become effective on or prior to the
date stated therein.
8.02. Accuracy Of Offering Documents.
The Underwriter shall not have disclosed in writing to the Company that
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 counsel to the
Underwriter, 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 a key principal of the Company (Lawrence O. Perl and/or Raymond
Findley) shall not have suffered any injury or disability of a nature which
would materially adversely affect his ability as a key principal 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
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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, 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, as such may amended, 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 (i) shall have conducted
its business in the usual and ordinary manner as the same was being conducted on
the date of the last audited balance sheet included in the Registration
Statement; and (ii) shall not, except in the ordinary course of its business,
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 substantially adverse change in its condition, financial or
otherwise. At the Closing Date, the capital stock and surplus accounts 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 Stock, other than as may be set forth in the
Prospectus, and except as the surplus reflects the result of continued losses
from operations.
8.06. Opinion of Counsel.
The Company shall have furnished to the Underwriter the opinion, dated
twenty-four hours prior to the Closing Date, addressed to the Underwriter, from
the Company's counsel, to the effect that based upon their review of the
Registration Statement and Prospectus, the Company's certificate of
incorporation, bylaws, and relevant corporate proceedings, an examination of
such statutes as the Company's counsel deem necessary and such other
investigation by such counsel as it deems necessary to express such opinions:
(i) The Company has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of Delaware, 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 qualified as a foreign corporation in the State of Georgia
and is not required to qualify or register as a foreign corporation in any other
state and there are no other 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 common stock of the
Company, and the Stock, conform to the statements concerning them in the
Registration Statement and the Prospectus; the outstanding common stock of the
Company has been duly and validly issued and is fully paid and nonassessable and
contains no preemptive rights; the Stock has been duly authorized and, upon
issuance thereof and payment therefor in accordance with this Agreement, will be
duly and
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validly issued, fully paid and nonassessable, and will not be subject to the
preemptive rights of any shareholder of the Company.
(iv) 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 Stock hereunder, except as
required under the Act or blue sky or state securities laws.
(v) The issuance and sale of the Stock, and the consummation of the transactions
herein contemplated and compliance with the terms of this Agreement will not, to
the best of Counsel's knowledge, conflict with or result in a breach of any of
the terms, conditions or provisions of or constitute a default under the
certificate of incorporation or bylaws of the Company, or any note, indenture,
mortgage, deed of trust, or other agreement or instrument to which the Company
is a party or by which the Company or any of its property is bound or any
existing law (provided this paragraph shall not relate to federal or state
securities laws), order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency, body, arbitration tribunal, or
court, domestic or foreign, having jurisdiction over the Company or its
property.
(vi) The Registration Statement has become effective under the Act and, to the
best of the knowledge of such counsel after such counsel has conducted a
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 SEC under the Act, and the
Prospectus, and each amendment and supplement thereto, complies as to form in
all material respects with the requirements of the Act and the Rules and
Regulations thereunder, and after a reasonable investigation such counsel has no
reason to believe that either the Registration Statement or 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); 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 which is required to be
disclosed in the Registration Statement or the Prospectus which are not
disclosed and properly described therein.
(vii) This Agreement has been duly authorized and executed by the Company and is
a valid and binding agreement of the Company.
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.
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8.07.01. Accountant's Letter.
The Underwriter shall have received, if required, a letter addressed to
the Underwriter and dated the date of this Agreement and the Closing Date,
respectively, from the independent public accountant of the Company, stating
that (i) with respect to the Company they are the independent public accountant
of the Company within the meaning of the Act and the applicable published Rules
and Regulations thereunder; (ii) in its opinion, the Company's financial
statements which the independent public accountantaudited, at all dates and for
all periods referred to and included in the Registration Statement and
Prospectus, comply in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulations thereunder with
respect to SB-2 offering documents; (iii) on the basis of certain indicated
procedures (but not an audit in accordance with generally accepted accounting
principles), including examinations of the instruments of the Company set forth
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 its attention which would cause it 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 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 a basis of the indicated procedures and
discussions referred to in clause (iii) above, nothing has come to its attention
which, in its judgment, would cause the independent public accountant to believe
or indicate that the unaudited financial statements and schedules, whether or
not appearing 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.
8.07.02. 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.
8.08. Officers' Certificate.
The Company shall have furnished to the Underwriter a certificate by the
Company's President and chief financial officer, dated as of the Closing Date,
to the effect that, to the best of their knowledge;
(i) The representations and warranties of the Company in this Agreement are true
and correct as of the date of this Agreement and as of the Closing Date, and the
Company has complied with all
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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
all knowledge of the respective signers after such respective signers have made
inquiry, no proceeding for that purpose has been initiated or is threatened by
the SEC.
(iii) The respective signers have carefully examined the Registration Statement
and the Prospectus and any amendments or 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 the 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, 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
certificates, and except for anticipated continuing losses, (a) there has not
been any substantially adverse change, financial or otherwise, in the affairs or
condition 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 stock of the
Company.
8.09. Tender Of Delivery of Stock.
All of the Stock being offered by the Company shall be tendered for
delivery in accordance with the terms and provisions of this Agreement.
8.10. Blue Sky Qualifications.
The Stock 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.
8.11. Approval Of Underwriter.
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 the
Underwriter, whose approval shall not be unreasonably withheld. The suggested
form of such documents shall be provided to the Underwriter at least one
business day before the Closing Date. If necessary, the Underwriterwill provide
a written memorandum stating which such closing documents it deems necessary for
its review. Such
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memorandum shall be delivered five business days before the Closing Date to
counsel for the Company.
8.12. 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.
8.13. Non-Payment Of Requested Funds by Company.
All funds agreed upon by mutual written agreement between the parties, as
discussed herein, shall be paid by the Company as described in this Agreement.
In the event the Company does not provide any and all funds as mutually agreed
upon, as described in this Agreement, the Underwriter reserves the right to
cease all activity with respect to this Offering until such funds are received
from the Company. In the event all such funds are not received within thirty
days from the date such funds are due, and no written agreement between the
Company and the Underwriter as to the payment of such requested funds is
reached, the Underwriter reserves the right to withdraw from its role in this
Offering and instruct the escrow agent to return all monies received from
investors to fund the offering, at the cost of the Company. Such withdrawal
shall not be deemed a breach of this Agreement.
8.14. Requested Contracts, Information and Documents Provided.
All contracts, information and documents requested in writing by the
Underwriter from the Company, to include audited financial statements, key man
life insurance and any other liability and/or casualty insurance deemed
necessary by the Underwriter, fidelity bonds, and non-compete agreements with
officers, have been timely provided to the Underwriter as requested. The
Underwriter may request any contracts, information or documents which it
reasonably deems necessary in order to facilitate the funding of this Offering,
within its sole discretion.
IX. Termination
9.01. Termination Due to Non-Compliance.
This Agreement may be terminated by the Underwriter by written notice to
the Company in the event the Company shall have failed or been unable to comply
in any material respect 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. The date of such termination notice shall
be the termination date of this Agreement (the "Termination Date").
This Agreement may be terminated by the Company by written notice to the
Underwriter in the event the Underwriter shall have failed or been unable to
comply in any material respect with any of the terms, conditions or provisions
of this Agreement on the part of the Underwriter to be performed, complied with
or fulfilled, within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
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waived by the Company in writing. The date of such termination notice shall be
the termination date of this Agreement (the "Termination Date").
9.02. Termination Due to Due Diligence Investigations.
In the event the Underwriter's due diligence investigations lead the
Underwriter to believe any statement or fact presented by the Company, whether
oral or written, on which it relied in executing this Agreement to be false or
exaggerated, whether intentionally or unintentionally on the part of the
Company, or to believe the Offering has an unacceptable likelihood of success or
is fraudulent in any way, the Underwriter reserves the right to terminate this
Agreement immediately, and upon termination the Underwriter shall refund any
unused portion of any deposit it received from the Company. The Underwriter
shall immediately provide a written notice to the Company notifying the Company
of its termination of this Agreement and the reasons therefor. The date of such
termination notice shall be the termination date of this Agreement (the
"Termination Date").
9.03. 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 Stock is rendered impracticable or inadvisable because (i)
additional material governmental restrictions not in force and effect on the
date hereof shall have been imposed upon the trading in securities generally, or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or trading in securities generally on such Exchange shall have
been suspended, or a general moratorium shall have been established by federal
or state authorities; (ii) a war or other national calamity shall have occurred;
(iii) substantial and material changes in the condition of the market (either
generally or with reference to the sale of the Stock offered hereby) beyond
normal fluctuations are such that it would be undesirable, impracticable or
inadvisable in the judgment of the Underwriter to proceed with this Agreement or
with the public offering; or (iv) of any matter materially adversely affecting
the Company. The date of such termination notice shall be the termination date
of this Agreement (the "Termination Date").
9.04. Termination Due to Misuse of Discretion, Willful Malfeasance, Bad Faith or
Gross Negligence.
This Agreement may be terminated by the Company upon written notice to
the Underwriter, in cases where the Underwriter has exercised misuse of
discretion, willful malfeasance, bad faith or gross negligence in the
performance of its duties or by reason of willful disregard of its obligations
and duties under this Agreement. The date of such termination notice shall be
the termination date of this Agreement (the "Termination Date").
9.05. Termination Due to Court Proceedings.
In the event any action or proceeding of the type referred to in
subparagraph 10.02 below 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 the Underwriter 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 the Underwriter's assets or if the Underwriter makes an assignment for the
benefit of creditors, the Company shall have the right, with written notice to
the Underwriter, to terminate this Agreement without any liability to the
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Underwriter of any kind except for the payment of all expenses as provided
herein. The date of such termination notice shall be the termination date of
this Agreement (the "Termination Date").
9.06. Effect Of Termination Hereunder.
Any termination of this Agreement pursuant to this Section IX 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 5.08.; and the Company and the
Underwriter shall be obligated to pay, respectively, their own losses, claims,
damages or liabilities, joint or several, under this Agreement. Upon such
termination the Underwriter shall instruct the escrow agent to return any and
all funds received from investors to fund the offering, at the expense of the
Company.
X. Underwriter's Representations and Warranties
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 registered as a broker-dealer with the SEC and is
registered as a broker-dealer in all states in which it conducts business and 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 SEC 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. Accountability Of Funds.
The Underwriter shall provide a written, detailed accounting of any and
all additional funds requested by the Underwriter from the Company which exceed
the initial deposit amount as described in Section V above, upon written request
from the Company received by the Underwriter within thirty days from the Closing
Date or Termination Date of this Agreement, whichever shall occur first.
10.04. Furnish Distribution Sheets.
The Underwriter undertakes to furnish the Company within thirty days
after the Closing Date with a breakdown by states of the number of shares of
Stock sold in each state in which the Stock is offered.
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XI. Arbitration and Venue
11.01. Arbitration Proceedings, Statement of Venue.
Any disputes between Underwriter and the Company arising out of, or based
in any way upon, the SB-2 Offering the subject of this Agreement shall be
settled through arbitration. Any arbitration findings shall be binding upon all
parties and final. The venue for such arbitration shall be Dallas County, Texas,
and the costs and fees associated with such arbitration proceedings shall be
borne by the party incurring such costs and fees.
XII. Notice
Except as otherwise expressly provided in this Agreement:
12.01. Notice To the Company.
Whenever notice is required by the provisions of this Agreement to be
given to the Company, such notice shall be in writing addressed to the Company
as follows:
American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, GA. 30067
with copy to:
Cohn & Birnbaum P.C.
Attn: Richard J. Shea
100 Pearl Street
Hartford, Connecticut 06103-4500
Law Offices of Bartz & Bartz
Attn: ______________
Southdale Office Center
6750 France Avenue South, Suite 350
Edina, Minnesota 55435
12.02. Notice To the Underwriter.
Whenever notice is required by the provisions of this Agreement to be
given to the Underwriter, such notice shall be given in writing and delivered
via United States Post Office Certified Mail, addressed to the Underwriter as
follows:
Rockcrest Securities, L.L.C.
3626 North Hall Street, Suite 920
Dallas, Texas 75219
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XIII. Miscellaneous
13.01. Benefit.
This Agreement is made solely for the benefit of the Underwriter, the
Company, their respective officers and directors and any controlling person
referred to in Section 15 of the Act, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successor" or the term "successors and assigns" as
used in this Agreement shall not include any purchasers, as such, of any of the
Stock.
13.02. Survival.
The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company or its officers as set forth in or
made pursuant to this Agreement and the indemnity agreements of the Company and
the Underwriter contained in Section VI 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 Underwriter or any such officer or director thereof or any
controlling person of the Company or the Underwriter; (ii) delivery of or
payment for the Stock; (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, who shall be entitled to the benefits thereof.
13.03. Governing Law.
The validity, interpretation and construction of this Agreement and of
each part hereof shall be governed by the laws of the State of Texas.
13.04. Underwriter's Information.
Notwithstanding any participation by the Underwriter or its counsel in
the preparation and/or revision of the Prospectus, the statements with respect
to this Offering on the cover page of the Prospectus and under the caption
Underwriting in the Prospectus shall constitute the only written information
furnished by or on behalf of the Underwriter referred to in subsection 2.02.
hereof, in subsection 6.01. hereof and elsewhere in this Agreement.
13.05. Term.
The term of this Agreement commences on the date of execution of this
Agreement and continues until the Termination Date or five years from the
Closing Date, whichever shall occur first.
13.06. Full Agreement and Counterparts.
This Agreement, which represents the full and complete agreement between
the parties and can only be modified in writing signed by both parties, 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.
13.07. Over-Allotment.
The Underwriter will be issued an option exercisable for 30 days after
the date of the Prospectus to purchase up to an aggregate of 42,000 additional
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus, less the underwriting
<PAGE>
UNDERWRITING AGREEMENT
ACTI
Page 24 of 24
discount. The Underwriter may exercise this option only to cover
over-allotments, if any, made on the sale of the Stock offered hereby. To the
extent that the Underwriter exercises this option, the Underwriter will be
obligated to successfully sell the amount of shares of Stock that were exercised
by the Underwriter.
Please sign below to confirm that the foregoing correctly sets forth the
full and complete Agreement between you and Rockcrest Securities, L.L.C. as of
the date hereof.
Executed on the dates below, effective May 1, 1998.
Very truly yours,
ROCKCREST SECURITIES. L.L.C.
By: /s/Julie K. Chambers Date May 1, 1998
------------------------------------- ------------------
Julie K. Chambers
Its Vice President
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE
AGREEMENT BETWEEN THE UNDERWRITER AND US.
AMERICAN CARD TECHNOLOGY, INC.
By: /s/Raymond Findley Date: May 1, 1998
------------------------------------- -----------------
Raymond Findley
Its President
By: /s/Lawrence O. Perl Date: May 1. 1998
------------------------------------- -----------------
Lawrence O. Perl
Its Chief Executive Officer
<PAGE>
EXHIBIT 3.1
FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN CARD TECHNOLOGY, INC.
AMERICAN CARD TECHNOLOGY, INC., (the "Corporation"), a corporation
organized under the laws of the State of Delaware, hereby amends and restates
its Certificate of Incorporation, which was originally filed with the Secretary
of State of Delaware on June 21, 1994, so that the same shall read, in its
entirety, as follows:
ARTICLE I. NAME
(a) The name of the Corporation is AMERICAN CARD TECHNOLOGY, INC.
(b) The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware at
such address is The Corporation Trust Company.
ARTICLE II. PURPOSE
The nature of the business and the purposes to be conducted and promoted
by the Corporation shall be to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE III. CAPITAL STOCK
(a) The total number of shares of all classes of stock which the
Corporation has authority to issue is Twenty-One Million (21,000,000),
consisting of Twenty Million (20,000,000) shares of Common Stock, par value
$.001 per share (the "Common Stock"), and One Million (1,000,000) shares of
Preferred Stock, par value $.001 per share (the "Preferred Stock"). The voting
powers, designations, preferences and relative, participating, optional or other
rights, if any, and the qualifications, limitations or restrictions, if any, of
the Preferred Stock, in one or more series, shall be fixed by one or more
resolutions providing for the issue of such stock adopted by the Corporation's
board of directors, in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented (the "Delaware GCL"), and the board of directors is expressly
vested with authority to adopt one or more such resolutions. No shareholder
shall be entitled as of right to purchase or subscribe for any unissued shares
of the Corporation, whether now or hereafter authorized or whether of a class
now existing or of a class hereafter created, or to purchase or subscribe for
any bonds, certificates of indebtedness, debentures, or other obligations
convertible into shares of the Corporation.
<PAGE>
ARTICLE IV. DIRECTORS
(a) The number of directors of the Corporation shall be established
pursuant to the by-laws of the Corporation, provided that the number of
directors may not be fewer than three (3) unless the Corporation has fewer than
three (3) stockholders, in which case the number of directors may not be fewer
than the number of stockholders. The board of directors is authorized to make,
alter or repeal the by-laws of the Corporation.
(b) Directors shall be divided into three classes of directors, each
class containing an equal number of directors. During the initial term,
directors in the first class shall be elected for a one-year term, directors in
the second class shall be elected for a two-year term, and directors in the
third class shall be elected for a three-year term. At each subsequent annual
meeting, each class of directors standing for election shall be elected for a
term of three years.
(c) No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware GCL, or (iv) for any
transaction from which the director derived any improper personal benefit.
(d) All elections of directors may be by written ballot or by voice vote,
as determined by the board of directors prior to any such election, or by
written consent of stockholders pursuant to Section 228 of the Delaware GCL.
ARTICLE V. INDEMNIFICATION
(a) The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware GCL, indemnify any and all directors and officers from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors, and administrators of such a person. The right to
indemnification conferred in this paragraph shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; PROVIDED,
HOWEVER, that, if the Delaware GCL requires the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer in advance of the final disposition of a proceeding, such payment shall
be made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this paragraph or otherwise.
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ARTICLE VI. PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VII. COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
matter as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VIII. AMENDMENTS AND REPEAL
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this First Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the laws of the
State of Delaware, and all rights herein conferred are granted subject to this
reservation.
I, RAYMOND FINDLEY, JR., do hereby certify that I am President of the
Corporation and that the First Amended and Restated Certificate of Incorporation
of the Corporation has been duly adopted by the written consent of the directors
in accordance with the provisions of Sections 141(f), 242 and 245 of the General
Corporation Law of Delaware, as amended.
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<PAGE>
IN WITNESS WHEREOF, AMERICAN CARD TECHNOLOGY, INC., has caused this
certificate to be signed by its President as of this 11th day of December,
1996.
AMERICAN CARD TECHNOLOGY, INC.
By /s/ Raymond Findley, Jr.
-----------------------------
Raymond Findley, Jr.
Its President
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<PAGE>
EXHIBIT 3.2
AMERICAN CARD TECHNOLOGY, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders holding at least
twenty-five percent (25%) in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
<PAGE>
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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ARTICLE III
DIRECTORS
Section 1. The number of directors of the Corporation shall be
established pursuant to the by-laws of the Corporation, provided that the number
of directors may not be fewer than three (3) unless the Corporation has fewer
than three (3) stockholders, in which case the number of directors may not be
fewer than the number of stockholders.
Section 2. Directors shall be divided into three classes of directors,
each class containing as equal a number of directors as is possible. During the
initial term, directors in the first class shall be elected for a one-year term,
directors in the second class shall be elected for a two-year term, and
directors in the third class shall be elected for a three-year term. At each
subsequent annual meeting, each class of directors standing for election shall
be elected for a term of three years.
Section 3. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 4. The business of the corporation shall be managed by or under
the direction of its board of directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
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Section 7. Special meetings of the board may be called by the president
on two days' notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors unless the
board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of all directors
then in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board
of directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
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authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president and a secretary. The board of directors
may also choose a chairman of the board and chief executive officer, one or more
vice presidents, one or more assistant secretaries, a treasurer, and one or
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more assistant treasurers. Any number of offices may be held by the same
person, unless the certificate of incorporation or these by-laws otherwise
provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president and a secretary and such
other officers as the board of directors so elect.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall, subject to the board of directors, have
general charge of the business of the corporation. He shall keep the board of
directors fully informed of and shall freely consult them concerning the
business of the corporation and shall see that all orders and resolutions of the
board of directors are carried into effect. In the absence of the chief
executive officer or in the event of his inability or refusal to act, the
president shall preside over meetings of the stockholders and the board of
directors.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Section 8. The chairman of the board and chief executive officer shall
be the chief executive officer of the corporation and shall preside at all
meetings of the stockholders and the board of directors, shall advise the
president in the general and active management of the business of the
corporation and shall consult with the president to see that all orders and
resolutions of the board of directors are carried into effect. The chairman of
the board and chief executive officer may execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 9. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order
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designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have
such other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so re quires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform
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the duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate
8
<PAGE>
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stock holders of record entitled to notice of
or to vote at a meeting of stock holders shall apply to any adjournment of the
meeting provided, however, that the board of directors may fix a new record date
for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
9
<PAGE>
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the word "Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
INDEMNIFICATION
Section 7. The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporate Law, indemnify any and all
directors and officers from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors, and
administrators of such a person. The right to indemnification conferred in this
paragraph shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that, if the Delaware
General Corporate Law requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer in advance
of the final disposition of a proceeding, such payment shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this paragraph or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
10
<PAGE>
EXHIBIT 4.1
[Picture of]
[United States]
[ACTI]
NUMBER SHARES
American Card Technology, Inc.
INCORPORATED UNDER THE LAWS OF DELAWARE
COMMON STOCK CUSIP 025040 10 6
THIS CERTIFIES THAT-------------------------------------------------------------
(SEE REVERSE FOR CERTAIN CONDITIONS)
IS THE OWNER OF ----------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.001 PAR VALUE COMMON STOCK
AMERICAN CARD TECHNOLOGY, INC.
Transferable only on the books of the Corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent. This certificate and the shares represented hereby are issued and shall
be held subject to all of the provisions of the Certificate of Incorporation and
By-Laws of the Corporation and all amendments thereto, copies of which are on
file with the Transfer Agent, to all of which the holder of this certificate, by
acceptance hereof assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile seal of the Corporation.
Dated:
--------------------------- ---------------------
SECRETARY PRESIDENT
[Seal of American Card Technology, Inc.]
<PAGE>
American Card Technology, Inc.
The Corporation will furnish without charge to each stockholder who so requests
a copy of the provisions setting forth the powers, designations, preferences and
relative , participating, optional, or other special rights of each class of
stock or series thereof which the Corporation is authorized to issue and the
qualifications, limitations or restrictions of such preferences and or rights.
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
TEN ENT: as tenants by the entireties
JT TEN: as joint tenants with the right
of survivorship and not as tenants in common
UNIF GIFT ACT:------- Custodian -------- under Uniform Gifts to Minors Act -----
(CUST) (MINOR) (STATE)
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 ----------------------------------------
SHARES OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ATTORNEY TO TRANSFER THE SAID STOCK ON THE
BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES
DATED -------------------
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULARY WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
- --------------------------------------------------------------------------------
THE SIGNATURE (S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVING AND LOAN ASSOCIATIONS AND CREDIT UNION WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO SEC
RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
Securities Commissioner May 4, 1998
Securities and Exchange Commission
450 5th Street NW
Washington, DC. 20549
Dear Commissioner,
We have acted as counsel to American Card Technology, Incorporated, a
Delaware corporation, in connection with the preparation of a Regulation SB
Offering Statement (the "Offering Statement" on Form SB-2, to be filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933. The Offering Statement relates to the sale of 420,000 shares of Common
Stock, with par value of $.001 (the "Common Stock") as more particularly
described in the Offering Statement.
In connection therewith, we have examined (i) the Articles of Incorporation
and the By-Laws of American Card Technology, Incorporated; (ii) records of the
corporate proceedings of American Card Technology, Incorporated with respect to
the issuance of shares of Common Stock by American Card Technology,
Incorporated; (iii) the Offering Statement; and (iv) and such other documents as
we have deemed necessary for the expression of the opinions contained herein.
In making the foregoing examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photo-static copies. As to questions of fact material to
this opinion, where such facts have not been independently established by us,
and as to the content and form of Articles of Incorporation, By-Laws, minutes
and resolutions and other documents or writings, we have relied to the extent we
deemed reasonably appropriate, upon representations of corporate officers or
certificates of governmental officials. We express no opinion as to compliance
with applicable state anti-fraud statutes, rules or regulations concerning the
issuance of securities.
<PAGE>
Opinion of Consul
Page 2 of 2
Based upon and subject to the foregoing and having due regard for such
legal considerations that we deem relevant, we are of the opinion (i) that the
Common Stock has been duly authorized for issuance and (ii) that upon payment
for, and issuance of, the Common Stock in accordance with the terms of the
Offering Statement, the Common stock will be validly issued and will be fully
paid and non-assessable.
Sincerely,
/s/ R. John Bartz
BARTZ & BARTZ, P.A.
R. John Bartz
Attorney at Law
<PAGE>
EXHIBIT 8.1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
American Card Technology, Inc.
We have audited the accompanying balance sheet of American Card Technology, Inc.
(a development stage company) as of December 31, 1997, and the related
statements of operations and cash flows for the years ended December 31, 1996
and 1997 and the statements of stockholders' deficit for each of the years
(period) from June 21, 1994 (inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Card Technology, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's dependence on outside financing, lack of existing
commitments from lenders to provide necessary financing, lack of sufficient
working capital, and losses since inception raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
New York, New York
March 10, 1998
1
<PAGE>
EXHIBIT 9.1
VOTING TRUST AGREEMENT
AGREEMENT made as of May 1, 1998 by and among THE 1994 PERL TRUST INDENTURE
(hereinafter called the "Shareholder"), and BRUCE R. BONADIES, Trustee,
hereinafter called the "Trustee").
WHEREAS, the Shareholder is the beneficial owner of Four Hundred Eighty
Thousand Thirty-Five (480,035) shares of common stock of American Card
Technology, Inc. (the "Corporation"), $0.001 par value (the "Trust Shares"); and
WHEREAS, the parties hereto desire to create a voting trust with respect to
the Trust Shares and, in so doing, to provide the Trustee with the exclusive
right to vote the Trust Shares with respect to all matters on which the Trust
Shares are entitled to vote.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good and valuable consideration, it is mutually
agreed and covenanted by and between the parties to this Agreement as follows:
<PAGE>
1. ISSUANCE OF SHARES TO TRUSTEE. The Shareholder, simultaneously with
the execution of this Agreement, shall assign and deliver the share certificates
representing the Trust Shares directly to the Trustee, who shall cause the Trust
Shares to be transferred to the Trustee, as voting trustee, on the books of the
Corporation. In the event that during the term of this Agreement (i) there
shall be a stock split with respect to the Trust Shares, (ii) there shall be a
distribution of stock made with respect to the Trust Shares, or (iii) the
Shareholder shall purchase shares of the Corporation pursuant to the exercise of
preemptive rights associated with the Trust Shares, the share certificates
representing any additional shares received by the Shareholder as a result of
such stock split, stock distribution, or exercise of preemptive rights shall be
deemed to be assigned and delivered by the Shareholder to the Trustee (without
the necessity of the Shareholder separately endorsing such share certificates to
effect such assignment), the Trustee shall cause any such share certificates to
be transferred to the Trustee as voting trustee, on the books of the
Corporation, and such shares shall thereafter be treated as Trust Shares
hereunder.
2. VOTING TRUST. The voting trust hereby created shall commence on the
date hereof and continue through and including April 30, 1999. Throughout such
period the Trustee shall have the exclusive right to vote upon such shares or to
give written consents in lieu of voting thereon, subject to any limitation on
the right to vote contained in the Certificate of Incorporation or other
certificate filed pursuant to law, in person or by proxy at all meetings of the
shareholders of the Corporation, and in all proceedings wherein the vote or
written consent of shareholders may be required or authorized by law.
3. TRUST CERTIFICATES. The Shareholder, simultaneously with the
execution of this Agreement, shall deliver its share certificates to the
Trustee. The Trustee shall issue and deliver to the Shareholder, or to its
nominee, certificates for the Trust Shares and any other shares hereafter
transferred by the Shareholder hereunder to the Trustee in form substantially as
follows:
2
<PAGE>
TRUST CERTIFICATE
No. _____ ______ Shares of
Common Stock
The undersigned trustee, voting trustee of shares of American
Card Technology, Inc., under an agreement dated __________, 1998 (the
"Voting Trust Agreement"), having received certain shares of the
Corporation, pursuant to such agreement, which agreement the holder
hereof by accepting this certificate ratifies and adopts, hereby
certifies that ______________________ (the "Holder") will be entitled
to receive a certificate for __________ (_____) fully paid shares of
the Common Stock of American Card Technology, Inc., of the par value
of $0.001 each, on the expiration of the Voting Trust Agreement. In
the meantime, the Holder shall be entitled to receive payments equal
to any dividends or other distributions that may be collected by the
undersigned trustee upon such shares held by it under the terms of the
trust agreement; provided, however, that in the event that (i) there
is a stock split or stock distribution with respect to the shares
represented hereby, or (ii) the holder hereof acquires additional
shares of American Card Technology, Inc., pursuant to the exercise of
pre-emptive rights associated with the shares represented hereby, any
additional shares of stock received as a result of such stock split,
stock distribution, or exercise of pre-emptive rights shall be subject
to the Voting Trust Agreement and the undersigned trustee shall issue
a new trust certificate in the same form as this instrument reflecting
the new number of shares of stock.
This certificate is transferable only by the registered holder in
person or by his duly authorized attorney, and the holder hereof, by
accepting this certificate, manifests his consent that the undersigned
trustee may treat the registered holder hereof as the true owner for
all purposes, except the delivery of share certificates, which
delivery shall not be made without the surrender hereof.
IN WITNESS WHEREOF, the undersigned trustee has executed this
certificate this _____ day of ____________, ____.
______________________________
Trustee
4. TRANSFER AT TERMINATION. At the expiration of the term of the trust
hereby created, the Trustee shall, upon surrender of the trust certificate,
deliver to the holder thereof shares of stock of the Corporation equivalent in
amount to the shares represented by the trust certificate surrendered.
5. LIABILITY. The Trustee shall use his best judgment in voting upon the
stock held by him, but shall not be liable for the consequence of any vote cast,
or consent given by him, in good faith, and in the absence of gross negligence.
The Trustee shall incur no personal liability by reason of his acting as Trustee
under this Agreement and the holding of the Trust Shares or for any delivery or
misdelivery to any person, except to the extent such action is a willful breach
of this Agreement or due to the gross negligence of the Trustee. The
Shareholder shall protect, defend, indemnify and hold the Trustee harmless from
and against any and all claims, expenses, obligations and liabilities, including
attorneys' fees (including any attorneys' fees in any appellate and bankruptcy
proceedings, or which arise without the filing of a suit), incurred in
connection with this Agreement.
3
<PAGE>
6. SUCCESSOR TRUSTEE. In the event of the death of the Trustee, the
Trustee's rights and duties hereunder shall pass to a successor trustee (the
"Successor Trustee") who shall be any person or entity whom the Shareholder
shall specifically name to be the Successor Trustee. Upon becoming the
Successor Trustee, such person or entity shall be deemed to be the Trustee
hereunder for all purposes, including for purposes of this Section 6.
7. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware of the United States of America.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written by their signatures hereto.
/s/ Bruce R. Bonadies
------------------------------
Bruce R. Bonadies, Trustee
THE 1994 PERL TRUST INDENTURE
By: /s/ Bradley Hoffman
--------------------------
Bradley Hoffman, Trustee
By: /s/ Heidi G. Perl
--------------------------
Heidi G. Perl, Trustee
4
<PAGE>
EXHIBIT 9.2
VOTING TRUST AGREEMENT
AGREEMENT made as of May 1, 1998 by and among THE ROTHSTEIN FAMILY TRUST
(hereinafter called the "Shareholder"), and LILLY BETER, Trustee, hereinafter
called the "Trustee").
WHEREAS, the Shareholder is the beneficial owner of Five Hundred Eighty
Seven Thousand Seven Hundred Seventy-Eight (587,778) shares of common stock of
American Card Technology, Inc. (the "Corporation"), $0.001 par value (the "Trust
Shares"); and
WHEREAS, the parties hereto desire to create a voting trust with respect to
the Trust Shares and, in so doing, to provide the Trustee with the exclusive
right to vote the Trust Shares with respect to all matters on which the Trust
Shares are entitled to vote.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, and for other good and valuable consideration, it is mutually
agreed and covenanted by and between the parties to this Agreement as follows:
<PAGE>
1. ISSUANCE OF SHARES TO TRUSTEE. The Shareholder, simultaneously with
the execution of this Agreement, shall assign and deliver the share certificates
representing the Trust Shares directly to the Trustee, who shall cause the Trust
Shares to be transferred to the Trustee, as voting trustee, on the books of the
Corporation. In the event that during the term of this Agreement (i) there
shall be a stock split with respect to the Trust Shares, (ii) there shall be a
distribution of stock made with respect to the Trust Shares, or (iii) the
Shareholder shall purchase shares of the Corporation pursuant to the exercise of
preemptive rights associated with the Trust Shares, the share certificates
representing any additional shares received by the Shareholder as a result of
such stock split, stock distribution, or exercise of preemptive rights shall be
deemed to be assigned and delivered by the Shareholder to the Trustee (without
the necessity of the Shareholder separately endorsing such share certificates to
effect such assignment), the Trustee shall cause any such share certificates to
be transferred to the Trustee as voting trustee, on the books of the
Corporation, and such shares shall thereafter be treated as Trust Shares
hereunder.
2. VOTING TRUST. The voting trust hereby created shall commence on the
date hereof and continue through and including April 30, 1999. Throughout such
period the Trustee shall have the exclusive right to vote upon such shares or to
give written consents in lieu of voting thereon, subject to any limitation on
the right to vote contained in the Certificate of Incorporation or other
certificate filed pursuant to law, in person or by proxy at all meetings of the
shareholders of the Corporation, and in all proceedings wherein the vote or
written consent of shareholders may be required or authorized by law.
3. TRUST CERTIFICATES. The Shareholder, simultaneously with the
execution of this Agreement, shall deliver its share certificates to the
Trustee. The Trustee shall issue and deliver to the Shareholder, or to its
nominee, certificates for the Trust Shares and any other shares hereafter
transferred by the Shareholder hereunder to the Trustee in form substantially as
follows:
2
<PAGE>
TRUST CERTIFICATE
No. _____ ______ Shares of
Common Stock
The undersigned trustee, voting trustee of shares of American
Card Technology, Inc., under an agreement dated __________, 1998 (the
"Voting Trust Agreement"), having received certain shares of the
Corporation, pursuant to such agreement, which agreement the holder
hereof by accepting this certificate ratifies and adopts, hereby
certifies that ______________________ (the "Holder") will be entitled
to receive a certificate for __________ (_____) fully paid shares of
the Common Stock of American Card Technology, Inc., of the par value
of $0.001 each, on the expiration of the Voting Trust Agreement. In
the meantime, the Holder shall be entitled to receive payments equal
to any dividends or other distributions that may be collected by the
undersigned trustee upon such shares held by it under the terms of the
trust agreement; provided, however, that in the event that (i) there
is a stock split or stock distribution with respect to the shares
represented hereby, or (ii) the holder hereof acquires additional
shares of American Card Technology, Inc., pursuant to the exercise of
pre-emptive rights associated with the shares represented hereby, any
additional shares of stock received as a result of such stock split,
stock distribution, or exercise of pre-emptive rights shall be subject
to the Voting Trust Agreement and the undersigned trustee shall issue
a new trust certificate in the same form as this instrument reflecting
the new number of shares of stock.
This certificate is transferable only by the registered holder in
person or by his duly authorized attorney, and the holder hereof, by
accepting this certificate, manifests his consent that the undersigned
trustee may treat the registered holder hereof as the true owner for
all purposes, except the delivery of share certificates, which
delivery shall not be made without the surrender hereof.
IN WITNESS WHEREOF, the undersigned trustee has executed this
certificate this _____ day of ____________, ____.
______________________________
Trustee
4. TRANSFER AT TERMINATION. At the expiration of the term of the trust
hereby created, the Trustee shall, upon surrender of the trust certificate,
deliver to the holder thereof shares of stock of the Corporation equivalent in
amount to the shares represented by the trust certificate surrendered.
5. LIABILITY. The Trustee shall use his best judgment in voting upon the
stock held by him, but shall not be liable for the consequence of any vote cast,
or consent given by him, in good faith, and in the absence of gross negligence.
The Trustee shall incur no personal liability by reason of his acting as Trustee
under this Agreement and the holding of the Trust Shares or for any delivery or
misdelivery to any person, except to the extent such action is a willful breach
of this Agreement or due to the gross negligence of the Trustee. The
Shareholder shall protect, defend, indemnify and hold the Trustee harmless from
and against any and all claims, expenses, obligations and liabilities, including
attorneys' fees (including any attorneys' fees in any appellate and bankruptcy
proceedings, or which arise without the filing of a suit), incurred in
connection with this Agreement.
3
<PAGE>
6. SUCCESSOR TRUSTEE. In the event of the death of the Trustee, the
Trustee's rights and duties hereunder shall pass to a successor trustee (the
"Successor Trustee") who shall be any person or entity whom the Shareholder
shall specifically name to be the Successor Trustee. Upon becoming the
Successor Trustee, such person or entity shall be deemed to be the Trustee
hereunder for all purposes, including for purposes of this Section 6.
7. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware of the United States of America.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written by their signatures hereto.
/s/ Lilly Beter
---------------------
Lilly Beter, Trustee
THE ROTHSTEIN FAMILY TRUST
By: /s/ Marilyn Rothstein
--------------------------
Marilyn Rothstein, Trustee
4
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
Employment Agreement made as of the _____ day of _____, 1998 by and between
American Card Technology, Inc. (the "Company"), a Delaware corporation, and
Lawrence O. Perl, of Key Biscayne, Florida (the "Employee").
W I T N E S E T H :
WHEREAS, Employee is employed by the Company as its Chief Executive
Officer, and as a condition of closing on an initial public offering of
the Company's common stock (the "IPO Closing") through Rockcrest
Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company
have required that this Employment Agreement be entered into to be
effective on the IPO Closing;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, the parties hereby agree as follows:
<PAGE>
1. EMPLOYMENT
1.1 Position and Duties. The Company shall employ Employee to serve in
and to have the authority and responsibilities for the position of chief
executive officer and to perform such other duties as relate to such position or
for such other position and duties as the Board of Directors of the Company (the
"Board") in its discretion may from time to time determine and assign to him.
The Board will have the authority to determine the means and manner by which
Employee is to perform his duties.
1.2 Exclusiveness. The Employee shall devote substantially all of his
business time, attention and energies to the business of the Company and the
performance of his responsibilities and duties and shall carry out such
responsibilities and duties diligently and to the best of his abilities. The
Employee recognizes that the Company is entering into this Agreement because of
the Employee's expertise, skills, and talents and his agreement to devote all of
such expertise, skills, and talents to the tasks assigned him pursuant to this
Agreement. The Employee agrees that he shall not engage in any other business
activities of any kind which would give rise to a conflict of interest for the
Employee with respect to his duties and obligations to the Company.
1.3 Compliance with Policies and Laws. Employee will at all times comply
with all applicable policies, standards and regulations of the Company as may be
established from time to time and will comply with all applicable laws and
regulations.
1.4 Personal Service. Employee's personal performance of his duties is
the essence of this Agreement. Employee's rights and obligations under this
Agreement are not assignable by Employee.
2. COMPENSATION
2.1 Base Salary. For all services to be rendered by Employee in any
capacity hereunder, including services as an officer, director, member of any
committee or any other duties assigned to him by the directors or officers of
the Company, the Company agrees to pay Employee an initial base salary of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) per year payable in
equal bi-weekly installments in arrears. Employee's Base Salary may be adjusted
upward at the sole discretion of the Company during the term of this Agreement.
2.2 Incentive Bonus. Employee shall be entitled to participate in the
Company's Key Officer Incentive Bonus Plan if and when established by the Board.
This plan shall be established or changed as the circumstances warrant by the
Board and the amount which shall be paid to Employee as well as when such
payment will be made will likewise be established by the Board.
2.3 Other Bonuses or Incentive Compensation. Employee may also receive
such other bonuses, grants of stock, stock options, warrants or stock
appreciation rights as may be determined by the Board, in its sole discretion.
2.4 Other Benefits. Employee shall be entitled to such fringe benefits,
including, but not limited to, vacation, sick leave, participation in medical,
dental and life insurance plans and pension or profit-sharing plans, as are
customarily provided to the senior executives of the Company as determined by
the Board of Directors of the Company and as provided by the terms of the
applicable benefit plans.
<PAGE>
2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable
travel, entertainment and other expenses incurred by Employee in connection with
the performance of his duties in accordance with such policies as may be adopted
from time to time by the Company.
3. TERM OF THE AGREEMENT
Employee's employment under this Agreement will commence upon the IPO
Closing and continue, subject to early termination as provided in Paragraph 4
below, for a term of five years.
4. EARLY TERMINATION; SEVERANCE
4.1 Employee's employment under this Agreement may or will, as
appropriate, be terminated prior to the expiration of the term set forth above
in Paragraph 3 in the following circumstances.
(a) Disability. If Employee is disabled and fails to perform his
duties hereunder on account of illness or other incapacity which prevents
Employee from performing his duties for a continuous period of one hundred
eighty days, the Company thereafter may, upon ten days written notice, terminate
Employee's employment under this Agreement.
(b) Death. In the event of the death of Employee, this Agreement
will terminate immediately.
(c) By the Company for Cause. The Company may terminate Employee's
employment under this Agreement for Cause. For purposes of this subparagraph,
the Company will have "Cause" to terminate this Agreement upon (i) the willful
and continued failure by Employee to substantially perform his duties hereunder
(other than such failure resulting from Employee's incapacity due to physical or
mental illness), after a written demand for substantial performance is delivered
by the Company that specifically identifies the manner in which the Company
believes the Employee has not substantially performed his duties, or (ii) the
willful engaging by Employee in misconduct which is materially injurious to the
Company, monetarily or otherwise, (iii) the willful violation by Employee of the
provisions of this Agreement, (iv) a material breach of any fiduciary duty owed
by Employee to the Company or its relationships with employees, suppliers,
customers or others with whom the Company does business or (v) the habitual or
repeated misuse of alcohol or controlled substances. For purposes of this
subparagraph, no act, or failure to act, on Employee's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith or
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, Employee will not be deemed to
have been terminated for Cause without reasonable notice to Employee setting
forth the reasons for the Company's intention to terminate for Cause, an
opportunity for Employee to be heard before the Board, and thereafter, a
determination that in the good faith opinion of the Board, "Cause" exists within
the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this
subparagraph.
(d) By Company Without Cause. The Company may terminate Employee's
employment under this Agreement unilaterally at any time for any reason or for
no reason by giving Employee ninety (90) days' advance notice of the intention
to terminate. Employee may, at
<PAGE>
the sole discretion of the Company, be relieved of his duties during such
ninety (90) day period, although Employee must be paid during such period.
(e) By Employee. Employee may terminate his employment under this
Agreement at any time upon ninety (90) days written notice to the Company.
Employee may, at the sole discretion of the Company, be relieved of his duties
during such ninety-day period, but continue to be paid during such period.
4.2 In the event of termination of Employee's employment prior to the end
of the Term, Employee shall be entitled to a lump sum severance payment payable
on the date of termination as follows:
(a) In the event the Employee's employment is terminated due to
Employee's death or disability, the Employee or Employee's estate shall be
entitled to a payment equal to the sum of (i) six months of the then current
base annual salary (including accrued portions), (ii) any accrued salary which
has not been paid, and (iii) any expense reimbursements due and owing to him at
the time of such termination.
(b) If the Employee's employment is terminated by the Company without
Cause as defined above, or Employee terminates his employment for Good Reason
(as hereafter defined), the Employee shall be entitled to a payment equal to the
sum of (i) the greater of one year of the then current base annual salary, or
the total base annual salary which would be payable for the balance of the Term,
and (ii) a pro-rata portion of what the Incentive Bonus for the then current
year would be if the calculation for the year through such date of termination
annualized out for the year would have resulted in an Incentive Bonus for the
year, and (iii) any accrued salary which has not been paid, and (iv) any expense
reimbursements due and owing to him at the time of such termination.
(c) In the event that Employee's employment is terminated by the
Company for Cause or is terminated by Employee voluntarily prior to the end of
the Term other than for Good Reason, Employee shall not be entitled to any
severance payment.
4.3 For purposes hereof:
"Good Reason" is defined to mean (i) the Board substantially diminishing
Employee's responsibilities and activities to a degree which is not commensurate
with the position held by Employee; or (ii) the Board taking action in material
breach of this Agreement; or (iii) requiring the Employee to relocate to
anywhere other than the metropolitan Atlanta area; or (iv) the voluntary
resignation of Employee at any time within sixty days after a Change in Control
(as hereinafter defined).
"Change of Control" shall mean any transaction or series of transactions
(including, without limitation, a tender offer, merger or consolidation) the
result of which is that any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other
than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold
Rothstein, or trusts for the benefit of any of the foregoing or their respective
families, and any "person" or "group" solicited by any of such persons: (i)
becomes the beneficial owner of more than 50 percent of the total aggregate
voting power of all classes of the voting stock of the
<PAGE>
Company and/or warrants or options to acquire such voting stock, calculated
on a fully diluted basis; or (ii) acquires all or substantially all of the
assets of the Company.
5. COVENANT NOT TO COMPETE; CONFIDENTIALITY
5.1 Noncompetition. (a) Employee acknowledges and understands that the
Business (as defined below) in which the Company is engaged can be and will be
effectively and efficiently conducted anywhere in the world and the Company's
business is international in scope (as opposed to national and regional).
Therefore, as a material consideration of the Company's entering into this
Agreement, Employee agrees that during the Term and for a period of one year
following termination of Employee's employment under this Agreement for any
reason whatsoever, in the entire world, directly or indirectly, Employee shall
not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder,
or otherwise) an interest in or (ii) participate (as an officer, director, or in
any other capacity) in the management, operation or control of, or (iii) perform
services as or act in the capacity of an employee, independent contractor,
consultant or agent of any enterprise, which competes, or intends to compete
with the Company's Business (the "Non-Compete Covenant") except with the prior
written consent of the Board, which consent may be withheld or granted in the
Board's sole and absolute discretion. The Company's "Business" as that term is
used in this Paragraph 5.1 means the development, manufacture, marketing,
selling or distribution of smart cards or smart card related systems.
(b) Notwithstanding the foregoing, in the event that Employee's
employment is terminated due to expiration of the Term without early termination
under Section 4, and Employee's employment is not otherwise renewed, Employee
shall not be bound to the Non-Compete Covenant unless the Company makes the
following election. The Company shall have the option to bind Employee to the
Non-Compete Covenant for one year after the termination of his employment due to
expiration of the Term by electing to do so and agreeing to pay to Employee the
Non-Compete Consideration (as hereafter defined) in equal monthly installments
over the one year period. To make such election, the Company shall give
Employee notice of such election (which shall include an agreement to pay the
Non-Compete Consideration) by no later than the Election Date (as hereafter
defined). Failure to give such notice by the Election Date shall be deemed an
election by the Company to not bind Employee to the Non-Compete Covenant for the
one year period following expiration of the Term. In the event that the Company
shall default in its payment of any installment of the Non-Compete
Consideration, Employee shall be relieved from the Non-Compete Covenant, in
addition to any other rights and remedies which Employee may have. For purposes
hereof: the "Non-Compete Consideration" is the amount equal to the current base
annual salary being paid to Employee on the day prior to the date of expiration
of the Term, and the "Election Date" is the date which is three (3) months prior
to the date on which the Term expires.
5.2 Covenant Not to Promote Termination of Relationships. As a material
consideration for the Company's entering into this Agreement, Employee covenants
and agrees that for a period of two years commencing on the termination of
Employee's employment with the Company, Employee shall not persuade or entice,
or attempt to persuade or entice any customer or client of the Company to
terminate its business or contractual relationship with the Company, or refrain
from establishing any such relationship with the Company.
5.3 Inducement of Breach. Employee shall promptly notify the Company if
any person, firm, partnership, limited liability company, association,
corporation or other entity attempts to induce Employee to breach any of the
terms or provisions of this Agreement.
<PAGE>
5.4 Confidentiality. Employee acknowledges and agrees that all product or
service information, marketing information, lists or identities of the Company's
customers, pricing and cost information, financial information, technical data,
technical know-how, and other information and data related to the Company's
business ("Confidential Information") are valuable assets of the Company.
Except for Confidential Information which is a matter of public record through
no action or fault of the Employee, Employee shall not, during the Term or after
termination of Employee's employment hereunder for any reason whatsoever, use,
divulge, disclose, or communicate any Confidential Information to any person or
entity or use any Confidential Information for the benefit of Employee or any
other person or entity, except with the prior consent of the Board of Directors
of the Company, which consent may be withheld or granted in the Board's sole and
absolute discretion.
5.5 Return of Documents. Employee acknowledges and agrees that all
originals and copies of records, reports, documents, lists, memoranda, notes and
other documentation related to the business of the Company or containing any
Confidential Information shall be the sole and exclusive property of the Company
and shall be returned to the Company by Employee upon the termination of
Employee's employment hereunder for any reason whatsoever, or upon the written
request of the Company at any time.
5.6 No Solicitation. As a material consideration of the Company's
entering into this agreement, Employee covenants and agrees that during the Term
and for a period of two years after the termination of Employee's employment
hereunder for any reason whatsoever, neither Employee, nor any person or entity
controlled by Employee (including without limitation, members of Employee's
family), shall, directly or indirectly: (i) solicit for employment any person
employed by, or serving as a consultant to, the Company or the Company's
affiliates, successors or assigns or (ii) solicit or aid in the solicitation of
persons or business entities with whom the Company has done business or with
whom the Company has attempted to do business.
5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees
that it would be difficult to measure damage to the Company from any breach by
Employee of any matter described in this Section 5 of this Agreement and that
monetary damages would be an inadequate remedy for any such breach.
Accordingly, Employee agrees that if Employee shall directly or indirectly
breach or take steps preliminary to breaching any of the provisions of this
Section 5 of this Agreement, the Company shall be entitled, in addition to all
other remedies it may have at law or in equity, to an injunction or other
appropriate orders or equitable relief to restrain any such breach, without
showing or proving any actual damage sustained by the Company. Employee further
agrees that, for any period during which the breach of any provision of this
Agreement has not been enjoined, the Company shall be entitled, upon proof of
same, to actual and consequential damages caused by such breach, including, but
not limited to loss of business relationships, loss of goodwill and loss of
prospective business advantage.
5.8 No release. Employee agrees that the termination of this Agreement
shall not release Employee from any of Employee's obligations under this Section
5, all of which shall survive such termination.
6. INDEMNIFICATION
<PAGE>
To the fullest extent permitted under the law, the Company will defend,
advance funds, indemnify and hold Employee harmless with respect to any expenses
incurred, claims made against and other liabilities arising in connection with
any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise (including any suit or proceeding by
or in the right of the Company) to which Employee is made a party, is threatened
to be made a party or is an actual or potential witness by reason of the fact
that Employee is an officer, employee, director or agent of the Company, or at
the request of the Company, an officer, employee, director or agent of any other
entity, unless, in connection with such action, suit or proceeding or in
connection with the claims made therein, Employee has engaged in acts of bad
faith, willful misconduct, gross negligence or reckless disregard of his duties
to the Company or the best interests of the Company.
7. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the employment of Employee by the
Company and supersedes all prior and contemporaneous agreements between them
with respect to such subject matter.
7.2 Modification. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing, signed by an employee and an authorized officer of the
Company.
7.3 Waiver. Failure of any party at any time to require performance of
any provision of this Agreement shall not limit such party's right to enforce
such provision, nor shall any waiver of any breach of this Agreement constitute
a waiver of such provision itself. No attempted or purposed waiver of any
provision of this Agreement shall be effective unless set forth in writing and
signed by the party to be bound.
7.4 Severability. The agreements and covenants contained in this
Agreement are severable, and in the event any of the agreements and covenants
contained in this Agreement should be held to be invalid by an arbitrator or by
any court or tribunal of competent jurisdiction, this agreement shall be
interpreted as if such valid agreements and covenants were not contained herein;
provided however, that if any legal proceeding or arbitrator or a court shall
hold unenforceable the covenants contained in Section 5 above by reason of their
geographic extent or duration or otherwise, any such covenant shall be reduced
in scope to the extent required by law and enforced in its reduced form.
7.5 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the state of Georgia.
7.6 Controversies or Disputes. Any controversy, claim, or dispute arising
under or relating to this agreement, or that arises out of or that is based upon
the employment relationship (including any wage claim, any claim for wrongful
termination, or any claim based upon any statute, regulation, or law including
those concerning employment discrimination, sexual harassment, civil rights, age
or disabilities), including tort claims (except a tort that is a "compensable
injury" under workers' compensation law), or a dispute between the parties that
arose or arises before, during or after employment, other than any matter as to
which a party seeks injunctive relief, shall be resolved by a single, neutral
arbitrator in an arbitration conducted in
<PAGE>
Georgia, in accordance with the then-current rules of commercial arbitration
of the American Arbitration Association. Employee and the Company agree that
neither party is entitled to recover punitive damages. The decision or award
rendered by the arbitrator shall be final, nonappealable, and binding upon
the parties, and judgment may be entered upon it in accordance with
applicable law in a court of competent jurisdiction. The arbitrator shall be
an attorney with at least ten years of experience in employment law.
Arbitration in accordance with this paragraph is the sole and exclusive
method, means and procedure to resolve any and all claims or disputes other
than those seeking exclusively injunctive relief. Employee and the Company
hereby irrevocably waive any and all rights to resolve disputes in a manner
contrary to the provisions of this paragraph. Any and all attempts to
circumvent the terms of this paragraph shall be null and void and of no force
and effect whatsoever.
8. NOTICES
Any notice given pursuant this Agreement shall be in writing and shall be
deemed given on the earlier of the date the notice is (i) personally delivered
to the party to be notified, (ii) mailed, postage prepaid, certified with return
receipt requested, addressed as follows, or to such other address as a party may
from time to time designate by notice to the other party, or (iii) delivered at
the party's address via courier service.
To the Company: American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, Georgia 30067
Attention: President
To the Employee: Lawrence O. Perl
251 Crandon Boulevard - Unit 342
Key Biscayne, Florida 33149
AMERICAN CARD TECHNOLOGY, INC.
By
--------------------
Its President
Duly Authorized
EMPLOYEE
-------------------------
Lawrence O. Perl
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD
BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
- --------------------------------------------------------------------------------
April 20, 1998
Mr. Lawrence O. Perl
251 Crandon Boulevard - Unit 342
Key Biscayne, Florida 33149
Dear Larry:
I refer to that certain Employment Agreement dated as of the date hereof by
and between American Card Technology, Inc. (the "Company"), as Employer, and
Raymond Findley, Jr., as Employee (the "Agreement").
Notwithstanding anything to the contrary contained Section 2 of in the
Agreement, until such time (the "Conversion Date") as the Company (i) raises an
amount equal to or greater than Six Million Four Hundred Thousand and 00/100
Dollars ($6,400,000.00), net of underwriting commissions, through an initial
public offering, or (ii) the closing of a subsequent debt financing arranged
through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in
arrears with respect to base salary shall be calculated as if the base salary
was One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00). Any balance of
the base salary shall accrue and bear interest at a rate of ten percent (10%)
per annum and be payable in full on the Conversion Date.
Please acknowledge your consent to the foregoing by countersigning the
enclosed duplicate copy of this letter below.
Very truly yours,
Raymond Findley, Jr.
President
ACKNOWLEDGED AND AGREED TO
THIS ___ DAY OF _________, 1998
- --------------------------------
Lawrence O. Perl
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
Employment Agreement made as of the _____ day of _____, 1998 by and between
American Card Technology, Inc. (the "Company"), a Delaware corporation, and
Raymond Findley, Jr., of Marietta, Georgia (the "Employee").
W I T N E S E T H :
WHEREAS, Employee is employed by the Company as its Vice President of
Technical Operations, and as a condition of closing on an initial public
offering of the Company's common stock (the "IPO Closing") through Rockcrest
Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company have
required that this Employment Agreement be entered into to be effective on the
IPO Closing;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, the parties hereby agree as follows:
<PAGE>
1. EMPLOYMENT
1.1 Position and Duties. The Company shall employ Employee to serve in
and to have the authority and responsibilities for the position of vice
president of technical operations and to perform such other duties as relate to
such position or for such other position and duties as the Board of Directors of
the Company (the "Board") in its discretion may from time to time determine and
assign to him. The Board will have the authority to determine the means and
manner by which Employee is to perform his duties.
1.2 Exclusiveness. The Employee shall devote substantially all of his
business time, attention and energies to the business of the Company and the
performance of his responsibilities and duties and shall carry out such
responsibilities and duties diligently and to the best of his abilities. The
Employee recognizes that the Company is entering into this Agreement because of
the Employee's expertise, skills, and talents and his agreement to devote all of
such expertise, skills, and talents to the tasks assigned him pursuant to this
Agreement. The Employee agrees that he shall not engage in any other business
activities of any kind which would give rise to a conflict of interest for the
Employee with respect to his duties and obligations to the Company.
1.3 Compliance with Policies and Laws. Employee will at all times comply
with all applicable policies, standards and regulations of the Company as may be
established from time to time and will comply with all applicable laws and
regulations.
1.4 Personal Service. Employee's personal performance of his duties is
the essence of this Agreement. Employee's rights and obligations under this
Agreement are not assignable by Employee.
2. COMPENSATION
2.1 Base Salary. For all services to be rendered by Employee in
any capacity hereunder, including services as an officer, director,
member of any committee or any other duties assigned to him by the
directors or officers of the Company, the Company agrees to pay Employee
an initial base salary of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) per year payable in equal bi-weekly installments in
arrears. Employee's Base Salary may be adjusted upward at the sole
discretion of the Company during the term of this Agreement.
2.2 Incentive Bonus. Employee shall be entitled to participate in the
Company's Key Officer Incentive Bonus Plan if and when established by the Board.
This plan shall be established or changed as the circumstances warrant by the
Board and the amount which shall be paid to Employee as well as when such
payment will be made will likewise be established by the Board.
2.3 Other Bonuses or Incentive Compensation. Employee may also receive
such other bonuses, grants of stock, stock options, warrants or stock
appreciation rights as may be determined by the Board, in its sole discretion.
2.4 Other Benefits. Employee shall be entitled to such fringe benefits,
including, but not limited to, vacation, sick leave, participation in medical,
dental and life insurance plans and pension or profit-sharing plans, as are
customarily provided to the senior executives of the Company as determined by
the Board of Directors of the Company and as provided by the terms of the
applicable benefit plans.
1
<PAGE>
2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable
travel, entertainment and other expenses incurred by Employee in connection with
the performance of his duties in accordance with such policies as may be adopted
from time to time by the Company.
3. TERM OF THE AGREEMENT
Employee's employment under this Agreement will commence upon the IPO
Closing and continue, subject to early termination as provided in Paragraph 4
below, for a term of five years.
4. EARLY TERMINATION; SEVERANCE
4.1 Employee's employment under this Agreement may or will, as
appropriate, be terminated prior to the expiration of the term set forth above
in Paragraph 3 in the following circumstances.
(a) Disability. If Employee is disabled and fails to perform his
duties hereunder on account of illness or other incapacity which prevents
Employee from performing his duties for a continuous period of one hundred
eighty days, the Company thereafter may, upon ten days written notice, terminate
Employee's employment under this Agreement.
(b) Death. In the event of the death of Employee, this Agreement
will terminate immediately.
(c) By the Company for Cause. The Company may terminate Employee's
employment under this Agreement for Cause. For purposes of this subparagraph,
the Company will have "Cause" to terminate this Agreement upon (i) the willful
and continued failure by Employee to substantially perform his duties hereunder
(other than such failure resulting from Employee's incapacity due to physical or
mental illness), after a written demand for substantial performance is delivered
by the Company that specifically identifies the manner in which the Company
believes the Employee has not substantially performed his duties, or (ii) the
willful engaging by Employee in misconduct which is materially injurious to the
Company, monetarily or otherwise, (iii) the willful violation by Employee of the
provisions of this Agreement, (iv) a material breach of any fiduciary duty owed
by Employee to the Company or its relationships with employees, suppliers,
customers or others with whom the Company does business or (v) the habitual or
repeated misuse of alcohol or controlled substances. For purposes of this
subparagraph, no act, or failure to act, on Employee's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith or
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, Employee will not be deemed to
have been terminated for Cause without reasonable notice to Employee setting
forth the reasons for the Company's intention to terminate for Cause, an
opportunity for Employee to be heard before the Board, and thereafter, a
determination that in the good faith opinion of the Board, "Cause" exists within
the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this
subparagraph.
(d) By Company Without Cause. The Company may terminate Employee's
employment under this Agreement unilaterally at any time for any reason or for
no reason by giving Employee ninety (90) days' advance notice of the intention
to terminate. Employee may, at the sole discretion of the Company, be relieved
of his duties during such ninety (90) day period, although Employee must be paid
during such period.
2
<PAGE>
(e) By Employee. Employee may terminate his employment under this
Agreement at any time upon ninety (90) days written notice to the Company.
Employee may, at the sole discretion of the Company, be relieved of his duties
during such ninety-day period, but continue to be paid during such period.
4.2 In the event of termination of Employee's employment prior to the end
of the Term, Employee shall be entitled to a lump sum severance payment payable
on the date of termination as follows:
(a) In the event the Employee's employment is terminated due to
Employee's death or disability, the Employee or Employee's estate shall be
entitled to a payment equal to the sum of (i) six months of the then current
base annual salary (including accrued portions), (ii) any accrued salary which
has not been paid, and (iii) any expense reimbursements due and owing to him at
the time of such termination.
(b) If the Employee's employment is terminated by the Company without
Cause as defined above, or Employee terminates his employment for Good Reason
(as hereafter defined), the Employee shall be entitled to a payment equal to the
sum of (i) the greater of one year of the then current base annual salary, or
the total base annual salary which would be payable for the balance of the Term,
and (ii) a pro-rata portion of what the Incentive Bonus for the then current
year would be if the calculation for the year through such date of termination
annualized out for the year would have resulted in an Incentive Bonus for the
year, and (iii) any accrued salary which has not been paid, and (iv) any expense
reimbursements due and owing to him at the time of such termination.
(c) In the event that Employee's employment is terminated by the
Company for Cause or is terminated by Employee voluntarily prior to the end of
the Term other than for Good Reason, Employee shall not be entitled to any
severance payment.
4.3 For purposes hereof:
"Good Reason" is defined to mean (i) the Board substantially diminishing
Employee's responsibilities and activities to a degree which is not commensurate
with the position held by Employee; or (ii) the Board taking action in material
breach of this Agreement; or (iii) requiring the Employee to relocate to
anywhere other than the metropolitan Atlanta area; or (iv) the voluntary
resignation of Employee at any time within sixty days after a Change in Control
(as hereinafter defined).
"Change of Control" shall mean any transaction or series of transactions
(including, without limitation, a tender offer, merger or consolidation) the
result of which is that any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other
than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold
Rothstein, or trusts for the benefit of any of the foregoing or their respective
families, and any "person" or "group" solicited by any of such persons: (i)
becomes the beneficial owner of more than 50 percent of the total aggregate
voting power of all classes of the voting stock of the Company and/or warrants
or options to acquire such voting stock, calculated on a fully diluted basis; or
(ii) acquires all or substantially all of the assets of the Company.
5. COVENANT NOT TO COMPETE; CONFIDENTIALITY
3
<PAGE>
5.1 Noncompetition. (a) Employee acknowledges and understands that the
Business (as defined below) in which the Company is engaged can be and will be
effectively and efficiently conducted anywhere in the world and the Company's
business is international in scope (as opposed to national and regional).
Therefore, as a material consideration of the Company's entering into this
Agreement, Employee agrees that during the Term and for a period of one year
following termination of Employee's employment under this Agreement for any
reason whatsoever, in the entire world, directly or indirectly, Employee shall
not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder,
or otherwise) an interest in or (ii) participate (as an officer, director, or in
any other capacity) in the management, operation or control of, or (iii) perform
services as or act in the capacity of an employee, independent contractor,
consultant or agent of any enterprise, which competes, or intends to compete
with the Company's Business (the "Non-Compete Covenant") except with the prior
written consent of the Board, which consent may be withheld or granted in the
Board's sole and absolute discretion. The Company's "Business" as that term is
used in this Paragraph 5.1 means the development, manufacture, marketing,
selling or distribution of smart cards or smart card related systems.
(b) Notwithstanding the foregoing, in the event that Employee's
employment is terminated due to expiration of the Term without early termination
under Section 4, and Employee's employment is not otherwise renewed, Employee
shall not be bound to the Non-Compete Covenant unless the Company makes the
following election. The Company shall have the option to bind Employee to the
Non-Compete Covenant for one year after the termination of his employment due to
expiration of the Term by electing to do so and agreeing to pay to Employee the
Non-Compete Consideration (as hereafter defined) in equal monthly installments
over the one year period. To make such election, the Company shall give
Employee notice of such election (which shall include an agreement to pay the
Non-Compete Consideration) by no later than the Election Date (as hereafter
defined). Failure to give such notice by the Election Date shall be deemed an
election by the Company to not bind Employee to the Non-Compete Covenant for the
one year period following expiration of the Term. In the event that the Company
shall default in its payment of any installment of the Non-Compete
Consideration, Employee shall be relieved from the Non-Compete Covenant, in
addition to any other rights and remedies which Employee may have. For purposes
hereof: the "Non-Compete Consideration" is the amount equal to the current base
annual salary being paid to Employee on the day prior to the date of expiration
of the Term, and the "Election Date" is the date which is three (3) months prior
to the date on which the Term expires.
5.2 Covenant Not to Promote Termination of Relationships. As a material
consideration for the Company's entering into this Agreement, Employee covenants
and agrees that for a period of two years commencing on the termination of
Employee's employment with the Company, Employee shall not persuade or entice,
or attempt to persuade or entice any customer or client of the Company to
terminate its business or contractual relationship with the Company, or refrain
from establishing any such relationship with the Company.
5.3 Inducement of Breach. Employee shall promptly notify the Company if
any person, firm, partnership, limited liability company, association,
corporation or other entity attempts to induce Employee to breach any of the
terms or provisions of this Agreement.
5.4 Confidentiality. Employee acknowledges and agrees that all product or
service information, marketing information, lists or identities of the Company's
customers, pricing and cost information, financial information, technical data,
technical know-how, and other information and data related to the Company's
business ("Confidential Information") are valuable assets of the Company.
4
<PAGE>
Except for Confidential Information which is a matter of public record through
no action or fault of the Employee, Employee shall not, during the Term or after
termination of Employee's employment hereunder for any reason whatsoever, use,
divulge, disclose, or communicate any Confidential Information to any person or
entity or use any Confidential Information for the benefit of Employee or any
other person or entity, except with the prior consent of the Board of Directors
of the Company, which consent may be withheld or granted in the Board's sole and
absolute discretion.
5.5 Return of Documents. Employee acknowledges and agrees that all
originals and copies of records, reports, documents, lists, memoranda, notes and
other documentation related to the business of the Company or containing any
Confidential Information shall be the sole and exclusive property of the Company
and shall be returned to the Company by Employee upon the termination of
Employee's employment hereunder for any reason whatsoever, or upon the written
request of the Company at any time.
5.6 No Solicitation. As a material consideration of the Company's
entering into this agreement, Employee covenants and agrees that during the Term
and for a period of two years after the termination of Employee's employment
hereunder for any reason whatsoever, neither Employee, nor any person or entity
controlled by Employee (including without limitation, members of Employee's
family), shall, directly or indirectly: (i) solicit for employment any person
employed by, or serving as a consultant to, the Company or the Company's
affiliates, successors or assigns or (ii) solicit or aid in the solicitation of
persons or business entities with whom the Company has done business or with
whom the Company has attempted to do business.
5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees
that it would be difficult to measure damage to the Company from any breach by
Employee of any matter described in this Section 5 of this Agreement and that
monetary damages would be an inadequate remedy for any such breach.
Accordingly, Employee agrees that if Employee shall directly or indirectly
breach or take steps preliminary to breaching any of the provisions of this
Section 5 of this Agreement, the Company shall be entitled, in addition to all
other remedies it may have at law or in equity, to an injunction or other
appropriate orders or equitable relief to restrain any such breach, without
showing or proving any actual damage sustained by the Company. Employee further
agrees that, for any period during which the breach of any provision of this
Agreement has not been enjoined, the Company shall be entitled, upon proof of
same, to actual and consequential damages caused by such breach, including, but
not limited to loss of business relationships, loss of goodwill and loss of
prospective business advantage.
5.8 No release. Employee agrees that the termination of this Agreement
shall not release Employee from any of Employee's obligations under this Section
5, all of which shall survive such termination.
6. INDEMNIFICATION
To the fullest extent permitted under the law, the Company will defend,
advance funds, indemnify and hold Employee harmless with respect to any expenses
incurred, claims made against and other liabilities arising in connection with
any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise (including any suit or proceeding by
or in the right of the Company) to which Employee is made a party, is threatened
to be made a party or is an actual or potential witness by reason of the fact
that Employee is an officer, employee, director or agent of the Company, or at
the request of the Company, an officer, employee, director or agent of any other
entity,
5
<PAGE>
unless, in connection with such action, suit or proceeding or in connection
with the claims made therein, Employee has engaged in acts of bad faith,
willful misconduct, gross negligence or reckless disregard of his duties to
the Company or the best interests of the Company.
7. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the employment of Employee by the
Company and supersedes all prior and contemporaneous agreements between them
with respect to such subject matter.
7.2 Modification. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing, signed by an employee and an authorized officer of the
Company.
7.3 Waiver. Failure of any party at any time to require performance of
any provision of this Agreement shall not limit such party's right to enforce
such provision, nor shall any waiver of any breach of this Agreement constitute
a waiver of such provision itself. No attempted or purposed waiver of any
provision of this Agreement shall be effective unless set forth in writing and
signed by the party to be bound.
7.4 Severability. The agreements and covenants contained in this
Agreement are severable, and in the event any of the agreements and covenants
contained in this Agreement should be held to be invalid by an arbitrator or by
any court or tribunal of competent jurisdiction, this agreement shall be
interpreted as if such valid agreements and covenants were not contained herein;
provided however, that if any legal proceeding or arbitrator or a court shall
hold unenforceable the covenants contained in Section 5 above by reason of their
geographic extent or duration or otherwise, any such covenant shall be reduced
in scope to the extent required by law and enforced in its reduced form.
7.5 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the state of Georgia.
7.6 Controversies or Disputes. Any controversy, claim, or dispute
arising under or relating to this agreement, or that arises out of or that is
based upon the employment relationship (including any wage claim, any claim
for wrongful termination, or any claim based upon any statute, regulation, or
law including those concerning employment discrimination, sexual harassment,
civil rights, age or disabilities), including tort claims (except a tort that
is a "compensable injury" under workers' compensation law), or a dispute
between the parties that arose or arises before, during or after employment,
other than any matter as to which a party seeks injunctive relief, shall be
resolved by a single, neutral arbitrator in an arbitration conducted in
Georgia, in accordance with the then-current rules of commercial arbitration
of the American Arbitration Association. Employee and the Company agree that
neither party is entitled to recover punitive damages. The decision or award
rendered by the arbitrator shall be final, nonappealable, and binding upon
the parties, and judgment may be entered upon it in accordance with
applicable law in a court of competent jurisdiction. The arbitrator shall be
an attorney with at least ten years of experience in employment law.
Arbitration in accordance with this paragraph is the sole and exclusive
method, means and procedure to resolve any and all claims or disputes other
than those seeking exclusively injunctive relief. Employee and the Company
hereby irrevocably waive any and all rights to resolve disputes in a manner
contrary to the
6
<PAGE>
provisions of this paragraph. Any and all attempts to circumvent the terms
of this paragraph shall be null and void and of no force and effect
whatsoever.
8. NOTICES
Any notice given pursuant this Agreement shall be in writing and shall be
deemed given on the earlier of the date the notice is (i) personally delivered
to the party to be notified, (ii) mailed, postage prepaid, certified with return
receipt requested, addressed as follows, or to such other address as a party may
from time to time designate by notice to the other party, or (iii) delivered at
the party's address via courier service.
To the Company: American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, Georgia 30067
Attention: President
To the Employee: Raymond Findley, Jr.
4141 Christacy Way
Marietta, Georgia 30066
AMERICAN CARD TECHNOLOGY, INC.
By
-------------------
Its President
Duly Authorized
EMPLOYEE
------------------------
Raymond Findley, Jr.
7
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD
BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
April 20, 1998
Mr. Raymond Findley, Jr.
1108 Waterford Green Point
Marietta, Georgia 30068
Dear Ray:
I refer to that certain Employment Agreement dated as of the date hereof by
and between American Card Technology, Inc. (the "Company"), as Employer, and
Raymond Findley, Jr., as Employee (the "Agreement").
Notwithstanding anything to the contrary contained Section 2 of in the
Agreement, until such time (the "Conversion Date") as the Company (i) raises an
amount equal to or greater than Six Million Four Hundred Thousand and 00/100
Dollars ($6,400,000.00), net of underwriting commissions, through an initial
public offering, or (ii) the closing of a subsequent debt financing arranged
through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in
arrears with respect to base salary shall be calculated as if the base salary
was One Hundred Thousand and 00/100 Dollars ($100,000.00). Any balance of the
base salary shall accrue and bear interest at a rate of ten percent (10%) per
annum and be payable in full on the Conversion Date.
Please acknowledge your consent to the foregoing by countersigning the
enclosed duplicate copy of this letter below.
Very truly yours,
Lawrence O. Perl
President
ACKNOWLEDGED AND AGREED TO
THIS ___ DAY OF _________, 1998
- --------------------------------
Raymond Findley, Jr.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Employment Agreement made as of the _____ day of _____, 1998 by and between
American Card Technology, Inc. (the "Company"), a Delaware corporation, and
Robert H. Dixon, of Marietta, Georgia (the "Employee").
W I T N E S E T H :
WHEREAS, Employee is employed by the Company as its Vice President of
Technical Operations, and as a condition of closing on an initial public
offering of the Company's common stock (the "IPO Closing") through Rockcrest
Securities L.L.C. ("Rockcrest"), Rockcrest, Employee and the Company have
required that this Employment Agreement be entered into to be effective on the
IPO Closing;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, the parties hereby agree as follows:
<PAGE>
1. EMPLOYMENT
1.1 Position and Duties. The Company shall employ Employee to serve in
and to have the authority and responsibilities for the position of vice
president of technical operations and to perform such other duties as relate to
such position or for such other position and duties as the Board of Directors of
the Company (the "Board") in its discretion may from time to time determine and
assign to him. The Board will have the authority to determine the means and
manner by which Employee is to perform his duties.
1.2 Exclusiveness. The Employee shall devote substantially all of his
business time, attention and energies to the business of the Company and the
performance of his responsibilities and duties and shall carry out such
responsibilities and duties diligently and to the best of his abilities. The
Employee recognizes that the Company is entering into this Agreement because of
the Employee's expertise, skills, and talents and his agreement to devote all of
such expertise, skills, and talents to the tasks assigned him pursuant to this
Agreement. The Employee agrees that he shall not engage in any other business
activities of any kind which would give rise to a conflict of interest for the
Employee with respect to his duties and obligations to the Company.
1.3 Compliance with Policies and Laws. Employee will at all times comply
with all applicable policies, standards and regulations of the Company as may be
established from time to time and will comply with all applicable laws and
regulations.
1.4 Personal Service. Employee's personal performance of his duties is
the essence of this Agreement. Employee's rights and obligations under this
Agreement are not assignable by Employee.
2. COMPENSATION
2.1 Base Salary. For all services to be rendered by Employee in any
capacity hereunder, including services as an officer, director, member of any
committee or any other duties assigned to him by the directors or officers of
the Company, the Company agrees to pay Employee an initial base salary of Two
Hundred Thousand and 00/100 Dollars ($200,000.00) per year payable in equal
bi-weekly installments in arrears. Employee's Base Salary may be adjusted
upward at the sole discretion of the Company during the term of this
Agreement.
2.2 Incentive Bonus. Employee shall be entitled to participate in the
Company's Key Officer Incentive Bonus Plan if and when established by the Board.
This plan shall be established or changed as the circumstances warrant by the
Board and the amount which shall be paid to Employee as well as when such
payment will be made will likewise be established by the Board.
2.3 Other Bonuses or Incentive Compensation. Employee may also receive
such other bonuses, grants of stock, stock options, warrants or stock
appreciation rights as may be determined by the Board, in its sole discretion.
2.4 Other Benefits. Employee shall be entitled to such fringe benefits,
including, but not limited to, vacation, sick leave, participation in medical,
dental and life insurance plans and pension or profit-sharing plans, as are
customarily provided to the senior executives of the Company as determined by
the Board of Directors of the Company and as provided by the terms of the
applicable benefit plans.
<PAGE>
2.5 Reimbursement of Expenses. The Company shall reimburse the reasonable
travel, entertainment and other expenses incurred by Employee in connection with
the performance of his duties in accordance with such policies as may be adopted
from time to time by the Company.
3. TERM OF THE AGREEMENT
Employee's employment under this Agreement will commence upon the IPO
Closing and continue, subject to early termination as provided in Paragraph 4
below, for a term of five years.
4. EARLY TERMINATION; SEVERANCE
4.1 Employee's employment under this Agreement may or will, as
appropriate, be terminated prior to the expiration of the term set forth above
in Paragraph 3 in the following circumstances.
(a) Disability. If Employee is disabled and fails to perform his
duties hereunder on account of illness or other incapacity which prevents
Employee from performing his duties for a continuous period of one hundred
eighty days, the Company thereafter may, upon ten days written notice, terminate
Employee's employment under this Agreement.
(b) Death. In the event of the death of Employee, this Agreement
will terminate immediately.
(c) By the Company for Cause. The Company may terminate Employee's
employment under this Agreement for Cause. For purposes of this subparagraph,
the Company will have "Cause" to terminate this Agreement upon (i) the willful
and continued failure by Employee to substantially perform his duties hereunder
(other than such failure resulting from Employee's incapacity due to physical or
mental illness), after a written demand for substantial performance is delivered
by the Company that specifically identifies the manner in which the Company
believes the Employee has not substantially performed his duties, or (ii) the
willful engaging by Employee in misconduct which is materially injurious to the
Company, monetarily or otherwise, (iii) the willful violation by Employee of the
provisions of this Agreement, (iv) a material breach of any fiduciary duty owed
by Employee to the Company or its relationships with employees, suppliers,
customers or others with whom the Company does business or (v) the habitual or
repeated misuse of alcohol or controlled substances. For purposes of this
subparagraph, no act, or failure to act, on Employee's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith or
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, Employee will not be deemed to
have been terminated for Cause without reasonable notice to Employee setting
forth the reasons for the Company's intention to terminate for Cause, an
opportunity for Employee to be heard before the Board, and thereafter, a
determination that in the good faith opinion of the Board, "Cause" exists within
the meaning set forth in clause (i), (ii), (iii), (iv) or (v) of this
subparagraph.
(d) By Company Without Cause. The Company may terminate Employee's
employment under this Agreement unilaterally at any time for any reason or for
no reason by giving Employee ninety (90) days' advance notice of the intention
to terminate. Employee may, at
<PAGE>
the sole discretion of the Company, be relieved
of his duties during such ninety (90) day period, although Employee must be paid
during such period.
(e) By Employee. Employee may terminate his employment under this
Agreement at any time upon ninety (90) days written notice to the Company.
Employee may, at the sole discretion of the Company, be relieved of his duties
during such ninety-day period, but continue to be paid during such period.
4.2 In the event of termination of Employee's employment prior to the end
of the Term, Employee shall be entitled to a lump sum severance payment payable
on the date of termination as follows:
(a) In the event the Employee's employment is terminated due to
Employee's death or disability, the Employee or Employee's estate shall be
entitled to a payment equal to the sum of (i) six months of the then current
base annual salary (including accrued portions), (ii) any accrued salary which
has not been paid, and (iii) any expense reimbursements due and owing to him at
the time of such termination.
(b) If the Employee's employment is terminated by the Company without
Cause as defined above, or Employee terminates his employment for Good Reason
(as hereafter defined), the Employee shall be entitled to a payment equal to the
sum of (i) the greater of one year of the then current base annual salary, or
the total base annual salary which would be payable for the balance of the Term,
and (ii) a pro-rata portion of what the Incentive Bonus for the then current
year would be if the calculation for the year through such date of termination
annualized out for the year would have resulted in an Incentive Bonus for the
year, and (iii) any accrued salary which has not been paid, and (iv) any expense
reimbursements due and owing to him at the time of such termination.
(c) In the event that Employee's employment is terminated by the
Company for Cause or is terminated by Employee voluntarily prior to the end of
the Term other than for Good Reason, Employee shall not be entitled to any
severance payment.
4.3 For purposes hereof:
"Good Reason" is defined to mean (i) the Board substantially diminishing
Employee's responsibilities and activities to a degree which is not commensurate
with the position held by Employee; or (ii) the Board taking action in material
breach of this Agreement; or (iii) requiring the Employee to relocate to
anywhere other than the metropolitan Atlanta area; or (iv) the voluntary
resignation of Employee at any time within sixty days after a Change in Control
(as hereinafter defined).
"Change of Control" shall mean any transaction or series of transactions
(including, without limitation, a tender offer, merger or consolidation) the
result of which is that any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other
than Lawrence O. Perl, Raymond Findley, Jr., Raymond Roncari and Harold
Rothstein, or trusts for the benefit of any of the foregoing or their respective
families, and any "person" or "group" solicited by any of such persons: (i)
becomes the beneficial owner of more than 50 percent of the total aggregate
voting power of all classes of the voting stock of the
<PAGE>
Company and/or warrants or options to acquire such voting stock, calculated on
a fully diluted basis; or (ii) acquires all or substantially all of the assets
of the Company.
5. COVENANT NOT TO COMPETE; CONFIDENTIALITY
5.1 Noncompetition. (a) Employee acknowledges and understands that the
Business (as defined below) in which the Company is engaged can be and will be
effectively and efficiently conducted anywhere in the world and the Company's
business is international in scope (as opposed to national and regional).
Therefore, as a material consideration of the Company's entering into this
Agreement, Employee agrees that during the Term and for a period of one year
following termination of Employee's employment under this Agreement for any
reason whatsoever, in the entire world, directly or indirectly, Employee shall
not, in any location whatsoever, (i) own (as a proprietor, partner, stockholder,
or otherwise) an interest in or (ii) participate (as an officer, director, or in
any other capacity) in the management, operation or control of, or (iii) perform
services as or act in the capacity of an employee, independent contractor,
consultant or agent of any enterprise, which competes, or intends to compete
with the Company's Business (the "Non-Compete Covenant") except with the prior
written consent of the Board, which consent may be withheld or granted in the
Board's sole and absolute discretion. The Company's "Business" as that term is
used in this Paragraph 5.1 means the development, manufacture, marketing,
selling or distribution of smart cards or smart card related systems.
(b) Notwithstanding the foregoing, in the event that Employee's
employment is terminated due to expiration of the Term without early termination
under Section 4, and Employee's employment is not otherwise renewed, Employee
shall not be bound to the Non-Compete Covenant unless the Company makes the
following election. The Company shall have the option to bind Employee to the
Non-Compete Covenant for one year after the termination of his employment due to
expiration of the Term by electing to do so and agreeing to pay to Employee the
Non-Compete Consideration (as hereafter defined) in equal monthly installments
over the one year period. To make such election, the Company shall give
Employee notice of such election (which shall include an agreement to pay the
Non-Compete Consideration) by no later than the Election Date (as hereafter
defined). Failure to give such notice by the Election Date shall be deemed an
election by the Company to not bind Employee to the Non-Compete Covenant for the
one year period following expiration of the Term. In the event that the Company
shall default in its payment of any installment of the Non-Compete
Consideration, Employee shall be relieved from the Non-Compete Covenant, in
addition to any other rights and remedies which Employee may have. For purposes
hereof: the "Non-Compete Consideration" is the amount equal to the current base
annual salary being paid to Employee on the day prior to the date of expiration
of the Term, and the "Election Date" is the date which is three (3) months prior
to the date on which the Term expires.
5.2 Covenant Not to Promote Termination of Relationships. As a material
consideration for the Company's entering into this Agreement, Employee covenants
and agrees that for a period of two years commencing on the termination of
Employee's employment with the Company, Employee shall not persuade or entice,
or attempt to persuade or entice any customer or client of the Company to
terminate its business or contractual relationship with the Company, or refrain
from establishing any such relationship with the Company.
5.3 Inducement of Breach. Employee shall promptly notify the Company if
any person, firm, partnership, limited liability company, association,
corporation or other entity attempts to induce Employee to breach any of the
terms or provisions of this Agreement.
<PAGE>
5.4 Confidentiality. Employee acknowledges and agrees that all product or
service information, marketing information, lists or identities of the Company's
customers, pricing and cost information, financial information, technical data,
technical know-how, and other information and data related to the Company's
business ("Confidential Information") are valuable assets of the Company.
Except for Confidential Information which is a matter of public record through
no action or fault of the Employee, Employee shall not, during the Term or after
termination of Employee's employment hereunder for any reason whatsoever, use,
divulge, disclose, or communicate any Confidential Information to any person or
entity or use any Confidential Information for the benefit of Employee or any
other person or entity, except with the prior consent of the Board of Directors
of the Company, which consent may be withheld or granted in the Board's sole and
absolute discretion.
5.5 Return of Documents. Employee acknowledges and agrees that all
originals and copies of records, reports, documents, lists, memoranda, notes and
other documentation related to the business of the Company or containing any
Confidential Information shall be the sole and exclusive property of the Company
and shall be returned to the Company by Employee upon the termination of
Employee's employment hereunder for any reason whatsoever, or upon the written
request of the Company at any time.
5.6 No Solicitation. As a material consideration of the Company's
entering into this agreement, Employee covenants and agrees that during the Term
and for a period of two years after the termination of Employee's employment
hereunder for any reason whatsoever, neither Employee, nor any person or entity
controlled by Employee (including without limitation, members of Employee's
family), shall, directly or indirectly: (i) solicit for employment any person
employed by, or serving as a consultant to, the Company or the Company's
affiliates, successors or assigns or (ii) solicit or aid in the solicitation of
persons or business entities with whom the Company has done business or with
whom the Company has attempted to do business.
5.7 Equitable relief; Other Remedies. Employee acknowledges and agrees
that it would be difficult to measure damage to the Company from any breach by
Employee of any matter described in this Section 5 of this Agreement and that
monetary damages would be an inadequate remedy for any such breach.
Accordingly, Employee agrees that if Employee shall directly or indirectly
breach or take steps preliminary to breaching any of the provisions of this
Section 5 of this Agreement, the Company shall be entitled, in addition to all
other remedies it may have at law or in equity, to an injunction or other
appropriate orders or equitable relief to restrain any such breach, without
showing or proving any actual damage sustained by the Company. Employee further
agrees that, for any period during which the breach of any provision of this
Agreement has not been enjoined, the Company shall be entitled, upon proof of
same, to actual and consequential damages caused by such breach, including, but
not limited to loss of business relationships, loss of goodwill and loss of
prospective business advantage.
5.8 No release. Employee agrees that the termination of this Agreement
shall not release Employee from any of Employee's obligations under this Section
5, all of which shall survive such termination.
6. INDEMNIFICATION
<PAGE>
To the fullest extent permitted under the law, the Company will defend,
advance funds, indemnify and hold Employee harmless with respect to any expenses
incurred, claims made against and other liabilities arising in connection with
any actual or threatened action, suit or proceeding, whether civil, criminal,
administrative, investigative or otherwise (including any suit or proceeding by
or in the right of the Company) to which Employee is made a party, is threatened
to be made a party or is an actual or potential witness by reason of the fact
that Employee is an officer, employee, director or agent of the Company, or at
the request of the Company, an officer, employee, director or agent of any other
entity, unless, in connection with such action, suit or proceeding or in
connection with the claims made therein, Employee has engaged in acts of bad
faith, willful misconduct, gross negligence or reckless disregard of his duties
to the Company or the best interests of the Company.
7. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the employment of Employee by the
Company and supersedes all prior and contemporaneous agreements between them
with respect to such subject matter.
7.2 Modification. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing, signed by an employee and an authorized officer of the
Company.
7.3 Waiver. Failure of any party at any time to require performance of
any provision of this Agreement shall not limit such party's right to enforce
such provision, nor shall any waiver of any breach of this Agreement constitute
a waiver of such provision itself. No attempted or purposed waiver of any
provision of this Agreement shall be effective unless set forth in writing and
signed by the party to be bound.
7.4 Severability. The agreements and covenants contained in this
Agreement are severable, and in the event any of the agreements and covenants
contained in this Agreement should be held to be invalid by an arbitrator or by
any court or tribunal of competent jurisdiction, this agreement shall be
interpreted as if such valid agreements and covenants were not contained herein;
provided however, that if any legal proceeding or arbitrator or a court shall
hold unenforceable the covenants contained in Section 5 above by reason of their
geographic extent or duration or otherwise, any such covenant shall be reduced
in scope to the extent required by law and enforced in its reduced form.
7.5 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the state of Georgia.
7.6 Controversies or Disputes. Any controversy, claim, or dispute arising
under or relating to this agreement, or that arises out of or that is based upon
the employment relationship (including any wage claim, any claim for wrongful
termination, or any claim based upon any statute, regulation, or law including
those concerning employment discrimination, sexual harassment, civil rights, age
or disabilities), including tort claims (except a tort that is a "compensable
injury" under workers' compensation law), or a dispute between the parties that
arose or arises before, during or after employment, other than any matter as to
which a party seeks injunctive relief, shall be resolved by a single, neutral
arbitrator in an arbitration conducted in
<PAGE>
Georgia, in accordance with the then-current rules of commercial arbitration
of the American Arbitration Association. Employee and the Company agree that
neither party is entitled to recover punitive damages. The decision or award
rendered by the arbitrator shall be final, nonappealable, and binding upon
the parties, and judgment may be entered upon it in accordance with
applicable law in a court of competent jurisdiction. The arbitrator shall be
an attorney with at least ten years of experience in employment law.
Arbitration in accordance with this paragraph is the sole and exclusive
method, means and procedure to resolve any and all claims or disputes other
than those seeking exclusively injunctive relief. Employee and the Company
hereby irrevocably waive any and all rights to resolve disputes in a manner
contrary to the provisions of this paragraph. Any and all attempts to
circumvent the terms of this paragraph shall be null and void and of no force
and effect whatsoever.
8. NOTICES
Any notice given pursuant this Agreement shall be in writing and shall be
deemed given on the earlier of the date the notice is (i) personally delivered
to the party to be notified, (ii) mailed, postage prepaid, certified with return
receipt requested, addressed as follows, or to such other address as a party may
from time to time designate by notice to the other party, or (iii) delivered at
the party's address via courier service.
To the Company: American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, Georgia 30067
Attention: President
To the Employee: Robert H. Dixon
4141 Christacy Way
Marietta, Georgia 30066
AMERICAN CARD TECHNOLOGY, INC.
By -----------------------
Its President
Duly Authorized
EMPLOYEE
--------------------------
Robert H. Dixon
<PAGE>
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD
BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
- -------------------------------------------------------------------------------
April 20, 1998
Mr. Robert H. Dixon
4141 Christacy Way
Marietta, Georgia 30066
Dear Rob:
I refer to that certain Employment Agreement dated as of the date hereof by
and between American Card Technology, Inc. (the "Company"), as Employer, and
Raymond Findley, Jr., as Employee (the "Agreement").
Notwithstanding anything to the contrary contained Section 2 of in the
Agreement, until such time (the "Conversion Date") as the Company (i) raises an
amount equal to or greater than Six Million Four Hundred Thousand and 00/100
Dollars ($6,400,000.00), net of underwriting commissions, through an initial
public offering, or (ii) the closing of a subsequent debt financing arranged
through Lilly Beter Capital Group, Ltd., the bi-weekly payments to be made in
arrears with respect to base salary shall be calculated as if the base salary
was One Hundred Thousand and 00/100 Dollars ($100,000.00). Any balance of the
base salary shall accrue and bear interest at a rate of ten percent (10%) per
annum and be payable in full on the Conversion Date.
Please acknowledge your consent to the foregoing by countersigning the
enclosed duplicate copy of this letter below.
Very truly yours,
Raymond Findley, Jr.
President
ACKNOWLEDGED AND AGREED TO
THIS ___ DAY OF _________, 1998
_______________________________
Robert H. Dixon
<PAGE>
EXHIBIT 10.4
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of the 1st day of May,
1998, by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation
("American Card Technology, Inc."), and The Bank of New York, (the Escrow
Agent).
WHEREAS, American Card Technology, Inc. intends to publicly offer not less
than $5,001,400 nor more than $7,140,000 of common stock, each consisting of
$17.00 per share of common stock of American Card Technology, Inc. (the
"Securities"), for which each subscriber will pay $17.00 per share; and
WHEREAS, it has been determined that the proceeds to be received from the
offering should be placed in escrow until such time as subscriptions for
$5,001,400 of shares of the Securities (the "Minimum Amount"), has been
deposited into escrow, which at that time the funds will be released to the
Company ("American Card Technology, Inc.);
WHEREAS, the Escrow Agent is willing to accept appointment as Escrow Agent
for the expressed duties outlined herein.
NOW, THEREFORE, in consideration of the premises and agreements set forth
herein, the parties hereto agree as follows;
1. PROCEEDS TO BE ESCROWED. All funds received by American Card
Technology, Inc., in payment for Securities will be delivered to the Escrow
Agent within three (3) days following the day upon which such proceeds are
received by American Card Technology, Inc. and shall be retained in escrow by
the Escrow Agent and invested as stated below. During the term of this
Agreement, American Card Technology, Inc. shall cause all checks received by
and made payable to it in payments for such Securities to be endorsed in
favor of The Bank of New York as Escrow Agent for American Card Technology,
Inc.
In the event that checks deposited in the escrow accounts prove
uncollectible after the funds represented thereby have been released by the
Escrow Agent to American Card Technology, Inc., then American Card
Technology, Inc. shall promptly reimburse the Escrow Agent for any and all
cost incurred for such, upon request, and the Escrow Agent shall deliver the
returned checks to American Card Technology, Inc.
2. IDENTITY OF SUBSCRIBERS. American Card Technology, Inc. shall
furnish to the Escrow Agent with each delivery of funds, as provided in
paragraph 1 hereof, a list of the persons who have paid money for the
purchase of Securities showing the name, address, tax ID number and amount of
Securities subscribed for the amount of money paid. All proceeds so
deposited shall remain the property of the subscriber and not be subject to
any liens or charges by American Card Technology, Inc., or the Escrow Agent,
or judgments or creditor's claims against American Card Technology, Inc.,
until released to American Card Technology, Inc. as hereinafter provided.
3. DISBURSEMENT OF FUNDS. From time to time, and at the end of the
third business day following the Initial Closing Date and the Termination
Date (as defined in paragraph 4 hereof) the Escrow Agent shall notify
American Card Technology, Inc. of the amount of the funds received hereunder.
Upon the Initial Closing Date the Escrow Agent will release into the custody
of American Card Technology, Inc.
<PAGE>
all of the Escrow Account funds. Upon the Termination Date, the balance of
the Escrow Account funds will be released into the custody of American Card
Technology, Inc. within five (5) business days after notification. If the
Minimum Amount of proceeds has not been delivered prior to the Termination
Date, the Escrow Agent shall, with a reasonable time following the
Termination Date, but in no event more than thirty (30) days after the
Termination Date, refund to each subscriber at the address appearing on the
list of subscribers, or at such other address as be furnished to the Escrow
Agent by the subscriber in writing, all sums paid by the subscriber pursuant
to his subscription agreement for Securities, together with the interest
earned on such funds in the escrow account and shall then notify American
Card Technology, Inc. in writing of such funds. American Card Technology,
Inc. may extend the offering of a maximum of no more than two (2) sixty- (60)
day periods by giving the Escrow Agent a written notice of such an event.
4. TERMS OF ESCROW. The "Initial Closing Date" shall be the date upon
which the proceeds received into the Escrow Account equal or exceed
$5,001,400. The "Termination Date" shall be the earlier of 180 days from the
date of the Public Offering effectiveness from the Securities and Exchange
Commission; or (ii) the date the Escrow Agent received written notice from
American Card Technology, Inc. that it is abandoning the sale of the
securities, subject to section 3. American Card Technology, Inc. may extend
the termination date two (2) sixty- (60) day periods upon written notice to
the Escrow Agent. In all events this escrow shall terminate upon the one-
(1) year anniversary from the date of this Agreement.
5. DUTY AND LIABILITY OF THE ESCROW AGENT. The sole duty of the
Escrow Agent, other than as herein specified, shall be to receive said funds
and hold them subject to release, in accordance herewith, and the Escrow
Agent shall be under no duty to determine whether American Card Technology,
Inc. is complying with requirements of this Agreement in tendering to the
Escrow Agent said proceeds of the sale of said securities. The Escrow Agent
may conclusively rely upon and be protected in acting upon any statement,
certificate, notice, request, consent, order or other document believed by it
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall have no duty or liability to verify any such
statement, certificate, notice, request, consent, order or other document,
and its sole responsibility shall be to act only as expressly set forth in
this Agreement. The Escrow Agent shall be under no obligation to institute
or defend any action, suit or proceeding in connection with this agreement
unless first indemnified to its satisfaction. The Escrow Agent may consult
counsel in respect of any question arising under this Agreement and the
Escrow Agent shall not be liable for any action taken or omitted in good
faith upon advise of such counsel. The Escrow Agent shall not be liable for
any action taken in the absence of gross negligence or willful misconduct
while following the terms of this Agreement.
6. ESCROW AGENT FEE. The Escrow Agent shall be entitled to
compensation for its services as stated in the fee schedule attached hereto
as Exhibit A, which compensation shall be paid by American Card Technology,
Inc. The fee agreed upon for the services rendered hereunder is intended as
full compensation for the Escrow Agent's services as contemplated by this
Agreement; PROVIDED, HOWEVER, that in the event that the conditions for the
disbursement of funds under this Agreement are not fulfilled, or the Escrow
Agent renders any material service not contemplated in this Agreement, or
there is any assignment of interest in the subject matter of this Agreement,
or any material modification hereof, or if any material controversy arises
hereunder, or the Escrow Agent is made a party to any litigation pertaining
to this Agreement, or the subject matter hereof, then the Escrow Agent shall
be reasonably compensated for such extraordinary services and reimbursed for
all cost and expenses, including reasonable attorney's fees, occasioned by
any delay, controversy, litigation or event, and the same shall be
recoverable from American Card Technology, Inc.
7. INVESTMENT OF PROCEEDS. All funds held by the Escrow Agent
pursuant to this Agreement shall constitute trust property for the purposes
for which they are held. The Escrow Agent shall invest all funds received
from subscribers in The Bank of New York Cash Reserve Fund.
<PAGE>
8. ISSUANCE OF CERTIFICATES. Until the terms of this Agreement with
respect to Securities have been met and the funds hereunder received from
subscriptions for Securities have been released to American Card Technology,
Inc., American Card Technology, Inc. may not issue any certificates or other
evidence of Securities, except subscription agreements.
9. NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been
duly given (a) on the date of service if served personally on the party to
whom notice is to be given, (b) on the day of transmission if sent by
facsimile transmission to the facsimile number given below, along with a
hardcopy to follow through the mail, and telephonic confirmation of receipt
is obtained promptly after completion of transmission, (c) on the day after
delivery to Federal Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service, Or (d) on the fifth
day after mailing, if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, and properly
addressed, return receipt requested, to the party as follows:
If to American Card Technology, Inc.:
American Card Technology, Inc.
1355 Terrell Mill Road
Building 1462, Suite 200
Marietta, GA 30067
(770) 951-2284 FAX (770) 951-9221
Attn: President
If to Escrow Agent:
The Bank of New York
101 Barclay Street - 12 East
New York, NY 10286
(212) 815-7172 FAX (212) 815-7181
Attn: Matthew Louis
Insurance Trust and Escrow Unit
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
10. INDEMNIFICATION OF ESCROW AGENT. American Card Technology, Inc.
hereby indemnifies and holds harmless the Escrow Agent from and against, any
and all loss, liability, cost, damage and expense, including, without
limitation, reasonable counsel fees, which the Escrow Agent may suffer or
incur by reason of any action, claim or proceeding brought against the Escrow
Agent arising out of or relating in any way to this Agreement or any
transaction to which this Agreement relates unless such action, claim or
proceeding is the result of the willful misconduct of the Escrow Agent. The
Escrow Agent may consult counsel in respect of any question arising under the
Escrow Agreement and the Escrow Agent shall not be liable for any action
taken or omitted in good faith upon advice of such counsel. This
Indemnification will survive the termination of this Escrow Agreement.
11. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Agreement, no party hereto shall assign this Agreement or any rights or
obligations hereunder without the prior written consent to the other parties
hereto and any such attempted assignment without such prior written consent
shall be void and of no force and effect. This Agreement shall inure to the
benefit of and shall be binding upon the successors and permitted assigns of
the parties hereto.
<PAGE>
12. GOVERNING LAW; JURISDICTION. This Agreement shall be constructed,
performed and enforced in accordance with, and governed by, the internal laws
of the State of New York, without giving effect to the principles of
conflicts of laws thereof.
13. SEVERABILITY. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to be null,
void, or unenforceable, said provision shall survive to the extent it is not
so declared, and all of the other provisions of this Agreement shall remain
in full force and effect.
14. AMENDMENTS; WAIVERS. This Agreement may be amended or modified,
and any of the terms, covenants, representations, warranties, or conditions
hereof may be waived, only by a written instrument executed by the parties
hereto, or in the case of a waiver, by the party waiving compliance. Any
waiver by any party of any condition, or of the breach of any provision,
term, covenant, representation, or warranty contained in this Agreement, in
any one or more instances, shall not be deemed to be nor construed as further
or continuing waiver, of any such condition, or of the breach of any other
provision, term, covenant, representation, or warranty of this Agreement.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the parties hereto with respect to the escrow contemplated hereby and
supersedes and replaces all prior and contemporaneous agreements and
understandings, oral or written, with regard to such escrow.
16. SECTION HEADINGS. The section headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which constitute the same
instrument.
18. RESIGNATION. Escrow Agent may resign upon 30 days advance written
notice to American Card Technology, Inc. If a successor escrow agent is not
appointed within the 30 day period following such notice, Escrow Agent may
petition any court of competent jurisdiction to name a successor escrow agent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first set forth above.
AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley
----------------------
President
THE BANK OF NEW YORK
By: /s/ Matthew Louis
----------------------
<PAGE>
EXHIBIT A
SUBSCRIPTION ESCROW AGENT PROPOSAL
FOR
AMERICAN CARD TECHNOLOGY
ADMINISTRATION FEE ....................................................$7,500.00
This one time charge is payable at the initial closing and
includes the following services:
- - Review of the Escrow Agreement
- - Establishment of administrative an operational account procedures
- - Receipt and investment of funds
- - Generation of account statements
- - Daily account reconciliation
Investor accounts, each ...................................................$8.00
1099's, each ..............................................................$3.00
Additional closings, each ...............................................$500.00
(Return of Investor Funds) "bust outs," each .............................$25.00
Returned checks, each ....................................................$25.00
Wire transfers, each .....................................................$25.00
<PAGE>
TERMS OF PROPOSAL
OUT-OF-POCKET EXPENSES: ESTIMATE
$250.00 Fees quoted do not include any out-of-pocket expenses including,
but not limited to, stationery, postage, telephone, telex, wire
transfer, original issue delivery costs and retention of records which
will be billed to the account.
EXTERNAL COUNSEL FEES:
Fees quoted do not include outside counsel fees. A bill for services
rendered up to closing will be presented for payment on the closing date.
MISCELLANEOUS SERVICES:
The charges for performing services not contemplated at the time of the
execution of the documents or not specifically covered elsewhere in the
schedule will be determined by appraisal in amounts commensurate with
the service.
GENERAL:
Our administrative fee covers a period of one year or any portion
thereof and is not subject to proration. The Bank of New York's final
acceptance of this appointment is subject to the full review and
approval of all related documentation related hereto, and standard
conflict procedures. This offer shall be deemed terminated if we do not
enter into a written agreement within three months from the date of
transmittal. In the event the transaction terminates before closing,
you will be responsible for paying all out-of-pocket expenses incurred,
including counsel fees, if applicable.
<PAGE>
EXHIBIT 10.7.1
AMERICAN CARD TECHNOLOGY, INC.
SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for the purchase of ____________ shares
of American Card Technology, Inc. a Delaware Corporation (the Company) at $17.00
per share in the aggregate amount of $_________________.
The undersigned herewith submits the undersigned's check payable to
American Card Technology, Incorporated in full payment for such shares. INCLUDE
CHECK PAYABLE TO AMERICAN CARD TECHNOLOGY, INC.
Please print names in which shares are to be registered ________________________
________________________
Investors Residence Address and Social Security or ________________________
Tax Identification Number(s). (Must be completed for ________________________
registration purposes; no post office boxes please). ________________________
City____________________
State & Zip_____________
Tax ID or SS No.________
Tax ID or SS No_________
Mailing Address to which notices and checks ________________________
Should be sent (if different from the Residence ________________________
Address) ________________________
City____________________
State & Zip_____________
TELEPHONE Home:___________________
Business:_______________
Manner in which title is held (check one):
1. ________ Community Property
2. ________ Joint Tenants With Right of Survivorship
3. ________ Separate Property
4. ________ Individual Ownership
5. ________ Partnership
6. ________ Tenants in Common
7. ________ Corporation
8. ________ Other (Specify) : ________________________________________
________________________________________
- --------------------------------------- -----------------------------------
Signature Date
<PAGE>
EXHIBIT 10.7.2
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
EXERCISABLE AFTER 9:00 A.M.,
UNITED STATES EASTERN TIME ZONE TIME,
ON MARCH 3, 1999
AND PRIOR TO
5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004
50,000 Warrants
AMERICAN CARD TECHNOLOGY, INC.
WARRANT
This warrant certificate (the "Warrant Certificate") certifies that Chapman
Group, LLC or registered assigns, is the registered holder of warrants to
purchase, at any time commencing on March 3, 1999 and continuing until 5:00
P.M., United States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"),
up to 50,000 fully-paid and non-assessable shares, subject to adjustment in
accordance with Article 7 hereof (the "Warrant Shares"), of the common stock,
par value $.001 per share (the "Common Stock"), of American Card Technology,
Inc., a Delaware corporation (the "Company"), subject to the terms and
conditions set forth herein. The warrants represented by this Warrant
Certificate and any warrants resulting from a transfer or subdivision of the
warrants represented by this Warrant Certificate shall sometimes hereinafter be
referred to, individually, as a "Warrant" and, collectively, as the "Warrants."
<PAGE>
1. EXERCISE OF WARRANTS.
(a) Each Warrant is initially exercisable to purchase one Warrant
Share at an initial exercise price per Warrant Share of eighty percent (80%) of
the per share Market Price (as defined in Section 1(b) hereof) of the Common
Stock on the exercise date, subject to adjustment as set forth in Article 7
hereof, payable in cash or by check to the order of the Company, or any
combination of cash or check. Upon surrender of this Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at
the Company's principal offices (presently located at 1355 Terrell Mill Road,
Building 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof
(the "Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased. The purchase rights
represented by this Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of Common
Stock). In the case of the purchase of less than all the Warrant Shares
purchasable under this Warrant Certificate, the Company shall cancel this
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Warrant Shares
purchasable hereunder.
(b) "Market Price" at any date (the "Applicable Date") shall be
deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the NASDAQ National Market System, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ National Market System, the closing bid price
as furnished by the National Association of Securities Dealers, Int. through
NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ or a similar
organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it for the
day immediately preceding the Applicable Date, the day of the Applicable Date
and the day immediately after the Applicable Date.
2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder
may, at its option, exchange the Warrants represented by this Warrant
Certificate, in whole or in part (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section 2, by surrendering
this Warrant Certificate at the principal office of the Company accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the Warrant Shares issuable upon such Warrant Exchange
and, if applicable, a new Warrant Certificate (a "Remainder Warrant
Certificate") of like tenor evidencing the Warrants which were subject to the
surrendered Warrant Certificate and not included in the Warrant Exchange, shall
be issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Warrant
Exchange, the Holder's Warrant Certificate shall represent the right to
subscribe for and acquire (I) the number of Warrant Shares (rounded to the next
highest integer) equal to (A) the number of Warrant Shares specified by the
Holder in its Notice of Exchange (the Total Warrant Share Number") less (B) the
number of Warrant Shares equal to the quotient obtained by dividing (i) the
product of the Total Warrant Share Number and the existing Exercise Price per
Warrant
<PAGE>
Share by (ii) the current Market Price (as hereinafter defined) of a
share of Common Stock, and (II) a Remainder Warrant Certificate, if
applicable.
3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Article 4 hereof) be issued in
the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrants, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Warrant Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate and/or the securities
issuable upon exercise thereof have not been registered under the Securities
Act-of 1933, as amended ("Act"), and may not be offered or sold except (i)
pursuant to an effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii) upon the delivery
by the holder to the issuer of an opinion of counsel, reasonably satisfactory to
counsel to the issuer, stating that an exemption from registration under such
Act is available."
4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
and the Warrant Shares issuable upon exercise of the Warrants are being acquired
as an investment and not with a view to the distribution thereof.
5. REGISTRATION RIGHTS. In the event that, at some date after the
closing of an initial public offering of the Company's securities, the Company
determines to sell securities of the Company, for its own account or for the
account of others, in a registered public offering involving an underwriting,
the Company shall give prompt written notice thereof to the Holder, and if the
Holder shall so request in writing within twenty (20) days after receipt of any
such notice, the Company shall include in such registration all Warrant Shares
that the Holder so requests to be registered thereunder. The Company, at the
written request of the underwriters, may limit such sales under any registration
statement. The Company and the Holder shall provide the underwriters with all
requisite indemnities, comfort letters, or such other documents as such
underwriters may request. The Company shall bear all of the expenses of any
such registration and sale, except that the Holder shall bear and pay (i) the
underwriters' discount attributable to the Warrant Shares sold by the Holder,
and (ii) Holder's attorney's fees.
<PAGE>
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price
of each Warrant shall be eighty percent (80%) of the per share Market Price of
the Common Stock on the exercise date, per Warrant Share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 7 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall be reduced to a price determined by (i) dividing an amount equal to the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Exercise Price in effect immediately
prior to such dividend or distribution by (ii) the total number of shares of
Common Stock outstanding immediately after such issuance or sale. For purposes
of any computation to be made in accordance with the provisions of this Article
7.1, the shares of Common Stock issuable by way of dividend or distribution
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for determination of shareholders entitled to
receive such dividend or distribution.
7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full share of Common Stock by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in nominal value to no nominal value, or from no nominal value to
nominal value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and. number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the Warrant Shares
issuable upon exercise of the
<PAGE>
Warrants immediately prior to any such events at a price equal to the
product of (x) the number of Warrant Shares issuable upon exercise of
the Warrants and (y) the Exercise Price in effect immediately prior to
the record date for such reclassification, change, consolidation,
merger, sale or conveyance as if such Holder had exercised the Warrants.
7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares
of Common Stock at any one time outstanding shall include the aggregate number
of shares issued or issuable upon the exercise of outstanding options, rights
and warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities.
8. REDEMPTION. The Warrants are redeemable by the Company in whole or in
part, on not less than thirty (30) days, prior written notice at a redemption
price of $.10 per Warrant at any time commencing March 3, 2000, provided that
the closing bid quotation price of the Common Stock on each of the twenty (20)
trading days ending on the third day prior to the day on which the Company gives
notice of redemption has been at least $18.00. The redemption notice shall be
mailed to the Holders of the Warrants at their addresses appearing in the
Warrant register. Holders of the Warrants will have exercise rights until the
close of business on the date fixed for redemption.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be
required to issue certificates representing fractions of shares of Common Stock
and shall not be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up, if such fraction is greater
than one-half, or down, if such fraction is equal to or less than one-half, to
the nearest whole number of shares of Common Stock to which the Holder is
otherwise entitled.
11. RESERVATION OF SHARES. The Company covenants and agrees that it will
at all times reserve and keep available out of its authorized share capital,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock as shall be equal to the number of Warrant
Shares issuable upon the exercise of the Warrants, for issuance upon such
exercise, and that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Warrant Shares issuable upon such exercise shall be duly and
validly issued, fully paid, nonassessable and not subject to the preemptive
rights of any shareholder.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holder or Holders the right to vote or to
consent or to receive
<PAGE>
notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional Common Stock or other shares of capital stock of the Company
or securities convertible into or exchangeable for Common Stock or other
shares of capital stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. NOTICES All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
personally delivered or sent by registered or certified mail (return receipt
requested, postage prepaid), facsimile transmission or overnight courier:
(a) if to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Article 1 of this
Agreement or to such other address as the Company may designate by notice
to the Holders.
14. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
15. GOVERNING LAW
<PAGE>
15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have
been made and delivered in the State of Georgia and, except to the extent the
Delaware General Corporation Law shall mandatorily apply, shall be governed as
to validity, interpretation, construction, effect and in all other respects with
the substantive laws of the State of Georgia, without giving effect to the
choice of laws rules thereof.
15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder
each (a) agree that any legal suit, action or proceeding arising out of or
relating to this Warrant Certificate shall be instituted exclusively in the
Georgia Superior Court, Judicial Circuit of Cobb County or in the United States
District Court for the Northern District of Georgia, Atlanta Division, (b) waive
any objection which the Company or such Holder may have now or hereafter based
upon forum non conveniens or to the venue of any such suit, action or
proceeding, and (c) irrevocably consent to the jurisdiction of the Georgia
Superior Court, Judicial Circuit of Cobb County and the United States District
Court for the Northern District of Georgia, Atlanta Division, in any such suit,
action or proceeding. The Company and the Holder each further agree to accept
and acknowledge service of any and all process which may be served in any such
suit, action or proceeding in the Georgia Superior Court, Judicial Circuit of
Cobb County or in the United States District Court for the Northern District of
Georgia, Atlanta Division, and agree that service of process upon the Company or
the Holder mailed by certified mail to their respective addresses shall be
deemed in every respect effective service of process upon the Company or the
Holder, as the case may be, in any suit, action or proceeding. FURTHER, BOTH
THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE
THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE,
COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, as of this 12th day of February, 1998.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC.
______________________________ By: /s/ Lawrence O. Perl
------------------------------
Lawrence O. Perl
Its Chief Executive Officer
______________________________
<PAGE>
EXHIBIT 10.7.3
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAIL-
ABLE.
EXERCISABLE AFTER 9:00 A.M.,
UNITED STATES EASTERN TIME ZONE TIME,
ON MARCH 3, 1999
AND PRIOR TO
5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004
12,500 Warrants
AMERICAN CARD TECHNOLOGY, INC.
WARRANT
This warrant certificate (the "Warrant Certificate") certifies that Harold Roth-
stein or registered assigns, is the registered holder of warrants to purchase,
at any time commencing on March 3, 1999 and continuing until 5:00 P.M., United
States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"), up to 12,500
fully-paid and non-assessable shares, subject to adjustment in accordance with
Article 7 hereof (the "Warrant Shares"), of the common stock, par value $.001
per share (the "Common Stock"), of American Card Technology, Inc., a Delaware
corporation (the "Company"), subject to the terms and conditions set forth here-
in. The warrants represented by this Warrant Certificate and any warrants re-
sulting from a transfer or subdivision of the warrants represented by this War-
rant Certificate shall sometimes hereinafter be referred to, individually, as a
"Warrant" and, collectively, as the "Warrants."
<PAGE>
1. EXERCISE OF WARRANTS.
(a) Each Warrant is initially exercisable to purchase one Warrant
Share at an initial exercise price per Warrant Share of eighty percent (80%) of
the per share Market Price (as defined in Section 1(b) hereof) of the Common
Stock on the exercise date, subject to adjustment as set forth in Article 7
hereof, payable in cash or by check to the order of the Company, or any combina-
tion of cash or check. Upon surrender of this Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the
Company's principal offices (presently located at 1355 Terrell Mill Road, Build-
ing 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof (the
"Holder" or "Holders") shall be entitled to receive a certificate or certifi-
cates for the Warrant Shares so purchased. The purchase rights represented by
this Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional shares of Common Stock). In the case
of the purchase of less than all the Warrant Shares purchasable under this War-
rant Certificate, the Company shall cancel this Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Warrant Shares purchasable hereunder.
(b) "Market Price" at any date (the "Applicable Date") shall be
deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or admit-
ted to trading or as reported in the NASDAQ National Market System, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ National Market System, the closing bid price
as furnished by the National Association of Securities Dealers, Int. through
NASDAQ or similar organization if NASDAQ is no longer reporting such informa-
tion, or if the Common Stock is not quoted on NASDAQ or a similar organization,
as determined in good faith by resolution of the Board of Directors of the Com-
pany, based on the best information available to it for the day immediately
preceding the Applicable Date, the day of the Applicable Date and the day imme-
diately after the Applicable Date.
2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder
may, at its option, exchange the Warrants represented by this Warrant Certifi-
cate, in whole or in part (a "Warrant Exchange"), into the number of Warrant
Shares determined in accordance with this Section 2, by surrendering this War-
rant Certificate at the principal office of the Company accompanied by a notice
stating such Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such War-
rant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take
place on the date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date"). Certifi-
cates for the Warrant Shares issuable upon such Warrant Exchange and, if appli-
cable, a new Warrant Certificate (a "Remainder Warrant Certificate") of like
tenor evidencing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) business days follow-
ing the Exchange Date. In connection with any Warrant Exchange, the Holder's
Warrant Certificate shall represent the right to subscribe for and acquire (I)
the number of Warrant Shares (rounded to the next highest integer) equal to (A)
the number of Warrant Shares specified by the Holder in its Notice of Exchange
(the Total Warrant Share Number") less (B) the number of Warrant Shares equal to
the quotient obtained by dividing (i) the product of the Total Warrant Share
Number and the existing Exercise Price per Warrant
<PAGE>
Share by (ii) the current Market Price (as hereinafter defined) of a share of
Common Stock, and (II) a Remainder Warrant Certificate, if applicable.
3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the is-
suance of certificates for the Warrant Shares purchased pursuant to such exer-
cise shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such cer-
tificates shall (subject to the provisions of Article 4 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrants, the certifi-
cates representing the Warrant Shares shall be executed on behalf of the Company
by the manual or facsimile signature of those officers required to sign such
certificates under applicable law.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Warrant Shares shall bear a legend substan-
tially similar to the following:
"The securities represented by this certificate and/or the securities issu-
able upon exercise thereof have not been registered under the Securities Act of
1933, as amended ("Act"), and may not be offered or sold except (i) pursuant to
an effective registration statement under the Act, (ii) to the extent applica-
ble, pursuant to Rule 144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) upon the delivery by the
holder to the issuer of an opinion of counsel, reasonably satisfactory to coun-
sel to the issuer, stating that an exemption from registration under such Act is
available."
4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant Cer-
tificate, by its acceptance thereof, covenants and agrees that the Warrants and
the Warrant Shares issuable upon exercise of the Warrants are being acquired as
an investment and not with a view to the distribution thereof.
5. REGISTRATION RIGHTS. In the event that, at some date after the
clos-ing of an initial public offering of the Company's securities, the
Company de-termines to sell securities of the Company, for its own account or
for the ac-count of others, in a registered public offering involving an
underwriting, the Company shall give prompt written notice thereof to the
Holder, and if the Hold-er shall so request in writing within twenty (20)
days after receipt of any such notice, the Company shall include in such
registration all Warrant Shares that the Holder so requests to be registered
thereunder. The Company, at the written request of the underwriters, may
limit such sales under any registration state-ment. The Company and the
Holder shall provide the underwriters with all requi-site indemnities,
comfort letters, or such other documents as such underwriters may request.
The Company shall bear all of the expenses of any such registra-tion and
sale, except that the Holder shall bear and pay (i) the underwriters'
discount attributable to the Warrant Shares sold by the Holder, and
(ii) Holder's attorney's fees.
<PAGE>
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price
of each Warrant shall be eighty percent (80%) of the per share Market Price of
the Common Stock on the exercise date, per Warrant Share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 7 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the con-
text.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall be reduced to a price determined by (i) dividing an amount equal to the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Exercise Price in effect immediately
prior to such dividend or distribution by (ii) the total number of shares of
Common Stock outstanding immediately after such issuance or sale. For purposes
of any computation to be made in accordance with the provisions of this Article
7.1, the shares of Common Stock issuable by way of dividend or distribution
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for determination of shareholders entitled to
receive such dividend or distribution.
7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full share of Common Stock by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in nominal value to no nominal value, or from no nominal value to nomi-
nal value, or as a result of a subdivision or combination), or in the case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and. number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the Warrant Shares
issuable upon exercise of the
<PAGE>
Warrants immediately prior to any such events at a price equal to the product
of (x) the number of Warrant Shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as
if such Holder had exercised the Warrants.
7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares
of Common Stock at any one time outstanding shall include the aggregate number
of shares issued or issuable upon the exercise of outstanding options, rights
and warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities.
8. REDEMPTION. The Warrants are redeemable by the Company in whole or in
part, on not less than thirty (30) days, prior written notice at a redemption
price of $.10 per Warrant at any time commencing March 3, 2000, provided that
the closing bid quotation price of the Common Stock on each of the twenty (20)
trading days ending on the third day prior to the day on which the Company gives
notice of redemption has been at least $18.00. The redemption notice shall be
mailed to the Holders of the Warrants at their addresses appearing in the War-
rant register. Holders of the Warrants will have exercise rights until the
close of business on the date fixed for redemption.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant Cer-
tificate is exchangeable without expense, upon the surrender hereof by the reg-
istered Holder at the principal executive office of the Company, for a new War-
rant Certificate of like tenor and date representing in the aggregate the right
to purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably satis-
factory to it, and reimbursement to the Company of all reasonable expenses inci-
dental thereto, and upon surrender and cancellation of this Warrant Certificate,
if mutilated, the Company will make and deliver a new Warrant Certificate of
like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be re-
quired to issue certificates representing fractions of shares of Common Stock
and shall not be required to issue scrip or pay cash in lieu of fractional in-
terests, it being the intent of the parties that all fractional interests shall
be eliminated by rounding any fraction up, if such fraction is greater than one-
half, or down, if such fraction is equal to or less than one-half, to the near-
est whole number of shares of Common Stock to which the Holder is otherwise
entitled.
11. RESERVATION OF SHARES. The Company covenants and agrees that it will
at all times reserve and keep available out of its authorized share capital,
solely for the purpose of issuance upon the exercise of the Warrants, such num-
ber of shares of Common Stock as shall be equal to the number of Warrant Shares
issuable upon the exercise of the Warrants, for issuance upon such exercise, and
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Warrant Shares issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any share-
holder.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holder or Holders the right to vote or to
consent or to receive
<PAGE>
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights whatsoever
as a shareholder of the Company. If, however, at any time prior to the
expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional Common Stock or other shares of capital stock of the Company
or securities convertible into or exchangeable for Common Stock or other
shares of capital stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or exchange-
able securities or subscription rights, options or warrants, or entitled to vote
on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend or distribution, or the issuance of any convertible or
exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. NOTICES All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
personally delivered or sent by registered or certified mail (return receipt
requested, postage prepaid), facsimile transmission or overnight courier:
(a) if to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Article 1 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
15. GOVERNING LAW
<PAGE>
15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have
been made and delivered in the State of Georgia and, except to the extent the
Delaware General Corporation Law shall mandatorily apply, shall be governed as
to validity, interpretation, construction, effect and in all other respects with
the substantive laws of the State of Georgia, without giving effect to the
choice of laws rules thereof.
15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder
each (a) agree that any legal suit, action or proceeding arising out of or re-
lating to this Warrant Certificate shall be instituted exclusively in the Geor-
gia Superior Court, Judicial Circuit of Cobb County or in the United States
District Court for the Northern District of Georgia, Atlanta Division, (b) waive
any objection which the Company or such Holder may have now or hereafter based
upon forum non conveniens or to the venue of any such suit, action or proceed-
ing, and (c) irrevocably consent to the jurisdiction of the Georgia Superior
Court, Judicial Circuit of Cobb County and the United States District Court for
the Northern District of Georgia, Atlanta Division, in any such suit, action or
proceeding. The Company and the Holder each further agree to accept and ac-
knowledge service of any and all process which may be served in any such suit,
action or proceeding in the Georgia Superior Court, Judicial Circuit of Cobb
County or in the United States District Court for the Northern District of Geor-
gia, Atlanta Division, and agree that service of process upon the Company or the
Holder mailed by certified mail to their respective addresses shall be deemed in
every respect effective service of process upon the Company or the Holder, as
the case may be, in any suit, action or proceeding. FURTHER, BOTH THE COMPANY
AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THE TERMS OF
THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR
CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, as of this 3rd day of March, 1998.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC.
/s/ Sharon Churchill By: /s/ Lawrence O. Perl
- ----------------------------- ---------------------------
Lawrence O. Perl
Its Chief Executive Officer
- --------------------------------
<PAGE>
EXHIBIT 10.7.4
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
EXERCISABLE AFTER 9:00 A.M.,
UNITED STATES EASTERN TIME ZONE TIME,
ON MARCH 3, 1999
AND PRIOR TO
5:00 P.M., UNITED STATES EASTERN TIME ZONE, MARCH 3, 2004
12,500 Warrants
AMERICAN CARD TECHNOLOGY, INC.
WARRANT
This warrant certificate (the "Warrant Certificate") certifies that Raymond A.
Roncari or registered assigns, is the registered holder of warrants to purchase,
at any time commencing on March 3, 1999 and continuing until 5:00 P.M., United
States Eastern Time Zone, on March 3, 2004 (the "Expiration Date"), up to 12,500
fully-paid and non-assessable shares, subject to adjustment in accordance with
Article 7 hereof (the "Warrant Shares"), of the common stock, par value $.001
per share (the "Common Stock"), of American Card Technology, Inc., a Delaware
corporation (the "Company"), subject to the terms and conditions set forth
herein. The warrants represented by this Warrant Certificate and any warrants
resulting from a transfer or subdivision of the warrants represented by this
Warrant Certificate shall sometimes hereinafter be referred to, individually, as
a "Warrant" and, collectively, as the "Warrants."
<PAGE>
1. EXERCISE OF WARRANTS.
(a) Each Warrant is initially exercisable to purchase one Warrant
Share at an initial exercise price per Warrant Share of eighty percent (80%) of
the per share Market Price (as defined in Section 1(b) hereof) of the Common
Stock on the exercise date, subject to adjustment as set forth in Article 7
hereof, payable in cash or by check to the order of the Company, or any
combination of cash or check. Upon surrender of this Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at
the Company's principal offices (presently located at 1355 Terrell Mill Road,
Building 1462, Suite 200, Marietta, Georgia 30067) the registered holder hereof
(the "Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased. The purchase rights
represented by this Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of Common
Stock). In the case of the purchase of less than all the Warrant Shares
purchasable under this Warrant Certificate, the Company shall cancel this
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Warrant Shares
purchasable hereunder.
(b) "Market Price" at any date (the "Applicable Date") shall be
deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the NASDAQ National Market System, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ National Market System, the closing bid price
as furnished by the National Association of Securities Dealers, Int. through
NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ or a similar
organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it for the
day immediately preceding the Applicable Date, the day of the Applicable Date
and the day immediately after the Applicable Date.
2. CASHLESS EXERCISE. At any time until the Expiration Date, the Holder
may, at its option, exchange the Warrants represented by this Warrant
Certificate, in whole or in part (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section 2, by surrendering
this Warrant Certificate at the principal office of the Company accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the Warrant Shares issuable upon such Warrant Exchange
and, if applicable, a new Warrant Certificate (a "Remainder Warrant
Certificate") of like tenor evidencing the Warrants which were subject to the
surrendered Warrant Certificate and not included in the Warrant Exchange, shall
be issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Warrant
Exchange, the Holder's Warrant Certificate shall represent the right to
subscribe for and acquire (I) the number of Warrant Shares (rounded to the next
highest integer) equal to (A) the number of Warrant Shares specified by the
Holder in its Notice of Exchange (the Total Warrant Share Number") less (B) the
number of Warrant Shares equal to the quotient obtained by dividing (i) the
product of the Total Warrant Share Number and the existing Exercise Price per
Warrant
<PAGE>
Share by (ii) the current Market Price (as hereinafter defined) of a
share of Common Stock, and (II) a Remainder Warrant Certificate, if applicable.
3. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Article 4 hereof) be issued in
the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrants, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Warrant Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate and/or the securities
issuable upon exercise thereof have not been registered under the Securities
Act-of 1933, as amended ("Act"), and may not be offered or sold except (i)
pursuant to an effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii) upon the delivery
by the holder to the issuer of an opinion of counsel, reasonably satisfactory to
counsel to the issuer, stating that an exemption from registration under such
Act is available."
4. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of this Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
and the Warrant Shares issuable upon exercise of the Warrants are being acquired
as an investment and not with a view to the distribution thereof.
5. REGISTRATION RIGHTS. In the event that, at some date after the
closing of an initial public offering of the Company's securities, the Company
determines to sell securities of the Company, for its own account or for the
account of others, in a registered public offering involving an underwriting,
the Company shall give prompt written notice thereof to the Holder, and if the
Holder shall so request in writing within twenty (20) days after receipt of any
such notice, the Company shall include in such registration all Warrant Shares
that the Holder so requests to be registered thereunder. The Company, at the
written request of the underwriters, may limit such sales under any registration
statement. The Company and the Holder shall provide the underwriters with all
requisite indemnities, comfort letters, or such other documents as such
underwriters may request. The Company shall bear all of the expenses of any
such registration and sale, except that the Holder shall bear and pay (i) the
underwriters' discount attributable to the Warrant Shares sold by the Holder,
and (ii) Holder's attorney's fees.
<PAGE>
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise price
of each Warrant shall be eighty percent (80%) of the per share Market Price of
the Common Stock on the exercise date, per Warrant Share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 7 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
7.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall be reduced to a price determined by (i) dividing an amount equal to the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Exercise Price in effect immediately
prior to such dividend or distribution by (ii) the total number of shares of
Common Stock outstanding immediately after such issuance or sale. For purposes
of any computation to be made in accordance with the provisions of this Article
7.1, the shares of Common Stock issuable by way of dividend or distribution
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for determination of shareholders entitled to
receive such dividend or distribution.
7.2 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
7.3 ADJUSTMENT IN NUMBER OF WARRANT SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full share of Common Stock by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
7.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in nominal value to no nominal value, or from no nominal value to
nominal value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and. number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the Warrant Shares
issuable upon exercise of the
<PAGE>
Warrants immediately prior to any such events at a price equal to the product
of (x) the number of Warrant Shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as
if such Holder had exercised the Warrants.
7.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares
of Common Stock at any one time outstanding shall include the aggregate number
of shares issued or issuable upon the exercise of outstanding options, rights
and warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities.
8. REDEMPTION. The Warrants are redeemable by the Company in whole or in
part, on not less than thirty (30) days, prior written notice at a redemption
price of $.10 per Warrant at any time commencing March 3, 2000, provided that
the closing bid quotation price of the Common Stock on each of the twenty (20)
trading days ending on the third day prior to the day on which the Company gives
notice of redemption has been at least $18.00. The redemption notice shall be
mailed to the Holders of the Warrants at their addresses appearing in the
Warrant register. Holders of the Warrants will have exercise rights until the
close of business on the date fixed for redemption.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. This Warrant
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company. shall not be
required to issue certificates representing fractions of shares of Common Stock
and shall not be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up, if such fraction is greater
than one-half, or down, if such fraction is equal to or less than one-half, to
the nearest whole number of shares of Common Stock to which the Holder is
otherwise entitled.
11. RESERVATION OF SHARES. The Company covenants and agrees that it will
at all times reserve and keep available out of its authorized share capital,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock as shall be equal to the number of Warrant
Shares issuable upon the exercise of the Warrants, for issuance upon such
exercise, and that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Warrant Shares issuable upon such exercise shall be duly and
validly issued, fully paid, nonassessable and not subject to the preemptive
rights of any shareholder.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holder or Holders the right to vote or to
consent or to receive
<PAGE>
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights whatsoever
as a shareholder of the Company. If, however, at any time prior to the
expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional Common Stock or other shares of capital stock of the Company
or securities convertible into or exchangeable for Common Stock or other
shares of capital stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. NOTICES All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
personally delivered or sent by registered or certified mail (return receipt
requested, postage prepaid), facsimile transmission or overnight courier:
(a) if to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Article 1 of this
Agreement or to such other address as the Company may designate by notice
to the Holders.
14. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
15. GOVERNING LAW
<PAGE>
15.1 CHOICE OF LAW. This Warrant Certificate shall be deemed to have
been made and delivered in the State of Georgia and, except to the extent the
Delaware General Corporation Law shall mandatorily apply, shall be governed as
to validity, interpretation, construction, effect and in all other respects with
the substantive laws of the State of Georgia, without giving effect to the
choice of laws rules thereof.
15.2 JURISDICTION AND SERVICE OF PROCESS. The Company and the Holder
each (a) agree that any legal suit, action or proceeding arising out of or
relating to this Warrant Certificate shall be instituted exclusively in the
Georgia Superior Court, Judicial Circuit of Cobb County or in the United States
District Court for the Northern District of Georgia, Atlanta Division, (b) waive
any objection which the Company or such Holder may have now or hereafter based
upon forum non conveniens or to the venue of any such suit, action or
proceeding, and (c) irrevocably consent to the jurisdiction of the Georgia
Superior Court, Judicial Circuit of Cobb County and the United States District
Court for the Northern District of Georgia, Atlanta Division, in any such suit,
action or proceeding. The Company and the Holder each further agree to accept
and acknowledge service of any and all process which may be served in any such
suit, action or proceeding in the Georgia Superior Court, Judicial Circuit of
Cobb County or in the United States District Court for the Northern District of
Georgia, Atlanta Division, and agree that service of process upon the Company or
the Holder mailed by certified mail to their respective addresses shall be
deemed in every respect effective service of process upon the Company or the
Holder, as the case may be, in any suit, action or proceeding. FURTHER, BOTH
THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE
THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE,
COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, as of this 3rd day of March, 1998.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: AMERICAN CARD
TECHNOLOGY, INC.
/s/ Sharon Churchill By: /s/ Lawrence O. Perl
- ----------------------------- ----------------------------
Lawrence O. Perl
Its Chief Executive Officer
- ---------------------------------
<PAGE>
EXHIBIT 10.8.1
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a
business office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia
30067 (hereinafter called the "Corporation"), and LILLY BETER (hereinafter
called the "Optionee").
The Corporation has adopted a 1996 Nonemployee Directors' Stock Option
Plan (the "Plan") to be used to award options to purchase shares of its
common stock to those directors of the Corporation who are not employees of
the Corporation or any of its subsidiaries. The Board of Directors of the
Corporation (the "Board") or a special committee of the Board (the
"Committee") has authorized the awarding of an option under the Plan to the
Optionee. Wherever the context so requires, the "Corporation" shall be
deemed to refer to any or all of the Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of
this Agreement the right and option to purchase (hereinafter called the
"Option") all or any part of an aggregate of 2,500 shares of the
Corporation's common stock, with a par value of $.001 per share (hereinafter
called the "Common Stock"), on the terms and conditions herein set forth.
2. The Option shall not constitute an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price").
(b) EXERCISE OF OPTION. Subject to the terms and conditions set
forth herein, this Option shall be exercisable, in whole or in part, at any
time and from time to time, during that period commencing on the date hereof
and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which
date this Option shall lapse with respect to any shares of Common Stock not
theretofore purchased).
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The
Optionee shall exercise the Option by giving a written notice of exercise, in
the form attached to this Agreement as EXHIBIT A, to the President of the
Corporation, indicating the number of shares of Common Stock to be purchased,
and tendering payment in full (i) by cash or certified or bank check, (ii) by
delivery of shares of Common Stock then owned by the Optionee with a fair
market value at the time of exercise equal to the Option Price, or (iii) by a
combination of (i) and (ii). No shares shall be issued or delivered until
full payment therefor has been made. The Optionee shall have none of the
rights of a shareholder, in respect of the Common Stock, except with respect
to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall
cease to be a director of the Corporation for whatever reason other than by
death or disability, the Optionee shall have the right to exercise the Option
(except to the extent the Option shall have been exercised or shall have
expired) until the later to occur of (i) ninety (90) days after the date of
termination of service as a director, or (ii) six (6) months and ten (10)
days
<PAGE>
after the Optionee's last purchase or sale of shares of Common Stock prior to
the termination of Optionee's service as a director. Any portion of the
Option not exercised within said period shall lapse. Shares of Common Stock
issued upon such exercise shall be subject to the Corporation's right to
repurchase the Common Stock as provided in Section 5 hereof.
(f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or
become disabled within the meaning of Section 22(e)(3) of the Code while
still serving as a director or prior to the termination of the Option
pursuant to Section 3(e) hereof, the Optionee or the executor or
administrator of the estate of the Optionee, or the person or persons to whom
the Option shall have been validly transferred by the executor or
administrator pursuant to will or the laws of descent and distribution,
shall have the right within one year from the date of the Optionee's death or
disability to exercise the Option, except to the extent the Option shall have
been exercised or shall have expired. Any portion of the Option not
exercised within said one-year period shall lapse. Shares of Common Stock
issued upon such exercise shall be subject to the Corporation's right to
repurchase the Common Stock as provided in Section 5 hereof.
4. Shares of Common Stock issued upon the exercise of any portion of
the Option granted under this Agreement shall be subject to the following
terms and conditions:
(a) TRANSFERABILITY. The Common Stock shall be transferable only
in compliance with this Section 4 and only pursuant to an effective
registration or exemption from registration under the Securities Act of 1933,
as amended. All transfers, whether or not permitted by this section, shall
be subject to all of the provisions of this Agreement. Stock certificates
representing shares of Common Stock shall bear a legend in substantially the
following form:
The shares of the Corporation's common stock
represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be
transferred except pursuant to an effective registration, or
exemption from registration, under said Act. In addition, such
shares are subject to a right of repurchase by the Corporation.
(b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING
TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL.
The Corporation shall have a right to repurchase, at the buy-back price set
forth below, any or all of the Common Stock issued upon the exercise of the
Option. Such right shall arise if the Optionee ceases to serve as a director of
the Corporation for any reason, if the Optionee becomes disabled, at the time of
the Optionee's death, or if the Optionee elects to dispose of any such shares of
Common Stock by sale, transfer or other disposition.
(i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE
AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases
to serve as a director of the Corporation for any reason, the Corporation
shall, within thirty days immediately following the date on which the
Optionee's service as a director terminates, give to the Optionee or the
Optionee's legal representative, as the case may be, a signed notice in
writing, either delivered by hand, or mailed by registered or certified
mail, to the Optionee's last known address: (1) stating that the
Corporation has the first right to purchase the Common Stock; (2)
designating the number of shares of the Common Stock that the Optionee or
the Optionee's legal representative must sell to the Corporation; (3)
naming the buy-back price per share in cash at which the Optionee or the
Optionee's legal representative is obligated to sell such shares, as
determined herein; and (4) stating whether the Corporation elects to
exercise its right to repurchase the Common Stock.
(ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee
elects to dispose of any of the Common Stock, the Optionee shall give to
the President of the Corporation a signed notice in
2
<PAGE>
writing, either delivered by hand, or mailed by registered or
certified mail, to the Corporation's principal office: (1)
designating the number of shares of the Common Stock to be disposed
of; (2) stating the specific manner in which the Optionee proposes to
dispose of such shares if they are not purchased by the Corporation
pursuant to this Agreement; (3) specifying the names and addresses of
the persons to whom the Optionee desires to dispose of such shares to
the extent not so purchased by the Corporation; (4) offering to sell
such shares to the Corporation; (5) naming the price per share in cash
at which the Optionee is willing to sell such shares to the
Corporation, which price shall not be greater than the buy-back price
as determined herein; and (6) designating the Optionee's mailing
address. The Corporation shall have a period of thirty days after the
receipt of the notice within which to accept the Optionee's offer as
contained in the Optionee's notice. Acceptance shall be by notice in
writing to that effect hand delivered or mailed to the Optionee prior
to the expiration date of said thirty-day period to the mailing
address designated in the Optionee's notice. If the Corporation
declines to accept such offer, the Optionee shall have a period of
forty-five (45) days within which to dispose of such shares of Common
Stock. Such forty-five (45) day period shall commence on the date of
receipt of the Corporation's written rejection of such offer or, if
the Corporation does not reject such offer in writing, on the
expiration of the thirty-day period within which the Corporation may
accept such offer.
(iii) BUY-BACK. The buy-back price per share for purposes of
this Section 4(b) shall be:
(1) the price per share offered in a bona fide offer to
purchase, or
(2) in the absence of a bona fide offer to purchase, the
fair market value per share as determined by the Board or the
Committee, which amount shall not be less than the price per share at
which shares of Common Stock were last sold by the Corporation other
than pursuant to the Plan.
(c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are
subject to repurchase as provided in Section 4(b) hereof, and the Corporation
shall have exercised its right to repurchase, the Optionee or the Optionee's
legal representative shall immediately deliver to the Corporation the
certificates for the shares. The certificates shall be voided, and the shares
of the Common Stock represented by the certificates shall be thereafter treated
on the books of the Corporation as treasury shares. A person required to
deliver a certificate for the Common Stock under this section shall be deemed
irrevocably to have authorized the voiding of such certificate and the treatment
of such Common Stock as treasury shares (regardless whether the certificates are
in fact delivered) and irrevocably to have authorized the Board to terminate his
status as a shareholder in respect of such shares.
(d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have
the right to pay the purchase price for any shares purchased pursuant to this
Section 4 over a one year period, in equal quarterly installments without
interest, or, in the case of a bona fide offer to purchase, in the manner and
over such period of time as provided for in such offer.
(e) PRICE ADJUSTMENT. In all cases the buy-back price per share
shall be adjusted to reflect previous capital changes, if any, as described in
Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made
by a third party unrelated to the Corporation or its shareholders with the
intention that such purchase be an investment in the Corporation and not with a
view to distribution or resale, nor shall any offer to purchase be deemed "bona
fide" if made by a competitor of the Corporation regardless of the offeror's
intention.
5. In the event the Optionee dies, becomes disabled, or ceases to serve
as a director of the Corporation and the Optionee has accrued but not exercised
rights to purchase shares of Common Stock, the following terms and conditions
shall apply.
3
<PAGE>
(a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH
WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the
Optionee's service as a director, or upon the Optionee's death or disability
giving the Optionee, or the Optionee's legal representative, rights to
exercise the Option under either Section 3(e) or 3(f)(ii) hereof, the
Corporation shall, within thirty days immediately following the date on which
the Corporation learns of the Optionee's death, disability, or the date on
which the Optionee's service as a director terminates, give to the Optionee
or the Optionee's legal representative, as the case may be, a signed notice
in writing, either delivered by hand, or mailed by registered or certified
mail, to the Optionee's last known address: (i) stating that the Corporation
has the first right to purchase the Common Stock subject to the Option; (ii)
designating the number of shares of the Common Stock which the Optionee or
the Optionee's legal representative has a right to purchase under the Option
and the option price per share under this Agreement; (iii) naming the
buy-back price per share in cash which the Optionee or the Optionee's legal
representative is obligated to sell the shares subject to the Option, as
determined herein; and (iv) stating whether the Corporation will exercise its
right to repurchase the Common Stock if the Optionee or the Optionee's legal
representative exercised the Option.
(b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON
STOCK. The Optionee or the Optionee's legal representative may exercise the
Option within the time period provided in Section 3(e) or Section 3(f)(ii)
hereof, as the case may be, by giving the Corporation notice of exercise of
the Option under Section 3(c) hereof. However, such notice need not be
accompanied by tender of payment if the Corporation has elected to exercise
its right to repurchase. Upon receipt of the notice of exercise from the
Optionee or the Optionee's legal representative within the applicable time
period, the Corporation shall pay the Optionee or the Optionee's legal
representative for each share an amount equal to the buy-back price per share
less the option price per share. If the Corporation does not exercise its
right to repurchase under Section 5(a) hereof, then this Section 5(b) shall
be of no effect, and the provisions for exercising the Option under Section
3(c) shall apply.
(c) COMBINING NOTICES. If the Optionee, or the Optionee's legal
representative, has both shares of Common Stock and a right to exercise the
Option as to additional shares of Common Stock, then the Corporation may
deliver one notice to the Optionee or the Optionee's legal representative to
satisfy the provisions of Section 4(b)(i) hereof and Section 5(a) hereof
provided the information required to be contained in each notice under such
sections are contained in the single notice.
6. Failure by the Corporation to exercise its rights to repurchase the
Common Stock upon termination of service as a director of the Optionee shall
not be a waiver of the Corporation's right to repurchase on a subsequent
sale, transfer or other disposition of Common Stock.
7. Subject to the restrictions of this Agreement, the Optionee shall
have all the rights of a shareholder in respect of the Common Stock issued
hereunder, beginning with the date of issuance of the Common Stock. The
Common Stock shall be fully paid and non-assessable.
8. The number and Option Price of shares of Common Stock subject to
this Option may be adjusted or substituted as follows:
(a) In the event that a dividend shall be declared upon the shares
of Common Stock payable in shares of Common Stock, the number of shares of
Common Stock then subject to this Option shall be adjusted by adding to each
of such shares the number of shares which would be distributable thereon if
such shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend. In the event that the
outstanding shares of Common Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger, or
consolidation, then there shall be substituted for each share of Common Stock
subject to this Option, the number and kind of shares of stock or other
securities into
4
<PAGE>
which each outstanding share of Common Stock shall be so changed or for which
each such share shall be exchanged; PROVIDED, HOWEVER, that in the event that
such change or exchange results from a merger or consolidation, and in the
judgment of the Committee such substitution cannot be effected or would be
inappropriate, or if the Corporation shall sell all or substantially all of
its assets, the Corporation shall use reasonable efforts to effect some other
adjustment of this Option which the Committee, in its sole discretion, shall
deem equitable. In the event that there shall be any change, other than as
specified above in this Section 8(a), in the number or kind of outstanding
shares of Common Stock or of any stock or other securities into which such
shares of Common Stock shall have been changed or for which they shall have
been exchanged, then, if the Committee shall determine that such change
equitably requires an adjustment in the number or kind of shares then subject
to this Option, such adjustment shall be made by the Committee and shall be
effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution
or adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No
adjustment or substitution provided for in this Section 8(a) shall require
the Corporation to sell a fractional share; and the total substitution or
adjustment with respect to this Option shall be limited accordingly.
(b) Any of the foregoing adjustments or substitutions in the
shares subject to the Option shall not limit applicability of the
restrictions hereunder and such restrictions shall automatically apply to all
Common Stock or other securities issued by the Corporation and at any time
held by the Optionee by virtue of having exercised the Option.
9. The Optionee represents and agrees to represent and agree at the
time of the exercise of the Option that any and all Common Stock purchased
pursuant to the exercise of the Option will be purchased for investment and
not with a view to the distribution or resale thereof, and that the Common
Stock will not be sold except in accordance with the restrictions or
limitations set forth in this Agreement or as may be imposed by law.
10. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
11. If the Corporation registers any of its shares of common stock
under the Securities Act of 1933, as amended (the "Act"), the provisions of
Section 4 and Section 5 hereof shall terminate on the day the registration
statement becomes effective. The Common Stock issued upon exercise of the
Option shall thereupon be free of any restriction imposed hereby, except for
the restriction requiring transfer pursuant to the Act if such registration
does not include the Common Stock, and neither the Corporation nor the
Optionee shall have any further rights or obligations under Section 4 or
Section 5 hereof, except the Corporation's obligation to complete payments,
under Section 4(b) hereof, for the Common Stock previously repurchased.
12. This Agreement shall be interpreted according to the laws of the
State of Georgia.
13. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered may be entered in any Court having
jurisdiction thereof.
14. This Agreement and the Plan which is hereby incorporated by
reference herein contain the entire agreement of the parties with respect to
the Common Stock. All prior agreements and understandings are merged herein.
No amendment or modification hereof shall be binding unless in writing and
signed by the party against whom enforcement is sought.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
----------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Lilly Beter
- ------------------------------ ---------------------------------
Secretary Lilly Beter
6
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock of
the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made
by certified or bank cashier's check payable to the order of
the Corporation at the office of the Corporation, 1355
Terrell Mill Road - Suite 200, Marietta, Georgia, against
delivery of a certificate or certificates representing such
shares to me or my representative, on the ______________
[here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth]
business day from the date of this notice is received by the
Corporation.
Please advise me of the exact date and time when payment
and delivery will take place.
I will [check one]
<PAGE>
_____ appear personally to make payment and accept delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Lilly Beter
<PAGE>
AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
Adopted by the following resolution of the Board of Directors dated as of
February 2, 1998:
RESOLVED: that the Board of Directors, acting as the committee to
administer the American Card Technology, Inc. 1996 Nonemployee Directors' Stock
Option Plan (the "Directors' Plan"), amend the Directors' Plan as follows:
(a) By deleting Paragraph 6(a) in its entirety and substituting the
following in lieu thereof:
"(a) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant on February 2, 1998
(b) By deleting the references to "1997" in Paragraph 6(c) and
substituting "1999" in lieu therefor.
(c) By deleting the first sentence of Paragraph 7(a) and substituting
the following in lieu therefor:
"The exercise price of each Director's Option shall be at
least one hundred percent (100%) of the fair market value of
the shares subject to such Option on the date of grant."
and the Directors' Plan is hereby so amended.
<PAGE>
EXHIBIT 10.8.2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and HAROLD ROTHSTEIN (hereinafter called
the "Optionee").
The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan
(the "Plan") to be used to award options to purchase shares of its common stock
to those directors of the Corporation who are not employees of the Corporation
or any of its subsidiaries. The Board of Directors of the Corporation (the
"Board") or a special committee of the Board (the "Committee") has authorized
the awarding of an option under the Plan to the Optionee. Wherever the context
so requires, the "Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 2,500 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option shall not constitute an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price").
(b) EXERCISE OF OPTION. Subject to the terms and conditions set
forth herein, this Option shall be exercisable, in whole or in part, at any
time and from time to time, during that period commencing on the date hereof
and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which
date this Option shall lapse with respect to any shares of Common Stock not
theretofore purchased).
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full (i) by cash or certified or bank check, (ii) by delivery of
shares of Common Stock then owned by the Optionee with a fair market value at
the time of exercise equal to the Option Price, or (iii) by a combination of (i)
and (ii). No shares shall be issued or delivered until full payment therefor
has been made. The Optionee shall have none of the rights of a shareholder, in
respect of the Common Stock, except with respect to shares actually issued to
the Optionee.
<PAGE>
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall
cease to be a director of the Corporation for whatever reason other than by
death or disability, the Optionee shall have the right to exercise the Option
(except to the extent the Option shall have been exercised or shall have
expired) until the later to occur of (i) ninety (90) days after the date of
termination of service as a director, or (ii) six (6) months and ten (10) days
after the Optionee's last purchase or sale of shares of Common Stock prior to
the termination of Optionee's service as a director. Any portion of the Option
not exercised within said period shall lapse. Shares of Common Stock issued
upon such exercise shall be subject to the Corporation's right to repurchase the
Common Stock as provided in Section 5 hereof.
(f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or
become disabled within the meaning of Section 22(e)(3) of the Code while still
serving as a director or prior to the termination of the Option pursuant to
Section 3(e) hereof, the Optionee or the executor or administrator of the estate
of the Optionee, or the person or persons to whom the Option shall have been
validly transferred by the executor or administrator pursuant to will or the
laws of descent and distribution, shall have the right within one year from the
date of the Optionee's death or disability to exercise the Option, except to the
extent the Option shall have been exercised or shall have expired. Any portion
of the Option not exercised within said one-year period shall lapse. Shares of
Common Stock issued upon such exercise shall be subject to the Corporation's
right to repurchase the Common Stock as provided in Section 5 hereof.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be subject to the following terms and
conditions:
(a) TRANSFERABILITY. The Common Stock shall be transferable only in
compliance with this Section 4 and only pursuant to an effective registration or
exemption from registration under the Securities Act of 1933, as amended. All
transfers, whether or not permitted by this section, shall be subject to all of
the provisions of this Agreement. Stock certificates representing shares of
Common Stock shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by
this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except
pursuant to an effective registration, or exemption from
registration, under said Act. In addition, such shares are
subject to a right of repurchase by the Corporation.
(b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING
TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL.
The Corporation shall have a right to repurchase, at the buy-back price set
forth below, any or all of the Common Stock issued upon the exercise of the
Option. Such right shall arise if the Optionee ceases to serve as a director of
the Corporation for any reason, if the Optionee becomes disabled, at the time of
the Optionee's death, or if the Optionee elects to dispose of any such shares of
Common Stock by sale, transfer or other disposition.
(i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE
AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases
to serve as a director of the
<PAGE>
Corporation for any reason, the Corporation shall, within thirty days
immediately following the date on which the Optionee's service as a
director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Optionee's last known address: (1) stating that the Corporation has the
first right to purchase the Common Stock; (2) designating the number of
shares of the Common Stock that the Optionee or the Optionee's legal
representative must sell to the Corporation; (3) naming the buy-back
price per share in cash at which the Optionee or the Optionee's legal
representative is obligated to sell such shares, as determined herein;
and (4) stating whether the Corporation elects to exercise its right to
repurchase the Common Stock.
(ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee
elects to dispose of any of the Common Stock, the Optionee shall give to
the President of the Corporation a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Corporation's principal office: (1) designating the number of shares of
the Common Stock to be disposed of; (2) stating the specific manner in
which the Optionee proposes to dispose of such shares if they are not
purchased by the Corporation pursuant to this Agreement; (3) specifying the
names and addresses of the persons to whom the Optionee desires to dispose
of such shares to the extent not so purchased by the Corporation;
(4) offering to sell such shares to the Corporation; (5) naming the price
per share in cash at which the Optionee is willing to sell such shares to
the Corporation, which price shall not be greater than the buy-back price
as determined herein; and (6) designating the Optionee's mailing address.
The Corporation shall have a period of thirty days after the receipt of the
notice within which to accept the Optionee's offer as contained in the
Optionee's notice. Acceptance shall be by notice in writing to that effect
hand delivered or mailed to the Optionee prior to the expiration date of
said thirty-day period to the mailing address designated in the Optionee's
notice. If the Corporation declines to accept such offer, the Optionee
shall have a period of forty-five (45) days within which to dispose of such
shares of Common Stock. Such forty-five (45) day period shall commence on
the date of receipt of the Corporation's written rejection of such offer
or, if the Corporation does not reject such offer in writing, on the
expiration of the thirty-day period within which the Corporation may accept
such offer.
(iii) BUY-BACK. The buy-back price per share for purposes of
this Section 4(b) shall be:
(1) the price per share offered in a bona fide offer to
purchase, or
(2) in the absence of a bona fide offer to purchase, the
fair market value per share as determined by the Board or the
Committee, which amount shall not be less than the price per share at
which shares of Common Stock were last sold by the Corporation other
than pursuant to the Plan.
(c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are
subject to repurchase as provided in Section 4(b) hereof, and the Corporation
shall have exercised its right to repurchase, the Optionee or the Optionee's
legal representative shall immediately deliver to the Corporation the
certificates for the shares. The certificates shall be voided, and the shares
of the Common Stock represented by the certificates shall be thereafter treated
on the books of the Corporation as treasury shares. A person required to
deliver a certificate for the Common Stock under this section shall be deemed
irrevocably to have authorized the voiding of such certificate and the treatment
of such Common Stock as
<PAGE>
treasury shares (regardless whether the certificates are in fact delivered)
and irrevocably to have authorized the Board to terminate his status as a
shareholder in respect of such shares.
(d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have
the right to pay the purchase price for any shares purchased pursuant to this
Section 4 over a one year period, in equal quarterly installments without
interest, or, in the case of a bona fide offer to purchase, in the manner and
over such period of time as provided for in such offer.
(e) PRICE ADJUSTMENT. In all cases the buy-back price per share
shall be adjusted to reflect previous capital changes, if any, as described in
Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made
by a third party unrelated to the Corporation or its shareholders with the
intention that such purchase be an investment in the Corporation and not with a
view to distribution or resale, nor shall any offer to purchase be deemed "bona
fide" if made by a competitor of the Corporation regardless of the offeror's
intention.
5. In the event the Optionee dies, becomes disabled, or ceases to serve
as a director of the Corporation and the Optionee has accrued but not exercised
rights to purchase shares of Common Stock, the following terms and conditions
shall apply.
(a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH
RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the
Optionee's service as a director, or upon the Optionee's death or disability
giving the Optionee, or the Optionee's legal representative, rights to exercise
the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall,
within thirty days immediately following the date on which the Corporation
learns of the Optionee's death, disability, or the date on which the Optionee's
service as a director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either delivered
by hand, or mailed by registered or certified mail, to the Optionee's last known
address: (i) stating that the Corporation has the first right to purchase the
Common Stock subject to the Option; (ii) designating the number of shares of the
Common Stock which the Optionee or the Optionee's legal representative has a
right to purchase under the Option and the option price per share under this
Agreement; (iii) naming the buy-back price per share in cash which the Optionee
or the Optionee's legal representative is obligated to sell the shares subject
to the Option, as determined herein; and (iv) stating whether the Corporation
will exercise its right to repurchase the Common Stock if the Optionee or the
Optionee's legal representative exercised the Option.
(b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK.
The Optionee or the Optionee's legal representative may exercise the Option
within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as
the case may be, by giving the Corporation notice of exercise of the Option
under Section 3(c) hereof. However, such notice need not be accompanied by
tender of payment if the Corporation has elected to exercise its right to
repurchase. Upon receipt of the notice of exercise from the Optionee or the
Optionee's legal representative within the applicable time period, the
Corporation shall pay the Optionee or the Optionee's legal representative for
each share an amount equal to the buy-back price per share less the option price
per share. If the Corporation does not exercise its right to repurchase under
Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the
provisions for exercising the Option under Section 3(c) shall apply.
(c) COMBINING NOTICES. If the Optionee, or the Optionee's legal
representative, has both shares of Common Stock and a right to exercise the
Option as to additional shares of Common Stock,
<PAGE>
then the Corporation may deliver one notice to the Optionee or the Optionee's
legal representative to satisfy the provisions of Section 4(b)(i) hereof and
Section 5(a) hereof provided the information required to be contained in each
notice under such sections are contained in the single notice.
6. Failure by the Corporation to exercise its rights to repurchase the
Common Stock upon termination of service as a director of the Optionee shall
not be a waiver of the Corporation's right to repurchase on a subsequent
sale, transfer or other disposition of Common Stock.
7. Subject to the restrictions of this Agreement, the Optionee shall
have all the rights of a shareholder in respect of the Common Stock issued
hereunder, beginning with the date of issuance of the Common Stock. The
Common Stock shall be fully paid and non-assessable.
8. The number and Option Price of shares of Common Stock subject to this
Option may be adjusted or substituted as follows:
(a) In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8(a), in the number or
kind of outstanding shares of Common Stock or of any stock or other securities
into which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8(a) shall require the Corporation
to sell a fractional share; and the total substitution or adjustment with
respect to this Option shall be limited accordingly.
(b) Any of the foregoing adjustments or substitutions in the shares
subject to the Option shall not limit applicability of the restrictions
hereunder and such restrictions shall automatically apply to all Common Stock or
other securities issued by the Corporation and at any time held by the Optionee
by virtue of having exercised the Option.
<PAGE>
9. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be imposed by law.
10. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
11. If the Corporation registers any of its shares of common stock under
the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4
and Section 5 hereof shall terminate on the day the registration statement
becomes effective. The Common Stock issued upon exercise of the Option shall
thereupon be free of any restriction imposed hereby, except for the restriction
requiring transfer pursuant to the Act if such registration does not include the
Common Stock, and neither the Corporation nor the Optionee shall have any
further rights or obligations under Section 4 or Section 5 hereof, except the
Corporation's obligation to complete payments, under Section 4(b) hereof, for
the Common Stock previously repurchased.
12. This Agreement shall be interpreted according to the laws of the State
of Georgia.
13. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
14. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
-------------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Harold Rothstein
- -------------------------------- --------------------------------
Secretary Harold Rothstein
<PAGE>
EXHIBIT A
-------------------------------------------------------
Address of Person Exercising Option
----------------------
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock of
the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell Mill
Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or my
representative, on the ______________ [here insert Fifth, Sixth,
Seventh, Eight, Ninth or Tenth] business day from the date of
this notice is received by the Corporation.
<PAGE>
Please advise me of the exact date and time when payment and
delivery will take place.
I will [check one]
_____ appear personally to make payment and accept
delivery
_____ be represented by:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
--------------------------------------------
--------------------------------------------
--------------------------------------------
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
--------------------------------
Harold Rothstein
<PAGE>
AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
Adopted by the following resolution of the Board of Directors dated as of
February 2, 1998:
RESOLVED: that the Board of Directors, acting as the committee to administer
the American Card Technology, Inc. 1996 Nonemployee Directors' Stock Option
Plan (the "Directors' Plan"), amend the Directors' Plan as follows:
(a) By deleting Paragraph 6(a) in its entirety and substituting the
following in lieu thereof:
"(a) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant on February 2, 1998
(b) By deleting the references to "1997" in Paragraph 6(c) and
substituting "1999" in lieu therefor.
(c) By deleting the first sentence of Paragraph 7(a) and substituting
the following in lieu therefor:
"The exercise price of each Director's Option shall be at least
one hundred percent (100%) of the fair market value of the shares
subject to such Option on the date of grant."
and the Directors' Plan is hereby so amended.
<PAGE>
EXHIBIT 10.8.3
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and RAYMOND RONCARI (hereinafter called
the "Optionee").
The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan
(the "Plan") to be used to award options to purchase shares of its common stock
to those directors of the Corporation who are not employees of the Corporation
or any of its subsidiaries. The Board of Directors of the Corporation (the
"Board") or a special committee of the Board (the "Committee") has authorized
the awarding of an option under the Plan to the Optionee. Wherever the context
so requires, the "Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 2,500 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option shall not constitute an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price").
(b) EXERCISE OF OPTION. Subject to the terms and conditions set
forth herein, this Option shall be exercisable, in whole or in part, at any
time and from time to time, during that period commencing on the date hereof
and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which
date this Option shall lapse with respect to any shares of Common Stock not
theretofore purchased).
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full (i) by cash or certified or bank check, (ii) by delivery of
shares of Common Stock then owned by the Optionee with a fair market value at
the time of exercise equal to the Option Price, or (iii) by a combination of (i)
and (ii). No shares shall be issued or delivered until full payment therefor
has been made. The Optionee shall have none of the rights of a shareholder, in
respect of the Common Stock, except with respect to shares actually issued to
the Optionee.
<PAGE>
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall
cease to be a director of the Corporation for whatever reason other than by
death or disability, the Optionee shall have the right to exercise the Option
(except to the extent the Option shall have been exercised or shall have
expired) until the later to occur of (i) ninety (90) days after the date of
termination of service as a director, or (ii) six (6) months and ten (10) days
after the Optionee's last purchase or sale of shares of Common Stock prior to
the termination of Optionee's service as a director. Any portion of the Option
not exercised within said period shall lapse. Shares of Common Stock issued
upon such exercise shall be subject to the Corporation's right to repurchase the
Common Stock as provided in Section 5 hereof.
(f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or
become disabled within the meaning of Section 22(e)(3) of the Code while still
serving as a director or prior to the termination of the Option pursuant to
Section 3(e) hereof, the Optionee or the executor or administrator of the estate
of the Optionee, or the person or persons to whom the Option shall have been
validly transferred by the executor or administrator pursuant to will or the
laws of descent and distribution, shall have the right within one year from the
date of the Optionee's death or disability to exercise the Option, except to the
extent the Option shall have been exercised or shall have expired. Any portion
of the Option not exercised within said one-year period shall lapse. Shares of
Common Stock issued upon such exercise shall be subject to the Corporation's
right to repurchase the Common Stock as provided in Section 5 hereof.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be subject to the following terms and
conditions:
(a) TRANSFERABILITY. The Common Stock shall be transferable only in
compliance with this Section 4 and only pursuant to an effective registration or
exemption from registration under the Securities Act of 1933, as amended. All
transfers, whether or not permitted by this section, shall be subject to all of
the provisions of this Agreement. Stock certificates representing shares of
Common Stock shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by
this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except
pursuant to an effective registration, or exemption from
registration, under said Act. In addition, such shares are
subject to a right of repurchase by the Corporation.
(b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING
TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL.
The Corporation shall have a right to repurchase, at the buy-back price set
forth below, any or all of the Common Stock issued upon the exercise of the
Option. Such right shall arise if the Optionee ceases to serve as a director of
the Corporation for any reason, if the Optionee becomes disabled, at the time of
the Optionee's death, or if the Optionee elects to dispose of any such shares of
Common Stock by sale, transfer or other disposition.
(i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE
AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases
to serve as a director of the
<PAGE>
Corporation for any reason, the Corporation shall, within thirty days
immediately following the date on which the Optionee's service as a
director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Optionee's last known address: (1) stating that the Corporation has the
first right to purchase the Common Stock; (2) designating the number of
shares of the Common Stock that the Optionee or the Optionee's legal
representative must sell to the Corporation; (3) naming the buy-back
price per share in cash at which the Optionee or the Optionee's legal
representative is obligated to sell such shares, as determined herein;
and (4) stating whether the Corporation elects to exercise its right to
repurchase the Common Stock.
(ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee
elects to dispose of any of the Common Stock, the Optionee shall give to
the President of the Corporation a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Corporation's principal office: (1) designating the number of shares of
the Common Stock to be disposed of; (2) stating the specific manner in
which the Optionee proposes to dispose of such shares if they are not
purchased by the Corporation pursuant to this Agreement; (3) specifying the
names and addresses of the persons to whom the Optionee desires to dispose
of such shares to the extent not so purchased by the Corporation;
(4) offering to sell such shares to the Corporation; (5) naming the price
per share in cash at which the Optionee is willing to sell such shares to
the Corporation, which price shall not be greater than the buy-back price
as determined herein; and (6) designating the Optionee's mailing address.
The Corporation shall have a period of thirty days after the receipt of the
notice within which to accept the Optionee's offer as contained in the
Optionee's notice. Acceptance shall be by notice in writing to that effect
hand delivered or mailed to the Optionee prior to the expiration date of
said thirty-day period to the mailing address designated in the Optionee's
notice. If the Corporation declines to accept such offer, the Optionee
shall have a period of forty-five (45) days within which to dispose of such
shares of Common Stock. Such forty-five (45) day period shall commence on
the date of receipt of the Corporation's written rejection of such offer
or, if the Corporation does not reject such offer in writing, on the
expiration of the thirty-day period within which the Corporation may accept
such offer.
(iii) BUY-BACK. The buy-back price per share for purposes of
this Section 4(b) shall be:
(1) the price per share offered in a bona fide offer to
purchase, or
(2) in the absence of a bona fide offer to purchase, the
fair market value per share as determined by the Board or the
Committee, which amount shall not be less than the price per share at
which shares of Common Stock were last sold by the Corporation other
than pursuant to the Plan.
(c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are
subject to repurchase as provided in Section 4(b) hereof, and the Corporation
shall have exercised its right to repurchase, the Optionee or the Optionee's
legal representative shall immediately deliver to the Corporation the
certificates for the shares. The certificates shall be voided, and the shares
of the Common Stock represented by the certificates shall be thereafter treated
on the books of the Corporation as treasury shares. A person required to
deliver a certificate for the Common Stock under this section shall be deemed
irrevocably to have authorized the voiding of such certificate and the treatment
of such Common Stock as
<PAGE>
treasury shares (regardless whether the certificates are in fact
delivered) and irrevocably to have authorized the Board to terminate his
status as a shareholder in respect of such shares.
(d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have
the right to pay the purchase price for any shares purchased pursuant to this
Section 4 over a one year period, in equal quarterly installments without
interest, or, in the case of a bona fide offer to purchase, in the manner and
over such period of time as provided for in such offer.
(e) PRICE ADJUSTMENT. In all cases the buy-back price per share
shall be adjusted to reflect previous capital changes, if any, as described in
Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made
by a third party unrelated to the Corporation or its shareholders with the
intention that such purchase be an investment in the Corporation and not with a
view to distribution or resale, nor shall any offer to purchase be deemed "bona
fide" if made by a competitor of the Corporation regardless of the offeror's
intention.
5. In the event the Optionee dies, becomes disabled, or ceases to serve
as a director of the Corporation and the Optionee has accrued but not exercised
rights to purchase shares of Common Stock, the following terms and conditions
shall apply.
(a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH
RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the
Optionee's service as a director, or upon the Optionee's death or disability
giving the Optionee, or the Optionee's legal representative, rights to exercise
the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall,
within thirty days immediately following the date on which the Corporation
learns of the Optionee's death, disability, or the date on which the Optionee's
service as a director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either delivered
by hand, or mailed by registered or certified mail, to the Optionee's last known
address: (i) stating that the Corporation has the first right to purchase the
Common Stock subject to the Option; (ii) designating the number of shares of the
Common Stock which the Optionee or the Optionee's legal representative has a
right to purchase under the Option and the option price per share under this
Agreement; (iii) naming the buy-back price per share in cash which the Optionee
or the Optionee's legal representative is obligated to sell the shares subject
to the Option, as determined herein; and (iv) stating whether the Corporation
will exercise its right to repurchase the Common Stock if the Optionee or the
Optionee's legal representative exercised the Option.
(b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK.
The Optionee or the Optionee's legal representative may exercise the Option
within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as
the case may be, by giving the Corporation notice of exercise of the Option
under Section 3(c) hereof. However, such notice need not be accompanied by
tender of payment if the Corporation has elected to exercise its right to
repurchase. Upon receipt of the notice of exercise from the Optionee or the
Optionee's legal representative within the applicable time period, the
Corporation shall pay the Optionee or the Optionee's legal representative for
each share an amount equal to the buy-back price per share less the option price
per share. If the Corporation does not exercise its right to repurchase under
Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the
provisions for exercising the Option under Section 3(c) shall apply.
(c) COMBINING NOTICES. If the Optionee, or the Optionee's legal
representative, has both shares of Common Stock and a right to exercise the
Option as to additional shares of Common Stock,
<PAGE>
then the Corporation may deliver one notice to the Optionee or the
Optionee's legal representative to satisfy the provisions of Section
4(b)(i) hereof and Section 5(a) hereof provided the information required
to be contained in each notice under such sections are contained in the
single notice.
6. Failure by the Corporation to exercise its rights to repurchase the
Common Stock upon termination of service as a director of the Optionee shall not
be a waiver of the Corporation's right to repurchase on a subsequent sale,
transfer or other disposition of Common Stock.
7. Subject to the restrictions of this Agreement, the Optionee shall have
all the rights of a shareholder in respect of the Common Stock issued hereunder,
beginning with the date of issuance of the Common Stock. The Common Stock shall
be fully paid and non-assessable.
8. The number and Option Price of shares of Common Stock subject to this
Option may be adjusted or substituted as follows:
(a) In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8(a), in the number or
kind of outstanding shares of Common Stock or of any stock or other securities
into which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8(a) shall require the Corporation
to sell a fractional share; and the total substitution or adjustment with
respect to this Option shall be limited accordingly.
(b) Any of the foregoing adjustments or substitutions in the shares
subject to the Option shall not limit applicability of the restrictions
hereunder and such restrictions shall automatically apply to all Common Stock or
other securities issued by the Corporation and at any time held by the Optionee
by virtue of having exercised the Option.
<PAGE>
9. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be imposed by law.
10. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
11. If the Corporation registers any of its shares of common stock under
the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4
and Section 5 hereof shall terminate on the day the registration statement
becomes effective. The Common Stock issued upon exercise of the Option shall
thereupon be free of any restriction imposed hereby, except for the restriction
requiring transfer pursuant to the Act if such registration does not include the
Common Stock, and neither the Corporation nor the Optionee shall have any
further rights or obligations under Section 4 or Section 5 hereof, except the
Corporation's obligation to complete payments, under Section 4(b) hereof, for
the Common Stock previously repurchased.
12. This Agreement shall be interpreted according to the laws of the State
of Georgia.
13. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
14. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By:/s/ Raymond Findley, Jr.
-------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Raymond Roncari
- ------------------------------ -----------------------
Secretary Raymond Roncari
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common
Stock of the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____PROCEDURE 1: A certified or bank cashier's check payable to the
order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell Mill
Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or
my representative, on the ______________ [here insert Fifth,
Sixth, Seventh, Eight, Ninth or Tenth] business day from the
date of this notice is received by the Corporation.
<PAGE>
Please advise me of the exact date and time when payment
and delivery will take place.
I will [check one]
_____appear personally to make payment and accept delivery
_____be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased
should be registered and the name and address to be shown on the
Corporation's stock records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a
view to the distribution or resale thereof, and the Common Stock will
not be sold except in accordance with the restrictions or limitations
set forth in the Stock Option Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Raymond Roncari
<PAGE>
AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
Adopted by the following resolution of the Board of Directors dated as
of February 2, 1998:
RESOLVED: that the Board of Directors, acting as the committee to
administer the American Card Technology, Inc. 1996 Nonemployee
Directors' Stock Option Plan (the "Directors' Plan"), amend the
Directors' Plan as follows:
(a) By deleting Paragraph 6(a) in its entirety and substituting the
following in lieu thereof:
"(a) an Option to purchase 2,500 shares of Common Stock will
be granted to each Participant on February 2, 1998
(b) By deleting the references to "1997" in Paragraph 6(c)
and substituting "1999" in lieu therefor.
(c) By deleting the first sentence of Paragraph 7(a) and
substituting the following in lieu therefor:
"The exercise price of each Director's Option shall be at
least one hundred percent (100%) of the fair market value of
the shares subject to such Option on the date of grant."
and the Directors' Plan is hereby so amended.
<PAGE>
EXHIBIT 10.8.4
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by
and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with
a business office at 1355 Terrell Mill Road - Suite 200, Marietta,
Georgia 30067 (hereinafter called the "Corporation"), and BRUCE BONADIES
(hereinafter called the "Optionee").
The Corporation has adopted a 1996 Nonemployee Directors' Stock
Option Plan (the "Plan") to be used to award options to purchase shares
of its common stock to those directors of the Corporation who are not
employees of the Corporation or any of its subsidiaries. The Board of
Directors of the Corporation (the "Board") or a special committee of the
Board (the "Committee") has authorized the awarding of an option under
the Plan to the Optionee. Wherever the context so requires, the
"Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 2,500 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option shall not constitute an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price").
(b) EXERCISE OF OPTION. Subject to the terms and conditions
set forth herein, this Option shall be exercisable, in whole or in part,
at any time and from time to time, during that period commencing on the
date hereof and ending at 5:00 p.m., eastern standard time, February 1,
2008 (after which date this Option shall lapse with respect to any
shares of Common Stock not theretofore purchased).
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The
Optionee shall exercise the Option by giving a written notice of
exercise, in the form attached to this Agreement as EXHIBIT A, to the
President of the Corporation, indicating the number of shares of Common
Stock to be purchased, and tendering payment in full (i) by cash or
certified or bank check, (ii) by delivery of shares of Common Stock then
owned by the Optionee with a fair market value at the time of exercise
equal to the Option Price, or (iii) by a combination of (i) and (ii).
No shares shall be issued or delivered until full payment therefor has
been made. The Optionee shall have none of the rights of a shareholder,
in respect of the Common Stock, except with respect to shares actually
issued to the Optionee.
<PAGE>
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and
distribution. During the Optionee's lifetime, only the Optionee may
exercise the Option.
(e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee
shall cease to be a director of the Corporation for whatever reason
other than by death or disability, the Optionee shall have the right to
exercise the Option (except to the extent the Option shall have been
exercised or shall have expired) until the later to occur of (i) ninety
(90) days after the date of termination of service as a director, or
(ii) six (6) months and ten (10) days after the Optionee's last purchase
or sale of shares of Common Stock prior to the termination of Optionee's
service as a director. Any portion of the Option not exercised within
said period shall lapse. Shares of Common Stock issued upon such
exercise shall be subject to the Corporation's right to repurchase the
Common Stock as provided in Section 5 hereof.
(f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall
die or become disabled within the meaning of Section 22(e)(3) of the
Code while still serving as a director or prior to the termination of
the Option pursuant to Section 3(e) hereof, the Optionee or the executor
or administrator of the estate of the Optionee, or the person or persons
to whom the Option shall have been validly transferred by the executor
or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death or disability to exercise the Option, except to the
extent the Option shall have been exercised or shall have expired. Any
portion of the Option not exercised within said one-year period shall
lapse. Shares of Common Stock issued upon such exercise shall be
subject to the Corporation's right to repurchase the Common Stock as
provided in Section 5 hereof.
4. Shares of Common Stock issued upon the exercise of any portion
of the Option granted under this Agreement shall be subject to the
following terms and conditions:
(a) TRANSFERABILITY. The Common Stock shall be transferable
only in compliance with this Section 4 and only pursuant to an effective
registration or exemption from registration under the Securities Act of
1933, as amended. All transfers, whether or not permitted by this
section, shall be subject to all of the provisions of this Agreement.
Stock certificates representing shares of Common Stock shall bear a
legend in substantially the following form:
The shares of the Corporation's common stock represented by
this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except
pursuant to an effective registration, or exemption from
registration, under said Act. In addition, such shares are
subject to a right of repurchase by the Corporation.
(b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING
TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST
REFUSAL. The Corporation shall have a right to repurchase, at the
buy-back price set forth below, any or all of the Common Stock issued
upon the exercise of the Option. Such right shall arise if the Optionee
ceases to serve as a director of the Corporation for any reason, if the
Optionee becomes disabled, at the time of the Optionee's death, or if
the Optionee elects to dispose of any such shares of Common Stock by
sale, transfer or other disposition.
(i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE
AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases
to serve as a director of the
<PAGE>
Corporation for any reason, the Corporation shall, within thirty days
immediately following the date on which the Optionee's service as a
director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Optionee's last known address: (1) stating that the Corporation has the
first right to purchase the Common Stock; (2) designating the number of
shares of the Common Stock that the Optionee or the Optionee's legal
representative must sell to the Corporation; (3) naming the buy-back
price per share in cash at which the Optionee or the Optionee's legal
representative is obligated to sell such shares, as determined herein;
and (4) stating whether the Corporation elects to exercise its right to
repurchase the Common Stock.
(ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee
elects to dispose of any of the Common Stock, the Optionee shall give to
the President of the Corporation a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Corporation's principal office: (1) designating the number of shares of
the Common Stock to be disposed of; (2) stating the specific manner in
which the Optionee proposes to dispose of such shares if they are not
purchased by the Corporation pursuant to this Agreement; (3) specifying the
names and addresses of the persons to whom the Optionee desires to dispose
of such shares to the extent not so purchased by the Corporation;
(4) offering to sell such shares to the Corporation; (5) naming the price
per share in cash at which the Optionee is willing to sell such shares to
the Corporation, which price shall not be greater than the buy-back price
as determined herein; and (6) designating the Optionee's mailing address.
The Corporation shall have a period of thirty days after the receipt of the
notice within which to accept the Optionee's offer as contained in the
Optionee's notice. Acceptance shall be by notice in writing to that effect
hand delivered or mailed to the Optionee prior to the expiration date of
said thirty-day period to the mailing address designated in the Optionee's
notice. If the Corporation declines to accept such offer, the Optionee
shall have a period of forty-five (45) days within which to dispose of such
shares of Common Stock. Such forty-five (45) day period shall commence on
the date of receipt of the Corporation's written rejection of such offer
or, if the Corporation does not reject such offer in writing, on the
expiration of the thirty-day period within which the Corporation may accept
such offer.
(iii) BUY-BACK. The buy-back price per share for purposes of
this Section 4(b) shall be:
(1) the price per share offered in a bona fide offer to
purchase, or
(2) in the absence of a bona fide offer to purchase, the
fair market value per share as determined by the Board or the
Committee, which amount shall not be less than the price per share at
which shares of Common Stock were last sold by the Corporation other
than pursuant to the Plan.
(c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are
subject to repurchase as provided in Section 4(b) hereof, and the Corporation
shall have exercised its right to repurchase, the Optionee or the Optionee's
legal representative shall immediately deliver to the Corporation the
certificates for the shares. The certificates shall be voided, and the shares
of the Common Stock represented by the certificates shall be thereafter treated
on the books of the Corporation as treasury shares. A person required to
deliver a certificate for the Common Stock under this section shall be deemed
irrevocably to have authorized the voiding of such certificate and the treatment
of such Common Stock as
<PAGE>
treasury shares (regardless whether the certificates are in fact
delivered) and irrevocably to have authorized the Board to terminate his
status as a shareholder in respect of such shares.
(d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation
shall have the right to pay the purchase price for any shares purchased
pursuant to this Section 4 over a one year period, in equal quarterly
installments without interest, or, in the case of a bona fide offer to
purchase, in the manner and over such period of time as provided for in
such offer.
(e) PRICE ADJUSTMENT. In all cases the buy-back price per
share shall be adjusted to reflect previous capital changes, if any, as
described in Section 8 hereof. No offer to purchase shall be deemed
"bona fide" unless made by a third party unrelated to the Corporation or
its shareholders with the intention that such purchase be an investment
in the Corporation and not with a view to distribution or resale, nor
shall any offer to purchase be deemed "bona fide" if made by a
competitor of the Corporation regardless of the offeror's intention.
5. In the event the Optionee dies, becomes disabled, or ceases to
serve as a director of the Corporation and the Optionee has accrued but
not exercised rights to purchase shares of Common Stock, the following
terms and conditions shall apply.
(a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR
DEATH WITH RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon
termination of the Optionee's service as a director, or upon the
Optionee's death or disability giving the Optionee, or the Optionee's
legal representative, rights to exercise the Option under either Section
3(e) or 3(f)(ii) hereof, the Corporation shall, within thirty days
immediately following the date on which the Corporation learns of the
Optionee's death, disability, or the date on which the Optionee's
service as a director terminates, give to the Optionee or the Optionee's
legal representative, as the case may be, a signed notice in writing,
either delivered by hand, or mailed by registered or certified mail, to
the Optionee's last known address: (i) stating that the Corporation has
the first right to purchase the Common Stock subject to the Option; (ii)
designating the number of shares of the Common Stock which the Optionee
or the Optionee's legal representative has a right to purchase under the
Option and the option price per share under this Agreement; (iii) naming
the buy-back price per share in cash which the Optionee or the
Optionee's legal representative is obligated to sell the shares subject
to the Option, as determined herein; and (iv) stating whether the
Corporation will exercise its right to repurchase the Common Stock if
the Optionee or the Optionee's legal representative exercised the Option.
(b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON
STOCK. The Optionee or the Optionee's legal representative may exercise
the Option within the time period provided in Section 3(e) or Section
3(f)(ii) hereof, as the case may be, by giving the Corporation notice of
exercise of the Option under Section 3(c) hereof. However, such notice
need not be accompanied by tender of payment if the Corporation has
elected to exercise its right to repurchase. Upon receipt of the notice
of exercise from the Optionee or the Optionee's legal representative
within the applicable time period, the Corporation shall pay the
Optionee or the Optionee's legal representative for each share an amount
equal to the buy-back price per share less the option price per share.
If the Corporation does not exercise its right to repurchase under
Section 5(a) hereof, then this Section 5(b) shall be of no effect, and
the provisions for exercising the Option under Section 3(c) shall apply.
(c) COMBINING NOTICES. If the Optionee, or the Optionee's legal
representative, has both shares of Common Stock and a right to exercise the
Option as to additional shares of Common Stock,
<PAGE>
then the Corporation may deliver one notice to the Optionee or the
Optionee's legal representative to satisfy the provisions of Section
4(b)(i) hereof and Section 5(a) hereof provided the information required
to be contained in each notice under such sections are contained in the
single notice.
6. Failure by the Corporation to exercise its rights to
repurchase the Common Stock upon termination of service as a director of
the Optionee shall not be a waiver of the Corporation's right to
repurchase on a subsequent sale, transfer or other disposition of Common
Stock.
7. Subject to the restrictions of this Agreement, the Optionee
shall have all the rights of a shareholder in respect of the Common
Stock issued hereunder, beginning with the date of issuance of the
Common Stock. The Common Stock shall be fully paid and non-assessable.
8. The number and Option Price of shares of Common Stock subject
to this Option may be adjusted or substituted as follows:
(a) In the event that a dividend shall be declared upon the
shares of Common Stock payable in shares of Common Stock, the number of
shares of Common Stock then subject to this Option shall be adjusted by
adding to each of such shares the number of shares which would be
distributable thereon if such shares had been outstanding on the date
fixed for determining the stockholders entitled to receive such stock
dividend. In the event that the outstanding shares of Common Stock
shall be changed into or exchanged for a different number or kind of
shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock
split-up, combination of shares, merger, or consolidation, then there
shall be substituted for each share of Common Stock subject to this
Option, the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or for
which each such share shall be exchanged; PROVIDED, HOWEVER, that in the
event that such change or exchange results from a merger or
consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation
shall sell all or substantially all of its assets, the Corporation shall
use reasonable efforts to effect some other adjustment of this Option
which the Committee, in its sole discretion, shall deem equitable. In
the event that there shall be any change, other than as specified above
in this Section 8(a), in the number or kind of outstanding shares of
Common Stock or of any stock or other securities into which such shares
of Common Stock shall have been changed or for which they shall have
been exchanged, then, if the Committee shall determine that such change
equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee
and shall be effective and binding for all purposes of this Option. In
the case of any such substitution or adjustment as provided for in this
paragraph, the Option Price in this Option for each share covered hereby
prior to such substitution or adjustment will be the total option price
for all shares of stock or other securities which shall have been
substituted for each such share or to which such share shall have been
adjusted pursuant to this Section 8. No adjustment or substitution
provided for in this Section 8(a) shall require the Corporation to sell
a fractional share; and the total substitution or adjustment with
respect to this Option shall be limited accordingly.
(b) Any of the foregoing adjustments or substitutions in the
shares subject to the Option shall not limit applicability of the
restrictions hereunder and such restrictions shall automatically apply
to all Common Stock or other securities issued by the Corporation and at
any time held by the Optionee by virtue of having exercised the Option.
<PAGE>
9. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be imposed by law.
10. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
11. If the Corporation registers any of its shares of common stock
under the Securities Act of 1933, as amended (the "Act"), the provisions
of Section 4 and Section 5 hereof shall terminate on the day the
registration statement becomes effective. The Common Stock issued upon
exercise of the Option shall thereupon be free of any restriction
imposed hereby, except for the restriction requiring transfer pursuant
to the Act if such registration does not include the Common Stock, and
neither the Corporation nor the Optionee shall have any further rights
or obligations under Section 4 or Section 5 hereof, except the
Corporation's obligation to complete payments, under Section 4(b)
hereof, for the Common Stock previously repurchased.
12. This Agreement shall be interpreted according to the laws of
the State of Georgia.
13. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered may be entered in any Court having
jurisdiction thereof.
14. This Agreement and the Plan which is hereby incorporated by
reference herein contain the entire agreement of the parties with
respect to the Common Stock. All prior agreements and understandings
are merged herein. No amendment or modification hereof shall be binding
unless in writing and signed by the party against whom enforcement is
sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
---------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Bruce Bonadies
- ------------------------------- ---------------------------------
Secretary Bruce Bonadies
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common
Stock of the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell Mill
Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or my
representative, on the ______________ [here insert Fifth, Sixth,
Seventh, Eight, Ninth or Tenth] business day from the date of
this notice is received by the Corporation.
<PAGE>
Please advise me of the exact date and time when payment and
delivery will take place.
I will [check one]
_____ appear personally to make payment and accept
delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Bruce Bonadies
<PAGE>
AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
Adopted by the following resolution of the Board of Directors dated as of
February 2, 1998:
RESOLVED: that the Board of Directors, acting as the committee to
administer the American Card Technology, Inc. 1996 Nonemployee Directors'
Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as
follows:
(a) By deleting Paragraph 6(a) in its entirety and substituting the
following in lieu thereof:
"(a) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant on February 2, 1998
(b) By deleting the references to "1997" in Paragraph 6(c) and
substituting "1999" in lieu therefor.
(c) By deleting the first sentence of Paragraph 7(a) and substituting
the following in lieu therefor:
"The exercise price of each Director's Option shall be at least
one hundred percent (100%) of the fair market value of the shares
subject to such Option on the date of grant."
and the Directors' Plan is hereby so amended.
<PAGE>
EXHIBIT 10.8.5
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road - Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and GORDON WALKER (hereinafter called
the "Optionee").
The Corporation has adopted a 1996 Nonemployee Directors' Stock Option Plan
(the "Plan") to be used to award options to purchase shares of its common stock
to those directors of the Corporation who are not employees of the Corporation
or any of its subsidiaries. The Board of Directors of the Corporation (the
"Board") or a special committee of the Board (the "Committee") has authorized
the awarding of an option under the Plan to the Optionee. Wherever the context
so requires, the "Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 2,500 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option shall not constitute an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00) (the "Option Price").
(b) EXERCISE OF OPTION. Subject to the terms and conditions set
forth herein, this Option shall be exercisable, in whole or in part, at any
time and from time to time, during that period commencing on the date hereof
and ending at 5:00 p.m., eastern standard time, February 1, 2008 (after which
date this Option shall lapse with respect to any shares of Common Stock not
theretofore purchased).
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full (i) by cash or certified or bank check, (ii) by delivery of
shares of Common Stock then owned by the Optionee with a fair market value at
the time of exercise equal to the Option Price, or (iii) by a combination of (i)
and (ii). No shares shall be issued or delivered until full payment therefor
has been made. The Optionee shall have none of the rights of a shareholder, in
respect of the Common Stock, except with respect to shares actually issued to
the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF SERVICE AS A DIRECTOR. If the Optionee shall
cease to be a director of the Corporation for whatever reason other than by
death or disability, the Optionee shall have the right to exercise the
<PAGE>
Option (except to the extent the Option shall have been exercised or shall have
expired) until the later to occur of (i) ninety (90) days after the date of
termination of service as a director, or (ii) six (6) months and ten (10) days
after the Optionee's last purchase or sale of shares of Common Stock prior to
the termination of Optionee's service as a director. Any portion of the Option
not exercised within said period shall lapse. Shares of Common Stock issued
upon such exercise shall be subject to the Corporation's right to repurchase the
Common Stock as provided in Section 5 hereof.
(f) DEATH OR DISABILITY OF OPTIONEE. If the Optionee shall die or
become disabled within the meaning of Section 22(e)(3) of the Code while still
serving as a director or prior to the termination of the Option pursuant to
Section 3(e) hereof, the Optionee or the executor or administrator of the estate
of the Optionee, or the person or persons to whom the Option shall have been
validly transferred by the executor or administrator pursuant to will or the
laws of descent and distribution, shall have the right within one year from the
date of the Optionee's death or disability to exercise the Option, except to the
extent the Option shall have been exercised or shall have expired. Any portion
of the Option not exercised within said one-year period shall lapse. Shares of
Common Stock issued upon such exercise shall be subject to the Corporation's
right to repurchase the Common Stock as provided in Section 5 hereof.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be subject to the following terms and
conditions:
(a) TRANSFERABILITY. The Common Stock shall be transferable only in
compliance with this Section 4 and only pursuant to an effective registration or
exemption from registration under the Securities Act of 1933, as amended. All
transfers, whether or not permitted by this section, shall be subject to all of
the provisions of this Agreement. Stock certificates representing shares of
Common Stock shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by
this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except
pursuant to an effective registration, or exemption from
registration, under said Act. In addition, such shares are
subject to a right of repurchase by the Corporation.
(b) REPURCHASE OF COMMON STOCK BY THE CORPORATION FOLLOWING
TERMINATION OF SERVICE AS A DIRECTOR OR BY EXERCISE OF RIGHT OF FIRST REFUSAL.
The Corporation shall have a right to repurchase, at the buy-back price set
forth below, any or all of the Common Stock issued upon the exercise of the
Option. Such right shall arise if the Optionee ceases to serve as a director of
the Corporation for any reason, if the Optionee becomes disabled, at the time of
the Optionee's death, or if the Optionee elects to dispose of any such shares of
Common Stock by sale, transfer or other disposition.
(i) REPURCHASE ON DEATH, DISABILITY, OR TERMINATION OF SERVICE
AS A DIRECTOR. In the event the Optionee dies, becomes disabled, or ceases
to serve as a director of the Corporation for any reason, the Corporation
shall, within thirty days immediately following the date on which the
Optionee's service as a director terminates, give to the Optionee or the
Optionee's legal representative, as the case may be, a signed notice in
writing, either delivered by hand, or mailed by registered or certified
mail, to the Optionee's last known address: (1) stating that the
Corporation has the first right to purchase the Common Stock; (2)
designating the number of shares of the Common Stock that the Optionee or
the Optionee's legal representative must sell to the Corporation; (3)
naming the buy-back price per share in cash at which the Optionee or the
Optionee's legal representative is obligated to sell such shares, as
determined herein; and (4) stating whether the Corporation elects to
exercise its right to repurchase the Common Stock.
<PAGE>
(ii) REPURCHASE ON ATTEMPTED TRANSFER. In the event the Optionee
elects to dispose of any of the Common Stock, the Optionee shall give to
the President of the Corporation a signed notice in writing, either
delivered by hand, or mailed by registered or certified mail, to the
Corporation's principal office: (1) designating the number of shares of
the Common Stock to be disposed of; (2) stating the specific manner in
which the Optionee proposes to dispose of such shares if they are not
purchased by the Corporation pursuant to this Agreement; (3) specifying the
names and addresses of the persons to whom the Optionee desires to dispose
of such shares to the extent not so purchased by the Corporation;
(4) offering to sell such shares to the Corporation; (5) naming the price
per share in cash at which the Optionee is willing to sell such shares to
the Corporation, which price shall not be greater than the buy-back price
as determined herein; and (6) designating the Optionee's mailing address.
The Corporation shall have a period of thirty days after the receipt of the
notice within which to accept the Optionee's offer as contained in the
Optionee's notice. Acceptance shall be by notice in writing to that effect
hand delivered or mailed to the Optionee prior to the expiration date of
said thirty-day period to the mailing address designated in the Optionee's
notice. If the Corporation declines to accept such offer, the Optionee
shall have a period of forty-five (45) days within which to dispose of such
shares of Common Stock. Such forty-five (45) day period shall commence on
the date of receipt of the Corporation's written rejection of such offer
or, if the Corporation does not reject such offer in writing, on the
expiration of the thirty-day period within which the Corporation may accept
such offer.
(iii) BUY-BACK. The buy-back price per share for purposes of
this Section 4(b) shall be:
(1) the price per share offered in a bona fide offer to
purchase, or
(2) in the absence of a bona fide offer to purchase, the
fair market value per share as determined by the Board or the
Committee, which amount shall not be less than the price per share at
which shares of Common Stock were last sold by the Corporation other
than pursuant to the Plan.
(c) PROCEDURE FOR REPURCHASE. If any shares of the Common Stock are
subject to repurchase as provided in Section 4(b) hereof, and the Corporation
shall have exercised its right to repurchase, the Optionee or the Optionee's
legal representative shall immediately deliver to the Corporation the
certificates for the shares. The certificates shall be voided, and the shares
of the Common Stock represented by the certificates shall be thereafter treated
on the books of the Corporation as treasury shares. A person required to
deliver a certificate for the Common Stock under this section shall be deemed
irrevocably to have authorized the voiding of such certificate and the treatment
of such Common Stock as treasury shares (regardless whether the certificates are
in fact delivered) and irrevocably to have authorized the Board to terminate his
status as a shareholder in respect of such shares.
(d) PAYMENT FOR SHARES OF COMMON STOCK. The Corporation shall have
the right to pay the purchase price for any shares purchased pursuant to this
Section 4 over a one year period, in equal quarterly installments without
interest, or, in the case of a bona fide offer to purchase, in the manner and
over such period of time as provided for in such offer.
(e) PRICE ADJUSTMENT. In all cases the buy-back price per share
shall be adjusted to reflect previous capital changes, if any, as described in
Section 8 hereof. No offer to purchase shall be deemed "bona fide" unless made
by a third party unrelated to the Corporation or its shareholders with the
intention that such purchase be an investment in the Corporation and not with a
view to distribution or resale, nor shall any offer to purchase be deemed "bona
fide" if made by a competitor of the Corporation regardless of the offeror's
intention.
<PAGE>
5. In the event the Optionee dies, becomes disabled, or ceases to serve
as a director of the Corporation and the Optionee has accrued but not exercised
rights to purchase shares of Common Stock, the following terms and conditions
shall apply.
(a) REPURCHASE ON TERMINATION OF SERVICE, DISABILITY, OR DEATH WITH
RESPECT TO OPTIONS ACCRUED BUT NOT EXERCISED. Upon termination of the
Optionee's service as a director, or upon the Optionee's death or disability
giving the Optionee, or the Optionee's legal representative, rights to exercise
the Option under either Section 3(e) or 3(f)(ii) hereof, the Corporation shall,
within thirty days immediately following the date on which the Corporation
learns of the Optionee's death, disability, or the date on which the Optionee's
service as a director terminates, give to the Optionee or the Optionee's legal
representative, as the case may be, a signed notice in writing, either delivered
by hand, or mailed by registered or certified mail, to the Optionee's last known
address: (i) stating that the Corporation has the first right to purchase the
Common Stock subject to the Option; (ii) designating the number of shares of the
Common Stock which the Optionee or the Optionee's legal representative has a
right to purchase under the Option and the option price per share under this
Agreement; (iii) naming the buy-back price per share in cash which the Optionee
or the Optionee's legal representative is obligated to sell the shares subject
to the Option, as determined herein; and (iv) stating whether the Corporation
will exercise its right to repurchase the Common Stock if the Optionee or the
Optionee's legal representative exercised the Option.
(b) SIMULTANEOUS EXERCISE OF OPTION AND REPURCHASE OF COMMON STOCK.
The Optionee or the Optionee's legal representative may exercise the Option
within the time period provided in Section 3(e) or Section 3(f)(ii) hereof, as
the case may be, by giving the Corporation notice of exercise of the Option
under Section 3(c) hereof. However, such notice need not be accompanied by
tender of payment if the Corporation has elected to exercise its right to
repurchase. Upon receipt of the notice of exercise from the Optionee or the
Optionee's legal representative within the applicable time period, the
Corporation shall pay the Optionee or the Optionee's legal representative for
each share an amount equal to the buy-back price per share less the option price
per share. If the Corporation does not exercise its right to repurchase under
Section 5(a) hereof, then this Section 5(b) shall be of no effect, and the
provisions for exercising the Option under Section 3(c) shall apply.
(c) COMBINING NOTICES. If the Optionee, or the Optionee's legal
representative, has both shares of Common Stock and a right to exercise the
Option as to additional shares of Common Stock, then the Corporation may deliver
one notice to the Optionee or the Optionee's legal representative to satisfy the
provisions of Section 4(b)(i) hereof and Section 5(a) hereof provided the
information required to be contained in each notice under such sections are
contained in the single notice.
6. Failure by the Corporation to exercise its rights to repurchase the
Common Stock upon termination of service as a director of the Optionee shall not
be a waiver of the Corporation's right to repurchase on a subsequent sale,
transfer or other disposition of Common Stock.
7. Subject to the restrictions of this Agreement, the Optionee shall have
all the rights of a shareholder in respect of the Common Stock issued hereunder,
beginning with the date of issuance of the Common Stock. The Common Stock shall
be fully paid and non-assessable.
8. The number and Option Price of shares of Common Stock subject to this
Option may be adjusted or substituted as follows:
(a) In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of
<PAGE>
shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8(a), in the number or
kind of outstanding shares of Common Stock or of any stock or other securities
into which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8(a) shall require the Corporation
to sell a fractional share; and the total substitution or adjustment with
respect to this Option shall be limited accordingly.
(b) Any of the foregoing adjustments or substitutions in the shares
subject to the Option shall not limit applicability of the restrictions
hereunder and such restrictions shall automatically apply to all Common Stock or
other securities issued by the Corporation and at any time held by the Optionee
by virtue of having exercised the Option.
9. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be imposed by law.
10. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
11. If the Corporation registers any of its shares of common stock under
the Securities Act of 1933, as amended (the "Act"), the provisions of Section 4
and Section 5 hereof shall terminate on the day the registration statement
becomes effective. The Common Stock issued upon exercise of the Option shall
thereupon be free of any restriction imposed hereby, except for the restriction
requiring transfer pursuant to the Act if such registration does not include the
Common Stock, and neither the Corporation nor the Optionee shall have any
further rights or obligations under Section 4 or Section 5 hereof, except the
Corporation's obligation to complete payments, under Section 4(b) hereof, for
the Common Stock previously repurchased.
12. This Agreement shall be interpreted according to the laws of the State
of Georgia.
13. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
14. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
----------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Gordon Walker
- ----------------------------- -----------------------------
Secretary Gordon Walker
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock of
the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased] is
attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell Mill
Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or my
representative, on the ______________ [here insert Fifth, Sixth,
Seventh, Eight, Ninth or Tenth] business day from the date of
this notice is received by the Corporation.
Please advise me of the exact date and time when payment and
delivery will take place.
<PAGE>
I will [check one]
_____ appear personally to make payment and accept
delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Gordon Walker
<PAGE>
AMENDMENT TO 1996 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
Adopted by the following resolution of the Board of Directors dated as of
February 2, 1998:
RESOLVED: that the Board of Directors, acting as the committee to
administer the American Card Technology, Inc. 1996 Nonemployee Directors'
Stock Option Plan (the "Directors' Plan"), amend the Directors' Plan as
follows:
(a) By deleting Paragraph 6(a) in its entirety and substituting the
following in lieu thereof:
"(a) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant on February 2, 1998
(b) By deleting the references to "1997" in Paragraph 6(c) and
substituting "1999" in lieu therefor.
(c) By deleting the first sentence of Paragraph 7(a) and substituting
the following in lieu therefor:
"The exercise price of each Director's Option shall be at least
one hundred percent (100%) of the fair market value of the shares
subject to such Option on the date of grant."
and the Directors' Plan is hereby so amended.
<PAGE>
EXHIBIT 10.8.6
AMERICAN CARD TECHNOLOGIES, INC.
1996 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
(1) ESTABLISHMENT. There is hereby established the American Card
Technologies, Inc. 1996 Nonemployee Directors' Stock Option Plan (the
"Directors' Plan") pursuant to which certain directors of American Card
Technologies, Inc. (the "Corporation") may be granted options to purchase shares
of common stock, par value $.001 per share ("Common Stock"), and thereby share
in the future growth of the business. The purpose of the Directors' Plan is to
attract and retain the services of non-employee members of the Board of
Directors and to provide them with increased motivation and incentive to exert
their best efforts on behalf of the Corporation by enlarging their personal
stake in the Corporation.
(2) STATUS OF OPTIONS. The options to be issued pursuant to this
Directors' Plan ("Options") shall not constitute incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
(3) ELIGIBILITY. All directors of the Corporation who are not employees
of the Corporation or any of its subsidiaries (collectively, the "Participants")
shall be eligible to be granted Options under this Directors' Plan.
(4) NUMBER OF SHARES COVERED BY OPTIONS; NO PREEMPTIVE RIGHTS. The total
number of shares which may be issued and sold pursuant to Options granted under
this Directors' Plan shall be 30,000 shares of Common Stock (or the number and
kind of shares of stock or other securities which, in accordance with
paragraph 8 of this Directors' Plan, shall be substituted for such shares of
Common Stock or to which said shares shall be adjusted; hereinafter, all
references to shares of Common Stock are deemed to be references to said shares
or shares so adjusted). The issuance of shares upon exercise of an Option shall
be free from any preemptive or preferential right of subscription or purchase on
the part of any stockholder. If any outstanding Option granted under this
Directors' Plan is terminated for any reason, the shares of Common Stock subject
to the unexercised portion of the Option will again be available for Options
issued under this Directors' Plan.
(5) ADMINISTRATION
(a) The Directors' Plan shall be administered by a committee
consisting of from two (2) to five (5) individuals who are members of the Board.
The Committee shall be appointed by the Board, which may at any time, and from
time to time, remove any member of the Committee, with or without cause, appoint
additional members to the Committee and fill vacancies, however caused, in the
Committee. A majority of the members of the Committee shall constitute a quorum
and all determinations of the committee shall be made by a majority of such
quorum. Any decision or determination of the Committee reduced to writing and
signed by all of the members of the Committee shall be fully as effective as if
it had been made at a meeting duly called and held. A Participant may receive
Options under this Directors' Plan whether or not such Participant also serves
as a member of the Committee.
(b) Options shall be automatically granted to Participants in
accordance with paragraph 6 hereof and shall be issued upon the terms and
conditions set forth in paragraph 7 hereof. Accordingly, the persons to whom
Options shall be granted, the number of shares subject thereto, and the
<PAGE>
material terms and conditions governing the Options, will not be subject to the
discretion of the Committee. However, if any questions of interpretation of
this Directors' Plan or of any Options issued hereunder shall arise, they shall
be determined by the Committee and such determination shall be final and binding
upon all persons having an interest in the Directors' Plan.
(6) NON-DISCRETIONARY GRANTS. Subject to approval of the Plan by the
stockholders of the Corporation, Options shall be automatically granted to
Participants as follows:
(a) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant on the effective date of the Corporation's
registration statement on Form SB-2 relating to an initial public offering of
the Company's Common Stock (the "IPO");
(b) an Option to purchase 2,500 shares of Common Stock will be
granted to each Participant who was not granted Options pursuant to
paragraph 6(a) herein upon their initial election or appointment as a director
of the Corporation; and
(c) an additional Option to purchase 2,500 shares of Common Stock
will be granted to each Participant at each Annual Meeting of the Board
immediately following the Annual Meeting of Stockholders in each year,
commencing with the first Annual Meeting following the consummation of the IPO,
during the term of this Directors' Plan. If the number of shares remaining in
the Directors' Plan on any such date is insufficient to grant each Participant
an Option to purchase 2,500 shares of Common Stock, each Participant will
automatically receive an Option to purchase a number of shares of Common Stock
to be determined by dividing the total number of shares remaining in this
Directors' Plan by the number of Participants at that time and, if necessary,
rounding down to the nearest whole number of shares.
(7) TERMS AND CONDITIONS OF OPTIONS; STOCK OPTION AGREEMENTS. Each Option
granted pursuant to this Directors' Plan shall be evidenced by a written
agreement between the participant and the Corporation which shall contain the
following terms:
(a) OPTION PRICE. The exercise price of each Director's Option shall
be one hundred percent (100%) of the fair market value of the shares subject to
such Option on the date of grant. For purposes of this paragraph, the fair
market value of the shares of Common Stock on any day shall be (i) in the event
the Common Stock is not publicly traded, the fair market value on such day as
determined in good faith by the Committee or (ii) in the event the Common Stock
is publicly traded, the last sale price of a share of Common Stock as reported
by the principal quotation service on which the Common Stock is listed, if
available, or, if last sale prices are not reported with respect to the Common
Stock, the mean of the high bid and low asked prices of a share of Common Stock
as reported by such principal quotation service, or, if there is no such report
by such quotation service for such day, such fair market value shall be the
average of (i) the last sale price (or, if last sale prices are not reported
with respect to the Common Stock, the mean of the high bid and low asked prices)
on the day next preceding such day for which there was a report and (ii) the
last sale price (or, if last sale prices are not reported with respect to the
Common Stock, the mean of the high bid and low asked prices) on the day next
succeeding such day for which there was a report, or as otherwise determined by
the Committee in its discretion pursuant to any reasonable method contemplated
by Section 422 of the Code and any regulations issued pursuant to that Section.
(b) MEDIUM AND TIME OF PAYMENT. The exercise price of the shares to
be purchased
(2)
<PAGE>
pursuant to an Option shall be paid (i) in full in cash or by check, (ii) by
delivery of shares of Common Stock of the Corporation then owned by the
Participant with a fair market value at the time of the exercise of the
Option equal to the exercise price, or (iii) by a combination of (i) and (ii).
(c) TERM AND EXERCISE OF OPTIONS. The term of each Option shall
commence on the date it is granted and, unless sooner terminated as set forth
herein, shall expire ten (10) years after its date of grant unless extended as
set forth herein. In the event a Participant shall cease to be a director of
the Corporation for any reason other than death or disability, the Option shall
terminate on the earlier to occur of (i) the later of ninety (90) days after the
date of termination of service or six (6) months and ten (10) days after such
Participant's last purchase or sale of shares of Common Stock prior to his
termination of service as a director, or (ii) the expiration date of the Option.
If the Participant shall die or become disabled within the meaning of
Section 22(e)(3) of the Code while still serving as a director or prior to the
termination of the Option in accordance with the preceding sentence, the Option
shall terminate on the first anniversary of the Participant's death or
disability, as the case may be. In the event of the Participant's death, the
Option may be exercised by the person or persons entitled to do so under the
Participant's will or, if the Participant shall fail to make testamentary
disposition of the Option, or shall die intestate, by the Participant's legal
representative.
(d) TRANSFERABILITY. Each Option shall be non-transferable by the
Participant except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order, and shall be exercisable only
by the Participant.
(e) INVESTMENT PURPOSE. Each Participant shall represent and warrant
that he is acquiring the Option and, in the event the Option is exercised, the
shares of Common Stock issuable thereunder, for investment, for his own account
and not with a view to the distribution thereof, and that he will not offer or
sell the shares unless a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and any applicable state securities law
is in effect, or unless counsel satisfactory to the Corporation renders a
reasoned opinion that the proposed sale is exempt from the registration
requirements of the Securities Act and such state securities act. The
Corporation shall not be obligated to issue or deliver any shares upon exercise
of an Option if to do so would violate the Securities Act or any state
securities law, and the Corporation shall have no obligation to file any
registration statement or take any other action required or permitted by any
such law.
(8) ADJUSTMENT OF NUMBER OF SHARES
(a) In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to any Option granted hereunder, and the number of shares
reserved for issuance pursuant to this Directors' Plan but not yet covered by an
Option, shall be adjusted by adding to each of such shares the number of shares
which would be distributable thereon if such shares had been outstanding on the
date fixed for determining the stockholders entitled to receive such stock
dividend. In the event that the outstanding shares of Common Stock shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Corporation or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, merger,
or consolidation, then there shall be substituted for each share of Common Stock
subject to any such Option and for each share of Common Stock reserved for
issuance pursuant to this Directors' Plan but not yet covered by an Option, the
number and kind of shares
(3)
<PAGE>
of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results
from a merger or consolidation, and in the judgment of the Committee such
substitution cannot be effected or would be inappropriate, or if the Company
shall sell all or substantially all of its assets, the Company shall use
reasonable efforts to effect some other adjustment of each then outstanding
Option which the Committee, in its sole discretion, shall deem equitable. In
the event that there shall be any change, other than as specified above in
this paragraph 8(a), in the number or kind of outstanding shares of Common
Stock or of any stock or other securities into which such shares of Common
Stock shall have been changed or for which they shall have been exchanged,
then, if the Committee shall determine that such change equitably requires an
adjustment in the number or kind of shares theretofore reserved for issuance
pursuant to the Directors' Plan but not yet covered by an Option and of the
shares then subject to an Option or Options, such adjustment shall be made by
the Committee and shall be effective and binding for all purposes of this
Directors' Plan and of each stock option agreement. In the case of any such
substitution or adjustment as provided for in this paragraph, the option
price in each stock option agreement for each share covered thereby prior to
such substitution or adjustment will be the total option price for all shares
of stock or other securities which shall have been substituted for each such
share or to which such share shall have been adjusted pursuant to this
paragraph 8. No adjustment or substitution provided for in this paragraph
shall require the Corporation, in any stock option agreement, to sell a
fractional share; and the total substitution or adjustment with respect to
each stock option agreement shall be limited accordingly.
(b) In the event that the Corporation shall effect a distribution,
other than a normal and customary cash dividend, upon shares of Common Stock,
the Committee may, in order to prevent significant diminution in the value of
options as a result of any such distribution, take such measures as it deems
fair and equitable, including, without limitation, the adjustment of the Option
Price per share for Shares not issued and sold hereunder prior to the record
date for said distribution.
(9) EFFECTIVE DATE AND TERM OF PLAN. This Directors' Plan shall become
effective as of the date of its adoption by the stockholders of the Corporation.
Except to the extent necessary to govern outstanding Options issued, this
Directors' Plan shall terminate on, and no additional Options shall be granted
after, the tenth anniversary of its effective date unless earlier terminated by
the Board of Directors in accordance with paragraph 10 hereof.
(10) AMENDMENT OF THE PLAN. This Directors' Plan may be terminated or
amended from time to time by vote of the Committee; PROVIDED, HOWEVER, that no
such termination or amendment shall materially adversely affect or impair any
then outstanding Directors' Option without the consent of the Participant. The
approval of the Corporation's stockholders is required in respect of any
amendment which would (i) increase the maximum number of shares subject to this
Directors' Plan; or (ii) change the designation of the Participants eligible to
receive Options under this Directors' Plan.
(4)
<PAGE>
EXHIBIT 10.8.7
AMERICAN CARD TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
(1) ESTABLISHMENT. There is hereby established the American Card
Technologies, Inc. 1996 Stock Option Plan (the "Plan"), pursuant to which
employees (including officers), directors, consultants, and other persons who
perform substantial services for or on behalf of American Card Technologies,
Inc. (the "Company"), any subsidiaries of the Company and certain other entities
may be granted options to purchase shares of common stock of the Company, par
value $.001 per share ("Common Stock"), and thereby share in the future growth
of the business. The subsidiaries of the Company included in this Plan (the
"Subsidiaries") shall be any subsidiary of the Company as defined in Section 424
of the Internal Revenue Code of 1986, as amended (the "Code").
(2) STATUS OF OPTIONS. The options which may be granted pursuant to this
Plan will constitute either incentive stock options within the meaning of
Section 422 of the Code ("Incentive Stock Options") or options which are not
Incentive Stock Options ("Non-Incentive Stock Options"). Incentive Stock
Options and Non-Incentive Stock Options shall be collectively referred to herein
as "Options."
(3) ELIGIBILITY. All employees (including officers, whether or not they
are members of the Board of Directors) of the Company or any of its Subsidiaries
who are employed at the time of the adoption of this Plan or thereafter, any
directors of the Company, and any consultants and other persons who perform
substantial services for or on behalf of the Company, any of its Subsidiaries or
affiliates, or any entity in which the Company has an interest (collectively,
the "Grantees") shall be eligible to be granted Non-Incentive Stock Options
under this Plan. All employees (including officers, whether or not they are
members of the Board of Directors) of the Company or any of its Subsidiaries who
are employed at the time of adoption of this Plan or thereafter shall be
eligible to be granted Incentive Stock Options under this Plan.
(4) NUMBER OF SHARES COVERED BY OPTIONS; NO PREEMPTIVE RIGHTS. The total
number of shares which may be issued and sold pursuant to Options granted under
this Plan shall be 270,000 shares of Common Stock (or the number and kind of
shares of stock or other securities which, in accordance with paragraph 9 of
this Plan, shall be substituted for such shares of Common Stock or to which said
shares shall be adjusted; hereinafter, all references to shares of Common Stock
are deemed to be references to said shares or shares so adjusted). The issuance
of shares upon exercise of an Option shall be free from any preemptive or
preferential right of subscription or purchase on the part of any shareholder.
If any outstanding Option granted under this Plan expires or is terminated, for
any reason, the shares of Common Stock subject to the unexercised portion of the
Option will again be available for Options issued under this Plan.
(5) ADMINISTRATION
(a) This Plan shall be administered by the committee (the
"Committee") referred to in paragraph (b) of this paragraph 5. Subject to the
express provisions of this Plan, the Committee shall have complete authority, in
its discretion, to interpret this Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements(which need not be identical), to determine the
Grantees to whom, and the times and the prices at which, Options
<PAGE>
shall be granted, the option periods, the number of shares of the Common
Stock to be subject to each Option and whether each Option shall be an
Incentive Stock Option or a Non-Incentive Stock Option, and to make all
other determinations necessary or advisable for the administration of
the Plan. Each Option shall be clearly identified at the time of grant
as to its status. In making such determinations, the Committee may take
into account the nature of the services rendered by the respective
Grantees, their present and potential contributions to the success of
the Company, and such other factors as the Committee, in its discretion,
shall deem relevant. Nothing contained in this Plan shall be deemed to
give any Grantee any right to be granted an Option to purchase shares of
Common Stock except to the extent and upon such terms and conditions as
may be determined by the Committee. The Committee's determination on
all of the matters referred to in this paragraph 5 shall be conclusive.
(b) The Committee shall consist of from two (2) to five (5)
individuals who are members of the Board of Directors. Each member of the
Committee shall be a person who, at the time of his appointment to, and at all
times during his service as a member of, the Committee is a "Non-Employee
Director" as that term is then defined under Regulation 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, or any successor statute or
regulation regarding the same subject matter. The Committee shall be appointed
by the Board of Directors, which may at any time, and from time to time, remove
any member of the Committee, with or without cause, appoint additional members
to the Committee, and fill vacancies, however caused, in the Committee. A
majority of the members of the Committee shall constitute a quorum and all
determinations of the Committee shall be made by a majority of such quorum. Any
decision or determination of the Committee reduced to writing and signed by all
of the members of the Committee shall be fully as effective as if it had been
made at a meeting duly called and held.
(c) The Committee may at its election provide in any option agreement
covering the grant of Options under this Plan that, upon the exercise of such
Options, the Company will loan to the holder thereof such amount as shall equal
the purchase price of the shares of Common Stock issuable upon such exercise,
such loan to be on terms and conditions deemed appropriate by the Committee.
(d) Notwithstanding any provision hereof to the contrary, the
Committee shall have sole and exclusive authority with respect to the grant of
Options to directors.
(6) TERMS OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted
under this Plan shall be evidenced by an Incentive Stock Option Agreement which
shall be executed by the Company and by the person to whom such Incentive Stock
Option is granted, and shall be subject to the following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Incentive Stock Option may be purchased pursuant thereto shall be determined in
each case on the date of grant by the Committee, but shall be an amount not less
than the par value of such shares and not less than the fair market value of
such shares on the date of grant. For purposes of this paragraph and
paragraph 7, the fair market value of shares of Common Stock on any day shall be
(i) in the event the Common Stock is not publicly traded, the fair market value
on such day as determined in good faith by the Committee or (ii) in the event
the Common Stock is publicly traded, the last sale price of a share of Common
Stock as reported by the principal quotation service on which the Common Stock
is listed, if available, or, if last sale prices
(2)
<PAGE>
are not reported with respect to the Common Stock, the mean of the high
bid and low asked prices of a shares of Common Stock as reported by such
principal quotation service, or, if there is no such report by such
quotation service for such day, such fair market value shall be the
average of (i) the last sale price (or, if last sale prices are not
reported with respect to the Common Stock, the mean of the high bid and
low asked prices) on the day next preceding such day for which there was
a report and (ii) the last sale price (or, if last sale prices are not
reported with respect to the Common Stock, the mean of the high bid and
low asked prices) on the day next succeeding such day for which there
was a report, or as otherwise determined by the Committee in its
discretion pursuant to any reasonable method contemplated by Section 422
of the Code and any regulations issued pursuant to that Section.
(b) The option price of the shares to be purchased pursuant to each
Incentive Stock Option shall be paid in full in cash, or by delivery (i.e.,
surrender) of shares of Common Stock of the Company then owned by the Grantee,
at the time of the exercise of the Incentive Stock Option. Shares of Common
Stock so delivered will be valued on the day of delivery for the purpose of
determining the extent to which the option price has been paid thereby, in the
same manner as provided for the purchase price of Incentive Stock Options as set
forth in paragraph (a) of this paragraph 6, or as otherwise determined by the
Committee, in its discretion, pursuant to any reasonable method contemplated by
Section 422 of the Code and any regulations issued pursuant to that Section.
(c) Each Incentive Stock Option Agreement shall provide that such
Incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, within a period not exceeding
ten years after the date on which the Incentive Stock Option is granted
(hereinafter called the "Incentive Stock Option Period") and, in any event, only
during the continuance of the employee's employment by the Company or any of its
Subsidiaries or during the period of three months after the termination of such
employment to the extent that the right to exercise such Incentive Stock Option
had accrued at the date of such termination; PROVIDED, HOWEVER, that if
Incentive Stock Options as to 100 or more shares are held by a Grantee, then
such Incentive Stock Options may not be exercised for less than 100 shares at
any one time, and if Incentive Stock Options for less than 100 shares are held
by a Grantee, then Incentive Stock Options for all such shares must be exercised
at one time; and PROVIDED, FURTHER, that if the Grantee, while still employed by
the Company or any of its Subsidiaries, shall die within the Incentive Stock
Option Period, the Incentive Stock Option may be exercised, to the extent
specified in the Incentive Stock Option Agreement, and as herein provided, but
only prior to the first to occur of:
(i) the expiration of the period of one year after the date of
the Grantee's death, or
(ii) the expiration of the Incentive Stock Option Period,
by the person or persons entitled to do so under the Grantee's will, or, if the
Grantee shall fail to make testamentary disposition of said Incentive Stock
Option, or shall die intestate, by the Grantee's legal representative or
representatives.
(d) Each Incentive Stock Option granted under this Plan shall by its
terms be non-transferable by the Grantee except by will or by the laws of
descent and distribution, and each
(3)
<PAGE>
Incentive Stock Option shall by its terms be exercisable during the
Grantee's lifetime only by him.
(e) Notwithstanding the foregoing, if an Incentive Stock Option is
granted to a person at any time when such person owns, within the meaning of
Section 424(d) of the Code, more than 10% of the total combined voting power of
all classes or stock of the employer corporation (or a parent or subsidiary of
such corporation within the meaning of Section 424 of the Code), the price at
which each share of Common Stock covered by such Incentive Stock Option may be
purchased pursuant to such Incentive Stock Option shall not be less than 110% of
the fair market value (determined as in paragraph (a) of this paragraph 6) of
the shares of Common Stock at the time the Incentive Stock Option is granted,
and such Incentive Stock Option must be exercised within a period specified in
the Incentive Stock Option Agreement which does not exceed five years after the
date on which such Incentive Stock Option is granted.
(f) The Incentive Stock Option Agreement entered into pursuant hereto
may contain such other terms, provisions, and conditions not inconsistent
herewith as shall be determined by the Committee, including, without limitation,
provisions (i) requiring the giving of satisfactory assurances by the Grantee
that the shares are purchased for investment and not with a view to resale in
connection with a distribution of such shares, and will not be transferred in
violation of applicable securities laws, (ii) restricting the transferability of
such shares during a specified period, and (iii) requiring the resale of such
shares to the Company at the option price if the employment of the employee
terminates prior to a specified time. In addition, the Committee, in its
discretion, may afford to holders of Incentive Stock Options granted under this
Plan the right to require the Company to cause to be registered under the
Securities Act of 1933, as amended, for public sale by the holders thereof,
shares of Common Stock subject to such Incentive Stock Options upon such terms
and subject to such conditions as the Committee may determine to be appropriate.
(g) In the discretion of the Committee, a single Stock Option
Agreement may include both Incentive Stock Options and Non-Incentive Stock
Options, or those Options may be included in separate stock option agreements.
(7) TERMS OF NON-INCENTIVE STOCK OPTIONS. Each Non-Incentive Stock Option
granted under this Plan shall be evidenced by a Non-Incentive Stock Option
Agreement which shall be executed by the Company and by the person to whom such
Non-Incentive Stock Option is granted, and shall be subject to the following
terms and conditions:
(a) The price at which shares of Common Stock covered by each
Non-Incentive Stock Option may be purchased pursuant thereto shall be an amount
not less than the par value of such shares and not less than the fair market
value of such shares on the date of grant.
(b) Each Non-Incentive Stock Option Agreement shall provide that such
Non-Incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, within a period of up to and
including ten years after the date on which the Non-Incentive Stock Option is
granted.
(c) Each Non-Incentive Stock Option granted under this Plan shall by
its terms be non-transferable by the optionee except by will or by the laws of
descent and distribution, and each
(4)
<PAGE>
Non-Incentive Stock Option shall by its terms be exercisable during the
Grantee's lifetime only by him.
(d) The Non-Incentive Stock Option Agreement entered into pursuant
hereto may contain such other terms, provisions, and conditions not inconsistent
herewith as shall be determined by the Committee, in its sole discretion,
including, without limitation, the terms, provisions, and conditions set forth
in paragraph 6(f) with respect to Incentive Stock Option Agreements.
(8) LIMIT ON OPTION AMOUNT. Notwithstanding any provision contained
herein, the aggregate fair market value (determined under paragraph 6(a) as of
the time Incentive Stock Options are granted) of the shares of Common Stock with
respect to which Incentive Stock Options are first exercisable by any employee
during any calendar year (under all stock option plans of the employee's
employer corporation and its parent and subsidiary corporation within the
meaning of Section 424 of the Code) shall not exceed $100,000. If an Incentive
Stock Option exceeds this $100,000 limitation, the portion of such Option which
is exercisable for shares of Common Stock in excess of the $100,000 limitation
shall be treated as a Non-Incentive Stock Option. The limit in this paragraph
shall not apply to Options which are designated as Non-Incentive Stock Options,
and, except as otherwise provided herein, there shall be no limit on the amount
of such Options which may be first exercisable in any year.
(9) (a) ADJUSTMENT OF NUMBER OF SHARES. In the event that a dividend
shall be declared upon the shares of Common Stock payable in shares of Common
Stock, the number of shares of Common Stock then subject to any Option granted
hereunder, and the number of shares reserved for issuance pursuant to this Plan
but not yet covered by an Option, shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such share
had been outstanding on the date fixed for determining the shareholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination of
shares, merger, or consolidation, then there shall be substituted for each share
of Common Stock subject to any such Option and for each share of Common Stock
reserved for issuance pursuant to the Plan but not yet covered by an Option, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged; PROVIDED, HOWEVER, that in the event that such change
or exchange results from a merger or consolidation, and in the judgment of the
Committee such substitution cannot be effected or would be inappropriate, or if
the Company shall sell all or substantially all of its assets, the Company shall
use reasonable efforts to effect some other adjustment of each then outstanding
Option which the Committee, in its sole discretion, shall deem equitable. In
the event that there shall be any change, other than as specified above in this
paragraph 9(a), in the number or kind of outstanding shares of Common Stock or
of any stock or other securities into which such shares of Common Stock shall
have been changed or for which they shall have been exchanged, then, if the
Committee shall determine that such change equitably requires an adjustment in
the number or kind of shares theretofore reserved for issuance pursuant to the
Plan but not yet covered by an Option and of the shares then subject to an
Option or Options, such adjustment shall be made by the Committee and shall be
effective and binding for all purposes of this Plan and of each stock option
agreement. Notwithstanding the foregoing, if any adjustment in the number of
shares which may be issued and sold pursuant to Options is required by the Code
or regulations issued pursuant thereto to be approved by the shareholders in
order to enable the Company to issue Incentive Stock Options pursuant to this
Plan, then no such adjustment shall be made
(5)
<PAGE>
without the approval of the shareholders. In the case of any such
substitution or adjustment as provided for in this paragraph 9(a), the
option price in each stock option agreement for each share covered
thereby prior to such substitution or adjustment will be the total
option price for all shares of stock or other securities which shall
have been substituted for each such share or to which such share shall
have been adjusted pursuant to this paragraph 9. No adjustment or
substitution provided for in this paragraph 9 shall require the Company,
in any stock option agreement, to sell a fractional share, and the total
substitution or adjustment with respect to each stock option agreement
shall be limited accordingly. Notwithstanding the foregoing, in the case
of Incentive Stock Options, if the effect of the adjustments or
substitution is to cause the Incentive Stock Option to fail to continue
to qualify as an Incentive Stock Option or to cause a modification,
extension, or renewal of such Incentive Stock Option within the meaning
of Section 424 of the Code, the Board of Directors shall use reasonable
efforts to effect such other adjustment of each then outstanding option
as the Board of Directors, in its sole discretion, shall deem equitable.
(b) In the event that the Company shall effect a distribution, other
than a normal and customary cash dividend, upon shares of Common Stock, the
Committee may, in order to prevent significant diminution in the value of
Options as a result of any such distribution, take such measures as it deems
fair and equitable, including, without limitation, the adjustment of the option
price per share for shares not issued and sold hereunder prior to the record
date for said distribution.
(10) AMENDMENTS. This Plan may be terminated or amended from time to time
by vote of the Committee; PROVIDED, HOWEVER, that no such termination or
amendment shall materially adversely affect or impair any then outstanding
Option without the consent of the Grantee thereof and no amendment which shall
(i) change the total number of shares which may be issued and sold pursuant to
Options granted under this Plan, or (ii) change the designation or class of
employees or other persons eligible to receive Incentive Options or
Non-Incentive Options, shall be effective without the approval of the
shareholders. Notwithstanding the foregoing, the Plan may be amended by the
Committee to incorporate any amendments made to the Code or regulations
promulgated thereunder which the Committee deems to be necessary or desirable to
preserve (i) incentive stock option status for outstanding Incentive Stock
Options and the ability to issue Incentive Stock Options pursuant to this Plan,
and (ii) the deductibility by the Company pursuant to Section 162(m) of the Code
of amounts taxed to Plan participants as ordinary compensation income.
(11) EFFECTIVE DATE AND TERMINATION. This Plan shall become effective on
the date its adoption is approved by the shareholders of the Company. Except to
the extent necessary to govern outstanding Options, this Plan shall terminate
on, and no additional Options shall be granted after, ten years from the date
the Plan is adopted, or ten years from the date the Plan is approved by the
shareholders, whichever is earlier.
(6)
<PAGE>
EXHIBIT 10.8.8
DIRECTOR LOAN AGREEMENT
THIS AGREEMENT made as of the 12th day of February, 1998, by and between
HAROLD ROTHSTEIN, of Boca Raton, Florida ("Lender"), and AMERICAN CARD
TECHNOLOGY, INC., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company is this day closing on the sale of units of notes (the
"Bridge Notes") and securities in the Company offered pursuant to a Confidential
Private Placement Memorandum dated February 3, 1998 (the "Private Placement");
and
WHEREAS, in connection with the Private Placement, and as a condition to
the closing thereof, Lender has agreed to make available to the Company on an
unconditional basis loans to the Company in the original principal amount of
Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) (the "Loans") to be
used at the Company's discretion for working capital and certain expenses to be
incurred in connection with an anticipated initial public offering of the
Company's securities;
WHEREAS, in partial consideration for making the Loans, Lender is being
tendered 12,500 shares of common stock, par value $.001 per share, in the
Company (the "Common Stock") to be transferred by Lilly Beter Capital Group.
Ltd., a consultant to the Company, and to grant to Lender a warrant to purchase
12,500 shares of Common Stock at an exercise price of 80% of the per share
market value of the Common Stock on the date of exercise.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
1. REPRESENTATIONS AND WARRANTIES. the Company represents and warrants
to Lender that:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with all the requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted and is duly qualified and in good
standing in every jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary;
(b) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Lender by the Company pursuant to the terms hereof, have been duly authorized,
are each valid, legal and binding upon it and enforceable in accordance with
their respective terms;
(c) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Lender by the Company pursuant to the terms hereof, the consummation of the
transactions herein contemplated, the fulfillment of or compliance with the
terms and provisions hereof and of each and every other instrument, agreement or
document required to be executed and delivered to Lender by the Company pursuant
to the terms hereof, are within its
<PAGE>
powers, are not in contravention of any
provisions of its certificate of incorporation or any amendments thereto, or of
its by-Laws.
2. AMOUNT AND TERMS OF LOANS. Pursuant to the terms of this Agreement,
Lender shall make Loans to the Company, upon its request and within three (3)
business days of such request, which in the aggregate do not exceed Four Hundred
Fifty Thousand and 00/100 Dollars ($450,000.00). The Loans and each of them
shall be made upon the following terms and conditions:
(a) The maximum aggregate principal amount of the Loans shall be in
the amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), and
shall be evidenced by a promissory grid note (the "Note") with appropriate
insertions of names, dates and amounts. The Loans shall bear interest at a rate
per annum equal to ten percent (10.00%). Interest shall be charged on the
principal balance from time to time outstanding on the basis of the actual
number of days elapsed computed on the basis of a three hundred sixty (360) day
year. Interest shall be due and payable, in arrears on the Maturity Date (as
hereinafter defined);
(b) The Loans made by Lender to the Company pursuant to this
Paragraph 2 shall be recorded in an account on the books of Lender bearing the
Company's name (the "Company's Account"). There shall also be recorded in the
Company's Account all payments made by the Company on the Loans and interest
accrued thereon.
(c) The outstanding principal amount owed hereunder, together with
all accrued but unpaid interest thereon, shall be due and payable in full on the
earlier of (i) the closing of an initial public offering of the Company's
securities and (ii) March 3, 2002 (the "Maturity Date");
(d) Maker shall have the right to prepay the outstanding principal
amount of this Note, in whole or in part at any time.
(e) The provisions of this Paragraph 2 shall continue in effect until
the Maturity Date, PROVIDED, HOWEVER, that Lender's obligations to advance Loans
to the Company pursuant to the provisions of this Paragraph 2 shall cease upon
the occurrence of an Event of Default (as defined in Paragraph 3 hereof) until
such time as said Event of Default is cured.
3. DEFAULT PROVISIONS. Any one or more of the following shall constitute
an Event of Default under this Agreement and the Note:
(a) the institution of any bankruptcy proceedings against the Company
and a failure to have such proceedings dismissed within a period of sixty (60)
days;
(b) the institution of any voluntary bankruptcy proceedings by the
Company;
(c) the Company ceases to do business; or
(d) the Company dissolves or otherwise terminates its corporate
existence.
2
<PAGE>
4. GENERAL PROVISIONS.
(a) This Agreement shall survive until the Loans have been paid in
full;
(b) This Agreement is an integrated document and all terms and
provisions are embodied herein and shall not be varied by parol;
(c) It is the specific desire and intention of the parties that it
shall in all respects be construed under the laws of the State of Georgia;
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, provided,
however, that the Company shall not assign, voluntarily, by operation of law or
otherwise, any of its rights hereunder without the prior written consent of
Lender and any such attempted assignment without such consent shall be null and
void.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, and to a duplicate instrument of the same tenor, the day and year first
above written.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC.
- ----------------------------
By /s/ Lawrence O. Perl
-------------------------
- ---------------------------- Its Chief Executive Officer
- ----------------------------
/s/ Harold Rothstein
---------------------------
Harold Rothstein
- ----------------------------
3
<PAGE>
HAROLD ROTHSTEIN
650 BOCA MARINA COURT
BOCA RATON, FLORIDA 33487
- -------------------------------------------------------------------------------
February 12, 1998
Cohn & Birnbaum P.C.
100 Pearl Street
Hartford, Connecticut 06103-4500
Re: American Card Technology, Inc. (the "Company")
Attention: Richard J. Shea, Jr., Esq.
Ladies and Gentlemen:
The undersigned is simultaneously with the execution of this letter
entering into (i) a Letter Agreement dated as of the date hereof by and
between the undersigned and the Company (the "Letter Agreement") whereby the
undersigned is lending funds to the Company as a Closing Loan, as defined in
the Letter Agreement, and (ii) a Director Loan Agreement dated as of the date
hereof by and between the undersigned and the Company (the "Loan Agreement")
whereby the undersigned shall make loans (the "Director Loans") to the
Company. In connection with the Closing Loan, the undersigned has wired
$400,000.00 into an escrow account for the benefit of the Company.
The undersigned hereby authorizes Cohn & Birnbaum P.C., as Escrow Agent, to
complete the Letter Agreement by filling in the dollar amount of the Closing
Loan in an amount not to exceed $400,000.00. The undersigned further authorizes
Cohn & Birnbaum P.C. to release to the Company from escrow the amount necessary
to fund the undersigned's Closing Loan in such amount to the Company.
Furthermore, the undersigned hereby authorizes Cohn & Birnbaum P.C. to
release to the Company the difference between $400,000.00 and such Closing Loan
amount as an advance to the Company pursuant to the Loan Agreement, which amount
shall be treated as a Director Loan.
Very truly yours,
Harold Rothstein
<PAGE>
April 23, 1998
Page 2
DIRECTOR LOAN PROMISSORY GRID NOTE
$450,000.00 NEW YORK, NEW YORK FEBRUARY 12, 1998
FOR VALUE RECEIVED, AMERICAN CARD TECHNOLOGY, INC., a Delaware
corporation ("Maker"), promises to pay to the order of HAROLD ROTHSTEIN
("Holder"), at such place as may be designated in writing from time to time
by Holder, the maximum aggregate principal sum of up to Four Hundred Fifty
Thousand and 00/100 Dollars ($450,000.00), or such lesser amount as may from
time to time be outstanding under this Note, together with interest accruing
on the unpaid balance of this Note, before or after demand or judgment, at a
fixed rate per annum equal to ten percent (10.00%). Interest shall be charged
on the principal balance from time to time outstanding on the basis of the
actual number of days elapsed computed on the basis of a three hundred sixty
(360) day year. Interest shall be due and payable in arrears on the Maturity
Date, as hereinafter defined.
The outstanding principal amount, together with interest accrued
thereon, shall be due and payable in full on the earlier of (i) the closing
of an initial public offering of the Company's securities and (ii) March 3,
2002 (the "Maturity Date"). The principal amount of this Note shall be
advanced by Holder upon request of Maker and within three (3) business days
of such request. Advances and payments under this Note shall be evidenced by
a ledger maintained by Holder and attached hereto which shall set forth,
among other things, the principal amount of any advances and payments
therefor.
This Note is subject in all respects to the terrns and conditions of
that certain Director Loan Agreement dated this date between Maker and
Holder, including, without limitation, Events of Default, repayment terms and
the termin ion date set forth therein
Maker hereof further promises to pay, in addition to said principal sum
and interest, all taxes assessed upon this Note, and all reasonable costs and
expenses, including, without limitation, attorneys' fees, incurred in the
collection of this Note.
Maker shall have the right to prepay the principal amount of this Note
and interest accrued thereon in whole or in part at any time. Any partial
prepayments shall be applied first to accrued and unpaid interest and second
to the principal outstanding under this Note.
Maker waives diligence, demand, presentment for payment, notice of
nonpayment, protest and notice of protest, and notice of any renewals or
extensions of this Note, and all rights under any statute of limitations, and
agrees that the time for payment of this Note may be extended at Holder's
sole discretion, without impairing Maker's liability thereon.
This Note shall be governed by and construed in accordance with the laws
of the State of Georgia.
AMERICAN CARD TECHNOLOGY, INC.
By /s/ Lawrence O. Perl
--------------------------------
Lawrence 0. Perl
Its' Chief Executive Officer
<PAGE>
ALLONGE ENDORSEMENT TO PROMISSORY NOTE
DATED APRIL 30, 1998
IN THE ORIGINAL PRINCIPAL AMOUNT OF $450,000.00
MADE BY AMERICAN CARD TECHNOLOGY, INC.
TO THE ORDER OF
HAROLD ROTHSTEIN
Allonge annexed to and made a part of that certain Director Loan
Promissory Grid Note (the "Note") in the original principal amount of Four
Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) dated February 12, 1998
made by American Card Technology, Inc. ("Maker") in favor of Harold Rothstein
("Holder").
Holder and Maker hereby agree that the Maturity Date of the Note is
amended to the earlier of (i) the closing of debt financing negotiated by Lilly
Beter Capital Group subsequent to the closing of the Maker's initial public
offering or (ii) January 1, 2001.
All other provisions of said Note, except those amended hereby, shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned has caused this Allonge to be executed
as of the 30th day of April, 1998.
AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
--------------------------------
Its President
HOLDER:
/s/ Harold Rothstein
-----------------------------------
Harold Rothstein
<PAGE>
EXHIBIT 10.8.9
DIRECTOR LOAN AGREEMENT
THIS AGREEMENT made as of the 12th day of February, 1998, by and between
RAYMOND RONCARI, of Windsor Locks, Connecticut ("Lender"), and AMERICAN CARD
TECHNOLOGY, INC., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Company is this day closing on the sale of units of notes (the
"Bridge Notes") and securities in the Company offered pursuant to a Confidential
Private Placement Memorandum dated February 3, 1998 (the "Private Placement");
and
WHEREAS, in connection with the Private Placement, and as a condition to
the closing thereof, Lender has agreed to make available to the Company on an
unconditional basis loans to the Company in the original principal amount of
Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) (the "Loans") to be
used at the Company's discretion for working capital and certain expenses to be
incurred in connection with an anticipated initial public offering of the
Company's securities;
WHEREAS, in partial consideration for making the Loans, Lender is being
tendered 12,500 shares of common stock, par value $.001 per share, in the
Company (the "Common Stock") to be transferred by Lilly Beter Capital Group.
Ltd., a consultant to the Company, and to grant to Lender a warrant to purchase
12,500 shares of Common Stock at an exercise price of 80% of the per share
market value of the Common Stock on the date of exercise.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the mutual covenants herein contained, the parties hereto agree
as follows:
1. REPRESENTATIONS AND WARRANTIES. the Company represents and warrants
to Lender that:
(a) the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware with all the requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted and is duly qualified and in good
standing in every jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary;
(b) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Lender by the Company pursuant to the terms hereof, have been duly authorized,
are each valid, legal and binding upon it and enforceable in accordance with
their respective terms;
(c) The execution and delivery of this Agreement and each and every
other agreement, instrument or document required to be executed and delivered to
Lender by the Company pursuant to the terms hereof, the consummation of the
transactions herein contemplated, the fulfillment of or compliance
<PAGE>
with the terms and provisions hereof and of each and every other instrument,
agreement or document required to be executed and delivered to Lender by the
Company pursuant to the terms hereof, are within its powers, are not in
contravention of any provisions of its certificate of incorporation or any
amendments thereto, or of its by-Laws.
2. AMOUNT AND TERMS OF LOANS. Pursuant to the terms of this Agreement,
Lender shall make Loans to the Company, upon its request and within three (3)
business days of such request, which in the aggregate do not exceed Four Hundred
Fifty Thousand and 00/100 Dollars ($450,000.00). The Loans and each of them
shall be made upon the following terms and conditions:
(a) The maximum aggregate principal amount of the Loans shall be in
the amount of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), and
shall be evidenced by a promissory grid note (the "Note") with appropriate
insertions of names, dates and amounts. The Loans shall bear interest at a rate
per annum equal to ten percent (10.00%). Interest shall be charged on the
principal balance from time to time outstanding on the basis of the actual
number of days elapsed computed on the basis of a three hundred sixty (360) day
year. Interest shall be due and payable, in arrears on the Maturity Date (as
hereinafter defined);
(b) The Loans made by Lender to the Company pursuant to this
Paragraph 2 shall be recorded in an account on the books of Lender bearing the
Company's name (the "Company's Account"). There shall also be recorded in the
Company's Account all payments made by the Company on the Loans and interest
accrued thereon.
(c) The outstanding principal amount owed hereunder, together with
all accrued but unpaid interest thereon, shall be due and payable in full on the
earlier of (i) the closing of an initial public offering of the Company's
securities and (ii) March 3, 2002 (the "Maturity Date");
(d) Maker shall have the right to prepay the outstanding principal
amount of this Note, in whole or in part at any time.
(e) The provisions of this Paragraph 2 shall continue in effect until
the Maturity Date, PROVIDED, HOWEVER, that Lender's obligations to advance Loans
to the Company pursuant to the provisions of this Paragraph 2 shall cease upon
the occurrence of an Event of Default (as defined in Paragraph 3 hereof) until
such time as said Event of Default is cured.
3. DEFAULT PROVISIONS. Any one or more of the following shall constitute
an Event of Default under this Agreement and the Note:
(a) the institution of any bankruptcy proceedings against the Company
and a failure to have such proceedings dismissed within a period of sixty (60)
days;
(b) the institution of any voluntary bankruptcy proceedings by the
Company;
(c) the Company ceases to do business; or
(d) the Company dissolves or otherwise terminates its corporate
existence.
<PAGE>
4. GENERAL PROVISIONS.
(a) This Agreement shall survive until the Loans have been paid in
full;
(b) This Agreement is an integrated document and all terms and
provisions are embodied herein and shall not be varied by parol;
(c) It is the specific desire and intention of the parties that it
shall in all respects be construed under the laws of the State of Georgia;
(d) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, provided,
however, that the Company shall not assign, voluntarily, by operation of law or
otherwise, any of its rights hereunder without the prior written consent of
Lender and any such attempted assignment without such consent shall be null and
void.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, and to a duplicate instrument of the same tenor, the day and year first
above written.
SIGNED, SEALED, AND DELIVERED
IN THE PRESENCE OF: AMERICAN CARD TECHNOLOGY, INC.
- ------------------------------
By /s/ Lawrence O. Perl
------------------------
- ------------------------------ Its Chief Executive Officer
- ------------------------------
/s/ Raymond Rancari
------------------------
Raymond Roncari
- ------------------------------
<PAGE>
DIRECTOR LOAN PROMISSORY GRID NOTE
$450,000.00 NEW YORK, NEW YORK FEBRUARY 12,1998
FOR VALUE RECEIVED, AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation
("Maker"), promises to pay to the order of RAYMOND A. RONCARI ("Holder"), at
such place as may be designated in writing from time to time by Holder, the
maximum aggregate principal sum of up to Four Hundred Fifty Thousand and 00/100
Dollars ($450,000.00), or such lesser amount as may from time to time be
outstanding under this Note, together with interest accruing on the unpaid
balance of this Note, before or after demand or judgment, at a fixed rate per
annum equal to ten percent (10.00%). Interest shall be charged on the principal
balance from time to time outstanding on the basis of the actual number of days
elapsed computed on the basis of a three hundred sixty (360) day year. Interest
shall be due and payable in arrears on the Maturity Date, as hereinafter
defined.
The outstanding principal amount, together with interest accrued thereon,
shall be due and payable in full on the earlier of (i) the closing of an initial
public offering of the Company's securities and (ii) March 3, 2002 (the
"Maturity Date"). The principal amount of this Note shall be advanced by Holder
upon request of Maker and within three (3) business days of such request.
Advances and payments under this Note shall be evidenced by a ledger maintained
by Holder and attached hereto which shall set forth, among other things, the
principal amount of any advances and payments therefor.
This Note is subject in all respects to the terms and conditions of that
certain Director Loan Agreement dated this date between Maker and Holder,
including, without limitation, Events of Default, repayment terms, and the
termination date set forth therein.
Maker hereof further promises to pay, in addition to said principal sum and
interest, all taxes assessed upon this Note, and all reasonable costs and
expenses, including, without limitation, attorneys' fees, incurred in the
collection of this Note.
Maker shall have the right to prepay the principal amount of this Note and
interest accrued thereon in whole or in part at any time. Any partial
prepayments shall be applied first to accrued and unpaid interest and second to
the principal outstanding under this Note.
Maker waives diligence, demand, presentment for payment, notice of
nonpayment, protest and notice of protest, and notice of any renewals or
extensions of this Note, and all rights under any statute of limitations, and
agrees that the time for payment of this Note may be extended at Holder's sole
discretion, without impairing Maker's liability thereon.
This Note shall be governed by and construed in accordance with the laws of
the State of Georgia.
AMERICAN CARD TECHNOLOGY, INC.
By /s/ Lawrence O. Perl
------------------------
Lawrence 0. Perl
Its' Chief Executive Officer
<PAGE>
ALLONGE ENDORSEMENT TO PROMISSORY NOTE
DATED APRIL 30, 1998
IN THE ORIGINAL PRINCIPAL AMOUNT OF $450,000.00
MADE BY AMERICAN CARD TECHNOLOGY, INC.
TO THE ORDER OF
RAYMOND A. RONCARI
Allonge annexed to and made a part of that certain Director Loan
Promissory Grid Note (the "Note") in the original principal amount of Four
Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) dated February 12, 1998
made by American Card Technology, Inc. ("Maker") in favor of Raymond A. Roncari
("Holder").
Holder and Maker hereby agree that the Maturity Date of the Note is
amended to the earlier of (i) the closing of debt financing negotiated by Lilly
Beter Capital Group subsequent to the closing of the Maker's initial public
offering or (ii) January 1, 2001.
All other provisions of said Note, except those amended hereby, shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned has caused this Allonge to be executed
as of the 30th day of April, 1998.
AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
------------------------------
Its President
HOLDER:
/s/ Raymond A. Roncari
---------------------------------
Raymond A. Roncari
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 10.9.1
TECHNOLOGY PURCHASE AGREEMENT
by and between
SOFTCHIP ISRAEL LTD.
and
AMERICAN CARD TECHNOLOGY, INC.
Dated as of March 7th, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TECHNOLOGY PURCHASE AGREEMENT
THIS TECHNOLOGY PURCHASE AGREEMENT ("Agreement") is made and entered into
as of the 7th day of March, 1998, between SOFTCHIP ISRAEL LTD. a corporation
organized under the laws of Israel ("Seller"), and AMERICAN CARD TECHNOLOGY,
INC., a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller owns that certain DVK-1 Chip Operating System (the "DVK-1
System") and development environment; and
WHEREAS, Seller desires to sell and assign and Buyer desires to purchase
and acquire the DVK-1 System and development environment; and
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, and conditions set forth below, the parties hereby agree as
follows:
(1) CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below.
"Affiliate" shall mean, with respect to any Person, any shareholder,
subsidiary, officer, director or partner of such Person and any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person.
"Agreement" shall mean this Technology Purchase Agreement and all Exhibits
hereto, as the same may from time to time be amended.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement to be held at the offices of Cohn & Birnbaum P.C., 100 Pearl Street,
Hartford Connecticut, on the Closing Date or in such other place as may be
agreed to by the parties to this Agreement.
"Closing Date" shall mean the earlier of (i) September 15, 1998 or (ii) the
closing of an initial public offering of securities of the Buyer.
"Intellectual Property Rights" shall mean and include all of the Seller's
right, title and interest in and to the DVK-1 System and names "DVK-1," "DVK,"
and any other trade names used by the Seller with respect to the DVK-1 System
and development environment, together with all trademarks, copyrights, patents,
rights of privacy and all other intellectual property owned by the Seller in
connection with the DVK-1 System and development environment.
"Litigation Expense" shall mean any expenses reasonably incurred in
connection with investigating, defending or asserting any claim, action, suit or
proceeding incident to any matter indemnified against under this Agreement,
including, without limitation, court filing fees, court costs, arbitration fees
or costs, witness fees, and fees and disbursements of legal counsel,
investigators, expert witnesses, accountants and other professionals.
<PAGE>
"Loss" shall mean any loss, obligation, claim, liability, settlement
payment, award, judgment, fine, penalty, interest charge, expense, damage or
deficiency or other charge, other than Litigation Expense.
"Major Enhancement" shall mean a change to the DVK-1 silicon mask ROM code
that (i) adds functionality, (ii) changes communication protocols or (iii)
involves downloading EEPROM code of over one kilobyte that implements (i) or
(ii) above.
"Minor Enhancement" shall mean (i) any change to the software drivers in
the host computer; (ii) porting host computer software to a different host
computer operating system; (iii) porting host computer software to a different
host computer central processing unit ("CPU"); (iv) downloading EEPROM code of
less than one kilobyte that implements a Major Enhancement; or (v) downloading
any amount of code to EEPROM for technical feasibility tasks, PROVIDED, HOWEVER,
that if such amount is greater than one kilobyte, the intellectual property
rights of such downloaded code shall, unless otherwise agreed to by the parties,
remain those of the Seller, and the results of any such feasibility studies
shall belong solely to the Buyer.
"Minor Mask Release" shall mean porting the DVK-1 silicon mask ROM code to
another chip, either with the same or different CPU type or memory
configuration, provided protocols are preserved and functionality is preserved
or reduced.
"Person" shall mean and include an individual, a corporation, a
partnership, a limited liability company, a limited liability partnership, a
joint venture, a trust, an unincorporated association, a government or political
subdivision or agency thereof or any other entity.
"Purchased Assets" shall mean all of the assets of the Seller described in
Section 3(a) hereof and more specifically set forth in EXHIBIT A hereto.
2) ACKNOWLEDGEMENTS. Buyer hereby acknowledges that the Seller has
previously provided to Buyer the DVK-1 System which Buyer has fully examined and
has found to be to its full satisfaction. Buyer hereby waives any claim of
unsuitability and acknowledges that the DVK-1 System as delivered is fully in
accordance with all representations of Seller regarding suitability and fully in
keeping with the specifications set out in its accompanying documentation.
3) SALE OF ASSETS; LIMITATIONS.
(a) Subject to the terms and conditions set forth in this Agreement,
at the Closing, in consideration of the payment of the Purchase Price, as
defined in Section 4 below, the Seller shall sell, transfer, assign, convey and
deliver to the Buyer, and the Buyer shall purchase, accept and acquire from the
Seller, all of the following assets and properties of the Seller (collectively,
the "Purchased Assets"):
(i) the DVK-1 System and development environment, including,
without limitation, all source code, object code, derivative mask, and
documentation; and
(ii) all Intellectual Property Rights.
(2)
<PAGE>
(b) Upon the Closing, Buyer shall have the sole and exclusive
worldwide rights to develop, use, manufacture, modify, upgrade, improve and
enhance, and license, the DVK-1 System (including, without limitation, making
any Minor Enhancements thereto) and Seller shall have no further rights
therein. Notwithstanding the foregoing, Buyer hereby acknowledges and agrees
that Buyer shall not make any Major Enhancement or alter the code of the
DVK-1 System in order to create a derivative mask (other than a Minor Mask
Release) which differs from that embedded in the DVK-1 System.
(c) The Buyer hereby agrees not to convey, transfer, or sell, (except
to a purchaser of all or substantially all of the assets of Buyer other than a
competitor of Seller), the DVK-1 System, Intellectual Property Rights or DVK-1
source code to any third party without the prior written consent of Seller,
which consent shall not be unreasonably withheld. Withholding of consent of
sale to a competitor of Seller shall not be deemed unreasonable.
4) PURCHASE PRICE. The aggregate purchase price to be paid by the Buyer
for the Purchased Assets (the "Purchase Price") shall be One Hundred Thousand
and 00/100 Dollars ($100,000.00), payable at the Closing in the manner described
in Section 5(b) hereof.
5) INSTRUMENTS OF TRANSFER; PAYMENT OF PURCHASE PRICE; FURTHER ASSURANCES
(a) SELLER'S DELIVERIES. At the Closing, the Seller shall deliver
the following to the Buyer, each of which shall be in form reasonably
satisfactory to the Buyer:
(i) Bill of Sale for the Purchased Assets;
(ii) instruments of transfer reasonably necessary to transfer to
the Buyer all of the Seller's rights to any Intellectual Property Rights
included as Purchased Assets, including any instruments of assignment to assign
Seller's interest in such rights to be filed with the United States Patent and
Trademark Office or the equivalent governmental office of any other country at
Buyer's option;
(iii) Director's Certificate regarding resolutions authorizing
this transaction and the due authority of persons executing documents on
behalf of the Seller;
(iv) legal opinions of the Seller's counsel in form and
substance satisfactory to Buyer and Buyer's counsel;
(v) a Certificate as to the Seller's compliance with
Sections 10(a) and (b) of this Agreement;
(vi) Evidence reasonably satisfactory to the Buyer, of the
Seller's ownership of and authority to convey the Purchased Assets; and
(vii) Such other instrument or instruments of transfer, in
such form as shall be reasonably necessary or appropriate to vest in the
Buyer all of the Seller's right, interest and title to the Purchased Assets.
(3)
<PAGE>
(b) BUYER'S DELIVERIES. At the Closing, the Buyer shall deliver the
following to the Seller, each of which shall be in form reasonably satisfactory
to the Seller:
(i) bank checks or wire transfers of immediately available
funds for an aggregate amount equal to the Purchase Price;
(ii) a certificate as to the Buyer's compliance with Sections
9(a) and (b) of this Agreement;
(iii) Secretary's Certificate regarding resolutions
authorizing this transaction and the due authority of persons executing
documents on behalf of the Buyer; and
(iv) an opinion of counsel to the Buyer in form and substance
satisfactory to Seller and Seller's counsel; and
(v) such further instruments as the Seller may reasonably
request to evidence the consummation of the transactions contemplated by this
Agreement.
(6) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents
and warrants to the Buyer as follows:
(a) ORGANIZATION; GOOD STANDING; POWER. The Seller is a duly
organized, validly existing corporation in good standing under the laws of the
State of Israel. The Seller has the corporate power, authority and capacity to
own, lease and operate its properties, and to carry on its business as and where
the same is now being conducted.
(b) AUTHORIZATION; EFFECTIVE AGREEMENT. The Seller has the requisite
corporate power, authority and capacity to enter into this Agreement and to
perform all of its obligations hereunder. All corporate proceedings required to
be taken by the Seller to authorize the execution and delivery of this Agreement
and the performance of the Seller's obligations hereunder have been duly taken,
and this Agreement constitutes the legal, valid and binding obligation of the
Seller, enforceable against it in accordance with its terms. The execution,
delivery and performance of this Agreement by the Seller does not and will not
conflict with, violate or result in the breach of any of the terms or conditions
of, or constitute a default under, the Articles of Incorporation or By-Laws of
the Seller or any indenture, mortgage, pledge, note, bond, license, permit or
other agreement, commitment or lease to which the Seller is a party or by which
the Seller or its assets are bound or affected, or any law, regulation,
ordinance or decree to which the Seller or its assets are subject, except for
such violations of any law, regulation, ordinance or decree which would not have
a material adverse effect on the Purchased Assets.
(c) CONSENTS. No permit, consent, approval, or authorization of any
governmental authority or any other Person on the part of the Seller is required
in connection with the execution or delivery by the Seller of this Agreement or
the consummation of the transactions contemplated hereby.
(d) ADEQUACY OF AND TITLE TO PURCHASED ASSETS. The Seller has good
and marketable title to all of the Purchased Assets, none of which are subject
to a mortgage, pledge, lien, security interest, lease, charge, encumbrance or
conditional sale or other title retention agreement.
(4)
<PAGE>
(e) INTELLECTUAL PROPERTY RIGHTS. The Seller is the sole and
exclusive owner of any and all intellectual property rights in and to the
Purchased Assets, including, without limitation, any and all trademarks,
patents, copyrights, rights of privacy, and trade secrets. The Seller
acknowledges, however, that the names "DVK-1" and "DVK" are not registered
trademarks. The Seller has the sole and exclusive right to use all such
intellectual property rights, the Seller's use of such intellectual property
rights does not conflict with the intellectual property rights of any other
party, and all such intellectual property rights are fully assignable to the
Buyer without the consent of any third party and, to the best of Seller's
knowledge, without infringing or violating the rights of any third party.
(f) SELLER ACTIONS. The Seller has not sold, assigned, licensed,
transferred, or otherwise conveyed any rights in any of the Purchased Assets, or
entered into any agreements with any third party to do so.
(g) LITIGATION, ETC. There is no suit, action or litigation,
administrative hearing, arbitration, labor controversy, warranty claim,
governmental inquiry, investigation or other proceeding or claim pending or, to
the Seller's knowledge, threatened against or relating to the Seller with
respect to the Purchased Assets. There are no judgments, consent decrees or
injunctions against, affecting or binding upon the Seller with respect to the
Purchased Assets. The Seller is in compliance with all laws, ordinances,
requirements, orders and regulations applicable to it, the violation of which
would have a material adverse effect on the Purchased Assets or on the ability
of the Seller to consummate the transactions contemplated hereby.
(h) DELIVERIES. The Seller has delivered or made available to the
Buyer true, correct and complete copies of the by-laws, articles of
incorporation and organizational documents of the Seller and if embodied in
written form, all Intellectual Property Rights and other information or data
referred to in this Section 7.
(i) INACCURACIES. Neither this Agreement nor any certificate or
statement furnished by or on behalf of the Seller at the Closing in connection
with this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein not misleading; and there is no fact known to the Seller in connection
with this Agreement which might reasonably be expected to materially adversely
affect the ability of the Seller to consummate the transactions contemplated
hereby which has not been set forth herein or in a certificate or statement
furnished to the Buyer at the Closing by the Seller.
(7) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller as follows:
(a) ORGANIZATION; GOOD STANDING; POWER. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Buyer has the requisite power, authority and capacity to
own, lease and operate its properties and to carry on its intended business.
(b) AUTHORIZATION. The Buyer has the requisite power, authority and
capacity to enter into this Agreement and to perform all of its obligations
hereunder. The Buyer has duly taken all necessary action to approve this
Agreement and the performance of its obligations hereunder. This Agreement
(5)
<PAGE>
constitutes the legal, valid and binding obligation of the Buyer enforceable
against it in accordance with its terms.
(c) EFFECTIVE AGREEMENT. The execution, delivery and performance of
this Agreement by the Buyer do not and will not (i) conflict with, violate or
result in the breach of any of the terms or conditions of, or constitute a
default under, the articles of organization or operating agreement of the Buyer,
or any contract, agreement, commitment, indenture, mortgage, pledge, note, bond,
license, permit or other instrument or obligation to which the Buyer is a party
or by which the Buyer or its assets are bound or affected, or any law,
regulation, ordinance or decree to which the Buyer or its assets are subject, or
(ii) result in the creation or imposition of any lien, security interest,
charge, encumbrance, restriction or right, including rights of termination or
cancellation, in or with respect to, or otherwise materially adversely affect,
any of the properties, assets or business of the Buyer.
(d) CONSENTS. No permit, consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or any other
Person on the part of the Buyer is required in connection with the execution or
delivery by the Buyer of this Agreement or the consummation of the transactions
contemplated hereby, except where the failure to obtain such consent would not
materially adversely affect the Buyer's ability to consummate the transactions
contemplated by this Agreement.
(e) SHAREHOLDERS. Attached hereto as EXHIBIT B is a list setting
forth the names of shareholders of the Buyer. The Buyer agrees to give the
Seller notice of any changes to such list within thirty (30) days of the
effective date of any such changes, PROVIDED, HOWEVER, that Buyer's obligation
to provide such information to the Seller terminates upon the closing of an
initial public offering of securities of the Buyer.
(f) LITIGATION. There is no suit, action or litigation,
administrative hearing, governmental inquiry, investigation, arbitration or
other proceeding pending or, to the Buyer's knowledge, threatened against or
relating to the Buyer. There are no judgments, consent decrees or injunctions
against, affecting or binding upon the Buyer. The Buyer is in compliance with
all laws, ordinances, requirements, orders and regulations applicable to it, the
violation of which would have a material adverse effect on its ability to
consummate the transactions contemplated by this Agreement, and the Buyer has
not received notice of any claimed violation with respect to any of the
foregoing, and none of the foregoing will be affected by the consummation of the
transactions contemplated by this Agreement.
(8) USE OF NAME. The Seller agrees that from and after the Closing Date,
neither the Seller nor any person under the control of the Seller shall use the
name "DVK-1" or "DVK" for any computer chip operating system or software source
documents, or any devices otherwise used in computer systems. Notwithstanding
the foregoing, Seller may acknowledge that Seller created the DVK-1 System in
advertisements and promotional material to which Buyer has given its prior
written consent, which consent shall not be unreasonably withheld.
(9) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. All
obligations of the Seller under this Agreement are subject to the fulfillment,
at or prior to the Closing Date, of each of the following conditions, which
conditions may be waived only by the Seller:
(6)
<PAGE>
(a) The representations and warranties of the Buyer herein contained
shall be true and correct as of the date hereof.
(b) The Buyer shall have performed or complied with all the
obligations, agreements and covenants of the Buyer herein contained to be
performed by it prior to or as of the Closing Date.
(c) The Seller shall have received a certificate of the Buyer as to
compliance with paragraphs (a) and (b) of this Section 9.
(d) No action, suit or proceeding by or before any court or any
governmental or regulatory authority shall have been commenced or threatened,
and no investigation by any governmental or regulatory authority shall have been
commenced or threatened, seeking to restrain, prevent or change the transactions
contemplated hereby or seeking judgments against the Seller or the Buyer
awarding substantial damages in respect of the transactions contemplated hereby.
(e) All deliveries required to be made under this Agreement to the
Seller at or before the Closing Date shall have been received by the Seller.
(10) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER. All obligations
of the Buyer under this Agreement are subject to the fulfillment, at or prior to
the Closing Date, of each of the following conditions, which conditions may be
waived only by the Buyer.
(a) The representations and warranties of the Seller herein contained
shall be true and correct as of the date hereof.
(b) The Seller shall have performed or complied with all the
obligations, agreements and covenants herein contained to be performed by them
prior to or as of the Closing Date.
(c) The Buyer shall have received a certificate from the Seller as to
compliance with paragraphs (a) and (b) of this Section 10.
(d) No action, suit or proceeding by or before any court or any
governmental or regulatory authority shall have been commenced or threatened,
and no investigation by any governmental or regulatory authority shall have been
commenced or threatened, seeking to restrain, prevent or change the transactions
contemplated hereby or seeking judgments against the Seller or the Buyer
awarding substantial damages in respect of the transactions contemplated hereby.
(e) All deliveries required to be made under this Agreement to the
Buyer on or before the Closing Date shall have been received by the Buyer.
(11) INDEMNIFICATION; SURVIVAL
(a) INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify and save
harmless the Seller, officers and directors of the Seller and their respective
successors and assigns from, against, for and in respect of:
(7)
<PAGE>
(i) any Loss incurred or required to be paid because of the
breach of any representation, warranty, covenant or agreement of the Buyer in
this Agreement; and
(ii) any Litigation Expense incurred or required to be paid
in connection with any matter indemnified against in Section 11(a)(i) hereof.
(b) INDEMNIFICATION BY THE SELLER. The Seller shall indemnify and
save harmless the Buyer, the Affiliates of the Buyer, employees, officers, and
directors of the Buyer, and their respective successors and assigns from,
against, for and in respect of:
(i) any Loss incurred or required to be paid because of the
breach of any representation, warranty, covenant or agreement of the Seller
in this Agreement;
(ii) any claims raised between the date of Closing and five
years thereafter, to the extent they are based upon any claimed infringement
or violation of any third party's copyright, patent, trademark or other
property right by any of the Purchased Assets, except to the extent the claim
is a result of the combination of the Purchased Assets with other software or
equipment which is not included in the Purchased Assets. In the event that
Buyer receives notice of any such claim, Buyer shall (i) promptly notify
Seller of the claim, (ii) permit Seller to assume the defense of such claim
or any negotiations related thereto at Seller's expense (though no settlement
of such claim may be entered into without Buyer's approval which shall not be
unreasonably withheld), and (iii) provide such information and assistance as
is requested by Seller in connection with the defense of such claim. In
addition to defending such claim as provided in the foregoing (regardless of
the outcome), Seller will pay any amount finally awarded in a proceeding to
the extent based upon such a claim (including attorney's fees, if any, in
such award), provided that such award is based upon a finding that Seller
knew or should have known of the infringement or violation of such third
party's rights. Should any such claims be made or brought to the attention
of the parties or either of them prior to the Closing, either party shall
have the option to cancel this Agreement by written notice to the other prior
to Closing, in which case the parties shall have no further obligations
whatsoever to each other hereunder. If neither party elects to so cancel,
Seller shall be obligated to act in accordance with this Section.
(iii) any Litigation Expense incurred or required to be paid
in connection with any matter indemnified against in Section 11(b)(i) or
Section 11(b)(ii) hereof.
(c) SURVIVAL. The representations, warranties, covenants and
agreements of the parties hereto (including indemnification obligations of
the parties hereunder with respect to all Losses and Litigation Expense
incurred or required to be paid) shall survive the execution and delivery of
this Agreement.
(d) NOTICE. The indemnified party shall use its best efforts to give
prompt written notice to the indemnifying party or parties of any claim or event
known to it which does or may give rise to a claim by the indemnified party
against the indemnifying party or parties based on this Agreement, stating the
nature and basis of said claims or events and the amounts thereof, to the extent
known.
(e) DEFENSE OF CLAIMS OR ACTIONS. In the event any claim, action,
suit or proceeding is made or brought by third parties with respect to which a
party may be entitled to indemnity hereunder, the
(8)
<PAGE>
indemnified parties shall given written notice of such claim, action, suit or
proceeding and a copy of the claim, process and all legal pleadings with
respect thereto to the indemnifying parties within ten (10) business days of
being served with such claim, process or legal pleading. Such notice shall
not be a condition precedent to any liability of the indemnifying parties
under this Agreement unless the failure to give such notice results in any
prejudice to the indemnifying parties. The indemnifying parties shall have
the right to assume the defense of any such claim or action. If the
indemnifying parties wish to assume the defense of such claim or action, such
assumption shall be evidenced by written notice to the indemnified parties.
After such notice, the indemnifying parties shall engage independent legal
counsel of reputable standing selected by them to assume the defense and may
contest, pay, settle or compromise any such claim or action on such terms and
conditions as the indemnifying parties may determine. If the indemnifying
parties assume the defense of any such claim, action, suit or proceeding, the
indemnified parties shall have the right to employ their own counsel, at
their own expense, and if the indemnified parties shall have reasonably
concluded and specifically notified the indemnifying parties either that
there may be specific defenses available to them which are different from or
additional to those available to the indemnifying parties or that such claim,
action, suit or proceeding involves or could have a material adverse effect
upon them with respect to matters beyond the scope of the indemnity provided
hereunder, then the counsel representing them, to the extent made necessary
by such defenses, shall have the right to direct such defenses of such claim,
action, suit or proceeding in its behalf at the indemnified party's expense.
In the event that the indemnifying parties shall not agree in writing to
assume the defense of such claim or action, the indemnified parties may
engage independent counsel of reputable standing selected by them to assume
the defense and may contest, pay, settle or compromise any such claim or
action on such terms and conditions as the indemnified parties may determine;
PROVIDED, HOWEVER, that the indemnified parties shall not settle or
compromise any claim or action without the prior consent of the indemnifying
parties (which consent shall not be unreasonably withheld). The fees and
expenses of such counsel shall constitute Litigation Expenses. The
indemnified parties and the indemnifying parties shall cooperate in good
faith in connection with such defense, and all such parties shall have the
right to employ their own counsel; but, except as provided above, the fees
and expenses of their counsel shall be at their own expense. The indemnified
parties or the indemnifying parties, as the case may be, shall be kept fully
informed of such claim, action, suit or proceeding at all stages thereof,
whether or not they are represented by their own counsel.
(f) COOPERATION. The parties hereto agree to render to each other
such assistance as they may reasonably require of each other and to cooperate in
good faith with each other in order to ensure the proper and adequate defense of
any claim, action, suit or proceeding brought by any third party. Where
independent counsel has been selected by the indemnifying parties or by the
indemnified parties pursuant to Section 11(e) hereof, the indemnifying parties
or the indemnified parties, as the case may be, shall be entitled to rely upon
the reasonable advice of such counsel in the reasonable conduct of the defense,
and no indemnifying party shall be relieved of liability hereunder by reason of
such reliance or the defense conducted by such counsel.
(g) THE BUYER'S RIGHT OF OFFSET. Without limiting in any way the
rights of the Buyer to be indemnified under this Section 11 for Losses and
Litigation Expense (or the measure of amounts of loss and Litigation Expense for
which the Buyer may be entitled to indemnification), the Buyer shall have a
right to offset against the amounts due under Section 5 hereof and against the
amounts due under Section 11 hereof for the amount of any Loss or Litigation
Expenses incurred by the Buyer.
(9)
<PAGE>
(12) RESTRICTIVE COVENANTS. The parties hereto acknowledge that (i) the
Seller has developed trade secrets and confidential information concerning
the Purchased Assets, and (ii) in the course of dealing with each other, the
parties have acquired confidential information about the business,
activities, operations, technical information, and trade secrets of each
other, and (iii) the agreements and covenants contained in this Section 12
are essential to protect each of the parties following the consummation of
the transactions contemplated hereby or in the event (i) of a failure to
consummate such transactions, or (ii) this Agreement is terminated for any
reason. Accordingly, each party covenants and agrees as follows:
(a) CONFIDENTIAL INFORMATION. Each party shall keep secret and
retain in strictest confidence, and shall not use, in competition with or in
a manner otherwise detrimental to the interests of the other, for the benefit
of itself or others other than the other party hereto, any confidential
information, including, without limitation, any confidential technology,
"know-how," trade secrets, processes, designs, specifications, inventions,
methods, developmental work, improvements, unpublished patent applications,
development tools, software programs, software source documents, licenses,
customer lists, customer personnel information, details of client or
consultant contracts, pricing policies, operational methods, marketing plans
or strategies, or product development techniques or plans related to the
Purchased Assets or the other party hereto ("Confidential Information").
Notwithstanding the foregoing, nothing herein shall prohibit Buyer from using
the Purchased Assets in any manner whatsoever so long as such use is not in
violation of this Agreement. The term "Confidential Information" does not
include, and there shall be no obligation hereunder with respect to, (i)
information concerning either Seller or Buyer that becomes generally
available to the public other than as a result of a disclosure by the other
party or any agent or other representative thereof after the Closing Date,
and (ii) general business methods applicable to the Purchased Assets. The
parties shall have no obligation hereunder to keep confidential any of the
Confidential Information to the extent disclosure of any thereof is required
by law, or determined in good faith by the disclosing party to be necessary
or appropriate to comply with any legal or regulatory order, regulation or
requirement; PROVIDED, HOWEVER, that in the event disclosure is required by
law, the disclosing party shall use best efforts to provide the other party
with prompt advance notice of such requirement so that the other party may
seek an appropriate protective order.
(b) RIGHTS AND REMEDIES UPON BREACH. In the event a party breaches,
or threatens to commit a breach of, any of the provisions of this Section 12 or
Section 3(c) hereof (the "Restrictive Covenants"), the non-breaching party may
have the Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the non-breaching party
and that money damages would not provide an adequate remedy to the non-breaching
party. Such rights and remedies, shall be independent of any others and
severally enforceable, and shall be in addition to, and not in lieu of, any
other rights and remedies available to the non-breaching party at law or in
equity.
(c) SEVERABILITY OF COVENANTS. Each party acknowledges and agrees
that the Restrictive Covenants are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part thereof, are invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
(10)
<PAGE>
(d) ENFORCEABILITY IN JURISDICTIONS. The parties hereto intend to
and hereby confer jurisdiction to enforce the Restrictive Covenants upon the
courts of the State of Georgia, U.S.A. (and the Buyer and the Seller hereby
consent to the jurisdiction of such courts).
(13) TERMINATION; BREACH. Notwithstanding anything to the contrary herein,
this Agreement may be terminated and the transactions contemplated hereby may be
abandoned:
(a) by the Buyer if there exists a breach of any material
representation, warranty, covenant or agreement made to the Buyer under this
Agreement (which breach cannot be cured or is not cured upon fifteen (15) days'
written notice);
(b) by the Seller if there exists a breach of any representation,
warranty, covenant or agreement made to the Seller under this Agreement (which
breach cannot be cured or is not cured upon fifteen (15) days' written notice);
(c) by the Seller or the Buyer, provided that the terminating party
is not then in breach of any of its material representations, warranties,
covenants or agreements set forth in this Agreement, if the Closing has not been
consummated by the earlier of (i) September 15, 1998 or (ii) the closing of the
initial public offering of securities of the Buyer, or such extended date as may
be agreed to in writing by the parties.
Upon the termination of this Agreement under Section 13(c), no party
hereto shall have any further liability or obligation to any other party
hereunder, except for the obligation of each party to pay its own expenses as
set forth in Section 16 hereof and (ii) return to the Seller the DVK-1 System
previously provided to Buyer, together with all modifications, upgrades,
improvements and enhancements thereof made by Buyer or on Buyer's behalf. Upon
the termination of this Agreement under Sections 13(a) or 13(b), the terminating
party shall be entitled, in addition to pursuing other remedies, to recover its
actual damages (including costs of enforcement and reasonable attorneys' fees),
arising from the breach by the non-terminating party. In the event of a breach
by the Seller of any material representation, warranty, covenant or agreement
made by the Seller under this Agreement, the Buyer may, in lieu of exercising
its right to terminate the Agreement, bring an action to enforce the terms of
this Agreement by decree of specific performance, it being agreed that the
property to be conveyed hereunder is unique and not readily available in the
open market and, in any such event, the Seller hereby further agrees to waive
any and all defenses against any such action for specific performance on the
grounds that there is an adequate remedy for money damages available.
(14) LIMITATION ON LIABILITY. Notwithstanding any provision of this
Agreement, the liability of the Seller for damages, for any cause whatsoever,
shall be limited to an amount equal to the amount which Seller has actually
received in payment under the terms of this Agreement, provided, however that
the foregoing limitation shall not apply with respect to damages resulting from
any fraud, willful misconduct or intentional misrepresentation by Seller, and
further provided that, in the event of indemnification of the Buyer pursuant to
Section 11(b)(ii) hereof, Seller shall make pay annual payments in advance to
the Buyer, amortized over a five-year period.
(11)
<PAGE>
(15) AMENDMENTS. This Agreement may be amended, modified and supplemented
only by written agreement of the parties hereto at any time prior to the Closing
Date with respect to any of the terms contained herein.
(16) EXPENSES. Except as otherwise provided in this Agreement, each party
hereto shall bear all of its own expenses, including, without limitation, the
fees and disbursements of its counsel.
(17) NOTICES, ETC. All notices, consents, demands, requests, approvals and
other communications which are required or may be given hereunder shall be in
writing and shall be deemed to have been duly given (a) when delivered
personally, (b) if sent by facsimile, when receipt thereof is acknowledged at
the facsimile number below, (c) the second day following the day on which the
same has been delivered prepaid to a national air courier service, or (d) three
(3) business days following deposit in the mails registered or certified,
postage prepaid, in each case, addressed as follows:
if to the Seller: Softchip Israel Ltd.
418/3 Frankfurter Street
Jerusalem, Israel
Attention: Mr. Mickey Cohen
with a copy to: Wine, Misheiker & Ernstoff Law Offices
12 Moshe Hess Street
94185 Jerusalem, Israel
Attention: Brian D. Wine, Advocate
if to the Buyer: American Card Technology, Inc.
1355 Terrell Mill Road
Building 146, Suite 200
Marietta, Georgia 30067
Attention: President
with a copy to: Cohn & Birnbaum P.C.
100 Pearl Street, 12th Floor
Hartford, Connecticut 06103-4500
Attention: Richard J. Shea, Jr., Esq.
or to such other Person or Persons at such address or addresses as may be
designated by written notice hereunder.
(18) ASSIGNMENT. No party may assign or convey this Agreement or any of
their respective rights or obligations hereunder to any other party.
Notwithstanding the foregoing, the Buyer may assign its rights and obligations
hereunder to any purchaser of all or substantially all of its assets.
(19) APPLICABLE LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Georgia without giving
effect to conflict of laws principles thereof.
(20) CURRENCY. All sums of money payable hereunder are to be paid in U.S.
dollars.
(12)
<PAGE>
(21) ENTIRE AGREEMENT. This Agreement and all Exhibits hereto embody the
entire agreement and understanding of the parties hereto and supersede any prior
agreement or understanding between the parties.
(22) COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
(23) HEADINGS. Headings of the Sections in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
(24) BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
administrators, executors, successors and assigns; PROVIDED, HOWEVER, that
nothing in this Agreement, expressed or implied, is intended to confer on any
Person other than the parties hereto or their respective successors and assigns,
any rights and remedies, obligations or liabilities under or by reason of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
SELLER:
SOFTCHIP ISRAEL LTD.
By /s/ Michael Cohen
---------------------------------------
Its Managing Director
BUYER:
AMERICAN CARD TECHNOLOGY, INC.
By /s/ Raymond Findley, Jr.
---------------------------------------
Its President
(13)
<PAGE>
TABLE OF CONTENTS
(1) CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . (1)
(2) ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . (2)
(3) SALE OF ASSETS; LIMITATIONS. . . . . . . . . . . . . . . . . . . . (3)
(4) PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
(5) INSTRUMENTS OF TRANSFER; PAYMENT OF PURCHASE PRICE; FURTHER
ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
(6) REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . (4)
(7) REPRESENTATIONS AND WARRANTIES OF THE BUYER. . . . . . . . . . . . (6)
(8) USE OF NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
(9) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER. . . . . . . (7)
(10) CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER . . . . . . . (8)
(11) INDEMNIFICATION; SURVIVAL. . . . . . . . . . . . . . . . . . . . . (8)
(12) RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . .(11)
(13) TERMINATION; BREACH. . . . . . . . . . . . . . . . . . . . . . . .(12)
(15) AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .(13)
(16) EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(13)
(17) NOTICES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . .(13)
(18) ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(19) APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(20) CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(21) ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(22) COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(23) HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(14)
(24) BINDING EFFECT; BENEFITS . . . . . . . . . . . . . . . . . . . . .(14)
(i)
<PAGE>
EXHIBIT A
PURCHASED ASSETS
<PAGE>
EXHIBIT B
SHAREHOLDERS
Joseph Basch
Bruce R. Bonadies
Salvatore Cartagine
Chapman Group LLC
Lloyd R. Davis and Patricia P. Davis
Robert Dixon
Raymond Findley, Jr.
Neil Greenbaum
Barbara Hamill
John Hamill
Sidney O. Harriel
Lawrence O. Perl
The 1994 Perl Trust Indenture
Harold Rothstein
The Rothstein Family Trust
Raymond A. Roncari
Ronald Seplowitz
Richard Shelton
Susan Shelton
Joseph Sweedler
<PAGE>
EXHIBIT 10.9.2
TECHNICAL SERVICES AGREEMENT
THIS TECHNICAL SERVICES AGREEMENT ("Agreement") is made and entered into
as of the 7th day of March, 1998, between SOFTCHIP TECHNOLOGIES (3000) LTD., a
corporation organized under the laws of Israel ("SoftChip"), and AMERICAN CARD
TECHNOLOGY, INC., a Delaware corporation ("ACT").
WITNESSETH:
WHEREAS, ACT has entered into a Purchase and Sale Agreement (the "Purchase
Agreement") to purchase that certain DVK-1 Chip Operating System (the "DVK-1
System") and development environment from Softchip Israel Ltd. ("SoftChip
Israel"); and
WHEREAS, in connection with the purchase of the DVK-1 System, ACT desires
to engage SoftChip, and SoftChip desires to be so engaged, to provide technical
services to ACT with respect to the DVK-1 System.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, and conditions set forth below, the parties hereby agree
as follows:
1. ENGAGEMENT. ACT hereby engages SoftChip, and SoftChip hereby accepts
such engagement, to assist ACT with the development, design, programming,
modification, upgrading, improvement, enhancement, and testing of Error
Corrections, Minor Enhancements (but not Major Enhancements) and Minor Mask
Releases of the DVK-1 System (collectively, "Technical Support") pursuant to
the terms and conditions contained herein. During the Term (as hereinafter
defined) of this Agreement, SoftChip (or an affiliate of SoftChip) shall
provide Technical Support as requested by ACT, which Technical Support shall be
provided by personnel of SoftChip reasonably acceptable to ACT.
For the purposes of this Agreement:
(a) "Error" shall mean any failure of the DVK-1 software to conform
with the functional specifications, as agreed in writing between the parties,
resulting from code developed by SoftChip, SoftChip Israel (or any affiliate
thereof), or on behalf of any of the foregoing (collectively, the "Developer"),
when used in an environment approved by the Developer, however, nonconformity
as a result of misuse, improper use, alteration, or damage of the DVK-1
software by ACT or the combination or merging of the DVK-1 software by ACT with
hardware or software not supplied by or identified by the Developer as
compatible shall not be an Error hereunder.
(b) "Error Correction" shall mean (i) a modification or addition
that, when made or added to the DVK-1 System, established material conformity
of the DVK-1 System with the functional specifications, or (ii) a procedure or
routine that, when observed in the regular operation of the DVK-1 System,
eliminates the practical adverse effect of such nonconformity.
(c) "Major Enhancement" shall mean a change to the DVK-1 silicon
mask ROM code that (i) adds functionality, (ii) changes communication protocols
or (iii) involves downloading EEPROM code of over one kilobyte that implements
(i) or (ii) above.
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(d) "Minor Enhancement" shall mean (i) any change to the software
drivers in the host computer, (ii) porting host computer software to a
different host computer operating system, (iii) porting host computer software
to a different host computer central processing unit ("CPU"), (iv) downloading
EEPROM code of less than one kilobyte that implements a Major Enhancement, or
(v) downloading any amount of code to EEPROM for technical feasibility tasks,
PROVIDED, HOWEVER, that if such amount is greater than one kilobyte, the
intellectual property rights of such downloaded code shall, unless otherwise
agreed to by the parties, remain those of SoftChip, and the results of any such
feasibility studies shall belong solely to ACT.
(e) "Minor Mask Release" shall mean porting the DVK-1 silicon mask
ROM code to another chip, either with the same or different CPU type or memory
configuration, provided protocols are preserved and functionality is preserved
or reduced.
2. COMPENSATION.
(a) ACT shall pay SoftChip an annual fee ("Fee") in the amount of
Two Hundred Twenty-five Thousand and 00/100 Dollars ($225,000.00) in payment of
the first two (2) years of Technical Support, payable annually in advance on
the Engagement Date, as hereinafter defined, and on the anniversary of the
Engagement Date. On the Engagement Date, ACT shall deposit the Fee due on the
anniversary of the Engagement Date with an escrow agent designated by the
parties (the "Escrow Agent"). Pursuant to an escrow agreement among ACT,
SoftChip and the Escrow Agent, the Escrow Agent shall release the Fee from
escrow in four (4) equal payments and distribute the Fee to SoftChip commencing
on the anniversary of the Engagement Date and continuing every three (3) months
thereafter, provided, however, in the event ACT has given notice to the Escrow
Agent that this Agreement has been terminated by reason of a material or
essential default by SoftChip, such Fee shall not be released from escrow. The
Escrow Agent shall send a copy of such notice received from ACT to SoftChip as
herein provided, and if SoftChip does not object within 45 days of such notice
being sent, the Escrow Agent shall return the unpaid Fee to ACT. Should
SoftChip claim within such period the termination of this Agreement by ACT was
wrongful, then failing agreement between the parties hereto, the Escrow Agent
shall file a Bill of Interpleader with the court having jurisdiction and serve
notice thereof on both parties. The Fee is nonrefundable after payment even if
this Agreement is terminated for any reason other than by reason of a material
or essential default by SoftChip, and in the event this Agreement is terminated
by reason of a material or essential default by SoftChip, then a pro-rated
portion of the Fee shall be refunded to ACT.
(b) As additional compensation, ACT shall pay to SoftChip a fee
(each a "Card Fee") of Twelve and one-half Cents ($0.125) for each (i) smart
card incorporating (A) a Motorola SC21 chip and (B) the DVK-1 System, or (ii)
smart card incorporating (A) a chip other than a Motorola SC21 chip and (B) the
DVK-1 System sold by ACT, up to a total of one million two hundred thousand
(1,200,000) of such smart cards sold during each annual period for which ACT
pays a Fee, and Twenty-five Cents ($0.25) for each additional such smart card
sold, during the period commencing on the Engagement Date and ending three (3)
years after the later of (A) the third anniversary of the Engagement Date or
(B) last Minor Mask Release prepared hereunder. Nothing herein shall obligate
ACT to pay Card Fees for smart cards sold by ACT which do not incorporate the
DVK-1 System, nor shall obligate ACT to incorporate the DVK-1 System in its
smart cards. For purposes hereof, smart cards subject to Card Fees shall be
considered as sold when payment for the same has been received by ACT. For
every One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) in Card Fees
paid to SoftChip, SoftChip shall provide one (1) additional year of Technical
Support.
b
<PAGE>
(c) ACT shall pay to SoftChip, within forty-five (45) days from that
date which is the end of each such annual period, the amount of Card Fees
accrued during such annual period.
(d) Within ten (10) days after receipt, ACT shall reimburse SoftChip
for travel and equipment expenses incurred in providing support requested by
ACT (other than Technical Support) at a rate of one hundred twenty percent
(120%) of the actual amount of such expense, upon submission of evidence of
such expense.
3. TERM OF AGREEMENT.
(a) Unless otherwise terminated or cancelled as provided herein, the
term of this Agreement shall commence on that date which is the closing of the
purchase of the DVK-1 System by ACT (such date is hereinafter referred to as
the "Engagement Date") pursuant to that certain Technology Purchase Agreement
of even date herewith between SoftChip Israel Ltd. and ACT of even date
herewith (the "Purchase Agreement") and shall continue for two (2) years
thereafter (the "Term"), unless terminated pursuant to Section 9 hereof.
(b) Upon termination of the Term of this Agreement, the Agreement
shall irrevocably expire and the parties hereto shall have no further rights
hereunder, excepting only the right of SoftChip to continue to receive Card
Fees pursuant to Sections 2(b), 2(c), 14, 15, and 20 hereof, which shall
continue to apply until the right of SoftChip to receive Card Fees lapses
pursuant to Section 2(b).
(c) Any termination of this Agreement whatsoever shall not affect
any accrued rights or liabilities of either party.
(d) In the event that the Purchase Agreement is terminated prior to
Closing thereunder for any reason, this Agreement shall terminate at the same
time and upon such termination neither party shall have any further rights or
obligations hereunder.
4. REPRESENTATIONS AND WARRANTIES.
(a) SoftChip represents and warrants to ACT as follows:
(i) SoftChip is a duly organized, validly existing corporation
in good standing under the laws of the State of Israel and has the corporate
power, authority and capacity to enter into this Agreement and to perform all
of its obligations hereunder. All corporate proceedings required to be taken
by SoftChip to authorize the execution and delivery of this Agreement and the
performance of Softchip's obligations hereunder have been duly taken, and this
Agreement constitutes the legal, valid and binding obligation of SoftChip,
enforceable against it in accordance with its terms. The execution, delivery
and performance of this Agreement by SoftChip does not and will not conflict
with, violate or result in the breach of any of the terms or conditions of, or
constitute a default under, the Articles of Incorporation or By-Laws of
SoftChip or any indenture, mortgage, pledge, note, bond, license, permit or
other agreement, commitment or lease to which SoftChip is a party or by which
SoftChip is bound, or any law, regulation, ordinance or decree to which
SoftChip is subject.
(ii) SoftChip holds all licenses, permits, and registrations
necessary to conduct its business as it is presently being conducted and to
carry out its obligations under the terms of
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<PAGE>
this Agreement.
(iii) SoftChip shall render to ACT all Technical Support as
requested by ACT in a timely fashion, and shall dedicate adequate personnel and
resources to providing Technical Support to ACT
(b) ACT represents and warrants to SoftChip that ACT is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has the corporate power, authority and
capacity to enter into this Agreement and to perform all of its obligations
hereunder. ACT has duly taken all necessary action to approve this Agreement
and the performance of its obligations hereunder. This Agreement constitutes
the legal, valid and binding obligation of ACT enforceable against it in
accordance with its terms.
5. INDEMNIFICATIONS.
(a) SoftChip agrees to indemnify and hold harmless ACT from any and
all costs, debts, claims, demands, damages, losses, liabilities, actions or
causes of action, including legal fees, arising out of the breach of this
Agreement by SoftChip.
(b) ACT agrees to indemnify and hold harmless SoftChip from any and
all costs, debts, claims, demands, damages, losses, liabilities, actions or
causes of action, including legal fees, arising out of any breach of this
Agreement by ACT.
(c) Without limiting in any way the rights of ACT to be indemnified
under this Section 5, ACT shall have a right to offset against the amounts due
under Section 2 hereof for the amount of any such expenses incurred by ACT.
6. WAIVERS. A waiver (whether express or implied) by one of the parties
of any of the provisions of this Agreement or of any breach of or default by
the other party in performing any of those provisions shall not constitute a
continuing waiver and that waiver shall not prevent the waiving party from
subsequently enforcing any of the provisions of this Agreement not waived or
from acting on any subsequent breach of or default by the other party under any
of the provisions of this Agreement. Payment or acceptance of any sum shall
not constitute a waiver.
7. SEVERABILITY. The invalidity, illegality, or unenforceability of any
of the provisions of this Agreement shall not affect the validity, legality,
and enforceability of the remaining provisions of this Agreement.
8. RESTRICTIVE COVENANTS. Each of the parties hereto acknowledges that
during the course of this Agreement, the parties shall acquire confidential
information about the business, activities, operations, technical information,
and trade secrets of the other party, and the agreements and covenants
contained in this Section 8 are essential to protect the other party during the
Term and following termination of this Agreement. Accordingly, each party
covenants and agrees as follows:
(a) Each party shall keep secret and retain in strictest confidence,
and shall not use, in competition with or in a manner otherwise detrimental to
the interests of the other, for the benefit of itself or others other than the
other party hereto, any confidential information, including, without
limitation, any confidential technology, "know-how," trade secrets, processes,
designs, specifications, inventions, methods,
4
<PAGE>
developmental work, improvements, unpublished patent applications,
development tools, software programs, software source documents, licenses,
customer lists, customer personnel information, details of client or
consultant contracts, pricing policies, operational methods, marketing plans
or strategies, or product development techniques or plans related to the
DVK-1 System or the other party hereto ("Confidential Information").
Notwithstanding the foregoing, nothing herein shall prohibit Buyer from using
the DVK-1 System in any manner whatsoever so long as such use is not in
violation of this Agreement. The term "Confidential Information" does not
include, and there shall be no obligation hereunder with respect to, (i)
information concerning either SoftChip or ACT that becomes generally
available to the public other than as a result of a disclosure by the other
party or any agent or other representative thereof after the date hereof, and
(ii) general business methods applicable to the DVK-1 System. The parties
shall have no obligation hereunder to keep confidential any of the
Confidential Information to the extent disclosure of any thereof is required
by law, or determined in good faith by the party to whom the Confidential
Information was disclosed (the "receiving party") to be necessary or
appropriate to comply with any legal or regulatory order, regulation or
requirement; PROVIDED, HOWEVER, that in the event disclosure is required by
law, the receiving party shall use best efforts to provide the other party
with prompt advance notice of such requirement so that the other party may
seek an appropriate protective order.
(b) In the event a party breaches, or threatens to commit a breach
of, any of the provisions of this Section 8 (the "Restrictive Covenants"), the
non-breaching party may have the Restrictive Covenants specifically enforced by
any court of competent jurisdiction, it being agreed that any breach or
threatened breach of the Restrictive Covenants would cause irreparable injury
to the non-breaching party and that money damages would not provide an adequate
remedy to the non-breaching party. Such rights and remedies, shall be
independent of any others and severally enforceable, and shall be in addition
to, and not in lieu of, any other rights and remedies available to the non-
breaching party at law or in equity.
(c) Each party acknowledges and agrees that the Restrictive
Covenants are reasonable and valid in geographical and temporal scope and in
all other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, are invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
(d) The parties hereto intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of the State of Georgia,
U.S.A. (and ACT and Softchip hereby consent to the jurisdiction of such
courts).
(e) Notwithstanding anything contained herein to the contrary, the
provisions of this Section 8 shall survive the termination of this Agreement
for any reason.
9. TERMINATION; BREACH. Notwithstanding anything to the contrary
herein, this Agreement may be terminated and the transactions contemplated
hereby may be abandoned:
(a) by ACT if there exists a breach of any material representation,
warranty, covenant or agreement made to ACT under this Agreement (which breach
cannot be cured or is not cured upon fifteen (15) days' written notice);
(b) by Softchip if there exists a breach of any material
representation, warranty, covenant or agreement made to Softchip under this
Agreement (which breach cannot be cured or is not cured upon fifteen (15) days'
written notice);
5
<PAGE>
(c) by Softchip or ACT, provided that the terminating party is not
then in breach of any of its material representations, warranties, covenants or
agreements set forth in this Agreement, if the Term has not commenced by the
later of (i) April 30, 1998 or (ii) the closing of the initial public offering
of securities of ACT, or such extended date as may be agreed to in writing by
the parties.
Upon the termination of this Agreement under Section 9(c), no party
hereto shall have any further liability or obligation to any other party
hereunder, except for the obligation of each party to pay its own expenses as
set forth in Section 11 hereof. Upon the termination of this Agreement under
Sections 9(a) or 9(b), the terminating party shall be entitled, in addition to
pursuing other remedies, to recover its actual damages (including costs of
enforcement and reasonable attorneys' fees), arising from the breach by the non-
terminating party. Notwithstanding any termination of this Agreement, the
right of SoftChip to receive Card Fees hereunder shall continue to apply until
such right lapses pursuant to Section 2(b) hereof.
10. LIMITATION ON LIABILITY. Notwithstanding anything contained herein
to the contrary, SoftChip's liability hereunder shall be limited to such
amounts as SoftChip has received from ACT under the terms of this agreement
during the twelve months preceding the claim, and shall have no liability
whatsoever with respect to any claim made two years or more after the date on
which the services which gave rise to the claim were last provided. The
foregoing limitation on liability shall not apply with respect to any fraud,
willful misconduct or intentional misrepresentation by SoftChip.
11. AMENDMENTS. This Agreement may be amended, modified and supplemented
only by written agreement of the parties hereto.
12. EXPENSES. Except as otherwise provided in this Agreement, each party
hereto shall bear all of its own expenses, including, without limitation, the
fees and disbursements of its counsel.
13. NOTICES, ETC. All notices, consents, demands, requests, approvals
and other communications which are required or may be given hereunder shall be
in writing and shall be deemed to have been duly given (a) when delivered
personally, (b) if sent by facsimile, when receipt thereof is acknowledged at
the facsimile number below, (c) the second day following the day on which the
same has been delivered prepaid to a national air courier service, or (d) three
(3) business days following deposit in the mails registered or certified,
postage prepaid, in each case, addressed as follows:
if to Softchip: Softchip Technologies (3000) Ltd.
38 Nerot Shabbat Street
Jerusalem, Israel
Attention: Mr. Mickey Cohen
with a copy to: Wine, Misheiker & Ernstoff Law Offices
12 Moshe Hess Street
94185 Jerusalem, Israel
Attention: Brian D. Wine, Advocate
6
<PAGE>
if to ACT: American Card Technology, Inc.
1355 Terrell Mill Road
Building 146, Suite 200
Marietta, Georgia 30067
Attention: President
with a copy to: Cohn & Birnbaum P.C.
100 Pearl Street, 12th Floor
Hartford, Connecticut 06103-4500
Attention: Richard J. Shea, Jr., Esq.
or to such other person or persons at such address or addresses as may be
designated by written notice hereunder.
14. ASSIGNMENT. No party may assign or convey this Agreement or any of
their respective rights or obligations hereunder to any other party, except
that ACT may assign or transfer its interests and obligations in this Agreement
to any affiliated entity or to any purchaser of substantially all of the assets
of ACT. Notwithstanding the foregoing, ACT shall not assign, transfer, or sell
the DVK-1 System unless such assignee or successor-in-interest undertakes to
make the payments due to SoftChip under Sections 2(b) and 2(c) hereof and will
be liable to SoftChip for any breach of such undertaking.
15. APPLICABLE LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of Georgia without
giving effect to conflict of laws principles thereof.
16. CURRENCY. All sums of money payable hereunder are to be paid in U.S.
dollars.
17. ENTIRE AGREEMENT. This Agreement and all Exhibits hereto embody the
entire agreement and understanding of the parties hereto and supersede any
prior agreement or understanding between the parties.
18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
19. HEADINGS. Headings of the Sections in this Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
20. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
administrators, executors, successors and assigns; PROVIDED, HOWEVER, that
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
assigns, any rights and remedies, obligations or liabilities under or by reason
of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first above written.
SOFTCHIP TECHNOLOGIES (3000) LTD.
By /s/ Michael Cohen
-----------------------------
Its Managing Director
AMERICAN CARD TECHNOLOGY, INC.
By /s/ Raymond Findley, Jr.
------------------------------
Its President
8
<PAGE>
EXHIBIT 10.9.3
OPTION AGREEMENT
STOCK OPTION NOT UNDER A PLAN
AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation (the "Company"),
and SHREVEPORT ACQUISITION CORP., a Connecticut corporation (the "Optionee"),
DO HEREBY AGREE as follows:
1. GRANT. The Company grants to the Optionee an option (the "Option")
to purchase 100,000 shares (the "Shares") of the Company's Common Stock, par
value $.001 per share ("Common Stock") at the purchase price of $5.00 a share
(the "Exercise Price"). The date of grant of the Option is December 11, 1996
(the "Date of Grant"). The grant is not made pursuant to any of the Company's
stock option plans.
2. PURCHASE OF SHARES. The Company shall not be obligated to issue or
deliver any Shares upon exercise of the Option if to do so would violate the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities law. Unless a registration statement with respect to the Shares to
be purchased upon exercise of the Option is in effect under the Securities Act
and any applicable state securities law, the Optionee's right to purchase such
Shares shall be subject to the condition that the Company shall have received
such assurance as it may reasonably request that such purchase will be in
accordance with an applicable exemption from the registration requirements of
each such law. The Company shall have no obligation to file any such
registration statement or to take any other action required or permitted by any
such law. However, the Company shall give the Optionee and its counsel access
to such information as may reasonably be requested to enable such counsel to
express an opinion as to the availability of an exemption from such
registration requirements.
3. SALE OF SHARES. The Optionee shall not be entitled to transfer the
Shares except pursuant to (i) an effective registration statement under the
Securities Act, or (ii) if there is no registration statement in effect,
pursuant to a specific exemption from registration under the Securities Act.
Prior to offering or selling the Shares upon claim of exemption, the Optionee
shall obtain a written opinion from counsel reasonably satisfactory to the
Company to the effect that such exemption is available and that registration of
the Shares with the Securities and Exchange Commission is not required, or
shall deliver a "no-action" letter from the Securities and Exchange Commission
with respect to the proposed sale, transfer or distribution of the Shares.
4. TERMS OF EXERCISE. This Option may be exercised, in whole or in
part, commencing on the earlier of (i) that date which is three (3) months
after the closing of the Company's initial public offering or (ii) January 1,
1998. Notwithstanding the foregoing, the Optionee agrees not to sell, pledge,
hypothecate, encumber, or otherwise dispose of the Shares for a period of
twelve (12) months following the effective date of the Company's initial public
offering, subject to earlier release at the discretion of the underwriter of
such initial public offering.
5. EXPIRATION OF OPTION. This Option is not exercisable after the
expiration of ten years from the Date of Grant.
6. EXERCISE AND PAYMENT. The Option shall be exercised by delivery to
the Company at its principal executive office (Attention: Richard J.
Shea, Jr., Secretary) of (i) a signed written notice of
<PAGE>
exercise setting forth the number of Shares to be purchased and (ii) payment in
full of the option price for the Shares to be purchased. The option price to
be paid upon the exercise of this Option may be made by either of the following
methods:
(a) payment in cash in the full amount of the option price; or
(b) in lieu of cash payment, at any time until the expiration of this
Option, the holder of this Option ("Holder") may, at its option, exchange the
Option represented by this Option Agreement, in whole or in part (an "Option
Exchange"), into the number of Shares determined in accordance with this
paragraph 6(b), by surrendering this Option Agreement at the principal office
of the Company accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Shares to be exchanged, and the date on which the
Holder requests that such Option Exchange occur (the "Notice of Exchange").
The Option Exchange shall take place on the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is received by the
Company (the "Exchange Date"). Certificates for the Shares issuable upon such
Option Exchange and, if applicable, a new Option Agreement (a "Remainder Option
Agreement") of like tenor evidencing the Shares which were subject to the
surrendered Option Agreement and not included in the Option Exchange, shall be
issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Option
Exchange, the Holder's Option Agreement shall represent the right to subscribe
for and acquire (I) the number of Shares (rounded to the next highest integer)
equal to (A) the number of Shares specified by the Holder in its Notice of
Exchange (the "Total Share Number") less (B) the number of Shares equal to the
quotient obtained by dividing (i) the product of the Total Share Number and the
existing Exercise Price per Share by (ii) the current Market Price (as
hereinafter defined) of a Share of Common Stock, and (II) a Remainder Option
Agreement, if applicable.
"Market Price" at any date shall be deemed to be the average of the last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or as
reported in the NASDAQ National Market System, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
the NASDAQ National Market System, the closing bid price as furnished by the
National Association of Securities Dealers, Inc. through NASDAQ or similar
organization if NASDAQ is no longer reporting such information, or if the
Common Stock is not quoted on NASDAQ, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it for the day immediately preceding the Exchange Date, the day of
the Exchange Date, and the day immediately after the Exchange Date.
7. RIGHTS. The Optionee shall not, by reason of the granting to it of
this Option, have or thereby acquire any rights of a shareholder of the Company
with respect to any Shares covered by this Option unless and until a
certificate for such Shares shall have been issued and delivered to it.
8. ADJUSTMENT AND SUBSTITUTION OF SHARES. If a dividend or other
distribution shall be declared upon the Common Stock payable in shares of the
Common Stock, the number of shares of the Common Stock then subject to the
Option may be adjusted by adding thereto the number of shares which would have
been distributable thereon if such shares had been outstanding on the date
fixed for determining the shareholders entitled to receive such stock dividend
or distribution.
2
<PAGE>
If the outstanding shares of the Common Stock shall be changed into
or exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock then subject to the Option the number and kind of
shares of stock or other securities into which each outstanding share of the
Common Stock shall be so changed or for which each such share shall be
exchangeable.
In case of any adjustment or substitution as provided for in this
paragraph 8, the aggregate option price for all shares subject to the Option
prior to such adjustment or substitution shall be the aggregate option price
for all shares of stock or other securities (including any fraction) to which
such shares shall have been adjusted or which shall have been substituted for
such shares. The adjusted price for each share or other security shall be
carried to at least three decimal places with the last decimal place rounded
upward to the nearest whole number.
No adjustment or substitution provided for in this paragraph 8 shall
require the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractions of a share or other security which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
All references in this Agreement to Shares shall, where the context
so requires, be deemed to be references to such Shares as adjusted pursuant to
this paragraph 8.
9. AMENDMENT. This Agreement may be amended unilaterally by the Company
in order to comply with federal and state laws regulating options and the
issuance and sale of the Company's securities.
10. INTERPRETATION. Any question which shall arise under or in any way
relate to the interpretation or construction of this Option Agreement shall be
resolved by the Board, and its decision shall be final, binding and conclusive
for all purposes.
WITNESS, the signatures of an authorized officer of the Optionee and an
authorized officer of the Company as of the 11th day of December, 1996.
Signed, Sealed, and Delivered
in the Presence of: AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley
- ----------------------------------- --------------------------------
Its President
- -----------------------------------
SHREVEPORT ACQUISITION CORP.
By: /s/ Lawrence Perl
- ----------------------------------- --------------------------------
Its Vice President
- -----------------------------------
3
<PAGE>
AMENDMENT TO OPTION AGREEMENT
STOCK OPTION NOT UNDER A PLAN
THIS AMENDMENT TO OPTION AGREEMENT, dated as of the 2nd day of January,
1998, by and between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation
(the "Company"), and RAYMOND RONCARI, of Windsor Locks, Connecticut (the
"Optionee").
WITNESSETH:
WHEREAS, the Company and Shreveport Acquisition Corp., a Connecticut
corporation ("Shreveport"), entered into an Option Agreement dated as of
December 11, 1996 (the "Option Agreement") whereby the Company granted to
Optionee an option (the "Option") to purchase 100,000 shares (the "Shares") of
the Company's Common Stock, par value $.001 per share ("Common Stock") at the
purchase price of $5.00 a share (the "Exercise Price"); and
WHEREAS, Shreveport has assigned the Option to Optionee as of December 31,
1997; and
WHEREAS, the Option restricts Optionee from transferring or disposing of
any Shares for a period of twelve (12) months following the effective date of
the Company's initial public offering, subject to earlier release at the
discretion of the underwriter of such initial public offering.
WHEREAS, the Company has entered into an agreement with an underwriter to
pursue an initial public offering of Common Stock (an "IPO"); and
WHEREAS, such underwriter has indicated that the IPO shall require that
certain terms and conditions of the Option be adjusted so that the Option is
not an impediment to the IPO; and
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Option Agreement is hereby amended as follows:
(a) Paragraph 1 of the Option Agreement is hereby deleted in its
entirety and the following substituted in lieu therefor:
"1. GRANT. The Company grants to the Optionee an
option (the "Option") to purchase 100,000 shares (the "Shares")
of the Company's Common Stock, par value $.001 per share
("Common Stock") at the purchase price of $12.00 a share (the
"Exercise Price"). The date of grant of the Option is December
11, 1996 (the "Date of Grant"). The grant is not made pursuant
to any of the Company's stock option plans."
(b) Paragraph 4 of the Option Agreement is hereby deleted in its
entirety and the following substituted in lieu therefor:
<PAGE>
"4. TERMS OF EXERCISE. This Option may be exercised, in
whole or in part, commencing on the earlier of (i) that date which
is three (3) months after the closing of the Company's initial
public offering or (ii) January 1, 1999. Notwithstanding the
foregoing, the Optionee agrees not to sell, pledge, hypothecate,
encumber, or otherwise dispose of the Shares for a period of twelve
(12) months following the effective date of the Company's initial
public offering, subject to earlier release at the discretion of
the underwriter of such initial public offering."
(c) Paragraph 5 of the Option Agreement is hereby deleted in its
entirety and the following substituted in lieu therefor:
"5. EXPIRATION OF OPTION. This Option is not
exercisable after the expiration of five years from the Date of
Grant."
2. Except as modified hereby, the Option Agreement remains in full force
and effect and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the day and year first above written.
Signed, Sealed, and Delivered
in the Presence of: AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Lawrence O. Perl
- ------------------------------ --------------------------------
Its Chief Executive Officer
- ------------------------------
/s/ Raymond Roncari
- ------------------------------ --------------------------------
Raymond Roncari
- ------------------------------
<PAGE>
EXHIBIT 10.9.4
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and ROBERT DIXON (hereinafter called the
"Optionee").
The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be
used to award options to purchase shares of its common stock to certain
employees, consultants, and other persons who perform substantial services for
the Corporation or any of its subsidiaries or affiliates, as determined by the
Board of Directors of the Corporation (the "Board") or a special committee of
the Board (the "Committee"). The Board or Committee has authorized the awarding
of an option under the Plan to the Optionee. The options issued under the Plan
may in some cases be entitled to favorable tax treatment afforded to "incentive
stock options" under Sections 421 and 422 of the Internal Revenue Code (such an
option being hereinafter sometimes referred to as an "Incentive Stock Option").
Wherever the context so requires, the "Corporation" shall be deemed to refer to
any or all of the Corporation's subsidiaries or affiliates.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 50,000 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option granted herein shall constitute an Incentive Stock Option.
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00).
(b) EXERCISE OF OPTION. No portion of the Option shall be
exercisable prior to the consummation of an initial public offering of Common
Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as
follows:
(i) At any time after the IPO, the Option may be exercised to
the extent of one-fourth of the aggregate number of shares of Common Stock.
(ii) At any time after the expiration of the next three
successive anniversaries of the IPO, the first such date being one year
after the date of the IPO, the Option may be exercised to the extent of an
additional one-fourth of the aggregate number of shares originally covered
by the Option, and the Option may also be exercised to the extent to which
the right to exercise shall theretofore have accrued and not been
exercised.
(iii) No portion of the Option shall be exercisable after the
tenth anniversary of
<PAGE>
the date of its grant, and after that date the Option
shall lapse with respect to any shares of Common Stock not theretofore
purchased.
(iv) The Option may not be exercised for less than one hundred
(100) shares of Common Stock at any one time, unless fewer than one hundred
(100) shares of Common Stock remain covered by the Option, in which event
the Option must be exercised for all such shares.
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full by cash or certified or bank check. No shares shall be issued
or delivered until full payment therefor has been made. The Optionee shall have
none of the rights of a shareholder, in respect of the Common Stock, except with
respect to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be
terminated by the Corporation or by the Optionee, with or without cause, for
whatever reason other than by death, the Optionee shall have the right within
three months after such termination to exercise the Option to the extent the
right to exercise the Option shall have accrued at the date of such a
termination of employment, except to the extent the Option shall have been
exercised or shall have expired. Any portion of the Option not exercised within
said three months shall lapse.
(f) DEATH OF OPTIONEE.
(i) If the Optionee shall die, the Option shall lapse and
neither the Optionee nor the Optionee's heirs or legal representatives
shall have any further rights under this Agreement relating to any Option
with respect to which the right to exercise shall not have accrued prior to
the date of the Optionee's death.
(ii) If the Optionee shall die while employed by the Corporation,
or within the three-month period specified in Section 3(e) hereof, the
executor or administrator of the estate of the Optionee, or the person or
persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death to exercise the Option to the extent the right to exercise
the Option shall have accrued at the date of death, except to the extent
the Option shall have been exercised or shall have expired. Any portion of
the Option not exercised within said one-year period shall lapse.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be transferable only pursuant to an
effective registration or exemption from registration under the Securities Act
of 1933, as amended. Stock certificates representing shares of Common Stock
shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by this
2
<PAGE>
certificate have not been registered under the Securities Act
of 1933, as amended, and may not be transferred except
pursuant to an effective registration, or exemption from
registration, under said Act.
5. The Optionee acknowledges that special rules must be complied with in
order to ensure that the Option remains eligible for favorable tax treatment
accorded Incentive Stock Options under Section 421 of the Internal Revenue Code,
and that the Optionee, in addition to conferring with appropriate
representatives of the Corporation, may wish to consult with his or her personal
tax adviser.
6. Subject to the restrictions of this Agreement, the Optionee shall have
all the rights of a shareholder in respect of the Common Stock issued hereunder,
beginning with the date of issuance of the Common Stock. The Common Stock shall
be fully paid and non-assessable.
7. In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8, in the number or kind
of outstanding shares of Common Stock or of any stock or other securities into
which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8 shall require the Corporation to
sell a fractional share; and the total substitution or adjustment with respect
to this Option shall be limited accordingly. Any of the foregoing adjustments
or substitutions in the shares subject to the Option shall not limit
applicability of the restrictions hereunder and such restrictions shall
automatically apply to all Common Stock or other securities issued by the
Corporation and at any time held by the Optionee by virtue of having exercised
the Option.
8. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be
3
<PAGE>
imposed by law.
9. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
10. This Agreement shall be interpreted according to the laws of the State
of Georgia.
11. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
12. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Robert Dixon
- ------------------------------ ----------------------
Secretary Robert Dixon
<PAGE>
EXHIBIT A
------------------------------------------------------------
Address of Person Exercising Option
--------------------------
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock of
the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
---------------------------------------------
---------------------------------------------
---------------------------------------------
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made
by certified or bank cashier's check payable to the order of
the Corporation at the office of the Corporation, 1355
Terrell Mill Road - Suite 200, Marietta, Georgia, against
delivery of a certificate or certificates representing such
shares to me or my representative, on the ______________
[here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth]
business day from the date of this notice is received by the
Corporation.
<PAGE>
Please advise me of the exact date and time when payment and
delivery will take place.
I will [check one]
_____ appear personally to make payment and accept
delivery
_____ be represented by:
---------------------------------------------
---------------------------------------------
---------------------------------------------
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
-----------------------------------------
-----------------------------------------
-----------------------------------------
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
-------------------------------------------
Robert Dixon
2
<PAGE>
EXHIBIT 10.9.5
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a
business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and MICHAEL PATE (hereinafter called
the "Optionee").
The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be
used to award options to purchase shares of its common stock to certain
employees, consultants, and other persons who perform substantial services
for the Corporation or any of its subsidiaries or affiliates, as determined
by the Board of Directors of the Corporation (the "Board") or a special
committee of the Board (the "Committee"). The Board or Committee has
authorized the awarding of an option under the Plan to the Optionee. The
options issued under the Plan may in some cases be entitled to favorable tax
treatment afforded to "incentive stock options" under Sections 421 and 422 of
the Internal Revenue Code (such an option being hereinafter sometimes
referred to as an "Incentive Stock Option"). Wherever the context so
requires, the "Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries or affiliates.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of
this Agreement the right and option to purchase (hereinafter called the
"Option") all or any part of an aggregate of 15,000 shares of the
Corporation's common stock, with a par value of $.001 per share (hereinafter
called the "Common Stock"), on the terms and conditions herein set forth.
2. The Option granted herein shall constitute an Incentive Stock
Option.
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00).
(b) EXERCISE OF OPTION. No portion of the Option shall be
exercisable prior to the consummation of an initial public offering of Common
Stock of the Corporation (an "IPO") and thereafter shall be exercisable only
as follows:
(i) At any time after the IPO, the Option may be exercised to
the extent of one-fourth of the aggregate number of shares of Common Stock.
(ii) At any time after the expiration of the next three
successive anniversaries of the IPO, the first such date being one year
after the date of the IPO, the Option may be exercised to the extent of an
additional one-fourth of the aggregate number of shares originally covered
by the Option, and the Option may also be exercised to the extent to which
the right to exercise shall theretofore have accrued and not been
exercised.
(iii) No portion of the Option shall be exercisable after the
tenth anniversary of the date of its grant, and after that date the Option
shall lapse with respect to any shares of Common Stock not theretofore
purchased.
<PAGE>
(iv) The Option may not be exercised for less than one hundred
(100) shares of Common Stock at any one time, unless fewer than one hundred
(100) shares of Common Stock remain covered by the Option, in which event
the Option must be exercised for all such shares.
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The
Optionee shall exercise the Option by giving a written notice of exercise, in
the form attached to this Agreement as EXHIBIT A, to the President of the
Corporation, indicating the number of shares of Common Stock to be purchased,
and tendering payment in full by cash or certified or bank check. No shares
shall be issued or delivered until full payment therefor has been made. The
Optionee shall have none of the rights of a shareholder, in respect of the
Common Stock, except with respect to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall
be terminated by the Corporation or by the Optionee, with or without cause,
for whatever reason other than by death, the Optionee shall have the right
within three months after such termination to exercise the Option to the
extent the right to exercise the Option shall have accrued at the date of
such a termination of employment, except to the extent the Option shall have
been exercised or shall have expired. Any portion of the Option not
exercised within said three months shall lapse.
(f) DEATH OF OPTIONEE.
(i) If the Optionee shall die, the Option shall lapse and
neither the Optionee nor the Optionee's heirs or legal representatives
shall have any further rights under this Agreement relating to any Option
with respect to which the right to exercise shall not have accrued prior to
the date of the Optionee's death.
(ii) If the Optionee shall die while employed by the Corporation,
or within the three-month period specified in Section 3(e) hereof, the
executor or administrator of the estate of the Optionee, or the person or
persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death to exercise the Option to the extent the right to exercise
the Option shall have accrued at the date of death, except to the extent
the Option shall have been exercised or shall have expired. Any portion of
the Option not exercised within said one-year period shall lapse.
4. Shares of Common Stock issued upon the exercise of any portion of
the Option granted under this Agreement shall be transferable only pursuant
to an effective registration or exemption from registration under the
Securities Act of 1933, as amended. Stock certificates representing shares
of Common Stock shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by this
certificate have not been registered under the Securities Act of 1933,
as amended, and may not be transferred except pursuant to an effective
registration, or exemption from registration, under said Act.
5. The Optionee acknowledges that special rules must be complied with
in order to ensure that the Option remains eligible for favorable tax
treatment accorded Incentive Stock Options under Section 421 of the Internal
Revenue Code, and that the Optionee, in addition to conferring with
appropriate representatives of the Corporation, may wish to consult with his
or her personal tax adviser.
<PAGE>
6. Subject to the restrictions of this Agreement, the Optionee shall
have all the rights of a shareholder in respect of the Common Stock issued
hereunder, beginning with the date of issuance of the Common Stock. The
Common Stock shall be fully paid and non-assessable.
7. In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of
Common Stock then subject to this Option shall be adjusted by adding to each
of such shares the number of shares which would be distributable thereon if
such shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend. In the event that the
outstanding shares of Common Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger, or
consolidation, then there shall be substituted for each share of Common Stock
subject to this Option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged; PROVIDED, HOWEVER,
that in the event that such change or exchange results from a merger or
consolidation, and in the judgment of the Committee such substitution cannot
be effected or would be inappropriate, or if the Corporation shall sell all
or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee,
in its sole discretion, shall deem equitable. In the event that there shall
be any change, other than as specified above in this Section 8, in the number
or kind of outstanding shares of Common Stock or of any stock or other
securities into which such shares of Common Stock shall have been changed or
for which they shall have been exchanged, then, if the Committee shall
determine that such change equitably requires an adjustment in the number or
kind of shares then subject to this Option, such adjustment shall be made by
the Committee and shall be effective and binding for all purposes of this
Option. In the case of any such substitution or adjustment as provided for
in this paragraph, the Option Price in this Option for each share covered
hereby prior to such substitution or adjustment will be the total option
price for all shares of stock or other securities which shall have been
substituted for each such share or to which such share shall have been
adjusted pursuant to this Section 8. No adjustment or substitution provided
for in this Section 8 shall require the Corporation to sell a fractional
share; and the total substitution or adjustment with respect to this Option
shall be limited accordingly. Any of the foregoing adjustments or
substitutions in the shares subject to the Option shall not limit
applicability of the restrictions hereunder and such restrictions shall
automatically apply to all Common Stock or other securities issued by the
Corporation and at any time held by the Optionee by virtue of having
exercised the Option.
8. The Optionee represents and agrees to represent and agree at the
time of the exercise of the Option that any and all Common Stock purchased
pursuant to the exercise of the Option will be purchased for investment and
not with a view to the distribution or resale thereof, and that the Common
Stock will not be sold except in accordance with the restrictions or
limitations set forth in this Agreement or as may be imposed by law.
9. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
10. This Agreement shall be interpreted according to the laws of the
State of Georgia.
11. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered may be entered in any Court having
jurisdiction thereof.
12. This Agreement and the Plan which is hereby incorporated by
reference herein contain the entire agreement of the parties with respect to
the Common Stock. All prior agreements and understandings are merged herein.
No amendment or modification hereof shall be binding unless in writing and
signed by the party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
----------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Michael Pate
- ------------------------------- --------------------------------
Secretary Michael Pate
<PAGE>
EXHIBIT A
-----------------------------------------------
Address of Person Exercising Option
--------------------------
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock
of the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00
per share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $____________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell
Mill Road - Suite 200, Marietta, Georgia, against delivery of
a certificate or certificates representing such shares to me
or my representative, on the ____________ [here insert Fifth,
Sixth, Seventh, Eight, Ninth or Tenth] business day from the
date of this notice is received by the Corporation.
Please advise me of the exact date and time when payment
and delivery will take place.
I will [check one]
<PAGE>
_____ appear personally to make payment and accept
delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased
should be registered and the name and address to be shown on the
Corporation's stock records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view
to the distribution or resale thereof, and the Common Stock will not be sold
except in accordance with the restrictions or limitations set forth in the
Stock Option Agreement or as may be imposed by law.
Sincerely yours,
-----------------------------------
Michael Pate
<PAGE>
EXHIBIT 10.9.6
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a
business office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and ROBERT PATTEN (hereinafter called
the "Optionee").
The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be
used to award options to purchase shares of its common stock to certain
employees, consultants, and other persons who perform substantial services
for the Corporation or any of its subsidiaries or affiliates, as determined
by the Board of Directors of the Corporation (the "Board") or a special
committee of the Board (the "Committee"). The Board or Committee has
authorized the awarding of an option under the Plan to the Optionee. The
options issued under the Plan may in some cases be entitled to favorable tax
treatment afforded to "incentive stock options" under Sections 421 and 422 of
the Internal Revenue Code (such an option being hereinafter sometimes
referred to as an "Incentive Stock Option"). Wherever the context so
requires, the "Corporation" shall be deemed to refer to any or all of the
Corporation's subsidiaries or affiliates.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of
this Agreement the right and option to purchase (hereinafter called the
"Option") all or any part of an aggregate of 10,000 shares of the
Corporation's common stock, with a par value of $.001 per share (hereinafter
called the "Common Stock"), on the terms and conditions herein set forth.
2. The Option granted herein shall constitute an Incentive Stock
Option.
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00).
(b) EXERCISE OF OPTION. No portion of the Option shall be
exercisable prior to the consummation of an initial public offering of Common
Stock of the Corporation (an "IPO") and thereafter shall be exercisable only
as follows:
(i) At any time after the IPO, the Option may be exercised to
the extent of one-fourth of the aggregate number of shares of Common Stock.
(ii) At any time after the expiration of the next three
successive anniversaries of the IPO, the first such date being one year
after the date of the IPO, the Option may be exercised to the extent of an
additional one-fourth of the aggregate number of shares originally covered
by the Option, and the Option may also be exercised to the extent to which
the right to exercise shall theretofore have accrued and not been
exercised.
<PAGE>
(iii) No portion of the Option shall be exercisable after the
tenth anniversary of the date of its grant, and after that date the Option
shall lapse with respect to any shares of Common Stock not theretofore
purchased.
(iv) The Option may not be exercised for less than one hundred
(100) shares of Common Stock at any one time, unless fewer than one hundred
(100) shares of Common Stock remain covered by the Option, in which event
the Option must be exercised for all such shares.
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The
Optionee shall exercise the Option by giving a written notice of exercise, in
the form attached to this Agreement as EXHIBIT A, to the President of the
Corporation, indicating the number of shares of Common Stock to be purchased,
and tendering payment in full by cash or certified or bank check. No shares
shall be issued or delivered until full payment therefor has been made. The
Optionee shall have none of the rights of a shareholder, in respect of the
Common Stock, except with respect to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall
be terminated by the Corporation or by the Optionee, with or without cause,
for whatever reason other than by death, the Optionee shall have the right
within three months after such termination to exercise the Option to the
extent the right to exercise the Option shall have accrued at the date of
such a termination of employment, except to the extent the Option shall have
been exercised or shall have expired. Any portion of the Option not
exercised within said three months shall lapse.
(f) DEATH OF OPTIONEE.
(i) If the Optionee shall die, the Option shall lapse and
neither the Optionee nor the Optionee's heirs or legal representatives
shall have any further rights under this Agreement relating to any Option
with respect to which the right to exercise shall not have accrued prior to
the date of the Optionee's death.
(ii) If the Optionee shall die while employed by the Corporation,
or within the three-month period specified in Section 3(e) hereof, the
executor or administrator of the estate of the Optionee, or the person or
persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death to exercise the Option to the extent the right to exercise
the Option shall have accrued at the date of death, except to the extent
the Option shall have been exercised or shall have expired. Any portion of
the Option not exercised within said one-year period shall lapse.
4. Shares of Common Stock issued upon the exercise of any portion of
the Option granted under this Agreement shall be transferable only pursuant
to an effective registration or exemption from registration under the
Securities Act of 1933, as amended. Stock certificates representing shares
of Common Stock shall bear a legend in substantially the following form:
<PAGE>
The shares of the Corporation's common stock represented by this
certificate have not been registered under the Securities Act of 1933,
as amended, and may not be transferred except pursuant to an effective
registration, or exemption from registration, under said Act.
5. The Optionee acknowledges that special rules must be complied with
in order to ensure that the Option remains eligible for favorable tax
treatment accorded Incentive Stock Options under Section 421 of the Internal
Revenue Code, and that the Optionee, in addition to conferring with
appropriate representatives of the Corporation, may wish to consult with his
or her personal tax adviser.
6. Subject to the restrictions of this Agreement, the Optionee shall
have all the rights of a shareholder in respect of the Common Stock issued
hereunder, beginning with the date of issuance of the Common Stock. The
Common Stock shall be fully paid and non-assessable.
7. In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of
Common Stock then subject to this Option shall be adjusted by adding to each
of such shares the number of shares which would be distributable thereon if
such shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend. In the event that the
outstanding shares of Common Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger, or
consolidation, then there shall be substituted for each share of Common Stock
subject to this Option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged; PROVIDED, HOWEVER,
that in the event that such change or exchange results from a merger or
consolidation, and in the judgment of the Committee such substitution cannot
be effected or would be inappropriate, or if the Corporation shall sell all
or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee,
in its sole discretion, shall deem equitable. In the event that there shall
be any change, other than as specified above in this Section 8, in the number
or kind of outstanding shares of Common Stock or of any stock or other
securities into which such shares of Common Stock shall have been changed or
for which they shall have been exchanged, then, if the Committee shall
determine that such change equitably requires an adjustment in the number or
kind of shares then subject to this Option, such adjustment shall be made by
the Committee and shall be effective and binding for all purposes of this
Option. In the case of any such substitution or adjustment as provided for
in this paragraph, the Option Price in this Option for each share covered
hereby prior to such substitution or adjustment will be the total option
price for all shares of stock or other securities which shall have been
substituted for each such share or to which such share shall have been
adjusted pursuant to this Section 8. No adjustment or substitution provided
for in this Section 8 shall require the Corporation to sell a fractional
share; and the total substitution or adjustment with respect to this Option
shall be limited accordingly. Any of the foregoing adjustments or
substitutions in the shares subject to the Option shall not limit
applicability of the restrictions hereunder and such restrictions shall
automatically apply to all Common Stock or other securities issued by the
Corporation and at any time held by the Optionee by virtue of having
exercised the Option.
8. The Optionee represents and agrees to represent and agree at the
time of the exercise of the Option that any and all Common Stock purchased
pursuant to the exercise of the Option will be purchased
<PAGE>
for investment and not with a view to the distribution or resale thereof, and
that the Common Stock will not be sold except in accordance with the
restrictions or limitations set forth in this Agreement or as may be imposed
by law.
9. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
10. This Agreement shall be interpreted according to the laws of the
State of Georgia.
11. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered may be entered in any Court having
jurisdiction thereof.
12. This Agreement and the Plan which is hereby incorporated by
reference herein contain the entire agreement of the parties with respect to
the Common Stock. All prior agreements and understandings are merged herein.
No amendment or modification hereof shall be binding unless in writing and
signed by the party against whom enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
-----------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Robert Patten
- --------------------------------- -------------------------------
Secretary Robert Patten
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock
of the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made by
certified or bank cashier's check payable to the order of the
Corporation at the office of the Corporation, 1355 Terrell Mill
Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or
my representative, on the __________ [here insert Fifth, Sixth,
Seventh, Eight, Ninth or Tenth] business day from the date of
this notice is received by the Corporation.
<PAGE>
Please advise me of the exact date and time when payment
and delivery will take place.
I will [check one]
_____ appear personally to make payment and accept
delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased
should be registered and the name and address to be shown on the
Corporation's stock records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view
to the distribution or resale thereof, and the Common Stock will not be sold
except in accordance with the restrictions or limitations set forth in the
Stock Option Agreement or as may be imposed by law.
Sincerely yours,
--------------------------------
Robert Patten
<PAGE>
EXHIBIT 10.9.7
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and SHAWN NIXON (hereinafter called the
"Optionee").
The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be
used to award options to purchase shares of its common stock to certain
employees, consultants, and other persons who perform substantial services for
the Corporation or any of its subsidiaries or affiliates, as determined by the
Board of Directors of the Corporation (the "Board") or a special committee of
the Board (the "Committee"). The Board or Committee has authorized the awarding
of an option under the Plan to the Optionee. The options issued under the Plan
may in some cases be entitled to favorable tax treatment afforded to "incentive
stock options" under Sections 421 and 422 of the Internal Revenue Code (such an
option being hereinafter sometimes referred to as an "Incentive Stock Option").
Wherever the context so requires, the "Corporation" shall be deemed to refer to
any or all of the Corporation's subsidiaries or affiliates.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 10,000 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option granted herein shall constitute an Incentive Stock Option.
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00).
(b) EXERCISE OF OPTION. No portion of the Option shall be
exercisable prior to the consummation of an initial public offering of Common
Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as
follows:
(i) At any time after the IPO, the Option may be exercised to
the extent of one-fourth of the aggregate number of shares of Common Stock.
(ii) At any time after the expiration of the next three
successive anniversaries of the IPO, the first such date being one year
after the date of the IPO, the Option may be exercised to the extent of an
additional one-fourth of the aggregate number of shares originally covered
by the Option, and the Option may also be exercised to the extent to which
the right to exercise shall theretofore have accrued and not been
exercised.
(iii) No portion of the Option shall be exercisable after the
tenth anniversary of the date of its grant, and after that date the Option
shall lapse with respect to any shares of Common Stock not theretofore
purchased.
<PAGE>
(iv) The Option may not be exercised for less than one hundred
(100) shares of Common Stock at any one time, unless fewer than one hundred
(100) shares of Common Stock remain covered by the Option, in which event
the Option must be exercised for all such shares.
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full by cash or certified or bank check. No shares shall be issued
or delivered until full payment therefor has been made. The Optionee shall have
none of the rights of a shareholder, in respect of the Common Stock, except with
respect to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be
terminated by the Corporation or by the Optionee, with or without cause, for
whatever reason other than by death, the Optionee shall have the right within
three months after such termination to exercise the Option to the extent the
right to exercise the Option shall have accrued at the date of such a
termination of employment, except to the extent the Option shall have been
exercised or shall have expired. Any portion of the Option not exercised within
said three months shall lapse.
(f) DEATH OF OPTIONEE.
(i) If the Optionee shall die, the Option shall lapse and
neither the Optionee nor the Optionee's heirs or legal representatives
shall have any further rights under this Agreement relating to any Option
with respect to which the right to exercise shall not have accrued prior to
the date of the Optionee's death.
(ii) If the Optionee shall die while employed by the Corporation,
or within the three-month period specified in Section 3(e) hereof, the
executor or administrator of the estate of the Optionee, or the person or
persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death to exercise the Option to the extent the right to exercise
the Option shall have accrued at the date of death, except to the extent
the Option shall have been exercised or shall have expired. Any portion of
the Option not exercised within said one-year period shall lapse.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be transferable only pursuant to an
effective registration or exemption from registration under the Securities Act
of 1933, as amended. Stock certificates representing shares of Common Stock
shall bear a legend in substantially the following form:
The shares of the Corporation's common stock represented by
this certificate have not been registered under the Securities Act
of 1933, as amended, and may not be transferred except pursuant to
an effective registration, or exemption from registration, under
said Act.
5. The Optionee acknowledges that special rules must be complied with in
order to ensure that the Option remains eligible for favorable tax treatment
accorded Incentive Stock Options under Section 421 of the Internal Revenue Code,
and that the Optionee, in addition to conferring with appropriate
representatives of the Corporation, may wish to consult with his or her personal
tax adviser.
<PAGE>
6. Subject to the restrictions of this Agreement, the Optionee shall have
all the rights of a shareholder in respect of the Common Stock issued hereunder,
beginning with the date of issuance of the Common Stock. The Common Stock shall
be fully paid and non-assessable.
7. In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8, in the number or kind
of outstanding shares of Common Stock or of any stock or other securities into
which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8 shall require the Corporation to
sell a fractional share; and the total substitution or adjustment with respect
to this Option shall be limited accordingly. Any of the foregoing adjustments
or substitutions in the shares subject to the Option shall not limit
applicability of the restrictions hereunder and such restrictions shall
automatically apply to all Common Stock or other securities issued by the
Corporation and at any time held by the Optionee by virtue of having exercised
the Option.
8. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased for investment and not with a
view to the distribution or resale thereof, and that the Common Stock will not
be sold except in accordance with the restrictions or limitations set forth in
this Agreement or as may be imposed by law.
9. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
10. This Agreement shall be interpreted according to the laws of the State
of Georgia.
11. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
12. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
---------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Shawn Nixon
- --------------------------------- ----------------------------
Secretary Shawn Nixon
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common Stock of
the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of $_______________
[insert the full purchase price of the shares being purchased]
is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made
by certified or bank cashier's check payable to the order of
the Corporation at the office of the Corporation, 1355
Terrell Mill Road - Suite 200, Marietta, Georgia, against
delivery of a certificate or certificates representing such
shares to me or my representative, on the ______________
[here insert Fifth, Sixth, Seventh, Eight, Ninth or Tenth]
business day from the date of this notice is received by the
Corporation.
Please advise me of the exact date and time when payment
and delivery will take place.
I will [check one]
<PAGE>
_____ appear personally to make payment and accept
delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased should
be registered and the name and address to be shown on the Corporation's stock
records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a view to
the distribution or resale thereof, and the Common Stock will not be sold except
in accordance with the restrictions or limitations set forth in the Stock Option
Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Shawn Nixon
<PAGE>
EXHIBIT 10.9.8
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made as of the 2nd day of February, 1998 by and
between AMERICAN CARD TECHNOLOGY, INC., a Delaware corporation, with a business
office at 1355 Terrell Mill Road, Suite 200, Marietta, Georgia 30067
(hereinafter called the "Corporation"), and JEREMY ZELA (hereinafter called the
"Optionee").
The Corporation has adopted a 1996 Stock Option Plan (the "Plan") to be
used to award options to purchase shares of its common stock to certain
employees, consultants, and other persons who perform substantial services for
the Corporation or any of its subsidiaries or affiliates, as determined by the
Board of Directors of the Corporation (the "Board") or a special committee of
the Board (the "Committee"). The Board or Committee has authorized the awarding
of an option under the Plan to the Optionee. The options issued under the Plan
may in some cases be entitled to favorable tax treatment afforded to "incentive
stock options" under Sections 421 and 422 of the Internal Revenue Code (such an
option being hereinafter sometimes referred to as an "Incentive Stock Option").
Wherever the context so requires, the "Corporation" shall be deemed to refer to
any or all of the Corporation's subsidiaries or affiliates.
NOW, THEREFORE, in consideration of the premises contained herein, it is
hereby agreed as follows:
1. The Corporation hereby grants to the Optionee as of the date of this
Agreement the right and option to purchase (hereinafter called the "Option") all
or any part of an aggregate of 5,000 shares of the Corporation's common stock,
with a par value of $.001 per share (hereinafter called the "Common Stock"), on
the terms and conditions herein set forth.
2. The Option granted herein shall constitute an Incentive Stock Option.
3. The Optionee's right to exercise the Option shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The price per share with respect to the Option
shall be Twelve and 00/100 Dollars ($12.00).
(b) EXERCISE OF OPTION. No portion of the Option shall be
exercisable prior to the consummation of an initial public offering of Common
Stock of the Corporation (an "IPO") and thereafter shall be exercisable only as
follows:
(i) At any time after the IPO, the Option may be exercised to
the extent of one-fourth of the aggregate number of shares of Common Stock.
(ii) At any time after the expiration of the next three
successive anniversaries of the IPO, the first such date being one year
after the date of the IPO, the Option may be exercised to the extent of an
additional one-fourth of the aggregate number of shares originally covered
by the Option, and the Option may also be exercised to the extent to which
the right to exercise shall theretofore have accrued and not been
exercised.
<PAGE>
(iii) No portion of the Option shall be exercisable after the
tenth anniversary of the date of its grant, and after that date the Option
shall lapse with respect to any shares of Common Stock not theretofore
purchased.
(iv) The Option may not be exercised for less than one hundred
(100) shares of Common Stock at any one time, unless fewer than one hundred
(100) shares of Common Stock remain covered by the Option, in which event
the Option must be exercised for all such shares.
(c) NOTICE OF EXERCISE; PAYMENT; SHAREHOLDERS' RIGHTS. The Optionee
shall exercise the Option by giving a written notice of exercise, in the form
attached to this Agreement as EXHIBIT A, to the President of the Corporation,
indicating the number of shares of Common Stock to be purchased, and tendering
payment in full by cash or certified or bank check. No shares shall be issued
or delivered until full payment therefor has been made. The Optionee shall have
none of the rights of a shareholder, in respect of the Common Stock, except with
respect to shares actually issued to the Optionee.
(d) NON-TRANSFERABILITY OF OPTION. The Option shall not be
transferable other than by will or by the laws of descent and distribution.
During the Optionee's lifetime, only the Optionee may exercise the Option.
(e) TERMINATION OF EMPLOYMENT. If the Optionee's employment shall be
terminated by the Corporation or by the Optionee, with or without cause, for
whatever reason other than by death, the Optionee shall have the right within
three months after such termination to exercise the Option to the extent the
right to exercise the Option shall have accrued at the date of such a
termination of employment, except to the extent the Option shall have been
exercised or shall have expired. Any portion of the Option not exercised within
said three months shall lapse.
(f) DEATH OF OPTIONEE.
(i) If the Optionee shall die, the Option shall lapse and
neither the Optionee nor the Optionee's heirs or legal representatives
shall have any further rights under this Agreement relating to any Option
with respect to which the right to exercise shall not have accrued prior to
the date of the Optionee's death.
(ii) If the Optionee shall die while employed by the Corporation,
or within the three-month period specified in Section 3(e) hereof, the
executor or administrator of the estate of the Optionee, or the person or
persons to whom the Option shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution, shall have the right within one year from the date of the
Optionee's death to exercise the Option to the extent the right to exercise
the Option shall have accrued at the date of death, except to the extent
the Option shall have been exercised or shall have expired. Any portion of
the Option not exercised within said one-year period shall lapse.
4. Shares of Common Stock issued upon the exercise of any portion of the
Option granted under this Agreement shall be transferable only pursuant to an
effective registration or exemption from registration under the Securities Act
of 1933, as amended. Stock certificates representing shares of Common Stock
shall bear a legend in substantially the following form:
<PAGE>
The shares of the Corporation's common stock represented by this
certificate have not been registered under the Securities Act of 1933,
as amended, and may not be transferred except pursuant to an effective
registration, or exemption from registration, under said Act.
5. The Optionee acknowledges that special rules must be complied with in
order to ensure that the Option remains eligible for favorable tax treatment
accorded Incentive Stock Options under Section 421 of the Internal Revenue Code,
and that the Optionee, in addition to conferring with appropriate
representatives of the Corporation, may wish to consult with his or her personal
tax adviser.
6. Subject to the restrictions of this Agreement, the Optionee shall have
all the rights of a shareholder in respect of the Common Stock issued hereunder,
beginning with the date of issuance of the Common Stock. The Common Stock shall
be fully paid and non-assessable.
7. In the event that a dividend shall be declared upon the shares of
Common Stock payable in shares of Common Stock, the number of shares of Common
Stock then subject to this Option shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger, or consolidation, then there shall be substituted
for each share of Common Stock subject to this Option, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged;
PROVIDED, HOWEVER, that in the event that such change or exchange results from a
merger or consolidation, and in the judgment of the Committee such substitution
cannot be effected or would be inappropriate, or if the Corporation shall sell
all or substantially all of its assets, the Corporation shall use reasonable
efforts to effect some other adjustment of this Option which the Committee, in
its sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 8, in the number or kind
of outstanding shares of Common Stock or of any stock or other securities into
which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Committee shall determine that such
change equitably requires an adjustment in the number or kind of shares then
subject to this Option, such adjustment shall be made by the Committee and shall
be effective and binding for all purposes of this Option. In the case of any
such substitution or adjustment as provided for in this paragraph, the Option
Price in this Option for each share covered hereby prior to such substitution or
adjustment will be the total option price for all shares of stock or other
securities which shall have been substituted for each such share or to which
such share shall have been adjusted pursuant to this Section 8. No adjustment
or substitution provided for in this Section 8 shall require the Corporation to
sell a fractional share; and the total substitution or adjustment with respect
to this Option shall be limited accordingly. Any of the foregoing adjustments
or substitutions in the shares subject to the Option shall not limit
applicability of the restrictions hereunder and such restrictions shall
automatically apply to all Common Stock or other securities issued by the
Corporation and at any time held by the Optionee by virtue of having exercised
the Option.
8. The Optionee represents and agrees to represent and agree at the time
of the exercise of the Option that any and all Common Stock purchased pursuant
to the exercise of the Option will be purchased
<PAGE>
for investment and not with a view to the distribution or resale
thereof, and that the Common Stock will not be sold except in accordance
with the restrictions or limitations set forth in this Agreement or as
may be imposed by law.
9. The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement.
10. This Agreement shall be interpreted according to the laws of the State
of Georgia.
11. Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered may be entered in any Court having jurisdiction thereof.
12. This Agreement and the Plan which is hereby incorporated by reference
herein contain the entire agreement of the parties with respect to the Common
Stock. All prior agreements and understandings are merged herein. No amendment
or modification hereof shall be binding unless in writing and signed by the
party against whom enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year as first above written.
Seal AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Raymond Findley, Jr.
------------------------------------
Its President
Attest:
/s/ Richard J. Shea, Jr. /s/ Jeremy Zela
- ----------------------------- ------------------------------------
Secretary Jeremy Zela
<PAGE>
EXHIBIT A
______________________________________________________
Address of Person Exercising Option
_____________________
Date
American Card Technology, Inc.
1355 Terrell Mill Road - Suite 200
Marietta, Georgia 30067
Attention: President
Dear Sirs:
I hereby elect to exercise the Option to purchase shares of Common
Stock of the Corporation awarded to me on February 2, 1998.
A. The number of shares being purchased: ________ shares at $12.00 per
share.
B. I desire to follow Procedure 1 or Procedure 2, as indicated below:
[CHECK EITHER PROCEDURE 1 OR PROCEDURE 2 AND FILL IN BLANKS UNDER THAT
PROCEDURE ONLY].
_____ PROCEDURE 1: A certified or bank cashier's check payable to
the order of the Corporation in the amount of
$_______________ [insert the full purchase price of the shares
being purchased] is attached.
The certificate or certificates should be mailed or
delivered to:
_____________________________________________
_____________________________________________
_____________________________________________
_____ PROCEDURE 2: Payment of $_______________, being the full
purchase price of the shares being purchased, is to be made
by certified or bank cashier's check payable to the order of
the Corporation at the office of the Corporation, 1355 Terrell
Mill Road - Suite 200, Marietta, Georgia, against delivery of a
certificate or certificates representing such shares to me or my
representative, on the ______________ [here insert Fifth, Sixth,
Seventh, Eight, Ninth or Tenth] business day from the date of
this notice is received by the Corporation.
<PAGE>
Please advise me of the exact date and time when payment and
delivery will take place.
I will [check one]
_____ appear personally to make payment and accept delivery
_____ be represented by:
_____________________________________________
_____________________________________________
_____________________________________________
[here insert name and address of bank or other
representative authorized to act for you].
C. The certificate or certificates for the shares being purchased
should be registered and the name and address to be shown on the
Corporation's stock records should be as follows:
_____________________________________________
_____________________________________________
_____________________________________________
D. I represent and agree that the shares as to which I am hereby
exercising an option are being purchased for investment and not with a
view to the distribution or resale thereof, and the Common Stock will
not be sold except in accordance with the restrictions or limitations
set forth in the Stock Option Agreement or as may be imposed by law.
Sincerely yours,
______________________________
Jeremy Zela
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Card Technology, Inc.
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report (which contains an explanatory
paragraph regarding uncertainties about the Company continuing as a going
concern) dated March 10, 1998, relating to the financial statements of
American Card Technology, Inc. which is contained in that Prospectus.
We also consent to the reference to us under the captions "Experts" and
"Selected Financial Data" in the Prospectus.
/s/ BDO Seidman
-----------------------
BDO Seidman, LLP
New York, New York
May 1, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF LEGAL COUNSEL
We hereby consent to the filing of this opinion of counsel, dated May 4,
1998, with the Securities and Exchange Commission as an exhibit to the Offering
Statement.
/s/ Bartz & Bartz
-----------------------
BARTZ & BARTZ
Edina, MN.
May 4, 1998
<PAGE>
EXHIBIT 23.3
UNDERWRITERS CONSENT AND CERTIFICATION
--------------------------------------
The sales of this offering will be through Regulation S-B, Form SB-2. The
Underwriter (Rockcrest Securities, LLC.) will receive ten percent commission
from the sales of this offering. This offering will only be sold by the
following:
ROCKCREST SECURITIES, LLC.
3626 N. HALL STREET, SUITE 920
DALLAS, TX. 75219
CONSENT AND CERTIFICATION BY UNDERWRITER
- ----------------------------------------
1. The undersigned hereby consents to being named as underwriter in an
offering statement filed with the Securities and Exchange Commission and
the following States; Illinois, Texas, Massachusetts, Colorado, California,
Florida, Louisiana, Kansas, Nevada, Oklahoma, Oregon, Idaho, Washington,
Connecticut and the Georgia Securities Division by [AMERICAN CARD
TECHNOLOGY, INC.] pursuant to Regulation S-B, in connection with a proposed
offering of [COMMON STOCK] to the public.
2. The undersigned hereby certifies that it furnished the statements and
information set forth in the offering statement with respect to the
undersigned, its directors and officers or partners, that such statements
and information are accurate, complete and fully responsive to the
requirements of Disclosure Document and Exhibits of the Offering Statement
thereto, and do not omit any information required to be stated therein with
respect of any such persons, or necessary to make the statements and
information therein with respect to any of them not misleading.
3. If Preliminary Offering Circulars are distributed, the undersigned hereby
undertakes to keep an accurate and complete record of the name and address
of each person furnished a Preliminary Offering Circular and, if such
Preliminary Offering Circular is inaccurate or inadequate in any material
respect, to furnish a revised Preliminary Offering Circular or a Final
Offering Circular to all persons to whom the securities are to be sold at
least 48 hours prior to the mailing of any confirmation of sale to such
persons, or to send such a circular to such persons under circumstances
that it would normally be received by them 48 hours prior to their receipt
of confirmation of the sale.
Rockcrest Securities, LLC.
- -----------------------------------
(Underwriter)
By: /s/ James S. Harris Date: 4 \ 30\ 98
--------------------- -------------------
President
(d) All written consents shall be dated and signed manually signed.
IN WITNESS WHEREOF I have hereunto set my hand and official seal
/s/ Michael Kosloske
[SEAL] -----------------------------------
MICHAEL W. KOSLOSKE Notary Public
NOTARY PUBLIC-MINNESOTA
HENNEPIN My Commission Expires: 1/31/2000
My Comm. Exp. January 31, 2000 -------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 27,203 155,437
<SECURITIES> 0 0
<RECEIVABLES> 6,730 26,603
<ALLOWANCES> 0 0
<INVENTORY> 3,918 1,735
<CURRENT-ASSETS> 77,736 272,908
<PP&E> 161,097 167,844
<DEPRECIATION> (69,692) (78,538)
<TOTAL-ASSETS> 594,536 890,440
<CURRENT-LIABILITIES> 4,144,316 3,617,452
<BONDS> 0 1,250,000
0 0
0 0
<COMMON> 2,625 2,525
<OTHER-SE> (3,552,405) (3,979,537)
<TOTAL-LIABILITY-AND-EQUITY> 594,536 890,440
<SALES> 76,912 59,589
<TOTAL-REVENUES> 76,912 59,589
<CGS> 86,995 74,507
<TOTAL-COSTS> 86,995 74,507
<OTHER-EXPENSES> 1,436,885 728,587
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,065,240 283,727
<INCOME-PRETAX> (2,512,208) (1,027,232)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,512,208) (1,027,232)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,512,208) (1,027,232)
<EPS-PRIMARY> (.96) (.40)
<EPS-DILUTED> (.96) (.40)
</TABLE>
<PAGE>
EXHIBIT 99.1
United States Patent (19) (11) Patent Number: 5,629,508
(45) Date of Patent: May 13, 1997
FINDLEY, JR. ET AL.
[54] DUAL SMART CARD ACCESS CONTROL ELECTRONIC DATA STORAGE RETRIEVAL SYSTEM AND
METHODS.
[75] Inventors: Raymond Findlev, Jr.: Robert Dixon. both of Marietta. GA.
[73] Assignee: American Card Technology, Inc., Marietta. GA.
[21] Appl. No.: 383,937
[22] Filed: Feb. 6, 1995
Related U.S. Application Data
[63] Continuation of Ser. No. 352,837, Dec. 2. 1994. abandoned
[51] Int. CL G06K 5/00
[52] U.S. Cl. 235/38 R. 235/380
[58] Field of Search 235/380. 375.
235/382. 492. 487; 283/900, 380/3. 4. 23
[56]
References Cited
U.S. PATENT D0CUMENTS
4,677,604 6/1937 Selby, III..................235/462
4,709,136 11/1987 Watanabe.................5/38O X
5.065,429 11/1991 Lang.........................380/4
5,.316,993 5/1994, Okuno .....................235/380
5,367,150 11/1994 Kitta et al. ..............235/380
5.,513,169 4/1996 Fite et a1. ..................380/3
Primary Examiner-Donald T. Hajec
Assistant EXAMINER-Thien Minh Le
Attorney, Agent, or Firm-Shoemaker and Mattare Ltd.
[57] ABSTRACT
The present invention pertains to an electronic data access and retrieval system
comprising at least first and second smart cards, a first card being encoded
with digital data fields representative of predetermined information and a
second card including authorization codes for enabling access to and authorized
retrieval of selected information from digital data fields of the first card.
and includes computer means including display means for displaying the access
data. A method is also disclosed of operating an electronic secured access
verification. display system for displaying an indication of permissible and
non-permissible access to a facility of authorized personnel and for verifying
the identity of such personnel by providing IDENTITY SMART CARDS. one for each
authorized person, and an ACCESS SMART CARD to each authorized operator of the
system.
5 Claims, 10 Drawing Sheets
AUTHORIZED RACING SYSTEM
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 1 of 10 5,629,508
FIGURE 1
AUTHORIZED RACING SYSTEM
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 2 of 10 5,629,508
FIGURE 2
UNAUTHORIZED SYSTEM-NO ACCESS CARD
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 3 of 10 5,629,508
FIGURE 3
UNAUTHORIZED SYSTEM-WRONG ACCESS CARD
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 4 of 10 5,629,508
FIGURE 4
AUTHORIZED DRIVERS LICENSE SYSTEM
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 5 of 10 5,629,508
FIGURE 5C
MASTER CARD
[PICTURE]
FIGURE 5A
ACCESS CARD
[PICTURE]
FIGURE 5B
IDENTITY CARD
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 6 of 10 5,629,508
FIGURE 6
DISPLAY IDENTITY (LICENSE) CARD DATA
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 7 of 10 5,629,508
FIGURE 7
ISSUE LICENSE CARD
[PICTURE]
<PAGE>
U.S. Patent May 13 1997 Sheet 8 of, 10 5,629,508
FIGURE 8
ISSUING ACC SS CARDS
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 9 of 10 5,629,508
FIGURE 9
DUAL-CARD ACCESS CARD ISSUING STATION
[PICTURE]
<PAGE>
U.S. Patent May 13, 1997 Sheet 10 of 10 5,629,508
FIGURE 10
DUAL-CARD LICENSE CARD ISSUE/UPDAT STATION
[PICTURE]
<PAGE>
5,629,508
1
DUAL SMART CARD ACCESS CONTROL
ELECTRONIC DATA STORAGE AND
RETRIEVAL SYSTEM AND METHODS
This application is a continuation of U.S. application Ser. No. 08/352.837,
filed on Dec. 2. 1994. now abandoned entitled as set forth above.
A portion of the disclosure of this patent document contains material, which is
subject to copyright or mask work protection. The copyright or mask work owner
has no objection to the facsimile reproduction by anyone of the patent document
or the patent disclosure, as it appears in the Patent and Trademark Office
patent file or records, but otherwise reserves all copyright or mask work rights
whatsoever.
INCORPORATION BY REFERENCE
The software utilized in the system and methods of the invention has been
registered in the U.S. Copyright Office under Copyright Registration No. TX
3-639-032, which includes "Microsoft Access" under Microsoft License
Agreement. The registered deposit for this copyright registration is
available to die public for inspection and copy at the U.S. Copyright Office.
Applicants and their Assignee hereby incorporate herein by reference said
copyrighted software (non-patent publication).
FIELD OF THE INVENTION
It is most advantageous to have an automatic system and methods for identifying
people or personnel and providing secured access to a facility of authorized
personnel upon verifying the identity of such personnel. What is clearly needed
is a means of and methods for providing automatic rapid and positive
verification of persons who previously have been authorized access to secured
areas.
The present invention system and methods have various market applications one
being a race track facility operation having various types of employees and
participants, such as pari-mutuel employees, gaming employees. Jockeys. Animal
owners (thoroughbred. greyhound. etc.) and others, and it is desirous to license
these people so that you can control their respective access to various
respective secured areas of the race track facility.
Accordingly the present invention provides methods of operating an electronic
secured access verification display system for displaying an indication of
permissible and non-permissible to a facility of authorized personnel and for
verifying the identity of such personnel. comprising the steps of:
a) Providing a plurality of IDENTITY smart cards one for each authorized
person each encoded with digital data representative of personal identity
and including official information and a digitized photograph indicative of
each authorized person;
b) Providing an ACCESS smart card to each authorized operator of the system
each ACCESS card being encoded with control data elements mandatory to
operate the system to display permissible and non-permissible access to the
facility of each authorized person having an IDENTITY smart card indicative
of the identity of each authorized person; and
c) Inserting into the display system an ACCESS smart card and one of die
plurality of IDENTITY smart cards to display permissible and
non-permissible access to the facility.
Furthermore the following method steps are also incorporated into the invention:
5 a) upon the occurrence of insertion into the system of both the ACCESS
card and IDENTITY card electronically reading the ACCESS card and
determining which fields of data of the IDENTITY card are to be
displayed reading such determined fields of data from the IDENTITY
card and displaying the determined fields of data of the IDENTITY
card along with die digitized photograph;
<PAGE>
10 b) determining if die IDENTITY card inserted into die system is
allowed access to the facility by comparing secured area assignment data
contained in the ACCESS card with secured area assignment dam contained
within the IDENTITY card, and
15 c) displaying permissible access and non-permissible access
messages dependent upon verifying both the identity of the IDENTITY card
holder and the acceptance of the IDENTIT'Y card by the ACCESS card of
the authorized operator of the system.
20 The method invention further includes the step of encoding
each ACCESS card with authorization codes for enabling retrieval of
selected data field information from the IDENTITY card.
25 A long-felt need also exists to provide an electronic data
access and retrieval system and a method for accessing and retrieving
digital data information from persons by authorized operator/officials
of a secured access facility and for various other purposes.
Accordingly the present invention further provides an electronic data
access and retrieval
30 system comprising:
At least first and second smart cards a first card being
encoded with digital data fields representative of pre-determined
information and a second card including authorization codes for
enabling retrieval of selected information from die first card;
35 computer means including display means for displaying accessed
data and having at least first and second smart card read/write means
operatively connected to the computer means for reading data fields
from and writing data fields to the first and second smart cards; and
whereby when the first smart card is placed into the first read/write
means and the second smart card is placed into the second read/write
means, authorized retrieval of at least some of the data fields
contained in the first card is enabled and displayed.
40
45 The inventive method of the above-referenced accessing and retrieving
digital data information system comprises die steps of:
50 a) encoding a first smart card with digital data fields representative
of predetermined information.
b) Encoding a second smart card with authorization codes for enabling
authorized retrieval of selected data field information from die first
card;
c) Electronically reading the authorization codes from die second
smart card and retrieving selected information from digital data
fields contained in the first smart card, and
d) Displaying the selected information.
60 The foregoing and other objects, features and advantages of
the invention will be apparent from the following more detailed
description of preferred embodiments and methods of the invention as
illustrated in die accompanying drawings.
65 Fore the sake of brevity, a brief Summary of the Invention system and
methods is presented hereinbefore and is not presented separately.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 shows a preferred embodiment of the system invention applicable to an
authorized racing track operation.
<PAGE>
FIG. 2 depicts the FIG. 1 system, which cannot be operatively enabled without
the use of an ACCESS card.
FIG. 3 illustrates a FIG. 1 system operation display message, which occurs when
an unauthorized ACCESS card is used with an authorized card.
FIG. 4 shows a system embodiment applicable to an authorized Driver's License
information access and retrieval operation.
FIG. 5A, 5B, 5C graphically depict in exemplary form an ACCESS smart card A. an
INDENTITY (License) SMART card B. and a
MASTER smart card C, each of which incorporate firmware shown a A1 B1 and C1.
Respectively.
FIG. 6 is a flow chart diagram showing a system operation to display IDENTITY
card data.
FIG. 7 is a flow chart diagram showing a system operation for issuing IDENT1TY
(License) cards.
FIG. 8 is a flow chart diagram showing a system operation to issue ACCESS
cards.
FIG. 9 depicts, in graphic form a dual-card ACCESS smart card issuing station.
FIG. 10 depicts in graphic form a dual-card IDENTITY smart card issue/update
station the updating function being almost
identical to that of FIG. 7 except the system checks that the identity card has
been written to.
DESCRIPTION OF INVENTION SYSTEM AND MET'HODS
The dual-card inventive concept of ACCESS cards and IDENTITY (license) cards
are utilized in tandem to supply the functionality of the system.
FIG. 1 shows a preferred embodiment of the system invention applicable to an
authorized racing track operation. Wherein
computer 10 includes a display 20, ACCESS card reader 30 for ACCESS card A is
connected via communication link (line) to computer 10 via a parallel port
means, and IDENTITY card reader 40 for IDENTITY card B is connected via
communication Link/line 60 to computer 10 via the parallel port means.
The system of a preferred embodiment constructed in accordance with the present
invention and methods, and described with reference to the respective drawings,
can be constructed from the following Table, which lists examples of the
depicted components:
TABLE A
COMPONENT DESCRIPTION
PC COMPUTERSTATION 10 Gateway 2000
486/dx2/66V
having two RS-232
Serial Ports and a
Parallel Port
Two 9600P Smart Card New Datacom 9600P
Readers 30 and 40
ACCESS Smart Card A Smart Card with
Motorola SC-21 chip
INDENTITY Smart Card B Smart Card with
Motorola SC-11 chip
<PAGE>
The invention system and methods utilize smart card technology components,
which may be defined as a card component that incorporates an integrated circuit
chip
Therein (IC chip) as set forth above with respect to ACCESS smart card A
and IDENTITY smart card B. An accepted industry-wide definition of a "smart
card" is a credit card size device/component containing an embedded
microprocessor chip that
5 stores information for retrieval, which information has previously
been written therein. The ACCESS card A is the key to writing and
reading all information gored in the IDENTITY card B. Without a
suitable ACCESS card. Updated information cannot be stored in the
IDENTITY card and existing information is inaccessible.
10 ACCESS cards are tailored to die information requirements of the
individual issuing the IDENTITY cards and each operator of the system
has an ACCESS card which determines which fields that operator is able
to write to and
15 read from the IDENTITY card such card issuing procedures being described
in further detail hereinafter along with a MASTER card feature.
20 For each secured area access, a plurality of IDENTITY smart cards
are issued one for each authorized person. And each is encoded with
digital data representative of personal identity and including
official information and a digitized photograph indicative of each
authorized person. Also, a photograph of the authorized person can be
imprinted on or affixed to the face of an IDENTITY card.
25 An ACCESS smart card is issued to each authorized operator of the system
station located at the secured access area and each ACCESS card is encoded
with control data elements mandatory to operate the system station to
display
30 permissible and non-permissible access to the secured area of each
authorized person having an IDENTITYY card indicative of the identity of
each authorized person. The ACCESS card A importantly includes
authorization codes for enabling retrieval of selected information from a
compatible IDENTITY card B.
35 When the ACCESS card is inserted into read/write component 30 and the
IDENTITY card B is inserted into INDENTITY read/write component 40. and
these cards are compatible with each other as to accessible fields of data,
the
40 authorized information is read from the IDENTITY card and displayed on
display means 20. Depending on the type of accessible fields of data
information, or profile, of an individual's ACCESS card. The user/holder of
the ACCESS card can be limited to the fields of data that are to be written
to
45 or read from the IDENTITY card. The controlling "profile" resides in the
ACCESS card. Thus as shown in FIG. 1, compatible ACCESS and IDENTITY cards
have been inserted into the respective readers and the system is enabled to
retrieve selected information from the IDENTITY card
50 that is displayed on display means 20.
One of die features of the system invention pertains to having an ACCESS
card encoded with control data elements mandatory to operate the system
station to display permissible and non-permissible access to a secured
area. These
55 control data elements of the card's operating system that reside in the
ACCESS card are encoded data containing information on how to read and
write to the IDENTITY card which also allows activation of a set of
instructions that can reside in the ACCESS card, in the hardware, in the
60 software in the computer 10, or any combination thereof. A different ACCESS
card will be able to read different data fields in an IDENTITY card if it
is programmed to do so.
Now with respect to FIG. 2, for each system operation a first attempt is
made to mad the ACCESS card, and. if no
65 ACCESS card is inserted into the ACCESS card reader 30, then system
operation is not enabled, thus, the information contained in the IDENTITY
card cannot be read and
<PAGE>
Displayed, and a display message of "insert ACCESS card" occurs on the display.
With the inventive system the authorized operator of the computer 10 station
located at the entrance to a secured s area is able to peruse personal or
history data contained in the signed, data fields of the IDENTITY smart card. In
the racing track application the authorized operator can view information
encoded on the IDENTITY card, which could include information as to the various
states in which the holder of the IDENTITY card is licensed, as well as any
penalty information that that person has received in regard to racing, and other
information including date of birth. Height, weight, address of the IDENTITY
card holder.
FIG. 3 depicts a FIG. 1 system operation display message, which occurs when an
unauthorized ACCESS card is used with an authorized. IDENTITY card. Accordingly,
when the ACCESS card and IDENTITY card conflict not matching correct fields, an
error message appears describing the mismatch and only inserting the matching
cards allows activation of the system station.
FIG. 4 shows a system embodiment applicable to an authorized Driver's License
information access and retrieval operation. Another application of the present
system and method. Thus, by changing and appropriately programming an ACCESS
card means. The entire Card Operating System can be changed without any hardware
modifications, which affords easy functionality and added capabilities.
Now with respect to FIG. 5, an exemplary showing of smart cards utilized in the
present system and methods each of the cards incorporate firmware Al. B1, and
Cl, respectively for the ACCESS. IDENTITY and MASTER cards, the Later of which
will be described hereinafter.
FIG. 6 provides disclosure of a flow chart diagram showing a system operation to
display IDENTITY card dam as shown. An ACCESS card is inserted and an IDENTITY
card is inserted the ACCESS card is interrogated to be compatible or
non-compatible with the inserted IDENTITY and, if compatible field definitions
and assignment and authorization code fields are read from the ACCESS card, an
access decision is made and. if allowed selected information from the digital
data fields of the IDENTITY card are displayed.
Various advantages are created and are available within the invention system and
methods, some of which are as follows. ACCESS control cards permit or deny
access to the data contained within an IDENTITY card. These parameters arc
established by the person who owns and/or administers the system Dual-card
access control allows an administrator graduations of authority to thereby
provide various levels of security and access to various operators, employees,
etc. An individual's ACCESS card allows variable levels of security. This is
permits access to certain data stored on the card defined by die administrator.
For example a security guard may only see a picture for positive ID
(identification) of an IDENTITIY card bolder and determines whether the
individual card holder has permission to enter an area However, the supervisor
of a security guard may have a differently encoded ACCESS card with a higher
level of security, which would allow the supervisor to view on the display not
only the picture of the IDENTITY card holder and access permitted. But also a
display may be obtained of all IDENTITY card holder's personal data, such as
address. Phone, rulings, etc. which are on file in the IDENTITY card data fields
all of this occurring when die supervisor places
<PAGE>
5,629,508
His particularly programmed ACCESS card into the invention system. Such
capacity therefore, satisfies various issues as to personal privacy and
this feature of the invention can thus provide a plurality of different
ACCESS cards each one
5 of which may contain different levels of security access to the information
contained within an IDENTITY card carried or worn by persons, employees,
etc.
The invention system also allows the communication of messages through the
system on a one-to-one or group basis.
10 and a message list can specify which messages are to be displayed when an
individual's IDENTITY card is inserted into the respective reader
component.
From the foregoing, one can clearly imagine various other applications of
the system and methods provided herein.
15 such as licensing professionals providing medical histories inclusive of
allergy perimeters for each cardholder, patron tracking, and any other kind
of licensing or personal history data information.
20 FIG. 7 is a flow chart diagram showing a system operation for issuing
IDENTITY (License) cards. As shown therein, an ACCESS card is used to issue
a license card and upon insertion of both cards a password is entered and,
if the password is
25 acceptable, a query is made for "Are fields writable?" and, if so, a
decision is made as to the acceptance of the IDENTITY card and if OK, data
fields of information are written to the IDENTITY card such being checked
for any errors or problems; and, if yes the error is displayed; and if no,
a display results and the operation is terminated.
30 FIG. 8 depicts a flow chart diagram showing a system operation to issue
ACCESS cards and. as shown, a MASTER card is utilized. The MASTER card
contains information on how to program the ACCESS card and, without a
MASTER card, no ACCESS cards can be issued.
35 Accordingly both the MASTER and ACCESS cards are inserted an appropriate
password is entered a decision is made as to the acceptance of the ACCESS
card and if not, a display error occurs, and if the ACCESS card is accepted
then data fields including authorization codes are written to
40 the ACCESS card, whereafter the written fields arc checked for error and,
if yes, the error is displayed and, if no problems are found, the display
renders a successful message.
FIG. 9 depicts, in graphic form, a dual-card ACCESS
45 smart card issuing station within which a system function of FIG. 8 is
accomplished. As shown in FIG. 9. the MASTER card and ACCESS card are
inserted, into their respective reader components A and B. which are
respectively connected to the COM1 and COM2 serial ports of computer 10.
50 AP/Verifier included in computer 10 represents "Application programming
Interface/Verifier" which constitutes software residing in the PC computer
10 for the Card Operating System.
FIG. 10 depicts in graphic form a dual-card IDENTITY
55 card issue/update station the updating function being almost identical to
issuing IDENTITY cards, except that the depicted system checks that the
IDENTITY card has been written to.
The disclosure set forth hereinabove with reference to the
60 drawings and the incorporation by reference to the copyrighted system
program will enable any person Skilled in the to which this invention
pertains to assemble and operate the system in accordance with the
inventive methods provided herein. It should also be obvious to one skilled
in the
65 art that even though communications links/lines 50 and 60 have been
depicted as wired lines various other communication link equivalence could
be utilized.
5,629,508
Thus it is apparent that there has been provided in accordance with the system
invention and methods an electronic data access and retrieval system and a
method of accessing and retrieving digital data information which is applicable
to the operation of an electronic secured access verification display system and
that fully satisfies the objectives and advantages set forth above. It is also
further apparent that system operations for issuing IDENTITY cards. ACCESS cards
and dual-card ACCESS or IENDTITY smart card issuing stations have been shown and
disclosed.
<PAGE>
While the invention system has been described in conjunction with specific
embodiments thereof. It is evident that many alternatives, modifications,
variations and applications will be apparent to those skilled in the art in
light of the foregoing description. Accordingly it is intended to embrace all
such alternatives modifications and variations which fall within the spirit and
scope of the appended system and method claim
We Claim:
1. An electronic data access and retrieval system comprising:
At least first and second smart cards a first card being encoded with
digital data fields representative of predetermined information and a
second card including authorization codes for enabling access to and
authorized retrieval of selected information from said digital data fields
of said first card;
Computer means including display means for displaying the accessed data and
having at least first and second smart card read/write means operatively
connected to said computer means for reading data fields from and writing
data fields to said first and second smart cards;
Whereby when the said first smart card is placed into said first read/write
means and the said second smart card is placed into said second read/write
means access to and authorized retrieval of at least some of the data
fields contained in the said first card is enabled and displayed.
2. A method of accessing and retrieving digital data information comprising the
steps of.
a) Encoding a first smart card with digital data fields representative of
predetermined information;
b) Encoding a second smart card with authorization codes for enabling
access to and authorized retrieval of selected data field information from
said digital data fields of said first card,
c) Electronically reading said authorization codes from said second smart
card and retrieving said selected information from said digital data fields
contained in said first smart card; and
d) Displaying the said selected information.
3. Method of operating an electronic secured access verification display
system for displaying an indication of permissible and non-permissible
access to a facility of
5 authorized personnel and for verifying the identity of such personnel
comprising the steps of.
a) Providing a plurality of IDENTITY smart cards one for each authorized
person each encoded with digital data representative of personal identity
and including official
10 information and a digitized photograph indicative of said each authorized
person;
b) Providing an ACCESS smart card to each authorized operator of said
system each ACCESS card being
15 encoded with control data elements mandatory to operate said system to
display permissible and non-permissible access to said facility of each
authorized person having an IDENTITY smart card indicative of the identity of
said each authorized person;
c) Inserting into said display system an ACCESS smart card and one of said
plurality of IDENTITY smart cards to display permissible and non-permissible
access to said facility.
4. The method as defined in claim 3 further including the steps of:
25 a) upon the occurrence of insertion into said system of both said ACCESS card
and said IDENTITY card electronically reading the said ACCESS card and determing
which fields of data of the said IDENTITY card
30 are authorized to be displayed reading such determined and authorized fields
of data from said IDENTITY card and displaying the determined fields of data of
said IDENTITY card along with said digitized photograph;
b) Determining if the said IDENTITY card inserted into said system is allowed
access to said facility by comparing secured area assignment data contained in
said ACCESS card with secured area assignment data contained within said
IDENTTIY card;
<PAGE>
40 c) displaying permissible access and non-permissible access messages
dependent upon verifying both the identity of the IDENTITY card holder and the
acceptance of the said IDENTITY card by said ACCESS card
45 of said authorized operator of the said system 5. The method as defined in
claim 3 further including the step of encoding each 50. ACCESS card with
authorization codes for enabling retrieval of selected data field information
from the said IDENTITY card.
<PAGE>
EXHIBIT 99.2
HAROLD ROTHSTEIN
650 BOCA MARINA COURT
BOCA RATON, FLORIDA 33487
- -------------------------------------------------------------------------------
April 15, 1998
American Card Technology, Inc.
2470 Windy Hill Road, Suite 300
Marietta, Georgia 30067
Re: Bank Loans to American Card Technology, Inc.
Ladies and Gentlemen:
I refer to (i) a Line of Credit to American Card Technology, Inc. (the
"Company") from Fleet National Bank ("Fleet") in the maximum principal amount of
One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00), as evidenced by a
promissory note in said amount dated June 28, 1996 (the "Fleet Loan"), and (ii)
a Business Installment Loan in the amount of One Hundred Thousand and 00/100
Dollars ($100,000.00) to the Company from The Chase Manhattan Bank ("Chase," and
together with Fleet, sometimes collectively referred to herein as the "Banks"),
as evidenced by a promissory note in said amount dated October 28, 1996 (the
"Chase Loan," and together with the Fleet Loan, sometimes collectively referred
to herein as the "Loans"). I hereby represent to the Company that, as of the
date hereof, I have a net worth in excess of One Million and 00/100 Dollars
($1,000,000.00).
For good and valuable consideration, I hereby agree to do either of the
following, at my option, if demand is made on the Company by Fleet and/or Chase
with respect to the Fleet Loan and/or the Chase Loan prior to the earlier of (i)
the net proceeds disbursed pursuant to the Company's initial public offering
(the "IPO") equal or exceed $5,100,000.00 or (ii) the closing of a subsequent
debt financing negotiated by Lilly Beter Capital Group ("LBCG").
<PAGE>
American Card Technology, Inc.
April 15, 1998
Page 2
1. Secure replacement financing to pay off the demanded Loan from another
lender on the same terms and conditions as the demanded Loan(s) was originally
made, except that such new loan shall not be due and payable until the earlier
of (i) the net proceeds disbursed pursuant to the IPO equal or exceed
$5,100,000.00, or (ii) the closing of a subsequent debt financing negotiated by
LBCG, or (iii) January 1, 2001; or
2. Satisfy the demanded Loan in full, either through the collateral
security I have previously pledged to the Bank with respect to the demanded Loan
or through some other means satisfactory to the Banks.
In the event that I personally provide satisfaction of a Loan, the Company
hereby agrees and acknowledges that I shall be subrogated to all rights of the
Bank with respect to that Loan, so that I shall be treated in the same manner as
the Bank would have been treated had the Loan not been satisfied, including,
without limitation, repayment of all amounts I paid to the Bank on behalf of the
Company with respect to the Loan, on the earlier of (i) the net proceeds
disbursed pursuant to the IPO equal or exceed $5,100,000.00, or (ii) the closing
of a subsequent debt financing negotiated by LBCG, or (iii) January 1, 2001.
If the Company is in agreement with the foregoing, please so indicate by
countersigning below.
Sincerely yours,
/s/ Harold Rothstein
------------------------------
Harold Rothstein
ACCEPTED AND AGREED TO AS OF
THE 15TH DAY OF APRIL, 1998:
AMERICAN CARD TECHNOLOGY, INC.
By: /s/ Lawrence O. Perl
------------------------------
Its Chief Executive Officer
