<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCM MICROSYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3577 77-0444317
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
SCM MICROSYSTEMS, INC.
131 ALBRIGHT WAY
LOS GATOS, CA 95032
(408) 370-4888
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN HUMPHREYS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SCM MICROSYSTEMS, INC.
131 ALBRIGHT WAY
LOS GATOS, CA 95032
(408) 370-4888
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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JEFFREY D. SAPER, ESQ. MICHAEL S. IMMORDINO, ESQ.
KENNETH M. SIEGEL, ESQ. KARL A. ROESSNER, ESQ.
THEODORE C. CHEN, ESQ. DAVID M. DETWEILER, ESQ.
JAN-MARC VAN DER SCHEE, ESQ. JOHN CAFIERO, ESQ.
WILSON SONSINI GOODRICH & ROSATI ROGERS & WELLS
PROFESSIONAL CORPORATION CITY TOWER
650 PAGE MILL ROAD 40 BASINGHALL STREET
PALO ALTO, CA 94304 LONDON, EC2V 5DE
(415) 493-9300 ENGLAND
44-171-628-0101
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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==============================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
Common Stock, $0.001 par value................ $31,625,000 $9,583
==============================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------
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> 2
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 THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated June 12, 1997
2,750,000 Shares
LOGO
Common Stock
-----------------------------
All of the 2,750,000 shares of Common Stock offered hereby are being sold
by SCM Microsystems, Inc. ("SCM Microsystems" or the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. Application has been made to have the Common Stock
approved for quotation on the Nasdaq National Market under the symbol "SCMM." It
is currently estimated that the initial public offering price will be between
$ and $
per share. See "Underwriting" for information relating to the determination of
the initial public offering price.
-----------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
-----------------------------
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.
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================================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- ------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
Total (3)................................. $ $ $
================================================================================================
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, estimated at $975,000, payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 412,500
additional shares of Common Stock at the Price to Public less the
Underwriting Discount to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
-----------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for such shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1997.
COWEN & COMPANY HAMBRECHT & QUIST
, 1997
<PAGE> 3
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMPANY'S COMMON
STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus.
Except as set forth in the Consolidated Financial Statements or as
otherwise indicated, all information in this Prospectus assumes (i) the issuance
of an aggregate of 849,790 shares of Preferred Stock subsequent to March 31,
1997, (ii) the conversion of all of the Company's outstanding shares of
Preferred Stock into shares of Common Stock, effective upon the closing of this
offering (the "Automatic Conversion"), and (iii) that the Underwriters'
over-allotment option is not exercised. All information in this Prospectus,
including the Consolidated Financial Statements, reflects the conversion of
certain convertible debt into 377,580 shares of stock as if such conversion had
been completed as of March 31, 1997. See Note 3 of Notes to Consolidated
Financial Statements.
THE COMPANY
SCM Microsystems designs, develops and manufactures hardware, firmware and
software products for data security and access control applications. The Company
sells security and access products to OEM computer, telecommunication and
digital video broadcasting ("DVB") component and system manufacturers. The
Company's objective is to leverage its expertise in PCMCIA and smart card
technologies and its extensible, upgradeable smart card token-based security
architecture to capitalize on the growing demand for data and network security
and the need to control access to digital information. The Company markets,
sells and licenses its products through a direct sales and marketing
organization primarily to OEMs and also through distributors, VARs, system
integrators and resellers worldwide. OEM customers include Compaq, Dell, France
Telecom, IBM, Kirch Group (BetaDigital), Schlumberger, Security Dynamics,
Siemens/ Nixdorf, Sun Microsystems and Telenor.
The Company addresses the needs of the enterprise data security market by:
(i) providing a range of products which enable smart cards and other security
tokens to be read through standard PCMCIA slots thus bridging the gap between
smart cards and PCs, network computers and other devices; (ii) employing an
open-systems, remotely upgradeable architecture that provides compatibility
across a range of hardware platforms and software environments; and (iii)
including in certain of its smart card reader products encryption/decryption
capabilities that address the inherent speed and performance limitations of
smart cards. The Company addresses the needs of the DVB market by: (i) providing
smart card-based conditional access readers and modules which adhere to the
DVB-Common Interface ("DVB-CI") standard; (ii) including real time,
high-bandwidth decryption capabilities which can be unlocked by smart card-based
tokens, which by themselves are not capable of decrypting digital video data at
the rate required for DVB; and (iii) incorporating read/write capabilities which
permit DVB content and service providers to perform a virtually no-cost upgrade
of users' access rights as new products are developed and introduced and as
users' subscription desires change.
With the increasing proliferation and reliance upon digital data, data
security has become a paramount concern of businesses, government, educational
institutions and consumers. Whether the issue is controlling access to
proprietary or confidential information such as business data or health records,
or attempting to limit access to digital video broadcasts or paying subscribers,
content providers, network and data managers and users of digital data are
concerned with controlling access to data and maintaining data security.
Through 1994, the Company focused on PCMCIA peripheral products, including
flash memory and fax/modem devices. In 1994, the Company began emphasizing
security and access products. The Company made the final shipment of PCMCIA
peripheral products in the quarter ended March 31, 1997, completing its exit
from this business. As a result of the Company's shift in product focus, net
sales of security and access products increased from 22.1% of total net sales in
1994 to 77.3% of total net sales in 1996. Beginning in 1997,
3
<PAGE> 5
the Company will be dependent upon the sales of its security and access
products. The Company has formed strategic relationships, including technology
sharing agreements, with a number of key industry players such as Intel, Matra
Communications, France Telecom and Telenor. In addition, Intel and Telenor made
equity investments in the Company of $2.0 million and $5.5 million,
respectively, in early 1997.
The Company was originally formed in 1990 as a German corporation, and in
1993 the Company merged with two affiliated companies. The Company
reincorporated in Delaware in December 1996. The Company maintains headquarters
in Los Gatos, California and Pfaffenhofen, Germany. The Company's address is 131
Albright Way, Los Gatos, California 95032 and its telephone number is (408)
370-4888.
THE OFFERING
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Common Stock offered by the Company........... 2,750,000 shares
Common Stock to be outstanding after the 9,404,489 shares(1)
offering....................................
Use of proceeds............................... For repayment of indebtedness, capital
expenditures and general corporate purposes,
including working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........ SCMM
</TABLE>
- ---------------
(1) Excludes 358,174 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1997 at a weighted average exercise
price of $0.10 per share and an aggregate of 384,121 shares of Common Stock
and Preferred Stock issuable upon exercise of warrants issued subsequent to
March 31, 1997 at a weighted average exercise price of $7.17 per share. See
"Management -- Employee Stock Plans" and Notes 4 and 11 of Notes to
Consolidated Financial Statements.
"SwapBox" is a registered trademark of the Company. This Prospectus also
contains trademarks of other companies.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ---------------
1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------ ------
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales(1):
Security and access products.......... $ -- $ 1,426 $12,520 $16,628 $2,811 $4,202
PCMCIA peripheral products............ 2,379 5,020 5,546 4,892 1,446 163
------- ------- ------- ------- ------ ------
Total net sales.................. 2,379 6,446 18,066 21,520 4,257 4,365
------- ------- ------- ------- ------ ------
Gross profit............................. 600 1,359 2,295 6,640 1,189 1,565
Operating expenses....................... 1,601 2,966 4,895 7,620 1,696 2,041
------- ------- ------- ------- ------ ------
Loss from operations..................... (1,001) (1,607) (2,600) (980) (507) (476)
Net loss................................. $(1,096) $(1,868) $(2,926) $(1,110) $ (497) $ (475)
======= ======= ======= ======= ====== ======
Pro forma net loss per share(2).......... $ (0.19) $(0.08)
======= ======
Shares used to determine pro forma net
loss per share(2)..................... 5,272 6,054
======= ======
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<CAPTION>
MARCH 31, 1997
---------------------------------------
PRO PRO FORMA
CONSOLIDATED BALANCE SHEET DATA: ACTUAL FORMA(3) AS ADJUSTED(4)
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Cash and cash equivalents............................... $ 4,946 $11,937 $
Working capital......................................... 6,976 13,967
Total assets............................................ 13,374 20,365
Redeemable convertible preferred stock.................. 14,554 --
Total stockholders' equity (deficit).................... (6,750) 14,795
</TABLE>
- ---------------
(1) Through 1994, the Company focused on PCMCIA peripheral products, including
flash memory and fax/modem devices. In 1994, the Company began to shift its
focus away from these products toward security and controlled access
products. The Company made the final shipment of PCMCIA peripheral products
in the quarter ended March 31, 1997, completing its exit from this business.
(2) Share and per share information gives pro forma effect to the Automatic
Conversion. See Notes 1, 4 and 10 of Notes to Consolidated Financial
Statements.
(3) Reflects (i) the issuance of 849,790 shares of Preferred Stock subsequent to
March 31, 1997 and (ii) the Automatic Conversion.
(4) Adjusted to reflect the sale of 2,750,000 shares of Common Stock by the
Company hereby at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"). All
forward-looking statements included in this Prospectus are based on information
available to the Company on the date hereof and assumptions which the Company
believes are reasonable, and the Company assumes no obligation to update any
such forward-looking statements. These forward-looking statements involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating the Company's business, prospective investors
should consider carefully the following factors in addition to the other
information set forth in this Prospectus.
HISTORY OF OPERATING LOSSES; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS;
SEASONALITY
Although the Company was profitable for the fiscal quarters ended September
30, 1996 and December 31, 1996, the Company has incurred a loss for the fiscal
quarter ended March 31, 1997 and net operating losses on an annual basis since
its inception in 1993. As of March 31, 1997, the Company had an accumulated
deficit of $8.6 million. In view of the Company's loss history, there can be no
assurance that the Company will be able to achieve or sustain profitability on
an annual or quarterly basis in the future.
The Company's quarterly operating results have in the past varied and may
in the future vary significantly. Factors affecting operating results include:
the level of competition; the size, timing, cancellation or rescheduling of
significant orders; market acceptance of new products and product enhancements;
new product announcements or introductions by the Company's competitors;
adoption of new technologies and standards; changes in pricing by the Company or
its competitors; the ability of the Company to develop, introduce and market new
products and product enhancements on a timely basis, if at all; hardware
component costs and availability, particularly with respect to hardware
components obtained from sole or limited source suppliers; the Company's success
in expanding its sales and marketing organization and programs; technological
changes in the market for digital information security products; levels of
expenditures on research and development; foreign currency exchange rates; and
general economic trends. In addition, because a high percentage of the Company's
operating expenses are fixed, a small variation in the timing of recognition of
revenue can cause significant variations in operating results from quarter to
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has experienced significant seasonality in its business, and
the Company's business and operating results are likely to be affected by
seasonality in the future. The Company has typically experienced higher net
sales in the third quarter and fourth quarter of each calendar year followed by
lower net sales and operating income in the first quarter and second quarter of
the following year. The Company believes that this trend has been principally
due to budgeting requirements of the U.S. government which influence the
purchasing patterns of OEMs which supply PCs and workstations incorporating the
Company's products to the U.S. government. In addition, a significant portion of
the Company's net sales are generated during the fourth quarter as a result of
the year-end holiday buying season. The Company's dependence on fourth quarter
results is expected to increase to the extent that net sales of its Digital
Video Broadcasting - Conditional Access Module ("DVB-CAM") product increase.
Initial sales of the Company's products to a new customer typically involve
a relatively lengthy sales cycle, which can range from six to nine months,
during which the Company may expend substantial financial resources and
management time and effort with no assurance that a sale will ultimately result.
The length of the sales cycle may vary depending on a number of factors over
which the Company may have little or no control, including product and technical
requirements, and the level of competition which the Company encounters in its
selling activities. Any delays in the sales cycle for new customers could have a
material adverse effect on the Company's business and operating results.
6
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Based upon the factors enumerated above, the Company believes that its
operating results may vary significantly in future periods and that
period-to-period comparisons should not be relied upon as necessarily reliable
indicators of future performance. It is likely that, in some future quarter, the
Company's operating results will be below the expectations of stock market
analysts and investors. In such event, the price of the Company's Common Stock
could be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations."
DEPENDENCE ON EMERGING PRODUCT MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE OF THE
COMPANY'S PRODUCTS
From the Company's inception through 1994, the Company focused on Personal
Computer Memory Card Industry Association ("PCMCIA") peripheral products,
including flash memory and fax/modem devices. In 1994, the Company began
emphasizing security and access products. The Company made the final shipment of
PCMCIA peripheral products in the quarter ended March 31, 1997, completing its
exit from this business. As a result of the Company's strategic shift in product
focus, the proportion of security and access product sales increased from 22.1%
of total net sales in 1994 to 77.3% of total net sales in 1996. Beginning in
1997, the Company's net sales will be dependent upon the success of its security
and access products.
The Company's future growth and operating results will depend to a large
extent on the successful marketing and commercial viability of the Company's
security and access product families, particularly smart card-based readers and
DVB-CAMs. Each of these product families addresses needs in different emerging
markets. Smart card token-based security applications are able to provide
protection from unauthorized access of digital information. The Company believes
that smart cards are ideally suited to serve as tokens for network and
electronic commerce security. Accordingly, the Company's SwapBox and SwapSmart
product families are targeted to provide token-based security for PCs. However,
there can be no assurance that the smart card will become the industry standard
for network and electronic commerce security applications. The Company's DVB
product family provides a means of controlling access to digital television
broadcasts. The Company's DVB-CAM product implements the Digital Video
Broadcasting-Common Interface ("DVB-CI") standard. To date, the Company's
DVB-CAM product has been implemented in a relatively limited number of DVB
set-top boxes in Europe. Although the Company believes that the DVB-CI standard
will eventually become the European standard for DVB conditional access
applications, there can be no assurance that the standard will be adopted, that
the European DVB market will further develop or that even if such standard is
adopted and the market further develops, the Company's DVB-CAM products will be
widely adopted. Furthermore, the market for DVB products in the United States
has only recently begun to develop and there can be no assurance whether, or to
what extent, this market will grow. In addition, the substantial installed base
of analog set-top boxes in the United States may cause the market for the
Company's DVB products to grow slower than expected, if at all.
If the market for the products described above or any of the Company's
other products fails to develop or develops more slowly than expected or if any
of the standards supported by the Company do not achieve or sustain market
acceptance, the Company's business and operating results would be materially and
adversely affected. See "-- Competition."
PRODUCT SALES CONCENTRATION
The Company's SwapBox product has historically represented and is expected
to continue to represent a substantial portion of the Company's net sales. Sales
of this product comprised 62.2% and 54.4% of net sales during fiscal 1995 and
1996, respectively. Should the demand for, or pricing of, this product decline
due to the introduction of superior or lower cost systems by competitors,
changes in the computer industry or other factors, the Company's business and
operating results would be materially adversely affected. While diversifying its
products is a key element of the Company's business strategy, there can be no
assurance that the Company will be able to successfully introduce or market
other products in a timely and cost effective manner or that any new products or
improvements will achieve market acceptance.
DEPENDENCE ON SALES TO OEMS
A substantial majority of the Company's security and access products are
intended for use as components or subsystems in systems manufactured and sold by
third party OEMs. In 1996, sales to IBM accounted for
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<PAGE> 9
12% of total net sales, sales to BetaDigital (a division of the Kirch Group)
accounted for 11% of total net sales and sales to the Company's top 10 customers
accounted for 55.0% of total net sales. In order for an OEM to incorporate the
Company's products into its systems, the Company must demonstrate that its
products provide significant commercial advantages to OEMs over competing
products. There can be no assurance that the Company can successfully
demonstrate such advantages or that the Company's products will continue to
provide any advantages. Moreover, even if the Company is able to demonstrate
such advantages, there can be no assurance that OEMs will elect to incorporate
the Company's products into their current or future systems, or if they do, that
related system and manufacturing requirements can or will be met. Failure of
OEMs to incorporate the Company's products into their systems or failure of such
OEMs' systems to achieve market acceptance would have a material adverse effect
on the Company's business and operating results. See "Business -- Customers and
Applications."
DEPENDENCE ON SALES TO GOVERNMENT CONTRACTORS
Approximately 50.6% and 39.2% of the Company's net sales during 1995 and
1996, respectively, were derived from sales of the Company's SwapBox product for
use by the U.S. government, all of which were made under contracts between the
Company and major OEMs that sell PCs to the United States Department of Defense
(the "DoD"). The Company believes that indirect sales to the DoD are subject to
a number of significant uncertainties, including timing and availability of
funding, unforeseen changes in the timing and quantity of government orders and
the competitive nature of government contracting generally. Furthermore, the DoD
has been reducing total expenditures over the past few years in a number of
areas and there can be no assurance that such funding will not be reduced in the
future. In addition, there is no assurance that the Company will be able to
modify existing products or develop new products that will continue to meet the
specifications of OEM supplies to the DoD. Absent significant future revenues
from alternative sources, a significant loss of indirect sales to the United
States government would have a material adverse effect on the Company's business
and operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON DEVELOPMENT OF INDUSTRY RELATIONSHIPS
The Company is party to collaborative arrangements with a number of
corporations and is a member of key industry consortia. The Company has formed
strategic relationships, including technology sharing agreements, with a number
of key industry players such as Intel, Matra Communications, France Telecom and
Telenor. In addition, Intel and Telenor made equity investments in the Company
of $2.0 million and $5.5 million, respectively, in early 1997. The Company
evaluates, on an ongoing basis, potential strategic alliances and intends to
continue to pursue such relationships. The Company's future success will depend
significantly on the success of its current arrangements and its ability to
establish additional arrangements. There can be no assurance that these
arrangements will result in commercially successful products. See
"Business -- Collaborative Industry Relationships."
COMPETITION
The market for digital data security is intensely competitive and
characterized by rapidly changing technology. The Company believes that
competition in this market is likely to intensify as a result of increasing
demand for security products. The Company currently experiences competition from
a number of sources, including (i) ActionTec, Carry Computer Engineering,
Greystone and Litronics in PC Card adapters, (ii) GemPlus, Hitachi and Toshiba
in smart card readers and universal smart card reader interfaces and (iii)
GemPlus in DVB-CAM modules. The Company also experiences indirect competition
from certain of its customers which currently offer alternative products or are
expected to introduce competitive products in the future. In some cases, these
vendors also support the Company's products and those of its competitors. The
Company may in the future face competition from these and other parties
including new entrants, such as Motorola, that develop digital information
security products based upon approaches similar to or different from those
employed by the Company. In addition, there can be no assurance that the market
for digital data
8
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security products will not ultimately be dominated by approaches other than the
approach marketed by the Company.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or may be able to devote
greater resources to the development, promotion and sale of products, or to
deliver competitive products at a lower end user price. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any of which could have a material adverse effect on the Company's business and
operating results.
The Company believes that the principal competitive factors affecting the
market for digital data security products include support standards and
interoperability, technical features, ease of use, quality/reliability, level of
security, distribution channels and price. While the Company believes that it
competes favorably with respect to these factors, there can be no assurance that
the Company will be able to successfully incorporate these factors into its
products and to compete against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business and operating results.
MANAGEMENT OF GROWTH
The Company's business has grown substantially in recent periods, with net
sales increasing from $6.4 million in fiscal 1994 to $21.5 million in fiscal
1996. The growth of the Company's business has placed a significant strain on
the Company's management and operations. In addition, a number of key members of
the Company's management, including its President and Chief Executive Officer,
Chief Financial Officer, Vice President-Operations, and Vice President-Marketing
have joined the Company within the past 12 months. Furthermore, in 1993 the
Company commenced operations in North America which included the establishment
of a U.S. management team. As a result, the Company has a limited operating
history under its current U.S. management. In addition, the number of employees
has grown from 50 at December 31, 1995 to 64 as of March 31, 1997. If the
Company is successful in achieving its growth plans, such growth is likely to
place a significant burden on the Company's operating and financial systems,
resulting in increased responsibility for senior management and other personnel
within the Company. There can be no assurance that the Company's existing
management or any new members of management will be able to augment or improve
existing systems and controls or implement new systems and controls in response
to anticipated future growth. The Company's failure to do so could have a
material adverse effect on the Company's business and operating results. See
"-- Dependence on Key Personnel; Ability to Recruit Personnel," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTEGRATION OF GLOBAL LOCATIONS
The Company's headquarters are located in Los Gatos, California and
Pfaffenhofen, Germany, and the Company's research and development facilities are
located in Erfurt, Germany and La Ciotat, France. In addition, a significant
portion of the Company's contract manufacturing occurs in Singapore. Although
the Company seeks to mitigate its diverse geographic locations through the
extensive use of electronic mail and teleconferencing, there can be no assurance
that it will not encounter unforeseen difficulties or logistical barriers in
operating in diverse locations. Furthermore, operations in widespread geographic
locations require the Company's information systems to be consolidated, to
function in a complex environment and to be fully scalable. Although the Company
believes that its information systems are adequate, the Company may in the
future have to implement new information systems. Implementation of such new
information systems may be costly and may require training of personnel. Any
failure or delay in implementing these systems, procedures and controls on a
timely basis, if necessary, or in expanding these areas in an efficient manner
at a pace consistent with the Company's business could have a material adverse
effect on the Company's business and operating results.
9
<PAGE> 11
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company's success depends significantly upon its proprietary
technology. The Company currently relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company generally
enters into confidentiality and non-disclosure agreements with its employees and
with key vendors and suppliers. The Company's SwapBox trademark is registered in
the United States, and the SwapSmart trademark is the subject of an allowed,
pending application. The Company will continue to evaluate the registration of
additional trademarks as appropriate. The Company currently has one U.S. patent
issued; six U.S., one French and one Japanese patent applications pending; and
exclusive licenses under four other U.S. patents associated with its products.
Furthermore, the Company intends to obtain an exclusive license from one of its
employees to five other patents relating to its products. There can be no
assurance that any new patents will be issued, that the Company will develop
proprietary products or technologies that are patentable, that any issued patent
will provide the Company with any competitive advantages or will not be
challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's business.
There has also been substantial litigation in the technology industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has from time to time
received claims that it is infringing upon third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
patents, trademarks or other proprietary rights. On April 28, 1997, Gemplus
served the Company with a complaint alleging that the Company's SwapSmart
product infringes certain claims of a French patent held by Gemplus. See
"Business -- Legal Proceedings." The Company expects that companies in the
computer and digital information security market will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
target markets grows. Any such claims or litigation may be time-consuming and
costly, cause product shipment delays, require the Company to redesign its
products or require the Company to enter into royalty or licensing agreements,
any of which could have a material adverse effect on the Company's business and
operating results. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information and software that the Company regards
as proprietary. In addition, the laws of some foreign countries do not protect
proprietary and intellectual property rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary and intellectual property rights will be adequate or
that the Company's competitors will not independently develop similar
technology, duplicate the Company's products or design around patents issued to
the Company or other intellectual property rights of the Company.
DEPENDENCE ON CONTRACT AND OFFSHORE MANUFACTURING; LIMITED NUMBER OF SUPPLIERS
OF KEY COMPONENTS
The Company has implemented a global sourcing strategy that it believes
will enable it to achieve greater economies of scale, improve gross margins and
maintain uniform quality standards for its products. The Company currently
sources its products through three contract manufacturers in Europe and Asia. In
the event any of the Company's contract manufacturers are unable or unwilling to
continue to manufacture the Company's products, the Company may have to rely on
other current manufacturing sources or identify and qualify new contract
manufacturers. In this regard, one of the Company's contract manufacturers has
recently been involved in bankruptcy proceedings and may be unable to continue
manufacturing the Company's products. Although the Company believes it will be
able to rely on other manufacturing sources in order to meet its near-term
capacity requirements, there can be no assurance that the Company would be able
to identify or qualify new contract manufacturers in a timely manner or that
such manufacturers would allocate sufficient capacity to the Company in order to
meet its requirements. Any significant delay in the Company's ability to obtain
adequate supplies of its products from its current or alternative sources would
materially and adversely affect the Company's business and operating results.
10
<PAGE> 12
In an effort to reduce manufacturing costs, the Company has shifted volume
production of many components of its products to Singapore. The Company is
currently considering shifting the production of other components of its
products to other suppliers in Europe or Asia. The potential transfer or
expansion of production in these facilities will require tight ongoing inventory
and cost controls. Difficulties encountered in transferring production may have
a disruptive effect on the Company's manufacturing process and increase overall
production costs. Due to the substantial concentration of the Company's
manufacturing operations in Singapore, a disruption of operations at its
facilities in Singapore could have a material adverse effect on the Company's
business and operating results. Foreign manufacturing is subject to a number of
risks, including transportation delays and interruptions, difficulties in
staffing, currency fluctuations, potentially adverse tax consequences and
unexpected changes in regulatory requirements, tariffs and other trade barriers,
and political and economic instability.
The Company relies upon a limited number of suppliers of several key
components utilized in the assembly of the Company's products. For example, the
Company purchases many of the components for use in its SwapSmart and SwapBox
products from Intellicard Systems, a Singapore corporation, and mechanical
components for use in its smart card reader product exclusively from Stocko, a
German corporation. The Company's reliance on its suppliers involves several
risks, including a potential inability to obtain an adequate supply of required
components, price increases, late deliveries and poor component quality.
Although to date the Company has been able to purchase its requirements of such
components, there can be no assurance that the Company will be able to obtain
its full requirements of such components in the future or that prices of such
components will not increase. In addition, there can be no assurance that
problems with respect to yield and quality of such components and timeliness of
deliveries will not occur. Disruption or termination of the supply of these
components could delay shipments of the Company's products and could have a
material adverse effect on the Company's business and operating results. Such
delays could also damage relationships with current and prospective customers.
See "Business -- Manufacturing."
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapid
technological change, changing customer needs, frequent new product introduction
and evolving industry standards and short product lifecycles. The introduction
by the Company or its competitors of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
obsolete and unmarketable. Therefore, the Company's future success will depend
upon its ability to successfully develop and to introduce new and enhanced
products on a timely and continuous basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. During the second half of 1997, the
Company intends to introduce several new products which incorporate new and
complex technologies and are expected to be critical to the Company's business
and operating results in future periods. The timing and success of product
development is unpredictable due to the inherent uncertainty in anticipating
technological developments, the need for coordinated efforts of numerous
technical personnel and the difficulties in identifying and eliminating design
flaws prior to product release. Any significant delay in releasing new products
could have a material adverse effect on the ultimate success of a product and
other related products and could impede continued sales of predecessor products,
any of which could have a material adverse effect on the Company's business and
operating results. There can be no assurance that the Company will be able to
introduce new products on a timely basis, that new products introduced by the
Company will achieve any significant degree of market acceptance or that any
such acceptance will be sustained for any significant period. Failure of new
products to achieve or sustain market acceptance could have a material adverse
effect on the Company's business and operating results. See
"Business -- Research and Development."
RISKS OF INTERNATIONAL SALES; CURRENCY FLUCTUATIONS
The Company was originally a German corporation and continues to conduct a
substantial portion of its business in Europe. As a result, approximately 82.5%,
49.0% and 52.5% of the Company's revenues in 1994, 1995 and 1996, respectively,
were derived from customers located outside the United States. Because a
11
<PAGE> 13
significant number of the Company's principal customers are located in other
countries, the Company anticipates that international sales will continue to
account for a significant portion of its revenues. As a result, a significant
portion of the Company's sales and operations may continue to be subject to
certain risks, including tariffs and other trade barriers, difficulties in
staffing and managing disparate branch operations, currency exchange risks and
exchange controls and potential adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's business and operating results.
As a result of the Company's multinational operations and sales, the
Company's operating results are subject to significant fluctuations based upon
changes in the exchange rates of certain currencies, particularly the German
mark, in relation to the U.S. dollar. Although the Company does not currently
engage in hedging activities with respect to its foreign currency exposure, the
Company may evaluate hedging strategies intended to reduce such exposure in the
future. Although management will continue to monitor the Company's exposure to
currency fluctuations, and, when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, there can
be no assurance that exchange rate fluctuations will not have a material adverse
effect on the Company's business and operating results. In the future, the
Company could be required to denominate its product sales in other currencies,
which would make the management of currency fluctuations more difficult and
expose the Company to greater risks in this regard. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PRODUCT LIABILITY RISKS
Customers rely on the Company's token-based security products to prevent
unauthorized access to their digital content. A malfunction of or design defect
in the Company's products could result in tort or warranty claims. Although the
Company attempts to reduce the risk of exposure from such claims through
warranty disclaimers and liability limitation clauses in its sales agreements
and by maintaining product liability insurance, there can be no assurance that
such measures will be effective in limiting the Company's liability for any such
damages. Any liability for damages resulting from security breaches could be
substantial and would have a material adverse effect on the Company's business
and operating results. In addition, a well-publicized actual or perceived
security breach involving token-based security systems could adversely affect
the market's perception of token-based security products in general, or the
Company's products in particular, regardless of whether such breach is
attributable to the Company's products. This could result in a decline in demand
for the Company's products, which would have a material adverse effect on the
Company's business and operating results.
DEPENDENCE ON KEY PERSONNEL; ABILITY TO RECRUIT PERSONNEL
The Company's future performance depends in significant part upon the
continued service of Robert Schneider, the Company's Chairman of the Board,
Steven Humphreys, the Company's President and Chief Executive Officer, and Bernd
Meier, the Company's Chief Operations Officer, as well as its other key
technical and senior management personnel. The Company provides compensation
incentives such as bonuses, benefits and option grants (which are typically
subject to vesting over four years) to attract and retain qualified employees.
The loss of the services of one or more of the Company's officers or other key
employees could have a material adverse effect on the Company's business and
operating results. The Company believes that its future success will depend in
large part on its continuing ability to attract and retain highly qualified
technical and management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company can retain its key technical and
management employees or that it can attract, assimilate or retain other highly
qualified technical and management personnel in the future. See
"Business -- Employees" and "Management."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS; RISKS ASSOCIATED WITH POTENTIAL
ACQUISITIONS
The Company currently has no specific use planned for a substantial portion
of the net proceeds from this offering. As a consequence, the Company's
management will have broad discretion to allocate a large percentage of these
proceeds to uses which the stockholders may not deem desirable, and there can be
no
12
<PAGE> 14
assurance that the proceeds can or will yield a return. Although it currently
has no present plans, agreements or commitments with respect to any material
transaction, the Company could use a portion of these funds for the acquisition
of complementary businesses, products and technologies.
Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and
amortization of goodwill and other intangible assets, which could materially
adversely affect the Company's business and operating results. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, products and personnel of the acquired company, the diversion
of management's attention from other business concerns, risks of entering
markets in which the Company has no direct prior experience and the potential
loss of key employees of both the acquired company and the Company. There can be
no assurance that the Company will ever successfully complete an acquisition.
The Company has no present plans, agreements or commitments with respect to any
material acquisitions of other businesses, products or technologies. See "Use of
Proceeds."
CONCENTRATION OF STOCK OWNERSHIP; ANTI-TAKEOVER PROVISIONS
Upon completion of this offering, the Company's executive officers and
directors, together with their affiliates, will beneficially own approximately
23.0% of the Company's outstanding shares of Common Stock. Accordingly, these
stockholders, acting together, will continue to be able to exert significant
influence over all matters requiring stockholder approval, including the
election of the Company's directors and the approval of mergers and other change
in control transactions involving the Company. See "Management," "Principal
Stockholders" and "Description of Capital Stock."
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, amended Bylaws, Delaware law and the Company's indemnification
agreements with certain officers and directors of the Company may be deemed to
have an anti-takeover effect. Such provisions may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in that
stockholder's best interests, including attempts that might result in a premium
over the market price for the shares held by stockholders.
The Company's Board of Directors may issue additional shares of Common
Stock or establish one or more classes or series of Preferred Stock, having the
number of shares (up to 10,000,000), designations, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations as
determined by the Board of Directors without stockholder approval. The Company's
Certificate of Incorporation, as amended and restated, and Bylaws, as amended,
also contain a number of provisions that could impede a takeover or change in
control of the Company, including but not limited to the elimination of
stockholders' ability to take action by written consent without a meeting and
the elimination of cumulative voting in the election of directors.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Each of the foregoing provisions gives the Board of Directors, acting
without stockholder approval, the ability to prevent, or render more difficult
or costly, the completion of a takeover transaction that stockholders might view
as being in their best interests.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the offering. The initial
offering price will be determined by negotiation between the Company and the
Underwriters based upon several factors and may not be indicative of future
market prices. The trading price of the Company's Common Stock could be subject
to wide fluctuations in response to a number of factors, including quarterly
variations in operating results, announcements of technological innovations or
new
13
<PAGE> 15
products, applications or product enhancements by the Company or its
competitors, changes in financial estimates by securities analysts and other
events. In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market after this offering could adversely affect the market price of the
Company's Common Stock and could impair the Company's ability to raise capital
through the sale of equity or equity-related securities. Upon completion of this
offering, the Company will have outstanding 9,404,489 shares of Common Stock,
assuming no further exercise of options or warrants outstanding as of March 31,
1997. Of these shares, the 2,750,000 shares offered hereby (3,162,500 shares if
the Underwriters' overallotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 6,654,489 shares of Common Stock
outstanding upon completion of this offering are "restricted securities" as that
term is defined in Rule 144. Of the restricted securities, 57,618 shares will be
eligible for immediate sale upon commencement of this offering, an additional
94,751 shares will become eligible for sale beginning 90 days after commencement
of this offering. Upon expiration of certain Lock-Up Agreements (which occurs on
the date 180 days after commencement of this offering), an aggregate of
3,769,539 shares will become eligible for sale pursuant to Rule 144 or Rule 701
under the Securities Act, and 2,732,581 additional shares will become eligible
for sale thereafter under Rule 144. See "Shares Eligible for Future Sale."
Holders of an aggregate of 6,078,947 shares will have the right to require the
Company to register such shares for sale under the Securities Act. See
"Description of Capital Stock -- Registration Rights."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. At an estimated offering price of
$ per share, investors purchasing shares in this offering will incur
immediate dilution of $ per share. To the extent outstanding options and
warrants to purchase the Company's Common Stock are exercised, there will be
further dilution to new stockholders. See "Dilution."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock being offered hereby, based on an assumed initial public offering
price of $ per share and after deducting the estimated underwriting discount
and offering expenses payable by the Company, are estimated to be approximately
$ ($ if the Underwriters' over-allotment option is
exercised in full). The Company expects to use the net proceeds from this
offering for repayment of indebtedness, capital expenditures and general
corporate purposes, including working capital. The Company intends to repay
approximately $2.5 million, consisting of a term loan from a German bank. This
agreement terminates on December 31, 2005 and bears interest at rates ranging
from 5.0% to 6.0%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. The Company has no present plans, agreements or commitments and is
not currently engaged in any negotiations with respect to any such transactions.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term, interest-bearing, investment grade obligations.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
or other securities. The Company has a $2.5 million revolving line of credit
with a U.S. bank expiring in August 1997. Under such line of credit, the Company
must obtain the bank's prior written consent in order to declare or pay any cash
dividends. The Company currently anticipates that it will retain all of its
future earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends in the foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth: (i) the total capitalization of the Company
at March 31, 1997; (ii) such capitalization adjusted on a pro forma basis to
give effect to (a) the issuance of 849,790 shares of Preferred Stock subsequent
to March 31, 1997 and (b) the Automatic Conversion; and (iii) such pro forma
capitalization as adjusted to give effect to the sale by the Company of the
2,750,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share (after deducting the underwriting discount
and estimated offering expenses) and the application of net proceeds therefrom.
See "Principal Stockholders." This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term
debt(1).................................................. $ 2,523 $ 2,523 $ 2,523
------- ------- -------
Redeemable Convertible Preferred Stock, $0.001 par value;
6,000,000 shares authorized, 3,094,705 shares issued and
outstanding actual; 10,000,000 shares authorized, no
shares issued and outstanding pro forma and pro forma as
adjusted................................................. $14,554 $ -- $ --
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 854,038 shares
authorized, issued and outstanding actual; no shares
pro forma and pro forma as adjusted................... 1 -- --
Common Stock, $0.001 par value; authorized -- 40,000,000
shares actual, pro forma and pro forma as adjusted;
issued and outstanding -- 1,855,956 shares actual,
6,654,489 shares pro forma and 9,404,489 shares pro
forma as adjusted(2).................................. 2 7 9
Additional paid-in capital............................... 2,444 23,985
Deferred compensation.................................... (204) (204) (204)
Accumulated deficit...................................... (8,649) (8,649) (8,649)
Currency translation adjustment.......................... (344) (344) (344)
------- ------- -------
Total stockholders' equity (deficit).................. (6,750) 14,795
------- ------- -------
Total capitalization............................. $10,327 $17,318 $
======= ======= =======
</TABLE>
- ---------------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) As of March 31, 1997, there were outstanding options to purchase an
aggregate of 358,174 shares of Common Stock a weighted average exercise
price of $0.10 per share and 1,225,000 shares were reserved for future
issuance under the Company's stock plans. Subsequent to March 31, 1997, the
Company issued warrants to purchase an aggregate of 384,121 shares of Common
and Preferred Stock at a weighted average exercise price of $7.17 per share.
See "Management -- Employee Stock Plans" and Notes 4 and 11 of Notes to
Consolidated Financial Statements.
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was $14,795,000 or $2.22 per common share. Pro forma net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of shares of Common
Stock outstanding at that date after giving pro forma effect to (i) the issuance
of an aggregate of 849,790 shares of Preferred Stock subsequent to March 31,
1997 and (ii) the Automatic Conversion. After giving effect to the sale by the
Company of the 2,750,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $ per share and after deduction of the
estimated underwriting discount and offering expenses payable by the Company),
the Company's pro forma net tangible book value at March 31, 1997 would have
been $ or $ per share. This represents an immediate increase in
net tangible book value to existing stockholders of $ per share and an
immediate dilution to new investors of $ per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Net tangible book value per share as of March 31, 1997...... $2.22
Increase per share attributable to new investors............
-----
Pro forma net tangible book value per share after this
offering....................................................
------
Dilution per share to new investors........................... $
======
</TABLE>
The following table sets forth, on the pro forma basis described above, as
of March 31, 1997, the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
(i) existing stockholders and (ii) new investors at an assumed offering price of
$ per share (before deducting the estimated underwriting discount and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 6,654,489 70.8% $14,795,000 % $ 2.22
New investors............................. 2,750,000 29.2
--------- ----- ----------- -----
Total........................... 9,404,489 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of the Underwriters'
over-allotment option and no exercise of stock options outstanding at March 31,
1997. As of March 31, 1997, there were outstanding options to purchase an
aggregate of 358,174 shares of Common Stock at a weighted average exercise price
of $0.10 per share and 1,225,000 shares were reserved for future issuance under
the Company's stock plans. Subsequent to March 31, 1997, the Company issued
warrants to purchase an aggregate of 384,121 shares of Common Stock and
Preferred Stock at a weighted average exercise price of $7.17 per share. To the
extent that any of these options or warrants are exercised, there will be
further dilution to new investors. See "Capitalization," "Management -- Employee
Stock Plans" and Notes 4 and 11 of Notes to Consolidated Financial Statements.
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data at December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1994,
1995 and 1996 are derived from consolidated financial statements of the Company
that have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, and are included elsewhere in this Prospectus. The consolidated
balance sheet data at December 31, 1994 is derived from the audited Consolidated
Financial Statements of the Company that are not included herein. The
consolidated statement of operations data for the year ended December 31, 1993
and the consolidated balance sheet data at December 31, 1993 are derived from
unaudited Consolidated Financial Statements of the Company that are not included
herein. The following selected consolidated financial data at March 31, 1997 and
for the three-month periods ended March 31, 1996 and 1997 are unaudited but have
been prepared on the same basis as the audited Consolidated Financial Statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring adjustments, that management believes necessary for a fair
presentation of the financial position and results of operations for these
periods. The historical results are not necessarily indicative of the operating
results to be expected in the future. The following selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- -------------------
1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales(1):
Security and access products.................... $ -- $ 1,426 $12,520 $16,628 $ 2,811 $ 4,202
PCMCIA peripheral products...................... 2,379 5,020 5,546 4,892 1,446 163
------- ------- ------- ------- ------ ------
Total net sales............................... 2,379 6,446 18,066 21,520 4,257 4,365
Cost of sales..................................... 1,779 5,087 15,771 14,880 3,068 2,800
------- ------- ------- ------- ------ ------
Gross profit...................................... 600 1,359 2,295 6,640 1,189 1,565
Operating expenses:
Research and development........................ 691 1,162 1,399 2,386 624 628
Sales and marketing............................. 564 1,224 2,057 3,230 631 895
General and administrative...................... 346 580 1,439 2,004 441 518
------- ------- ------- ------- ------ ------
Total operating expenses...................... 1,601 2,966 4,895 7,620 1,696 2,041
------- ------- ------- ------- ------ ------
Loss from operations.............................. (1,001) (1,607) (2,600) (980) (507) (476)
Foreign currency transaction gain................. -- -- 11 174 35 67
Interest expense.................................. (95) (261) (337) (304) (25) (66)
------- ------- ------- ------- ------ ------
Net loss.......................................... $(1,096) $(1,868) $(2,926) $(1,110) $ (497) $ (475)
======= ======= ======= ======= ====== ======
Pro forma net loss per share(2)................... $ (0.19) $ (0.08)
======= ======
Shares used to determine pro forma net loss per
share(2)........................................ 5,272 6,054
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997
------- ------- ------- ------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 115 $ 70 $ 739 $ 2,593 $ 4,946
Working capital (deficit)........................ 454 823 1,620 (1,787) 6,976
Total assets..................................... 1,829 3,452 8,143 11,459 13,374
Long-term debt, less current portion............. 503 3,027 2,147 -- --
Redeemable convertible preferred stock........... -- -- 4,781 5,068 14,554
Total stockholders' equity (deficit)............. 19 (2,027) (4,760) (6,024) (6,750)
</TABLE>
- ---------------
(1) Through 1994, the Company focused on PCMCIA peripheral products, including
flash memory and fax/modem devices. In 1994, the Company began emphasizing
security and access products. The Company made the final shipment of PCMCIA
peripheral products in the quarter ended March 31, 1997, completing its exit
from this business.
(2) Share and per share information gives pro forma effect to the Automatic
Conversion. See Notes 1, 4 and 10 of Notes to Consolidated Financial
Statements.
(3) Reflects (i) the issuance of 849,790 shares of Preferred Stock subsequent to
March 31, 1997 and (ii) the Automatic Conversion.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in this section as well as those discussed
under the caption "Risk Factors" elsewhere in this Prospectus.
OVERVIEW
SCM Microsystems designs, develops and manufactures hardware, firmware and
software products for data security and access control applications. The Company
sells security and access products to OEM computer, telecommunication and DVB
component and system manufacturers. The Company's objective is to leverage its
expertise in PCMCIA and smart card technologies and its extensible, upgradeable
smart card token-based security architecture to capitalize on the growing demand
for data and network security and the need to control access to digital
information. The Company markets, sells and licenses its products through a
direct sales and marketing organization primarily to OEMs and also through
distributors, VARs, system integrators and resellers worldwide. OEM customers
include Compaq, Dell, France Telecom, IBM, Kirch Group (BetaDigital),
Schlumberger, Security Dynamics, Siemens/Nixdorf, Sun Microsystems and Telenor.
The Company focuses on security and access products that provide secure
access to digital data. The Company's security and access products are targeted
at OEM computer, telecommunication and DVB component and system manufacturers.
Through 1994, the Company focused primarily on PCMCIA peripheral products,
including flash memory and fax/modem devices, which carried a significantly
lower gross margin than the Company's current products. In 1994, the Company
began emphasizing security and access products. The Company made the final
shipment of PCMCIA peripheral products in the quarter ended March 31, 1997,
completing its exit from this business. As a result of the Company's strategic
shift in product focus, the proportion of security and access product sales
increased from 22.1% of total net sales in 1994 to 77.3% of total net sales in
1996. Beginning in 1997, the Company's net sales will be dependent upon the
success of its security and access products.
A substantial majority of the Company's security and access products are
intended for use as components or subsystems in systems manufactured and sold by
third party OEMs. In 1996, sales to IBM accounted for 12% of total net sales,
sales to BetaDigital, a division of the Kirch Group, accounted for 11% of total
net sales and sales to the Company's top 10 customers accounted for 55.0% of
total net sales. In addition, sales of the Company's SwapBox product accounted
for 62.2% and 54.4% of total net sales in 1995 and 1996, respectively. A
substantial majority of the SwapBox products sold by the Company are sold to a
number of major OEMs, including IBM, Dell and Packard Bell, each of which in
turn supplies products, such as desktop PCs, to the DoD. The Company expects its
business to continue to be substantially dependent upon sales of SwapBox
products to OEMs that are supplying the DoD, although such dependence may
decline as the Company expands its product lines and customer base. The Company
frequently enters into contracts with OEMs which provide for shipment of certain
quantities of products at specified future dates. Revenue from these contracts,
as well as from other sales, is recognized upon shipment of products.
As a result of the Company's multinational operations and sales, the
Company's operating results are subject to significant fluctuations based upon
changes in the exchange rates of certain currencies, particularly the German
mark, in relation to the U.S. dollar. For example, the Company's headquarters
are located in Los Gatos, California, its international headquarters are located
near Munich, Germany and its research and development facilities are located in
Erfurt, Germany and La Ciotat, France. In addition, the Company sources its
products from contract manufacturers located in Europe and Asia. As a result, a
substantial portion of the Company's costs and expenses are denominated in
currencies other than the U.S. dollar. For the year ended December 31, 1996, the
Company's sales denominated in U.S. dollars was $16.4 million, representing
76.3% of the Company's total net sales. Although the Company does not currently
engage in risk management activities with respect to its foreign currency
exposure, the Company may evaluate hedging strategies intended
19
<PAGE> 21
to reduce such exposure in the future. Although management will continue to
monitor the Company's exposure to currency fluctuations, there can be no
assurance that exchange rate fluctuations will not have a material adverse
effect on the Company's business and operating results.
The Company experiences substantial seasonality in its business, with
approximately one-third of annual net sales being realized in the first half of
the year and the remaining two-thirds being realized in the second half of the
year. In recent periods, this seasonality has been primarily the result of the
Company's reliance on sales of its SwapBox products to OEMs that in turn are
selling to U.S. government agencies. The buying pattern of U.S. government
agencies tend to be substantially weighted to the third quarter and, to a
somewhat lesser extent, the fourth quarter of the calendar year. The strength in
net sales in the third quarter which results from the U.S. government buying
patterns is somewhat offset by relatively weaker sales in Europe in the same
quarter as a result of the traditional European summer vacation patterns. The
Company expects that as sales of its DVB products, which are sold to OEMs mainly
in Europe for the consumer market, begin to represent a larger percentage of net
sales, the seasonality that the Company experiences may be further exacerbated
as such sales are likely to be strongest in the fourth quarter of the year. In
contrast to net sales, operating expenses tend to be spread relatively evenly
across the year. As a result, the Company's operating results have tended to be
weakest in first and second quarter of the year. See "-- Quarterly Results of
Operations."
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statement of operations as a percentage of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales:
Security and access products..................... 22.1% 69.3% 77.3% 66.0% 96.3%
PCMCIA peripheral products....................... 77.9 30.7 22.7 34.0 3.7
----- ----- ----- ----- -----
Total net sales............................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of sales...................................... 78.9 87.3 69.1 72.1 64.1
Gross profit....................................... 21.1 12.7 30.9 27.9 35.9
----- ----- ----- ----- -----
Operating expenses:
Research and development......................... 18.0 7.7 11.1 14.6 14.4
Sales and marketing.............................. 19.0 11.4 15.0 14.8 20.5
General and administrative....................... 9.0 8.0 9.3 10.4 11.9
----- ----- ----- ----- -----
Total operating expenses...................... 46.0 27.1 35.4 39.8 46.8
----- ----- ----- ----- -----
Loss from operations............................... (24.9) (14.4) (4.6) (11.9) (10.9)
Foreign currency transaction gain.................. 0.0 0.1 0.8 0.8 1.5
Interest expense................................... (4.1) (1.9) (1.4) (0.6) (1.5)
----- ----- ----- ----- -----
Net loss........................................... (29.0)% (16.2)% (5.2)% (11.7)% (10.9)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales reflect the invoiced amount for goods shipped less
estimated returns. Revenue is recognized upon product shipment. Net sales for
the first quarter of 1997 were $4.4 million, compared with $4.3 million in the
first quarter of 1996. Sales of security and access products were $4.2 million
in the first quarter of 1997, compared to $2.8 million in the comparable quarter
of 1996, an increase of 48%, reflecting the Company's shift in product strategy
toward security and access products. This increase was primarily due to an
increase in sales of the Company's DVB products, which commenced in the fourth
quarter of 1996. The
20
<PAGE> 22
Company made the final shipment of PCMCIA peripheral products in the quarter
ended March 31, 1997, completing its exit from this business.
Gross Profit. Gross profit for the first quarter of 1997 was $1.6 million,
or 35.9% of net sales, compared to $1.2 million, or 27.9% of net sales in the
comparable quarter of 1996. The increase in gross profit, both in absolute
amount and as a percentage of net sales, was primarily due to the increase in
DVB product sales and the corresponding mix shift away from lower margin PCMCIA
peripheral products. In addition, the Company's transition from the PCMCIA
peripheral products business resulted in reduced labor requirements. The Company
believes that its gross profit during 1997 will continue to be above the levels
experienced in 1996. The Company's gross profit has been and will continue to be
affected by a variety of factors, including competition, product configuration
and mix, the availability of new products and product enhancements which tend to
carry higher gross profit than older products and the cost and availability of
components. Accordingly, there can be no assurance that the Company will achieve
the forecasted levels of gross profit.
Research and Development. Research and development expenses consist
primarily of employee compensation and prototype expenses. To date, the period
between achieving technological feasibility and completion of software has been
short, and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs. Research and development expenses for the first quarter of
1997 were $628,000, compared to $624,000 in the first quarter of 1996, an
increase of less than one percent. In the first quarter of 1996, subcontractor
expenses for prototype manufacturing were unusually high, due to accelerated
development schedules for the Company's new line of smart card readers. Had
these expenses been consistent with prior levels, research and development
expenses would have shown a 9% increase in the first quarter of 1997 over the
comparable quarter of 1996, with this increase due primarily to higher
engineering headcount in the Company's French development center.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee compensation and trade show and other marketing costs. Sales and
marketing expenses for the first quarter of 1997 were $895,000, or 20.5% of net
sales, compared to $631,000 or 14.8% of net sales in the comparable period of
1996, an increase of 42%. This increase in absolute amount and as a percentage
of net sales was due primarily to growth of the Company's sales and marketing
headcount in the U.S. and initial promotional efforts in the Asia-Pacific
region. Sales and marketing expenses in 1997 are expected to increase in
absolute amounts as the Company continues to expand its headcount to support a
larger customer base and expanded product line, but to generally remain
consistent with or decline slightly from the 1996 results as a percentage of net
sales.
General and Administrative. General and administrative expenses consist
primarily of compensation expenses for employees performing the Company's
administrative functions. General and administrative expenses for the first
quarter of 1997 were $518,000, or 11.9% of net sales, compared to $441,000, or
10.4% of net sales in the first quarter of 1996, an increase of 17%. General and
administrative expenses increased in absolute amount in the first quarter of
1997 and as a percentage of net sales primarily as a result of an increase of
administrative headcount in the Company's U.S. and German offices in support of
higher levels of business activities. The Company believes general and
administrative expenses in 1997 will continue to increase in absolute amount as
a result of operating as a public company but that such expenses will remain
relatively consistent with the 1996 results as a percentage of net sales.
Interest Expense. Interest expense consists of interest on outstanding
debt, and was immaterial in the first quarters of 1997 and 1996. In future
periods, the Company expects that interest expense will be reduced as a result
of the conversion into equity of certain convertible debt on or before the
closing of this offering and that interest income will increase as a result of
the investment of the proceeds of this offering.
Income Taxes. The Company incurred losses in 1995, 1996 and the quarter
ended March 31, 1997, and therefore did not incur income tax obligations in
these periods. As of December 31, 1996, the Company had German net operating
loss carryforwards of approximately $4.6 million available to offset income from
the Company's German operations for an indefinite period. In addition, the
Company had net operating loss carryforwards of approximately $1.9 million and
$800,000 for United States federal and California income tax purposes,
respectively. The Company's utilization of United States federal net operating
loss carryforwards is limited to approximately $340,000 per year.
21
<PAGE> 23
1996 COMPARED TO 1995
Net Sales. Net sales increased 19.1% to $21.5 million in 1996, compared to
$18.1 million in 1995. Sales of security and access products represented 77.3%
of total net sales in 1996 compared to 69.3% in 1995, reflecting the continued
shift in the Company's product strategy toward security and access products.
Security and access product sales increased 32.8% to $16.6 million in 1996
compared to $12.5 million in 1995. This increase resulted primarily from
increased sales of SwapBox products which began shipping in 1995, as well as
sales of security and access products introduced during 1996, including
SwapSmart and the Company's DVB products. Consistent with the Company's shift
away from PCMCIA peripheral products, sales of such products decreased 11.8% to
$4.9 million in 1996 compared to $5.5 million in 1995. In 1994, the Company
began emphasizing security and access products. The Company made the final
shipment of PCMCIA peripheral products in the quarter ended March 31, 1997,
completing its exit from this business.
Gross Profit. Gross profit for 1996 was $6.6 million, or 30.9% of net
sales, compared to $2.3 million, or 12.7% of net sales in 1995. The substantial
increase in gross profit as a percentage of net sales in 1996 was primarily
attributable to three factors: (i) during 1996, the Company benefited from
manufacturing cost efficiencies associated with the increased sales of security
and access products; (ii) as part of the continued shift in 1996 from PCMCIA
peripheral products to security and access products, the Company introduced
certain new security and access products during 1996 which carried higher gross
margins than other products in the security and access product family; and (iii)
during 1996, the Company received approximately $1.6 million in nonrecurring
engineering revenues with relatively minimal cost of sales.
Research and Development. Research and development expenses for 1996
totaled $2.4 million, or 11.1% of net sales, compared to $1.4 million, or 7.7%
of net sales in 1995. The increase in research and development spending during
1996 was primarily a result of increased headcount and development activity
associated with new product introductions and the opening of the Company's
research and development facility in France.
Sales and Marketing. Sales and marketing expenses for 1996 totaled $3.2
million, or 15.0% of net sales, compared to $2.1 million, or 11.4% of net sales
in 1995. Sales and marketing expenses in 1996 in absolute amount increased
primarily as a result of the costs associated with introducing several
significant new products during 1996 and the higher headcount costs associated
with supporting a broader base of customers and expanded line of products.
General and Administrative. General and administrative expenses for 1996
totaled $2.0 million, or 9.3% of net sales, compared to $1.4 million, or 8.0% of
net sales in 1995. General and administrative expenses increased in absolute
amount in 1996 and as a percentage of net sales primarily as a result of
increasing headcount and expanded facilities associated with the overall growth
in the business.
Interest Expense. Interest expense was immaterial as a percentage of sales
in both 1996 and 1995.
Income Taxes. The Company incurred losses in 1995 and 1996 and therefore
did not incur income tax obligations in these periods. As of December 31, 1996,
the Company had deferred tax assets of approximately $2.2 million, resulting
primarily from the net operating loss carryforwards. At December 31, 1996, the
Company recorded a full valuation allowance for these deferred tax assets as
management has concluded that it is more likely than not that the deferred tax
assets would not be realized in the future. A future change in the Company's
assessment of the likelihood of future realization of deferred tax assets could
result in a reduction of the valuation allowance, a corresponding reduction in
the Company's income tax expense recorded for financial statement purposes and a
corresponding increase in net income. This would not, however, result in a
change in actual income taxes payable by the Company in any future period. See
Note 6 to the Consolidated Financial Statements.
1995 COMPARED TO 1994
Net Sales. Net sales increased to $18.1 million in 1995, compared to $6.4
million during 1994. Sales of security and access products and sales of PCMCIA
peripheral products represented 69.3% and 30.7%, respectively, of total net
sales in 1995 compared to 22.1% and 77.9%, respectively, in 1994, reflecting the
shift in the Company's product strategy toward security and access products.
Security and access product sales increased to $11.1 million in 1995, compared
to $1.4 million in 1994. This substantial increase resulted
22
<PAGE> 24
primarily from sales of SwapBox products which began shipping in 1995. PCMCIA
peripheral product sales increased to $5.5 million in 1995, compared to $5.0
million in 1994. This increase resulted primarily from the expansion in 1995 of
the Company's PCMCIA peripheral product line to include fax/modem PC Cards.
Gross Profit. Gross profit for 1995 was $2.3 million, or 12.7% of net
sales, compared to $1.4 million, or 21.1% of net sales in 1994. The substantial
decrease in gross profit as a percentage of net sales in 1995 was primarily
attributable to continuing price erosion for the Company's older PCMCIA
peripheral products, partially offset by the somewhat better margins associated
with the fax/modem product, and to relatively high manufacturing and procurement
costs associated with the security access products, particularly SwapBox which
was first shipped in 1995.
Research and Development. Research and development expenses for 1995
totaled $1.4 million, or 7.7% of net sales, compared to $1.2 million, or 18.0%
of net sales in 1994. The decrease in research and development spending in
absolute amount in 1995 resulted primarily from a lower level of development
effort being devoted to PCMCIA peripheral products and the transfer of certain
personnel from research and development functions to operating functions as the
Company's products, primarily SwapBox, moved from development stage to
production stage.
Sales and Marketing. Sales and marketing expenses for 1995 totaled $2.1
million, or 11.4% of net sales, compared to $1.2 million, or 19.0% of net sales
in 1994. Sales and marketing expenses increased in absolute amount in 1995 as
the Company's headcount expanded, particularly in the United States, and as the
Company expanded marketing activities in the U.S.
General and Administrative. General and administrative expenses for 1995
totaled $1.4 million, or 8.0% of net sales, compared to $580,000, or 9.0% of net
sales in 1994. General and administrative expenses increased in absolute amount
in 1995 primarily as a result of an increase in administrative personnel during
1995 to support the growth in the Company's business.
Interest Expense. Interest expense was immaterial as a percentage of net
sales in 1994 and 1995.
Income Taxes. Due to the Company's operating losses, the Company did not
incur income tax expense in 1994 or 1995.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited consolidated statement of
operations data for the third and fourth quarters of 1995, each of the four
quarters in the year ended December 31, 1996 and the first quarter of 1997, as
well as such data expressed as a percentage of the Company's total net sales for
the periods indicated. This data has been derived from unaudited consolidated
financial statements and has been prepared on the same basis as the Company's
audited Consolidated Financial Statements which appear elsewhere in this
Prospectus. In the opinion of the Company's management, this data includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1996 1996 1996 1996 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales:
Security and access products.... $ 3,952 $4,745 $ 2,811 $2,978 $ 4,927 $5,912 $ 4,202
PCMCIA peripheral products...... 1,476 1,737 1,446 1,278 1,073 1,095 163
------- -------- ------- ------- - ------- ------- - -------
Total net sales............... 5,428 6,482 4,257 4,256 6,000 7,007 4,365
------- -------- ------- ------- - ------- ------- - -------
Cost of sales..................... 4,765 5,489 3,068 3,103 3,903 4,806 2,800
Gross profit...................... 663 993 1,189 1,153 2,097 2,201 1,565
------- -------- ------- ------- - ------- ------- - -------
Operating expenses:
Research and development........ 418 437 624 556 598 608 628
Sales and marketing............. 588 726 631 777 889 933 895
General and administrative...... 356 515 441 467 605 491 518
------- -------- ------- ------- - ------- ------- - -------
Total operating expenses...... 1,362 1,678 1,696 1,800 2,092 2,032 2,041
------- -------- ------- ------- - ------- ------- - -------
Income (loss) from operations..... (699) (685) (507) (647) 5 169 (476)
------- -------- ------- ------- - ------- ------- - -------
Foreign currency transaction gain
(loss).......................... (62) 20 35 21 92 26 67
Interest expense.................. (46) (136) (25) (123) (70) (86) (66)
------- -------- ------- ------- - ------- ------- - -------
Net income (loss)................. $ (807) $ (801) $ (497) $ (749) $ 27 $ 109 $ (475)
======= ======== ======= ======== ======= ======== =======
AS A PERCENTAGE OF TOTAL NET
SALES:
Net sales:
Security and access products.... 72.8% 73.2% 66.0% 70.0% 82.1% 84.4% 96.3%
PCMCIA peripheral products...... 27.2 26.8 34.0 30.0 17.9 15.6 3.7
----- ----- ----- ----- ----- ----- -----
Total net sales............... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of sales..................... 87.8 84.7 72.1 72.9 65.1 68.6 64.1
Gross profit...................... 12.2 15.3 27.9 27.1 35.0 31.4 35.9
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and development........ 7.7 6.7 14.7 13.1 10.0 8.7 14.4
Sales and marketing............. 10.8 11.2 14.8 18.2 14.8 13.3 20.5
General and administrative...... 6.6 8.0 10.3 11.0 10.1 7.0 11.9
----- ----- ----- ----- ----- ----- -----
Total operating expenses...... 25.1 25.9 39.8 42.3 34.9 29.0 46.8
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations..... (12.9) (10.6) (11.9) (15.2) 0.1 2.4 (10.9)
----- ----- ----- ----- ----- ----- -----
Foreign currency transaction gain
(loss).......................... (1.1) 0.3 0.8 0.5 1.5 0.4 1.5
Interest expense.................. (0.9) (2.1) (0.6) (2.9) (1.2) (1.2) (1.5)
----- ----- ----- ----- ----- ----- -----
Net income (loss)................. (14.9)% (12.4)% (11.7)% (17.6)% 0.5% 1.6% (10.9)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
24
<PAGE> 26
The Company experiences substantial seasonality in its business, with
approximately one-third of annual net sales being realized in the first half of
the year and the remaining two-thirds being realized in the second half of the
year. In recent periods, this seasonality has been primarily the result of the
Company's reliance on sales of its SwapBox products to OEMs that in turn sell to
U.S. government agencies. The buying pattern of U.S. government agencies tend to
be substantially weighted to the third quarter and, to a somewhat lesser extent,
the fourth quarter of the calendar year. The strength in net sales in the third
quarter which results from the U.S. government buying patterns is somewhat
offset by relatively weaker sales in Europe in the same quarter as a result of
the traditional European summer vacation patterns. The Company expects that as
sales of its DVB products, which are sold to OEMs mainly in Europe for the
consumer market, begin to represent a larger percentage of net sales, the
seasonality that the Company experiences may be further exacerbated as these
sales are likely to be strongest in the fourth quarter of the year. In contrast
to net sales, operating expenses tend to be spread relatively evenly across the
year. As a result, the Company's operating results have tended to be weakest in
first and second quarter of the year. This revenue seasonality is evident in the
table above, in which the Company's net sales in 1996 increased each quarter,
then declined in the first quarter of 1997.
Gross margin generally improved in the second half of 1996 due primarily to
the shift in focus away from lower margin PCMCIA peripheral products. Gross
margin in the third quarter of 1996 was higher than other quarters in the year
due primarily to favorable product mix shift driven by higher sales to OEMs
supplying the DoD, combined with volume purchasing which lowered certain
component costs.
Research and development expenses have generally increased each quarter,
due primarily to increased headcount and related expenses in the Company's
development centers in La Ciotat, France and Erfurt, Germany. Unusually high
research and development expenses were incurred in the first quarter of 1996 due
primarily to substantial prototype manufacturing and test expenses related to
accelerated project timetables on key development projects. Sales and marketing
expenses have generally increased each quarter. In addition, certain sales
compensation costs typically fluctuate based on the levels of revenue bookings
and shipments. General and administrative expenses have generally increased each
quarter to support the increase in business activity. In the fourth quarter of
1995, general and administrative expenses were higher than previous quarters due
primarily to additional legal expenses and achievement and accrual of year end
management bonuses. In the third quarter of 1996, general and administrative
expenses were impacted by costs associated with the recruitment of the Company's
President and CEO.
The Company's quarterly operating results have in the past varied and may
in the future vary significantly. In addition to seasonality, factors affecting
operating results include: level of competition; size, timing, cancellation or
rescheduling of significant orders; product configuration and mix; market
acceptance of new products and product enhancements; new product announcements
or introductions by the Company's competitors; adoption of new technologies and
standards; deferrals of customer orders in anticipation of new products or
product enhancements; changes in pricing by the Company or its competitors; the
ability of the Company to develop, introduce and market new products and product
enhancements on a timely basis; hardware component costs and availability,
particularly with respect to hardware components obtained from sole sources; the
Company's success in expanding its sales and marketing programs; technological
changes in the market for digital information security products; levels of
expenditures on research and development; foreign currency exchange rates;
general economic trends and other factors. Because a high percentage of the
Company's operating expenses are fixed, a small variation in the timing of
recognition of revenue can cause significant variations in operating results
from quarter to quarter. See "-- Overview."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date principally through private
placements of debt and equity securities and, to a lesser extent, borrowings
under bank lines of credit. As of March 31, 1997, the Company's working capital
was $7.0 million. Working capital increased during the first quarter of 1997 due
to $5.1 million proceeds from the private placement of redeemable convertible
preferred stock, partially offset by $1.3 million in repayments of bank and
other debt, $1.1 million used in operations, and $100,000 for equipment
purchases. Working capital also benefited from the conversion of approximately
$4.2 million of
25
<PAGE> 27
notes payable into redeemable convertible preferred stock. Subsequent to March
31, 1997, the Company raised an additional $7.0 million from the private
placement of redeemable convertible preferred stock.
The Company has revolving lines of credit with three banks in Germany
providing total borrowings of up to 4.5 million DM (approximately $2.7 million).
These lines expire at dates ranging from September 30, 1997 to March 31, 1998.
The German lines of credit bear interest at rates ranging from 8.0% to 8.75%.
Borrowings under the German lines of credit are unsecured. At March 31, 1997, no
amounts were outstanding under the German lines of credit. In addition, the
Company has a $2.5 million revolving line of credit with a U.S. bank expiring in
August 1997. The U.S. line of credit bears interest at the rate of prime plus
1.0% (9.25% at March 31, 1997). Borrowings under the U.S. line of credit are
secured by all of the Company's assets. At March 31, 1997, no amounts were
outstanding under the U.S. line of credit.
In addition to the lines of credit, the Company had outstanding debt at
March 31, 1997 totaling approximately $2.5 million, consisting of a term loan
from a German bank. This debt bears interest at rates ranging from 5.0% to 6.0%.
The term loan also contains certain profit sharing and prepayment provisions.
Subsequent to March 31, 1997, the Company and the German bank agreed to amend
the loan agreement to eliminate the prepayment provisions in exchange for a
warrant to purchase 138,000 shares of Common Stock at an exercise price of $5.72
per share. The Company expects to use a portion of the proceeds of this offering
to repay the term loan. See "Use of Proceeds."
The Company presently expects that the proceeds of this offering, together
with its current capital resources and available borrowings should be sufficient
to meet its operating and capital requirements through at least the end of 1998.
The Company may, however, seek additional debt or equity financing prior to that
time. There can be no assurance that additional capital will be available to the
Company on favorable terms or at all. The sale of additional debt or equity
securities may cause dilution to existing stockholders.
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BUSINESS
SCM Microsystems designs, develops and manufactures hardware, firmware and
software products for data security and access control applications. The Company
sells security and access products to OEM computer, telecommunication and DVB
component and system manufacturers. The Company's objective is to leverage its
expertise in PCMCIA and smart card technologies and its extensible, upgradeable
smart card token-based security architecture to capitalize on the growing demand
for data and network security and the need to control access to digital
information. The Company markets, sells and licenses its products through a
direct sales and marketing organization primarily to OEMs and also through
distributors, VARs, system integrators and resellers worldwide. OEM customers
include Compaq, Dell, France Telecom, IBM, Kirch Group (BetaDigital),
Schlumberger, Security Dynamics, Siemens/Nixdorf, Sun Microsystems and Telenor.
INDUSTRY BACKGROUND
Individuals and corporations increasingly rely upon computer networks, the
Internet and intranets and direct broadcast systems to access information,
entertainment and data in a digital form from their homes and workplaces. This
increasing proliferation and reliance upon digital data has caused data security
to become a paramount concern of businesses, government, educational
institutions and consumers. Regardless of whether the issue is controlling
access to proprietary or confidential information such as business data or
health records, or whether it is attempting to limit access to digital video
broadcasts to paying subscribers, content providers, network and data managers
and users of digital data are concerned with controlling access to data and
maintaining data security. The enterprise data security market, including
electronic commerce applications, and the market for DVB conditional access
require a range of products to address their needs.
ENTERPRISE DATA SECURITY AND ELECTRONIC COMMERCE
Enterprise Data Security
Enterprise computing has evolved from highly centralized mainframe
computers to widely distributed client/server network-based solutions. Modern
enterprises frequently employ one or more local area networks to connect
computer users located in a single facility, wide area networks and intranets to
connect users in disparate facilities, and the Internet or other direct
electronic link to provide internal users access to third party information and
to provide customers, vendors and other interested third parties with access to
an enterprise's computing resources or information. The growth in Internet usage
is expected to increase from approximately 35 million Web users worldwide in
1996 to approximately 160 million users worldwide by 2000 according to
International Data Corporation ("IDC"). This shift towards distributed computing
is being fueled in part by the growing number of mobile computer users and
telecommuters that perform some or all of their work from home or other remote
locations.
As enterprises move toward distributed computing and make data more
accessible to internal and external users, this data has become increasingly
vulnerable to unauthorized access. According to the Computer Security Institute
("CSI"), 42% of respondents to its 1996 CSI/FBI Computer Crime and Security
Survey acknowledged that they had experienced unauthorized use of their computer
systems within the last 12 months. Unauthorized access can range from users who
are authorized to access portions of an enterprise's computing resources
accessing unauthorized portions, to hackers who have no legitimate access
breaking into a network and stealing or corrupting data. The consequences of
unauthorized access, which can often go undetected, can range from theft of
proprietary information or other assets to the alteration or destruction of
stored data. Approximately 78% of respondents to the Fourth Annual Information
Week/Ernst & Young Information Security Survey reported that their company
suffered a loss related to information security and disaster recovery in the
past two years. Some companies reported losses of up to $1 million due to
security breaches. As a result of the consequences of unauthorized access, many
enterprises have been reluctant to make their computing resources as open as may
be desirable, and those that allow access are adopting various security measures
to guard against unauthorized access. The Company believes that enterprises seek
solutions which will allow them to expand access to data while maintaining
adequate security.
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Electronic Commerce
The proliferation of PCs in both the home and office combined with
widespread access to the Internet have created significant opportunities for
online shopping and other electronic commerce. IDC estimates that the total
value of goods and services purchased over the Web grew from $3 billion in 1996
to $100 billion in 2000. The Company believes that a key factor constraining the
growth in online purchasing has been the lack of adequate data security. As a
result of the anonymity of the Internet, merchants and consumers need assurances
that customers are correctly identified and that the confidentiality of
information such as credit card numbers is maintained. Accordingly, the Company
believes that successful expansion of electronic commerce will require the
implementation of improved security measures which accurately identify and
authenticate users and reliably encrypt data transmissions over the Internet.
Common Solutions to Enterprise Data Security and Secure Electronic Commerce
Data security and secure electronic commerce generally involve implementing
a patchwork of hardware and software solutions operating at a variety of points
in a data environment, including router, gateway and server-based hardware
solutions, and operating system and applications-level software solutions.
[THE DATA SECURITY "PATCHWORK" ILLUSTRATION]
Currently, the most common security solution is the installation of one or
more firewalls that control the flow of data between segments of an internal
network or between an internal network and the Internet or other remote access
paths. Firewalls essentially serve as a funnel, analyzing whether a particular
communication passing through the funnel is authorized. With the increasing
volumes of network traffic, firewalls may no longer be capable of providing
adequate levels of protection without impairing the speed of communications.
Moreover, new Internet technologies such as Sun Microsystems' Java and
Microsoft's ActiveX, which involve the transfer of active programs (applets),
and broadcast applications such as PointCast and Marimba, present security risks
that are not readily addressed by firewalls.
The key to any security system is the ability to reliably identify users in
order to prevent unauthorized access to information and resources.
Authentication of a user's identification is generally accomplished by one of
two approaches: passwords, which are a code known only by a specific user; and
tokens, which are user-specific physical devices that only authorized users
possess. Passwords, while easier to use, are also the least
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secure because they tend to be short and static, and are often transmitted
without encryption. As a result, passwords are vulnerable to decoding or
observation and subsequent use by unauthorized persons. Tokens are small devices
ranging from simple credit card-like devices to more complex devices capable of
generating time-synchronized or challenge-response access codes. Certain
token-based systems require both possession of the token itself and a personal
identification number ("PIN") to indicate that the token is being used by an
authorized user. Such an approach, referred to as two-factor authentication,
provides much greater security than single factor systems such as passwords or
simple possession of a token.
Early implementation of tokens include automatic teller machine ("ATM")
cards, which are plastic cards with data encoded on a magnetic strip on the
card. ATM cards require the user to possess the ATM card and to know the PIN
before engaging in any transaction. While suitable for certain applications, the
ATM type card is subject to counterfeiting, tampering and inadvertent data
deletion, and can hold only a very limited amount of information.
PC Cards represent a more advanced form of token, although their use in
security applications has been limited to date. PC Cards are computer
peripherals built into a form factor similar in width and length to, but
substantially thicker than, a credit card. The standards for PC Cards and the
corresponding slots were developed by the PCMCIA. With an installed base of
approximately 10 million PCMCIA slots in 1995 according to IDC, PC Card products
have been developed for a variety of functions including modems and memory
devices. While virtually all portable PCs being sold today contain at least one,
and in many cases two, PCMCIA slots as a standard feature, the PCMCIA standard
has generally not been widely adopted for desktop computers. The use of PC Cards
as security tokens has been endorsed by the DoD as part of its Defense Messaging
System ("DMS"). The DMS uses a PC Card known as "Fortezza" as its standard
security token. In connection with the DMS, the DoD has mandated that desktop
computers supplied to the DoD and its affiliated agencies must incorporate
PCMCIA slots in order to accept the Fortezza PC Card
identification/authentication token.
A further advancement in token implementation is the smart card. Smart
cards are credit card-sized plastic cards that contain an embedded
microprocessor, memory and a secure operating system. Smart cards have
significant advantages over PC Cards, including lower cost, portability and
greater durability. Smart cards have been used in applications such as stored
value cards, either for making general purchases or for specific applications
such as prepaid telephone calling cards, and as health care cards, which are
used to store patient and provider information and records. Smart cards are
useful as health care cards because they identify the holder for insurance or
government payment purposes and store health records that can be accessed and
updated by health care providers.
Smart card use for these applications has become widespread in Europe,
where the existence of multiple languages and currencies has created a demand
for common solutions that enable businesses and consumers to conduct their
affairs effectively and efficiently while moving from country to country.
According to Dataquest, the European market for smart cards has far outpaced
that of the United States. Dataquest estimates that in 1995 the U.S. accounted
for approximately 10 million units (2%) of the 544 million unit worldwide
microprocessor-based smart card market, and projects that this market will grow
to 3.4 billion units worldwide by 2001. By the year 2001, Dataquest estimates
that Europe, Asia/Pacific and the Americas will account for 40%, 25% and 20%,
respectively, of this market.
In addition to providing a common record-keeping and stored value solution
across multiple languages and currencies, the Company believes that smart cards
are ideally suited to serve as tokens for network and electronic commerce
security. Microsoft, with its PC/SC Workgroup, and Netscape, with its Security
Infrastructure group, have both endorsed smart cards as key components of their
respective data security architectures, have released application program
interfaces ("APIs") for smart cards and have stated their intentions to support
smart cards in future generations of their software products. The Company
believes that these companies, together with other enterprises with a financial
stake in securing access to digital data and enabling secure electronic commerce
such as Verisign and Security Dynamics, will drive the adoption of smart card
technology for security applications in the United States. The Company also
believes that as smart card-
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<PAGE> 31
based security systems become accepted in the United States, users outside the
United States will adopt similar systems.
To date, a number of factors have limited broad adoption of smart cards as
security tokens. These factors include the requirement for special purpose
readers which have been expensive and therefore not widely deployed and the lack
of standards governing the operating systems, communication protocols, APIs and
similar features of the tokens. These factors have resulted in the deployment of
proprietary, closed systems that are not compatible with other systems. In
addition, smart cards are relatively low speed serial interface devices which,
although capable of providing encryption of passwords or other limited data, are
not capable of providing the real-time bulk encryption required for many secured
access applications.
DIGITAL VIDEO BROADCASTING
DVB involves the transmission of video signals in a digital format. In
contrast to the traditional analog approach, digital signals allow content
providers ranging from broadcast television stations and cable carriers to
specialty programming producers to deliver very high resolution, high quality
video images. DVB may take the form of currently available direct satellite
broadcast services, or alternative services that are expected to be introduced
in the near future such as digital cable services and direct broadcast digital
television. DVB makes it possible to provide a broader range of private content
and nontraditional services than previously available. Businesses, educational
institutions and other enterprises could broadcast private content such as
product information updates and training or educational content to users in
disparate locations, or could provide various interactive products and services
via the DVB medium. The Company believes that a primary challenge for
broadcasters will be to limit access to their content to the intended users such
as those who have purchased appropriate subscriptions or event-by-event
pay-per-view privileges.
The traditional approach to controlling access has been to sell or lease
proprietary set-top boxes (and, in the case of satellite direct broadcast, a
receiving antenna) to subscribers. These set-top boxes descramble digital
signals and then convert them into analog signals in order to be compatible with
the viewer's analog television. While this approach provides the controlled
access desired by broadcasters, it limits the range of content available to the
consumer. Consumers wishing to obtain content or services from more than one
provider would be required to purchase multiple proprietary set-top boxes.
Similarly, the use of proprietary set-top boxes may limit broadcasters' ability
to upgrade systems that have already been installed in their customers' homes
without a costly replacement process.
To address the limitations of the closed-system set-top box, the DVB
Project, an international consortium of over 170 enterprises involved in varying
aspects of DVB including France Telecom, Deutsche Telekom, Nokia, Sony and
Philips, has developed standards for the DVB-CI. DVB-CI makes it possible to
deliver a universal set-top box capable of receiving content from a variety of
providers. The universal set-top box requires use of a smart card token that
"unlocks" the specific services to which a consumer has subscribed. With this
approach, multiple service providers can deliver digital content to the same
"open" set-top box and consumers, using the appropriate conditional access
module, can access the content to which they have subscribed. When consumers
subscribe to different or additional content services or parents seek to limit
the viewing privileges of their children, the service providers need only
provide the appropriate smart card to allow access to the new or additional
services. The DVB-CI standard addresses the limitations of the closed-system
set-top box by making it possible for (i) broadcasters to upgrade systems
installed in their customers' homes by downloading new operating system software
onto the universal set-top box, (ii) customers to use one universal set-top box
to access digital content from various service providers by inserting the
appropriate
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conditional access module for each particular service provider and (iii) service
providers to secure access to new or additional services by issuing new tokens
coded for access to such services.
[SECURING DIGITAL VIDEO BROADCASTS ILLUSTRATION]
The Company believes that the members of the DVB Project and other
interested enterprises will continue to drive the adoption of DVB-CI as the
European standard for conditional access to digital content. Moreover,
legislation has been enacted in Spain (and may be enacted elsewhere in the
future) mandating that set-top boxes comply with the DVB-CI standard in order to
assure broad access to digital content without requiring consumers to purchase
multiple set-top boxes. The Company believes that similar standards may be
adopted in certain Asian countries and the United States in the future.
The Company believes that successful implementation of the DVB-CI standard
will require the development of hardware that is capable of real time, high
bandwidth decryption of the video signal and is remotely updatable to permit
providers to offer new content and services without the need to replace
equipment. While the current implementation of DVB-CI uses set-top boxes, the
Company believes that as the standard evolves and as flexible hardware solutions
become available, the DVB-CI capability will be built directly into televisions,
PCs and network computers. These devices would then contain the appropriate DVB
token slot and reader capabilities, thereby eliminating the need for the
separate set-top box while providing the same smart card-based conditional
access of current systems.
THE SCM MICROSYSTEMS SOLUTION
SCM Microsystems provides OEMs with key standards-compliant enabling
hardware, firmware and software products and technologies for smart card and
other token-based network security systems and conditional access to DVB content
and services. Through the use of its extensible core technologies, the Company
is able to offer products that address the specific needs of diverse market
applications such as enterprise data security and DVB conditional access.
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Enterprise Data Security and Electronic Commerce. The Company's products
address the needs of the enterprise data security and electronic commerce
markets by providing:
PCMCIA BRIDGES FOR SMART CARDS. The Company offers a range of products
which enable smart cards to be read and written through standard PCMCIA ports,
which eliminates the requirement for special purpose smart card readers and
provides interoperability between smart cards and PCs, network computers and
other devices.
STANDARDS-BASED, INTEROPERABLE PRODUCTS. The Company's products employ
an open-systems architecture that provides unique compatibility across a range
of hardware platforms and software environments, and that are remotely
upgradeable, which provides OEMs with the assurance that their products will be
broadly compatible and can be updated as the security infrastructure evolves.
SPEED AND PERFORMANCE. The Company's products transparently extend the
speed and performance capabilities of smart cards used as security tokens by
including encryption/decryption capabilities in certain of its smart card reader
products.
Digital Video Broadcasting. The Company's products address the needs of the
DVB market by providing:
INEXPENSIVE, EASY TO DELIVER CONDITIONAL ACCESS MODULES. The Company
provides smart card-based conditional access readers and modules which adhere to
the DVB-CI standard. These products enable digital content and service providers
to control and meter access to content and services through the use of
inexpensive smart cards.
REAL TIME, HIGH-BANDWIDTH DESCRAMBLING CAPABILITIES. The Company's
products are structured to use smart cards as keys to activate the
high-bandwidth capabilities of PC Cards. By this approach, smart card-based
tokens, which by themselves are not capable of descrambling digital video data
at the rate required for digital video broadcast, can still be used to control
and meter access to DVB content and services.
REMOTE UPGRADE CAPABILITIES. The Company's DVB products incorporate
read/write capabilities which permits content and service providers to perform a
virtually no-cost upgrade of users' access rights as new products and services
are developed and introduced as users' subscription desires change.
STRATEGY
The Company's objective is to utilize its expertise in PCMCIA and smart
card technologies and its extensible, updatable smart card token-based security
architecture in order to capitalize on opportunities presented by the growing
demand for secure and controlled access to digital information. The Company
believes it is well positioned to capitalize on the significant growth projected
for smart card-based security and controlled access systems. Key elements of the
Company's strategy include the following:
Leverage Technology Base; Support Open Systems and Interoperability. The
Company has developed extensive expertise and intellectual property in both
PCMCIA and smart card technologies. The Company intends to continue to leverage
this technology base to provide smart card products that can operate across a
variety of hardware platforms and software environments. This technology
incorporates upgradeable, firmware-based features which enable smart card
readers to be upgraded as new smart card operating systems and communication
protocols are adopted. In addition to enabling the Company to respond quickly to
industry developments with properly tailored products, this upgradeable
architecture protects the investments in smart card hardware.
Expand Range of Product Applications. The Company's current products are
designed to provide flexible interoperability between smart cards and PCs or
set-top boxes. The Company intends to expand the range of its product offerings
to address specialized applications such as health care records and
identification, televisions and television set-top boxes, customer loyalty
programs, personal identification and Internet and intranet access. In addition,
the Company intends to develop chip set-based versions of certain of its
products in order to reduce their cost and facilitate their easy integration
into future generations of televisions, PCs and network computers.
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Increase Penetration of Major OEM Customers; Expand Customer Base. The
Company currently sells its products to a number of OEM customers including
Bull, Dell, France Telecom, Gateway 2000, IBM, Kirch Group, Packard Bell,
Schlumberger, Siemens/Nixdorf and Sun Microsystems. The Company intends to
pursue additional opportunities with its existing customers by leveraging its
relationships to increase sales. For example, the Company's relationships with
its existing customers provide the Company with advanced insight into the
current and future needs of these customers, enabling the Company to design
specific products to meet the additional product needs of each customer.
Moreover, the Company believes that as the needs for data security increase and
smart cards gain wider market acceptance, a significant number of additional
participants will enter the market. The Company intends to expand its customer
base by pursuing opportunities with these new market entrants.
Expand Strategic Industry Relationships. The Company has formed strategic
relationships with a number of key industry players such as Intel, Matra
Communications, France Telecom and Telenor. These relationships provide the
Company with access to leading edge technology, marketing and sales leverage and
access to key customers and accounts. In addition, in certain cases, the
Company's strategic partners have provided funding to the Company in the form of
funded research, product purchase prepayment and equity investment. The Company
intends to continue to leverage these relationships and to identify additional
key industry players with which to form strategic relationships. See
"-- Collaborative Industry Relationships."
Support Standards Setting Organizations. The Company intends to continue to
participate in the standards setting activities for the industries it serves.
The Company is a founding member of the PCMCIA and the DVB Project and supports
the Common Data Security Access standard developed by Intel and adopted by
Netscape. The Company's products are compliant with the RSA public key
cryptographic system number 11 ("PKCS #11") standard. Through its participation
in standards setting organizations, the Company has successfully had the DVB-CI
specification adopted as the standard by the PCMCIA. The Company intends to
maintain an active role in these and other appropriate standards setting groups
in order to continue to have its technologies adopted as standards where
appropriate and to keep apprised of technological advancements as they are
developed.
TECHNOLOGY
The Company believes that smart cards are ideally suited to serve as tokens
for digital information security. A smart card is a credit card-sized plastic
card which contains a microprocessor, memory and a secure operating system. The
card is inserted into a device that reads the information contained on the card
and performs an appropriate function. The Company has used its extensible smart
card interface architecture to develop open and standard products that support
virtually all smart cards regardless of the manufacturer, are accessible through
a variety of operating systems and platforms and enable a wide range of secure
applications. The Company's extensible smart card interface architecture
consists of certain core technologies which provide this interoperability:
Silicon and Firmware for Smart Card Readers. SCM Microsystems has developed
physical interface technology which provides interoperability between PCs and
smart cards from many different smart card manufacturers. The Company's
interoperable architecture includes an ISO compliant layer as well as an
additional layer for supporting non-ISO compliant smart cards. Through its
proprietary integrated circuits and firmware, the Company's smart card reader
can be updated electronically to accommodate new types of smart cards without
the need to change the reader's hardware. Intel Corporation has become the first
company to license the Company's smart card interface.
Proprietary PC Card Case. The Company's proprietary PC Card case is an open
side case which has guides to ensure the smart card is positioned correctly into
the PC Card reader. This hardware technology solves the problem presented by the
fact that smart cards and PC Cards have the same width and length.
Proprietary Software. The Company has developed a flexible proprietary
software architecture for real-time downloading of firmware for new smart card
protocol handling requirements into a flash memory chip which resides on the
smart card reader. This software, combined with the Company's proprietary
integrated circuits and firmware described above, allows the reader to
accommodate new types of smart cards without the
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need to change the reader's hardware. Additionally, the Company has developed
"flash filing" software, which enables PCMCIA flash memory to function as a
flash disk. The Company has filed patent applications with respect to both
software applications.
Hardware for PC Card Adapters. The Company has developed the interface
technology to accommodate multiple PCMCIA slots for ISA, SBus (Sun Microsystems)
and PCI bus structures, thus enabling desktop PCs and workstations to be
equipped with PCMCIA slots. In particular, the Company has developed a patented
dual cable solution with special grounding and termination methods which
prevents signal interference between the PCI/ISA bus slots and a large variety
of PC Cards.
PRODUCTS
By bridging smart cards and other secure devices with PCs, workstations and
set-top boxes, the Company's products provide cost-effective solutions for
conditional access to mobile and desktop computers, workstations, DVB, virtual
private networks, electronic files, e-mail and Internet firewalls and secure
electronic commerce. The Company's products have been developed utilizing the
Company's core competencies in smart card and PC interoperability, PC Card
expertise and flash memory chip experience, and all are compliant with the PKCS
#11 standard. SCM Microsystems provides high quality, easy-to-use solutions in
the following product categories:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT CATEGORY FEATURES
<S> <C>
- --------------------------------------------------------------------------------------------
SWAPBOX PC CARD ADAPTERS - A peripheral with a PC Card slot which enables desktop PCs
(introduced in 1993) and workstations to accept all sizes of PC Cards (Types I,
II and III)
- Supports a wide variety of PC Card peripherals, including
Ethernet, fax/data modems, SCSI, ATA hard drives, flash
memory, GPS and Fortezza cards
- Available in wide variety of configurations (single and
dual slots, front and rear access, floppy/PC combination)
- Supports a wide variety of platforms (Win 3.X, 95, NT,
OS/2, DOS, Solaris, Unix) and architectures (ISA, PCI, SBus,
USB, EPP, SCSI)
- Compliant with the PCMCIA standard
</TABLE>
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRODUCT CATEGORY FEATURES
<S> <C>
- --------------------------------------------------------------------------------------------
SWAPSMART SMART - A smart card reader that fits in a PC Card slot
CARD READERS - Supports all ISO 7816 smart card protocols as well as
(introduced in 1995) asynchronous and synchronous smart cards, and supports dual
or single card applications
- Incorporates an upgradeable firmware-based chip set so
that the reader can be automatically updated with additional
smart card operating systems, protocols and emerging
industry standards
- Supports a wide variety of platforms (Win 3.X, 95, NT,
OS/2, DOS, Solaris, Unix) and architectures (ISA, PCI)
- Compliant with the PCMCIA standard
- --------------------------------------------------------------------------------------------
DVB-CAM MODULES - A multi-function PC Card that can include smart card
(introduced in 1996) read/write capabilities, MPEG2 descrambling, DVB
descrambling and pay-per-view functions
- Utilizes a smart card to control access to digital content
- Enables "open" set-top boxes
- Compliant with the DVB-CI standard
- --------------------------------------------------------------------------------------------
SMARTOS UNIVERSAL SMART - A chip and accompanying software which provides a
CARD READER INTERFACES cost-effective universal smart card reader interface easily
(introduced in 1997) integrated into a wide range of devices
- Supports all ISO 7816 smart card protocols, as well as
synchronous and asynchronous smart cards
- Software upgradeable to support any new smart card
protocols, functions and industry standards
- Includes dual smart card support, serial and parallel
interfaces, LCD and keypad controls
</TABLE>
- --------------------------------------------------------------------------------
SWAPBOX PC CARD ADAPTERS
Desktop PCs and workstations, in contrast to laptop and notebook PCs,
generally do not come equipped with PC Card slots. The Company's SwapBox
products are devices with PC Card slots designed to be installed by OEMs into
desktop computers, workstations and servers. Coupled with PC Card security
tokens, cards or smart card readers such as SCM Microsystems' SwapSmart reader,
SwapBoxes allow enterprises to effectively provide authentication, integrity,
and confidentiality services. Flash memory cards are widely used with SwapBoxes
and SCM Microsystems' proprietary SwapFTL software for data collection
applications. SwapBoxes accept any PC Card compliant cards including readers for
small form factor memory devices such as Compact Flash, SSFDC, Multimedia and
Miniature Cards, allowing flash memory cards to be connected to PCs for quick
and easy exchange of electronic images, digital audio recordings and text files.
SWAPSMART SMART CARD READERS
The SwapSmart reader is a device in a PC Card form factor that provides a
portable, universal, secure and cost effective bridge between smart cards and
the mobile PC or other products which have PC Card slots. The SwapSmart reader
supports all ISO 7816 smart card protocols as well as asynchronous and
synchronous smart cards. Furthermore, because the SwapSmart reader incorporates
an upgradeable firmware-based chip set, the functionality of SwapSmart products
can be automatically updated as additional smart card operating systems and
protocols come into use. In addition to broad smart card support, the SwapSmart
reader is easily accessible from a wide variety of operating systems and
platforms. The SwapSmart reader enables easy access to the growing number of
smart card applications such as network, VPN and firewall security as well as
local and remote computer access control. Additionally, the SwapSmart reader
makes it possible to use smart cards for user authorization and authentication,
for e-mail and for secure transactions required for electronic
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commerce. Because of its encryption capabilities, the reader is particularly
well suited for security applications, in particular, mobile computing security.
Currently, the Company is working with Microsoft's PC/SC Workgroup and with
Netscape's Security Infrastructure group to ensure that the SwapSmart reader
supports the new open specifications for integrating smart cards with PCs. By
supporting a wide range of smart cards and complying with the open standards set
by the PC/SC Workgroup, SwapSmart provides maximum interoperability among smart
cards and easy access to smart card applications for mobile or desktop PCs. For
example, the SwapSmart reader is compliant with the B1 specification for smart
card readers developed by Deutsche Telekom, as well as the Common Data Security
Access specification developed by Intel and adopted by Netscape for use in
Netscape Communicator.
DVB-CAM MODULES
By combining SCM Microsystems' SwapSmart reader technology with the
proprietary descrambling code of a digital content provider, the Company's
DVB-CAM provides a cost-effective means of controlling access to digital
broadcasts through the use of a PC Card. The DVB-CAM is an all-in-one PC Card
that utilizes a smart card to determine if a viewer has access to a given
content provider's service. If the viewer is authorized, DVB-CAM descrambles the
signal for viewing.
The DVB-CAM is the world's first implementation of the DVB-CI standard
established by the DVB Project. The DVB-CAM technology enables a variety of
critical functions including video-on-demand, pay-per-view, interactive video,
home shopping, home banking and games. Since the DVB-CAM can be used in any
DVB-CI compliant "open" set-top box, the use of its proprietary technology will
allow universal acceptance of a single solution for different set-top box
systems. The Company believes that the use of smart card technology combined
with the DVB-CI standard will eliminate the need for multiple set-top boxes in
order for users to access a broad range of desired broadcast data. The Company's
DVB-CAM has already been selected by certain of the major content providers in
Europe, including France Telecom, Telenor (Norway Telecom) and The Kirch Group
(BetaDigital), who plan to implement the DVB-CI standard through 1997 and 1998.
The Company believes that similar standards may be adopted in certain Asian
countries and the United States in the future.
SMARTOS SMART CARD READER INTERFACES
Based on a unique chip and firmware technology which makes it possible to
easily integrate smart cards with a wide variety of PC and stand-alone devices,
the SmartOS allows companies to integrate smart card support cost-effectively
within desktop, notebook or network computers, USB or serial devices and
keyboards as well as point of sale (POS) terminals and vending machines. The
SmartOS solution allows integrators to utilize only essential components to
control cost and maximize design. Many hardware designs may already incorporate
a controller chip, such as a keyboard or network computer, but lack an interface
unit and firmware for the completion of a smart card reader solution. Instead of
being forced to purchase all components, the SmartOS solution offers just those
components an integrator needs and those tools necessary for the quick
implementation of smart card readers at a minimum cost.
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<PAGE> 38
CUSTOMERS AND APPLICATIONS
The Company's security and access products are targeted at OEM computer,
telecommunication and DVB component and system manufacturers. The following list
sets forth the customers who have purchased in excess of $300,000 of the
Company's products during the year ended December 31, 1996.
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
OEM PRODUCTS PURCHASED
---------------------------------------------------------------------------------
Bull Smart Card Readers; DVB Modules
Dell PC Card Adapters
France Telecom Smart Card Readers; DVB Modules
Gateway PC Card Adapters
IBM PC Card Adapters
Kirch Group (BetaDigital) DVB Modules
Packard Bell PC Card Adapters
Schlumberger Smart Card Readers
Siemens/Nixdorf PC Card Adapters; Smart Card Readers
Sun Microsystems PC Card Adapters
---------------------------------------------------------------------------------
</TABLE>
Sales to a relatively small number of customers historically have accounted
for a significant percentage of the Company's total sales. In 1996, sales to IBM
accounted for 12% of total net sales, sales to BetaDigital, a division of the
Kirch Group, accounted for 11% of total net sales and sales to the Company's top
10 customers accounted for 55% of total net sales. The Company expects that
sales of its products to a limited number of customers will continue to account
for a high percentage of the Company's total sales for the foreseeable future.
The loss or reduction of orders from a significant customer, including losses or
reductions due to manufacturing, reliability or other difficulties associated
with the Company's products, changes in customer buying patterns, or market,
economic or competitive conditions in the digital information security business,
could adversely affect the Company's business and operating results. See "Risk
Factors -- Dependence on Sales to OEMs."
Examples of applications of the Company's products include the following:
Siemens-Nixdorf/Deutsche Telekom. SNI markets SCM Microsystems smart card
readers under its own label and integrates them into its systems solutions for
sale to major corporate users. For example, Deutsche Telekom is providing its
employees with SNI's laptop computers equipped with smart cards and the
Company's smart card readers. This enables Deutsche Telekom's remote sales force
to gain secure access to the corporate intranet. In addition to controlling
initial access to the intranet, the smart card also holds information as to the
defined areas and information within the intranet to which the user is permitted
access. When the information systems group wants to change a user's access or
authorization, they simply download new instructions to the smart card during
the session. The next time the user accesses the intranet, his or her updated
access is already present on the smart card. This allows Deutsche Telekom to
provide extensive information over its intranet, since it knows that the user's
identity is verified before access is granted. Principal reasons for SNI's
selection of the Company's products were their compliance with the B1
specification for smart card readers developed by Deutsche Telekom, their
ability to offer a broad range of smart card support and their ability to offer
a broad range of operating system support.
The Kirch Group. SCM Microsystems has developed and provides DVB-CI
compliant and proprietary DVB-CAM modules under contract to BetaDigital, the
technology arm of the Kirch Group. These modules are installed in DVB compliant
set-top boxes which Kirch distributes to consumers to allow them to access the
Kirch digital entertainment services. These set-top boxes include a smart card,
the Company's smart card readers and a generic receiver/tuner unit to provide
secure access to its entertainment content and services. Customers can easily
add and change the services they receive, and Kirch can easily enable and
disable services. Also, individual customers can have different smart cards
which permit different services. Although used in the same set-top box, a
child's smart card could permit different programming from a parent's smart
card. Kirch also can download completely new services to the modules, permitting
new capabilities, such as pay-per-view and other electronic transaction-based
services, to be added with no additional hardware cost.
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<PAGE> 39
SCM Microsystems' DVB-CAM is the world's first implementation of the DVB-CI
standard established by the DVB Project. The principal reason for Kirch's
selection of the Company's products was their ability to provide Kirch's
customers with an open system that could be upgraded for new functions.
SALES AND MARKETING
The Company markets, sells and licenses its products primarily to OEMs, and
also through distributors, VARs, system integrators and resellers, worldwide
through a direct sales and marketing organization. As of March 31, 1997, the
Company had 18 full-time employees and consultants engaged in sales and
marketing activities. The Company's direct sales staff solicits prospective
customers, provides technical advice and support with respect to the Company's
products and works closely with customers, distributors and OEMs.
In support of its sales efforts, the Company conducts sales training
courses, comprehensive targeted marketing programs, including public relations,
advertising, seminars, trade shows and ongoing customer and third-party
communications programs. The Company also seeks to stimulate interest in digital
information security through its public relations program, speaking engagements,
white papers, technical notes and other publications.
At March 31, 1997, the Company's backlog was approximately $5.6 million, as
compared to approximately $6.1 million at December 31, 1996. The Company's
backlog consists of all written purchase orders for products which have a
scheduled shipment date within the next twelve months. Orders for the Company's
products are usually placed by customers on an as-needed basis and the Company
has typically been able to ship products within 30 days after the customer
submits a firm purchase order. The Company's contracts with its customers
generally do not require fixed long-term purchase commitments. In view of the
Company's order and shipment patterns and because of the possibility of customer
changes in delivery schedules or cancellation of orders, the Company's backlog
as of any particular date may not be indicative of sales in any future period.
COLLABORATIVE INDUSTRY RELATIONSHIPS
SCM Microsystems is party to collaborative arrangements with a number of
corporations and is a member of key industry consortia. The Company evaluates,
on an ongoing basis, potential strategic alliances and intends to continue to
pursue such relationships. The Company's future success will depend
significantly on the success of its current arrangements and its ability to
establish additional arrangements. There can be no assurance that these
arrangements will result in commercially successful products.
Matra Communications. In October 1995, the Company, Matra Communications
SAS ("Matra SAS") and TEMIC entered into an agreement to submit a proposal to
France Telecom, a major supporter of the open set-top box standard and a key
player in the DVB-CI specification based on the PC Card standard, for their
implementation of DVB-CAM products. In August 1996, France Telecom selected the
companies' joint proposal. Pursuant to a 10-year joint development and licensing
agreement effective February 1997, the Company and Matra SAS will collaborate in
the design, manufacture and sale of DVB-CI compliant products including France
Telecom's conditional access system called "Viaccess." In addition, Matra SAS
will supply its proprietary transport stream interface, DVB descrambler, DVB
demux and associated filtering and buffering for conditional access systems, SCM
Microsystems will supply its proprietary smart card reader and PC Card interface
and TEMIC will integrate these technologies at the silicon level into a one-chip
solution. Initial commercial shipments began in March 1997. Each party will
retain rights to the intellectual property it develops under the agreement,
subject to the non-exclusive licensing rights of the other party relating to the
manufacture of such products.
Intel Corporation. In March 1997, the Company and Intel entered into a
development and license agreement for cryptographic PC Card-based secure access
modules for the PC platform. The Company has granted a non-exclusive license to
Intel for certain Company designs and other intellectual property. Intel has
agreed to support the Company's programs to design a PC Card token. In addition,
Intel also made an equity investment of approximately $2.0 million in the
Company. Intel and the Company will jointly promote various industry standards
applicable to security products.
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<PAGE> 40
Telenor. In May 1997, the Company and Telenor entered into a development
and supply agreement pursuant to which the Company will design, manufacture,
test and supply DVB-CAM modules to Telenor. Pursuant to this agreement, Telenor
may pay up to an aggregate of $1.2 million to the Company for development costs
as the Company achieves certain development milestones. Once the prototype has
been approved by Telenor, the Company will supply these modules pursuant to the
terms of the agreement. As part of this arrangement, Telenor also made an equity
investment of approximately $5.5 million in the Company. Furthermore, the
Company has issued 34,965 shares of Preferred Stock to a Telenor affiliate,
fifty percent (50%) of which will remain unvested until the Company achieves the
mid-point milestone of the project and has been paid by Telenor for such
milestone completion. Each party will retain rights to its preexisting
intellectual property, and it is expected that any intellectual property that is
jointly developed under the agreement will be jointly owned.
PCMCIA. SCM Microsystems is an executive and founding member of PCMCIA, an
international standards body and trade association with over 500 member
companies that was founded in 1989 to establish standards for integrated circuit
cards and to promote interchangeability among mobile PCs. Other executive
members include Advanced Micro Devices, Apple Computer, Compaq, IBM, Intel,
Motorola, Texas Instruments and U.S. Robotics. Since 1990, the Company has been
a member of PCMCIA in Europe and currently holds the European Chair position. In
1996, the Company introduced to PCMCIA the DVB-CI standard which was adopted as
an extension to its PC Card standard Release 2.0.
DVB Project. The Company is a member of the DVB Project, an international
standards body with over 200 members that was founded in 1993 to define
platforms for the digital television industry. Other key members include France
Telecom, Deutsche Telekom, Telenor, Nokia, Sony and Philips. In 1994, the
Company was instrumental in the DVB Project's adoption of the PC Card standard
as the common interface for digital set-top boxes. As the DVB Project's
Compatibility Chair, the Company advances and oversees proposals to provide
optimum interoperability between PC Cards and digital set-top boxes.
Teletrust. The Company is a member of Teletrust, a German organization
whose goal is to provide a legally accepted means to adopt digital signatures.
Digital signatures are encrypted personal identifiers, typically stored on a
secure smart card, which allow for a high level of security through
internationally accepted authentication methods. The Company is actively working
on the smart card terminal committee which defines the standards for connecting
smart cards to computers for applications such as secure electronic commerce
over the Internet.
RESEARCH AND DEVELOPMENT
To date, the Company has made substantial investments in research and
development, particularly in the areas of physical, token-based access devices.
The Company's engineering design teams work cross-functionally with marketing
managers, applications engineers and customers to develop products and product
enhancements. The Company also strives to develop and maintain close
relationships with key suppliers of components and technologies which enables
the Company to quickly introduce new products that incorporate the latest
technological advances. The Company's future success will depend upon its
ability to develop and to introduce new products on a timely basis that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers. See "Risk Factors --
Dependence on New Products; Rapid Technological Change."
The Company's expenses for research and development were approximately $1.2
million, $1.4 million and $2.4 million for the years ended December 31, 1994,
1995 and 1996, respectively. As of March 31, 1997, the Company had 24 full-time
employees engaged in research and development activities, including software and
hardware engineering, testing and quality assurance and technical documentation.
All of the Company's research and development activities occur in France and
Germany. The Company has in the past funded a portion of its research and
development activities from technology development revenues received from OEM
customers in connection with design and development of application specific
products. The Company recognized $562,000, $543,000 and $1,579,000 in technology
development revenues in 1994, 1995 and 1996, respectively.
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<PAGE> 41
MANUFACTURING AND SOURCES OF SUPPLY
The Company sources its products through three contract manufacturers in
Europe and Asia. The Company has implemented a global sourcing strategy that it
believes will enable it to achieve greater economies of scale, improve gross
margins and maintain uniform quality standards for its products. In the event
any of the Company's contract manufacturers were unable or unwilling to continue
to manufacture the Company's products, the Company may have to rely on other
current manufacturing sources or identify and qualify new contract
manufacturers. For example, one of the Company's contract manufacturers has
recently been involved in bankruptcy proceedings and may be unable to continue
manufacturing the Company's products. Although the Company believes it will be
able to rely on other manufacturing sources in order to meet its near-term
capacity requirements, there can be no assurance in the future that the Company
would be able to identify or qualify new contract manufacturers in a timely
manner or that such manufacturers would allocate sufficient capacity to the
Company in order to meet its requirements. Any significant delay in the
Company's ability to obtain adequate supplies of its products from its current
or alternative sources would materially and adversely affect the Company's
business and operating results.
The Company believes that its success will depend in large part on its
ability to provide quality products and services. As of March 31, 1997, the
Company had 11 full-time employees engaged in manufacturing activities. The
Company has a formal quality control program to satisfy its customers'
requirements for high quality and reliable products. To ensure that products
manufactured by others are consistent with its standards, the Company manages
all key aspects of the production process, including establishing product
specifications, selecting the components to be used to produce its products and
the suppliers of such components and negotiating the prices for such components.
In addition, the Company works with its suppliers to improve process control and
product design. The Company's quality control specialists conduct on-site
inspections throughout the production process. Finally, the Company's products
are tested by the Company's contract manufacturers prior to shipment.
The Company relies upon a limited number of suppliers of several key
components of the Company's products. For example, the Company purchases ASICs
for its DVB modules exclusively from TEMIC, PCBs for SwapBoxes exclusively from
Vertek in Taiwan and Degussa in Singapore, smart card connectors exclusively
from ITT Canon, SwapBox boards and completed products exclusively from
Intellicard Systems and SwapSmart mechanical components exclusively from Stocko.
The Company's reliance on its suppliers involves several risks, including a
potential inability to obtain an adequate supply of required components, price
increases, timely delivery and component quality. Although to date the Company
has been able to purchase its requirements of such components, there can be no
assurance that the Company will be able to obtain its full requirements of such
components in the future or that prices of such components will not increase. In
addition, there can be no assurance that problems with respect to yield and
quality of such components and timeliness of deliveries will not occur.
Disruption or termination of the supply of these components could delay
shipments of the Company's products and could have a material adverse effect on
the Company's business and operating results. Such delays could also damage
relationships with current and prospective customers. In the past, due to the
Company's quality requirements, the Company has experienced delays in the
shipments of its new products principally due to an inability to qualify
component parts from third-party manufacturers and other suppliers, resulting in
delay or loss of product sales. These delays have not had a material adverse
effect upon the Company's business and operating results. However, there can be
no assurance that in the future any such delays would not have a material
adverse effect upon the Company's business and operating results.
COMPETITION
The market for digital data security is intensely competitive and
characterized by rapidly changing technology. The Company believes that
competition in this market is likely to intensify as a result of increasing
demand for security products. The Company currently experiences competition from
a number of sources, including (i) ActionTec, Carry Computer Engineering,
Greystone and Litronics in PC Card adapters, (ii) GemPlus, Hitachi and Toshiba
in smart card readers and universal smart card reader interfaces, (iii) GemPlus,
Hitachi and Toshiba in DVB-CAM modules. The Company also experiences indirect
40
<PAGE> 42
competition from certain of its customers which currently offer alternative
products or are expected to and may introduce competitive products in the
future. The Company may in the future face competition from these and other
parties that develop digital data security products based upon approaches
similar to or different from those employed by the Company. In addition, there
can be no assurance that the market for digital information security products
will not ultimately be dominated by approaches other than the approach marketed
by the Company.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at a lower end user price. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any of which could have a material adverse effect on the Company's business,
operating results or financial condition.
The Company believes that the principal competitive factors affecting the
market for digital data security products include support standards and
interoperability, technical features, ease of use, quality/reliability, level of
security, distribution channels and price. While the Company believes that it
competes favorably with respect to these factors, there can be no assurance that
the Company will be able to successfully incorporate these factors into its
products and to compete against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results or financial condition.
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company's success depends significantly upon its proprietary
technology. The Company currently relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company generally
enters into confidentiality and non-disclosure agreements with its employees and
with key vendors and suppliers. The Company's SwapBox trademark is registered in
the United States, and the SwapSmart trademark is the subject of an allowed,
pending application. The Company will continue to evaluate the registration of
additional trademarks as appropriate. The Company currently has one U.S. patent
issued; six U.S., one French and one Japanese patent applications pending; and
exclusive licenses under four other U.S. patents associated with its products.
Furthermore, the Company intends to obtain an exclusive license from one of its
employees to five other patents relating to its products. There can be no
assurance that any new patents will be issued, that the Company will develop
proprietary products or technologies that are patentable, that any issued patent
will provide the Company with any competitive advantages or will not be
challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's business.
There has also been substantial litigation in the technology industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has from time to time
received claims that it is infringing upon third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
patents, trademarks or other proprietary rights. On April 28, 1997, Gemplus
served the Company with a complaint alleging that the Company's SwapSmart
product infringes certain claims of a French patent held by Gemplus. See
"Business -- Legal Proceedings." The Company expects that companies in the
computer and digital information security market will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
target markets grows. Any such claims or litigation may be time-consuming and
costly, cause product shipment delays, require the Company to redesign its
products or require the Company to enter into royalty or licensing agreements,
any of which could have a
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<PAGE> 43
material adverse effect on the Company's business, operating results or
financial condition. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information and software that the Company regards
as proprietary. In addition, the laws of some foreign countries do not protect
proprietary and intellectual property rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary and intellectual property rights will be adequate or
that the Company's competitors will not independently develop similar
technology, duplicate the Company's products or design around patents issued to
the Company or other intellectual property rights of the Company.
EMPLOYEES
As of March 31, 1997, SCM Microsystems had a total of 64 full-time
employees, of which 24 were engaged in engineering, research and development; 18
in sales and marketing; 11 in manufacturing; and 11 in general management and
administration. In addition, the Company had a total of 3 part-time employees as
of March 31, 1997. None of the Company's employees is represented by a labor
union. The Company has experienced no work stoppages and believes that its
employee relations are good.
FACILITIES
The Company's principal administrative, sales and marketing facilities are
located in approximately 5,300 square feet of space in Los Gatos, California and
in approximately 6,000 square feet of space in Pfaffenhofen, Germany. The
California facility is leased through October 1998, and the Germany facility is
leased through June 2000. The Company also leases its research and development
facilities in La Ciotat, France and Erfurt, Germany. The Company believes that
its existing facilities are adequate for its current needs.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings at this time.
However, on April 28, 1997, Gemplus served the Company with a complaint alleging
that the Company's SwapSmart product infringes certain claims of a French patent
held by Gemplus. In an unrelated context, Gemplus has indicated that it will
offer licenses to the relevant patent on a non-exclusive, non-discriminatory
basis for a royalty not to exceed 1% of the net selling price of products
practicing the patent. While the outcome of any litigation is uncertain,
management of the Company believes that, based upon the defenses available to
the Company and Gemplus' stated licensing position, the matter can be resolved
without a material adverse effect on the Company's business and operating
results.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ---- ----------------------------------------------------
<S> <C> <C>
Robert Schneider................... 47 Chairman of the Board
Steven Humphreys................... 35 President, Chief Executive Officer and Director
Bernd Meier........................ 47 Chief Operations Officer and Director
Nicholas Efthymiou................. 34 Vice President, U.S. Sales and Business Development
David Hale......................... 32 Vice President, Operations
Jean-Yves Le Roux.................. 37 Vice President, Engineering
Edward MacBeth..................... 38 Vice President, Marketing
John Niedermaier................... 40 Vice President, Finance and Chief Financial Officer
Friedrich Bornikoel(1)............. 47 Director
Bruce Graham....................... 36 Director
Randall Lunn(2).................... 47 Director
Poh Chuan Ng(2).................... 35 Director
Andrew Vought(1)(2)................ 42 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee
Robert Schneider founded the Company in May 1990 as President, Chief
Executive Officer, General Manager and Chairman of the Board. Mr. Schneider is
currently Chairman of the Board. Mr. Schneider is a Managing Director of the
Company's German subsidiary. Mr. Schneider holds a degree in engineering from
HTBL Salzburg and a B.A. degree from the Akademie for Business Administration in
Uberlinger.
Steven Humphreys joined the Company in August 1996 as President and
Chairman of the Board. Mr. Humphreys currently is President, Chief Executive
Officer and a Director of the Company. From April 1994 until February 1996, Mr.
Humphreys was President of Caere Corporation, an optical character recognition
software and systems company. From November 1990 until March 1994, he was Vice
President of General Electric Information Services, an electronic commerce
services provider. Mr. Humphreys holds a B.S. degree from Yale University and a
M.S. degree and a M.B.A. degree from Stanford University.
Bernd Meier joined the Company in January 1992 as General Manager and as a
Director of the Company. Mr. Meier is currently the Chief Operations Officer, a
Director of the Company and a Managing Director of the Company's German
subsidiary. Mr. Meier holds a degree in engineering from Fachhochschule Dieburg.
Nicholas Efthymiou has held various sales and marketing positions since
joining the Company as Vice President, Marketing in February 1992. Mr. Efthymiou
is currently Vice President, U.S. Sales and Business Development. Mr. Efthymiou
holds a B.S.E.E. degree from S.U.N.Y. at Buffalo and a M.B.A. degree from the
University of Texas.
David Hale has served as Vice President, Operations since October 1996.
From October 1991 until September 1996, Mr. Hale held various management
positions at a subsidiary of Solectron, an electronics manufacturing company,
where he most recently served as operations manager. Mr. Hale holds a B.S.I.E.
degree and a M.A. degree and a M.B.A. degree from Stanford University.
Jean-Yves Le Roux joined the Company in May 1995 as Manager, Research and
Development. Mr. Le Roux is currently Vice President, Engineering. From
September 1991 until March 1995, Mr. Le Roux was Manager, PCMCIA Research and
Development of Gemplus, a smart card products supplier. Mr. Le Roux holds an
engineering degree from E.O.E.S. Angers France.
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Edward MacBeth joined the Company in August 1996 as Vice President,
Marketing. From September 1994 until August 1996, Mr. MacBeth was Director,
Marketing and Business Development of Caere Corporation, and from September 1992
until September 1994, he was President of Fit Software, a software development
company. Mr. MacBeth holds a B.S. degree from California Polytechnic State
University, San Luis Obispo and a M.B.A. degree from San Jose State University.
John Niedermaier joined the Company in April 1997 as Vice President,
Finance and Chief Financial Officer. From November 1995 until March 1997, Mr.
Niedermaier was Vice President, Finance and Chief Financial Officer of Voysys
Corporation, a provider of telecommunications systems for small businesses, and
from April 1994 until November 1995, he was Director, Business Planning at Octel
Communications Corporation, a voice messaging company. From November 1989 until
March 1994, Mr. Niedermaier was Vice President, Corporate Controller of VMX,
Inc., a voice processing company, which merged with Octel in March 1994. Mr.
Niedermaier holds a B.S. degree from Wayne State University.
Friedrich Bornikoel has served as a Director of the Company since September
1993. Mr. Bornikoel joined TVM Techno Venture Management GmbH, a venture capital
firm, in July 1987 and has been a Partner since 1990. Mr. Bornikoel is a
director of several privately held companies. Mr. Bornikoel holds a Masters
degree in Physics from the Technical University of Munich.
Bruce Graham has served as a Director of the Company since July 1995. Mr.
Graham has been a Partner of Bessemer Venture Partners, a venture capital firm,
since December 1996. From 1991 until December 1996, Mr. Graham was an Associate
and Vice President at Vertex Management, a venture capital firm. Mr. Graham is a
director of several privately held companies. Mr. Graham holds a B.S. degree in
Chemical Engineering from Princeton University and a M.B.A. degree from Stanford
University.
Randall Lunn has served as a Director of the Company since November 1993.
Mr. Lunn has been a Partner of TVM Techno Venture Management, L.P., a venture
capital firm, since May 1990. Mr. Lunn is a director of several privately held
companies. Mr. Lunn holds a B.A. degree, a B.S. degree in Engineering and a
M.B.A. degree from Dartmouth College.
Poh Chuan Ng has served as a Director of the Company since June 1995. Mr.
Ng is currently a Managing Director and Chairman of the Board of Global Team
Technology Pte. Ltd., a venture investment subsidiary of Intellicard Systems
Pte. Ltd., a contract manufacturing company ("Intellicard"). From September 1994
through May 1997, Mr. Ng served as Director, Business Development at
Intellicard. Prior to joining Intellicard, Mr. Ng was a product engineering
manager for Compaq Computer Corp. Mr. Ng is a director of several privately held
companies. Mr. Ng holds a B.S.E. degree from the National University of
Singapore.
Andrew Vought has served as a Director of the Company since March 1996. Mr.
Vought has been a Partner of Cheyenne Capital Corporation since January 1995 and
has been Vice President, Chief Financial Officer and Secretary of Advanced
Telecommunications Modules Ltd., an ATM networking equipment company, since May
1996. From May 1990 until April 1994, Mr. Vought was Vice President, Chief
Financial Officer and Secretary of MicroPower Systems, Inc., an analog and mixed
signal semiconductor company. Mr. Vought is a director of several privately held
companies. Mr. Vought holds a B.S. degree and a B.A. degree from the University
of Pennsylvania and a M.B.A. degree from Harvard University.
TERM OF OFFICE OF DIRECTORS AND OFFICERS
The Company's Bylaws and Certificate of Incorporation provide that
effective as of the date of the first regularly scheduled meeting of the
stockholders following the date on which the Company becomes subject to the
periodic requirements of the Securities Exchange Act of 1934, as amended, the
directors of the Company will be divided into three classes equal in size with
each class elected to a staggered three-year term. Each director will hold
office until the expiration of the term of his or her respective class and until
his or her respective successor has been duly elected and qualified.
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BOARD COMMITTEES
In March 1997, the Board established an Audit Committee and a Compensation
Committee. The Audit Committee, currently comprised of directors Randall Lunn,
Poh Chuan Ng and Andrew Vought, recommends to the Board of Directors the
engagement of the Company's independent accountants, reviews with the
accountants the plan, scope and results of their examination of the consolidated
financial statements. The Compensation Committee, currently comprised of
directors Friedrich Bornikoel and Andrew Vought, reviews and makes
recommendations to the Board of Directors regarding all forms of compensation to
be provided to the executive officers, directors and consultants to the Company.
DIRECTOR COMPENSATION
Beginning April 1, 1997, nonemployee members of the Company's Board of
Directors ("Outside Directors") receive an annual fee of $10,000 plus $1,000 for
each board meeting attended in person for their services as directors. Prior to
that time, directors did not receive compensation for services as directors.
The Company's 1997 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors in March 1997. A total of 50,000 shares of Common
Stock has been reserved for issuance under the Director Plan. However, an annual
increase will be made to the Director Plan on each anniversary date of adoption
of the Director Plan, in an amount equal to the number of shares underlying
options granted in the immediately preceding year or a lesser amount determined
by the Board. Each Outside Director of the Company will be granted an option to
purchase up to 10,000 shares of Common Stock (5,000 shares for outside directors
who are affiliated with entities holding 5% or more of the Company's voting
stock) upon the effective date of the Director Plan and will be granted a
subsequent annual option to purchase 5,000 additional shares of Common Stock
under the Director Plan. Options granted under the Director Plan are not
transferable unless approved by the Board. The Company's Director Plan will
terminate in 2007.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation, as amended and restated, limits
the liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors
except for liability arising out of (i) a breach of their duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derived an improper personal benefit.
The Company's charter documents provide that the Company shall indemnify
its officers, directors and agents to the fullest extent permitted by law,
including those circumstances where indemnification would otherwise be
discretionary. The Company believes that indemnification under its charter
documents covers at least negligence and gross negligence on the part of
indemnified parties. The Company has entered into indemnification agreements
with each of its directors and officers which may, in some cases, be broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify each director and officer against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance such persons' expenses incurred as a result of any proceeding
against him or her as to which such person could be indemnified.
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<PAGE> 47
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding that could result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth all compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the year ended December 31, 1996 for the Company's Chief
Executive Officer and the Company's most highly compensated other executive
officers whose salary and bonus for such year exceeded $100,000 (collectively,
the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(2)
- ---------------------------------------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
Robert Schneider........................ 154,800 63,000 50,576 1,935
Managing Director of German subsidiary
Steven Humphreys(1)..................... 76,064 -- 276,570 100
President and Chief Executive Officer
Bernd Meier............................. 154,800 99,000 201,025 1,935
Chief Operations Officer and Managing
Director of German subsidiary
Nicholas Efthymiou...................... 100,001 24,625 75,544 240
Vice President, U.S. Sales and
Business Development
</TABLE>
- ---------------
(1) Mr. Humphreys began working at the Company in August 1996.
(2) Represents life insurance premiums.
Option Grants During 1996. The following table sets forth for each of the
Named Executive Officers certain information concerning stock options granted
during 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK
----------------------------------------------------- PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------
NAME GRANTED 1996 PER SHARE DATE(1) 5%($) 10%($)
- -------------------------------- ---------- ---------------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert Schneider................ 50,576 7% $0.10 7/7/2006 3,181 8,061
Steven Humphreys................ 276,570 38% 0.10 7/7/2006 17,393 44,078
Bernd Meier..................... 201,025 28% 0.10 7/7/2006 12,642 32,038
Nicholas Efthymiou.............. 75,544 10% 0.10 7/7/2006 4,751 12,040
</TABLE>
- ---------------
(1) Options generally vest as to 25% of the shares one year from the date of
grant and monthly thereafter for the succeeding 36 months. Options may
generally be exercised ahead of vesting, subject to a right of the Company
to repurchase the unvested portion of the shares if the optionee's status as
an employee or consultant is terminated or upon the optionee's death or
disability prior to the shares vesting.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices. The actual value realized may be greater or less than
the potential realizable values set forth in the table.
46
<PAGE> 48
Year-End Option Values. The following table sets forth, for each of the
Named Executive Officers, the year-end value of unexercised options as of
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE(1) OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT YEAR-END(#): OPTIONS AT YEAR-END:
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ----------------------------------------------- ------------------------- ----------------------------
<S> <C> <C>
Robert Schneider............................... 88,988/ -- 185,095/ --
Steven Humphreys............................... -- /276,570 -- /575,266
Bernd Meier.................................... 239,437/ -- 498,029/ --
Nicholas Efthymiou............................. 88,348/ -- 183,734/ --
</TABLE>
- ---------------
(1) Market value of underlying securities at year-end minus the exercise price.
Year-end market value of the Common Stock ($2.18 per share) was determined
by the Board of Directors by reference to an independent appraisal.
(2) Options are generally exercisable by the optionee ahead of vesting. Unvested
shares purchased on exercise of an option are subject to a repurchase right
of the Company, and may not be sold by an optionee until the shares vest.
Options indicated as "Exercisable" are those options which were both vested
and exercisable as of December 31, 1996. All other options are indicated as
"Unexercisable."
EMPLOYMENT CONTRACTS
The Company's German subsidiary has entered into substantially similar
employment agreements with each of Messrs. Schneider and Meier pursuant to which
each serves as a Managing Director of the subsidiary. Each agreement continues
for an indefinite term and each party may terminate the agreement at any time
with six months notice. Each executive receives an annual base salary of
$190,000 and an annual bonus of up to $75,000. Furthermore, each executive is
subject to a non-compete provision for a period of one year after the
termination of employment.
In addition, the Company has entered into an employment agreement, dated
June 2, 1995, with Mr. LeRoux. The initial salary under the agreement is FF
475,000 per year, including a bonus of FF 70,000. Either party may terminate the
agreement at any time.
EMPLOYEE STOCK PLANS
1997 Stock Plan
The Company's 1997 Stock Plan (the "1997 Plan") provides for the granting
to employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and for
the granting to employees and consultants of nonstatutory stock options and
stock purchase rights ("SPRs"). The 1997 Plan was approved by the Board of
Directors in March 1997, and by the stockholders in April 1997. Unless
terminated sooner, the 1997 Plan will terminate automatically in March 2007. A
total of 1,000,000 shares of Common Stock are currently reserved for issuance
and 314,400 have been issued pursuant to the 1997 Plan. An annual increase will
be made to the 1997 Plan on each anniversary date of the adoption of the 1997
Plan, in an amount equal to the lesser of 500,000 shares, three percent of the
outstanding shares on such date, or a lesser amount determined by the Board.
The 1997 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The Committee has the power to amend, suspend or terminate the 1997 Plan
(provided that no such action may affect any share of Common Stock previously
issued and sold or any option or SPR previously granted under the 1997 Plan), to
determine the terms of the options and SPRs granted, including the exercise
price, the number of shares subject to each or SPR option, the exercisability
thereof, and the form of consideration payable upon such exercise. In addition,
the Committee has the authority to prescribe, amend and rescind rules and
regulations
47
<PAGE> 49
relating to the 1997 Plan. Pursuant to this authority, the Committee has
approved the 1997 Stock Option Plan for French Employees (the "French Plan") in
April 1997, pursuant to which stock options that qualify for preferential tax
treatment under French tax law may be granted. The French Plan will be submitted
to the Company's stockholders for their approval.
Options and SPRs granted under the 1997 Plan are not generally transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1997 Plan must
generally be exercised within three months of the end of optionee's status as an
employee or consultant of the Company, or within twelve months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's term. In case of SPRs, unless the Committee
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Committee. The exercise price of options granted under the 1997 Plan is
determined by the Committee, but with respect to incentive stock options, and
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price must at least be equal to the fair market value of the Common
Stock on the date of grant. The term of options granted under the 1997 Plan
generally may not exceed ten years.
The 1997 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each option shall be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options are not assumed or substituted for as described in the preceding
sentence, the Optionee shall fully vest in and have the right to exercise the
option or SPR as to all of the optioned stock, including shares as to which it
would not otherwise be vested or exercisable. If the Administrator makes an
option or SPR fully vested and exercisable in the event of a merger or sale of
assets, the Administrator shall notify the optionee that the option or SPR shall
be fully vested and exercisable for a specified period from the date of such
notice, and the option or SPR will terminate upon the expiration of such period.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in March 1997 and by the stockholders in April
1997. A total of 175,000 shares of Common Stock has been reserved for issuance
under the Purchase Plan. However, an annual increase will be made to the
Purchase Plan on each anniversary date of the adoption of the Purchase Plan, in
an amount equal to the lesser of 150,000 shares, one percent of the outstanding
shares on such date, or a lesser amount determined by the Board. The Purchase
Plan, which is intended to qualify under Section 423 of the Internal Revenue
Code, is implemented by consecutive overlapping twenty-four month offering
periods beginning on the first trading day on or after May 1 and November 1 each
year, except for the first such offering period which commences on the first
trading day on or after the effective date of this offering and ends on the last
trading day on or after April 30, 1999. Each offering period contains four
purchase periods of approximately six months duration during which a participant
may accumulate payroll deductions and purchase Common Stock. The Purchase Plan
is administered by the Board of Directors or by a committee appointed by the
Board. Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions of up to 10% of an
employee's compensation (including commissions, overtime and other bonuses and
incentive compensation), up to a maximum of $5,000 for each purchase period. The
price of stock purchased under the Purchase Plan is 85% of the lower of the fair
market value of the Common Stock at the beginning of the offering period or the
end of the applicable purchase period. Employees may end their participation at
any time during an offering period, and they will be paid their payroll
deductions to date. Participation ends automatically upon termination of
employment with the Company.
48
<PAGE> 50
Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger of the Company with or into another corporation or a sale
of all or substantially all of the Company's assets, each participant's right to
purchase Common Stock will assumed or an equivalent right substituted by the
successor corporation. If the successor corporation refuses to undertake such an
assumption or substitution, the Board of Directors shall shorten the offering
period then in progress (so that employees' rights to purchase stock under the
Purchase Plan are exercised prior to the merger or sale of assets). The Purchase
Plan will terminate in 2007. The Board of Directors has the authority to amend
or terminate the Purchase Plan, except that no such action may adversely affect
any outstanding rights to purchase stock under the Purchase Plan.
1997 Employee Stock Purchase Plan for Non-U.S. Employees
The 1997 Employee Stock Purchase Plan for Non-U.S. Employees (the
"International Purchase Plan") was adopted by the Board of Directors in April
1997. The number of shares reserved for issuance under the International
Purchase Plan equals the number of shares reserved for issuance under the
Purchase Plan, but not yet issued. The terms of the International Purchase Plan
are substantially similar to those of the Purchase Plan, except that employees
need not be customarily employed by the Company or a participating subsidiary
for at least 20 hours per week and more than five months per calendar year to
participate. The International Purchase Plan is not intended to qualify under
Section 423 of the Code.
CERTAIN TRANSACTIONS
From time to time, Robert Schneider loaned to the Company various amounts
up to approximately DM 240,000. As of December 31, 1996, the amount outstanding
under these loans was approximately DM 100,000.
In March 1997, the Company and Intel entered into a three-year development
and license agreement. As part of this arrangement, Intel has made an equity
investment of $2.0 million in the Company and beneficially owns approximately
5.2% of the Company's Common Stock, assuming the conversion of all of the
Company's outstanding shares of Preferred Stock into shares of Common Stock.
In May 1997, the Company and Telenor entered into a development and supply
agreement. As part of this agreement, Telenor has purchased 640,000 shares of
Preferred Stock for approximately $5.5 million, received 34,965 additional
shares of Preferred Stock in exchange for certain technology rights and received
a warrant to purchase an additional 194,930 shares of Preferred Stock for $5.72
per share. See "Business -- Collaborative Industry Relationships" and "Principal
Stockholders."
49
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1997 and as
adjusted to reflect the sale of the Common Stock offered hereby for (i) each
person or entity who is known by the Company to beneficially own five percent or
more of the outstanding Common Stock of the Company prior to this offering, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED(1)
NUMBER OF SHARES ----------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PRIOR TO OFFERING AFTER OFFERING
- ------------------------------------------------- --------------------- ----------------- --------------
<S> <C> <C> <C>
Telenor Venture AS(2)............................ 869,895 12.7% 9.1%
P.O. Box 6701, St. Olavs plass
N-0130 Oslo, Norway
(APM) AlpinvestInternational B.V.(3)............. 784,128 11.8 8.3
Gooimeer 3
P.O. Box 5073
1410 AB Naarden, The Netherlands
Robert Schneider(4).............................. 686,944 10.3 7.3
c/o SCM Microsystems GmbH
Luitpoldstrasse 6
D-85276 Pfaffenhofen
Germany
TVM Techno Venture Management GmbH(5)............ 667,857 10.0 7.1
c/o Friedrich Bornikoel
Tolzerstrasse 12A
82031 Grunwald
Germany
Bernd Meier(6)................................... 621,002 9.3 6.6
c/o SCM Microsystems GmbH
Luitpoldstrasse 6
D-85276 Pfaffenhofen
Germany
Vertex Investment (II) Ltd.(7)................... 580,187 8.7 6.2
83, Science Park Drive
#01-01/02
Singapore 0511
Singapore
Intel Corporation................................ 349,650 5.3 3.7
c/o Laila Partridge
2200 Mission College Boulevard
Santa Clara, CA 95052
Steven Humphreys(8).............................. 276,570 4.0 2.9
Nicholas Efthymiou(9)............................ 219,591 3.3 2.3
Friedrich Bornikoel(10).......................... -- -- --
Bruce Graham..................................... -- -- --
Randall Lunn(11)................................. -- -- --
Poh Chuan Ng(12)................................. 172,856 2.6 1.8
Andrew Vought(13)................................ 98,627 1.5 1.0
All directors and executive officers as a group
(13 persons)(14)............................... 2,165,857 32.5% 23.0%
</TABLE>
- ---------------
(1) Assumes conversion of all of the Company's outstanding shares of Preferred
Stock into shares of Common Stock. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
but not necessarily vested within 60 days of June 30, 1997
50
<PAGE> 52
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(2) Includes warrants to purchase 194,930 shares of Series F Preferred Stock
exercisable before June 30, 1997.
(3) Includes warrants to purchase 5,537 shares of Series D Preferred Stock
exercisable before April 15, 2003.
(4) Includes 32,010 shares held by Robert Schneider's wife, Ursula Schneider.
(5) Includes (i) warrants to purchase 2,872 shares of Series D Preferred Stock
exercisable before April 15, 2003, (ii) 259,315 shares held by TVM Eurotech
Ltd. and (iii) warrants to purchase 1,845 shares of Series D Preferred
Stock exercisable before April 15, 2003 held by TVM Eurotech Ltd.
(6) Includes (i) 16,005 shares held by Bernd Meier's wife, Sonja Meier, (ii)
48,015 shares held in trust for Reiner Pohl and (iii) 131,243 shares held
in trust for Nicholas Efthymiou.
(7) Includes warrants to purchase 8,017 shares of Series D Preferred Stock
exercisable before April 15, 2003.
(8) Includes options to purchase 276,570 shares of Common Stock exercisable
within 60 days of June 30, 1997, 74,904 of which will be vested as of such
date and the remainder of which would be subject to repurchase by the
Company until vested.
(9) Includes 131,243 shares held by Bernd Meier in trust for the benefit of Mr.
Efthymiou.
(10) Mr. Bornikoel is a partner of TVM Techno Venture Management GmbH. Mr.
Bornikoel disclaims beneficial ownership of shares beneficially owned by
such entity except to the extent of his pecuniary interest therein.
(11) Mr. Lunn is a partner of TVM Techno Venture Management L.P. Mr. Lunn
disclaims beneficial ownership of shares beneficially owned by such entity
except to the extent of his pecuniary interest therein.
(12) Includes 172,856 shares beneficially owned by Intellicard Systems Pte. Ltd.
Mr. Ng may be deemed to be an affiliate of such entity and thus may be
deemed to beneficially own such shares.
(13) Includes 24,327 shares held by Genevest Consulting Group and 74,300 shares
held by Index Special Fund, venture capital funds with which Mr. Vought is
affiliated.
(14) Includes shares and exercisable options and warrants which may be deemed to
be beneficially owned by certain directors and executive officers. See
Notes 3, 5, 8, 9, 10, 11, 12 and 13 above.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
At the consummation of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value, and
10,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of March 31, 1997, there were 6,654,489 shares of Common Stock
outstanding (after giving effect to the conversion of all Preferred Stock into
Common Stock) held of record by approximately 80 stockholders. Holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
consummation of the offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, 10,000,000 shares of undesignated
Preferred Stock will be authorized, and no shares will be outstanding. The Board
of Directors has the authority to issue the shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any unissued shares of Preferred Stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the Board of Directors, without stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock may have the effect of delaying, deterring or preventing a
change in control of the Company.
WARRANTS
Upon the closing of this offering, the Company will have outstanding
warrants to purchase an aggregate of 384,121 shares of Common Stock at a
weighted average exercise price of $7.17 per share.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, amended Bylaws, Delaware law and the Company's indemnification
agreements with certain officers and directors of the Company may be deemed to
have an anti-takeover effect. Such provisions may delay, deter or prevent a
tender offer or takeover attempt that a stockholder might consider to be in that
stockholder's best interests, including attempts that might result in a premium
over the market price for the shares held by stockholders.
The Company's Board of Directors may issue additional shares of Common
Stock or establish one or more classes or series of Preferred Stock, having the
number of shares (up to 10,000,000), designations, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations as
determined by the Board of Directors without stockholder approval. The Company's
Certificate of Incorporation, as amended and restated, and Bylaws, as amended,
also contain a number of provisions that could impede a takeover or change in
control of the Company, including but not limited to the elimination of
stockholders' ability to take action by written consent without a meeting and
the elimination of cumulative voting in the election of directors.
52
<PAGE> 54
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Each of the foregoing provisions gives the Board of Directors, acting
without stockholder approval, the ability to prevent, or render more difficult
or costly, the completion of a takeover transaction that stockholders might view
as being in their best interests.
REGISTRATION RIGHTS
Upon the closing of this offering, the holders or their permitted
transferees ("Holders") of approximately 6,078,947 shares of Common Stock are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. If the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
security holders, the holders are entitled to notice of the registration and are
entitled to include, at the Company's expense, shares therein. In addition,
certain of the Holders may require the Company at its own expense, on not more
than two occasions, to file a registration statement under the Securities Act,
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration, subject to certain conditions and
limitations. Further, the Holders may require the Company, at its expense, to
register shares of Common Stock on a Registration Statement on Form S-3, when
such form becomes available to the Company, subject to certain conditions and
limitations. See "Shares Eligible For Future Sale."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is First
National Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,404,489 shares of Common Stock, assuming no exercise of options or warrants
outstanding as of March 31, 1997. Of these shares, the 2,750,000 shares offered
hereby (3,162,500 shares if the Underwriters' over-allotment option is exercised
in full) will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act ("Rule 144") described below. The remaining 6,654,489
shares of Common Stock outstanding upon completion of this offering are
"restricted securities" as that term is defined in Rule 144. Of these shares,
57,618 will be eligible for immediate sale upon commencement of the offering, an
additional 94,751 shares will become eligible for sale beginning 90 days after
commencement of this offering. Upon expiration of the Lock-Up Agreements
described below (which occurs 180 days after the commencement of this offering),
an aggregate of 3,769,539 shares will become eligible for sale pursuant to Rule
144 or Rule 701 under the Securities Act ("Rule 701") and 2,732,581 additional
shares will become eligible for sale thereafter under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate from
whom such shares were purchased) is entitled to sell in "broker's transactions"
or to market makers, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately 94,000 shares immediately after this offering) or (ii) generally,
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner other than an
53
<PAGE> 55
affiliate from whom such shares were purchased), is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701, persons who
purchase shares upon exercise of options granted prior to the effective date of
this offering are entitled to sell such shares 90 days after the effective date
of this offering 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.
Pursuant to the Lock-Up Agreements, the Company and certain stockholders
owning upon completion of this offering, in the aggregate, 6,338,065 shares of
Common Stock and certain holders of stock options have agreed not to, directly
or indirectly, offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock (including shares issuable under
options exercisable during the lock-up period described below) or any securities
convertible into or exercisable or exchangeable therefor (except for shares of
Common Stock they may acquire in the public market), until 180 days after the
date of this Prospectus without the prior written consent of Cowen & Company, on
behalf of the Underwriters.
As soon as practicable after the date of this Prospectus, the Company
intends to file registration statements on Form S-8 covering an aggregate of
approximately 1.1 million shares of Common Stock that have been reserved for
issuance under its employee stock option plans and purchase plans thus
permitting the resale of such shares in the public market without restriction
under the Securities Act.
Prior to this offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.
54
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Cowen & Company and Hambrecht & Quist LLC are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Cowen & Company...................................................
Hambrecht & Quist LLC.............................................
---------
Total................................................... 2,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public initially offering price set forth on the cover page of
this Prospectus and in part to certain securities dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 412,500
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,750,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company, the Company's officers and directors and certain of the
Company's shareholders have agreed subject to certain limited exceptions, not,
directly or indirectly, to offer, sell, contract to sell, or otherwise dispose
of any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or any right to acquire Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent (which consent may be given without notice to the Company's shareholders
or other public announcement) of Cowen & Company. Cowen & Company has advised
the Company that it has no present intention of releasing any of the Company's
shareholders from such lock-up agreements until the expiration of such 180-day
period.
The Representatives have advised the Company that, pursuant to rules
promulgated by the Commission, certain persons participating in this offering
may engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters
55
<PAGE> 57
for the purpose of fixing or maintaining the price of Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Underwriters to reclaim the selling concession otherwise accruing
to an Underwriter or syndicate member in connection with the offering if the
Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Underwriters in syndicate covering transactions, in
stabilization transactions or otherwise. The Underwriters have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market conditions,
the results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies that the Company
and the Representatives believe to be comparable to the Company, estimates of
the business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Rogers & Wells, London, England. Members of
the firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation, own an
aggregate of 26,223 shares of Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
56
<PAGE> 58
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"),
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus as to the contents of
any contract or any 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, each such statement
being qualified in all respects by such reference. A copy of the Registration
Statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. The Commission maintains a World Wide Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
57
<PAGE> 59
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997....... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and for the three-month periods ended March 31, 1996 and 1997.................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December
31, 1994, 1995 and 1996 and for the three-month period ended March 31, 1997......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and for the three-month periods ended March 31, 1996 and 1997.................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SCM Microsystems, Inc.:
We have audited the accompanying consolidated balance sheets of SCM
Microsystems, Inc. and subsidiaries (the Company) as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SCM
Microsystems, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
March 31, 1997, except
as to Note 10, which is
as of May 30, 1997
F-2
<PAGE> 61
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------- MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 739 $ 2,593 $ 4,946
Accounts receivable, less allowance of $93, $210 and $203
in 1995, 1996 and 1997, respectively.................. 4,430 5,237 4,516
Inventories.............................................. 2,313 2,279 2,411
Prepaid expenses......................................... 113 519 673
------- -------- --------
Total current assets.................................. 7,595 10,628 12,546
Property and equipment, net................................ 476 818 815
Other assets, net.......................................... 72 13 13
------- -------- --------
$ 8,143 $ 11,459 $ 13,374
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt...... $ 1,973 $ 5,896 $ 2,463
Current portion of related party debt.................... 84 2,350 60
Accounts payable......................................... 3,184 3,351 2,023
Accrued expenses......................................... 734 818 1,024
------- -------- --------
Total current liabilities............................. 5,975 12,415 5,570
Notes payable and long-term debt, less current portion..... 2,147 -- --
------- -------- --------
Total liabilities..................................... 8,122 12,415 5,570
Redeemable convertible preferred stock; $0.001 par value;
6,000,000 shares authorized; 1,211,914 shares issued and
outstanding in 1995 and 1996, and 3,094,705 shares issued
and outstanding in 1997 (liquidation preference of $4,642
and $14,476 in 1996 and 1997)............................ 4,781 5,068 14,554
Stockholders' deficit:
Convertible preferred stock, $0.001 par value; 854,038
shares authorized, issued and outstanding............. 1 1 1
Common stock, $0.001 par value; 19,000,000 shares
authorized; 1,280,414 shares issued and outstanding in
1995 and 1996, and 1,855,956 shares issued and
outstanding in 1997................................... 1 1 2
Additional paid-in capital............................... 2,010 2,387 2,444
Deferred stock compensation.............................. -- (224) (204)
Accumulated deficit...................................... (6,618) (8,015) (8,649)
Cumulative translation adjustment........................ (154) (174) (344)
------- -------- --------
Total stockholders' deficit........................... (4,760) (6,024) (6,750)
------- -------- --------
Commitments and contingencies
$ 8,143 $ 11,459 $ 13,374
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
------- ------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 6,446 $18,066 $ 21,520 $ 4,257 $ 4,365
Cost of sales...................... 5,087 15,771 14,880 3,068 2,800
------- -------- ------- ------- -------
Gross profit.................. 1,359 2,295 6,640 1,189 1,565
Operating expenses:
Research and development......... 1,162 1,399 2,386 624 628
Sales and marketing.............. 1,224 2,057 3,230 631 895
General and administrative....... 580 1,439 2,004 441 518
------- -------- ------- ------- -------
Loss from operations.......... (1,607) (2,600) (980) (507) (476)
Interest expense................... (261) (337) (304) (25) (66)
Other.............................. -- 11 174 35 67
------- -------- ------- ------- -------
Net loss...................... $(1,868) $(2,926) $ (1,110) $ (497) $ (475)
======= ======== ======= ======= =======
Pro forma net loss per share....... $ (0.19) $ (0.08)
======= =======
Shares used to compute pro forma
net loss per share............... 5,272 6,054
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK- TOTAL
SERIES A COMMON STOCK ADDITIONAL DEFERRED CUMULATIVE STOCKHOLDERS'
---------------- ------------------ PAID-IN STOCK ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT ADJUSTMENT (DEFICIT)
------- ------ --------- ------ ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31,
1993............. 854,038 $1 1,280,414 $1 $1,761 $ -- $(1,685) $ (58) $ 20
Foreign currency
translation
adjustment....... -- -- -- -- -- -- -- (180) (180)
Net loss........... -- -- -- -- -- -- (1,868) -- (1,868)
-- --
------- --------- ------ ----- ------- ----- -------
Balances as of
December 31,
1994............. 854,038 1 1,280,414 1 1,761 -- (3,553) (238) (2,028)
Redeemable
convertible
preferred stock,
Series B
additional
paid-in
capital.......... -- -- -- -- 249 -- -- -- 249
Foreign currency
translation
adjustment....... -- -- -- -- -- -- -- 84 84
Net loss........... -- -- -- -- -- -- (2,926) -- (2,926)
Accretion on
redeemable
convertible
preferred stock,
Series B......... -- -- -- -- -- -- (139) -- (139)
-- --
------- --------- ------ ----- ------- ----- -------
Balance as of
December 31,
1995............. 854,038 1 1,280,414 1 2,010 -- (6,618) (154) (4,760)
Deferred
compensation
related to grants
of stock
options.......... -- -- -- -- 377 (377) -- -- --
Amortization of
deferred employee
compensation..... -- -- -- -- -- 153 -- -- 153
Foreign currency
translation
adjustment....... -- -- -- -- -- -- -- (20) (20)
Net loss........... -- -- -- -- -- -- (1,110) -- (1,110)
Accretion on
redeemable
convertible
preferred stock,
Series B......... -- -- -- -- -- -- (287) -- (287)
-- --
------- --------- ------ ----- ------- ----- -------
Balances as of
December 31,
1996............. 854,038 1 1,280,414 1 2,387 (224) (8,015) (174) (6,024)
Exercise of common
stock options
(unaudited)...... -- -- 575,542 1 57 -- -- -- 58
Amortization of
deferred employee
compensation
(unaudited)...... -- -- -- -- -- 20 -- -- 20
Foreign currency
translation
adjustment
(unaudited)...... -- -- -- -- -- -- -- (170) (170)
Net loss
(unaudited)...... -- -- -- -- -- -- (475) -- (475)
Accretion on
redeemable
convertible
preferred stock
(unaudited)...... -- -- -- -- -- -- (159) -- (159)
-- --
------- --------- ------ ----- ------- ----- -------
Balances as of
March 31, 1997
(unaudited)...... 854,038 $1 1,855,956 $2 $2,444 $ (204) $(8,649) $(344) $ (6,750)
======= == ========= == ====== ===== ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(1,868) $(2,926) $(1,110) $ (497) $ (475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............. 87 135 445 56 78
Interest on subordinated stockholder loans
converted to equity..................... -- 242 -- -- --
Amortization of deferred employee
compensation............................ -- -- 153 -- 20
Changes in operating assets and
liabilities:
Accounts receivable..................... (472) (2,816) (991) 1,102 495
Inventories............................. (1,020) (800) (75) (226) (250)
Prepaid expenses........................ (10) (99) (582) 25 (141)
Accounts payable........................ 882 1,983 370 (528) (931)
Accrued expenses........................ 332 390 116 (184) 129
------- ------- ------- ------ ------
Net cash used in operating
activities......................... (2,069) (3,891) (1,674) (252) (1,075)
------- ------- ------- ------ ------
Cash flows used in investing activities --
capital expenditures......................... (194) (524) (643) (5) (114)
------- ------- ------- ------ ------
Cash flows from financing activities:
Proceeds from notes payable.................. -- 1,253 5,011 -- --
Payments on notes payable.................... (17) -- (1,531) (169) (1,281)
Proceeds from long-term debt................. 2,470 1,509 -- -- --
Principal payments on long-term debt......... (58) (59) -- -- (9)
Proceeds from issuance of equity............. -- 2,441 -- -- 5,095
Proceeds from line of credit................. -- -- 1,000 -- --
------- ------- ------- ------ ------
Net cash provided by (used in)
financing activities............... 2,395 5,144 4,480 (169) 3,805
------- ------- ------- ------ ------
Effect of exchange rates on cash............... (180) (60) (309) (2) (263)
------- ------- ------- ------ ------
Net (decrease) increase in cash and cash
equivalents.................................. (48) 669 1,854 (428) 2,353
Cash and cash equivalents at beginning of
period....................................... 118 70 739 739 2,593
------- ------- ------- ------ ------
Cash and cash equivalents at end of period..... $ 70 $ 739 $ 2,593 $ 311 $ 4,946
======= ======= ======= ====== ======
Supplemental disclosures of cash flow
information:
Cash paid during the period -- interest...... $ 79 $ 191 $ 313 $ 25 $ 25
======= ======= ======= ====== ======
Noncash financing activity -- conversion of
notes payable and accrued interest to
redeemable preferred stock................ $ -- $ 2,301 $ -- $ -- $ 4,240
======= ======= ======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
SCM Microsystems, Inc. (the Company) designs, develops and manufactures
hardware, firmware and software products for data security and access control
applications. The Company offers products that address the needs of the
enterprise data security market, digital video broadcasting market and PCMCIA
peripheral products. The Company currently sells its products to a number of OEM
customers. The Company is headquartered in California and maintains
international headquarters in Germany.
During 1994, the Company began emphasizing security and access products.
The Company made the final shipment of PCMCIA peripheral products in the quarter
ended March 31, 1997, completing its exit from this business.
Reincorporation
From inception in 1990 until December 1996, the Company was incorporated in
Germany. During 1993, the Company formed a U.S. subsidiary which is incorporated
in Delaware.
In December 1996, the Company incorporated a holding company in the state
of Delaware and entered into a stock exchange agreement with the stockholders of
the German corporation. The Board of Directors approved an exchange of one share
in the German corporation for 6.4021 shares in the new Delaware corporation
which effected a 6.4021 for 1 stock split of common and preferred stock. The
Certificate of Incorporation of the Delaware corporation authorizes 19,000,000
shares of common stock at $0.001 par value per share and 6,000,000 shares of
preferred stock at $0.001 par value per share. The accompanying consolidated
financial statements have been retroactively restated to give effect to the
reincorporation and stock split.
Registration Statement
In December 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering (IPO). If the offering is consummated under the
terms presently anticipated, all the currently outstanding shares of preferred
stock will automatically convert into 3,948,743 shares of common stock upon the
effectiveness of the proposed IPO. The conversion of the preferred stock has
been reflected in the unaudited pro forma stockholders' deficit as of March 31,
1997 (see Note 11).
Principles of Consolidation
The accompanying consolidated financial statements include those of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-7
<PAGE> 66
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less at the date of acquisition to be cash
equivalents.
Concentration of Credit Risk
The Company sells its products to a diversified group of customers which
are typically large OEM computer manufacturers located mainly in the United
States and Europe. The Company extends credit based on an evaluation of each
customer's financial condition and generally requires no collateral from its
customers. Credit losses, if any, have been provided for in the consolidated
financial statements and have been within management's expectation.
Inventories
Inventories are stated at the lower of cost or market, using the first-in,
first-out method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the respective assets or
the lease term, generally three to seven years. During 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long Lived Assets and Long Lived Assets to Be Disposed Of. The
adoption of SFAS No. 121 did not have a material effect on the Company's
consolidated financial position or operating results.
Fair Value of Financial Instruments
The carrying amounts reflected in the consolidated balance sheets for cash,
accounts receivable, and accounts payable approximate their respective fair
values due to the short maturities of these instruments. The fair value of the
Company's notes payable, notes payable to related parties, and long-term related
party debt is not determinable as it is uncertain at what value the Company
could settle such financing or obtain replacement financings.
Revenue Recognition
Revenue from product sales is recognized upon product shipment. Provisions
for estimated warranty repairs and returns and allowances are provided for at
the time products are shipped. Revenue recognition under nonrecurring
engineering contracts generally is recognized upon the percentage of completion
basis.
Stock-Based Compensation
The Company accounts for its stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
fair value of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, which requires entities to provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair value-based method defined
in SFAS No. 123 had been applied.
F-8
<PAGE> 67
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
foreign currency. The Company translates the assets and liabilities of its
foreign subsidiary to U.S. dollars at the rates of exchange in effect at the end
of the year. Net sales and expenses are translated at the average rates of
exchange for the year. Translation gains and losses are included in
stockholders' deficit in the consolidated balance sheets. Gains and losses
resulting from foreign currency transactions denominated in a currency other
than the functional currency are included in income and have not been
significant to the Company's consolidated operating results in any period.
Pro Forma Net Loss Per Share
Pro forma net loss per share data is based on the weighted-average number
of shares of common stock and, when dilutive, common equivalent shares from
stock options and warrants outstanding, using the treasury stock method, and
convertible preferred stock and notes payable on an "as if converted" basis.
Pursuant to certain SEC Staff Accounting Bulletins, common stock,
convertible preferred stock and convertible notes payable issued for
consideration below the assumed IPO price and stock options granted and warrants
issued with exercise prices below the assumed IPO price during the 12-month
period prior to the date of the initial filing of the registration statement,
even when antidilutive, have been included in the calculation of pro forma net
loss per share, using the treasury stock method based on the assumed IPO price,
as if they were outstanding for all periods presented.
The Financial Accounting Standards Board recently issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 requires the presentation of basic earnings per
share (EPS) and, for companies with complex capital structures, diluted EPS.
SFAS No. 128 is effective for annual and interim periods ending after December
15, 1997. The Company expects that for profitable periods basic EPS will be
higher than earnings per share as presented in the accompanying financial
statements and diluted EPS will not differ materially from earnings per share as
presented in the accompanying consolidated financial statements. Computations
for loss periods should not change significantly.
Unaudited Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements as of March 31,
1997, and for the three months ended March 31, 1996 and 1997, have been prepared
on substantially the same basis as the audited consolidated financial
statements, and in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein.
F-9
<PAGE> 68
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
2. BALANCE SHEET COMPONENTS
A summary of balance sheet components is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Inventories:
Raw materials............................... $ 945 $1,615 $ 1,234
Work in process............................. 241 -- --
Finished goods.............................. 1,127 664 1,177
------ ------ ------
$2,313 $2,279 $ 2,411
====== ====== ======
Property and equipment:
Furniture, fixtures, and office equipment... $ 570 $1,070 $ 1,116
Purchased software.......................... 109 204 207
------ ------ ------
679 1,274 1,323
Less accumulated depreciation............... 203 456 508
------ ------ ------
$ 476 $ 818 $ 815
====== ====== ======
</TABLE>
3. NOTES PAYABLE, LONG-TERM DEBT, AND RELATED PARTY DEBT
Notes payable and long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------ ------ ---------
<S> <C> <C> <C>
Nonconvertible loans.......................... $2,070 $2,580 $ 2,410
Notes payable to banks........................ 2,050 357 53
Convertible notes payable, Series C........... -- 1,959 --
Line of credit................................ -- 1,000 --
------ ------ ---
4,120 5,896 2,463
Less current portion.......................... 1,973 5,896 2,463
------ ------ ---
Notes payable and long-term debt, less
current portion........................ $2,147 $ -- $ --
====== ====== ===
</TABLE>
Related party debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
----------------- 31,
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Convertible notes payable Series C -- related
party.......................................... $ -- $ 627 $ --
Convertible notes payable Series D -- related
party.......................................... -- 1,654 --
Stockholder loans................................ 84 69 60
------ ------ ------
84 2,350 60
Less current portion............................. 84 2,350 60
------ ------ ------
Long-term related party debt, less current
portion................................... $ -- $ -- $ --
====== ====== ======
</TABLE>
F-10
<PAGE> 69
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
Nonconvertible Loans
In October 1993, the Company's German subsidiary entered into a Deutsche
Mark (DM) 1,000,000 loan agreement, bearing interest at 5% per annum, expiring
on December 31, 2003. In June 1995, the Company entered into an additional DM
3,000,000 loan agreement with the same party, bearing interest at 6% per annum,
expiring on December 31, 2005. DM 2,000,000 was drawn under this second
agreement in June 1995, and the remaining DM 1,000,000 was drawn on April 2,
1996. The terms of these agreements also provide the lender with the option to
request an additional compensation of 25% of the then outstanding loan amount
after the fifth year of each of the respective agreements or upon early
termination of the loans by the Company. The Company may terminate this
agreement at the end of each half year with three months notice. The outstanding
balance on these loans was $2,070,000, $2,580,000, and $2,410,000 as of December
31, 1995 and 1996, and March 31, 1997, respectively.
Notes Payable to Banks
Notes payable to banks bear interest at 10% and are guaranteed by certain
stockholders of the Company.
Convertible Notes Payable, Series C
In February 1996, the Company's German subsidiary entered into a loan
agreement for DM 4,009,000. The loan bears interest at 4% per annum and is
convertible into 653,642 shares of Series C preferred stock. The outstanding
balance of this loan as of December 31, 1996, was $1,959,000 payable to third
parties and $627,000 payable to stockholders. In accordance with the provisions
of the loan agreement, the loan was converted into 653,642 shares of Series C
preferred stock in March 1997.
Line of Credit
In April 1996, the Company entered into a $2,500,000 revolving line of
credit agreement expiring in August 1997. The facility bears interest at the
bank's prime rate plus 1.5%, reduced to 1.0% under certain profitability
conditions contained in the agreement (9.25% as of December 31, 1996). The
agreement contains certain financial covenants and is secured by all assets of
the Company. As of December 31, 1996, the Company had outstanding borrowings of
$1,000,000 under this agreement.
The Company also has DM 4,500,000 in foreign lines of credit and other bank
facilities. These facilities bear interest at 8.0% to 8.75% and expire on
various dates through March 1998. As of December 31, 1996, there were no
borrowings under these lines.
Convertible Notes Payable, Series D
In December 1996, the Company's German subsidiary entered into a loan
agreement for a total of DM 3,179,000 with stockholders of which DM 2,564,000
was tendered at year-end. The loan agreement includes a conversion option which
may be exercised after June 30, 1997, and expires on December 31, 1997. Under
the terms of the agreement, the loan, if not converted, becomes payable on
demand. Under the agreement, the debt automatically converts to common stock in
the event of certain events including an IPO of equity securities. The loan
bears no interest and is convertible into 377,580 shares of Series D preferred
stock. Under the terms of this agreement, if the conversion option is not
exercised by December 31, 1997, the loan will bear interest at 12% per annum
from the date of issue. The outstanding balance of this loan as of December 31,
1996, was $1,654,000. In March 1997, the Company and the note holders agreed to
convert the debt into 377,580 shares of Series D preferred stock and the
accompanying consolidated financial statements
F-11
<PAGE> 70
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
have been retroactively restated to reflect the conversion as if the conversion
had been completed as of March 31, 1997.
In connection with this loan agreement, the Company issued 22,652 warrants
to purchase Series D preferred stock at $5.72 per share. The fair value of these
warrants was not significant.
Stockholder Loans
Loans from stockholders accrue interest at 8.5% per annum. These loans from
stockholders are due on demand.
Convertible Notes Payable
In August 1994, certain stockholders advanced the Company loans totaling
$2,059,000. In June 1995, these loans and accrued interest of approximately
$242,000 were converted into Series B preferred stock.
4. STOCKHOLDERS' DEFICIT
Convertible Preferred Stock
As of December 31, 1996, the Company was authorized to issue 6,000,000
shares of convertible preferred stock, with a par value of $0.001. The Company
has designated 854,038 shares as convertible Series A and 1,211,914 shares as
convertible Series B.
In March 1997, the Company issued 388,284 shares of Series D redeemable
convertible preferred stock for proceeds of $2,221,000 and 463,285 shares of
Series E redeemable convertible preferred stock for proceeds of $2,650,000.
The rights and preferences of the holders of preferred stock are as
follows:
- Holders of preferred stock are entitled to noncumulative dividends when
and as declared by the Company's Board of Directors. Dividends are
distributable among all holders of preferred stock and common stock in
proportion to the number of shares of common stock which would be held by
each such holder if all shares of preferred stock were converted into
common stock.
- Holders of Series B, C, D, and E preferred stock have a liquidation
preference of $3.83, $4.29, $5.72 and $5.72 per share, respectively, plus
any declared but unpaid dividends.
- Holders of Series A, B, C, D, and E preferred stock may convert all or
part of their shares at any time after the date of issuance into such
number of shares of common stock as is determined by dividing $1.75,
$3.83, $4.29, $5.72 and $5.72, respectively, by the conversion price in
effect at the time.
- Holders of Series B, C, D, and E preferred stock have the right to
require the Company to redeem the then outstanding shares if the Company
has not made a public offering of its common stock pursuant to an
effective registration statement under the Securities Act of 1933 on or
before June 30, 1999, February 28, 2000, December 31, 2001 and February
28, 2002, respectively. An amount equal to the respective shares'
liquidation preference plus 6% compounded interest per annum on such
amount from the date of issuance shall be paid to the holders of such
preferred stock subject to certain provisions of the stock purchase
agreement.
F-12
<PAGE> 71
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
In connection with the issuance of Series D redeemable convertible
preferred stock, the Company issued 28,539 warrants to purchase Series D
preferred stock at $5.72 per share to a stockholder. The fair value of these
warrants was not significant.
Stock Options
In October 1995, the Company authorized issuance of 376,443 options. The
options generally vest over a 4-year period, 25% vesting on the first
anniversary date of the employees' date of employment and 1/48th vesting each
additional full month thereafter, and are exercisable for a term of 10 years
after issuance. During July 1996, the number of shares authorized to be issued
was increased to 1,030,097 shares.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES -----------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, 1995............ -- -- $ --
Shares reserved........................ 376,443 -- --
Options granted........................ (283,073) 283,073 0.10
-------- --------
Balances as of December 31, 1995......... 93,370 283,073 0.10
Shares reserved........................ 653,654 --
Options granted........................ (732,270) 732,270 0.10
Options canceled....................... 81,627 (81,627) 0.10
-------- --------
Balances as of December 31, 1996......... 96,381 933,716 0.10
Options exercised...................... -- (575,542) 0.10
Shares assumed under 1997 Stock Plan... (96,381) --
-------- --------
Balances as of March 31, 1997............ -- 358,174 $0.10
======== ========
</TABLE>
As of December 31, 1996, 480,414 options were fully vested and exercisable.
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25 and, accordingly, no compensation cost has been recognized for
its stock options in the accompanying consolidated financial statements because
the fair value of the underlying common stock equals or exceeds the exercise
price of the stock options at the date of grant, except with respect to the
options and restricted stock granted in July and October 1996. The Company has
recorded deferred stock compensation of $377,000 for the difference at the grant
date between the exercise price and the fair value, as determined by an
independent valuation, of the restricted stock and the common stock underlying
the options. This amount is being amortized on the straight-line basis over the
vesting period of the individual options and restricted stock, generally four
years. For the year ended December 31, 1996, the Company expensed approximately
$153,000 of the deferred stock compensation reflecting the commencement of
vesting from the date of employment. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's compensation charge would have been $145,000, and the
Company's net loss would have been changed to the pro forma amounts indicated
below (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net loss:
As reported.................................... $(2,926) $(1,110)
Pro forma...................................... (2,926) (1,102)
</TABLE>
F-13
<PAGE> 72
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
The per share weighted-average fair value of stock options granted during
1995 and 1996 was $0.02 and $0.54, respectively, on the date of grant using the
minimum value method with the following weighted-average assumptions:
1995 -- expected dividend yield 0.0%, risk-free interest rate of 5.79%, expected
life of 4 years and remaining average contractual life of 9 years;
1996 -- expected dividend yield 0.0%, risk-free interest rate of 6.32%, expected
life of 4 years and remaining average contractual life of 10 years.
5. GEOGRAPHIC INFORMATION
Information regarding operations in different geographic regions is as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated
customers:
Europe......................... $ 5,319 $ 8,848 $11,289 $ 2,459 $ 3,177
United States.................. 1,127 9,218 10,231 1,798 1,188
------- ------- ------- ------ -------
$ 6,446 $18,066 $21,520 $ 4,257 $ 4,365
======= ======= ======= ====== =======
Transfers between geographic
areas
(eliminated in consolidation):
Europe......................... $ 1,207 $ 8,608 $ 6,241 $ 1,030 $ 1,012
United States.................. -- -- -- -- --
------- ------- ------- ------ -------
$ 1,207 $ 8,608 $ 6,241 $ 1,030 $ 1,012
======= ======= ======= ====== =======
Income (loss) from operations:
Europe......................... $ (683) $ (907) $(1,144) $ (620) $ (49)
United States.................. (924) (1,693) 164 113 (427)
------- ------- ------- ------ -------
$(1,607) $(2,600) $ (980) $ (507) $ (476)
======= ======= ======= ====== =======
Identifiable assets:
Europe......................... $ 2,532 $ 4,168 $ 6,912 $ 6,009
United States.................. 920 3,975 4,547 7,365
------- ------- ------- -------
$ 3,452 $ 8,143 $11,459 $13,374
======= ======= ======= =======
</TABLE>
The Company's European operations are in Germany and France. Intercompany
transfers between geographic areas are accounted for using the transfer prices
in effect for subsidiaries.
6. INCOME TAXES
As of December 31, 1996, SCM Microsystems GmbH had German net operating
loss carryforwards of approximately $4,600,000, which can be used to offset
GmbH's income. The German net operating loss carryforwards can be carried
forward indefinitely.
SCM Microsystems, Inc. had net operating loss carryforwards of
approximately $1,900,000 and $800,000 for federal and California income tax
purposes, respectively. The federal net operating loss carryforwards will expire
in the years 2008 through 2010. The California net operating loss carryforwards
will expire in the years 1998 through 2000.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift in the
ownership of the Company, which constitutes an "ownership change" as defined by
the Internal Revenue Code, Section 382. An ownership change occurred in 1996,
F-14
<PAGE> 73
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
resulting in the U.S. subsidiary's federal and California net operating loss
carryforwards being subject to an annual limitation of approximately $340,000.
Any unused annual limitations may be carried forward to increase the limitations
in subsequent years.
The domestic and foreign components of net income (loss) before income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic.................................... $ (924) $(1,693) $ 133
Foreign..................................... (944) (1,233) (1,243)
------- ------- -------
Net loss.......................... $(1,868) $(2,926) $(1,110)
======= ======= =======
</TABLE>
The Company has a deferred tax asset as of December 31, 1995 and 1996, of
approximately $1,100,000 and $2,200,000, which is fully offset by a valuation
allowance. The deferred tax asset principally results from the net operating
loss carryforwards. The Company has provided a valuation allowance due to the
uncertainty of generating future profits that would allow for the realization of
such deferred tax assets.
7. COMMITMENTS
The Company leases its facilities, certain equipment, and automobiles under
noncancelable operating lease agreements. These lease agreements expire at
various dates during the next four years. Rent expense was $251,000, $343,000,
and $467,000 in 1994, 1995, 1996, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------------------------------------
<S> <C>
1997........................................... $ 440
1998........................................... 399
1999........................................... 303
2000........................................... 54
------
Total minimum lease payments............ $1,196
======
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company purchased inventory under transactions negotiated on a basis
comparable to an arm's length basis totaling $3,478,000 and $3,294,000 in 1995
and 1996, respectively, from a stockholder. Included in accounts payable are
amounts owed this stockholder of $925,000 and $396,000 as of December 31, 1995
and 1996, respectively.
F-15
<PAGE> 74
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
9. MAJOR CUSTOMERS AND SALES INFORMATION
A summary of the net sales to major customers that exceeded 10% of total
net sales during each of the years in the three-year period ended December 31,
1996, and the amount due from these customers as of December 31, 1996, follows
(accounts receivable in thousands):
<TABLE>
<CAPTION>
ACCOUNTS
1994 1995 1996 RECEIVABLE
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Customer 1................................ -- -- 12% $ 346
Customer 2................................ -- -- 11% 1,326
Customer 3................................ -- 17% -- --
Customer 4................................ -- 16% -- --
Customer 5................................ 12% -- -- --
Customer 6................................ 11% -- -- 109
</TABLE>
During 1994, 1995, and 1996, net sales of PCMCIA peripheral products
amounted to 78%, 31%, and 23%, respectively, of sales. As discussed in Note 1,
during 1996, the Company phased out of these products.
10. SUBSEQUENT EVENTS
Series F Preferred Stock Financing
In April 1997, the Company issued 849,790 shares of Series F redeemable
convertible preferred stock for proceeds of $6,991,199, of which 34,965 shares
are subject to repurchase rights. The rights and preferences of Series F
preferred stock are substantially the same as the rights and preferences
underlying the holders of Series B, C, D, and E preferred stock with the
following exceptions:
- The liquidation preference of Series F shall be $8.58.
- Holders of Series F preferred stock may convert all or part of their
shares at any time after the date of issuance into such number of shares
of common stock as is determined by dividing $8.58 by the conversion
price in effect at the time.
- Holders of Series F preferred stock have the right to require the Company
to redeem the then outstanding shares if the Company has not made a
public offering of its common stock pursuant to an effective registration
statement under the Securities Act of 1933 on or before March 28, 2002.
Pursuant to the terms of the Series F Preferred Stock Purchase Agreement,
the Company issued a warrant for the purchase of an additional 194,930 shares of
Series F preferred stock at a price of $8.58 per share to one of the purchasers
of Series F preferred stock ("the warrant holder"). This warrant was issued as
partial consideration for the warrant holder entering into a Development and
Supply Agreement with the Company, which was executed effective April 30, 1997.
The fair value of these warrants was not significant.
In conjunction with the designation of Series F preferred stock, the
Company approved an increase to the authorized number of shares of common stock
and preferred stock to 40,000,000 shares and 10,000,000 shares, respectively.
Employee Stock Plans
1997 Stock Plan
In April 1997, the Company's stockholders approved the 1997 Stock Plan (the
1997 Plan) under which employees and consultants may be granted incentive or
nonqualified stock options for the purchase of the Company's common stock and
stock purchase rights. Unless terminated sooner, the 1997 Plan will terminate
F-16
<PAGE> 75
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
automatically in 2007. A total of 1,000,000 shares of common stock are currently
reserved for issuance pursuant to the 1997 Plan.
1997 Employee Stock Purchase Plan
In April 1997, the Company's stockholders approved the 1997 Employee Stock
Purchase Plan which authorizes the issuance of up to 175,000 shares of the
Company's common stock. The plan permits eligible employees to purchase common
stock through payroll deductions at a purchase price of 85% of the lower of fair
market value of the common stock at the beginning or end of each offering
period.
1997 Director Option Plan
In April 1997, the Company's stockholders approved the 1997 Director Option
Plan (the Director Plan). A total of 50,000 shares of common stock has been
reserved for issuance under the Director Plan. Each outside director of the
Company will automatically be granted an option to purchase up to 10,000 shares
of common stock upon the effective date of the Director Plan and will
automatically be granted annual subsequent options to purchase additional shares
of common stock under the Director Plan. The price of stock purchased under the
Director Plan is 100% of the fair market value of the common stock as of the
grant date.
Legal Proceedings
On April 28, 1997, a third party served the Company with a complaint
alleging that certain of the Company's products infringe certain claims of a
French patent held by the third party. While the outcome of any litigation is
uncertain, management of the Company believes that, based upon the defenses
available to the Company and the third party's stated licensing position, the
matter can be resolved without material adverse effect on the Company's results
of operations.
F-17
<PAGE> 76
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED.)
11. PRO FORMA INFORMATION (UNAUDITED)
The following table reflects the pro forma adjustments in the accompanying
consolidated balance sheet (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------
--------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................. $ 4,946 $ 6,991(c) $11,937
Other current assets................................. 7,600 -- 7,600
------- -------- -------
Total current assets.............................. 12,546 6,991 19,537
Other noncurrent assets................................ 828 -- 828
------- -------- -------
Total assets...................................... $ 13,374 $ 6,991 $20,365
======= ======== =======
Total liabilities...................................... $ 5,570 $ -- $ 5,570
Redeemable convertible preferred stock................. 14,554 (14,554)(a) --
Stockholders' equity (deficit):
Convertible preferred stock.......................... 1 (1)(b) --
Common stock......................................... 2 5(a)(b)(c) 7
Additional paid-in capital........................... 2,444 21,541(a)(b)(c) 23,985
Deferred stock compensation.......................... (204) -- (204)
Accumulated deficit.................................. (8,649) -- (8,649)
Cumulative translation adjustment.................... (344) -- (344)
------- -------- -------
Total stockholders' equity (deficit).............. (6,750) 21,545 14,795
------- -------- -------
Total liabilities and stockholders' equity
(deficit).................................. $ 13,374 $ 6,991 $20,365
======= ======== =======
</TABLE>
- ---------------
(a) Gives effect to the conversion of the Company's Series B, C, D, and E
redeemable convertible preferred stock into 1,211,914, 653,642, 765,864, and
463,285 shares, respectively, of common stock.
(b) Gives effect to the conversion of the Company's convertible preferred Series
A stock into 854,038 shares of common stock.
(c) Gives effect to the subsequent offering and conversion into common of
849,790 shares of Series F convertible preferred stock (see Note 10).
F-18
<PAGE> 77
APPENDIX
DESCRIPTION OF GRAPHICS
1 Inside Front Cover:
Picture depicts the major products provided by the Company and its customers to
implement security solutions using existing infrastructure, the Company's
products and third party hardware, software and systems.
2 Gatefold:
Picture depicts the market and product evolution of secured digital data access
and delivery in the corporate and consumer marketplaces, and the convergence of
these markets and products as facilitated by the Company's products, its OEM
partners and standards-setting organizations in which the Company actively
participates.
3 Inside Back Cover:
Picture depicts the Company's products and the consumer and corporate digital
systems (e.g., set-up boxes and network computers) utilizing these products.
4 Data Security "Patchwork":
Picture on page 28 depicts the different methods of data security implemented by
enterprise networks in order to accommodate the problems presented by different
information sources and types of users.
5 Securing Digital Video Broadcasts:
Picture on page 31 depicts the role of a Digital Video Broadcasting-Conditional
Access Module in securing digital video broadcasts and the different services
which such module enables.
<PAGE> 78
============================================================
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, ANY OF THE UNDERWRITERS OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, OF ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Selected Consolidated Financial Data....... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 27
Management................................. 43
Certain Transactions....................... 49
Principal Stockholders..................... 50
Description of Capital Stock............... 52
Shares Eligible for Future Sale............ 53
Underwriting............................... 55
Legal Matters.............................. 56
Experts.................................... 56
Additional Available Information........... 57
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================================================
============================================================
2,750,000 Shares
LOGO
Common Stock
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
HAMBRECHT & QUIST
, 1997
============================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC registration fee.............................................. $ 9,583
NASD filing fee................................................... 3,663
Nasdaq National Market listing fee................................ 25,000
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 350,000
Accounting fees and expenses...................................... 225,000
Directors' and officers' liability insurance...................... 200,000
Blue Sky qualification fees and expenses.......................... 3,000
Transfer agent and registrar fees................................. 5,000
Miscellaneous..................................................... 53,754
--------
Total................................................... $975,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws, as
amended, of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and officers and persons serving in such capacities in
other business enterprises (including, for example, subsidiaries of the
Registrant) at the Registrant's request, to the fullest extent permitted by
Delaware law, including in those circumstances in which indemnification would
otherwise be discretionary; (ii) the Registrant may, in its discretion,
indemnify employees and agents in those circumstances where indemnification is
not required by law; (iii) the Registrant is required to advance expenses, as
incurred, to its directors and officers in connection with defending a
proceeding (except that it is not required to advance expenses to a person
against whom the Registrant brings a claim for breach of the duty of loyalty,
failure to act in good faith, intentional misconduct, knowing violation of law
or deriving an improper personal benefit); (iv) the rights conferred in the
Bylaws, as amended, are not exclusive, and the Registrant is authorized to enter
into indemnification agreements with its directors, officers and employees; and
(v) the Registrant may not retroactively amend the Bylaw provisions in a way
that is adverse to such directors, officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed to
directors and officers by Section 145 of the Delaware General Corporation Law
and the Bylaws, as amended, as well as certain additional procedural
protections.
The indemnification provisions in the Bylaws, as amended, and the
indemnification agreements entered into between the Registrant and its directors
and officers may be sufficiently broad to permit indemnification of the
Registrant's directors and officers for liabilities arising under the Securities
Act.
II-1
<PAGE> 80
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------------------------------------------------------------------- ------
<S> <C>
Form of Underwriting Agreement...................................... 1.1
Form of Amended and Restated Certificate of Incorporation prior to
completion of this offering....................................... 3.1
Form of Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering........................ 3.2
Bylaws, as amended.................................................. 3.3
Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers................. 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From January 1, 1994 through May 31, 1997 the Registrant has issued and
sold the following securities:
(i) the Registrant issued and sold 3,944,495 shares of Preferred Stock at
purchase prices ranging from $3.83 to $8.58 for aggregate consideration of
approximately $21,382,000; and
(ii) the Registrant issued and sold 549,934 shares of Common Stock to
employees and consultants at an exercise price of $0.10 for aggregate
consideration of approximately $55,000.
The issuances referred to in paragraph (i) were deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to information
about the Registrant. The issuances of Common Stock described in paragraph (ii)
above were deemed exempt from registration under the Securities Act in reliance
upon Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Certificate of Incorporation of Registrant to be
effective prior to the completion of this offering.
3.2 Form of Fourth Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering.
3.3 Bylaws, as amended, of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued.
9.1 Voting Trust Agreement with Nicholas Efthymiou.
9.2 Voting Trust Agreement with Reiner Pohl.
10.1 Form of Director and Officer Indemnification Agreement.
10.2 1997 Stock Plan.
10.3 1997 Employee Stock Purchase Plan.
10.4* 1997 Director Option Plan.
10.5 1997 Stock Option Plan for French Employees.
10.6 1997 Employee Stock Purchase Plan for Non-U.S. Employees.
10.7 Partnership Agreement, dated June 8, 1995, between Registrant and
Technologie-Beteiligungs-GmbH of Deutsche Ausgleichsbank.
10.8 Continuing Guarantee, dated January 15, 1997, between Registrant and
Imperial Bank.
10.9 Line of Credit, dated October 23, 1996, between Registrant and Deutsche
Bank.
10.10 Line of Credit, dated December 3, 1996, between Registrant and BHF Bank.
10.11 Line of Credit, dated November 11, 1996, between Registrant and
Stadtsparkasse Munchen.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------------
<S> <C>
10.12 Lease, dated September 29, 1994, between Registrant and Los Gatos Business
Park.
10.13 Sublease Agreement, dated December 17, 1996, between Intermart Systems, Inc.
and Registrant.
10.14 Lease, dated September 30, 1994, between Registrant and Olbrich Franz.
10.15 Amended and Restated Stockholders' Agreement, dated April 11, 1997, between
Registrant and certain investors.
10.16 Form of Employment Agreement between SCM GmbH and Messrs. Schneider and
Meier.
10.17 Employment Agreement, dated May 15, 1995, between Registrant and Jean-Yves
Le Roux.
10.18+ Commitment Instrument, dated August 7, 1996, among France Telecom, Matra
Communication, Registrant and Matra MHS.
10.19* Teaming Agreement, dated October 6, 1995, between Temic/Matra MHS, Matra
Communication and Registrant.
10.20* Final Agreement, dated February 11, 1997, between SCM Microsystems GmbH and
Matra Communications S.A.S.
10.21* Development Agreement, dated March 6, 1997, between Intel Corporation and
Registrant.
10.22+ Technology Development and License Agreement, dated September 27, 1996,
between Registrant and Sun Microsystems, Inc.
10.23 Cooperation Contract, dated March 25, 1996, between Registrant and Stocko
Metallwarenfabriken Henkels and Sohn GmbH & Co.
10.24* Development and Supply Agreement, dated October 9, 1996, between BetaDigital
Gesellschaft fur digitale Fernsehdienste mbH and Registrant.
10.25 Framework Contract, dated December 23, 1996, between Siemens Nixdorf
Informationssysteme AG and Registrant.
10.26* Individual contract, dated December 23, 1996, between Siemens Nixdorf
Informationssysteme AG and Registrant.
10.27+ B-1 License and Know-How Contract, dated September 4, 1996, between Deutsche
Telekom AG and Registrant, as amended.
10.28* Technology license agreement, dated , 1997, between Wolfgang
Neifer and Registrant.
10.29+ Patent License Agreement, dated November 15, 1995, between MIPS Dataline
America, Inc. and Registrant.
10.30* Development and Supply Agreement, dated May 15, 1997, between Telenor Conax
and Registrant.
10.31+ Manufacturer's Sales Representative Agreement, dated December 8, 1994,
between Registrant and AGM.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Certified Public Accountants
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. sec.sec. 200.80(b)(4), 200.83 and 230.46.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
II-3
<PAGE> 82
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California Corporation Law, the Registrant's
Certificate of Incorporation, as amended, the Registrant's Bylaws, as amended,
the Registrant's indemnification agreements or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los Gatos,
State of California, on this 12th day of June 1997.
SCM MICROSYSTEMS, INC.
By: /s/ STEVEN HUMPHREYS
------------------------------------
Steven Humphreys
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven Humphreys and John Niedermaier,
and each of them singly, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- --------------------------- --------------
<C> <S> <C>
/s/ STEVEN HUMPHREYS President and Chief June 12, 1997
- ----------------------------------------------- Executive Officer
Steven Humphreys (Principal Executive
Officer) and Director
/s/ JOHN NIEDERMAIER Vice President, Finance and June 12, 1997
- ----------------------------------------------- Chief Financial Officer
John Niedermaier (Principal Financial and
Accounting Officer)
/s/ ROBERT SCHNEIDER Chairman of the Board June 12, 1997
- -----------------------------------------------
Robert Schneider
/s/ BERND MEIER Chief Operations Officer June 12, 1997
- ----------------------------------------------- and Director
Bernd Meier
/s/ FRIEDRICH BORNIKOEL Director June 12, 1997
- -----------------------------------------------
Friedrich Bornikoel
/s/ BRUCE GRAHAM Director June 12, 1997
- -----------------------------------------------
Bruce Graham
/s/ RANDALL LUNN Director June 12, 1997
- -----------------------------------------------
Randall Lunn
/s/ POH CHUAN NG Director June 12, 1997
- -----------------------------------------------
Poh Chuan Ng
/s/ ANDREW VOUGHT Director June 12, 1997
- -----------------------------------------------
Andrew Vought
</TABLE>
II-5
<PAGE> 84
SCM MICROSYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS:
BEGINNING OF WRITE OFFS BALANCE AT
CLASSIFICATION PERIOD ADDITIONS OF ACCOUNTS END OF PERIOD
- --------------------------------------------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for returns and doubtful accounts
Year ended December 31, 1994..................... -- 28 -- 28
Year ended December 31, 1995..................... 28 65 -- 93
Year ended December 31, 1996..................... 93 159 42 210
Quarter ended March 31, 1997..................... 210 -- 7 203
Warranty accrual
Year ended December 31, 1994..................... -- -- -- --
Year ended December 31, 1995..................... -- 28 -- 28
Year ended December 31, 1996..................... 28 75 -- 103
Quarter ended March 31, 1997..................... 103 105 -- 208
</TABLE>
II-6
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
----------- -----------------------------------------------------------------
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Certificate of Incorporation of
Registrant to be effective prior to the completion of this
offering.
3.2 Form of Fourth Amended and Restated Certificate of Incorporation
to be effective upon completion of this offering.
3.3 Bylaws, as amended, of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued.
9.1 Voting Trust Agreement with Nicholas Efthymiou.
9.2 Voting Trust Agreement with Reiner Pohl.
10.1 Form of Director and Officer Indemnification Agreement.
10.2 1997 Stock Plan.
10.3 1997 Employee Stock Purchase Plan.
10.4* 1997 Director Option Plan.
10.5 1997 Stock Option Plan for French Employees.
10.6 1997 Employee Stock Purchase Plan for Non-U.S. Employees.
10.7 Partnership Agreement, dated June 8, 1995, between Registrant and
Technologie-Beteiligungs-GmbH of Deutsche Ausgleichsbank.
10.8 Continuing Guarantee, dated January 15, 1997, between Registrant
and Imperial Bank.
10.9 Line of Credit, dated October 23, 1996, between Registrant and
Deutsche Bank.
10.10 Line of Credit, dated December 3, 1996, between Registrant and
BHF Bank.
10.11 Line of Credit, dated November 11, 1996, between Registrant and
Stadtsparkasse Munchen.
10.12 Lease, dated September 29, 1994, between Registrant and Los Gatos
Business Park.
10.13 Sublease Agreement, dated December 17, 1996, between Intermart
Systems, Inc. and Registrant.
10.14 Lease, dated September 30, 1994, between Registrant and Olbrich
Franz.
10.15 Amended and Restated Stockholders' Agreement, dated April 11,
1997, between Registrant and certain investors.
10.16 Form of Employment Agreement between SCM GmbH and Messrs.
Schneider and Meier.
10.17 Employment Agreement, dated May 15, 1995, between Registrant and
Jean-Yves Le Roux.
10.18+ Commitment Instrument, dated August 7, 1996, among France
Telecom, Matra Communication, Registrant and Matra MHS.
10.19* Teaming Agreement, dated October 6, 1995, between Temic/Matra
MHS, Matra Communication and Registrant.
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
----------- -----------------------------------------------------------------
<S> <C> <C>
10.20* Final Agreement, dated February 11, 1997, between SCM
Microsystems GmbH and Matra Communications S.A.S.
10.21* Development Agreement, dated March 6, 1997, between Intel
Corporation and Registrant.
10.22+ Technology Development and License Agreement, dated September 27,
1996, between Registrant and Sun Microsystems, Inc.
10.23 Cooperation Contract, dated March 25, 1996, between Registrant
and Stocko Metallwarenfabriken Henkels and Sohn GmbH & Co.
10.24* Development and Supply Agreement, dated October 9, 1996, between
BetaDigital Gesellschaft fur digitale Fernsehdienste mbH and
Registrant.
10.25 Framework Contract, dated December 23, 1996, between Siemens
Nixdorf Informationssysteme AG and Registrant.
10.26* Individual contract, dated December 23, 1996, between Siemens
Nixdorf Informationssysteme AG and Registrant.
10.27+ B-1 License and Know-How Contract, dated September 4, 1996,
between Deutsche Telekom AG and Registrant, as amended.
10.28* Technology license agreement, dated , 1997, between
Wolfgang Neifer and Registrant.
10.29+ Patent License Agreement, dated November 15, 1995, between MIPS
Dataline America, Inc. and Registrant.
10.30* Development and Supply Agreement, dated May 15, 1997, between
Telenor Conax and Registrant.
10.31+ Manufacturer's Sales Representative Agreement, dated December 8,
1994, between Registrant and AGM.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. sec.sec. 200.80(b)(4), 200.83 and 230.46.
<PAGE> 1
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SCM MICROSYSTEMS, INC.
SCM Microsystems, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on December 13, 1996.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors of
the Corporation.
THIRD: This Amended and Restated Certificate of Incorporation was
approved by the written consent of the stockholders of the Corporation in
accordance with the provisions of Section 228 for the General Corporation Laws
of the State of Delaware.
FOURTH: The Certificate of Incorporation of this Corporation, as
amended and restated, is hereby amended and restated in its entirety to read as
follows:
"I.
The name of this corporation is SCM Microsystems, Inc. (hereinafter
sometimes referred to as the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of
Dover, County of Kent. The name of the registered agent at that address is
Incorporating Services, Ltd.
<PAGE> 2
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
IV.
The Corporation is authorized to issue two classes of shares, designated
"Preferred Stock" and "Common Stock." The total number of shares which the
Corporation shall have authority to issue is 50,000,000 of which 40,000,000
shares shall be Common Stock at $.001 par value and 10,000,000 shares shall be
Preferred Stock at $.001 par value. Of the shares of Preferred Stock, 854,038
shall be designated "Series A Preferred Stock," 1,211,914 shall be designated
"Series B Preferred Stock," 653,642 shall be designated "Series C Preferred
Stock," 857,162 shall be designated "Series D Preferred Stock," 463,285 shall be
designated "Series E Preferred Stock" and 1,600,000 shall be designated "Series
F Preferred Stock."
Undesignated shares of Preferred Stock authorized by this Certificate of
Incorporation may be issued from time to time in one or more series. For any
wholly unissued series of Preferred Stock, the Board of Directors of the
Corporation (the "Board of Directors") is authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them.
For any series of Preferred Stock having issued and outstanding shares,
the Board of Directors is also authorized to decrease the number of shares of
any series of Preferred Stock prior or subsequent to the issuance of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status of undesignated Preferred
Stock.
Effective upon conversion of all shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock, the authorized shares of
such Preferred Stock shall be converted into undesignated Preferred Stock on a
one-for-one basis, as set forth in Section 3(h) of this Article IV.
A statement of the rights, preferences, privileges and restrictions
granted to or imposed on the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock and the holders thereof is as set forth below in this
Article IV. The Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock are sometimes collectively referred to herein as the "Preferred
Stock."
1. Dividends. Any dividends declared shall be distributed among
all holders of Preferred Stock and all holders of Common Stock in proportion to
the number of shares of Common Stock which would be held by each such holder if
all shares of Preferred Stock were converted into Common Stock at the then
effective Conversion Price (as defined in Section 3(a) below). In the event that
the Corporation shall have declared but unpaid dividends outstanding immediately
prior
-2-
<PAGE> 3
to, and in the event of, a conversion of Preferred Stock (as provided in Section
3 hereof), the Corporation shall, at the option of each holder, pay in cash to
each holder of Preferred Stock subject to conversion the full amount of any such
dividends or allow such dividends to be converted into Common Stock in
accordance with, and pursuant to the terms specified in, Section 3 hereof.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series A Preferred Stock
and the Common Stock by reason of their ownership thereof, the amounts of $3.83,
$4.29, $5.72, $5.72 and $8.58 (as adjusted for any stock dividends, stock
splits, stock combinations, recapitalizations or the like with respect to such
shares), respectively, plus all accrued or declared but unpaid dividends on such
share, for each share of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
then held by them (the "Liquidation Preference"). If, upon occurrence of such
event the assets and funds thus distributed among the holders of the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock shall be insufficient to permit the
payment to such holders of the full preferential amount, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock in proportion to the full amount which they would be entitled to
receive under this Section 2(a).
(b) After payment has been made to the holders of the
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock of the Liquidation
Preference, the holders of the Series A Preferred Stock and the Common Stock
shall be entitled to receive the remaining assets of the Corporation, if any, in
proportion to the number of shares of Common Stock which would be held by each
such holder if all shares of Series A Preferred Stock were converted into Common
Stock at the then effective Conversion Price (as defined in Section 3(a) below).
(c) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, and to include, (i) the Corporation's sale of all or substantially all of
its assets or (ii) any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) which will
result in the holders of the outstanding voting equity securities of the
Corporation immediately prior to such transaction holding less than 50% of the
voting equity securities of the surviving entity immediately following such
transaction.
3. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Automatic Conversion. Each
share of Preferred Stock shall be convertible, at the option of the holder
thereof, at any time into such number of fully
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paid and nonassessable shares of Common Stock as is determined by dividing (i)
in the case of Series A Preferred Stock, $1.75, (ii) in the case of Series B
Preferred Stock, $3.83, (iii) in the case of the Series C Preferred Stock,
$4.29, (iv) in the case of the Series D Preferred Stock, $5.72, (v) in the case
of the Series E Preferred Stock, $5.72 and (vi) in the case of Series F
Preferred Stock, $8.58, by the Conversion Price for such share of Preferred
Stock, determined as hereinafter provided, in effect at the time of conversion.
The initial conversion price per share is (i) in the case of Series A Preferred
Stock, $1.75, (ii) in the case of Series B Preferred Stock, $3.83, (iii) in the
case of the Series C Preferred Stock, $4.29, (iv) in the case of the Series D
Preferred Stock, $5.72, (v) in the case of Series E Preferred Stock, $5.72 and
(iv) in the case of the Series F Preferred Stock $8.58. The term "Conversion
Price" as used herein shall refer to the respective conversion price of each
series of Preferred Stock. Such initial Conversion Prices shall be subject to
adjustment as provided in Section 3(c) below.
Each share of Preferred Stock shall automatically be converted
into shares of Common Stock at the then effective applicable Conversion Price
(i) in the event of the effectiveness of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering the offer and sale of
Common Stock for the account of the Corporation to the public at an aggregate
offering price to the public of not less than $20,000,000 and, in the case of
the Series E Preferred Stock only, a price per share to the public of not less
than $12.00 (adjusted to reflect stock dividends, stock splits, stock
combinations, recapitalizations or the like). In the event of such an offering,
the person(s) entitled to receive the Common Stock issuable upon such conversion
of Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such underwritten public offering.
(b) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
share to which a holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market value of the Common
Stock as determined by the Board of Directors. Before any holder of Preferred
Stock shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that he elects to
convert the same. Such notice shall also state whether the holder elects,
pursuant to Section 1 hereof, to receive declared but unpaid dividends on the
Preferred Stock proposed to be converted into cash, or to convert such dividends
into shares of Common Stock at their fair market value as determined by the
Board of Directors. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which it
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as the result of a conversion into a fractional
share of Common Stock, and any declared but unpaid dividends on the converted
Preferred Stock which the holder elected to receive in cash. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the conversion is in
connection with an underwritten public offering of securities registered
pursuant to the Securities Act, the
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conversion shall be conditioned upon the closing of such public offering, in
which event the person(s) entitled to receive the Common Stock issuable upon
such conversion of the Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to such closing.
(c) Conversion Price Adjustments. The Conversion Price from
time to time in effect shall be subject to adjustment from time to time as
follows:
(i) In the event the Corporation shall pay a stock
dividend on the Common Stock, or the outstanding shares of Common Stock shall be
subdivided, combined or consolidated, by reclassification or otherwise, into a
greater or lesser number of shares of Common Stock, the Conversion Price in
effect immediately prior to such subdivision or combination shall, concurrently
with the effectiveness of such subdivision, combination or consolidation, be
proportionately adjusted.
(ii) If at any time after the date this Certificate of
Incorporation is filed the Corporation shall issue or sell Equity Securities, as
defined in below, at a consideration per share less than the Conversion Price
for a share of Preferred Stock in effect immediately prior to the time of such
issue or sale, then forthwith upon such issue or sale, the Conversion Price of
such share of Preferred Stock shall be adjusted to a price (calculated to the
nearest cent) determined by dividing:
(1) an amount equal to the sum of (x) the number
of shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then-existing Conversion Price, (y) the number of shares of
Common Stock issuable upon conversion or exchange of any obligations or of any
shares of stock of the Corporation outstanding immediately prior to such issue
or sale multiplied by the then-existing Conversion Price, and (z) an amount
equal to the aggregate "consideration actually received" by the Corporation upon
such issue or sale, by
(2) an amount equal to the sum of (x) the number
of shares of Common Stock outstanding immediately after such issue or sale, (y)
the number of shares of Common Stock issuable upon conversion or exchange of any
obligations or of any shares of stock of the Corporation outstanding immediately
prior to such issue or sale and (z) the additional shares of Common Stock issued
or issuable upon conversion or exchange of the Equity Securities issued in such
issuance or sale.
For purposes hereof the following provisions shall be applicable:
(A) The term "Equity Securities" shall mean any shares of Common Stock,
or any obligation, any share of stock or other security of the Corporation
convertible into or exchangeable for Common Stock except for (1) Common Stock
issued or issuable to officers, directors, employees or consultants of the
Corporation pursuant to stock grant, stock purchase or stock option plans or any
other stock incentive program, agreement or arrangement approved by the Board of
Directors, (2) securities issued pursuant to the acquisition of all or part of
another company by the Corporation by merger or other reorganization, or by the
purchase of all or part of the assets of another company, pursuant to a plan,
agreement or arrangement approved by the Board of Directors, (3) shares issued
pursuant to Section 3(c)(i) of this Article IV, (4) Common Stock or Preferred
Stock issuable upon exercise, conversion or exchange of warrants to purchase
Common Stock or Preferred Stock issued in connection with a bank line, equipment
financing or technology licensing or development
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<PAGE> 6
agreement approved by the Board of Directors, (5) shares of Common Stock or
Preferred Stock reissued by the Corporation following repurchase of such shares
pursuant to any restricted stock purchase agreement, (6) shares of Preferred
Stock or Common Stock issued on conversion of debt outstanding on the date this
Certificate of Incorporation is filed with the Delaware Secretary of State and
(7) shares of Common Stock issued upon conversion of the Preferred Stock.
(B) In the case of an issue or sale for cash of shares of Common Stock,
the "consideration actually received" by the Corporation therefor shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid by the Corporation.
(C) In case of the issuance (otherwise than upon conversion or exchange
of obligations or shares of stock of the Corporation) of additional shares of
Common Stock for a consideration other than cash or a consideration partly other
than cash, the amount of the consideration other than cash received by the
Corporation for such shares shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of Directors.
(D) In case of the issuance by the Corporation in any manner of any
rights to subscribe for or to purchase shares of Common Stock, or any options
for the purchase of shares of Common Stock or stock convertible into Common
Stock, all shares of Common Stock or stock convertible into Common Stock to
which the holders of such rights or options shall be entitled to subscribe for
or purchase pursuant to such rights or options shall be deemed "outstanding" as
of the date of the offering of such rights or the granting of such options, as
the case may be, and the minimum aggregate consideration named in such rights or
options for the shares of Common Stock or stock convertible into Common Stock
covered thereby, plus the consideration, if any, received by the Corporation for
such rights or options, shall be deemed to be the "consideration actually
received" by the Corporation (as of the date of the offering of such rights or
the granting of such options, as the case may be) for the issuance of such
shares.
(E) In case of the issuance or issuances by the Corporation in any
manner of any obligations or of any shares of stock of the Corporation that
shall be convertible into or exchangeable for Common Stock, all shares of Common
Stock issuable upon the conversion or exchange of such obligations or shares
shall be deemed issued as of the date such obligations or shares are issued, and
the amount of the "consideration actually received" by the Corporation for such
additional shares of Common Stock shall be deemed to be the total of (1) the
amount of consideration received by the Corporation upon the issuance of such
obligations or shares, as the case may be, plus (2) the minimum aggregate
consideration, if any, other than such obligations or shares, receivable by the
Corporation upon such conversion or exchange, except in adjustment of dividends.
(F) The amount of the "consideration actually received" by the
Corporation upon the issuance of any rights or options referred to in subsection
(D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (C) above with respect to the consideration received by
the Corporation in case of the issuance of additional shares of Common Stock;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable
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<PAGE> 7
are issued in payment or satisfaction of any dividend upon any stock of the
Corporation other than Common Stock, the amount of the "consideration actually
received" by the Corporation upon the original issuance of such obligations or
shares of stock so convertible or exchangeable shall be deemed to be the fair
value of such obligations or shares of stock, as of the date of the adoption of
the resolution declaring such dividend, as determined by the Board of Directors
at or as of that date. On the expiration of any rights or options referred to in
subsection (D), or the termination of any right of conversion or exchange
referred to in subsection (E), or any change in the number of shares of Common
Stock deliverable upon exercise of such options or rights or upon conversion of
or exchange of such convertible or exchangeable securities, the Conversion Price
then in effect shall forthwith be readjusted to such Conversion Price as would
have obtained had the adjustments made upon the issuance of such option, right
or convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered or to
be delivered upon the exercise of such rights or options or upon the conversion
or exchange of such securities.
(d) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation but will at all times
in good faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Preferred Stock against
impairment.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Preferred Stock.
(f) Notices of Record Date. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders
of any class or series of its stock any additional shares of stock of any class
or series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
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<PAGE> 8
(iv) to merge with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Preferred Stock:
(1) at least 20 days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in clauses (iii) and (iv) above; and
(2) in the case of the matters referred to in
clauses (iii) and (iv) above, at least 20 days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holders of Preferred Stock shares at the
address for each such holder as shown on the books of the Corporation.
(g) Recapitalization. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 2) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion of each share of such series would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3 with respect to the rights of
the holders of the Preferred Stock after the recapitalization to the end that
the provisions of this Section 3 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(h) Status of Converted Stock. In the event any shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
shall be converted pursuant to Section 3 hereof, the shares so converted shall
resume the status of authorized but undesignated Preferred Stock. Upon
conversion of all of the currently outstanding shares of Preferred Stock
pursuant to Section 4 of this Article IV, all of this Article IV, other than the
first four paragraphs, shall be void and deemed to no longer be part of this
Certificate of Incorporation.
4. Voting Rights.
(a) Except as otherwise required by law or as otherwise set
forth in this Section 4, the holders of Preferred Stock and the holders of
Common Stock shall be entitled to notice of any stockholders' meeting and to
vote as a single class upon any matter submitted to the stockholders for
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a vote, as follows: (i) each holder of Preferred Stock shall have one vote for
each full share of Common Stock into which its respective shares of Preferred
Stock would be convertible on the record date for the vote; and (ii) the holders
of Common Stock have one vote per share of Common Stock.
(b) From and after the first date on which shares of Series A
Preferred Stock are issued and outstanding until such time as fewer than 200,000
shares of Series A Preferred Stock are outstanding (as adjusted for any stock
dividends, stock splits, stock combinations, recapitalizations or the like with
respect to such shares), the holders of Series A Preferred Stock, voting as a
single series, shall have the right to elect two (2) directors.
(c) From and after the first date on which shares of Series B
Preferred Stock are issued and outstanding until such time as fewer than 200,000
shares of Series B Preferred Stock are outstanding (as adjusted for any stock
dividends, stock splits, stock combinations, recapitalizations or the like with
respect to such shares), the holders of Series B Preferred Stock, voting as a
single series, shall have the right to elect one (1) director.
(d) From and after the first date on which shares of Series C
Preferred Stock or shares of Series D Preferred Stock are issued and outstanding
until such time as fewer than 200,000 shares of Series C Preferred Stock and
Series D Preferred Stock are outstanding (as adjusted for any stock dividends,
stock splits, stock combinations, recapitalizations or the like with respect to
such shares), the holders of Series C Preferred Stock and the holders of Series
D Preferred Stock, voting together as a single series, shall have the right to
elect one (1) director.
(e) From and after the first date on which shares of Series E
Preferred Stock are issued and outstanding until such time as fewer than 200,000
shares of Series E Preferred Stock are outstanding (as adjusted for any stock
dividends, stock splits, stock combinations, recapitalizations or the like with
respect to such shares), the holders of Series E Preferred Stock, voting as a
single series, shall have the right to elect one (1) director.
(f) From and after the first date on which shares of Series F
Preferred Stock are issued and outstanding until such time as fewer than 300,000
shares of Series F Preferred Stock are outstanding (as adjusted for any stock
dividends, stock splits, stock combinations, recapitalizations or the like with
respect to such shares), the holders of Series F Preferred Stock, voting as a
single series, shall have the right to elect one (1) director.
(g) From and after the first date on which shares of Series A
Preferred Stock , Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock are issued
and outstanding until such time as fewer than 200,000 shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are
outstanding (as adjusted for any stock dividends, stock splits, stock
combinations, recapitalizations or the like with respect to such shares), the
holders of Common Stock, voting as a single series, shall have the right to
elect two (2) directors.
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5. Redemption. Each Series of the Preferred Stock shall be redeemed
in the following circumstances, provided that funds are legally available
therefor:
(a) Corporation's Right to Redeem.
(i) At any time after the date on which this
Certificate of Incorporation is filed with the Delaware Secretary of State, the
Corporation shall have the right, which may only be exercised by a unanimous
vote of the Board of Directors, to redeem shares of Preferred Stock other than
the Series E Preferred Stock, to the extent permitted by law, without the
consent of the affected stockholder(s), upon the occurrence of the following
events:
(1) the attachment by a creditor of the shares
of Preferred Stock to be redeemed by a creditor of the holder of such shares, or
performance of some other form of judicial execution on the shares of Preferred
Stock to be redeemed, if such attachment or execution is not rescinded within
two (2) weeks; or
(2) the filing of a voluntary or involuntary
petition of bankruptcy with respect to the holder of the shares of Preferred
Stock to be redeemed; or
(3) the termination by the Corporation for cause
of the employment or the voluntary resignation from employment by the
Corporation of the holder of the shares of Preferred Stock to be redeemed before
December 31, 1998, provided that only the holders of shares of Preferred Stock
who are full time employees of the Corporation or of a parent or subsidiary of
the Corporation on the date that shares of Preferred Stock are first issued and
outstanding shall be subject to the provisions of this Section 5(a)(i)(3).
(ii) Upon redemption in accordance with this Section
5(a), the Corporation shall set aside for payment to the stockholder(s) whose
shares are being redeemed an amount determined by dividing the greater of (a)
the net consolidated assets of the Corporation (as determined in accordance with
generally accepted accounting principles) and (b) four times the average annual
consolidated net income of the Corporation (as determined in accordance with
generally accepted accounting principles) for the four most recent fiscal years
prior to the date set for redemption, by the number of shares of Preferred Stock
and Common Stock outstanding on the date of such redemption, and multiplying the
resulting number by the number of shares of Preferred Stock to be redeemed.
(iii) The Corporation's right to redeem shares of
Preferred Stock pursuant to this Section 5(a) may be assigned in whole or in
part to any or all stockholders of the Corporation (other than the stockholder
whose shares are to be redeemed) by a unanimous vote of the Board of Directors.
(iv) Any redemption payments, and accrued interest
thereon, made pursuant to this Section 5(a) shall be made in five equal
installments. The first redemption payment for any redemption hereunder shall be
due and payable six months after the date set for redemption in accordance with
this Section 5. Each subsequent payment shall be due and payable six months
after the date on which the previous payment became due and payable. Interest at
the rate of 6% per
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annum, compounded annually, shall accrue on the whole amount of outstanding and
unpaid redemption payments, whether or not due and payable, from the date set
for redemption.
(b) Series B Stockholders' Right of Redemption.
(i) If the Corporation has not made a public offering
of its Common Stock pursuant to an effective registration statement under the
Securities Act or consummated a transaction described in Section 2(c) above, on
or before June 30, 1999, then the holders of outstanding shares of Series B
Preferred Stock shall have the right to require the Corporation to redeem then
outstanding shares of Series B Preferred Stock in accordance with the following
provisions:
(1) Upon the written request of the holders of
at least 15% of the then outstanding shares of Series B Preferred Stock (a
"Series B Written Request"), the Corporation shall notify all other holders of
Series B Preferred Stock, within fifteen (15) days of the receipt of such
request, of their rights under this Section 5(b).
(2) Each holder of Series B Preferred Stock who
did not join in the Series B Written Request shall have four weeks from the date
of mailing of the notice described in Section 5(b)(i)(1) to notify the
Corporation of such holder's interest in participating in the redemption to be
effected pursuant to the Series B Written Request.
(3) Upon expiration of the period set forth in
Section 5(b)(i)(2), the Corporation shall have thirty (30) days to deliver to
each of the holders of Series B Preferred Stock who joined in the Series B
Written Request and to each other holder of Series B Preferred Stock who
responded to the notice described in Section 5(b)(i)(2) by indicating their
interest in participating in the subject redemption cash in the amount of the
full Redemption Price (as defined in Section 5(b)(ii) below) for each share of
Series B Preferred Stock requested to be redeemed in accordance with this
Section 5(b).
(ii) The Redemption Price for each share of Series B
Preferred Stock shall be equal to $3.83 for each share of Series B Preferred
Stock (as adjusted for any stock dividends, stock splits, stock combinations,
recapitalizations or the like with respect to such shares) plus 6% compounded
interest per annum on such amount from the date on which the shares of Series B
Preferred Stock to be redeemed were first issued and outstanding.
(iii) The Corporation may assign its obligation to redeem
shares of Series B Preferred Stock pursuant to this Section 5(b), in whole or in
part, to any stockholder or stockholders of the Corporation not otherwise
participating in the subject redemption upon request of such stockholder or
stockholders and the unanimous approval of the Board of Directors.
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(c) Series C Stockholders' Right of Redemption.
(i) If the Corporation has not made a public offering
of its Common Stock pursuant to an effective registration statement under the
Securities Act, or consummated a transaction described in Section 2(c) above, on
or before February 28, 2000, then the holders of outstanding shares of Series C
Preferred Stock shall have the right to require the Corporation to redeem then
outstanding shares of Series C Preferred Stock in accordance with the following
provisions:
(1) Upon the written request of the holders of
at least 15% of the then outstanding shares of Series C Preferred Stock (a
"Series C Written Request"), the Corporation shall notify all other holders of
Series C Preferred Stock, within fifteen (15) days of the receipt of such
request, of their rights under this Section 5(c).
(2) Each holder of Series C Preferred Stock who
did not join in the Series C Written Request shall have four weeks from the date
of mailing of the notice described in Section 5(c)(i)(1) to notify the
Corporation of such holder's interest in participating in the redemption to be
effected pursuant to the Series C Written Request.
(3) Upon expiration of the period set forth in
Section 5(c)(i)(2), the Corporation shall have thirty (30) days to deliver to
each of the holders of Series C Preferred Stock who joined in the Series C
Written Request and to each other holder of Series C Preferred Stock who
responded to the notice described in Section 5(c)(i)(2) by indicating their
interest in participating in the subject redemption cash in the amount of the
full Redemption Price (as defined in Section 5(c)(ii) below) for each share of
Series C Preferred Stock requested to be redeemed in accordance with this
Section 5(c).
(ii) The Redemption Price for each share of Series C
Preferred Stock shall be equal to $4.29 for each share of Series C Preferred
Stock (as adjusted for any stock dividends, stock splits, stock combinations,
recapitalizations or the like with respect to such shares) plus 6% compounded
interest per annum on such amount from the date on which the shares of Series C
Preferred Stock to be redeemed were first issued and outstanding.
(iii) The Corporation may assign its obligation to redeem
shares of Series C Preferred Stock pursuant to this Section 5(c), in whole or in
part, to any stockholder or stockholders of the Corporation not otherwise
participating in the subject redemption upon request of such stockholder or
stockholders and the unanimous approval of the Board of Directors.
(d) Series D Stockholders' Right of Redemption.
(i) If the Corporation has not made a public offering
of its Common Stock pursuant to an effective registration statement under the
Securities Act or consummated a transaction described in Section 2(c) above, on
or before December 31, 2001, then the holders of outstanding shares of Series D
Preferred Stock shall have the right to require the Corporation to redeem then
outstanding shares of Series D Preferred Stock in accordance with the following
provisions:
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(1) Upon the written request of the holders of
at least 15% of the then outstanding shares of Series D Preferred Stock (a
"Series D Written Request"), the Corporation shall notify all other holders of
Series D Preferred Stock, within fifteen (15) days of the receipt of such
request, of their rights under this Section 5(d).
(2) Each holder of Series D Preferred Stock who
did not join in the Series D Written Request shall have four weeks from the date
of mailing of the notice described in Section 5(d)(i)(1) to notify the
Corporation of such holder's interest in participating in the redemption to be
effected pursuant to the Series D Written Request.
(3) Upon expiration of the period set forth in
Section 5(d)(i)(2), the Corporation shall have thirty (30) days to deliver to
each of the holders of Series D Preferred Stock who joined in the Series D
Written Request and to each other holder of Series D Preferred Stock who
responded to the notice described in Section 5(d)(i)(2) by indicating their
interest in participating in the subject redemption cash in the amount of the
full Redemption Price (as defined in Section 5(d)(ii) below) for each share of
Series D Preferred Stock requested to be redeemed in accordance with this
Section 5(d).
(ii) The Redemption Price for each share of Series D
Preferred Stock shall be equal to $5.72 for each share of Series D Preferred
Stock (as adjusted for any stock dividends, stock splits, stock combinations,
recapitalizations or the like with respect to such shares) plus 6% compounded
interest per annum on such amount from the date on which the shares of Series D
Preferred Stock to be redeemed were first issued and outstanding.
(iii) The Corporation may assign its obligation to redeem
shares of Series D Preferred Stock pursuant to this Section 5(d), in whole or in
part, to any stockholder or stockholders of the Corporation not otherwise
participating in the subject redemption upon request of such stockholder or
stockholders and the unanimous approval of the Board of Directors.
(e) Series E Stockholders' Right of Redemption.
(i) If the Corporation has not made a public offering
of its Common Stock pursuant to an effective registration statement under the
Securities Act or consummated a transaction described in Section 2(c) above, on
or before February 28, 2002 then the holders of outstanding shares of Series E
Preferred Stock shall have the right to require the Corporation to redeem then
outstanding shares of Series E Preferred Stock in accordance with the following
provisions:
(1) Upon the written request of the holders of
at least 15% of the then outstanding shares of Series E Preferred Stock (a
"Series E Written Request"), the Corporation shall notify all other holders of
Series E Preferred Stock, within fifteen (15) days of the receipt of such
request, of their rights under this Section 5(e).
(2) Each holder of Series E Preferred Stock who
did not join in the Series E Written Request shall have four weeks from the date
of mailing of the notice described in Section 5(e)(i)(1) to notify the
Corporation of such holder's interest in participating in the redemption to be
effected pursuant to the Series E Written Request.
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<PAGE> 14
(3) Upon expiration of the period set forth in
Section 5(e)(i)(2), the Corporation shall have thirty (30) days to deliver to
each of the holders of Series E Preferred Stock who joined in the Series E
Written Request and to each other holder of Series E Preferred Stock who
responded to the notice described in Section 5(e)(i)(2) by indicating their
interest in participating in the subject redemption cash in the amount of the
full Redemption Price (as defined in Section 5(e)(ii) below) for each share of
Series E Preferred Stock requested to be redeemed in accordance with this
Section 5(e).
(ii) The Redemption Price for each share of Series E
Preferred Stock shall be calculated as the greater of the amounts resulting from
the application of the following paragraphs:
(1) An amount equal to $5.72 for each share of
Series E Preferred Stock (as adjusted for any stock dividends, stock splits,
stock combinations, recapitalizations or the like with respect to such shares)
plus 6% compounded interest per annum on such amount from the date on which the
shares of Series E Preferred Stock to be redeemed were first issued and
outstanding; or
(2) An amount determined by dividing the
Corporation's average annual consolidated net income (determined in accordance
with generally accepted accounting principles) for the four most recent fiscal
years prior to the date on which the redemption occurs by the total number of
shares of Common Stock and Preferred Stock then outstanding and multiplying the
resulting number by six (6).
(iii) The Corporation may assign its obligation to redeem
shares of Series E Preferred Stock pursuant to this Section 5(e), in whole or in
part, to any stockholder or stockholders of the Corporation not otherwise
participating in the subject redemption upon request of such stockholder or
stockholders and the unanimous approval of the Board of Directors.
(f) Series F Stockholders' Right of Redemption.
(i) If the Corporation has not made a public offering
of its Common Stock pursuant to an effective registration statement under the
Securities Act or consummated a transaction described in Section 2(c) above, on
or before March 28, 2002 then the holders of outstanding shares of Series F
Preferred Stock shall have the right to require the Corporation to redeem then
outstanding shares of Series F Preferred Stock in accordance with the following
provisions:
(1) Upon the written request of the holders of
at least 15% of the then outstanding shares of Series F Preferred Stock (a
"Series F Written Request"), the Corporation shall notify all other holders of
Series F Preferred Stock, within fifteen (15) days of the receipt of such
request, of their rights under this Section 5(f).
(2) Each holder of Series F Preferred Stock who
did not join in the Series F Written Request shall have four weeks from the date
of mailing of the notice described in Section 5(f)(i)(1) to notify the
Corporation of such holder's interest in participating in the redemption to be
effected pursuant to the Series F Written Request.
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<PAGE> 15
(3) Upon expiration of the period set forth in
Section 5(f)(i)(2), the Corporation shall have thirty (30) days to deliver to
each of the holders of Series F Preferred Stock who joined in the Series F
Written Request and to each other holder of Series F Preferred Stock who
responded to the notice described in Section 5(f)(i)(2) by indicating their
interest in participating in the subject redemption cash in the amount of the
full Redemption Price (as defined in Section 5(f)(ii) below) for each share of
Series F Preferred Stock requested to be redeemed in accordance with this
Section 5(f).
(ii) The Redemption Price for each share of Series F
Preferred Stock shall be equal to $8.58 for each share of Series F Preferred
Stock (as adjusted for any stock dividends, stock splits, stock combinations,
recapitalizations or the like with respect to such shares) plus 6% compounded
interest per annum on such amount from the date on which the shares of Series F
Preferred Stock to be redeemed were first issued and outstanding.
(iii) The Corporation may assign its obligation to redeem
shares of Series F Preferred Stock pursuant to this Section 5(f), in whole or in
part, to any stockholder or stockholders of the Corporation not otherwise
participating in the subject redemption upon request of such stockholder or
stockholders and the unanimous approval of the Board of Directors.
(g) If no funds or insufficient funds are legally available at
the time of any redemption pursuant to this Section 5 to redeem all shares of
Preferred Stock set for redemption at such time, then the Corporation shall
redeem all shares of Preferred Stock then due for redemption to the extent
legally permissible, pro rata based on the full amount which the holder of such
shares would be entitled to receive upon redemption of those shares under this
Section 5. Any shares due to be redeemed which are not redeemed pursuant to the
foregoing sentence shall be carried forward and redeemed on the first date on
which the Corporation has funds legally available to effect such redemption to
the full extent of legally available funds of the Corporation at such time.
(h) Immediately upon the occurrence of the date and time set
for redemption by the Board of Directors and the compliance by the Corporation
of its obligations under this Section 5 required to be complied with on such
date, the shares of Preferred Stock to be redeemed shall be canceled and deemed
to be part of the authorized but unissued capital stock of the Corporation.
6. Protective Provisions. In addition to any other rights provided
by law, so long as any Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of (i) the
holders of not less than a majority of the then outstanding shares of the
Preferred Stock voting as a single class and (ii) the holders of not less than a
majority of the then outstanding shares of Series E Preferred Stock voting as a
single class:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or Bylaws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Preferred Stock;
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<PAGE> 16
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Preferred Stock, or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of the Corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock; or
(c) reclassify any Common Stock into shares having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Preferred Stock.
(d) pay any cash dividends on the Common Stock;
(e) redeem or purchase any of the Common Stock, provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock from employees, officers, directors, consultants or other persons
performing services for the Corporation upon the termination of the employment,
consulting or other relationship between the Corporation and such persons;
(f) authorize, approve or consummate a sale of all or
substantially all of the Corporation's assets or any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) which would result in the holders of the outstanding voting
equity securities of the Corporation immediately prior to such transaction
holding less than 50% of the voting equity securities of the surviving entity
immediately following such transaction; or
(g) increase the total number of authorized shares of
Preferred Stock.
7. Residual Rights. All rights accruing to the outstanding shares
of the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
8. Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Preferred Stock shall be deemed to have consented,
for purposes of Section 170 of the Delaware Corporations Code, to distributions
made by the Corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees or consultants upon termination of their
employment or services pursuant to agreements providing for such right of
repurchase between the Corporation and such persons.
V.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the bylaws of the Corporation, the Board of Directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation. Election of directors need not be by written ballot
unless the bylaws so provide.
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<PAGE> 17
VI.
The Board of Directors is authorized to make, adopt, amend, alter or
repeal the bylaws of the Corporation. The stockholders shall also have power to
make, adopt, amend, alter or repeal the bylaws of the Corporation.
VII.
A director of the Corporation shall not 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 General Corporation
Law, or (iv) for any action from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of a director, then the liability of a director of the Corporation,
without any further corporate action on the part of the Corporation, shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
VII by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
VIII.
Effective as of the date (the "Effective Date") on which the Corporation
becomes subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended, stockholders of the Corporation may not take
action by written consent in lieu of a meeting but must take any such action at
a duly called annual or special meeting.
IX.
The number of directors which constitute the entire Board of Directors
shall be as specified in the bylaws of the Corporation. At each annual meeting
of stockholders, directors of the Corporation shall be elected to hold office
until the expiration of the term of which they are elected and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the General Corporation Law of
Delaware.
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<PAGE> 18
Effective as of the date of the first regularly-scheduled annual meeting
of the stockholders following the Effective Date, the directors of the
Corporation shall be divided into three classes as nearly equal in size as is
practicable, hereby designated Class I, Class II and Class III. The term of
office of the initial Class I directors shall expire at the second annual
meeting of the stockholders following the Effective Date, the term of office of
the initial Class II directors shall expire at the third annual meeting of the
stockholders following the Effective Date and the term of office of the initial
Class III directors shall expire at the fourth annual meeting of the
stockholders following the Effective Date. At each annual meeting of
stockholders, commencing with the second regularly-scheduled annual meeting of
stockholders following the Effective Date, each of the successors elected to
replace the directors of a Class whose term shall have expired at such annual
meeting shall be elected to hold office until the third annual meeting next
succeeding his or her election and until his or her respective successor shall
have been duly elected and qualified.
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable,
provided that no decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Any director may be removed from office by the stockholders of the
Corporation only for cause.
Vacancies occurring on the Board of Directors for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled only by vote of a majority of the remaining members of
the Board of Directors, although less than a quorum, at any meeting of the Board
of Directors. A person so elected by the Board of Directors to fill a vacancy or
newly created directorship shall hold office until the next election of the
Class for which such director shall have been chosen and until his or her
successor shall have been duly elected and qualified.
X.
Effective as of the Effective Date, (i) any merger or combination
between the Corporation and an entity or person owning, directly or indirectly,
10% of the Corporation's shares (an "Interested Purchaser"), and (ii) any sale
of the Corporation or sale of all or substantially all of the assets of the
Corporation to an Interested Purchaser (a transaction of the type described in
clauses (i) and (ii) is referred to as a "Transaction") will require the
affirmative vote of at least two-thirds (2/3) of the combined voting power of
all of the then-outstanding shares of the Corporation entitled to vote, unless
either: (i) the Transaction is approved by a two-thirds (2/3) of the members of
the Board of Directors; or (ii) as a result of the Transaction, all holders of
then-outstanding shares of the Corporation (other than the Interested Purchaser)
receive cash in an amount at least equal to the greatest of (a) the highest
price paid by the Interested Purchaser for any shares of the Corporation during
the offer; or (b) an amount reflecting the same or a greater percentage
relationship to the then market price of the Corporation's stock as the highest
price
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<PAGE> 19
per share paid by the Interested Purchaser during the tender offer bears to the
market price of the stock immediately prior to the commencement of the tender
offer; or (c) an amount equal to the earnings per share of the Corporation for
the four full consecutive fiscal quarters immediately preceding the proposed
Transaction multiplied by the then current price/earnings ratio of the
Interested Purchaser."
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<PAGE> 20
IN WITNESS WHEREOF, the undersigned, Steven Humphreys and John
Niedermaier have signed this Third Amended and Restated Certificate of
Incorporation as President and Secretary, respectively, of said SCM
Microsystems, Inc. this 8th day of April, 1997.
s/Steven Humphreys
-----------------------------
Steven Humphreys, President
s/John Niedermaier
-----------------------------
John Niedermaier, Secretary
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<PAGE> 1
EXHIBIT 3.2
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SCM MICROSYSTEMS, INC.
SCM Microsystems, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on December 13, 1996,
amended and restated on December 20, 1996, amended and restated on March 24,
1997, and amended and restated on April 9, 1997.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors of
the Corporation.
THIRD: This Amended and Restated Certificate of Incorporation was
approved by the written consent of the stockholders of the Corporation in
accordance with the provisions of Section 228 for the General Corporation Laws
of the State of Delaware.
FOURTH: The Certificate of Incorporation of this Corporation, as
amended and restated, is hereby amended and restated in its entirety to read as
follows:
"I.
The name of this corporation is SCM Microsystems, Inc. (hereinafter
sometimes referred to as the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of
Dover, County of Kent. The name of the registered agent at that address is
Incorporating Services, Ltd.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
<PAGE> 2
IV.
The Corporation is authorized to issue two classes of shares, designated
"Preferred Stock" and "Common Stock." The total number of shares which the
Corporation shall have authority to issue is 50,000,000 of which 40,000,000
shares shall be Common Stock at $.001 par value and 10,000,000 shares shall be
Preferred Stock at $.001 par value.
Shares of Preferred Stock authorized by this Certificate of
Incorporation may be issued from time to time in one or more series. For any
wholly unissued series of Preferred Stock, the Board of Directors of the
Corporation (the "Board of Directors") is authorized to fix or alter the rights,
preferences, privileges and restrictions granted to or imposed upon wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them.
For any series of Preferred Stock having issued and outstanding shares,
the Board of Directors is also authorized to decrease the number of shares of
any series of Preferred Stock prior or subsequent to the issuance of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status of undesignated Preferred
Stock.
V.
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the bylaws of the Corporation, the Board of Directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation. Election of directors need not be by written ballot
unless the bylaws so provide.
VI.
The Board of Directors is authorized to make, adopt, amend, alter or
repeal the bylaws of the Corporation. The stockholders shall also have power to
make, adopt, amend, alter or repeal the bylaws of the Corporation.
VII.
A director of the Corporation shall not 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 General Corporation
Law, or (iv) for any action from which the director derived an improper personal
benefit.
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<PAGE> 3
If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of a director, then the liability of a director of the Corporation,
without any further corporate action on the part of the Corporation, shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
VII by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
VIII.
The stockholders of the Corporation may not take action by written
consent in lieu of a meeting but must take any such action at a duly called
annual or special meeting.
IX.
The number of directors which constitute the entire Board of Directors
shall be as specified in the bylaws of the Corporation. At each annual meeting
of stockholders, directors of the Corporation shall be elected to hold office
until the expiration of the term of which they are elected and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the General Corporation Law of
Delaware.
Effective as of the date of the first regularly-scheduled annual meeting
of the stockholders following the date (the "Effective Date") on which the
Corporation became subject to the periodic requirements of the Securities
Exchange Act of 1934, as amended, the directors of the Corporation shall be
divided into three classes as nearly equal in size as is practicable, hereby
designated Class I, Class II and Class III. The term of office of the initial
Class I directors shall expire at the second annual meeting of the stockholders
following the Effective Date, the term of office of the initial Class II
directors shall expire at the third annual meeting of the stockholders following
the Effective Date and the term of office of the initial Class III directors
shall expire at the fourth annual meeting of the stockholders following the
Effective Date. At each annual meeting of stockholders, commencing with the
second regularly-scheduled annual meeting of stockholders following the
Effective Date, each of the successors elected to replace the directors of a
Class whose term shall have expired at such annual meeting shall be elected to
hold office until the third annual meeting next succeeding his or her election
and until his or her respective successor shall have been duly elected and
qualified.
If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable,
provided that no decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Any director may be removed from office by the stockholders of the
Corporation only for cause.
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<PAGE> 4
Vacancies occurring on the Board of Directors for any reason and newly
created directorships resulting from an increase in the authorized number of
directors may be filled only by vote of a majority of the remaining members of
the Board of Directors, although less than a quorum, at any meeting of the Board
of Directors. A person so elected by the Board of Directors to fill a vacancy or
newly created directorship shall hold office until the next election of the
Class for which such director shall have been chosen and until his or her
successor shall have been duly elected and qualified.
X.
(i) Any merger or combination between the Corporation and an entity or
person owning, directly or indirectly, 10% of the Corporation's shares (an
"Interested Purchaser"), and (ii) any sale of the Corporation or sale of all or
substantially all of the assets of the Corporation to an Interested Purchaser (a
transaction of the type described in clauses (i) and (ii) is referred to as a
"Transaction") will require the affirmative vote of at least two-thirds (2/3) of
the combined voting power of all of the then-outstanding shares of the
Corporation entitled to vote, unless either: (i) the Transaction is approved by
a two-thirds (2/3) of the members of the Board of Directors; or (ii) as a result
of the Transaction, all holders of then-outstanding shares of the Corporation
(other than the Interested Purchaser) receive cash in an amount at least equal
to the greatest of (a) the highest price paid by the Interested Purchaser for
any shares of the Corporation during the offer; or (b) an amount reflecting the
same or a greater percentage relationship to the then market price of the
Corporation's stock as the highest price per share paid by the Interested
Purchaser during the tender offer bears to the market price of the stock
immediately prior to the commencement of the tender offer; or (c) an amount
equal to the earnings per share of the Corporation for the four full consecutive
fiscal quarters immediately preceding the proposed Transaction multiplied by the
then current price/earnings ratio of the Interested Purchaser.
XI.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and all rights conferred upon stockholders
herein are granted subject to this reservation."
IN WITNESS WHEREOF, the undersigned, Steven Humphreys and John
Niedermaier have signed this Fourth Amended and Restated Certificate of
Incorporation as President and Secretary, respectively, of said SCM
Microsystems, Inc. this _____ day of June, 1997.
-----------------------------
Steven Humphreys, President
-----------------------------
John Niedermaier, Secretary
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<PAGE> 1
EXHIBIT 3.3
SCM Microsystems, Inc.
A DELAWARE CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3 Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4 Quorum. At any meeting of the stockholders, the holders
of a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall
<PAGE> 2
constitute a quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by the
Chairman, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 8 of these Bylaws to
act by proxy, and officers of the Corporation.
Section 1.6 Conduct of Business. The Chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule
on the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Section 1.7 Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of
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<PAGE> 3
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) properly brought before the meeting by or at the direction of the
Board of Directors, (c) properly brought before an annual meeting by a
stockholder, or (d) properly brought before a special meeting by a stockholder,
but if, and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders. For business to be properly brought
before a meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder proposal to be presented at an annual meeting shall be received at
the Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessors)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
Section 1.8 Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 1.9 Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the
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examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The number of directors shall
initially be nine (9) and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). A vacancy resulting from the
removal of a director by the stockholders as provided in Article II, Section 2.3
below may be filled at special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration of the term for
which elected and until their respective successors are elected, except in the
case of the death, resignation or removal of any director.
Section 2.2 Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority vote
of the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders at which the term of office of the class to which they have been
elected expires. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
Section 2.3 Removal. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 2.1 above.
Directors so chosen shall hold office until the new annual meeting of
stockholders.
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Section 2.4 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established. by the Board of Directors and
publicized among all directors. A notice of each regular meeting shall not be
required.
Section 2.5 Special Meetings. Special meetings of the Board of Directors
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 2.6 Quorum. At any meeting of the Board of Directors, a majority
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof .
Section 2.7 Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or 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 shall constitute presence in
person at such meeting.
Section 2.8 Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
requited by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 2.9 Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, mailing and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
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(4) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these bylaws, for the management of the Corporation's business and affairs.
Section 2.10 Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11 Nomination of Director Candidates. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the Corporation's principal executive offices not less than 120 calendar days
in advance of the date that the Corporation's Proxy statement was released to
stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for director to be elected at a special meeting,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of Directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding
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each nominee proposed by such stockholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission, had the nominee been nominated, or intended to be
nominated, by the Board of Directors; and (e) the consent of each nominee to
serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 2.11 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee upon delivery, not fewer than five days prior to
the date of the meeting for the election of such nominee, of a written notice to
the Secretary setting forth such information regarding such substitute nominee
as would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.1 1,
such nomination shall be void.
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designates the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 3.2 Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any
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committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE IV
OFFICERS
Section 4.1 Generally. The officers of the Corporation shall consist of
a President, a Chief Executive Officer, a Chief Operating Officer, one or more
Vice Presidents, a Secretary and a Treasurer. The Corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board and such other
officers as may from time to time be appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders. Each
officer shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. The Chairman of the Board, if
there shall be such an officer, and the President shall each be members of the
Board of Directors. Any number of offices may be held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these bylaws.
Section 4.3 President. Subject to the provisions of these bylaws and to
the direction of the Board of Directors, the President shall have, in
coordination with the Chief Executive Officer and the Chief Operating Officer,
the responsibility for the general management and control of the business and
affairs of the Corporation, and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the Board of Directors. He or she shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision and direction of all of
the other officers (except for the Chief Executive Officer and Chief Operating
Officer), employees and agents of the Corporation.
Section 4.4 Chief Executive Officer. Subject to the provisions of these
bylaws and to the direction of the Board of Directors, the Chief Executive
Officer shall have, in coordination with the President and the Chief Operating
Officer, the responsibility for the general management and control of the
business and affairs of the Corporation, and shall perform all duties and have
all powers which are commonly incident to the office of chief executive or which
are delegated to him or her by the Board of Directors. He or she shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and
direction of all of the other officers (except for the President and Chief
Operating Officer), employees and agents of the Corporation.
Section 4.5 Chief Operating Officer. Subject to the provisions of
these bylaws and to the direction of the Board of Directors, the Chief Operating
Officer shall have, in coordination with the
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Chief Executive Officer and the President, the responsibility for the general
management and control of the business and affairs of the Corporation, and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive or which are delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized and shall have
general supervision and direction of all of the other officers (except for the
Chief Executive Officer and President), employees and agents of the Corporation.
Section 4.6 Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
Section 4.7 Treasurer. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 4.8 Secretary. Secretary shall issue all authorized notices for,
and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 4.9 Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.10 Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.11 Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
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ARTICLE V
STOCK
Section 5.1 Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any of or all the signatures on the certificate may be facsimile.
Section 5.2 Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 5.4
of these bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 5.3 Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5 Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1 Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any
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person accepting such notice on behalf of such person, if hand delivered, or the
time such notice is dispatched, if delivered through the mails or be telegram or
mailgram.
Section 6.2 Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2 Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 7.3 Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be
as fixed by the Board of Directors.
Section 7.5 Time Periods. In applying any provision of these bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a
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person of whom he or she is the legal representative, is or was a director,
officer or employee of the Corporation or is or was serving at the request of
the Corporation as a director, officer or employee of another corporation, or of
a Partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer or employee or in
any other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by Delaware Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, amounts paid or to be paid in settlement and amounts
expended in seeking indemnifi cation granted to such person under applicable
law, this bylaw or any agreement with the Corpora tion) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 8.2 of this Article VII,
the Corporation shall indemnify any such person seeking indemnity in connection
with an action, suit or proceeding (or part thereof) initiated by such person
only if (a) such indemnification is expressly required to be made by law, (b)
the action, suit or pro ceeding (or part thereof) was authorized by the Board of
Directors of the Corporation, (c) such indemnification is provided by the
Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Delaware General Corporation Law, or (d) the action, suit
or proceeding (or part thereof) is brought to establish or enforce a right to
indemnification under an indemnity agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law.
Such right shall be a contract right and shall include the right to be paid by
the Corporation expenses incurred in defending any such proceeding in advance of
its final disposi tion; provided, however, that, unless the Delaware General
Corporation Law then so prohibits, the payment of such expenses incurred by a
director or officer of the Corporation in his or her capacity as a director or
officer (and not in any other capacity in which service was or is tendered by
such person while a director or officer, including, without limitation. service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay an amounts so
advanced if it should be determined ultimately that such director or officer is
not entitled to be indemnified under this Section or otherwise.
Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 1
of this Article VII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in bad
faith, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The burden of proving such claim shall be on the claimant. It shall
be a defense to any such action (other then an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the
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failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 8.3 Non-Exclusivity of Rights. The rights conferred on any
person in Sections 1 and 2 of this Article VII shall not be exclusive of any
other right which such persons may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 8.4 Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VII.
Section 8.5 Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 8.6 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VII by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENT
Section 9.1 Amendment of Bylaws. The Board of Directors is expressly
empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholders shall also have power to adopt, amend
or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of
Bylaws of the Corporation by the stockholders shall require, in addition to any
vote of the holders of any class or series of stock of the Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of the
holders of at least
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sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
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BY-LAWS
OF
SCM MICROSYSTEMS, INC.
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<TABLE>
<CAPTION>
INDEX
SECTION PAGE
ARTICLE I
STOCKHOLDERS
<S> <C> <C>
Section 1.1 Annual Meeting.............................................................1
Section 1.2 Special Meetings...........................................................1
Section 1.3 Notice of Meetings.........................................................1
Section 1.4 Quorum.....................................................................1
Section 1.5 Conduct of the Stockholders' Meeting.......................................2
Section 1.6 Conduct of Business........................................................2
Section 1.7 Notice of Stockholder Business.............................................2
Section 1.8 Proxies and Voting.........................................................3
Section 1.9 Stock List.................................................................3
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office..................................................4
Section 2.2 Vacancies and Newly Created Directorships..................................4
Section 2.3 Removal....................................................................4
Section 2.4 Regular Meetings...........................................................5
Section 2.5 Special Meetings...........................................................5
Section 2.6 Quorum.....................................................................5
Section 2.7 Participation in Meetings by Conference Telephone..........................5
Section 2.8 Conduct of Business........................................................5
Section 2.9 Powers.....................................................................5
Section 2.10 Compensation of Directors..................................................6
Section 2.11 Nomination of Director Candidates..........................................6
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors.......................................7
Section 3.2 Conduct of Business........................................................7
ARTICLE IV
OFFICERS
Section 4.1 Generally..................................................................8
Section 4.2 Chairman of the Board......................................................8
Section 4.3 President..................................................................8
Section 4.4 Chief Executive Officer....................................................8
Section 4.5 Chief Operating Officer....................................................8
Section 4.6 Vice President.............................................................9
</TABLE>
-i-
<PAGE> 17
<TABLE>
<CAPTION>
INDEX
SECTION PAGE
<S> <C> <C>
Section 4.7 Treasurer..................................................................9
Section 4.8 Secretary..................................................................9
Section 4.9 Delegation of Authority....................................................9
Section 4.10 Removal....................................................................9
Section 4.11 Action With Respect to Securities of Other Corporations....................9
ARTICLE V
STOCK
Section 5.1 Certificates of Stock.....................................................10
Section 5.2 Transfers of Stock........................................................10
Section 5.3 Record Date...............................................................10
Section 5.4 Lost, Stolen or Destroyed Certificates....................................10
Section 5.5 Regulations...............................................................10
ARTICLE VI
NOTICES
Section 6.1 Notices...................................................................10
Section 6.2 Waivers...................................................................11
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures......................................................11
Section 7.2 Corporate Seal............................................................11
Section 7.3 Reliance Upon Books, Reports and Records..................................11
Section 7.4 Fiscal Year...............................................................11
Section 7.5 Time Periods..............................................................11
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification..................................................11
Section 8.2 Right of Claimant to Bring Suit...........................................12
Section 8.3 Non-Exclusivity of Rights.................................................13
Section 8.4 Indemnification Contracts.................................................13
Section 8.5 Insurance.................................................................13
Section 8.6 Effect of Amendment.......................................................13
</TABLE>
-ii-
<PAGE> 18
<TABLE>
<CAPTION>
INDEX
SECTION PAGE
ARTICLE IX
AMENDMENT
<S> <C> <C>
Section 9.1 Amendment of Bylaws.......................................................13
</TABLE>
-iii-
<PAGE> 1
EXHIBIT 9.1
DUPLICATE ORIGINAL
[emblem]
New postal code
85049
DR. NORBERT KUNTZ, NOTARY
Theresienstrasse 11 o 8070 Ingolstadt
Phone (08 41) 3 31 88 o Fax (08 41) 3 38 30
DR. HANS SCHMALZL, NOTARY
It is hereby confirmed that the attached document represents a
duplicate original of the original document and matches it in its
entirety. It is given to the recipient designated below upon
request.
Ingolstadt, July 27, 1993 se [signature]
Notary
[illegible seal]
Mr. Bernd Meier
Ahornallee 39
85283 Wolnzach
<PAGE> 2
Doc. roll no. 1781/93/S
dated 7/19/93
Doc. roll no. 1781/93/S
Trust contract and obligation
to transfer a share
Today, July nineteenth,
nineteen hundred ninety-three,
- July 19, 1993 -,
the following persons are present before me,
Dr. Hans Schmalzl, notary,
in Ingolstadt in my office at Theresienstrasse 11/I:
1. Mr. Nicholas Efthymiou, born 10/13/62, graduate engineer, residing at
85354 Freising, Untere Domberggasse 2; according to information
provided, married and living under the statutory matrimonial property
regime according to Greek law,
Correct: Luneburgerstrasse 8, 80809 Munich.
2. Mr. Bernd Meier, born 10/15/49, graduate engineer, residing at 85283
Wolnzach, Ahornalle 39; according to information provided, married and
living under the statutory matrimonial property regime.
At the request of the persons appearing, who are known to me personally, I
recorded the declarations which they submitted in my presence:
Dr.S./HM
<PAGE> 3
- 2 -
I.
Mr. Bernd Meier
- - hereinafter referred to as Trustee -
has acquired from Mr. Nicolas Efthymiou.
- - hereinafter referred to as Trustor -
a capital contribution in the amount of DM 28,000.00 in the firm of
SCM Vertriebs-GmbH
Systeme, Componenten, Mikrocomputer [Systems, Components,
Microcomputers],
which is registered with the Neuburg/Donau Municipal Court under no. HRB 90 270.
II.
The Trustor shall be obligated to hold the Trustee harmless against any claim
arising from the assumption of the trust. He guarantees that the latter shall
not be called upon to make any payment toward the share or shall not be subject
to liability to further call or other payments or liabilities for the
Corporation, including any tax obligations.
Specifically, the Trustor shall bear all costs, taxes and expenses in connection
with the fiduciary holding of the equity interest and its retransfer to the
Trustor or transfer to third parties designated by the Trustor.
<PAGE> 4
- 3 -
III.
Externally, the Trustee shall be a fully entitled and fully obligated
shareholder, but inter se he shall be a fiduciary shareholder for the account of
the Trustor.
He shall be obligated to hold and manage the equity investment and
the rights and duties associated therewith according to the best of his
knowledge and conscience for the account, and pursuant to the instructions, of
the Trustor and the rights arising from the equity interest(1) He shall further
be obligated to the Trustor not to raise any pecuniary claims arising from the
equity interests and not to enter into any obligations or dispositions with
regard to the equity interest without the written consent of the Trustor;
specifically, he shall not sell the share or encumber it with rights of third
parties.
To the extent permissible, he assigns, at this point in time, all claims arising
from the equity interest, specifically the claims to the distribution of profits
and liquidation proceeds, to the Trustor, who hereby accepts said assignment.
The Trustee shall promptly transfer to the Trustor the profit allocable to the
equity interests promptly following receipt or credit thereof.
From a tax standpoint, it is intended that the profit allocable to the
equity interest be classified as the income of the Trustor and not to that of
the Trustee.
The contracting parties shall be obligated to submit all declarations to the tax
authority which are necessary to produce this legal effect.
- --------
(1) The italicized clause is a grammatically incorrect insertion
in the original--Trans.
<PAGE> 5
- 4 -
Otherwise, the contracting parties shall treat the contents of this document
confidentially vis a vis third parties.
IV.
The Trustee is hereby obligated to the Trustor to transfer the capital
contribution to the Trustor, or to a third party to be named by the Trustor, at
any time at the Trustor's request at the purchase price of the nominal amount of
the capital contribution.
Accordingly, he shall submit all declarations and make all petitions which are
necessary for the legally effective transfer.
V.
If, according to the articles of incorporation, the consent of the Corporation
or the shareholders is necessary for the transfer of shares, the contracting
parties to today's trust contract shall personally obtain such consent.
VI.
The Trustor may terminate the trust relationship at any time; the Trustee may
terminate the trust relationship upon notice of three months effective at the
end of a calendar month, but not earlier than the registration of the
Corporation in the commercial register.
<PAGE> 6
- 5 -
At the end of the trust relationship, the Trustee shall be obligated to promptly
assign the share to the Trustor or a third party to be named by the Trustor at
the nominal amount.
The trust relationship shall also end
a) upon the transfer of the share at the request of the Trustor,
b) upon the death of the Trustee.
VII.
Inter se, the Trustee shall be obligated at the request of the Trustor to submit
the agenda to the Trustor prior to each general meeting of shareholders and
obtain his instructions concerning the ballot.
VIII.
No compensation shall be paid for the Trustee, except in the case of transfer.
IX.
The Trustor shall bear the expense of this document and the execution thereof.
The contracting parties shall each receive a duplicate original of this
document.
<PAGE> 7
- 6 -
[stamp]
Read aloud by the notary, approved by the
participants and personally signed:
[signature] [signature]
[signature]
[signature] [handwritten:] Notary
[seal]
DR. HANS SCHMALZL - NOTARY IN INGOLSTADT
<PAGE> 1
EXHIBIT 9.2
DUPLICATE ORIGINAL
[emblem]
DR. NORBERT KUNTZ, NOTARY
Theresienstrasse 11 o 85049 Ingolstadt
Phone (08 41) 3 31 88 o Fax (08 41) 3 38 30
DR. HANS SCHMALZL, NOTARY
It is hereby confirmed that the attached document represents a
duplicate original of the original document and matches it in its
entirety. It is given to the recipient designated below upon
request.
Ingolstadt, May 8, 1995/Schn [signature]
Notary
[illegible seal]
Mr. Reiner Pohl
Albert-Einstein-Strasse 26
85646 Neufahrn
<PAGE> 2
Doc. roll no. 985/95/S
dated 5/2/95
Doc. roll no. 985/95/S
Trust contract and obligation
to transfer a share
Today, May second,
nineteen hundred ninety-five,
- May 2, 1995 -,
the following persons are present before me,
Dr. Hans Schmalzl, notary,
in Ingolstadt in my office at Theresienstrasse 11/I:
1. Mr. Reiner Pohl, graduate engineer, born 7/17/41, residing at Albert-
Einstein-Strasse 26, 85646 Neufarn,
2. Mr. Bernd Meier, born 10/15/49, graduate engineer, residing at
Ahornalle 39, 85283 Wolnzach.
At the request of the persons appearing, who are known to me personally, I
recorded the declarations which they submitted in my presence:
Dr.S./Schn
<PAGE> 3
- 2 -
I.
Mr. Bernd Meier
- - hereinafter referred to as Trustee -
has subscribed to a capital contribution in the amount of DM 7,500.00 in the
firm of
SCM Schneider Microsysteme
Entwicklungs- und Vertriebs GmbH,
which is registered with the Commercial Register of the Munich Municipal Court
under no. HRB 91372.
The purchase was made by Mr. Pohl
- - hereinafter referred to as Trustor -
on a fiduciary basis.
II.
Externally, the Trustee shall be a fully entitled and fully obligated
shareholder, but inter se he shall be a fiduciary shareholder for the account of
the Trustor.
He shall be obligated to hold and manage the equity investment and
the rights and duties associated therewith according to the best of his
knowledge and conscience for the account, and pursuant to the instructions, of
the Trustor and exercise the rights arising from the equity interest,
particularly the voting right, only at the instruction of the Trustor. He shall
further be obligated to the Trustor not to raise any pecuniary claims arising
from the equity interests and not to enter into any obligations or dispositions
with regard to the equity interest without the written consent of the Trustor;
specifically, he shall not sell the share or encumber it with rights of third
parties.
<PAGE> 4
- 3 -
To the extent permissible, he assigns, at this point in time, all claims arising
from the equity interest, specifically the claims to the distribution of profits
and liquidation proceeds, to the Trustor, who hereby accepts said assignment.
The Trustee shall promptly transfer to the Trustor the profit allocable to the
equity interests promptly following receipt or credit thereof.
From a tax standpoint, it is intended that the profit allocable to the equity
interest be classified as the income of the Trustor and not to that of the
Trustee.
The contracting parties shall be obligated to submit all declarations to the tax
authority which are necessary to produce this legal effect. Otherwise, the
contracting parties shall treat the contents of this document confidentially vis
a vis third parties.
III.
The Trustee is hereby obligated, at the Trustor's request, to the Trustor to
transfer the capital contribution to the Trustor, or to a third party to be
named by the Trustor, at any time and at no charge.
Accordingly, he shall submit all declarations and make all petitions which are
necessary for the legally effective transfer.
<PAGE> 5
- 4 -
IV.
If, according to the articles of incorporation, the consent of the Corporation
or the shareholders is necessary for the transfer of shares, the contracting
parties to today's trust contract shall personally obtain such consent.
V.
The Trustee hereby grants the Trustor the
power of attorney
to represent him in the transfer of his share to the Trustor or a third party to
be named by the Trustor. This power of attorney shall be irrevocable and shall
not lapse upon the death of the Trustee.
VI.
The Trustor may terminate the trust relationship at any time; the Trustee may
terminate the trust relationship upon notice of three months effective at the
end of a calendar month.
At the end of the trust relationship, the Trustee shall be obligated to promptly
assign the share to the Trustor or a third party to be named by the Trustor at
the nominal amount.
The trust relationship shall also end
a) upon the transfer of the share at the request of the Trustor,
<PAGE> 6
- 5 -
b) upon the death of the Trustee.
VII.
No compensation shall be paid for the trusteeship.
VIII.
The Trustor shall bear the expense of this document and the execution thereof.
The contracting parties shall each receive a duplicate original of this
document.
[stamp]
Read aloud by the notary, approved by the
participants and personally signed:
[signature]
[signature]
[signature] [handwritten:] Notary
[seal]
DR. HANS SCHMALZL - NOTARY IN INGOLSTADT
<PAGE> 7
DUPLICATE ORIGINAL
[emblem]
DR. NORBERT KUNTZ, NOTARY
Theresienstrasse 11 o 85049 Ingolstadt
Phone (08 41) 3 31 88 o Fax (08 41) 3 38 30
DR. HANS SCHMALZL, NOTARY
It is hereby confirmed that the attached document represents a
duplicate original of the original document and matches it in its
entirety. It is given to the recipient designated below upon
request.
Ingolstadt, May 5, 1995/Schn [signature]
Notary
[illegible seal]
Mr. Reiner Pohl
Albert-Einstein-Strasse 26
85646 Neufahrn
<PAGE> 8
Doc. roll no. 984/95/S
dated 5/2/95
Doc. roll no. 984/95/S
Assignment of a share
Today, May second,
nineteen hundred ninety-five,
- May 2, 1995 -,
the following persons are present before me,
Dr. Hans Schmalzl, notary,
in Ingolstadt in my office at Theresienstrasse 11/I:
1. Mr. Reiner Pohl, graduate engineer, born 7/17/41, residing at Albert-
Einstein-Strasse 26, 85646 Neufahrn,
2. Mr. Bernd Meier, born 10/15/49, graduate engineer, residing at
Ahornallee 39, 85283 Wolnzach.
At the request of the persons appearing, who are known to me personally, I
recorded the declarations which they submitted in my presence:
I.
According to information provided, Mr. Reiner Pohl has a share in the amount of
DM 12,500.00 of the capital stock of DM 333,400.00
Dr.S./Schn
<PAGE> 9
- 2 -
in the firm of
SCM Schneider Microsysteme
Entwicklungs- und Vertriebs GmbH
which is registered with the Commercial Register of the Munich Municipal Court
under no. HRB 91 372.
The capital contribution is paid-in in full.
II.
From the share described in section I, with all rights and duties appurtenant
thereto, specifically the right to receive profits starting today,
Mr. Reiner Pohl
hereby sells and transfers a share amount in the amount of DM 7,500.00
to
Mr. Bernd Meier,
who accepts said transfer.
III.
No consideration shall be given, since the transfer is carried out on a
fiduciary basis.
IV.
(1)
The seller guarantees only the legal validity of the share, the amount of the
deposit thereto and unimpeded conveyance of title.
<PAGE> 10
- 3 -
Further liability, specifically for the quality of the enterprise of the
Corporation, shall be barred.
(2)
The notary has made reference to Section 16 GmbHG
[German Limited Liability Corporation Act] (succession of the purchaser to
capital contribution liabilities) and Section 24 GmbHG (liability of the
shareholders inter se for shortfalls in capital contributions).
He also pointed out that he cannot examine the information set forth in section
I to determine its correctness.
(3)
The transfer and partition shall require the
consent of the Corporation.
The contracting parties shall obtain such consent
themselves.
(4)
The Corporation has no real property.
VI.
Mr. Pohl shall bear the costs of the creation of this document.
Duplicate originals of this document shall be received by the seller and the
purchaser, as well as the Corporation for notice purposes pursuant to Section 16
GmbHG.
<PAGE> 11
- 4 -
[stamp]
Read aloud by the notary, approved by the
participants and personally signed:
[signature]
[signature] [signature]
[signature] [handwritten:] Notary
[seal]
DR. HANS SCHMALZL - NOTARY IN INGOLSTADT
<PAGE> 1
EXHIBIT 10.1
SCM MICROSYSTEMS, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of March __,
1997, by and between SCM Microsystems, Inc., a Delaware corporation (the
"Company"), and _______________ ("Indemnitee").
RECITALS
A. The Company desires to attract and retain qualified directors,
officers, employees and other agents, and to provide them with protection
against liability and expenses incurred while acting in that capacity;
B. The Certificate of Incorporation and Bylaws of the Company
contain provisions for indemnifying directors and officers of the Company, and
the Bylaws and Delaware law contemplate that separate contracts may be entered
into between the Company and its directors and officers, employees and other
agents with respect to their indemnification by the Company, which contracts may
provide greater protection than is afforded by the Certificate of Incorporation
and Bylaws;
C. The Company understands that Indemnitee has reservations about
serving or continuing to serve the Company without adequate protection against
personal liability arising from such service, and that it is also of critical
importance to Indemnitee that adequate provision be made for advancing costs and
expenses of legal defense; and
D. The Board of Directors and the stockholders of the Company have
approved as being in the best interests of the Company indemnity contracts
substantially in the form of this Agreement for directors and officers of the
Company and its subsidiaries and for certain other employees and agents of the
Company designated by the Board of Directors.
NOW, THEREFORE, in order to induce Indemnitee to serve or to continue to
serve as a director and/or officer of the Company, and in consideration of
Indemnitee's service to the Company, the parties agree as follows:
1. Contractual Indemnity. In addition to the indemnification
provisions of the Bylaws of the Company, the Company hereby agrees, subject to
the limitations of Sections 2 and 5 hereof:
(a) To indemnify, defend and hold Indemnitee harmless to the
greatest extent possible under applicable law from and against any and all
judgments, fines, penalties, amounts paid in settlement and any other amounts
reasonably incurred or suffered by Indemnitee (including attorneys' fees) in
<PAGE> 2
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Company, to which Indemnitee is, was or at any time
becomes a party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or agent
of the Company or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (collectively referred to
hereafter as a "Claim"), whether or not arising prior to the date of this
Agreement.
(b) To pay any and all expenses reasonably incurred by
Indemnitee in defending any Claim or Claims (including reasonable attorneys'
fees and other reasonable costs of investigation and defense), as the same are
incurred and in advance of the final disposition of any such Claim or Claims,
upon receipt of an undertaking by or on behalf of Indemnitee to reimburse such
amounts if it shall be ultimately determined that Indemnitee (i) is not entitled
to be indemnified by the Company under this Agreement, and (ii) is not entitled
to be indemnified by the Company under the Certificate of Incorporation or the
Bylaws of the Company.
The termination of any action or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that (i) Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in the best interests of the Company, or (ii) with respect to any criminal
action or proceeding, Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
2. Limitations on Contractual Indemnity. Indemnitee shall not be
entitled to indemnification or advancement of expenses under Section 1:
(a) if a court of competent jurisdiction, by final judgment or
decree, shall determine that (i) the Claim or Claims in respect of which
indemnity is sought arise from Indemnitee's fraudulent, dishonest or willful
misconduct, or (ii) such indemnity is not permitted under applicable law; or
(b) on account of any suit in which judgment is rendered for
an accounting of profits made from the purchase or sale by Indemnitee of
securities of the Company in violation of the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
(c) for any acts or omissions or transactions from which a
director may not be relieved of liability under the Delaware General Corporation
Law; or
(d) with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought in good faith to establish or enforce a right to
indemnification under this Agreement or any other statute or law, or (ii) at the
Company's discretion, in specific cases if the Board of Directors of the Company
has approved the initiation or bringing of such suit; or
-2-
<PAGE> 3
(e) for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) which have been paid directly to
Indemnitee by an insurance carrier under a policy of directors' and officers'
liability insurance maintained by the Company; or
(f) on account of any suit brought against Indemnitee for
misuse or misappropriation of non-public information, or otherwise involving
Indemnitee's status as an "insider" of the Company, in connection with any
purchase or sale by Indemnitee of securities of the Company.
3. Continuation of Contractual Indemnity. Subject to the
termination provisions of Section 11, all agreements and obligations of the
Company contained herein shall continue for so long as Indemnitee shall be
subject to any possible action, suit, proceeding or other assertion of a Claim
or Claims.
4. Expenses; Indemnification Procedure. The Company shall advance
all expenses incurred by Indemnitee in connection with the investigation,
defense, settlement or appeal of any civil or criminal action or proceeding
referenced in Section 1 hereof (but not amounts actually paid in settlement of
any such action or proceeding). Indemnitee hereby undertakes to repay such
amounts advanced if, and to the extent that, it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
5. Notification and Defense of Claim. If any action, suit,
proceeding or other Claim is brought against Indemnitee in respect of which
indemnity may be sought under this Agreement:
(a) Indemnitee will promptly notify the Company in writing of
the commencement thereof, and the Company and any other indemnifying party
similarly notified will be entitled to participate therein at its own expense or
to assume the defense thereof and to employ counsel reasonably satisfactory to
Indemnitee. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three (3) business days after the
date postmarked if sent by domestic certified or registered mail, properly
addressed; otherwise notice shall be deemed received when such notice shall
actually be received by the Company. Indemnitee shall have the right to employ
its own counsel in connection with any such Claim and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of Indemnitee unless (i) the Company shall not have assumed the defense
of the Claim and employed counsel for such defense, or (ii) the named parties to
any such action (including any impleaded parties) include both Indemnitee and
the Company, and Indemnitee shall have reasonably concluded that joint
representation is inappropriate under applicable standards of professional
conduct due to a material conflict of interest between Indemnitee and the
Company, in either of which events the reasonable fees and expenses of such
counsel to the Indemnitee shall be borne by the Company upon delivery to the
Company of the undertaking referred to in subparagraph (b) of Section 1.
However, in no event will the Company be obligated to pay the fees or expenses
of more than one firm of attorneys representing Indemnitee and any other agents
of
-3-
<PAGE> 4
the Company in connection with any one Claim or separate but substantially
similar or related Claims in the same jurisdiction arising out of the same
general allegations or circumstances.
(b) The Company shall not be liable to indemnify Indemnitee for
any amounts paid in settlement of any Claim effected without the Company's
written consent, and the Company shall not settle any Claim in a manner which
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; provided, however, that neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement and, provided
further, that if a claim is settled by the Indemnitee with the Company's written
consent, or if there be a final judgment or decree for the plaintiff in
connection with the Claim by a court of competent jurisdiction, the Company
shall indemnify and hold harmless Indemnitee from and against any and all
losses, costs, expenses and liabilities incurred by reason of such settlement or
judgment.
(c) Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(d) Any indemnification provided for in Section 1 shall be made
no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a Claim under this Agreement, under any statute, or under any
provision of the Company's Certificate of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 13 of this Agreement, Indemnitee shall also be entitled to be reimbursed
for the expenses (including attorneys' fees) of bringing such action. It shall
be a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in connection with any action or proceeding in advance of
its final disposition) that Indemnitee has not met the standards of conduct
which make it permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed but the burden of proving such defense shall
be on the Company, and Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Subsection 4 unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(e) If, at the time of the receipt of a notice of a Claim, the
Company has director and officer liability insurance in effect, the Company
shall give prompt notice of the commencement of such proceeding to the insurers
in accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf
-4-
<PAGE> 5
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
6. Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee against any Claim to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change, after the date of this Agreement, in any applicable
law, statute or rule which expands the right of a Delaware corporation to
indemnify a member of its board of directors, an officer or other corporate
agent, such changes shall be, ipso facto, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute, or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors, an
officer, or other corporate agent, such changes, to the extent not otherwise
required by applicable law to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
8. Public Policy. Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
9. Insurance. Although the Company may from time to time maintain
insurance for the purpose of indemnifying Indemnitee and other agents of the
Company against personal liability, including costs of legal defense, nothing in
this Agreement shall obligate the Company to do so.
10. No Restrictions. The rights and remedies of Indemnitee under this
Agreement shall not be deemed to exclude or impair any other rights or remedies
to which Indemnitee may be entitled under the Certificate of Incorporation or
Bylaws of the Company, or under any other agreement, provision of law or
otherwise, nor shall anything contained herein restrict the right of the Company
to indemnify Indemnitee in any proper case even though not specifically provided
for in this Agreement, nor shall anything contained herein restrict Indemnitee's
right to contribution as may be available under applicable law.
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<PAGE> 6
11. Termination. The Company may terminate this Agreement at any time
upon 90 days written notice, but any such termination will not affect Claims
relating to events occurring prior to the effective date of termination.
12. Severability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
13. Attorneys' Fees. In the event of any litigation or other action
or proceeding to enforce or interpret this Agreement, the prevailing party as
determined by the court shall be entitled to an award of its reasonable
attorneys' fees and other costs, in addition to such relief as may be awarded by
a court or other tribunal.
14. Further Assurances. The parties will do, execute and deliver, or
will cause to be done, executed and delivered, all such further acts, documents
and things as may be reasonably required for the purpose of giving effect to
this Agreement and the transactions contemplated hereby.
15. Acknowledgment. The Company expressly acknowledges that it has
entered into this Agreement and assumed the obligations imposed on the Company
hereunder in order to induce Indemnitee to serve or to continue to serve as an
agent of the Company, and acknowledges that Indemnitee is relying on this
Agreement in serving or continuing to serve in such capacity.
16. Construction of Certain Phrases.
(a) "Company": For purposes of this Agreement, references to the
"Company" shall also include, in addition to the resulting corporation in any
consolidation or merger to which Aspec Technology, Inc. is a party, any
constituent corporation (including any constituent of a constituent) absorbed in
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
(b) Benefit Plans: References to "fines" contained in this
Agreement shall include any excise taxes assessed on Indemnitee with respect to
an employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee or agent of
the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
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18. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
19. Governing Law; Binding Effect; Amendment.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware applicable to contracts
entered into in Delaware.
(b) This Agreement shall be binding upon Indemnitee and the
Company, their successors and assigns, and shall inure to the benefit of
Indemnitee, his heirs, personal representatives and assigns and to the benefit
of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both parties
hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"Company"
SCM MICROSYSTEMS, INC.
a Delaware corporation
131 Albright Way
Los Gatos, CA 95030
By:
--------------------------
Title:
-----------------------
"Indemnitee"
-----------------------------
(Signature of Indemnitee)
Address:
---------------------
---------------------
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<PAGE> 1
EXHIBIT 10.2
SCM MICROSYSTEMS, INC.
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means SCM Microsystems, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
<PAGE> 2
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
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<PAGE> 4
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,000,000 Shares, plus an annual increase to be added on
each anniversary date of the adoption of the Plan equal to the lesser of (i)
500,000 Shares, (ii) 3% of the outstanding Shares on such date or (iii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
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<PAGE> 5
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii)to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
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<PAGE> 6
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii)to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 100,000 Shares.
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<PAGE> 7
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 100,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
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<PAGE> 8
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii)such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
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<PAGE> 9
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option
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<PAGE> 10
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
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(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
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<PAGE> 12
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
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<PAGE> 13
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 14
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates.
<PAGE> 15
Termination Period:
This Option may be exercised for ninety days after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for such longer period as provided in the Plan. In no event
shall this Option be exercised later than the Term/Expiration Date as provided
above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to Chief Financial Officer of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by
such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE> 16
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan.
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the
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<PAGE> 17
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL,
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<PAGE> 18
AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: SCM MICROSYSTEMS, INC.
- ----------------------------------- -----------------------------
Signature By
- ------------------------------------ -----------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
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<PAGE> 20
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
SCM Microsystems, Inc.
131 Albright Way
Los Gatos, CA 95030
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of SCM Microsystems, Inc. (the "Company")
under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option
Agreement dated, 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $ __________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 21
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: SCM MICROSYSTEMS, INC.
- ---------------------------------- -----------------------------
Signature By
- ---------------------------------- -----------------------------
Print Name Its
Address: Address:
- --------------------------------- SCM Microsystems, Inc.
131 Albright Way
- --------------------------------- Los Gatos, CA 95030
-----------------------------
Date Received
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<PAGE> 1
EXHIBIT 10.3
SCM MICROSYSTEMS
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of SCM Microsystems, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean SCM Microsystems, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, but exclusive of payments for commission, overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
<PAGE> 2
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the last market trading day prior to the date of determination,
as reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four (24) months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or after April 30,
1999. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
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<PAGE> 3
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or after
April 30, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
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<PAGE> 4
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
(c) Notwithstanding anything to the contrary contained herein, an
Employee's enrollment in the Plan shall also constitute enrollment in the
Company's 1997 Employee Stock Purchase Plan for Non-U.S. Employees (the
"International ESPP") as of the Enrollment Date of the current Offering Period
under the International ESPP. Such Employee's payroll deductions with respect to
the International ESPP prior to the effective date of a transfer of the Employee
to the Company or a Designated Subsidiary that results in the Employee ceasing
to be an Employee for U.S. tax purposes shall be zero percent (0%), and such
Employee's payroll deductions with respect to the International ESPP following
the effective date of the Employee's transfer may be at the same rate as the
Employee's rate of payroll deductions with respect to this Plan prior to such
transfer, or may be adjusted by the Employee pursuant to Section 6 of the
International ESPP. Such Employee's payroll deductions with respect to this Plan
shall be zero percent (0%) as of the effective date of such transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period; provided, however, that no participant shall have more than $5,000 in
payroll deductions made each Purchase Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
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<PAGE> 5
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
30,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sec tions 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall, in its discretion, either
(i) arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his or her option or, (ii)
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<PAGE> 6
credit the shares purchased to an account in the participant's name with a
brokerage firm selected by the Board to hold the shares in street name.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason,
he or she shall be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to such participant's account during the Offering
Period but not yet used to exercise the option shall be returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of
a participant in the Plan.
13. Stock.
(a) Subject to Section 19, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be (175,000) shares, plus an annual increase to be added on each
anniversary date of the adoption of the Plan equal to the lesser of (i)150,00
shares, (ii) 1% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board, less the number of shares issued under the
International ESPP. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
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<PAGE> 7
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
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<PAGE> 8
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date,
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<PAGE> 9
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
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<PAGE> 10
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 11
EXHIBIT A
SCM MICROSYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________ hereby elects to participate in the SCM Microsystems, Inc.
1997 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my par ticipation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):_______
_______________________________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing within 30
days after the date of any disposition of my shares and I will make
adequate provision for Federal, state or
<PAGE> 12
other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2)
15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________________
(First) (Middle) (Last)
_________________________________ ___________________________________
Relationship
___________________________________
(Address)
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<PAGE> 13
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _________________________________________
Signature of Employee
_________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 14
EXHIBIT B
SCM MICROSYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the SCM
Microsystems, Inc. 1997 Employee Stock Purchase Plan which began on
____________, 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.5
SCM MICROSYSTEMS, INC.
1997 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
1. Purposes of the Plan. The purposes of this Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to French Employees, and
- to promote the success of the Company's business and the business
of its French subsidiary.
This Plan is a sub-plan created under and pursuant to the U.S. Plan.
Options shall be granted under the Plan at the discretion of the Administrator
from the pool of available shares under the U.S. Plan, and are intended to
qualify for preferred treatment under French tax laws. Unless otherwise defined
herein, the terms defined in the U.S. Plan shall have the same defined meanings
in this Plan, and, except as otherwise provided herein, Options granted under
this Plan shall be subject to the terms and conditions of the U.S. Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Disability" means total and permanent disability, as
defined under Applicable Laws.
(b) "Employee" means any person employed by a Subsidiary in a
salaried position, who does not own more than 10% of the voting power of all
classes of stock of the Company, or any Parent or Subsidiary, and who is a
resident of the Republic of France.
(c) "Fair Market Value" means, as of any date, the dollar
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the Nasdaq Stock Market, its Fair Market Value shall
be the average quotation price for the last 20 days preceding the date of
determination for such stock (or the average closing bid for such 20 day period,
if no sales were reported) as quoted on such exchange or system and reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is quoted on the Nasdaq Stock
Market (but not on the Nasdaq National Market thereof) or regularly quoted by a
recognized securities dealer but
<PAGE> 2
selling prices are not reported, its Fair Market Value shall be the mean between
the high bid and low asked prices for the Common Stock for the last 20 days
preceding the date of determination; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(d) "Option Price" means the per share price for exercising an
Option, determined in accordance with subsection 8(a) of the Plan.
(e) "Plan" means this SCM Microsystems, Inc. 1997 Stock Plan
for French Employees.
(f) "U.S. Plan" means the SCM Microsystems, Inc. 1997 Stock
Plan.
3. Stock Subject to the Plan. The maximum aggregate number of Shares
that may be optioned and sold under the Plan is the available pool of Shares
under the U.S. Plan. However, at no time shall the total number of Options
outstanding which may be exercised for newly issued Shares of Common Stock
exceed that number equal to one-third of the Company's voting stock, whether
preferred stock of the Company or Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock. If any Optioned Stock is to consist of
reacquired Shares, such Optioned Stock must be purchased by the Company prior to
the date of grant of the corresponding Option and must be reserved and set aside
for such purpose.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant under the Plan (unless the Plan has
terminated) or the U.S. Plan.
4. Reporting to the Shareholders' Meeting. In its annual proxy
statement to the shareholders, the Board shall inform the shareholders as to the
number and price of the Options granted hereunder, and as to the Shares
purchased upon exercise of such Options.
5. Eligibility. Options may be granted only to Employees; provided,
however, that the President Directoire General, the Directoire General and other
directors who are also Employees of a Subsidiary may be granted Options.
6. Term of Plan. The Plan shall become effective as of the date of
its adoption by the Board. It shall continue in effect until the termination of
the U.S. Plan or the date five (5) years from the date of its adoption,
whichever is sooner, unless terminated earlier under Section 10 of the Plan.
7. Term of Option. The term of each Option shall be as stated in the
Option Agreement; provided, however, that subject to Section 9(d) hereof, the
maximum term of an Option shall not exceed ten (10) years from the date of grant
of the Option.
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<PAGE> 3
8. Option Price and Consideration.
(a) Option Price. The Option Price for the Shares to be issued
pursuant to exercise of an Option shall be one hundred percent (100%) of the
Fair Market Value on the date the Option is granted. The Option Price shall not
be modified while the Option is outstanding.
(b) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist of:
(i) cash or check (denominated in U.S. Dollars);
(ii) wire transfer (denominated in U.S. Dollars);
(iii) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan; or
(iv) any combination of the foregoing methods of
payment.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. An Option may not be exercised for a
fraction of a Share. An Option shall be deemed exercised when the Subsidiary
receives:
(i) written notice of exercise (in accordance with the
Option Agreement and in the form attached hereto as Exhibit A) from the person
entitled to exercise the Option;
(ii) full payment for the Shares with respect to which
the Option is exercised; and
(iii) a written subscription agreement to the Shares (in
accordance with the Option Agreement and in the form attached hereto as Exhibit
B) from the person entitled to exercise the Option.
Full payment may consist of any consideration and method
of payment authorized by the Administrator and permitted by the Option Agreement
and the Plan, and shall be deemed to be definitively made upon receipt of the
payment by the Subsidiary.
(b) Termination of Employment Relationship. In the event that
an Optionee's status as an Employee terminates (other than upon the Optionee's
death or Disability), the Optionee may exercise his or her Option, but only
within thirty (30) days (or such other period of time not
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<PAGE> 4
exceeding three (3) months as is determined by the Administrator), and only to
the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
status as an Employee terminates as a result of the Optionee's Disability, the
Optionee may exercise his or her Option at any time within six (6) months from
the date of such termination, but only to the extent that the Optionee was
entitled to exercise it at the date of such termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee while an Employee, the Option may be exercised at any time within six
(6) months following the date of death by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall immediately
revert to the Plan.
10. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any
time amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws. Such shareholder approval, if required, shall be obtained
in such a manner and to such a degree as is required by the Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
a representative of the Administrator.
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<PAGE> 5
SCM MICROSYSTEMS, INC.
1997 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the U.S. Plan and
the 1997 Plan for French Employees shall have the same defined meanings in this
Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: ___________________________________
___________________________________
___________________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Date of Grant ___________________________________
Vesting Commencement Date ___________________________________
Exercise Price per Share $__________________________________
Total Number of Shares Granted ___________________________________
Total Exercise Price $__________________________________
Term/Expiration Date: ___________________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule: 25% of the shares subject to the option shall vest
twelve (12) months after the vesting commencement date and 1/48 of the shares
subject to the option shall vest each month thereafter.
Termination Period:
This Option may be exercised for thirty (30) days after termination of
the employment relationship, or such longer period as may be applicable upon
death or Disability of Optionee as provided in the Plan.
<PAGE> 6
II. AGREEMENT
1. Grant of Option. The Board of the Company hereby grants to the
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee"), an option (the "Option") to purchase the number of Shares set forth
in the Notice of Grant, at the exercise price (the "Exercise Price"), per share
set forth in the Notice of Grant subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject to Section 10(c) of the
Plan, in the event of a conflict between the terms and conditions of the Plan
and the terms and conditions of this Option Agreement, the terms and conditions
of the Plan shall prevail.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment
relationship, the exercisability of the Option is governed by the applicable
provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice to the Subsidiary, in the form attached as Exhibit A (the
"Exercise Notice"), which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised (the
"Exercised Shares"), by delivery of a subscription agreement to the Subsidiary,
in the form attached as Exhibit B (the "Subscription Agreement") and such other
representations and agreements as may be required by the Company or the
Subsidiary. Until such Shares are issued, no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue to
the Optionee (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date of issuance, except as provided in Section
13 of the U.S. Plan. The Exercise Notice and Subscription Agreement shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Subsidiary. The Exercise Notice and Subscription Agreement
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Subsidiary of such fully executed Exercise Notice and Subscription Agreement
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
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<PAGE> 7
(a) cash or check (denominated in U.S. Dollars);
(b) wire transfer (denominated in U.S. Dollars);
(c) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
4. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
OPTIONEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE
COMPANY'S STOCK OPTION PLAN, WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL
CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE
COMPANY OR THE SUBSIDIARY.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement.
OPTIONEE: SCM MICROSYSTEMS, INC.
_____________________________ ________________________________
Signature By
_____________________________ ________________________________
Print Name Title
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<PAGE> 8
EXHIBIT A
SCM MICROSYSTEMS, INC.
1997 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
EXERCISE NOTICE
SCM Microsystems, Inc.
__________________________________
__________________________________
__________________________________
Attention: General Secretary
1. Exercise of Option. Effective as of today, ___________, 199__,
the undersigned ("Optionee") hereby elects to purchase _________ shares (the
"Shares") of the Common Stock of SCM Microsystems, Inc. (the "Company") under
and pursuant to the 1997 Stock Plan for French Employees (the "Plan") and the
Stock Option Agreement dated ___________ (the "Option Agreement"). The purchase
price for the Shares shall be $__________, as required by the Option Agreement.
2. Delivery of Payment. Optionee herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until issuance of the Shares, no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
5. Tax Consultation. Optionee represents that Optionee has
consulted with any tax consultants Optionee deems advisable in connection with
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Subscription Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof,
<PAGE> 9
and such agreement is governed by the laws of California
and the United States of America except for that body of laws pertaining to
conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SCM MICROSYSTEMS, INC.
_________________________________ ___________________________________
Signature By
_________________________________ ___________________________________
Print Name Title
Address:
________________________________
________________________________
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<PAGE> 10
EXHIBIT B
SCM MICROSYSTEMS, INC.
1997 STOCK OPTION PLAN FOR FRENCH EMPLOYEES
SUBSCRIPTION AGREEMENT
SCM Microsystems, Inc.
______________________
______________________
______________________
Attention: General Secretary
1. Amount and Terms of the Subscription
In conformity with the Stock Plan promulgated for the French
employees (the "Plan") of SCM Microsystems, Inc. (the "Company"), Options to
subscribe to Shares of Common Stock (the "Shares") were granted according to the
Stock Option Agreement dated _________________ (the "Option Agreement").
_______ Shares shall be issued for the benefit of the undersigned
(the "Subscriber") in accordance with the applicable laws of the United States
of America and the State of California.
The Shares subscribed to may be paid up by:
(a) cash or check (denominated in U.S. Dollars);
(b) wire transfer (denominated in U.S. Dollars);
(c) consideration received by the Company under a formal
cashless exercise program adopted by the Company in connection with the Plan; or
2. Transfer of the funds
The funds coming from the subscription of Shares under the Plan
shall be paid over to the Subsidiary by the participating Employees. Full
payment shall be deemed to be definitively made upon the date of receipt of the
payment in the bank accounts in France of the Subsidiary.
<PAGE> 11
3. Subscription Agreement
I, the undersigned, Last name ______________________________
First name ______________________________
Residence ______________________________
subscribe to ________ Shares.
Supporting my subscription I shall pay the total amount of the Purchase
Price of the Shares following one or more of the methods described in Section 1
above.
The Subscriber SCM MICROSYSTEMS, INC.
_____________________________ ________________________________
Signature By
_____________________________ ________________________________
Name Title
Address ___________________
___________________
___________________
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<PAGE> 1
EXHIBIT 10.6
SCM MICROSYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions.
2. Definitions.
(a) "Applicable Law" shall mean legal requirements relating to
the administration of stock option plans under the applicable laws of any
country or jurisdiction to which the Plan is extended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean SCM Microsystems, Inc. and any
Designated Subsidiary.
(f) "Compensation" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(g) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(h) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes. For purposes of the Plan, the employment
relationship may, pursuant to regulations established by the Board and as
permitted or required by Applicable Law, be treated as continuing intact while
the individual is on sick leave or other leave of absence approved by the
Company.
(i) "Enrollment Date" shall mean the first day of each
Offering Period.
(j) "Exercise Date" shall mean the last day of each Purchase
Period.
(k) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the
<PAGE> 2
last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the last market trading day prior to the date of determination,
as reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(l) "Offering Period" shall mean a period of approximately
twenty-four (24) months, commencing on the first Trading Day on or after May 1
and November 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four (24) months later; provided, however, that the first
Offering Period under the Plan shall commence with the First Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or after April 30, 1999. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan for
Non-U.S. Employees.
(n) "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower.
(o) "Purchase Period" shall mean the approximately six-month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(p) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation of which not less
than fifty percent (50%) of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
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<PAGE> 3
3. Eligibility.
(a) Any Employee, who has been employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1 and November 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or after April 30, 1999. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a Participation Agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company prior to the applicable
Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
(c) Notwithstanding anything to the contrary contained herein, an
Employee's enrollment in the Plan shall also constitute enrollment in the
Company's 1997 Employee Stock Purchase Plan (the "U.S. ESPP") as of the
Enrollment Date of the current Offering Period under the U.S. ESPP. Such
Employee's payroll deductions with respect to the U.S. ESPP prior to the
effective date of a transfer of the Employee to the Company or a Designated
Subsidiary that results in the Employee becoming an Employee for U.S. tax
purposes shall be zero percent (0%), and such Employee's payroll deductions with
respect to the U.S. ESPP following the effective date of the Employee's transfer
may be at the same rate as the Employee's rate of payroll deductions with
respect to this Plan prior to such transfer, or may be
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<PAGE> 4
adjusted by the Employee pursuant to Section 6 of the U.S. ESPP. Such
Employee's payroll deductions with respect to this Plan shall be zero percent
(0%) as of the effective date of such transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her Participation
Agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period; provided, however, that no participant shall have more than $5,000 in
payroll deductions made each Purchase Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new Participation Agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new Participation Agreement unless the
Company elects to process a given change in participation more quickly. A
participant's Participation Agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 3(b) hereof, a participant's payroll deductions may be
decreased to zero percent (0%) at any time during a Purchase Period. Payroll
deductions shall recommence at the rate provided in such participant's
Participation Agreement at the beginning of the first Purchase Period which is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price;
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<PAGE> 5
provided that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 30,000 shares of the Company's Common Stock (subject
to any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b), and 12
hereof. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The Option
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, notice of exercise of his or her option shall
be deemed to have been given by the participant and his or her option for the
purchase of shares shall be exercised automatically on the Exercise Date, and
the maximum number of full shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares shall be purchased; any
payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full share shall be retained in the participant's
account for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall, in its discretion, either
(i) arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his or her option or, (ii)
credit the shares purchased to an account in the participant's name with a
brokerage firm selected by the Board to hold the shares in street name.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new Participation Agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof) for any reason, he or she shall be deemed to have elected
to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
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<PAGE> 6
(c) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of
a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be the available
pool of shares under the U.S. ESPP, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allo cation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility, to
adjudicate all disputed claims filed under the Plan and to prescribe, amend and
rescind rules and regulations relating to the Plan, in the form of addendums
hereto or otherwise, including rules and regulations necessary to conform the
Plan to Applicable Law. Every finding, decision and determination made by the
Board or its committee shall, to the full extent permitted by law, be final and
binding upon all parties.
14. Designation of Beneficiary.
(a) Subject to Applicable Law, a participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any, from
the participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised but prior
to delivery to such participant of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly
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<PAGE> 7
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Liquidation,
Dissolution, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each
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<PAGE> 8
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall
-8-
<PAGE> 9
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon April 1, 1997,
subject to approval by the stockholders of the Company. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 19
hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Applicable Law, if the Fair Market Value of the Common Stock on any
Exercise Date in an Offering Period is lower than the Fair Market Value of the
Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.
-9-
<PAGE> 10
EXHIBIT A
SCM MICROSYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
PARTICIPATION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the SCM Microsystems, Inc. 1997 Employee Stock Purchase Plan for
Non-U.S. Employees (the "Employee Stock Purchase Plan for Non-U.S.
Employees") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Participation Agreement and the Employee
Stock Purchase Plan for Non-U.S. Employees.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 10%, including
amounts deferred under other employee stock purchase plans of the
Company) during the Offering Period in accordance with the Employee
Stock Purchase Plan for Non-U.S. Employees. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated in order
to exercise the option(s) granted to me pursuant to the Employee Stock
Purchase Plan and to purchase shares of Common Stock at the applicable
Purchase Price determined in accordance with the Employee Stock Purchase
Plan for Non-U.S. Employees. I understand that if I do not withdraw from
an Offering Period, any accumulated payroll deductions will be used to
automatically exercise my option.
4. I have received a copy of the complete Employee Stock Purchase Plan for
Non-U.S. Employees. I understand that my participation in the Employee
Stock Purchase Plan for Non-U.S. Employees is in all respects subject to
the terms of the Plan. I understand that my ability to exercise the
option under this Participation Agreement is subject to stockholder
approval of the Employee Stock Purchase Plan for Non-U.S. Employees.
5. Shares purchased for me under the Employee Stock Purchase Plan for Non-
U.S. Employees should be issued in the name(s) of (Employee or Employee
and Spouse only): ____________________________________________________.
<PAGE> 11
6. I understand and acknowledge that notwithstanding any other provision of
this Participation Agreement or the Employee Stock Purchase Plan:
(a) neither the Employee Stock Purchase Plan nor this Participation
Agreement shall form any part of any contract of employment
between me and the Company or any Designated Subsidiary, and it
shall not confer on me any legal or equitable rights (other than
those constituting the options granted under the Employee Stock
Purchase Plan themselves) against the Company or any Designated
Subsidiary, directly or indirectly, or give rise to any cause of
action in law or in equity against the Company or any subsidiary;
(b) my benefits under the Employee Stock Purchase Plan shall not form
any part of my wages, pay or remuneration or count as wages, pay
or remuneration for pension fund or other purposes;
(c) in no circumstances shall I, upon ceasing to hold my office or
employment by virtue of which I am eligible to participate in the
Employee Stock Purchase Plan, be entitled to any compensation for
any loss of any right or benefit or prospective right or benefit
under the Plan, which I might otherwise have enjoyed, whether
such compensation is claimed by way of damages for wrongful
dismissal or other breach of contract or by way of compensation
for loss of office or otherwise.
(d) that the Company expressly retains the right to terminate the
Employee Stock Purchase Plan at any time and that I will have no
right to continued option grants under the Employee Stock
Purchase Plan in such event.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan for Non-U.S. Employees. The effectiveness of this Participation
Agreement is dependent upon my eligibility to participate in the
Employee Stock Purchase Plan for Non-U.S. Employees.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan for Non-U.S. Employees:
NAME: (Please print)
-----------------------------------------------------------
(First) (Middle) (Last)
- ------------------------------ ---------------------------------------
Relationship
---------------------------------------
(Address)
-2-
<PAGE> 12
Employee's Social
Security Number (or
equivalent): ___________________________________
Employee's Address: ___________________________________
___________________________________
___________________________________
I UNDERSTAND THAT THIS PARTICIPATION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ____________________________________________
Signature of Employee
____________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE> 13
EXHIBIT B
SCM MICROSYSTEMS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the SCM
Microsystems, Inc. 1997 Employee Stock Purchase Plan for Non-U.S. Employees
which began on ___________ 19____ (the "Enrollment Date") hereby notifies the
Company that he or she hereby withdraws from the Offering Period. He or she
hereby directs the Company to pay to the undersigned as promptly as practicable
all the payroll deductions credited to his or her account with respect to such
Offering Period. The undersigned understands and agrees that his or her option
for such Offering Period will be automatically terminated. The undersigned
understands further that no further payroll deductions will be made for the
purchase of shares in the current Offering Period and the undersigned shall be
eligible to participate in succeeding Offering Periods only by delivering to the
Company a new Participation Agreement.
Name and Address of Participant:
___________________________________
___________________________________
___________________________________
Signature:
___________________________________
Date:______________________________
<PAGE> 1
EXHIBIT 10.7
TBG
Technologie-Beteiligungs-Gesellschaft
m.b.H. of Deutsche Ausgleichsbank
Version 01.95
PARTNERSHIP AGREEMENT
Agreement concerning the establishment of an undisclosed
Partnership between
SCM Microsystems GmbH, Pettenkoferstrasse 7, 85276 Pfaffenhofen
-hereinafter: Technologieunternehmen (TU) [Technology Enterprise]-
and
Technologie-Beteiligungs-Gesellschaft m.b.H. [Technology Holding Company]
of Deutsche Ausgleichsbank, Wielandstrasse 4, 53170 Bonn
- dormant partner, hereinafter: TBG -
SECTION 1
PURPOSE OF THE COMPANY, PARTNERS
1. Within the scope of the program "Investment Capital for Small
Technology Enterprises" carried through with the Federal Ministry for
Education, Science, Research and Technology (BMBF) and the Deutsche
Ausgleichsbank, TBG is supporting technology enterprises of the
business sector, provided they are not more than 10 years old and
satisfy the EU definition of small and medium-sized enterprises (KMU)
in the new Federal States and Berlin (East) or of small enterprises in
the rest of the Federal Territory, respectively, to wit:
- - they do not employ more than 250 (50) employees and
- - either
- have annual sales of not more than DM 40 million (DM 10
million) or
- show a balance sheet total of not more than DM 20 million (DM
4 million), and
- - are at a maximum 25% owned by one or more enterprises which do not
satisfy this definition (exception: public holding companies, risk
capital companies and - provided no control is exercised -
institutional investors).
All three conditions must be satisfied simultaneously, i.e., an
enterprise is considered to be a KMU only when it demonstrates the
required independence, meets the preset number of employees and does
not exceed at least one of the limits for annual sales or balance sheet
total, respectively.
<PAGE> 2
TBG effects investments for the financing of innovation projects within
the meaning of the investment principles of TBG, which constitute a
component of this agreement and which TU recognizes, to wit:
- for applied research and development until a logical point in time
prior to starting commercial production according to the
EU-definition, with the following delimitations:
Applied research includes research or experimental work with the aim
of gaining new findings, in order to facilitate the achievement of
specific, practical goals such as the creation of new products,
production processes or services. Normally, it can be said that it
ends with the creation of a first prototype.
<PAGE> 3
Development includes work on the basis of applied research with the
aim of introducing new or substantially improved products,
production processes or services up to - but not including -
industrial application and commercial utilization. To this level
belong, normally, planning and demonstration projects, as well as
the additionally required development work, which finally ends in a
bundle of information which permits starting production.
- for investments for launching products on the market.
2. a) TU, recorded in the Commercial Register of the Munich Amtsgericht
[District Court] under No. HRB 91372, operates pursuant to the
articles of association in the valid version of March 29, 1990,
addendum of May 29, 1990, a commercial business with the purpose of:
Development, production and marketing of electronic components for
microsystems, electronic and electrical devices, data terminals and
processing installations, as well as trade with all the articles
connected with these.
b) Within the scope of this business purpose, TU is engaged in
1. development of the GSM-PCMCIA Card,
2. development of the hermetic Duraflash Card,
3. development of the PCMCIA smart card reader "PSR."
3. TBG acquires an interest in TU in the legal form of the undisclosed
partnership, in order to support the project described in paragraph 2b.
SECTION 2
CONTRIBUTION TO CAPITAL
1. Exclusively for the promotion of the innovation project described in
Section 1 para. 2b and on the basis of the data of TU in the partnership
application of January 30, 1995, TBG effects a contribution to capital
in the amount of DM 3,000,000 on condition that the cooperation partners
- - Zweite Beteiligungs KG [Second Limited Partnership] of TVM Techno
Venture Management GmbH & Co. KG, Leopoldstrasse 28 A, 80802 Munich,
- - TVM Eurotech Limited Partnership, 101 Arch Street, Suite 1950, Boston,
MA 02110, U.S.A.,
- - KBL Founders Ventures S.C.A., 43, Boulevard Royal, 1-2955 Luxembourg,
LUXEMBOURG,
<PAGE> 4
- - APM International B.V, Gooimeer 3, NL-1411 DC Naarden, Netherlands,
- - Vertex Investment (II) Pte. Ltd., 83 Science Park Drive, # 01-01/02, The
Lune, Singapore Science Park, Singapore 0511,
- - IntelliCard Systems Pte. Ltd., Block 171 Kallang Way # 04-03/04,
Singapore 1334, Singapore, and
- - Jean Yves LeRoux, Chemin des Cotes, F-13600 Ceyreste, France
as investors (hereinafter jointly: BG)
have concluded with TBG a cooperation agreement for the commitment to
TU. The BG will be advised regarding the servicing of the commitment to
TU by TVM Techno Venture Management GmbH & Co. KG, Leopoldstrasse 28 A,
80802 Munich, as servicing company.
<PAGE> 5
The conditions for TBG entering the partnership are created, moreover,
by the fact that the BG will effect additional contributions to the
capital of JTU in the total amount of DM 189,300 with additional payment
of a premium totaling DM 3,592,800 and subject to additionally making
the commitment to bring in by waiver a loan repayment claim existing
against the company plus a claim for interest in the amount of DM
3,222,000.
2. The contribution of TBG is to be used for co-financing the
project-related planning listed in the appendix. The appendix shall
constitute a component of this Partnership Agreement.
To the extent that the costs of the project should decline as compared
to the above data, or if subsequently additional public funds are
solicited, TBG shall have the right to curtail its contribution in a
ratio corresponding to the reduction of the investment volume. The
reduction amount must be retransferred to TBG without delay.
3. TU may call in the contribution after the start of the company (cf.
Section 4 para. 1 ), subject to the condition its immediate use as
provided, and a proportionate use of funds together with the other
financing means provided in para. 2, and the total financing of the
investment project are ensured. The call must be accompanied by a
confirmation of the call conditions by the BG.
4. If the contribution is not called, at least partially by December 31,
1995 at the latest, this agreement is terminated.
5. On the occasion of the first partial call, TBG shall have the right to
retain a processing fee in the amount of 1% of the total contribution
agreed in this agreement.
6. TBG contribution must be kept by TU in a separate contribution account.
Withdrawals by TBG from this account are not allowed.
SECTION 3
PROOF OF USE
TU must confirm the use of the contribution funds as provided within 3 months
after expiration of a project schedule set forth in the appendix to this
agreement, subject to an extension of this time period by TBG to be confirmed on
the form also attached as an appendix. The proof of use must be submitted to TBG
by way of the BG. The use as provided must be substantiated to the BG and to TBG
upon request.
SECTION 4
START AND DURATION OF THE COMPANY
1. The undisclosed partnership shall begin as soon as this agreement is
signed by both parties.
<PAGE> 6
2. The undisclosed partnership is fixed for a term ending December 31,
2005.
3. Upon termination of the corporate relationship, the contribution of TBG
and the unpaid dividends are due for payment to TBG.
<PAGE> 7
4. Insofar as the funds kept by the BG are repaid before December 31, 2005,
the contribution of TBG shall be due for repayment at the same time and
in the same extent.
SECTION 5
MANAGEMENT
1. TBG does not participate in the management of TU, if nothing different
is provided hereinbelow.
2. TU shall require the consent of TBG for
a) any amendment of the articles of association, in particular any
amendment of the purpose of the enterprise, or the acceptance of
new partners or the agreement of new participations;
b) the appointment and dismissal of managers of TU;
c) conclusion, amendment and termination of the agreement on the
granting or the acquisition of licenses, patents, design
patents, trademarks or know-how, to the extent these concern the
innovation project supported with the participation of TBG;
d) conclusion, amendment and termination of essential marketing
agreements;
e) partial or total move, lease or sale of the operation;
f) conclusion and termination of control contracts and profit and
loss transfer agreements.
3. Consent pursuant toSection5 para. 2 must be obtained from TBG without
delay.
If within a period of 14 days after receipt of the notice on the measure
requiring consent TBG has not stated in writing its refusal to consent,
such consent shall be deemed to have been given.
SECTION 6
INFORMATION AND CONTROL RIGHTS
1. TU has to report to TBG semi-annually, namely by March 31 and September
30 of each year on the financial situation of TU and on the status of
the innovation project described in Section 1 para. 2b, so long as TBG
does not waive its right to these reports, because the BG simultaneously
exercises control of TU also on behalf of TBG. In addition, TBG receives
from TU a brief, monthly status report as per the attached appendix.
2. Irrespective of whether the BG exercises the control of TU
simultaneously also for TBG, TU
<PAGE> 8
has to inform TBG directly and without delay about all measures going
beyond the scope of the usual business operation. Besides the measures
mentioned under Section 5 para. 2, particularly the following go beyond
the scope of usual business operations:
a) Partial or total shutdown of operations;
b) Discontinuance or substantial change of the innovation project
described in Section 1 para. 2b;
<PAGE> 9
c) Any assumption of commitments, also for investments, which exceed
the amount of DM 250,000 per month, or if they result from leasing,
rental or tenancy agreements, if they exceed the amount of DM
100,000 per month.
3. In addition, TBG shall have the right of verification pursuant to
Section 716 BGB [Civil Code]. This applies also to the period after the
termination of the partnership, to the extent necessary for verification
of the aseets to which a partner is entitled upon his retirement from
the partnership.
TBG, furthermore has the right to examine at any time the records of TU
referring to the innovation project described in Section 1 para. 2b. To
exercise its verification right TBG may retain the services of third
parties.
4. TU grants the BMBF [Federal Ministry of Science and Research], and a
representative appointed by it, rights to receive presentations,
information and to effect examinations in the same extent as that
granted to TBG. TU declares its consent to the effect that TBG can
transmit to the BMBF or to an institute assigned by it to this effect,
the data on the scientific evaluation of the program mentioned
inSection1 para. 1 of this agreement which are obtained through its
enterprise and the supported innovation project. It declares itself
prepared, furthermore, to provide directly to the BMBF and an institute
assigned by it the information necessary for the scientific evaluation
of the program, and to do so also after the termination of the
undisclosed partnership. The BMBF has the right to pass on the data
provided to it to the EU Commission for the exercise of supervisory and
control powers. In the preparation and, if applicable, in the
publication of data about the program it shall be ensured that no harm
be caused to TU.
5. The Bundesrechnungshof [Federal Audit Office] has an examination right
regarding TU under Section 91 BHO [Federal Audit Office Regulations],
and all records which the Bundesrechnungshof deems necessary shall be
made available and appropriate information given.
SECTION 7
ADVISORY BOARD
TBG may at any time demand the formation of an advisory board.
TBG participates in this advisory board under reasonable consideration of the
amount of its contribution.
The advisory board shall advise TU in financial and technical matters,
particularly with regard to the project described in Section 1 para. 2b. It has
the same information and verification rights as those to which TBG is entitled
under this agreement.
SECTION 8
FINANCIAL YEAR, ANNUAL STATEMENT OF ACCOUNTS
<PAGE> 10
1. The financial year of the undisclosed partnership is the same as that of
TU. The financial year of TU ends on each December 31.
2. TU has to draw up its annual statement of accounts (balance sheet,
profit and loss account, appendix) in observance of SectionSection 238 -
289 HGB [Handelsgesetzbuch] [Commercial Code] within six months after
expiration of the financial year, and to forward it to TBG in an
original, signed copy and with the certificate of an auditor or of a
certified public accountant.
3. The annual statement of accounts must respect, insofar as permissible
under commercial law, the profit determination provisions of the Income
Tax Law. If, within the scope of the taxable profit determination or
based on a external tax audit, other data than those contained in the
original annual statement of account are deemed binding, such shall also
be determining in the relation of TU to TBG.
<PAGE> 11
SECTION 9
PROFIT AND LOSS SHARING
1. TBG receives on its paid contribution a minimum compensation of 6% p.a.,
irrespective of the annual result of TU. This compensation is payable
semi-annually in retrospect by March 31 and September 30 of each year.
2. From the achieved annual surplus after the drawn contribution, TBG shall
receive 11% of the profit (amount conditional on profit) in a post-money
valuation of DM 21 million. If before the listing of TU on the stock
exchange additional capital is attracted, the compensation will be
adjusted accordingly. If the amount conditional on profit is small or
equal to the minimum compensation paid for the financial year pursuant
to No. 1, no compensation depending on profit will be due. Otherwise the
amount of the difference must be paid.
This profit sharing is payable within 2 weeks after adoption of the
annual statement of account (Section 8 para. 2).
3. Determining the calculation according to Para. 2 are the year's net
earnings, which are shown in the annual statement of account drawn up
according to Section 8 para. 3 prior to taking into account TBG share of
the profit pursuant to No. 2 above.
a) To the annual statement of account must be added
- paid income taxes, insofar as they have reduced the year's net
earnings as shown;
- interest charged to the partners in TU, provided the latter is a
partnership, without having flowed into the year's net earnings
of the co-entrepreneurs;
- extraordinary expenditures, insofar as they result from business
occasions which took place before the start of the undisclosed
partnership;
- losses from the sale or destruction of fixed assets, insofar as
the latter were already present at the time of the start of the
company.
b) To be deducted from the year's net earnings are
- amounts from writing back of tax-free reserves, which were formed
prior to the start of the undisclosed partnership;
- compensations for activities or interest credited to the partners
in TU, provided the latter is a partnership, without having
reduced the year's net earnings of the co-entrepreneurs;
- extraordinary income, insofar as it is based on business
occasions which took place
<PAGE> 12
before the start of the undisclosed partnership;
- income from the sale of fixed assets, insofar as the latter were
already present at the time of the start of the company.
c) In the year the partnership is called off, the year's net earnings
for the calculation of the profit sharing pursuant to para. 2 shall
be deemed to have accrued evenly over the year.
4. TBG shall have the right to demand, as of the end of the partnership
period, a one-time compensation of 25% of the investment amount plus 6%
of the investment amount for each year after expiration of the fifth
full partnership year, in which TBG has received in minimum and
profit-dependent amounts less than 12% of its contribution.
<PAGE> 13
TBG shall make use of this right only when in its opinion it appears to
be justified on the basis of the overall financial situation of TU, in
particular on the basis of its profits attained during the last three
years before the termination of the partnership and the undisclosed
reserves formed during the time of the partnership.
5. TBG does not share in the losses of TU.
SECTION 10
TAXES
TU shall be responsible for remitting the legally prescribed Capital Yield Tax
plus the solidarity surcharge in regard to the compensation for the undisclosed
contribution, and will deduct from the payments to TBG the Capital Yield Tax and
the solidarity surcharge and remit these directly to the appropriate tax office.
After the remittance, TU will issue to TBG confirmations according to Section
45a para. 2 EStG [Income Tax Law] on the forms made available by TBG.
SECTION 11
DISSOLUTION OF THE UNDISCLOSED PARTNERSHIP
1. In the event of the dissolution of TU, the undisclosed partnership shall
be dissolved. In this case, the undisclosed investment must be repaid.
2. Section 9 para. 4 shall also apply in this case.
SECTION 12
TERMINATION
1. TU has the right to redeem entirely or partially the participation of
TBG, subject to observing a notice period of 3 months as of June 30 or
December 31 of any year. If this redemption takes place at of the end of
the fifth partnership year, the contribution of TBG has to be repaid
with a premium in the amount of 25%. Beginning in the sixth partnership
year, the arrangements set forth in Section 9 para. 4 will apply. TBG
can waive the paymeNt of the premium, if the termination is effected
because of the suspension of the supported innovation project.
2. Moreover, the undisclosed partnership can be terminated with immediate
effect, by any of its partners upon existence of a weighty ground by
means of a written statement. To the extent that the contribution has
not or not yet been made in full, TBG shall by the notice of termination
be released from its contribution obligation.
TBG has the right to termination on weighty grounds, particularly, when
a) TU has made false statements in the partnership application;
<PAGE> 14
b) it is determined that the conditions for granting or leaving intact
the partnership did not exist already originally or ceased to exist
subsequently, particularly if the innovation project described in
Section 1 para. 2b, proves to be impracticable or is abandoned or
substantially changed by TU. Should the innovation project described
in Section 1 para. 2 prove to be technically impossible or
financially unattainable, TBG can waive repayment of the investment
in full or in part, if the continued existence of TU is thereby made
possible;
<PAGE> 15
c) TU fails to submit the proof of use pursuant to Section 3 not later
than 3 months after it was due, a reminder to this effect
notwithstanding;
d) notes accepted by TU go to protest, TU suspends its payments, files
for bankruptcy or a petition is filed for institutional court
settlement proceedings or insolvency is ascertained in some other
way;
e) the managerial know-how bearer(s) who was(were) active in such a
position at TU at the time the agreement on the undisclosed
partnership was concluded is(are) no longer active is his or their
main occupation in the management of TU;
f) one of the measures listed in Section 5 para. 2 has been carried
through without the prior consent of TBG.
SECTION 13
MATURING PAYMENTS
Payments due shall bear interest after occurrence of the delay and until receipt
by TBG at the rate of 3% above the discount rate of the Deutsche Bundesbank.
SECTION 14
GENERAL PROVISIONS
1. Amendments or supplements to this agreement must be in written form.
There exist no oral subsidiary understandings to this agreement.
2. Should one provision of this agreement be invalid, the remaining
provisions shall remain unaffected by this. TU and TBG are committed to
replace invalid provisions of the agreement by regulations that are
legally valid and correspond as far as possible to the meaning and
purpose of the invalid provisions.
3. Bonn has been agreed upon as venue for all legal disputes that may arise
from this agreement or its performance.
Bonn, June 8, 1995 Pfaffenhoven,
Technologie-Beteiligungs- SCM Microsystems GmbH
Gesellschaft m.b.H. of the
Deutsche Ausgleichsbank
[signature]
[two signatures]
TBG
<PAGE> 16
Technologie-Beteiligungs-Gesellschaft
m.b.H. of the Deutsche Ausgleichsbank
PARTNERSHIP AGREEMENT
APPENDIX I
PROJECT-RELATED PLANNING
PLANNING PERIOD: April 1, 1995 to April 1, 1996
<TABLE>
<CAPTION>
PROJECT-SPECIFIC EXPENDITURES
- -----------------------------
AMOUNT IN DM (WITHOUT V.A.T.)
-----------------------------
<S> <C> <C>
I. FOR APPLIED RESEARCH AND DEVELOPMENT
1. INVESTMENTS SHOWN AS FIXED ASSETS ON
THE BALANCE SHEET
1.1 Laboratory equipment and installations 450,000
1.2 Machines and installations for prototype
production 1,240,000
1.3 Miscellaneous 2,025,000
2. NON-INVESTMENT R & D EXPENDITURES
2.1 Personnel 710,000
2.2 Materials 1,100,000
2.3 Third-party services (Order placement/Consulting) 300,000
2.4 Patents and permits 200,000
2.5 Travel expenses 165,000
2.6 Miscellaneous 585,000
II. FOR INVESTMENTS IN MARKET INTRODUCTION
TOTAL 6,775,000
PRODUCT-SPECIFIC FINANCING
- --------------------------
AMOUNT IN DM (WITHOUT V.A.T.)
-----------------------------
1. CAPITAL RESOURCES
1.1 Retained earnings 775,000
1.2
2. EQUITY CAPITAL
2.1 of TBG 3,000,000
2.2 of the lead investor 3,000,000
2.3 of other investors
3. PUBLIC FUNDS
3.1 Subsidies, allowances, supports
3.2 Others
4. BORROWINGS
4.1 from the bank
4.2 Others
TOTAL 6,775,000
</TABLE>
<PAGE> 17
Fax No. 0228/831 24 93
TU: SCM Microsystems GmbH
Pettenkoferstrasse 7
85276 Pfaffenhoven
TBG 00107/01001
Brief statement for the month of* ........ 199..
ACTUAL AMOUNT in DM '000
Sales proceeds
Expenditures on materials
Expenditures on personnel
Preliminary result
Order backlog
Current account limit
of which used
Distinctive features of the preceding month:
Expectations of the management regarding future development:
Much better better same worse much worse
Date:
--------------------------------
(Signature of the management and
company stamp)
- ---------------------
* TO BE DELIVERED NOT LATER THAN BY THE END OF THE FOLLOWING MONTH.
<PAGE> 18
PARTNERSHIP PRINCIPLES OF TBG Technologie Beteiligungs-
TECHNOLOGIE-BETEILIGUNGS-GESELLSCHAFT M.B.H. Gesellschaft m.b.H.
OF DEUTSCHE AUSGLEICHSBANK of Deutsche Ausgleichsbank
1. TBG AS GRANTOR OF PARTNERSHIPS
Technologie-Beteiligungs-Gesellschaft m.b.H. (TBG) is a subsidiary of
the Deutsche Ausgleichsbank. Within the scope of the program "Investment
Capital for Small Technology Enterprises" it enters into undisclosed
partnerships in technology enterprises (TU), as a rule without
participating in the management of TU.
An essential condition for entering a partnership is that an additional
partner (Lead Investor) invests in TU in at least an equal amount as TBG
and co-services the investment on the basis of a cooperation agreement.
2. PURPOSE OF THE INVESTMENT
The investments serve to finance innovation projects (cf. No. 3.1),
namely
- for applied research and development until a logical point in time
prior to the start of commercial production
- for investments for market introduction.
3. PRECONDITIONS FOR INVESTMENT
3.1 INNOVATION PROJECTS
- New techniques not yet in use in the enterprise are to be introduced
by means of the innovation project.
- The development shares which constitute the innovative core, are
contributed within the enterprise itself. When services are used for
development phases, the specifications have to be developed within
the enterprise itself.
- The new product (process/service) differs also in its essential
functions from the former products (process/service) of the
enterprise.
- Linked to the new product (process/service) are competitive
advantages (functions, quality, price) and marketing chances in the
market relevant to the enterprise (regional, national, European,
worldwide).
3.2 INVESTMENT RECIPIENTS
<PAGE> 19
Investments from TBG can be obtained by enterprises of the commercial
industry provided they meet the following characteristics:
SMALL ENTERPRISES
- business located in the Federal territory and
- not more than 50 employees and
- either annual sales of maximum DM 10 million or a balance sheet
total of maximum DM 4 million.
MEDIUM-SIZE ENTERPRISES
- business located in the new Federal States and Berlin (East) and
- not more than 250 employees and
- either annual sales of maximum DM 40 million or a balance sheet
total of maximum DM 20 million.
FINANCIAL INDEPENDENCE
Maximum 25% of the corporate capital may be held by enterprises which do
not meet the criteria for small or medium-size enterprises.
(Exception: public investment companies
risk capital companies and - provided that no control is
exercised institutional investors.)
AGE
Maximum 10 years.
TECHNICAL AND BUSINESS EXPERTISE
TU must be able to prove that it has the technical expertise necessary
to carry through the development work and production, as well as the
necessary sales expertise.
Business expertise can also be contributed by the use of external
parties - e.g., of the Lead Investor - provided that TU has not yet
reached a considerable volume of sales prior to filing the application.
3.3 COOPERATING PARTNER (LEAD INVESTOR)
Investment companies as well as individuals and legal entities which
make available equity
<PAGE> 20
capital to enterprises can be Lead Investors cooperating with TBG.
The Lead Investor must participate with at least the same amount as TBG.
He has to advise and support the technology enterprise in all business
and financial matters and, if necessary, also be able to offer
management and marketing support. In principle, he should be ready and
in a position to make available additional financial resources.
Before making an investment the Lead Investor must examine the
investment conditions and comprehensibly document them, doing this at
the same time also for TBG. During the life of the partnership, he has
to supervise the management of TU and the development of the innovation
project and to inform TBG about the financial situation of TU and about
the innovation project. In addition, he will cooperate in drawing up the
proof of use (cf. No. 3.4). A cooperation agreement between the Lead
Investor and TBG settles the details.
3.4 FULL FINANCING
The full financing of the innovation project must be assured. The
investment funds may be used only for financing the innovation project
or projects for which the investment has been promised. The Lead
Investor must be informed without delay when the innovation project or
its financing is changed.
If the costs of the innovation project should subsequently be reduced or
if subsequently additional public funds are obtained for the financing
of the innovation project, so that financing in excess of 100% is
available, the investment funds may be called back. The investment
recipient is obligated to substantiate the correct use of the funds
immediately after the innovation project is completed. The proof of use
has to be submitted through the Lead Investor and be provided with his
audit certification.
<PAGE> 21
3.5 BAN ON ACCUMULATION
The simultaneous investment in an innovation project within the scope of
this program by TBG and the KfW [Kreditanstalt fur Wiederaufbau =
Reconstruction Loan Corporation] is not permitted.
In the event that for the investment of the Lead-Investor financing
funds supported by public authorities are used, the Assistance
Regulations of the European Community must be observed.
4. INVESTMENT CONDITIONS
4.1 FORM OF INVESTMENT
TBG effects investments in TU as an undisclosed partner. Securities do
not have to be posted.
4.2 MAXIMUM AMOUNT
The investment of TBG serves as subsidiary financing of innovation
projects. It is limited to DM 3,000,000 to one TU. Several innovation
projects can be supported within the scope of this maximum amount.
4.3 PAYOUT
The investment is in principle made available in accordance with the
progress of the innovation project.
4.4 TERM
The term of the investment of TBG is up to 10 full calendar years and is
guided in principle by the term of the investment of the Lead-Investor.
4.5 TERMINATION
TBG may terminate investments on weighty grounds.
TU may be granted the right to terminate its investment prematurely
under observance of 3 months advance notice as at June 30 and December
31 of each year. In case of a notice as of the expiration of the fifth
investment year, the contribution of TBG must be repaid with a premium
currently amounting to 25%, provided the termination is not effected due
to the discontinuance of the supported innovation project.
4.6 PROCESSING FEE
Upon payout of its investment, TBG shall receive from the investment
recipient a one-time
<PAGE> 22
processing fee currently in the amount of 1% of the amount of its
investment.
4.7 INVESTMENT CHARGE
TBG charges as a rule a compensation for its contribution currently
amounting to 6% p.a., which is independent of the investment recipient's
profit for the year, as well as a profit dependent investment
compensation to be guided by the condition of TU. At the end of the
investment period, TBG may demand a one-time compensation to satisfy the
reserves of TU formed during the investment period. Details are
specified in the contract between TBG and TU.
4.8 ASSUMPTION OF RISK
In the cooperation agreement the cooperating Lead Investor may be
granted the right to claim from TBG, until the expiration of 5 years
from the start of the investment of TBG in TU, a partial reimbursement
of a loss from its investment made in TU.
In such a case, the sum reimbursed may amount to maximum 50%, in the new
Federal States and Berlin (East) up to maximum 70% of the contribution
it had itself effected. TBG may then demand the full or partial transfer
of the Lead Investor's investment to it or to a third party. The
precondition for claiming the risk sharing is that
- bankruptcy proceedings or a total execution have been instituted
against the assets of TU or that the institution of proceedings has
been denied due to lack of an estate,
- a statutory declaration has been filed for TU, or
- the continued insolvency of TU is substantiated in another way,
- the claims of the Lead Investor from his investment in TU have
partially come to an end by virtue of a court composition or a
waiver.
The remaining risk of loss of the Lead Investor has to be borne by the
latter himself.
5. APPLICATION PROCEDURE
Applications by TU for investments must be addressed to
Technologie-Beteiligungs-Gesellschaft m.b.H.
der Deutschen Ausgleichsbank
Wielandstrasse 4, Bonn-Bad Godesberg
Mail address: 53170 Bonn
on forms of TBG together with a statement of the cooperating Lead
Investors on effecting his own investment.
<PAGE> 23
The examination of the application conditions is initially effected by
the Lead Investor (if needed, with the inclusion of outside experts,
e.g., technology consulting offices). TBG reserves the right to demand
additional documents, including expert opinion, if deemed necessary.
Before concluding an investment agreement between the Lead Investor and
TU, an investment application has to be submitted to TBG. A legal claim
for effecting an investment by TBG does not exist.
If the Lead Investor has not yet cooperated with TBG in any other case,
the documents necessary for the examination of his solvency must also be
submitted.
Additional information is available from TBG at telephone No. (0228)
831-2290.
Bonn, January 1, 1995
<PAGE> 24
[Handwritten:] typ. undisclosed partnership
Version 02.93
PARTNERSHIP AGREEMENT
Agreement concerning the establishment of an undisclosed
Partnership between
SCM Schneider Microsysteme Entwicklungs- und Vertriebs
GmbH, Fraunhoferstrasse 11A,
82152 Planegg
-hereinafter: Junges Technologie-Unternehmen (JTU)
[Young Technology Enterprise]-
and
Technologie-Beteiligungs-Gesellschaft m.b.H. [Technology Holding Company]
of Deutsche Ausgleichsbank, Wielandstrasse 4, 5300 Bonn 2
- dormant partner, hereinafter: TBG -
SECTION 1
PURPOSE OF THE COMPANY, PARTNERS
1. Within the scope of the program "Investment Capital for Young Technology
Enterprises" carried through with the Federal Ministry for Education,
Science, Research and Technology (BMFT) and the Deutsche Ausgleichsbank,
TBG is supporting young technology enterprises by entering into
partnerships to finance investments and operating funds
- for research and development work through production and testing
of prototypes (core phase) and
- for adjustment developments and the preparations of products,
including market introduction of new technical products,
processes or technical services (buildup phase).
2) a) JTU, recorded in the Commercial Register of the Munich
Amtsgericht [District Court] under No. HRB 91372, operates
pursuant to the articles of association in the valid version of
March 29, 1990, addendum of May 29, 1990, a commercial business
with the purpose of:
Development, production and marketing of electronic components
for microsystems, electronic and electrical devices, data
terminals and processing installations, as well as trade with all
the articles connected with these.
b) Within the scope of this business purpose, JTU is engaged in
the development of systems and software according to the PCMCIA
standard.
<PAGE> 25
3. TBG acquires an interest in JTU in the legal form of the undisclosed
partnership, in order to support the project described in paragraph 2b.
SECTION 2
CONTRIBUTION TO CAPITAL
1. Exclusively for the promotion of the innovation project described in
Section 1 para. 2b and on the basis of the data of JTU in the
partnership application of May 26, 1993, TBG effects a contribution to
capital in the amount of DM 1,000,000 on condition that the cooperation
partners
<PAGE> 26
Zweite Beteiligungs KG [Second Limited Partnership] of TVM
Techno Venture Management GmbH & Co. KG, Leopoldstrasse 28 A,
80802 Munich
TVM Eurotech Limited Partnership, 101 Arch Street, Suite 1950,
Boston, MA 02110, U.S.A.
APM International B.V., Gooimeer 3, NL-1411 DC Naarden,
Netherlands
KBL Founders Ventures SCA, 43, Boulevard Royal, L-2955
Luxembourg, LUXEMBOURG
Oscar Gruss & Sons Inc., 74 Broad Street, New York, N.Y.
10004, U.S.A.
as investors (hereinafter jointly: BG)
have concluded with TBG a cooperation agreement for the commitment to
JTU. BG will be advised regarding the servicing of the commitment to JTU
by TVM Techno Venture Management GmbH & Co. KG, Leopoldstrasse 28 A,
80802 Munich, (hereinafter: TVM) as servicing company.
The conditions for TBG entering the partnership are created, moreover,
by the fact that BG will effect additional contributions to the capital
of JTU in the total amount of DM 133,400 with additional payment of a
premium totaling DM 2,121,060.
The contribution of TBG is to be used for co-financing the
project-related planning listed in the appendix. The appendix shall
constitute a component of this Partnership Agreement.
To the extent that the costs of the project should decline as compared
to the above data, or if subsequently additional public funds are
solicited, TBG shall have the right to curtail its contribution in a
ratio corresponding to the reduction of the investment volume. The
reduction amount must be retransferred to TBG without delay.
3. JTU may call in the contribution after the start of the company (cf.
Section 3 para. 1 ), subject to the condition that its immediate use as
provided, and a proportionate contribution together with the other
financing means provided in para. 2 of the investment project are
ensured. The call must be accompanied by a confirmation of the call
conditions by BG.
4. If the contribution is not called, at least partially by March 31, 1994
at the latest, this agreement is terminated.
5. On the occasion of the first partial call, TBG shall have the right to
retain a processing fee in the amount of 1.00% of the total contribution
agreed in this agreement.
6. The TBG contribution must be kept by JTU in a separate contribution
account. Withdrawals by TBG from this account are not allowed.
<PAGE> 27
SECTION 3
START AND DURATION OF THE COMPANY
1. The undisclosed partnership shall begin as soon as this agreement is
signed by both parties.
2. The undisclosed partnership is fixed for a term ending December 31,
2003.
3. Upon termination of the corporate relationship, the contribution of TBG
and the unpaid dividends are due for payment to TBG.
<PAGE> 28
SECTION 4
MANAGEMENT
1. TBG does not participate in the management of JTU, if nothing different
is provided hereinbelow.
2. JTU shall require the consent of TBG for
a) any amendment of the articles of association, in particular any
amendment of the purpose of the enterprise, or the acceptance of
new partners or the agreement of new participations;
b) the appointment and dismissal of managers of JTU;
c) conclusion, amendment and termination of the agreement on the
granting or the acquisition of licenses, patents, design
patents, trademarks or know-how, to the extent these concern the
innovation project supported with the participation of TBG;
d) conclusion, amendment and termination of essential marketing
agreements;
e) partial or total move, lease or sale of the operation;
f) conclusion and termination of control contracts and profit and
loss transfer agreements.
3. Consents pursuant toSection4 para. 2 must be obtained from TBG without
delay.
If within a period of 14 days after receipt of the notice on the measure
requiring consent TBG has not stated in writing its refusal to consent,
such consent shall be deemed to have been given.
SECTION 5
INFORMATION AND CONTROL RIGHTS
1. JTU has to report to TBG semi-annually, namely by March 31 and September
30 of each year on the financial situation of JTU and on the status of
the innovation project described in Section 1 para. 2b, so long as TBG
does not waive its right to these reports, because BG simultaneously
exercises control of JTU also on behalf of TBG. In addition, TBG
receives from JTU a brief, monthly status report as per the attached
appendix.
2. Irrespective of whether BG exercises the control of JTU simultaneously
also for TBG, JTU has to inform TBG directly and without delay about all
measures going beyond the scope of the usual business operation. Besides
the measures mentioned under Section 4 para. 2, particularly the
<PAGE> 29
following go beyond the scope of usual business operations:
a) Partial or total shutdown of operations;
b) Discontinuance or substantial change of the innovation project
described in Section 1 para. 2 b;
c) Any assumption of commitments, also for investments, which
exceed the amount of DM 250,000 per month, or if they result
from leasing, rental or tenancy agreements, if they exceed the
amount of DM 100,000 per month.
3. In addition, TBG shall have the right of verification pursuant to
Section 716 BGB [Civil Code]. This applies also to the period after the
termination of the partnership, to the extent necessary for verification
of the assets to which a partner is entitled upon his retirement from
the partnership.
<PAGE> 30
TBG has furthermore the right to examine at any time the records of JTU
referring to the innovation project described in Section 1 para. 2b. To
exercise its verification right TBG may retain the services of a third
party.
4. TBG is authorized to forward the information provided to it on the
innovation project of JTU exclusively to its parent company, the
Deutsche Ausgleichsbank, to the BMFT and to a third party retained by it
to evaluate the model tests. These parties are also obligated to observe
secrecy, except for permissible publications in a harmless form.
5. JTU grants the BMFT, and a representative appointed by it, the right to
receive presentations, information and to effect examinations in the
same extent as that granted to TBG. JTU declares its consent to the
effect that TBG can transmit to the BMFT or to an institute assigned by
it to this effect, the data on the scientific evaluation of the program
mentioned inSection1 para. 1 of this agreement which are obtained
through its enterprise and the supported innovation project. JTU
declares itself prepared, furthermore, to provide directly to the BMFT,
or an institute assigned by it, the information necessary for the
scientific evaluation of the model tests. In the preparation and in the
publication of data about the model test it shall be ensured that no
harm be caused to JTU.
6. JTU shall make available to TBG upon request all the records for
examination purposes, which the Bundesrechnungshof [Federal Audit
Office] deems necessary.
SECTION 6
ADVISORY BOARD
TBG may at any time demand the formation of an advisory board.
TBG participates in this advisory board under reasonable consideration of the
amount of its contribution.
The advisory board shall advise JTU in financial and technical matters,
particularly with regard to the project described in Section 1 para. 2b. It has
the same information and verification rights as those to which TBG is entitled
under this agreement.
SECTION 7
FINANCIAL YEAR, ANNUAL STATEMENT OF ACCOUNTS
1. The financial year of the undisclosed partnership is the same as that of
JTU.
2. JTU has to draw up its annual statement of accounts (balance sheet,
profit and loss account, appendix) in observance of SectionSection 238 -
285 HGB [Handelsgesetzbuch] [Commercial Code] within six months after
expiration of the financial year, and to forward it to TBG in an
original, signed copy and with the certificate of an auditor or of a
certified public accountant.
3. The annual statement of accounts must respect, insofar as permissible
under commercial law,
<PAGE> 31
the profit determination provisions of the Income Tax Law. If, within
the scope of the taxable profit determination or based on a external tax
audit, other data than those contained in the original annual statement
of account are deemed binding, such shall also be determining in the
relation of JTU to TBG.
<PAGE> 32
SECTION 8
PROFIT AND LOSS SHARING
1. TBG receives on its paid contribution a minimum compensation of 5% p.a.,
irrespective of the annual result of JTU. This compensation is payable
semi-annually in retrospect by June 30 and December 31 of each year.
2. From the achieved annual surplus after the drawn contribution, TBG shall
receive 9% of the profit provided it exceeds DM 100,000, but maximum 5%
p.a. of the actually paid-in contribution.
This profit sharing is payable within 2 weeks after adoption of the
annual statement of account (Section 7 para. 2).
3. Determining for the calculation according to Para. 2 are the year's net
earnings, which are shown in the annual statement of account drawn up
according to Section 7 para. 3 prior to taking into account TBG share of
the profit pursuant to No. 2 above.
a) To the annual statement of account must be added
- paid income taxes, insofar as they have reduced the
year's net earnings as shown;
- interest charged to the partners in JTU, provided the
latter is a partnership, without having flowed into the
year's net earnings of the co-entrepreneurs;
- extraordinary expenditures, insofar as they result from
business occasions which took place before the start of
the undisclosed partnership;
- losses from the sale or destruction of fixed assets,
insofar as the latter were already present at the time of
the start of the company.
b) To be deducted from the year's net earnings are
- Amounts from writing back of tax-free reserves, which
were formed prior to the start of the undisclosed
partnership;
- compensations for activities or interest credited to the
partners in JTU, provided the latter is a partnership,
without having reduced the year's net earnings of the
co-entrepreneurs;
- extraordinary income, insofar as it is based on business
occasions which took place before the start of the
undisclosed partnership;
<PAGE> 33
- income from the sale of fixed assets, insofar as the
latter were already present at the time of the start of
the company.
c) In the year the partnership is called off, the year's net
earnings for the calculation of the profit sharing pursuant to
para. 2 shall be deemed to have accrued evenly over the year.
4. TBG shall have the right to demand, as of the end of the partnership
period, a one-time compensation of 25% of paid-in contribution.
TBG shall make use of this right only when, in its opinion, it appears
to be justified on the basis of the overall financial situation of JTU,
in particular on the basis of its profits attained during the last three
years before the termination of the partnership and the undisclosed
reserves formed during the time of the partnership.
5. TBG does not share in the losses of JTU.
<PAGE> 34
SECTION 9
TAXES
JTU shall be responsible for remitting the legally prescribed Capital Yield Tax
in regard to the compensation for the undisclosed contribution, and will retain
from the payments to TBG the Capital Yield Tax and remit these directly to the
appropriate tax office. After the remittance, JTU will issue to TBG
confirmations according to Section 45a para. 2 EStG [Income Tax Law] on the
forms made available by TBG.
SECTION 10
SALE AND ACQUISITION OF SHARES
1. TBG shall have the right to sell its investment at any time, in part or
in full, to the BG or to a cooperation partner succeeding it.
The cooperation partner shall have the right to demand, at the end of
each business year, to convert the undisclosed investment which it has
acquired from TBG, into a regular share of the company. The conversion
conditions shall be agreed between JTU and BG.
2. TBG shall have the right to acquire the investment of another enterprise
participating in JTU with which TBG has concluded a cooperation
agreement, or to demand the transfer to a third party to be named by
TBG.
SECTION 11
DISSOLUTION OF THE UNDISCLOSED PARTNERSHIP
1. In the event of the dissolution of JTU, the undisclosed partnership
shall be dissolved.
2. Section 3 para. 3 and Section 8 para. 4 shall also apply in this case.
SECTION 12
TERMINATION
1. JTU has the right to redeem entirely or partially the participation of
TBG, subject to observing a notice period of 3 months as of June 30 or
December 31 of any year. If this redemption takes place at of the end of
the fifth partnership year, the contribution of TBG has to be repaid
with a premium in the amount of 25%. Beginning in the sixth partnership
year, the arrangements set forth in Section 8 para. 4 will apply. TBG
can waive the payment of the premium, if the termination is effected
because of the suspension of the supported innovation project.
2. Moreover, the undisclosed partnership can be terminated with immediate
effect, by any of its
<PAGE> 35
partners upon existence of a weighty ground by means of a written
statement. To the extent that the contribution has not or not yet been
made in full, TBG shall by the notice of termination be released from
its contribution obligation.
TBG has the right to termination on weighty grounds, particularly, when
a) JTU has made false statements in the partnership application;
<PAGE> 36
b) it is determined that the conditions for granting or leaving
intact the partnership did not exist already originally, or
ceased to exist subsequently, particularly if the innovation
project described in Section 1 para. 2b, proves to be
impracticable or is abandoned or substantially changed by JTU.
Should the innovation project described in Section 1 para. 2
prove to be technically impossible or financially unattainable,
TBG can waive repayment of the investment in full or in part, if
the continued existence of JTU is thereby made possible;
c) notes accepted by JTU go to protest, JTU suspends its payments,
files for bankruptcy or a petition is filed for institutional
court settlement proceedings or insolvency is ascertained in
some other way;
d) the managerial know-how bearer(s) who was(were) active in such a
position at JTU at the time the agreement on the undisclosed
partnership was concluded is(are) no longer active in his or
their main occupation in the management of JTU;
e) one of the measures listed inSection4 para. 2 has been carried
through without the prior consent of TBG.
SECTION 13
MATURING PAYMENTS
Payments due shall bear interest after occurrence of the delay and until receipt
by TBG at the rate of 3% above the discount rate of the Deutsche Bundesbank.
SECTION 14
GENERAL PROVISIONS
1. Amendments or supplements to this agreement must be in written form.
There exist no oral subsidiary understandings to this agreement.
2. Should one provision of this agreement be invalid, the remaining
provisions shall remain unaffected by this. JTU and TBG are committed to
replace invalid provisions of the agreement by regulations that are
legally valid and correspond as far as possible to the meaning and
purpose of the invalid provisions.
3. Bonn has been agreed upon as the venue for all legal disputes that may
arise from this agreement or its performance.
Bonn, October 22, 1993 Planegg, October 21, 1993
Technologie-Beteiligungs- SCM Schneider Microsystems
<PAGE> 37
Gesellschaft m.b.H. of the Entwicklungs- und Vertriebs-
Deutsche Ausgleichsbank GmbH
[signature]
[two signatures] [Stamp:] MICROSYSTEM GMBH
[illegible]
<PAGE> 1
EXHIBIT 10.8
IMPERIAL BANK
Member FDIC
CONTINUING GUARANTEE
ORIGINATING OFFICE: LENDING SERVICES
Name of Office: LENDING SERVICES
Street Address: 9920 S La Cienega Blvd
City, State, Zip Code: Inglewood, CA 90301
The undersigned (hereinafter referred to as "Guarantor") hereby requests
and authorizes IMPERIAL BANK (hereinafter referred to as the "Bank") to extend
credit to SCM MICROSYSTEMS INC, a Corporation (hereinafter referred to as
'Debtor), and in consideration of the granting of such credit by the Bank to
Debtor, Guarantor agrees as follows:
1. The words "indebtedness" and "credit" are used herein in their most
comprehensive sense and include any and all advances, debts, obligations and
liabilities, including interest thereon, of Debtor heretofore, now or hereafter
made, incurred or created, with or without notice to Guarantor, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, whether
assumed by Debtor's successors, heirs or assigns by operation of law or
otherwise, and whether Debtor is liable individually or jointly with others, and
whether recovery upon any such indebtedness or credit is or hereafter becomes
barred by any statute of limitations or is or hereafter becomes otherwise
unenforceable.
2. Credit may be granted from time to time at the request of Debtor and
without further authorization from or notice to Guarantor, even though Debtor's
financial condition may have deteriorated since the date hereof. If Debtor is a
corporation or a partnership, the Bank need not inquire into the power of Debtor
or the authority of its officers, directors, partners or agents acting or
purporting to act in its behalf. Each credit heretofore or hereafter granted to
Debtor shall be considered to have been granted at the special instance and
request of Guarantor and in consideration of and in reliance upon this
guarantee.
3. Guarantor hereby unconditionally guarantees and promises to pay the
Bank or its order any and all indebtedness of Debtor to the Bank and to perform
any and all obligations of Debtor under the terms of any agreement or instrument
evidencing, securing or executed in connection with any such indebtedness
("Credit Documents"). The liability of Guarantor shall not at any time exceed
the sum of the amount set forth below, plus the interest thereon in accordance
with the Credit Documents and the costs attorneys' fees and other expenses
provided for in Paragraph 15 hereof. If no amount is set forth below, the
liability of the Guarantor hereunder shall be unlimited. The Bank may permit
Debtor's indebtedness to exceed any maximum liability without impairing the
obligations of Guarantor hereunder. No payments made by or on behalf of
Guarantor to the Bank shall reduce any such maximum liability unless written
notice to that effect is received by the Bank at or prior to the time such
payment is made. If Guarantor has executed more than one guarantee of the
indebtedness of Debtor to the Bank, the guarantees shall be cumulative.
4. Either before or after revocation hereof and in such manner, upon such
terms and at such times as it considers best and with or without notice to
Guarantor. the Bank may alter, compromise, accelerate, extend or change the time
or manner for the payment of any indebtedness hereby guaranteed, increase or
reduce the rate of interest thereon, release or add any one or more guarantors
or endorsers, accept additional or substituted security therefor, or release or
subordinate any security therefor. No exercise or nonexercise by the Bank of any
right hereby given it, no dealing by the Bank with Debtor or any other person,
and no change, impairment or suspension of any right or remedy of the Bank shall
in any way affect any of the obligations of Guarantor hereunder or any security
furnished by Guarantor or give Guarantor arty recourse against the Bank.
5. In addition to all liens upon and rights of offset given to the Bank by
law against any property of Debtor of Guarantor, Guarantor hereby grants a
security interest in all property of Guarantor now or hereafter in the
possession of or on deposit with the Bank, whether held in a general or special
account or for safekeeping or otherwise. Each such security interest may be
exercised without demand upon or notice to Guarantor, shall continue in full
force unless specifically waived or released by the Bank in writing and shall
not be considered waived by any conduct of the Bank or by any failure of the
Bank to exercise any right of offset or to enforce any such security interest or
by any neglect or delay in so doing.
6. Guarantor waives and agrees not to assert or take advantage of (a) any
right to require the Bank to proceed against the Debtor or any other person,
firm or corporation or to proceed against or exhaust any security held by it at
any time or to pursue any other remedy in its power; (b) the defense of the
statute of limitations in any action hereunder or for the collection of any
indebtedness or the performance of any obligation guaranteed hereby; (c) any
defense that may arise by reason of the incapacity lack of authority, death or
disability of, or revocation hereof by, any other or others or the failure of
the Bank to file or enforce a claim against the estate (either in
administration, bankruptcy, or other proceeding) of any other or others; (d)
demand, protest and notice of any kind including, without limiting the
generality of the foregoing, notice
<PAGE> 2
of the existence, creation or incurring of new or additional indebtedness or of
any action or non-action on the part of the Debtor, the Bank, any endorser,
creditor of Debtor or Guarantor under this or any other instrument, or any other
person whomsoever, in connection with any obligation or evidence of indebtedness
hereby guaranteed; (a) any defense based upon an election of remedies by the
Bank, including without limitation, an election to proceed by nonjudicial rather
than judicial foreclosure, which election destroys or otherwise impairs
subrogation rights of Guarantor or the right of Guarantor to proceed against
Debtor for reimbursement, or both, including, without limitation, the impairment
of subrogation rights arising by virtue of California Civil Code 580(b) and
580(d); (f) any defense or right based upon the fair value deficiency
protections and provisions of California Civil Code 580(a) and California Civil
Procedure Code 726; and (g) any defense or right based upon the acceptance by
the Bank or an affiliate of the Bank of a deed in lieu of foreclosure, without
extinguishing the indebtedness, even if such acceptance destroys, alters or
otherwise impairs subrogation rights of Guarantor or the right of Guarantor to
proceed against Debtor for reimbursement, or both.
7. Guarantor, by execution hereof, represents to the Bank that the
relationship between Guarantor and Debtor is such that Guarantor has access to
all relevant facts and information concerning the indebtedness and Debtor and
that the Bank can rely upon Guarantor having such access. Guarantor waives and
agrees not to assert any duty on the part of the Bank to disclose to Guarantor
any facts that the Bank may now or hereafter know about Debtor, regardless of
whether the Bank has reason to believe that any such facts materially increase
the risk beyond that which Guarantor intends to assume, or has reason to believe
that such facts are unknown to Guarantor, or has a reasonable opportunity to
communicate such facts to Guarantor. Guarantor is fully responsible for being
and keeping informed of the financial condition of Debtor and all circumstances
bearing on the risk of non-payment of the indebtedness guaranteed hereby
8. Until all indebtedness of Debtor to the Bank has been paid in full,
even though such indebtedness is in excess of the liability of Guarantor,
Guarantor shall have no right of subrogation and waives any right to enforce any
remedy which the Bank now has or may hereafter have against Debtor and any
benefit of and any right to participate in any security now or hereafter held by
the Bank.
9. Except as otherwise provided in this paragraph, all existing or future
indebtedness of Debtor to Guarantor and, if Debtor is partnership, any right to
withdraw any capital of Guarantor invested in Debtor, is hereby subordinated to
all indebtedness hereby guaranteed and, without the prior written consent of the
Bank, shall not be paid or withdrawn in whole or in part nor will Guarantor
accept any payment of or on account of any such indebtedness or as a withdrawal
of capital while this guarantee is in effect. At the Bank's request, Debtor
shall pay to the Bank all or any part of subordinated indebtedness and any
capital which Guarantor is entitled to withdraw. Each payment by Debtor to
Guarantor in violation of this paragraph shall be received in trust for the Bank
and shall be paid to the Bank immediately on account of the indebtedness of
Debtor to the Bank. No such payment shall reduce or affect in any manner
Guarantor's liability under any of the provisions of this guarantee. Guarantor
reserves the right to receive from Debtor payment of any salary for personal
services at the same monthly rate as that at which Guarantor has been paid
during the preceding twelve months, it being expressly understood that such
amount shall not be subordinated to the indebtedness guaranteed hereby.
10. Guarantor will file all claims against Debtor in any bankruptcy or
other proceeding in which the filing of claims is required by upon any
indebtedness of Debtor to Guarantor and shall concurrently assign to the Bank
all of the Guarantor's rights thereunder. If Guarantor does not file any such
claim, the Bank, as Guarantor's attorney-in-fact, is hereby authorized to do so
in Guarantor's name or, in the Bank's discretion, to assign the claim and to
cause proof of claim to be filed in the name of the Bank's nominee. In all such
cases, whether in administration, bankruptcy or otherwise, the person or persons
authorized to pay such claims shall pay to the Bank the full amount thereof and,
to the full extent necessary for the purpose, Guarantor hereby assigns to the
Bank all of the Guarantor's rights to any and all such payments or distributions
to which Guarantor would otherwise be entitled. If the amount so paid is greater
than the guaranteed indebtedness then outstanding, the Bank will pay the amount
of the excess to the person entitled thereto.
11. With or without notice to Guarantor, the Bank, in its sole discretion
and at any time and from time to time either before or after delivery of any
notice of revocation hereunder and in such manner and upon such terms as it
considers fit, may (a) apply any or all payments or recoveries from Debtor, from
Guarantor or from any other guarantor under this or any other instrument or
realized from any security, in such manner and order or priority as the Bank
elects, to any indebtedness of Debtor to the Bank, whether or not such
indebtedness is guaranteed hereby or is otherwise secured or is due at the time
of such application; and (b) refund to Debtor any payment received by the Bank
upon any indebtedness hereby guaranteed and payment of the amount refunded shall
be fully guaranteed hereby. Any recovery realized from any other guarantor under
this or any other instrument shall be first credited upon that portion of the
indebtedness of Debtor to the Bank which exceeds Guarantor's maximum liability,
if any, hereunder.
12. The amount of Guarantor's liability and all rights, powers and
remedies of the Bank hereunder and under the Credit Documents and any other
agreement now or at any time hereafter in force between the Bank and Guarantor
shall be cumulative and not alternative, and such rights, powers and remedies
shall be in addition to all rights, powers and remedies given to the Bank by
law.
13. Guarantor's obligations hereunder are independent of the obligations
of Debtor and, in the event of any default hereunder, a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Debtor or whether Debtor is joined in any such action or
actions. The Bank may maintain successive actions for other defaults. The Bank's
rights hereunder shall not be exhausted by its exercise of any of its rights or
remedies or by any such action or by any number of successive actions until and
unless all indebtedness and obligations hereby guaranteed have been paid and
fully performed.
14. This is a continuing guarantee and Guarantor agrees that it shall
remain in full force until and unless Guarantor delivers to the Bank written
notice that it has been revoked as to credit granted subsequent to the effective
time of revocation as herein provided. Delivery of such notice shall be
effective by personal service upon an officer of the Bank at the originating
office of the Bank designated on the first page
-2-
<PAGE> 3
hereof or by mailing such notice by certified or registered mail, return receipt
requested, postage prepaid and addressed to the Bank at the originating office
designated on the first page hereof. Regardless of how notice of revocation is
given, it shall not be effective until twelve o'clock noon Pacific Standard or
Daylight Savings Time, as the case may be, on the next succeeding Bank business
day following the day such notice is delivered, but delivery of such notice
shall not affect any of Guarantor's obligations hereunder with respect to credit
granted prior to the effective date of such revocation, nor shall it affect any
of the obligations of any other guarantor for the credit granted to Debtor
hereunder. If the originating office of the Bank designated above is not in
existence at the time notice of revocation is desired to be given, then such
notice may be given in the manner above provided by delivering the same to
IMPERIAL BANK OFFICE at 9920 South La Cienega Boulevard, Inglewood, California,
90301.
15. Guarantor agrees to pay to the Bank without demand reasonable
attorneys' fees and all costs and other expenses which the Bank expends or
incurs in collecting or compromising any indebtedness of the Debtor, in
protecting the Bank's security under the Credit Documents or in enforcing this
guarantee against Guarantor or any other guarantor of any indebtedness hereby
guaranteed whether or not suit is filed, including, without limitation,
attorney's fees, costs and other such expenses incurred in any bankruptcy
proceeding. Guarantor warrants and represents that it is fully authorized by law
to execute this guarantee.
16. This guarantee shall benefit the Bank, its successors and assigns,
including the assignees of any indebtedness hereby guaranteed, and binds
Guarantor's successors and assigns. This guarantee is assignable by the Bank
with respect to all or any portion of the indebtedness and obligations
guaranteed hereunder, and, when so assigned, Guarantor shall be liable to the
assignees under this guarantee without in any manner affecting Guarantor's
liability hereunder with respect to arty indebtedness or obligations retained by
the Bank. No delegation or assignment of this guarantee by any Guarantor shall
be of any force or effect or release Guarantor from any obligation hereunder.
17. No provision of this guarantee or right of the Bank hereunder can
be waived, nor can any Guarantor be released from his/her obligations hereunder,
except by a writing duly executed by an authorized officer of the Bank. Should
any one or more provisions of this guarantee be determined to be illegal or
unenforceable, all other provisions. nevertheless shall be governed by and
construed in accordance with the State of California, and Guarantor agrees to
submit to the jurisdiction of the Courts of California.
18. If more than one guarantor signs this guarantee, the obligation of
all such guarantors shall be joint and several. When the context and
construction so require, all words used in the singular shall be deemed to have
been used in the plural and the masculine shall include the feminine and neuter.
Any married person who signs this guarantee agrees that recourse may be had
against separate property for all obligations under this guarantee.
19. Except as provided in any other written agreement now or at any
time hereafter in force between the Bank and Guarantor, this guarantee shall
constitute the entire agreement of Guarantor with the Bank with respect to the
subject matter hereof and no understanding, promise or condition concerning the
subject matter hereof shall be binding upon the Bank unless expressed herein.
Any notice to Guarantor shall be considered to have been duly given when
delivered personally or forty-eight hours after being mailed, postage prepaid,
to the address(es) set forth below or to such other address(es) as Guarantor may
from time to time designate by giving notice in the same manner of notice to the
Bank set forth in Paragraph 14 hereof.
20. Each of the undersigned Guarantors hereby acknowledges the receipt
of a true copy of this guarantee.
21. [ ] This guarantee is secured by a deed of trust dated
N/A , 19 , to Imperial Bancorp, as Trustee.
- ----------- --
GUARANTEE AMOUNT $2,500,000.00
Executed by or on behalf of Guarantor(s) on January 15, 1997
Signature of Guarantor(s) Address
SCM MICROSYSTEMS GMBH
By Luitpoldstrasse 6 85276 Pfaffenhoffen
-----------------------------------
Robert Schneider, CEO
By Germany
-----------------------------------
Bernd Meier, COO/Gen. Manager
-3-
<PAGE> 4
(COMPLETE IF GUARANTOR IS A CORPORATION)
RESOLUTION AUTHORIZING CONTINUING GUARANTEE,
ENDORSEMENT AND GUARANTEE OF NOTE OR NOTES
AND HYPOTHECATION OF ASSETS
WHEREAS, SCM MICROSYSTEMS INC hereinafter referred to as "Debtor", has
requested IMPERIAL BANK, hereinafter referred to as "Bank", to grant credit to
Debtor.
WHEREAS, the corporation hereinafter named expects to derive benefit from
such financial accommodation by Bank,
1. NOW, BE IT RESOLVED, that any 2 of the following named officers
Robert Schneider the CEO
Bernd Meier the COO/General Manager
the
- ---------------------------------- ---------------------------------------
the
- ---------------------------------- ---------------------------------------
for and on behalf of SCM MICROSYSTEMS GMBH be and they hereby are authorized and
directed for and in the name of this corporation and as its act and deed to do
and perform any one or more of the following:
A. Execute a continuing guarantee in favor of Bank for any and
all assets of this corporation.
B. Endorse and/or guarantee a note or notes in favor of Bank
whereunder Debtor is Maker and Bank is Payee including renewals and extensions
thereof.
C. Grant to Bank a security interest in and to any and all
assets of this corporation: (1) as security for any obligation which this
corporation may incur under subparagraphs A and/or B above; or (2) as security
for indebtedness of Debtor to Bank to the extent of the value of the security
interest so granted without personal liability on the part of this corporation
to Bank.
2. RESOLVED FURTHER, that Bank may rely on the authority conferred
herein until Bank receives notice in writing that the authority contained in
this resolution has been revoked or the authority of the persons or officers
named above has been revoked.
3. RESOLVED FURTHER, that the liability of this corporation to Bank
hereunder shall not exceed the total sum of **TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS AND ZERO CENTS** ($2,500,000.00).
4. RESOLVED FURTHER, that any guarantees or other documents in like
amount and terms as those stated above [heretofore executed by said officers in
the name of this corporation are hereby ratified and approved, and the secretary
or assistant secretary is authorized and directed to attach copies of such
documents to the minutes of the corporation.
I, the undersigned, William Ogdon, hereby certify that I am the duly
elected, qualified and acting secretary of the above referenced corporation,
duly organized and existing under the laws of the State of Germany; that the
Board of Directors of said corporation duly and regularly adopted the resolution
of which the foregoing is a full, true and correct copy.
I further certify that said resolution is now in full force and effect,
that it has not been revoked, suspended, or amended in any way and that the
specimen signatures appearing below are the signatures of the officers
authorized to sign for this corporation by virtue of said resolution.
I further certify that shareholder consent IS NOT required in the event of
hypothecation of all or substantially all of the assets of said corporation.
EXECUTED ON
AUTHORIZED SIGNATURES (SEAL)
Signature:___________________________________ Confirmed By:
Robert Schneider
Signature:___________________________________ _______________________________
Bernd Meier Robert Schneider (President)
Signature:___________________________________ _______________________________
William Ogdon (Secretary)
-4-
<PAGE> 5
IMPERIAL BANK
Member FDIC
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: LENDING SERVICES ADDRESS: 9920 S. La Cienega Blvd.
Inglewood, CA 90301
RESOLVED, that SCM MICROSYSTEMS INC borrow from IMPERIAL BANK, hereinafter
referred to as "Bank", from time to time, such sums of money as, in the
judgement of the officer or officers hereinafter authorized, this corporation
may require; provided that the aggregate amount of such borrowing, pursuant to
this resolution, shall not at any one time exceed the principal sum of **TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS AND ZERO** **CENTS** ($2,500,000.00 ), in
addition to such amount as may be otherwise authorized;
RESOLVED FURTHER, that any 1 of the following named officers
Steven Humphreys the Chairman and President
William E. Ogdon the Controller/Secretary
the
- ---------------------------------- -----------------------------------
the
- ---------------------------------- -----------------------------------
of this corporation (the officer or officers acting in combination, authorized
to act pursuant hereto being hereinafter designated as "authorized officers"),
to execute and deliver, from time to time, renewals or extensions of such notes
or other evidences of indebtedness; (2) to grant a security interest in,
transfer, or otherwise hypothecate or deed in trust for Bank's benefit and
deliver by such Instruments In writing or otherwise as may be demanded by the
Bank, any of the property of this corporation as may be required by the Bank to
secure the payment of any notes or other indebtedness of this corporation or
third parties to the Bank, whether arising pursuant to this resolution or
otherwise; and (3) to perform all acts and execute and deliver all instruments
which the Bank may deem necessary to carry out the purposes of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and to
endorse in the name of this corporation said notes, acceptances, draft, bailment
agreements, leases, receivables and evidences of indebtedness so discounted, and
to guarantee the payment of the same to the Bank, and (2) to apply for and
obtain from the Bank letters of credit and In connection therewith to execute
such agreement, applications, guarantees, indemnities and other financial
undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds at any such obligation, and to accept or
direct delivery from the Bank of any property of this corporation at any time
held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall give official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the Board
of Directors of this corporation, and that the certification of the of this
corporation as to the signatures of the above named persons shall be binding on
this corporation.
I, William E. Ogdon, Secretary of the above named corporation, duly
organized and existing under the laws of the State of Delaware, do hereby
certify that the foregoing is a full, true and correct copy of a resolution of
the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and effect
and has not been amended or revoked, and that the specimen signatures appearing
below are the signatures of the officers authorized to sign for this corporation
by virtue of said resolution.
EXECUTED ON 1/15/97
AUTHORIZED SIGNATURES (SEAL)
Signature:___________________________________ Confirmed By:
Robert Schneider
Signature:___________________________________ _______________________________
Bernd Meier Robert Schneider (President)
Signature:___________________________________ _______________________________
William Ogdon (Secretary)
-5-
<PAGE> 6
Imperial Bank
Member FDIC January 15, 1997
226 Airport Parkway
San Jose, California
Subject: Credit Terms and Conditions ('Agreement")
Borrower: SCM Microsystems, Inc.
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. Existence and Rights.
Company is a corporation
Borrower is duly organized and existing and in good standing under the laws of
the State of Delaware and is authorized and in good standing to do business in
the State of California. Borrower has powers and adequate authority, rights and
franchises to own its property and to carry on its business as now conducted,
and is duly qualified and in good standing to each State in which the character
of the properties owned by it therein or the conduct of its business makes such
qualification necessary, and Borrower has the power and authority to make and
carry out this Agreement. Borrower has no investment in any other business
entity, except as previously disclosed to Bank.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation nor any term or provision of Borrower's
articles of incorporation, by-laws or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other encumbrance
to be created or imposed upon any such property by reason hereof.
4. LITIGATION. To the best of Borrower's knowledge and belief, there is
no litigation or other proceeding pending or threatened against or affecting
injunction, decree or demand of any court or other governmental or regulatory
authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 11/30/96, and
the related profit and loss statement for the 11 months ended on that date, a
copy of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no materially adverse changes in the financial condition or business
of Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet. other than in the ordinate and normal course of
its business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase
or carry margin stock (as defined with Regulation U of the Board of Governors of
the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will,
unless you shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as: (a)
The same are being contested in good faith and by appropriate proceedings in
such manners as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate with
respect thereto.
4. RECORDS AND REPORTS. Maintain a standard and modem system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit your representatives to have access to, and to
examine its properties, books and records at all reasonable times; and furnish
you:
(a) As soon as available, and in any event within 25 days after the close
of each month of each fiscal year of Borrower, commencing
-6-
<PAGE> 7
with the month next ending, a balance sheet, profit and loss statement and
reconciliation of Borrower's capital accounts as of the close of such period and
covering operations for the portion of Borrower's fiscal year ending on the last
day of such period, all in reasonable detail and stating in comparative form the
figures for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate officer of
Borrower, subject, however, to year-end audit adjustments;
(b) As soon as available, and in any event within 90 days after the close of
each fiscal year of Borrower, a report of audit of Company as of the close of
and for such fiscal year, all in reasonable detail and stating in comparative
form the figures as of the close of and for the previous fiscal year, with the
unqualified opinion of accountants satisfactory to you.
(c) Within 25 days after the close of each month of each fiscal year of
Borrower, a certificate by chief financial officer or partner of Borrower,
stating that Borrower has performed and observed each and every covenant
contained in this Letter of Inducement to be performed by it and that no event
has occurred and no condition then exists which constitutes an event of default
hereunder or would constitute such an event of default upon the lapse of time or
upon the giving of notice and the lapse of time specified herein, or, if any
such event has occurred or any such condition exists, specifying the nature
thereof,
(d) Promptly after the receipt thereof by Borrower, copies of any detailed audit
reports submitted to Borrower by independent accountants in connection with each
annual or interim audit of the accounts of Borrower made by such accountants;
(e) Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower shall send to its stockholders, if
any, and copies of all reports which Borrower may file with the Securities and
Exchange Commission or any governmental authority at any time substituted
therefor; and
(f) Such other information relating to the affairs of Borrower as you reasonably
may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the occurrence of
any event of default hereunder or any event which upon notice and lapse of time
would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 11/30/96, excluding those
being refinanced by your bank; or sell or transfer, either with or without
recourse, any accounts or notes receivable or any moneys due to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent, liens in your favor or liens for equipment
leases.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or ,advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government: or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS: MERGER OR CONSOLIDATION. Purchase
or otherwise acquire the assets or business of any person or other entity or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same, provided, however, that Borrower may sell assets which are obsolete or
otherwise considered surplus and which are sold in the ordinary course of
business, so long as such assets are sold for full, fair and reasonable
consideration and so long as all such sales shall not exceed $25.000 in any
fiscal year without your prior written consent.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock.
D. The occurrence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you immediately
due and payable, all without demand, presentment or notice, all of which are
hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay, any installment or principal
or of any interest on any indebtedness of Borrower to you within 10 days of the
due date thereof.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term
or condition of this Agreement binding upon Borrower within thirty days of
written notice from you.
3. BREACH OF WARRANTY. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or misleading
in any material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent;
or admit its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial pan of its property or business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process, in excess of $50,000, shall be entered or filed
against Borrower or any of its assets and shall remain unvacated unbonded or
unstayed for a period of 10 days or in any event later than five days prior to
the date of any proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. Miscellaneous Provisions.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of your Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this agreement or any note
issued in connection with a loan that your Bank may make
-7-
<PAGE> 8
hereunder, are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
See Addendum dated January 15, 1997, attached hereto and incorporated herein by
this reference for additional terms. In the event of a conflict between this
Agreement and the Addendum, the terms in the Addendum prevail.
SCM Microsystems, Inc.
By: ______________________________________
Steven Humphreys
-8-
<PAGE> 9
SCM MICROSYSTEMS, INC.
ADDENDUM TO CREDIT TERMS & CONDITIONS
DATED JANUARY 15, 1997
FACILITY: A modification and increase to $2,500,000 of the
existing $1,000,000 Revolving Line of Credit
("Line of Credit"), to support short term working
capital requirements and the issuance of letters
of credit.
$250,000 sub-limit for the issuance of trade-
related Standby and Commercial Letters of Credit,
$250,000 sub-limit for foreign exchange reserved
for the issuance of forward contracts up to a
maximum $2,500,000.
Notwithstanding the foregoing, at no time shall
Bank be obligated to disburse any amount in excess
of the aggregate sum of $2,500,000 under the
Facility.
BORROWING Borrowing base to be monitored on a monthly basis
BASE: and consist of:
80% of Eligible Accounts (as hereinafter defined)
payable by debtors whose principal place of
business is located within the United States of
America ("Eligible Domestic Accounts") and any
Bank-approved, Letter of Credit backed or insured
Eligible Accounts payable by debtors whose
principal place of business is located outside the
United States of America ("Eligible Foreign
Accounts").
Eligible Accounts will include those accounts
outstanding less than 90 days from invoice date
subject to certain exclusions for non-approved
foreign, government, contra accounts and
inter-company accounts. Concentration Limit of
20%, defined as: any account which alone exceeds
20% of the total accounts receivable will be
ineligible to the extent said accounts receivable
exceed 20% of the total accounts receivable.
Exceptions to the 20% concentration limit to be
allowed for Dell Computer, Gateway Computer,
Digital Equipment Corporation, IBM, and Packard
Bell, which will each be allowed to constitute up
to 35 % of the total accounts of Borrower. If 25%
or more of an account receivable is past due
(greater than 90 days) the entire account is
ineligible.
MATURITY: May 15, 1997.
PAYMENT: Interest due monthly.
Principal due upon maturity.
SECURITY: Perfected first priority security interest in all
corporate assets, excluding previously leased
equipment.
SUBORDINATION: Continued subordination of a minimum of $3,000,000
in inter-company indebtedness to SCM Microsystems
GmbH (formally known as SCM Schneider Microsysteme
Entwicklungs-und Vertriebs GmbH).
GUARANTOR: Continuing commercial guarantee of SCM
Microsystems GmbH (formally known as SCM Schneider
Microsysteme Entwicklungs-und Vertriebs GmbH).
PRICING:
INTEREST RATE: Bank's Prime Rate + 1.00% per annum (floating).
Rate to be reduced to Bank's Prime Rate per annum
(floating) following Bank's receipt of evidence
that Borrower has achieved two fiscal quarters of
operating and after-tax profitability in excess of
$200,000 per quarter, beginning with the quarter
ending 12/31/96.
FEES: $3,750, payable upon written acceptance of
commitment.
DEPOSITS: Borrower to maintain primary operating and
depository accounts with Bank.
-9-
<PAGE> 10
FINANCIAL Beginning with the month ending 12/31/96, the
COVENANTS: following covenants will be monitored on a
monthly basis except where noted otherwise.
1) Minimum Quick Ratio(1) of 1.25 to 1.00.
2) Minimum Tangible Net Worth(2) of $1,800,000
plus 75% of any new equity.
3) Maximum Total Liabilities(2) to Tangible
Net Worth(2) of: -1.50 to 1.00.
4) Borrower to maintain quarterly profitability
on an operating and pretax basis, with the
exception of one quarterly loss per fiscal
year, not to exceed $200,000.
DEFINITIONS: 1 Quick Ratio is cash plus accounts receivable
divided by current liabilities less the
current portion of indebtedness fully
subordinated to the debt due Bank.
2 Tangible Net Worth is the financial
statement net worth of the Borrower prepared
according to generally accepted accounting
principles less intangible assets, plus
indebtedness fully subordinated to the debt
due to Bank."
3 Total Liabilities are all the Borrower's
liabilities less deferred revenue and
indebtedness fully subordinated to the debt
due to Bank.
REPORTING In addition to the reporting requirements of
REQUIREMENTS: Section B.4. of the Credit Terms and Conditions,
Borrower will, from time to time, provide Bank in
form and substance satisfactory to Bank:
1) Monthly listing of aged accounts receivable
and accounts payable from invoice date, with
a Bank borrowing base certificate within 10
days of each month end.
2) Monthly internally prepared financial
statements prepared according to generally
accepted accounting principles and Bank
compliance certificate within 25 days of
each month end.
3) Quarterly financial statements of SCM
Microsystems GmbH, within 45 days of the end
of each fiscal quarter.
4) Unqualified audit of Borrower's consolidated
and consolidating annual financial
statements within 90 days of the end of each
fiscal year.
5) Budgets, sales projections, operating plans,
or other financial exhibits which Bank may
reasonably request.
OTHER A) Borrower, without prior written permission
COVENANTS: of the Bank, will not:
1) Incur additional borrowed indebtedness other
than Bank-approved subordinated debt and
domestic equipment leases.
2) Merge, liquidate a substantial portion of
its assets, or acquire other assets other
than in the normal course of business.
3) Transfer funds to SCM Microsystems GmbH
(formally known as SCM Schneider
Microsysteme Entwicklungs-und Vertriebs
GmbH), except in the ordinary course of
business.
4) Transfer funds to SCM Microsystems GmbH
(formally known as SCM Schneider
Microsysteme Entwicklungs-und Vertriebs
GmbH), if such transfer would cause Borrower
to violate any of its financial covenants
with Bank.
5) Make loans, investments or advances to
outside parties other than in the normal
course of business.
6) Make distributions or dividends to
shareholders.
B) Borrower to notify Bank in writing of any
legal action commenced against it which may
result in damages over $100,000. Borrower
shall provide said notice to Bank
immediately upon the receipt by Borrower of
notice of the commencement of such legal
action.
C) Annual Accounts Receivable Audit, performed
by the Bank's Asset Based Department, with
results satisfactory to Bank, at Borrower's
expense, not to exceed $1,500.
CONDITIONS 1) Execution by Borrower of loan documentation
PRECEDENT satisfactory to Bank.
TO LENDING:
MISCELLANEOUS: All reasonable Bank legal fees shall be for the
account of the Borrower.
All reasonable out-of-pocket expenses incurred by
the Bank in connection with its due diligence and
closing of this transaction shall be reimbursed by
the Borrower.
-10-
<PAGE> 11
SCM MICROSYSTEMS, INC.
__________________________________
(signature) Steven Humphreys
__________________________________ February 12, 1997
(title) President -----------------
-11-
<PAGE> 12
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered Into between SCM MICROSYSTEMS INC, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
80% of eligible accounts
and in no event more than $2,500,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein
called "Loan Account") and Bank shall credit the Loan Account with all
loan repayments made by Borrower. Borrower promises to pay Bank (a) the
unpaid balance of Borrower Loan Account on demand and (b) on or before the
tenth day of each month, Interest on the average daily unpaid balance of
the Loan Account during the immediately preceding month at the rate of One
and no/1000ths percent (1.000%) per annum in excess of the rate of
interest which Bank has announced as its prime lending rate ("Prime Rate")
which shall vary concurrently with any change in such Prime Rate. Interest
shall be computed at the above rate on the basis of the actual number of
days during which the principal balance of the loan account is outstanding
divided by 360, which shall for Interest computation purposes be
considered one year. Bank at its option may demand payment of any or all
of the amount due under the Loan Account including accrued but unpaid
interest at any time. Such notice may be given verbally or in writing and
should be effective upon receipt by Borrower. The amount of interest
payable each month by Borrower shall not be less than a minimum monthly
charge of $250.00. Bank is hereby authorized to charge Borrower's deposit
account(s) with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
In a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used In this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or
to be sold or to be leased, or for services rendered or to be
rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders, notes,
drafts, acceptances, general intangibles and other forms of
obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which
is assigned or hereafter is assigned to Bank as security or In which
Bank now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
90 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith Is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors
or whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are eligible
from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefor, and hereby grants to Bank a continuing security
interest in all moneys in the Collateral Account referred to in Section 6
hereof, as security for any and all obligations of Borrower to Bank,
whether now owing or hereafter incurred and whether direct, indirect,
absolute or contingent. So long as Borrower is indebted to Bank or Bank is
committed to extend credit to Borrower, Borrower will execute and deliver
to Bank such assignments, including Bank's standard forms of Specific or
General Assignment covering individual Accounts, notices, financing
statements, and other documents and papers as Bank may require in order to
affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's
Accounts, provided that no legal action shall be maintained thereon or in
connection therewith without Bank's prior written consent. Any collection
of Accounts by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or assigned
where required to enable Bank to collect same), shall be in trust for
Bank, and Borrower shall keep all such collections separate and apart from
all other funds and property so as to be capable of identification as the
property of Bank and deliver
-12-
<PAGE> 13
said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of said proceeds
shall be conditional credit subject to collection. Returned items at
Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and
such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue present policies with respect to
returned merchandise represented by the Accounts and of any credits,
adjustments or disputes arising in connection with the goods or services
represented by the Accounts and, in any of such events, Borrower will
immediately pay to Bank from its own funds (and not from the proceeds of
Accounts or Inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) if Borrower is a
corporation, that Borrower is duly organized and existing in the State of
its Incorporation and the execution, delivery and performance hereof are
within Borrower's corporate powers, have been duly authorized and are not
in conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide
indebtedness incurred by the debtor named therein in the amount of the
Account for either merchandise sold or delivered (or being held subject to
Borrower's delivery instructions) to, or services rendered, performed and
accepted by, the account debtor; (iv) That there are or will be no
defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral, submitted by Borrower to Bank, whether
previously or in the future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and Information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein; (ii)
Furnish Bank periodically, in such form and detail and at such times as
Bank may require, statements showing aging and reconciliation of the
Accounts and collections thereon; (iii) Permit representatives of Bank to
Inspect the Borrower's books and records relating to the Collateral and
make extracts therefrom at any reasonable time and to arrange for
verification of the Accounts, under reasonable procedures, acceptable to
Bank, directly with the account debtors or otherwise at Borrower's
expense; (iv) Promptly notify Bank of any attachment or other legal
process levied against any of the Collateral and any Information received
by Borrower relative to the Collateral, including the Accounts, the
account debtors or other persons obligated in connection therewith, which
may in any way affect the value of the Collateral or the rights and
remedies of Bank In respect thereto; (v) Reimburse Bank upon demand for
any and all legal costs, including reasonable attorneys' fees, and other
expense incurred In collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing
any term or provision of this Security Agreement or otherwise or in the
checking, handling and collection of the Collateral and the preparation
and enforcement of any agreement relating thereto; (vi) Notify Bank of
each location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to
Bank policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating lo the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; and (viii) In the event the
unpaid balance of Borrower's Loan Account shall exceed the maximum amount
of outstanding loans to which Borrower Is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from
the proceeds of Collateral, for credit to Borrower's Loan Account the
amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and may give notice of assignment to any and all account debtors,
and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the name of Borrower
upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts to endorse the name of the
undersigned upon document or Instrument relating to the Collateral; in its
name or otherwise, to demand, sue for, collect and give acquittances for
any and all moneys due or to become due upon the Accounts; to compromise,
prosecute or defend any action, claim or proceeding with respect thereto;
and to do any and all things necessary and proper to carry out the purpose
herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral In favor of any
secured party or person other than Bank.
12. Should: (i) Default be made In the payment of any obligation, or breach
be made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for
the purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower
become insolvent or make an assignment for the benefit of creditors; or
(v) Any proceeding be commended by or against Borrower under any
bankruptcy, reorganization, arrangement, readjustment of debt or
moratorium law or statute; then in any such event, bank may, at its option
and without demand first made and without notice to Borrower, do any one
or more of the following: (a) Terminate its obligation to make loans to
Borrower as provided in Section 1 hereof; (b) Declare all sums secured
hereby immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do,
or require Borrower to assemble the Collateral and make it available to
Bank at a place designated by Bank which is reasonably convenient to
Borrower and Bank, and Borrower waives all claims for damages due to or
arising from or connected with any such taking; (d) Proceed in the
foreclosure of Bank's security interest and sale of the Collateral
-13-
<PAGE> 14
in any manner permitted by law, or provided for herein; (e) Sell, lease or
otherwise dispose of the Collateral at public or private sale, with or
without having the Collateral at the place of sale, and upon terms and in
such manner as Bank may determine, and Bank may purchase same at any such
sale; (f) Retain the Collateral in full satisfaction of the obligations
secured thereby; (g) Exercise any remedies of a secured party under the
Uniform Commercial Code. Prior to any such disposition, Bank may, at its
option, cause any of the Collateral to be repaired or reconditioned in
such manner and to such extent as Bank may deem advisable, and any sums
expended therefor by Bank shall be repaid by Borrower and secured hereby.
Bank shall have the right to enforce one or more remedies hereunder
successively or concurrently, and any such action shall not estop or
prevent Bank from pursuing any further remedy which it may have hereunder
or by law. If a sufficient sum is not realized from any such disposition
of Collateral to pay all obligations secured by this Security Agreement,
Borrower hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or
State government or any department thereof, the obligation of Bank to make
loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other
obligations secured hereby and all other sums due hereunder shall
immediately become due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: Subject to the conditions and limitations
contained in the Credit Terms and Conditions dated January 15, 1997. See
Exhibit A attached.
Executed this 15th day of JANUARY, 1997
SCM MICROSYSTEMS INC.
___________________________________________
(Name of Borrower)
IMPERIAL BANK By: _______________________________________
Steven Humphreys, President
By:___________________________ By: _______________________________________
Title Wm. E. Ogdon, Controller
*If none, insert "None"
-14-
<PAGE> 15
Exhibit A to Security and Loan
Agreement dtd. 1/15/97
SCM MICROSYSTEMS INC.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
All payment shall be applied first to any late charges owing, then to
interest and the remainder, if any, to principal.
SCM MICROSYSTEMS INC.
by: _______________________________
Steven Humphreys
<PAGE> 16
IMPERIAL BANK
Member FDIC
AGREEMENT TO PROVIDE INSURANCE
(REAL OR PERSONAL PROPERTY)
TO: IMPERIAL BANK DATE: January 15, 1997
9920 S La Cienega Blvd. Borrower: SCM MICROSYSTEMS INC.
Inglewood, CA 90301
In consideration of a loan in the amount of $2,500,000.00, secured by all
tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force during
the term of the loan.
I/We also agree to advise the below named agent to add Imperial Bank as
loss payee on the new or existing insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
a) The amount of the loan, OR
b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on
the real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Imperial Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent: Christina Marson Telephone No.: 415-393-8175
Agent's Address:
Marsh McLennan SCM MICROSYSTEMS INC.
PO Box 193880
San Francisco, CA 94119
Signature of Obligor: By:__________________________
Steven Humphreys
Signature of Obligor:______________________________
================================================================================
- -------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:________________
Person Spoken to:______________________________________
Policy Number:_________________________________________
Effective From:__________________________ To:__________
Verified By:___________________________________________
- -------------------------------------------------------
<PAGE> 17
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): Date: January 15, 1997
SCM MICROSYSTEMS INC
$ paid to you directly by Cashiers Check No.
credited to deposit account No. 0017059254, when
$1,700,000.00 advances are requested.
$ 800,000.00 paid on Loan(s) No. 003
$ amounts paid to Bank for:
[Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$2,500,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$2,500,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as
the authorization for Imperial Bank to disburse the loan proceeds as stated
above.
SCM MICROSYSTEMS INC.
By:
-------------------------- ----------------------------
Steven Humphreys Signature
-------------------------- ----------------------------
Wm E. Ogdon Signature
<PAGE> 1
EXHIBIT 10.9
DEUTSCHE BANK
AKTIENGESELLSCHAFT
P.O. Box 21 03 62
85018 Ingolstadt
Headquarters (08 41) 3 15-0
Confidential
SCM Microsystems GmbH
- - Management -
Luitpoldstr. 6
85276 Pfaffenhofen October 23, 1996
Dear Messrs. Meier and Schneider:
We are writing in reference to the telephone discussion between you, Mr.
Schneider and your Mr. Lang, the topic of which was, among other things, the
intensification of our business relationship. In this connection, there was also
discussion of coverage of future working capital needs in the amount of about DM
4 to 5 million, which are to be covered in a sensible manner by at least three
banks. We are pleased to be able to inform you that we are available to you with
a working capital line of credit, which is increased to
DM 1,500,000.00
(in words: one million five hundred thousand German marks).
For debit drawing in connection with this line of credit, we currently charge
you an interest rate of 8% p.a. and will continue to charge you this rate until
further notice. For the increased working capital needs which you
addressed--particularly in the 4th quarter of each year--we will be glad to
disburse special low-interest cash credits to you in connection with the
aforementioned line of credit; the maturity dates and terms of said credits will
be coordinated with you on a case by case basis. In addition, we have granted a
guarantee credit in the current amount of about DM 18,000 charged against the
aforementioned line of credit.
As customary, we will extend our credit assurance by one year and set the
expiration date at 9/30/97. We will contact you to negotiate the further
handling of the line of credit in a timely manner prior to the expiration of
said expiration date.
Our willingness to extend credit is based on the following premises:
[ ] You will not furnish collateral to other banks (or you will only do so
if our credit line is secured in the same manner). In this connection,
you will ensure that the collateral at
<PAGE> 2
Sparkasse Pfaffenhofen or other financial institutions, particularly
guarantees which have been issued, are released. [Footer Information]
[ ] Submission of an annually revolving 3-year plan, incl. liquidity plan
for one year each.
[ ] Submission of quarterly status figures with a comparison of target/
actual figures and a deviation analysis.
[ ] Presentation of credit assurances from neighbor banks which confirms
coverage of the entire working capital needs of at least DM 4 million
and equal treatment by the banks.
[ ] Early submission of audited annual financial statements and
consolidated balance sheets
[ ] In the event that the holding function existing to date at SCM
Microsystems GmbH/Pfaffenhofen (currently vis a vis SCM Microsystems
Inc./USA) is relinquished and transferred to SCM Microsystems Inc./USA
or another corporation, you shall ensure that the future parent
corporation submits a firm letter of comfort to us. We will send you a
draft in this regard at the appropriate time.
We assume that future profits will be reinvested and that future
withdrawal/distribution policy will be designed in such a manner that a
sufficient equity endowment (at least 20% of the balance sheet total) is
guaranteed at all times.
In addition, we are assuming a sales allocation which is in accordance with our
working capital credit line.
Our credit assurance is based in substantial part on the plan figures submitted
to us for the 1996-1998 fiscal years and, in particular, on the achievement of
positive results in the 3rd and 4th quarter of 1996. If the actual figures
substantially deviate downward or an unplanned loss occurs, we will keep open
the option of extraordinary credit termination.
Otherwise, our Standard Contract Terms shall apply.
As a sign of your agreement to this credit assurance, we ask that you return the
signed copy of this letter.
Naturally, we will be available to you at any time for questions in connection
with this credit assurance and in all other financial matters.
Our credit assurance dated July 12, 1996, lapses pursuant hereto.
Sincerely yours,
Deutsche Bank AG
Ingolstadt Branch
[signature] [signature]
Reichgeid Maier
<PAGE> 3
In agreement with the content of this letter.
SCM Microsystems GmbH
Pfaffenhofen, [blank date] please sign on company stamp
DEUTSCHE BANK [logo]
AKTIENGESELLSCHAFT
Ingolstadt Branch
Corporate customer department
Ludwigstr. 24
85049 Ingolstadt
Mailing address:
SCM Microsystems GmbH P.O. Box 21 03 62
- - Management - 85018 Ingolstadt
Luitpoldstr. 6
85276 Pfaffenhofen Gunter Maier
Telephone: (0841) 315-229
Fax: (0841) 315-218
November 13, 1996
Our credit assurance dated 10/23/96
Gentlemen:
We are writing in reference to our credit assurance dated 10/23/96 and the
telephone discussion which was conducted with your Mr. Lang in the interim. As
discussed, the following items of the above-captioned credit assurance will be
specified in greater detail:
[ ] Equity endowment
In light of the fact that we were credibly assured that the shareholder loan
extended to you in the approximate amount of DM 4 million will be converted to
equity (nominal amount plus premium) by 1/31/97, we will view this as owners'
equity at this time, and therefore the 20% clause of our credit assurance is
satisfied.
[ ] Achievement of a positive result in the 3rd quarter:
According to the numerical material before us, the firm of SCM Microsystems GmbH
generated a loss of about DM 166,000 in the third quarter of 1996, although
September was already clearly in the positive result range (DM +499,000). In
light of the September result and the consolidated (GmbH [German limited
liability corporation] and Inc.) quarterly profit in the amount of US$ 154,000,
we
<PAGE> 4
view the 3rd quarter as satisfying the prerequisite to our willingness to extend
credit in this regard as well. As you confirmed, the 4th quarter of 1996 will
produce a positive result, viewed from both the individual (GmbH) and the
consolidated (GmbH + Inc.) standpoint.
However, if contrary to expectations, the conversion option is not exercised by
1/31/97 and/or no positive result is achieved in the 4th quarter of 1996 and
thereafter, we will have to reconsider our willingness to extend credit.
We hope to have been of assistance to you and remain
Sincerely yours,
Deutsche Bank AG
Ingolstadt Branch
[signature]
[Footer Information]
<PAGE> 1
EXHIBIT 10.10
BHF BANK
Aktiengesellschaft
Munich Branch
Confidential
SCM Microsystems GmbH 12/3/96
- - Management - Munich Branch
Luitpoldstr. 6 Corporate Banking
85276 Pfaffenhofen Hm
Telephone: 089/55173-232
Fax: 089/55173/292
Re: Credit assurance
Dear Messrs. Meier and Schneider:
We are writing in reference to the telephone discussion between you, Mr. Meier
and your Mr. Lang and are pleased to be able to extend to your enterprise a
framework line of credit in the amount of
DM 1,500,000.00
(in words: one million five hundred thousand German marks)
through 9/30/97 on the basis of our Standard Contract Terms.
The line of credit may--to the extent presentable--be used as follows:
1. cash credit with current account
2. cash credit from Euro funds with terms of 1-3 months (up to 50% of
amount used)
3. guarantee credit.
For uses in the form of cash credit, we will charge interest at the rate of 8.0%
p.a. until further notice, payable at the end of the calendar month. We reserve
the right to adjust this interest rate to the changing monetary and capital
market situation.
The interest rates for Euro credit uses are based on the respective market
situation and will be agreed upon on a case by case basis. For uses arising from
the guarantee credit, we charge a 1.5% guarantee commission. Our guarantee terms
will apply.
Due to the strong link between SCM Microsystems GmbH and its U.S. subsidiary,
the consolidated situation is of particular importance to us. The basis of and
prerequisite to our willingness to extend credit is the satisfaction of the
following conditions and plans:
- - positive development in the 4th quarter (consolidated result at least
US$ 150,000.00) and thus
<PAGE> 2
a maximum consolidated loss of US$ 600,000.00 in 1996, with
documentation of the existing order volume of SCM Microsystems Inc. for
December 1998 (GmbH + Inc. about DM 6 million in total);
BHF BANK Aktiengesellschaft
Munich Branch
[signature]
[Footer Information]
<PAGE> 3
BHF BANK
Aktiengesellschaft
Munich Branch
[illegible address]
Page 2 of the letter dated 12/3/96
to SCM Microsystems GmbH, Pfaffenhofen
- - positive development according to plan in 1997, i.e., clear increase in
sales and profit which permits adequate owners' equity endowment (at
least 20%);
- - conversion of convertible shareholder loans in the amount of DM
4,000,000.00 into owners' equity (capital stock and additional paid-in
capital) by no later than January 31, 1997, and achievement of a
consolidated equity ratio of at least 20% by 12/96 and maintenance
thereof in the future course of business;
- - regular information on at least a quarterly basis (quarterly report with
comparison of target/actual figures) on the SCM Microsystems GmbH and
Inc. enterprises, individually as well as consolidated, each by the 15th
of the following month;
- - near contemporaneous submission of your audited annual financial
statements, individually and consolidated;
- - submission of a liquidity plan;
- - equal treatment analogous to other banks is agreed upon; previously
posted collateral will be returned by no later than 12/15/96.
In the event that the foregoing prerequisites/conditions are not (or cannot be)
observed, we reserve the right to fundamentally reconsider our willingness to
extend credit on the basis of the changed situation or hold open the right of
extraordinary termination. In addition, the extension of credit is subject to
the proviso that additional lines of credit--currently from Deutsche Bank AG and
Stadtparksparkasse Munchen--are made available (consortial reservation
permissible) and maintained, each in the amount of DM 1,500,000.00 with at least
the same term.
Until the repayment of this credit, you shall be obligated not to furnish
collateral to other credit creditors for the same type of credits. You shall
ensure that corporations in which you hold a majority interest likewise do not
furnish collateral to other credit creditors for the same type of credits. This
obligation does not extend to the customary collateral in the industry based on
the Standard Contract Terms of the credit institutions.
If other third parties (in which you do not hold a majority interest) furnish or
have furnished collateral for the same types of credits to you, you shall inform
us in this regard as soon as become aware of the posting of security.
<PAGE> 4
In the event that intended to furnish collateral to other credit creditors for
the same type of credits, you shall notify us promptly--in any case prior to
furnishing collateral--in order to also give us the opportunity to obtain
appropriate security. At our request, you shall either forego furnishing
collateral or offer us collateral of equal value.
BHF BANK Aktiengesellschaft
Munich Branch
[signature]
[Footer Information]
<PAGE> 1
EXHIBIT 10.11
[logo] STADTSPARKASSE
MUNCHEN
unicef helps children
Munich helps unicef--so do we!
- --------------------------------------------------------------------------------
Sparkassenstr. 2
80331 Munich
SCM Schneider Microsysteme
Entwicklungs- u. Vertriebs GmbH
Luitpoldstrasse 6 Mr. Seemuller
Tel. 21675914
85276 Pfaffenhofen Fax 21675936
Munich, 11/13/96
Re: Your checking account 23-254444
Ladies and Gentlemen:
We are pleased to extend to you a framework credit through 3/30/98 with current
account in the amount of
DM 1,500,000.00
in words: one million five hundred thousand German marks.
The terms and additional conditions can be found in the attached framework
credit contract dated 11/13/96, which shall constitute a substantial component
of this assurance.
Please send us the documents which are checked in the disbursement schedule (see
attachment).
Sincerely yours, Enclosure(s)
Stadtsparkasse Munchen
Corporate Customer Service Headquarters
[signature]
[Footer Information]
x-smf1311kre02 b1149
<PAGE> 2
[logo] Stadtsparkasse Munchen
Sparkassenstr. 2
80331 Munich
Universal contract for
business credits
Customer no./Account. no. 23254444
Date Munich, 11/13/96
- --------------------------------------------------------------------------------
SCM Schneider Microsysteme Entwicklungs- u. Vertriebs GmbH
Luitpoldstrasse 6, 85276 Pfaffenhofen
- --------------------------------------------------------------------------------
- - hereinafter referred to as the Borrower - hereby concludes an agreement with
Sparkasse concerning the grant of the business credits named under no. 1; the
maximum sum defined below for the individual credits shall apply. If no
individual maximum sums are stipulated, an overall credit framework of DM
1,500,000.00 shall apply, within which the individual credits may be used in
fluctuating amounts.
1 CREDIT TYPES, CREDIT COSTS
1.1 CREDIT WITH ONGOING STATEMENT GERMAN MARKS
For the credit proceeds which are drawn, the interest and commission rates set
by Sparkasse for credits of this type shall be paid. The interest rate is
currently 8.75% per annum. Changes in the rate shall be communicated to the
Borrower. If the credit is not used, a credit commission of [blank]% per year
shall be charged as compensation for keeping the credit proceeds available.
At each closing of accounts, the credit costs incurred to date shall be charged.
If the granted credit is exceeded as a result, Sparkasse shall--as with every
credit overdraft--charge the following for the excess amount:
// the overdraft commission set at Sparkasse for overdrafts (along with
the aforementioned credit interest) which is currently [blank]% per
annum;
/X/ overdraft interest set for overdrafts, which is currently 14.50% per
annum.
In each instance, the Borrower shall be obligated to settle the overdrafts
promptly.
1.2 DRAFT DISCOUNT CREDIT GERMAN MARKS; BUNDESBANK-ELIGIBLE
DRAFT--AND--GOOD TRADE DRAFT(1)
The drafts shall be settled at the rates set by Sparkasse. Interest shall be
computed according to calendar days; for the purpose of calculating the interest
divisor, a 360-day year shall be assumed. This rule shall also apply to return
debits. In addition to a commission, the cash outlays which arise when a draft
was not made payable on one banking place shall be placed for account. These
fees shall be deducted from the draft amount at the time of settlement.
The equivalent value of the purchased draft shall be credited to the checking
account in the settlement amount. Otherwise, the additional terms for draft
discount credits which are attached as an appendix hereto shall apply.
<PAGE> 3
1.3 GUARANTEE FRAMEWORK CREDIT GERMAN MARKS IN GUARANTEE ACCOUNT
For the guarantees assumed by Sparkasse, the Borrower shall be charged to the
aforementioned guarantee account. If Sparkasse is sued arising from the
guarantee, the Borrower shall be obligated to immediately reimburse the sums
paid toward the guarantee by Sparkasse. For the guarantees assumed, Sparkasse
shall charge the commission rates which it has set for guarantee credits of this
type, currently one time--per month--per(1) [blank]% of the guarantee sum, but
at least DM [blank].
The customer shall receive the debit notice separately. Changes in the guarantee
commission shall be reported to the customer. At the time of assumption or
cancellation of a guarantee, the customer shall receive notice concerning the
resulting amount of the overall obligation arising from the guarantee credit.
Sparkasse shall be authorized to obtain information from the guarantee creditors
concerning the respective amount of the guaranteed obligations.
Otherwise, the special terms concerning the guarantee transaction, which are
attached as an appendix, shall apply.
2 TERMINATION, TERM
2.1 The credit contract may be terminated by either party without compliance
with a termination notice period. Notwithstanding the rights of both parties to
terminate at any time without notice, the term for the granting of credit shall
initially extend until 3/30/93; if no term is entered above, the term for the
grant of credit shall be indefinite. If the term for granting credit is limited,
it can be extended at the request of the Borrower.
2.2 The provisions of this contract shall continue to apply to the guarantees
already assumed at the time of termination. Notwithstanding the release claim
pursuant to Section 775 BGB [German Civil Code], however, Sparkasse may demand a
release from these guarantee obligations from the Borrower. Sentence 1 shall
apply mutatis mutandis to drafts already discounted up to the time of
termination.
3 SPECIAL AGREEMENTS
- --------------------------------------------------------------------------------
See special attachment
- --------------------------------------------------------------------------------
4 COLLATERAL
The credit may only be used if the stipulated collateral is furnished and
Sparkasse has a confirmation in this regard, if necessary. Notwithstanding the
liability from any existing or future collateral in connection with its security
purpose, Sparkasse shall be given the following collateral in special documents:
- --------------------------------------------------------------------------------
See separate attachment
- --------------------------------------------------------------------------------
1. [Footnote] Please delete as applicable
<PAGE> 4
5 MULTIPLE BORROWERS/RETURN OF COLLATERAL
Multiple borrowers shall be jointly and severally liable for the liabilities
arising from this contract. If Sparkasse is satisfied by one Borrower, Sparkasse
shall not examine whether said Borrower is entitled to claims to collateral no
longer needed by Sparkasse. In principle, Sparkasse shall return such collateral
to the provider of security, unless the performing Borrower demonstrates that
the provider of security has consented to the release of said Borrower.
6 DISCLOSURE AND INFORMATIONAL DUTY
The credit institutions also have to disclose the financial circumstances of
their borrowers pursuant to statutory provisions. Accordingly, the Borrower
shall allow Sparkasse (or an office hired by Sparkasse) access to its financial
circumstances at any time; specifically, it shall present its books, balance
sheets, financial statements and business papers or permit access and review of
these documents, provide all requested information and facilitate an inspection
of its business operation. In consultation with the Borrower, Sparkasse may
demand the documents necessary therefor directly from the Borrower's advisors in
bookkeeping and tax matters. If the aforementioned documents are stored on data
media, the Borrower shall be obligated to make them legible in a reasonable
period of time. In the event that the Borrower does not satisfy these
obligations, Sparkasse shall be entitled to terminate the credit relationship
for immediate repayment. Sparkasse shall be entitled to inspect the public
register and land register at any time and request simple or certified copies
and excerpts at the Borrower's expense; in addition, it may obtain information
from insurance companies, governmental authorities and other offices,
particularly credit institutions, which Sparkasse may consider necessary in
order to evaluate the credit circumstances.
7 COSTS OF THE CONTRACT
The Borrower shall bear all costs arising as a result of the conclusion and
performance of this contract, including the provision of collateral.
8 PLACE OF VENUE
To the extent that jurisdiction of Sparkasse's general place of venue does not
arise from Section 29 ZPO [German Code of Civil Procedure], Sparkasse may pursue
its claims by way of litigation proceedings in its general place of venue if the
borrower to be sued by way of litigation proceedings is a Kaufmann [statutory
"merchant" under the German Commercial Code] or a legal entity within the
meaning of no. 6 AGB [Standard Contract Terms], or if the borrower has no
general place of venue domestically at the time of the conclusion of the
contract or later shifts his domicile or ordinary place of residence from the
Federal Republic of Germany or if his domicile or ordinary place of residence is
unknown at the time of the filing of the complaint.
9 LEGAL VALIDITY
If agreements which are made in this contract lack legal validity in whole or in
part or are not performed, it is intended that the remaining agreements remain
in effect.
<PAGE> 5
10 STANDARD CONTRACT TERMS
Sparkasse hereby expressly points out that its Standard Contract Terms (AGB)
shall constitute a supplemental component of the contract. The AGB shall be
available for inspection in the cash offices of Sparkasse.(1)
The contract and the copy shall be signed by all Borrowers named on the
front side.
<TABLE>
<S> <C> <C>
Place, date (if different from page 1) Company and signature(s), Borrower
Munich NOV. 13, 1996 The Borrower(s) is/are acting for his/their own
account:
/ / Yes / / No
For Sparkasse:
[signature]
</TABLE>
1. Every contract partner of Sparkasse receives a copy of the Standard Contract
Terms, as long as there is not yet a business connection and the execution of
the contract does not involve Sparkasse.
<PAGE> 6
Terms for the guarantee transaction
The credit institution shall assume guarantees and suretyships--hereinafter
referred to in the aggregate as "liability assurance"--on behalf of customers
under the following terms and conditions:
1. DIRECT/INDIRECT LIABILITY ASSURANCE, WORDING
The credit institution may prepare the liability assurance personally (direct
liability assurance) or have it prepared on its behalf by a different credit
institution (second bank).
To the extent that the credit institution or second bank follows the
instructions of the principal in drafting the document concerning the liability
assurance (document), it shall not be subject to any review or notice duty vis a
vis the principal.
The credit institution shall assume guarantees as a principal, waiving the
defenses of voidability or offset.
2. GUARANTEE ACCOUNT/GUARANTEE COMMISSION
The guarantee account of the principal shall be charged in the amount of the
assured sum upon delivery/dispatch of the document or dispatch of the order to
the second bank for the creation of a liability assurance. From that point in
time on, the principal shall be charged a guarantee commission on the charged
amount until deletion. In the case of any later use, the guarantee commission
shall be remitted retrospectively until payment.
3. RETURN OF THE DOCUMENT, RELEASE FROM LIABILITY
After the end/settlement of the liability assurance, the principal shall ensure
the return of the document, or, alternatively, the release of the credit
institution from liability.
4. DELETION
In the case of direct liability assurances for which a maturity date is
designated in the document, the credit institution shall delete the charge from
the guarantee account after the passage of the maturity date if the following
prerequisites are satisfied:
- - the liability assurance lapses in accordance with its clear wording if
no use takes place prior to the passage of the maturity date and
- - the liability assurance is governed by German law and
- - the credit institution is not sued within the time period.
If, in such a case, the credit institution is sued by the beneficiary under
foreign law on the basis of the liability assurance after the passage of the
maturity date, it shall only pay if there is an authorization
<PAGE> 7
by the principal to pay or an enforceable decision ordering payment.
In other cases, the credit institution shall delete the sum of the liability
assurance from the guarantee account if the document issued concerning the
liability assurance has been returned to it or if it has been clearly released
from liability by the beneficiary or the second bank.
If the subject matter of the liability assurance is a litigation guarantee in
which the consent of the beneficiary is necessary to return the document, the
credit institution shall be required to delete the charged amount only upon
demonstration of such consent.
5. ENTITLEMENT TO DEPOSIT UPON USE
The credit institution shall also be entitled to deposit the assured amount--to
the same extent stipulated with regard to the beneficiary in the liability
assurance.
6. EXAMINATION OF DOCUMENTS
If the credit institution must receive documents/declarations in connection with
the liability assurance, it shall exercise the care of an ordinary businessman
to examine whether they comply, with regard to external form, with the
conditions for use arising from the liability assurance.
The credit institution shall be subject to no further examination obligations,
particularly with regard to authenticity and absence of forgery, formal
correctness, completeness or legal validity of the documents/declaration or the
general or specific conditions contained therein or the correctness of attached
translations.
Declarations shall also be deemed to be in order if they have been transmitted
by cable, telegram, facsimile or via other information systems.
7. REIMBURSEMENT OF EXPENDITURES
The principal shall reimburse the credit institution in the same currency for
all expenditures which are incurred in connection with the execution of its
function--even after deletion of the liability assurance and/or in connection
with judicial or extra-judicial prosecution of rights domestically or abroad.
This shall also apply if the credit institution avails itself of a right to
deposit.
If the credit institution is not able to debit the expenditures to a current
account in connection with a balance or line of credit, the interest, fees and
commissions generally charged for overdrafts shall be paid.
8. FURNISHING OF COLLATERAL
Upon request, the principal shall be obligated in accordance with no. 22 AGB to
provide the credit institution with bank collateral or cash coverage or increase
existing collateral if a change in the risk situation arises as a result of
circumstances which arise or become known subsequently.
<PAGE> 8
Notwithstanding other collateral, all claims arising in favor of the principal
against the beneficiary in connection with the use arising from the liability
assurance are assigned to the credit institution to secure the credit
institution's claim for reimbursement of expenditures. The credit institution
shall assign the claims back as soon as it has been satisfied with respect to
all of its claims against the principal.
In the event of deposit, the reimbursement claim which the principal acquires
through a deposit made in the principal's name by the credit institution it
assigned to the credit institution at this time to secure the expenditure
reimbursement claim.
9. PLACE OF VENUE
If the customer is a Kaufmann [statutory "merchant" under the German Commercial
Code] which is not included in the business persons described in Section 4 of
the Commercial Code, a legal entity organized under public law or a public law
special fund, the credit institution may sue at its general place of venue and
may only be sued at such place of venue.
<PAGE> 9
APPENDIX TO THE FRAMEWORK CREDIT CONTRACT DATED 11/13/96, ACCOUNT 23-254444
SCM SCHNEIDER MICROSYSTEME ENTWICKLUNGS- U. VERTRIEBS GMBH
CONCERNING NUMBER 3 - SPECIAL AGREEMENTS
When the credit is granted, the current account credit dated 5/14/93 - 2/20/95
for DM 350,000.00 shall lapse.
1. This framework contract shall relate to all existing or future
obligations at Stadtsparkasse Munchen; said liabilities may not exceed
the total of the framework credit which has been extended.
2. It shall be deemed agreed upon that Stadtsparkasse Munchen shall
receive a guarantee declaration or comfort letter from the future
parent corporation (holding).
3. The corporation shall be obligated to take all measures to maintain the
current capital base. This shall apply in particular to any losses in
subsequent years and any planned distributions. If it is not possible
to meet this obligation, Sparkasse shall have the right of
extraordinary termination of this contract.
CONCERNING NUMBER 4 - COLLATERAL
In order to secure the claims of Sparkasse against the customer arising from the
credit framework contract, the customer shall be obligated not to place other
credit providers in a better position than Sparkasse. If, in future, the
customer obtains comparable grants of credits and loans, it shall treat
Sparkasse equally to the other credit providers with regard to the type and
scope of collateral. Moreover, the customer shall be obligated to send Sparkasse
the same information as other credit providers.
The customer shall likewise provide assurance that only negative declarations
have been submitted to secure comparable credit relationships and that no other
additional collateral has been furnished.
11/13/96 [signature]
- ------------ ------------------------ ------ ---------------------------
Date Stadtsparkasse Munchen Date Company stamp and signature
smf1311krel.sdw
<PAGE> 1
EXHIBIT 10.12
LEASE
THIS LEASE is made on the 29th day of September 1994, by and between Los
Gatos Business Park (hereinafter called "Lessor") and SCM Microsystems, Inc., a
Delaware corporation (hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
1. Premises. Lessor leases to Lessee, and Lessee leases from Lessor,
upon the terms and conditions herein set forth, those certain Premises
("Premises") situated in the City of Los Gatos, County of Santa Clara,
California, as outlined in Exhibit "A" attached hereto and described as follows:
Approximately 5,311 square feet of a larger building located at 131-B Albright
Way, Los Gatos, California.
2. Term. The term of this Lease shall be for Four Years commencing on
November 1, 1994 and ending on October 31, 1998, unless sooner terminated
pursuant to any provision hereof.
SEE ADDENDUM #1
3. Rent. Lessee shall pay to Lessor rent for the Premises of three
thousand six hundred seventy-five Dollars ($3,675.00) per month in lawful money
of the United States of America, subject to adjustment as provided in Section A
of this Paragraph. Rent shall be paid without deduction or offset, prior notice,
or demand, at such place as may be designated from time to time by Lessor as
follows: $3,675.00 shall be paid upon execution of the Lease, which sum
represents the amount of the first month's rent. A deposit of $5,577.00 as a
Security Deposit shall be made by Lessee and held by Lessor pursuant to
Paragraph 5 of this Lease, and shall be paid upon execution of the Lease. If
Lessee is not in default or is attempting to cure an existing default, of any
provision of this Lease, this sum, without interest thereon, shall be applied
toward the rent due for the last month of the term of this Lease or the extended
term, pursuant to any extension of the initial term in accordance with the
provisions of this Lease. $3,675.00 shall be paid on December 1, 1994, and in
advance on the first (1st) day of each succeeding calendar month until August 1,
1995. Rent for any period during the term hereof which is for less than one (1)
full month shall be a pro-rata portion of the monthly rent payment. Lessee
acknowledges that late payment by Lessee to Lessor of rent or any other payment
due Lessor will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Lessor by the terms of any encumbrance and
note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Lessee is not received by Lessor
within five (5) days following the date it is due and payable, Lessee shall pay
to Lessor an additional sum of ten percent (10%) of the overdue amount as a late
charge. The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment by
Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee's
default with respect to the overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies available to Lessor.
<PAGE> 2
SEE ADDENDUM #2
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises on the commencement date set forth in Paragraph 2 above, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss
or damage resulting therefrom; but in such event, Lessee shall not be obligated
to pay rent until possession of the Premises is tendered to Lessee and the
commencement and termination dates of this Lease shall be revised to conform to
the date of Lessor's delivery of possession. In the event that Lessor shall
permit Lessee to occupy the Premises prior to the commencement date of the term,
such occupancy shall be subject to all of the provisions of this Lease,
including the obligation to pay rent at the same monthly rate as that prescribed
for the first month of the Lease term.
SEE ADDENDUM #3
[ A. Cost of Living Increase. The rent payable in advance on the
first day of each month succeeding , 199 , shall be determined in the following
manner: the All Urban Consumer Price Index (all items) for the San
Francisco/Oakland Metropolitan Area, published by the United States Department
of Labor, Bureau of Labor Statistics ("Index"), which is published most
immediately preceding the date of , 199 , shall be compared with the Index
published for the date at the commencement of the Lease ("Beginning Index").]
[ If the __________, 199_, Index has increased over the Beginning Index,
the monthly rent payable during the _______, 199_, to _________, 199_, period
shall be set by multiplying the monthly rent paid for the period from
___________, 199_, to ___________, 199_, by a fraction, the numerator of which
is the , 199 , Index and the denominator of which is the Beginning Index. In no
event shall the monthly rent as determined by this adjustment be less than the
monthly rent immediately prior to such adjustment. On adjustment of the monthly
rent as herein provided, Lessor shall notify Lessee in writing of the new
monthly rent.]
B. All taxes, insurance premiums, Outside Area Charges, late
charges, costs and expenses which Lessee is required to pay hereunder, together
with all interest and penalties that may accrue thereon in the event of Lessee's
failure to pay such amounts, and all reasonable damages, costs, and attorney's
fees and expenses which Lessor may incur by reason of any default of Lessee or
failure on Lessee's part to comply with the terms of this Lease, shall be deemed
to be additional rent (hereinafter, "Additional Rent"), and, in the event of
non-payment by Lessee, Lessor shall have all of the rights and remedies with
respect thereto as Lessor has for the non-payment of monthly installment of
rent.
4. Option to Extend Term.
A. Lessee shall have the option to extend the term on all the
provisions contained in this Lease for two one-year periods ("extended term(s)")
at an adjusted rental calculated as provided in Subparagraph B below on the
condition that:
(a) Lessee has given to Lessor written notice of exercise
of that option ("option notice") at least six (6) months before expiration of
the initial term or extended term(s), as the case may be.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
-2-
<PAGE> 3
(b) Lessee is not in default, or is diligently pursuing a
cure for default in the performance of any of the terms and conditions of the
Lease on the date of giving the option notice, and Lessee is not in default, or
is diligently pursuing a cure for default on the date that the extended term is
to commence.
[ B. Monthly rent for the extended term shall be set in the
following manner: the rent payable in advance for any of each option period of
each month succeeding _________, 199_, to _________, 199_, shall be determined
in the following manner: the All Urban Consumer Price Index (All Items) for the
San Francisco/Oakland Metropolitan Area, published by the United States
Department of Labor, Bureau of Labor Statistics ("Index") which is published
most immediately preceding the date , 199 , shall be compared to the Index
published at the commencement of the Lease ("Beginning Index").]
[ If the , 199 Index has increased over the Beginning Index, the
monthly rent payable during the __________, 199_, to __________, 199_, period
shall be set by multiplying the monthly rent paid for the period from
__________, 199_, to _________, 199_, by a fraction, the numerator of which is ,
199 , Index and the denominator of which is the Beginning Index. A new Lease for
the term of such extension shall be unnecessary, this Lease constituting a
present demise for both the original and any extended term. Lessor shall notify
Lessee in writing of the new monthly rent during the extended term.] Monthly
rent for the option periods shall be at 95% of the then prevailing market rent
for similar buildings in the Los Gatos area.
C. In no event shall the monthly rent for any extended term be
less than the monthly rent paid immediately prior to such extended term.
5. Security Deposit. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of $5,577.00 to secure the full and
faithful performance by Lessee of each term, covenant, and condition of this
Lease. If Lessee shall at any time fail to make any payment or fail to keep or
perform any term, covenant, or condition on its part to be made or performed or
kept under this Lease, Lessor may, but shall not be obligated to and without
waiving or releasing Losses from any obligation under this Lease, use, apply, or
retain the whole or any part of said Security Deposit (a) to the extent of any
sum due to Lessor; or (b) to compensate Lessor for any loss, damage, attorneys'
fees or expense sustained by Lessor due to Lessee's default. In such event,
Lessee shall, within five (5) days of written demand by Lessor, remit to Lessor
sufficient funds to restore the Security Deposit to its original sum. No
interest shall accrue on the Security Deposit. Should Lessee comply with all the
terms, covenants, and conditions of this Lease and, at the end of the term of
this Lease, leave the Premises in the condition required by this Lease, then
said Security Deposit or any balance thereof, less any sums owing to Lessor,
shall be returned to Lessee within fifteen (15) days after the termination of
this Lease and vacancy of the Premises by Lessee. Lessor can maintain the
Security Deposit separate and apart from Lessor's general funds, or can
commingle the Security Deposit with the Lessor's general and other funds.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 4
6. Use of the Premises. The Premises shall be used exclusively for the
purpose of Sales, marketing and distribution of computer-related products.
Lessee shall not use or permit the Premises, or any part thereof, to be
used for any purpose or purposes other than the purpose for which the Premises
are hereby leased; and no use shall be made or permitted to be made of the
Premises, nor acts done, which will increase the existing rate of insurance upon
the building in which the Premises are located, or cause a cancellation of any
insurance policy covering said building, or any part thereof, nor shall Lessee
sell or permit to be kept, used, or sold, in or about the Premises, any article
which may be prohibited by the standard form of fire insurance policies. Lessee
shall not commit or suffer to be committed any waste upon the Premises or any
public or private nuisance or other act or thing which may disturb the quiet
enjoyment of any other tenant in the building in which the premises are located;
nor, without limiting the generality of the foregoing, shall Lessee allow the
Premises to be used for any [improper, immoral] unlawful or objectionable
purpose.
Lessee shall not place any harmful liquids in the drainage system of the
Premises or of the building of which the Premises form a part. No waste
materials or refuse shall be dumped upon or permitted to remain upon any part of
the [Premises] outside of the building proper except in trash containers placed
inside exterior enclosures designated for that purpose by Lessor [or inside the
building proper where designated by Lessor.] No materials, supplies, equipment,
finished or semi-finished products, raw materials, or articles of any nature
shall be stored upon or permitted to remain on any portion of the Premises
outside of the building proper. Lessee shall comply with all the covenants,
conditions, and/or restrictions ("C.C.&R.'s") affecting the Premises.
SEE ADDENDUM #4
[Should, at any time during the term of this Lease, or for a period of
five (5) years after the termination or expiration of this Lease, there be
charges or findings of toxic waste, spillage, or other contaminants found by a
governmental agency to be hazardous and requiring removal or remedial work of
the same, Lessee hereunder shall be assumed responsible for, and hold Lessor
harmless from all claims, obligations, liabilities, and costs, including
reasonable attorneys' fees, for the removal, remedial work, or other action
required by the governmental agency so prescribing said action, or any other
agency having jurisdiction, unless Lessee can demonstrate that such toxic waste,
spillage, or other contaminants did not occur as a result of Lessee's operations
while occupying the Premises.] If, at any time during the term of this Lease,
Lessor suspects that toxic waste, spillage, or other contaminants may be present
on the Premises, Lessor may order a soils report, or its equivalent, at Lessee's
expense and Lessee shall pay such costs within fifteen (15) days from the date
of the invoice by Lessor provided that said report determines that Lessee was
cause of contamination. If any such toxic waste, spillage, or other contaminants
are found upon the Premises, Lessee shall deposit with Lessor, within fifteen
(15) days of notice from Lessor to Lessee to do so, the amount necessary to
remove the substances and remedy the problem.
Lessee shall abide by all laws, ordinances, and statutes, as they now
exist or may hereafter be enacted by legislative bodies having jurisdiction
thereof, relating to its use and occupancy of the Premises.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 5
SEE ADDENDUM #5
7. Improvements. Lessor will provide improvements at Lessor's sole cost
and expense, subject to Paragraph 5 of Addendum I, to the Premises as specified
in Exhibit "B" attached hereto and by this reference made apart hereof. Lessor
will make reasonable efforts to complete such improvements prior to November 1,
1994. Possession of the premises, pursuant to Paragraph 13 of this lease, shall
be deemed tendered upon [receipt of final city approvals] substantial completion
of tenant improvements.
8. Taxes and Assessments.
A. Lessee shall pay before delinquency any and all taxes,
assessments, license fees, and public charges levied, assessed, or imposed upon
or against Lessee's fixtures, equipment, furnishings, furniture, appliances, and
personal property installed or located on or within the Premises. Lessee shall
cause said fixtures, equipment, furnishings, furniture, appliances, and personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay to Lessor the taxes attributable to Losses within ten
(10) days after receipt of a written statement from Lessor setting forth the
taxes applicable to Lessee's property.
B. All property taxes or assessments levied or assessed by or
hereafter levied or assessed by any governmental authority against the Premises
or any portion of such taxes or assessments which becomes due or accrued during
the term of this Lease shall be paid by Lessor. Lessee shall pay to Lessor
Lessee's proportionate share of such taxes or assessments within ten (10) days
of receipt of Lessor's invoice demanding such payment. Lessee' s liability
hereunder shall be prorated to reflect the commencement and termination dates of
this Lease.
9. Insurance.
A. Indemnity. Lessee agrees to indemnify and defend Lessor
against and hold Lessor harmless from any and all demands, claims, causes of
action, judgments, obligations, or liabilities, and all reasonable expenses
incurred in investigating or resisting the same (including reasonable attorneys'
fees) on account of, or arising out of, the condition, use, or occupancy of the
Premises. This Lease is made on the express condition that Lessor shall not be
liable for, or suffer loss by reason of, injury to person or property, from
whatever cause, in any way connected with the condition, use, or occupancy of
the Premises, specifically including, without limitation, any liability for
injury to the person or property of Lessee, its agents, officers, employees,
licensees, and invitees. Lessee shall not be responsible for the negligent or
willful misconduct of Lessor, its agents, officers, employees, licensees and
invitees.
B. Liability Insurance. Lessee shall, at its expense, obtain and
keep in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Lessor and Lessee, with cross-liability
endorsements, against any liability arising out of the condition, use, or
occupancy of the Premises and all areas appurtenant thereto, including parking
areas. Such insurance shall be in an amount satisfactory to Lessor of not less
than one million dollars ($1,000,000) for bodily injury or death as a result of
one occurrence, and five hundred thousand dollars ($500,000) for
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 6
damage to property as a result of any one occurrence. The insurance shall be
with companies approved by Lessor, which approval Lessor agrees not to withhold
unreasonably. Prior to possession, Lessee shall deliver to Lessor a certificate
of insurance evidencing the existence of the policy which (1) names Lessor as an
additional insured, (2) shall not be canceled or altered without thirty (30)
days' prior written notice to Lessor, (3) insures performance of the indemnity
set forth in Section A of Paragraph 9, and (4) coverage is primary and any
coverage by Lessor is in excess thereto.
C. Property Insurance. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance (including
earthquake(1) and flood coverage) covering loss or damage to the Premises, in
the amount of the full replacement value thereof. Lessee shall pay to Lessor its
pro-rata share of the cost of said insurance within ten (10) days of Lessee's
receipt of Lessor's invoice demanding such payment. Lessee acknowledges that
such insurance procured by Lessor shall contain a deductible which reduces
Lessee's cost for such insurance, and, in the event of loss or damage, Lessee
shall be required to pay to Lessor the amount of such deductible. Lessor agrees
to cap the deductible at $1,000 per occurrence.
D. Lessee hereby releases Lessor, and its partners, officers,
agents, employees, and servants, from any and all claims, demands, loss,
expense, or injury to the Premises or to the furnishings, fixtures, equipment,
inventory, or other property of Lessee in, about, or upon the Premises, which is
caused by or results from perils, events, or happenings which are the subject of
insurance in force at the time of such loss.
10. Reimbursable Expenses and Utilities. Lessee shall pay for all water,
gas, light, heat, power, electricity, telephone, trash removal, landscaping,
sewer charges, and all other services, including normal and customary property
management fees, which shall not exceed 3% of net rents, supplied to or consumed
on the Premises. In the event that any such services are billed directly to
Lessor, then Lessee shall pay Lessor for such expenses within ten (10) days of
Lessee's receipt of Lessor's invoice demanding payment.
SEE ADDENDUM #6
11. Repairs and Maintenance.
A. Subject to provisions of paragraph 15, Lessor shall keep and
maintain the roof, paving, structural elements, landscaping, irrigation, and
exterior walls of the building in which the Premises are located in good order
and repair. Lessee shall reimburse Lessor for its proportionate share of said
expenses, except for roof structure and other structural elements which shall be
at Lessor's sole cost and expense, within ten (10) days of Lessee's receipt of
Lessor's invoice demanding payment. If, however, any repairs or maintenance is
required because of an act or omission of
- ----------
(1)Lessor does not currently carry earthquake insurance. However, Lessor
reserves the right to do so should it become available at commercially
reasonable rates. Lessee's obligation to pay premiums for earthquake insurance
shall be limited to 150% of the cost of coverage provided for in this Section
9C.
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<PAGE> 7
Lessee or its agents, employees, or invitees, Lessee shall pay to Lessor upon
demand one hundred percent (100%) of the costs of such repair and maintenance.
SEE ADDENDUM #7
B. Except as expressly provided in Subparagraph A above, Lessee
shall, at its sole cost, keep and maintain the entire Premises and every part
thereof, including, without limitation, the windows, window frames, plate glass,
glazing, truck doors, doors, all door hardware, interior of the Premises,
interior walls and partitions, and electrical, plumbing, lighting, heating, and
air conditioning systems in good and sanitary order, condition, and repair.
Lessee shall, at all times during the Lease term and at his expense, have in
effect a service contract for the maintenance of the heating, ventilating, and
air-conditioning (HVAC) equipment with an HVAC repair and maintenance contractor
approved by Lessor which provides for periodic inspection and servicing at least
once every three (3) months during the term hereof. Lessee shall further provide
Lessor with a copy of such contract and all periodic service reports.
Should Lessee fail to maintain the Premises or make repairs required of
Lessee hereunder forthwith upon notice from Lessor, Lessor, in addition to all
other remedies available hereunder or by law, and without waiving any
alternative remedies, may make the same, and in that event, Lessee shall
reimburse Lessor as additional rent for the cost of such maintenance or repairs
on the next date upon which rent becomes due.
Lessee hereby expressly waives the provision of Subsection 1 of Section
1932, and Sections 1941 and 1942 of the Civil Code of California and all rights
to make repairs at the expense of Lessor, as provided in Section 942 of said
Civil Code.
12. Alterations and Additions. Lessee shall not make, or suffer to be
made, any alterations, improvements, or additions in, on, or about, or to the
Premises or any part thereof, without prior written consent of Lessor(2) and
without a valid building permit issued by the appropriate governmental
authority, if required. Lessor retains, at his sole option, the right to retain
a General Contractor of his own choosing, provided Lessor's contractor is
competitive with its fees and that the work is done on an "open book" basis, to
perform all repairs, alterations, improvements, or additions in, on, about, or
to said Premises or any part thereof. As a condition to giving such consent,
Lessor may require that Lessee agree to remove any such alterations,
improvements, or additions at the termination of this Lease, and to restore the
Premises to their prior condition, normal wear and tear, Acts of God, Damage and
Destruction excepted. Upon requesting Lessor's written consent for any
alteration, addition or improvements, Lessee shall also specifically request
Lessor's written clarification as to whether Lessor will require said
alterations to be removed upon termination of Lease. Any alteration, addition,
or improvement to the Premises, excluding trade fixtures, shall become the
property of Lessor upon Lessee's surrender of Premises or upon earlier
termination of Lease, and shall remain upon and be surrendered with the Premises
at the termination of this Lease.
- --------
(2)Lessee does not need prior written approval of Lessor for alterations
that are non-structural in nature provided that costs for said alterations do
not exceed $1,000.00 and the alterations do not penetrate the roof membrane.
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<PAGE> 8
["Lessor can elect, however, within thirty (30) days before expiration of the
term or within five (5) days after termination of the term, to require Lessee to
remove any alterations, additions, or improvements that Lessee has made to the
Premises."] If Lessor so elects, Lessee shall restore the Premises to the
condition designated by Lessor in its election, before the last day of the term,
or within thirty (30) days after notice of election is given, whichever is
later. Alterations and additions which are not to be deemed as trade fixtures
include heating, lighting, electrical systems, air conditioning, partitioning,
except for furniture systems that include partitions, electrical signs,
carpeting, or any other installation which has become an integral part of the
Premises, excluding trade fixtures. In the event that Lessor consents to
Lessee's making any alterations, improvements, or additions, Lessee shall be
responsible for the timely posting of notices of non-responsibility on Lessor's
behalf, which shall remain posted until completion of the alterations,
additions, or improvements. Lessee's failure to post notices of
non-responsibility as required hereunder shall be a breach of this Lease.
Lessor represents to Lessee that at the time of Lessee's taking
occupancy, the Premises meet all governmental codes and regulations. If, during
the term hereof, any alteration, addition, or change of any sort through all or
any portion of the Premises or of the building of which the Premises form a
part, is required by law, regulation, ordinance, or order of any public agency,
Lessee, at its sole cost and expense, shall promptly make the same, provided,
however, that cost for said alteration, addition, change shall be amortized over
the useful life of the alteration or addition, and Lessee shall be obligated to
pay only the amortized amounts which coincide with the term of the Lease.
13. Acceptance of the Premises and Covenant to Surrender. By entry and
taking possession of the Premises pursuant to this Lease, and subject to
existing warranties and representations, Lessee accepts the Premises as being in
good and sanitary order, condition, and repair, and accepts the Premises in
their condition existing as of date of such entry, and Lessee further accepts
any tenant improvements to be constructed by Lessor, if any, as being completed
in accordance with the plans and specifications for such improvements.
However, within sixty (60) days of taking occupancy, Lessee shall
provide to Lessor a "punch list" of items to be corrected and Lessor will use
its best efforts to complete items on said list.
Lessee agrees on the last day of the term hereof, or on sooner
termination of this Lease, to surrender the Premises, together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises by Lessor or Lessee, unto Lessor in good and sanitary order,
condition, and repair, excepting for reasonable wear and tear, Acts of God,
Damage and Destruction [as would be normal for the period of the Lessee's
occupancy.] Lessee, on or before the end of the term or sooner termination of
this Lease, shall remove all its personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by Lessee.
Lessee further agrees that at the end of the term or sooner termination of this
Lease, Lessee, at its sole expense, shall have the carpets steam cleaned, the
walls and columns painted, the flooring waxed, any damaged ceiling tile
replaced, the windows cleaned, the drapes cleaned, and any damaged doors
replaced if necessary to restore the Premises to its original condition, normal
wear and tear excepted.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 9
If the Premises are not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay.
SEE ADDENDUM #8
14. Default. In the event of any breach of this Lease by the Lessee, or
an abandonment of the Premises by the Lessee, the Lessor has the option of (1)
removing all persons and property from the Premises and repossessing the
Premises, in which case any of the Lessee's property which the Lessor removes
from the Premises may be stored in a public warehouse or elsewhere at the cost
of, and for the account of, Lessee; or (2) allowing the Lessee to remain in full
possession and control of the Premises. If the Lessor chooses to repossess the
Premises, the Lease will automatically terminate in accordance with the
provisions of the California Civil Code, Section 1951.2. In the event of such
termination of the Lease, the Lessor may recover from the Lessee: (1) the worth
at the time of award of the unpaid rent which had been earned at the time of
termination, including interest at the maximum rate an individual is permitted
by law to charge; (2) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided, including interest at the maximum rate an individual is
permitted by law to charge; (3) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; ["and (4) any other amount necessary to compensate the
Lessor for all the detriment proximately caused by the Lessee's failure to
perform his obligations under the Lease or which, in the ordinary course of
things, would be likely to result therefrom."] "The worth at the time of award,"
as used in (1) and (2) of this Paragraph, is to be computed by allowing interest
at the maximum rate an individual is permitted by law to charge. "The worth at
the time of award," as used in (3) of this Paragraph, is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award, plus one percent (1%).
If the Lessor chooses not to repossess the Premises, but allows the
Lessee to remain in full possession and control of the Premises, then, in
accordance with provisions of the California Civil Code, Section 1951.4, the
Lessor may treat the Lease as being in full force and effect, and may collect
from the Lessee all rents as they become due through the termination date of the
Lease, as specified in the Lease. For the purpose of this paragraph, the
following do not constitute a termination of Lessee's right to possession: (1)
acts of maintenance or preservation, or efforts to relet the property; (2) the
appointment of a receiver on the initiative of the Lessor to protect his
interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs Lessor incurs
in reletting the Premises, including, without limitation, unamortized brokers'
commissions, expenses of remodeling the Premises required by the reletting, and
like costs. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Lessee shall pay to Lessor the rent due under this Lease on
the dates the rent is due, less the rent Lessor receives from any reletting. No
act by Lessor allowed by this Section shall terminate this Lease unless Lessor
notifies Lessee that Lessor elects to terminate this Lease. After Lessee's
default and for as long as Lessor does not terminate Lessee's right to
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 10
possession of the Premises, if Lessee obtains Lessor's consent, Lessee shall
have the right to assign or sublet its interest in this Lease, but Lessee shall
not be released from liability. Lessor's consent to a proposed assignment or
subletting shall not be unreasonably withhold.
If Lessor elects to relet the Premises as provided in this Paragraph,
rent that Lessor receives from reletting shall be applied to the payment of: (1)
any indebtedness from Lessee to Lessor as agreed under this Lease other than
rent due from Lessee; (2) all costs, including for maintenance, incurred by
Lessor in reletting; (3) rent due and unpaid under this Lease. After deducting
the payments referred to in this Paragraph, any sum remaining from the rent
Lessor receives from reletting shall be held by Lessor and applied in payment of
future rent as rent becomes due under this Lease. In no event shall Lessee be
entitled to any excess rent received by Lessor. If, on the date rent is due
under this Lease, the rent received from reletting is less than the rent due on
that date, Lessee shall pay to Lessor, in addition to the remaining rent due,
all costs, including for maintenance, Lessor incurred in reletting that remain
after applying the rent received from the reletting, as provided in this
Paragraph.
Lessor, at any time after Lessee comments a default, subject to cure
period outlined in no. 8 of Addendum I, can cure the default at Lessee's cost.
If Lessor at any time, by reason of Lessee's default, pays any sum or does any
act that requires the payment of any sum, the sum paid by Lessor shall be due
immediately from Lessee to Lessor at the time the sum is paid, and if paid at a
later date shall bear interest at the maximum rate an individual is permitted by
law to charge from the date the sum is paid by Lessor until Lessor is reimbursed
by Lessee. The sum, together with interest on it, shall be additional rent.
Rent not paid when due shall bear interest at the maximum rate an
individual is permitted by law to charge from the date due until paid.
15. Destruction. In the event the Premises are destroyed in whole or in
part from any cause, Lessor may, at its option, (1) rebuild or restore the
Premises to their condition prior to the damage or destruction or (2) terminate
the Lease.
If Lessor does not give Lessee notice in writing within thirty (30) days
from the destruction of the Premises of its election either to rebuild and
restore the Premises, or to terminate this Lease, Lessor shall be deemed to have
elected to rebuild or restore them, in which event Lessor agrees, at its
expense, promptly to rebuild or restore the Premises to its condition prior to
the damage or destruction. If Lessor does not complete the rebuilding or
restoration within one hundred [eighty (180)] fifty (150) days following the
date of destruction (such period of time to be extended for delays caused by the
fault or neglect of Lessee because of acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargoes, rainy or stormy weather,
inability to obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of the contractors or subcontractors due to such causes
or other contingencies beyond control of Lessor but in no event greater than 180
days), then Lessee shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Lessor. If said destruction occurs
during the last twelve (12) months of the Lease term, Lessee may terminate Lease
upon written notice to Lessor. Lessor's obligation to rebuild or restore
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 11
shall not include restoration of Lessee's trade fixtures, equipment,
merchandise, or any improvements, alterations, or additions made by Lessee to
the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Lessee hereby expressly waives
the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4,
of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than thirty-three and one-third
percent (33 1/3%) of the replacement cost thereof, Lessor may elect to terminate
this Lease,[whether] only if the premises be injured [or not].
16. Condemnation. If any part of the Premises shall be taken for any
public or quasi-public use, under any statute of by right of eminent domain, or
private purchase in lieu thereof, and a part thereof remains, which is
susceptible of occupation hereunder, this Lease shall, as to the part so taken,
terminate as of the date title shall vest in the condemnor or purchaser, and the
rent payable hereunder shall be adjusted so that the Lessee shall be required to
pay for the remainder of the term only such portion of such rent as the value of
the part remaining after taking such bears to the value of the entire Premises
prior to such taking. Lessor shall have the option to terminate this Lease in
the event that such taking causes a reduction in rent payable hereunder by fifty
percent (50%) or more. If all of the Premises or such part thereof be taken so
that there does not remain a portion susceptible for occupation hereunder, as
reasonably necessary for Lessee's conduct of its business as contemplated in
this Lease and in Lessee's reasonable discretion, this Lease shall thereupon
terminate. If a part of all of the Premises be taken, all compensation awarded
upon such taking shall go to the Lessor, and the Lessee shall have no claim
thereto, and the Lessee hereby irrevocably assigns and transfers to the Lessor
any right to compensation or damages to which the Lessee may become entitled
during the term hereof by reason of the purchase or condemnation of all or a
part of the Premises, except that Lessee shall have the right to recover its
share of any award or consideration for (1) moving expenses; (2) loss or damage
to Lessee's trade fixtures, furnishings, equipment, and other personal property;
and (3) business goodwill. Each party waives the provisions of the Code of Civil
Procedure, Section 1265.130, allowing either party to petition the Superior
Court to terminate this Lease in the event of a partial taking of the Premises.
17. Free from Liens. Lessee shall (1) pay for all labor and services
performed for materials used by or furnished to Lessee, or any contractor
employed by Lessee with respect to the Premises, and (2) indemnify, defend, and
hold Lessor and the Premises harmless and free from any liens, claims, demands,
encumbrances, or judgments created or suffered by reason of any labor or
services performed for materials used by or furnished to Lessee or any
contractor employed by Lessee with respect to the Premises, and [(3) give notice
to Lessor in writing five (5) days prior to employing any laborer or contractor
to perform services related, or receiving materials for use upon the premises,
and] (4) shall post, on behalf of Lessor, a notice of non-responsibility in
accordance with the statutory requirements of the California Civil Code, Section
3904, or any amendment thereof. In the event an improvement bond with a public
agency in connection with the above is required to be posted, Lessee agrees to
include Lessor as an additional obligee.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 12
18. Compliance with Laws. Lessee shall, at its own cost, comply with and
observe all requirements of all municipal, county, state, and federal authority
now in force, or which may hereafter be in force, pertaining to the particular
use and occupancy of the Premises.
19. Subordination. Lessee agrees that this Lease shall, at the option of
Lessor, be subjected and subordinated to any mortgage, deed of trust, or other
instrument of security, which has been or shall be placed on the land and
building, or land or building of which the Premises form a part, and this
subordination is hereby made effective without any further act of Lessee or
Lessor. The Lessee shall, at any time and within five (5) business days
hereinafter [on demand], execute any instruments, releases, or other documents
that may be required by any mortgagee, mortgagor, trustor, or beneficiary under
any deed of trust, for the purpose of subjecting or subordinating this Lease to
the lien of any such mortgage, deed of trust, or other instrument of security.
If Lessee fails to execute and deliver any such documents or instruments, Lessee
irrevocably constitutes and appoints Lessor as Lessee's special attorney-in-fact
to execute and deliver any such documents or instruments.
20. Abandonment. Lessee shall not vacate or abandon the Premises at any
time during the term; and if Lessee shall abandon, vacate, or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned, at the option of Lessor, except such property as may be mortgaged to
Lessor; provided, however, that Lessee shall not be deemed to have abandoned or
vacated the Premises so long as Lessee continues to pay all rents as and when
due, and otherwise performs pursuant to the terms and conditions of this Lease.
21. Assignment and Subletting. Lessee's interest in this Lease is not
assignable, by operation of law or otherwise, nor shall Lessee have the right to
sublet the Premises, transfer any interest of Lessee's therein, or permit any
use of the Premises by another party, without the prior written consent, which
consent shall not be unreasonably withheld or delayed, of Lessor to such
assignment, subletting, or transfer of use.
If Lessee is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of any partner(s) not owning fifty percent
(50%) or more of the partnership, of the dissolution of the partnership, shall
be deemed as a voluntary assignment.
If Lessee consists of more than one person, a purported assignment,
voluntary, involuntary, or by operation of law, from one person to the other or
from a majority of persons to the others, shall be deemed a voluntary
assignment.
If Lessee is a corporation, any dissolution, merger, consolidation, or
other reorganization of Lessee, or the sale or other transfer of a controlling
percentage of the capital stock of Lessee, or sale of at least fifty-one percent
(51%) of the value of the assets of Lessee, shall be deemed a voluntary
assignment except in the case of a public offering of stock. The phrase
"controlling percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one percent (51%) of the total combined voting power
of all classes of Lessee's capital stock issued, outstanding, and entitled
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<PAGE> 13
to vote for the election of directors. This Paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
In the event of any subletting or transfer which is consented to, or not
consented to, by Lessor, a subtenant or transferee agrees to pay monies or other
consideration, whether by increased rent or otherwise, in excess of or in
addition to those provided for herein, then all of such excess or additional
monies or other consideration shall be paid solely to Lessor, after deducting
Lessee's reasonable expenses incurred in the re-leasing of the Premises, and
this shall be one of the conditions to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or a
part of the Premises as permitted by this Lease, and Lessor, as assignee and as
attorney-in-fact for Lessee, or a receiver for Lessee appointed on Lessor's
application, may collect such rent and apply it toward Lessee's obligations
under this Lease; except that, until the occurrence of an act of default by the
Lessee, Lessee shall have the right to collect such rent.
A consent to one assignment, subletting, occupation, or use by another
party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by another party. Any assignment or subletting
without such consent shall be void and shall, at the option of the Lessor,
terminate this Lease. Lessor's waiver or consent to any assignment or subletting
hereunder shall not relieve Lessee from any obligation under this Lease unless
the consent shall so provide. If Lessee requests Lessor to consent to a proposed
assignment or subletting, Lessee shall pay to Lessor, whether or not consent is
ultimately given, Lessor's reasonable attorneys' fees incurred in conjunction
with each such request, not to exceed $500.00.
22. Parking Charges. Lessee agrees to pay upon demand, based on its
percent of occupancy of the entire Premises, its pro-rata share of any parking
charges, surcharges, or any other cost hereafter levied or assessed by local,
state, or federal governmental agencies in connection with the use of the
parking facilities serving the Premises, including, without limitation, parking
surcharge imposed by or under the authority of the Federal Environmental
Protection Agency.
23. Insolvency or Bankruptcy. Either (1) the appointment of a receiver
to take possession of all or substantially all of the assets of Lessee, or (2) a
general assignment by Lessee for the benefit of creditors, or (3) any action
taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease by Lessee. Upon the happening of any such
event, this Lease shall terminate ten (10) days after written notice of
termination from Lessor to Lessee. This section is to be applied consistent with
the applicable state and federal law in effect at the time such event occurs.
24. Lessor Loan or Sale. Lessee agrees promptly following request by
Lessor to (1) execute and deliver to Lessor any documents, including estoppel
certificates presented to Lessee by Lessor, (a) certifying that this Lease is
unmodified and in full force and effect, or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force
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<PAGE> 14
and effect and the date to which the rent and other charges are paid in advance,
if any, and (b) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder, and (c) evidencing the status
of the Lease as may be required either by a lender making a loan to Lessor, to
be secured by deed of trust or mortgage covering the Premises, or a purchaser of
the Premises from Lessor, and (2) to deliver to Lessor the [current] most recent
financial statements of Lessee [with an opinion of a certified public account]
signed by an authorized representative of company, including a balance sheet and
profit and loss statement, for the current fiscal year if available and the two
immediately prior fiscal years, all prepared in accordance with Generally
Accepted Accounting Principles consistently applied. Lessee's failure to deliver
an estoppel certificate within [three (3) days] five (5) business days following
such request shall constitute a default under this Lease and shall be conclusive
upon Lessee that this Lease is in full force and effect and has not been
modified except as may be represented by Lessor. If Lessee fails to deliver the
estoppel certificates within the [three (3) days] five (5) business days, Lessee
irrevocably constitutes and appoints Lessor as its special attorney-in-fact to
execute and deliver the certificate to any third party and the default shall be
considered cured.
25. Surrender of Lease. The voluntary or other surrender of this Lease
by Lessee, or a mutual cancellation thereof, shall not work a merger nor relieve
Lessee of any of Lessee's obligations under this Lease, and shall, at the option
of Lessor, terminate all or any existing Subleases or Subtenancies, or may, at
the option of Lessor, operate as an assignment to him of any or all such
Subleases or Subtenancies.
26. Attorneys' Fees. If, for any reason, any suit be initiated to
enforce any provision of this Lease, the prevailing party shall be entitled to
legal costs, expert witness expenses and reasonable attorneys' fees, as fixed by
the court.
27. Notices. All notices to be given to Lessee may be given in writing,
personally, or by depositing the same in the United States mail, postage
prepaid, and addressed to Lessee at the said Premises, whether or not Lessee has
departed from, abandoned, or vacated the Premises. Any notice or document
required or permitted by this Lease to be given Lessor shall be addressed to
Lessor at the address set forth below, or at such other address as it may have
theretofore specified by notice delivered in accordance herewith:
LESSOR: Los Gatos Business Park
900 Welch Road, Suite 10
Palo Alto, California 94304
LESSEE: SCM Microsystems, Inc.
131-B Albright Way
Los Gatos, CA 95030
28. Transfer of Security. If any security be given by Lessee to secure
the faithful performance of all or any of the covenants of this Lease on the
part of Lessee, Lessor may transfer and/or deliver the security, as such, to the
purchaser of the reversion, in the event that the reversion
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 15
be sold, and thereupon Lessor shall be discharged from any further liability in
reference thereto, upon the assumption by such transferee of Lessor's
obligations under this Lease.
29. Waiver. The waiver by Lessor or Lessee of any breach of any term,
covenant, or condition, herein contained shall not be deemed to be a waiver of
such term, covenant, or condition, or any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of rent hereunder by lessor shall not be deemed to be a waiver of any preceding
breach by Lessee of any term, covenant, or condition of this Lease, other than
the failure of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
30. Holding Over. Any holding over after the expiration of the term or
any extension thereof, with the consent of Lessor, shall be construed to be a
tenancy from month to month, at a rental of [one and one half (1 1/2)] one and
one quarter (1 1/4) times the previous month's rental rate per month, and shall
otherwise be on the terms and conditions herein specified, so far as applicable.
31. Covenants, Conditions, and Restrictions. Attached hereto, marked
Exhibit "C" and by this reference incorporated as if set out in full, are
Covenants, Conditions, and Restrictions pertaining to Los Gatos Business Park.
As a condition to this Lease, Lessee agrees to abide by all of said Covenants,
Conditions, and Restrictions. Moreover, such reasonable rules and regulations as
may be hereafter adopted by Lessor for the safety, care, and cleanliness of the
Premises and the preservation of good order thereon, are hereby expressly made a
part hereof, and Lessee agrees to obey all such rules and regulations.
32. Limitation on Lessor's Liability. If Lessor is in default of this
Lease, and, as a consequence, Lessee recovers a money judgment against Lessor,
the judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title, and interest of
Lessor in the Premises, or in the building, other improvements, and land of
which the Premises are part, and out of rent or other income from such real
property receivable by Lessor or out of the consideration received by Lessor
from the sale or other disposition of all or any part of Lessor's right, title,
and interest in the Premises or in the building, other improvements, and land of
which the Premises are part, provided that the default of Lessor is not caused
by the negligence or willful misconduct of Lessor, its agents, officers,
employees, licensees or invitees. Neither Lessor nor any of the partners
comprising the partnership designated as Lessor shall be personally liable for
any deficiency.
33. Miscellaneous.
A. Time is of the essence of this Lease, and of each and all of
its provisions.
B. The term "building" shall mean the building in which the
Premises are situated.
C. If the building is leased to more than one tenant, then each
such tenant, its agents, officers, employees, and invitees, shall have the
non-exclusive right (in conjunction with the
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 16
use of the part of the building leased to such Tenant) to make reasonable use of
any driveways, sidewalks, and parking areas located on the parcel of land on
which the building is situated, except such parking areas as may from time to
time be leased for exclusive use by other Tenant(s).
D. Lessee's such reasonable use of parking areas shall not exceed
that percent of the total parking areas which is equal to the ratio which floor
space of the Premises bears to floor space of the building.
E. The term "assign" shall include the term "transfer."
F. The invalidity or unenforceability of any provision of this
Lease shall not affect the validity or enforceability of the remainder of this
Lease.
G. All parties hereto have equally participated in the
preparation of this Lease.
H. The headings and titles to the Paragraphs of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
I. Lessor has made no representation (s) whatsoever to Lessee
(express or implied) except as may be expressly stated in writing in this Lease
instrument.
J. This instrument contains all of the agreements and conditions
made between the parties hereto, and may not be modified orally or in any other
manner than by agreement in writing, signed by all of the parties hereto or
their respective successors in interest.
K. It is understood and agreed that the remedies herein given to
Lessor shall be cumulative, and the exercise of any one remedy by Lessor shall
not be to the exclusion of any other remedy.
L. The covenants and conditions herein contained shall, subject
to the provisions as to assignment, apply to and bind the heirs, successors,
executors, and administrators, and assigns of all the parties hereto; and all of
the parties hereto shall jointly and severally be liable hereunder.
M. This Lease has been negotiated by the parties hereto and the
language hereof shall not be construed for or against either party.
N. All exhibits to which reference is made are deemed
incorporated into this Lease, whether covenants or conditions, on the part of
Lessee shall be deemed to be both covenants and conditions.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
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<PAGE> 17
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the
date first above-written.
LESSOR: LESSEE:
Los Gatos Business Park SCM Microsystems, Inc.
By: s\ Howard S. White, III By: s\ Robert Schneider
-------------------------------- ------------------------------
Howard J. White, III Robert Schneider,
General Partner CEO
Date: 10/14/94 Date: 10/10/94
-------------------------------- ------------------------------
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<PAGE> 18
ADDENDUM I
REFERENCE IS MADE TO THAT LEASE BY AND BETWEEN LOS GATOS
BUSINESS PARK, LESSOR, AND SCM MICROSYSTEMS, INC., 131B ALBRIGHT WAY, LOS
GATOS, LESSEE, DATED SEPTEMBER 29, 1994.
To that certain Lease the following wording is added:
1. Late Charge. Lessor agrees to provide Lessee with written notice of
delinquent rent and a five (5) day cure period before assessing a late charge
for the first three (3) instances of Lessee being delinquent. After the third
instance, Lessor is not required to notify Lessee before assessing a late
charge.
2. Delivery of Premises. If Lessor is unable to deliver the Premises to
Lessee within thirty (30) days of commencement of Lease, this Lease may be
terminated by Lessee and all deposits shall be returned to Lessee.
3. Rent. Rent for the term of the Lease shall be as follows:
<TABLE>
<CAPTION>
MONTHS SQUARE FEET MONTHLY RENT/NNN
------ ----------- ----------------
<S> <C> <C> <C>
11/94 - 7/95 01/09 3,500 $3,675.00
9/95 - 12/95 10/14 4,000 $4,200.00
1/96 - 4/96 15/18 4,500 $4,725.00
5/96 - 10/98 19/48 5,311 $5,577.00
</TABLE>
Lessee agrees to pay for the triple net expenses for the entire Premises
(5,311 square feet) effective the commencement date of the Lease.
4. Hazardous Materials. The following language is added to Section
6 of Lease:
Lessor represents and warrants to Lessee that to the best of its
knowledge there are no Toxic or Hazardous materials present on, at or under the
Premises, which shall be deemed to include underlying land and groundwater, at
the time of Lessee's occupancy. Lessor shall therefore indemnify, defend and
hold harmless Lessee, its partners, directors, officers, employees, lenders, and
successors against all claims, obligations, liabilities, demands, damages,
judgements, and costs, including reasonable attorneys' fees arising from or in
connection with any prior Toxic or Hazardous materials that existed prior to
Lessee's occupancy of the Premises. Lessee in turn represents to Lessor that it
does not now and will not in the future permit the use or storage on the
Premises of Toxic or Hazardous materials, excluding, however, basic janitorial,
maintenance and office supplies, and materials commonly used in connection with
Lessee's business as described in Paragraph 6 hereof. For purposes of this
Paragraph 6 "Toxic or Hazardous Materials" shall mean any product, substance,
chemical, material or waste whose presence, nature, quality and/or intensity or
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
leased premises, is either (i) potentially injurious to the public
<PAGE> 19
health, safety or welfare, the environment, or the leased premises; (ii)
regulated or monitored by any governmental authority; or (iii) a basis for
potential liability of Lessee and Lessor to any governmental agency or third
party under any applicable statute or common law theory. "Toxic or Hazardous
Materials" shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products or by-products thereof.
Lessee hereunder shall be responsible for and indemnify, and hold
Lessor and its partners, directors, officers, employees, lenders, successors and
assigns harmless from all claims, obligations, liabilities, demands, damages,
judgments and costs, including reasonable attorneys' fees arising at any time
during or in connection with Lessee's causing or permitting any materials
referred to under any governmental provisions or regulatory scheme as hazardous
or "toxic" or which contain petroleum, gasoline, or other petroleum product, to
be brought upon, stored, manufactured, generated, handled, disposed, or used on,
under or about the Premises.
Lessee shall not be responsible for any costs whatsoever in
connection with any contamination on the site that takes place during the lease
term unless Lessor proves said contamination is caused by Lessee, its agents,
officers, employees, licensees or invitees.
Lessee's and Lessor's obligations hereunder shall survive the
termination of this Lease.
5. Tenant Improvements. Lessee agrees to pay to Lessor $1,000.00 upon
taking occupancy of the Premises for tenant improvements.
6. Lessor's Warranty. Notwithstanding anything to the contrary contained
herein, Lessor will guarantee the performance, at its sole cost and expense, of
the HVAC system, roof membrane, and all other systems to the Premises for the
first twelve (12) months of the Lease term only.
Not included in this guarantee is the standard maintenance of the
HVAC system and repairs to the HVAC system that do not exceed $500.00.
7. Repairs. Notwithstanding anything in Section 11 or elsewhere in the
Lease to the contrary, Lessee shall have no obligation to perform any repairs or
replacements in excess of $2,500.00 considered to be a capital expenditure;
instead, Lessor shall perform such repairs or replacements and Lessee shall be
responsible only for a portion of said costs based on the useful life of the
repairs/replacement and the remaining term of the lease.
Lessee may choose to pay for its share, as outlined above, in
either one lump sum payment due upon completion of repairs/replacement, or
Lessee may request Lessor amortize said costs over the remaining lease term at
the rate of Lessor's cost of funds, not to exceed Bank of America Prime + 3%.
8. Default. Lessor shall not exercise any of its remedies against Lessee
by reason of any default under this Lease unless and until Lessor shall have
given to Lessee written notice of such default and unless Lessee shall have
failed to remedy a monetary default within ten (10) days or any
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<PAGE> 20
other default within thirty (30) days. If the nature of any other default is
such that it cannot reasonably be cured or remedied within thirty (30) days but
Lessee is diligently pursuing its cure, Lessor shall not exercise its remedies
against Lessee by reason of default.
The remedy described in Section 14 of Lease regarding interest
rate is modified by substituting "Bank of America Prime + 4% per annum" in place
of the phrase "the maximum rate an individual is permitted by law to charge"
wherever it appears in said Section.
9. Utilities. Lessor acknowledges that the PG&E meter is shared by
Lessee and the space adjacent to leased Premises. Since adjacent space is vacant
at time of Lessee's occupancy, Lessee agrees to pay for 100% of the utilities to
the Premises pursuant to Section 10 of base Lease. Should the adjacent space be
leased to a third party, Lessee's usage up to that time shall become the base in
determining Lessee's share of PG&E charges.
10. Lessor's Consent. It is agreed that whenever required under the
terms of the Lease, Lessor's consent shall not be unreasonably withheld or
delayed.
11. Covenants, Conditions & Restrictions. In the event of any
inconsistency between the Lease/Addendum I and the Covenants, Conditions and
Restrictions, the terms of the Lease/Addendum shall control.
All other terms and conditions of the base Lease remain in full force
and effect.
AGREED AND ACCEPTED:
LESSOR LESSEE
Los Gatos Business Park SCM Microsystems, Inc.
s/ Howard J. White, III s/ Robert Schneider
- --------------------------------- -----------------------------------
Howard J. White, III Robert Schneider
General Partner CEO
Date: 10/14/94 Date: 10/10/94
[SUCCEEDING TWO (2) PAGES CONTAIN MAPS OF THE LEASED PROPERTY]
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<PAGE> 21
IMPROVEMENTS:
1. Wall off openings in existing demising wall.
2. Remove existing water line drop in office to be
removed and capped above ceiling.
3. New walls: Add (2) new offices, +/- 11' x 12'
as shown. Add (1) new conference room, +/-
12' x 18' as shown. Add wall for new coffee
bar, as shown.
4. Remove existing door and fill in wall at existing
office.
5. Add (6 ft. long) plastic laminate base cabinet
next to existing restrooms in coffee bar.
6. Paint existing office doors and new walls or
affected work only, to match existing.
7. Flooring: Provide new carpet in front open
office area and VCT in coffee bar area. Tenant
to select from building standard selections.
8. Electrical: Standard 2x4 fluorescent lights to be
relocated in new rooms and standard office
lighting in open office area. Add electrical
outlets and telephone boxes with pull strings, as
shown.
9. HVAC: Existing to be modified as required by
new rooms only.
10. Fire Sprinklers: Existing modified as required
for new walls.
11. Plumbing: One new sink in new coffee bar
counter.
12. Repair existing rear H.M. man door.
Excludes: Telephone, data and communication
cabling, window blinds, millwork other than 6
ft. base unit, office sidelites, addition power,
furniture and installation including power
panels, restroom modifications, modifications
to warehouse area.
13. Landlord, at landlord's sole cost & expense.
EXHIBIT B:
LOS GATOS BUSINESS PARK
131 ALBRIGHT WAY, SUITE B
LOS GATOS, CA
- ---------------------------
TENANT
- ---------------------------
LESSOR DATE
- ---------------------------
LESSEE DATE
*Agrees to remove electrical box, repair damage from said removal, and relocate
said box to the warehouse area.
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<PAGE> 22
LOS GATOS BUSINESS PARK
COVENANTS, CONDITIONS AND RESTRICTIONS
AGREED & ACCEPTED:
-------------------------- ------------
LESSEE DATE
-------------------------- ------------
LESSOR DATE
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<PAGE> 23
LOS GATOS BUSINESS PARK
THIS DECLARATION is made on this 2nd day of February, 1976, by LOS GATOS
BUSINESS PARK, A LIMITED PARTNERSHIP organized under the laws of the State of
California.
The property described in Exhibit "A" is subject to this Declaration and
will be known as LOS GATOS BUSINESS PARK.
LOS GATOS BUSINESS PARK is being developed as a planned industrial
complex which will provide employment opportunities for the residents of the
County of Santa Clara and the surrounding area. This Declaration is designed to
complement local government and municipal regulations. Except where the LOS
GATOS BUSINESS PARK RESTRICTIONS conflict with such local government and
municipal regulations, said Restrictions shall be binding upon all owners,
lessees, licensees, occupants, users of the property subject to these
Restrictions, and their successors in interest as set forth in this Declaration.
It is assumed that the users of industrial sites in the LOS GATOS BUSINESS PARK
will be motivated to preserve these qualities through mutual cooperation and by
enforcing not only the letter but the spirit of this Declaration.
ARTICLE I
DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article I shall, for all purposes of this Declaration, have the meanings
herein specified.
Section 1 - "ARCHITECT": The term "Architect" shall mean a person
holding a certificate to practice architecture in the State of California under
authority of Division 3, Chapter 3 of the Business and Professions Code of the
State of California.
<PAGE> 24
Section 2 - "BENEFICIARY": The term "Beneficiary" shall mean a mortgagee
under a mortgage, as well as a beneficiary under a deed of trust.
Section 3 - "DECLARATION": The term "Declaration" shall mean the
COVENANTS, CONDITIONS AND RESTRICTIONS FOR LOS GATOS BUSINESS PARK.
Section 4 - "DEED OF TRUST": The term "Deed of Trust" or "Trust Deed"
shall mean a mortgage as well as a deed of trust.
Section 5 - "FILE": The term "File" shall mean, with reference to any
subdivision map, record of survey or parcel map, the filing of said map in the
Office of the Recorder of the County of Santa Clara, State of California.
Section 6 - "GRANTOR": The term "Grantor" shall mean LOS GATOS BUSINESS
PARK, a LIMITED PARTNERSHIP; and to the extent provided in Article VII Section I
below, its successors and assigns.
Section 7 - "IMPROVEMENTS": The term "Improvements" shall include
buildings, outbuildings, roads, driveways, parking areas, fences, screening
walls and barriers, retaining walls, stairs, decks, hedges, windbreaks,
plantings, planted trees and shrubs, poles, signs, loading areas and all other
structures or landscaping improvements of every type and kind.
Section 8 - "MORTGAGEE": The term "Mortgagee" shall mean a beneficiary
under, or a holder of a deed of trust as well as a mortgagee under a mortgage.
Section 9 - "LOS GATOS BUSINESS PARK": The term "LOS GATOS BUSINESS
PARK" shall mean all of the real property now or hereafter made subject to this
Declaration.
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<PAGE> 25
Section 10 - "LOS GATOS BUSINESS PARK RESTRICTIONS": The term "Los Gatos
Business Park Restrictions" shall mean the covenants, conditions and restriction
set forth in this Declaration, as it may from time to time be amended or
supplemented.
Section 11 - "OWNER": The term "Owner" shall mean and refer to any
person having any estate in any site, excluding any person who holds such
interest as security for the payment of an obligation, but including any
mortgagee or other security holder in actual possession of any lot, by
foreclosure or otherwise, and any person taking title from an such security
holder.
Section 12 - "RECORD" - "RECORDED": The term "Record" or "Recorded"
shall mean, with respect to any document, the recordation of said document in
the Office of the County Recorder of the County of Santa Clara, State of
California.
Section 13 - "SIGN": The term "Sign" shall mean any structure, device or
contrivance, electric or non-electric, and all parts thereof which are erected
or used for advertising purposes upon or within which any poster, bill,
bulletin, printing, lettering, painting, device or other advertising of any kind
whatsoever is used, placed, posted, tacked, nailed, pasted, or otherwise
fastened or affixed to ground or improvements.
Section 14 - "SITE": The term "Site" shall mean all contiguous land
under one ownership.
Section 15 - "STREETS": The term "Streets" shall mean any street,
highway or other thoroughfare within or adjacent to the property and shown on
any recorded subdivision or parcel map, or record of survey, whether designated
thereon as street, boulevard, place, drive, road, terrace, way, land, circle or
otherwise.
Section 16 - "VISIBLE FROM NEIGHBORING PROPERTY": The term "Visible From
Neighboring Property" shall mean, with respect to any given object, that such
object is or would be
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<PAGE> 26
visible to a person six (6) feet tall, standing on any part of such neighboring
property at an elevation no greater than the elevation of the base of the object
being viewed.
Section 17 - "LOT": The term "lot" shall mean the fractional part of
blocks as divided and sub-divided on subdivision or parcel maps of the Official
Records of the Recorder of Santa Clara County, California, as they from time to
time become current.
ARTICLE II
PROPERTY SUBJECT TO THE LOS GATOS BUSINESS PARK RESTRICTIONS
Section 1 - General Declaration Creating Los Gatos Business Park:
Grantor hereby declares that all of the real property located in the
Town of Los Gatos, County of Santa Clara, State of California, described in
Exhibit "A", which is attached hereto and incorporated herein by this reference
is and shall be, conveyed, hypothecated, encumbered, leased, occupied, built
upon or otherwise used, improved or transferred in whole or in part subject to
the LOS GATOS BUSINESS PARK RESTRICTIONS, meaning the covenants, conditions and
restrictions set forth in this Declaration. All of said restrictions are
declared and agreed to be in furtherance of a general plan for the subdivision,
improvement and sale of said real property and are established for the purpose
of enhancing and perfecting the value, desirability and attractiveness of said
real property and every part thereof. All of the LOS GATOS BUSINESS PARK
RESTRICTIONS shall run with all of said real property for all purposes and shall
be binding upon and inure to the benefit of Grantor and all owners, lessees,
licensees, occupants and their successors in interest as set forth in this
Declaration.
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Section 2 - Addition of Other Real Property by Grantor:
A. Grantor's Power: Grantor may at any time during the pendency
of this Declaration add all or a portion of any land now or hereafter owned by
Grantor to the property which is covered by this Declaration, and upon recording
of a notice of addition of real property containing at least the provisions set
forth in Section 2B of this Article II, the provisions of this Declaration
specified in said notice shall apply to such added land in the same manner as if
it were originally covered by this Declaration. Thereafter, to the extent this
Declaration is made applicable thereto, the rights, powers and responsibilities
of Grantor and the owners, lessees, licensees and occupants of parcels within
such added land shall be the same as in the case of the land described in
Exhibit "A".
B. Notice of Addition of Land: The notice of addition of real
property referred to in Section 2A above shall contain at least the following
provisions:
(1) A reference to this Declaration stating the date of
recording hereto and the book or books of the records of Santa Clara County,
California, and the page numbers where this Declaration is recorded;
(2) A statement that the provisions of this Declaration,
or some specified part thereof, shall apply to such added real property;
(3) A legal description of such added real property; and
(4) Such other or different covenants, conditions and
restrictions as Grantor shall, in its discretion, specify to regulate and
control the use, occupancy and improvement of such added real property.
ARTICLE III
REGULATION OF IMPROVEMENTS
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Section 1 - Approval of Plans:
A. Approval Required: No improvement shall be erected, placed,
altered, maintained or permitted to remain on any land subject to this
Declaration until final plans and specifications shall have been submitted to
and approved in writing by Grantor. Such final plans and specifications shall be
submitted in writing in duplicate over the authorized signature of the owner,
lessee, licensee or other occupant of the site or his authorized agent. Such
plans and specifications shall be in such form and shall contain such
information as may be required by the Grantor, but in any event shall include:
(1) A site development plan of the lot showing the nature,
grading scheme, kind, shape, materials and location with respect to the
particular lot (including proposed front, rear and side setback lines) of all
structures, the location thereof with reference to structures on adjoining
portions of the property, and the number and location of all parking spaces and
driveways on the lot;
(2) A landscaping plan for the particular lot;
(3) A signing and lighting plan; and
(4) A building elevation plan showing dimensions,
materials and exterior color scheme and be in no less detail than required by
the appropriate governmental authority for the issuance of a building permit.
Changes in approved plans which materially affect building size, placement or
external appearance must be similarly submitted to and approved by Grantor.
B. BASIS FOR APPROVAL: Approval shall be based, among other
things, on adequacy of site dimensions, adequacy of structural design,
conformity and harmony of external design with neighboring structures, effect of
location and use of proposed improvements on neighboring sites, proper facing of
main elevation with respect to nearby streets, adequacy of
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screening of mechanical air conditioning or other roof top installations, and
conformity of the plans and specifications to the purpose and general plan and
intent of this Declaration. No plans will be approve which do not provide for
the underground installation of power, electrical, telephone and other utility
lines from the property line to buildings. No plans will be approved which
provide for buildings covering more than fifty percent (50%) of the lot areas.
Grantor shall not arbitrarily or unreasonably withhold its approval of such
plans and specifications. Grantor shall have the right to disapprove any plans
and specifications submitted hereunder, including but not limited to any of the
following:
(1) Failure to comply with any of the Restrictions;
(2) Failure to include information in such plans and
specifications as may have been reasonably requested by Grantor;
(3) Objection to the exterior design, appearance of
materials of any proposed structure;
(4) Objection on the ground of incompatibility of any
proposed structure or use with existing structures or uses upon other lots or
other properties in the vicinity;
(5) Objection to the location of any proposed structure
upon any lot with reference to other lots in the vicinity;
(6) Objection to the grading plan for any lot;
(7) Objection to the color scheme, finish, proportions,
style or architecture, height, bulk or appropriateness of any structure;
(8) Objection to the number or size of parking spaces, or
to the design of the parking area;
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(9) Any other matter, which in the judgment of the
Grantor, would render the proposed structure or structures or use inharmonious
with the general plan for improvement of the property or with structures located
upon other lots or other properties in the vicinity.
C. Approval: Upon approval by the Grantor of any plans and
specification submitted hereunder, a copy of such plans and specifications as
approved, shall be deposited for permanent record with the Grantor, and a copy
of such plans an specifications bearing such approval, in writing, shall be
returned to the applicant submitting the same.
D. Result of an Action: If Grantor fails either to approve or
disapprove such plans and specifications within sixty (60) days after the same
have been submitted to it, it shall be conclusively presumed that Grantor has
disapproved said plans and specifications; provided, however, that if within
said sixty (60) day period Grantor gives written notice of the fact that more
time is required for the approval of such plans and specifications, there shall
be no presumption that the same are disapproved until the expiration of a
reasonable period of time as set forth in said notice.
E. Proceeding with Work: Upon receipt of approval from Grantor
pursuant to this Section the Owner or lessee to whom the same is given shall as
soon as practicable, satisfy all conditions thereof and diligently proceed with
the commencement and completion of all approved construction, refinishing,
alternating and excavations. In all cases work shall be commenced within one (1)
year from the date of such approval. If there is a failure to comply with this
paragraph, then the approval given pursuant to this Section shall be deemed
revoked unless Grantor upon request made prior to the expiration of said one (1)
year period extends the time for commencing work.
F. Completion of Work: In any event, reconstruction, refinishing
or alteration of any such improvement shall be completed within two (2) years
after the commencement thereof
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except for so long as such completion is rendered impossible or would result in
great hardship due to strikes, fire, national emergencies, natural calamities or
other supervening forces beyond the control the Owner, lessee, licensee or
occupant or his agents. Failure to comply with this paragraph shall constitute a
breach of the LOS GATOS BUSINESS PARK RESTRICTIONS and subject the defaulting
party or parties to all enforcement procedures set forth in this Declaration and
any other remedies provided by law or in equity.
G. Liability: Grantor shall not be liable for any damage, loss or
prejudice suffered or claimed on account of:
(1) The approval or disapproval of any plans, drawings and
specifications whether or not defective;
(2) The construction or performance of any work, whether
or not pursuant to approved plans, drawings and specifications; or
(3) The development of any property within the LOS GATOS
BUSINESS PARK.
H. Review Fee: An architectural review fee shall be paid to
Grantor at such time as plans and specifications are submitted for approval
based on the following schedule;
(1) When the plans submitted are prepared by an architect,
the architectural review fee shall be Two Hundred Fifty Dollars ($250.00);
(2) In all other cases the architectural review fee shall
be Five Hundred Dollars ($500.00).
I. Construction Without Approval: If any improvement shall be
altered, erected, placed or maintained upon any lot, or any new use commenced on
any lot, otherwise than in
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accordance with the approval by the Grantor pursuant to the provisions of this
Section, such alteration, erection, maintenance or use shall be deemed to have
been undertaken in violation of this Section and without the approval required
herein, and upon written notice from the Grantor, any such structure so altered,
erected, placed or maintained upon any lot in violation hereto shall be removed
or re-altered, and any such use shall be terminated so as to extinguish such
violation. If within fifteen (15) days after the notice of such violation the
Owner of the lot upon which such violation exists shall not have taken
reasonable steps toward the removal or termination of the same, Grantor shall
have the right, through its agents and employees, to enter upon such lot,
subject to any security controls imposed by the Government of the United States
(or any agency thereof) with respect to any operation being conducted thereon,
and to take such steps as may be necessary to extinguish such violation. Grantor
or any such agent shall not thereby be deemed to have trespassed upon such lot
and shall be subject to no liability to the Owner or occupant of such lot for
such entry and any action taken in connection with the removal of any violation.
The cost of any abatement or removal hereunder shall be a binding personal
obligation of such mortgagee upon the lot in question. The lien provided in this
Section shall not be valid as against a bona-fide purchaser (or bona-fide
mortgagee) of a lot in question unless a suit to enforce said lien shall have
been filed in a court of record in Santa Clara County, California, prior to the
recordation among the land records of Santa
Clara County, California, of the deed (or mortgage) conveying the lot in
question to such purchaser (or subjecting the same to such mortgage).
Section 2 - Limitations on Developments:
A. Minimum Setback Lines: No improvements of any kind, and no
part thereof, shall be placed closer than permitted by Grantor to an interior
property line. No improvements of
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any kind, and no part thereof, shall be placed closer than twenty-five (25) feet
from a property line fronting streets.
B. Exceptions to Setback Requirements: The following structures
and improvements are specifically excluded from the foregoing setback
requirements:
(1) Roof overhang subject to the specific approval of
Grantor in writing, provided it does not extend more than six (6) feet into the
setback area;
(2) Steps and walks;
(3) Paving and associated curbing except that vehicle
parking area shall not be permitted to extend within street setback area.
(4) Fences, except that no fence shall be placed within
the street setback area unless specific approval is given by Grantor in writing;
(5) Landscaping;
(6) Planters, not to exceed three (3) feet in height,
unless specific written approval is given by Grantor;
(6) Signs identifying the owner, lessee or occupant
subject to the specific approval of Grantor in writing;
(7) Lighting facilities, subject to the specific approval
of Grantor in writing.
C. Landscaping: Every site on which a building shall have been
placed shall be landscaped in accordance with plans and specifications submitted
to and approved by Grantor pursuant to Section 1 above. Landscaping as approved
by Grantor shall be installed within thirty (30) days of occupancy or completion
of the building, whichever occurs first, unless Grantor approves in writing
another completion date. After completion such landscaping shall be maintained
in a sightly
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and well-kept condition. The area of each site between any street and any
minimum setback line as defined by paragraphs A and B of this Section shall be
landscaped with an effective combination of street trees, trees, ground cover
and shrubbery. All other areas fronting on a street that are not utilized for
parking or driveways shall be landscaped in a similar manner. All areas of each
site not fronting on a street and not used for parking or storage shall be
landscaped utilizing ground cover and/or shrub and tree materials. Undeveloped
areas proposed for future expansion shall be maintained in a weed-free condition
and shall be landscaped if required by Grantor. Unpaved areas between the street
curb line and the property line adjoining any street shall be landscaped and
maintained by owner. An underground automatic landscape irrigation system shall
be provided by the owner over all landscaped areas. Areas used for parking shall
be landscaped, bermed or fenced in such a manner as to screen said areas from
view from adjacent streets. Such screening shall extend at least forty two (42)
inches above the high point of the finished pavement in said parking area. Plant
materials used for this purpose shall consist of lineal or grouped masses of
shrubs and/or trees.
If, in the opinion and sole discretion of the Grantor, the required
landscaping is not maintained in a sightly and well-kept condition, the Grantor
shall have the right, through its agents and employees, to enter onto any site
and to take such steps as may be necessary to maintain the landscaping in a
sightly and well-kept condition. Grantor, or any such agent or employee, shall
not thereby be deemed to have trespassed upon such site and shall be subject to
no liability to the owner or occupant of such site for such entry and any action
taken in connection with such necessary maintenance. The cost of any such
maintenance hereunder shall be a binding personal obligation of such Owner, as
well as a lien (enforceable in the same manner as a mortgage) upon the site in
question. The lien provided in this Section shall not be valid as against a
bona-fide purchaser (or
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bona-fide mortgagee) of a site in question unless a suit to enforce said lien
shall have been filed in a court of record in Santa Clara County, California,
prior to the recordation among the land records of Santa Clara County,
California, of a deed (or mortgage) conveying the site in question to such
purchaser (or subjecting the same to such mortgage).
D. Signs:
(1) No sign shall be permitted on any site unless approved
by Grantor in writing. No sign shall be approved other than those identifying
the name, business and products of the person or firm occupying the premises and
those offer the premises for sale or for lease;
(2) The location of signs shall be governed by the setback
requirements set forth in Article III-Section 2 unless Grantor gives permission
for a nonconforming location;
E. Parking Areas:
(1) Adequate off-street parking shall be provided to
accommodate all parking needs for employee, visitor and company vehicles on the
site. The intent of this provision is
to eliminate the need for any on-street parking; provided that this provision
does not prohibit on-street parking of public transportation vehicles.
(2) On-Site: Required off-street parking shall be provided
on the site of the use served, or on a contiguous site, or within six hundred
(600) feet of the subject site. Where parking is provided on other than the site
concerned, a recorded document shall be filed with the Grantor and signed by the
owners of the alternate site stipulating to the permanent reservation of the use
of the site for said parking.
(3) Paved Areas: Parking areas shall be paved so as to
provide dust-free, all-weather surfaces. Each parking space provided shall be
designated by lines painted on the paved
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surfaces and shall be adequate in area, and all parking areas shall provide, in
addition to parking spaces, adequate driveways and space for the movement of
vehicles.
(4) Parking Plan: The number of parking spaces required
for each site, and the specific location of the same, shall be designated in
plans for each site which have been submitted and approved in the manner set
forth herein. In determining the number of parking spaces and the location
thereof of each site, Grantor shall consider the exact nature of the use
proposed for the site; the anticipated number and manner of employment of
persons on the site; the nature and location of proposed structures on the site;
and such other matters as Grantor shall deem relevant.
(5) Limitation: No parking spaces shall be located on, and
no parking shall be permitted by the Grantor within designated street setback
areas.
F. Storage and Loading Areas:
(1) Unless specifically approved by Grantor in writing, no
materials, supplies or equipment, including company-owned or operated trucks and
motor vehicles shall be stored in any area on a site except inside a closed
building, or behind a visual barrier screening such areas so that they are not
visible from the neighboring properties or public streets. Any storage areas
screened by visual barriers shall be located on the rear portions of the site,
unless approved by Grantor in writing. No storage areas shall extend into
setback lines as established herein unless approved by Grantor in writing.
(2) All provisions for vehicle loading shall be provided
on the site with on-street vehicle loading not permitted.
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(3) No loading dock, trucking or railroad activity shall
be permitted between the structure and any street, and no loading areas shall
encroach into setback areas unless specifically approved by Grantor.
(4) Loading dock areas shall be set back and screened so
as not to be visible from neighboring properties and streets, but in any event,
the docks shall not be closer than forty-five (45) feet from a property line
fronting any street unless specifically approved by Grantor in writing.
ARTICLE IV
REGULATION OF OPERATIONS AND USES
Section 1 - Permitted Uses: Unless otherwise specifically prohibited
herein, any industrial operation and use will be permitted, provided Grantor
specifically consents to such use in writing, if it is performed or carried out
entirely within a building that is so designed and constructed that the enclosed
operations and uses do not cause or produce a nuisance to adjacent sites such
as, but not limited to vibration, sound, electromechanical disturbances and
radiation, electromagnet disturbances, radiation, air or water pollution, dust,
emission of odorous, toxic and non-toxic matter. Certain activities which cannot
be carried on within a building may be permitted, provided Grantor specifically
consents to such activity in writing and further provided such activity is
screened so as not to be visible from neighboring properties and streets. All
lighting is to be shielded from adjacent sites.
Section 2 - Restrictions and Prohibited Uses:
A. Prohibited Uses: The following operations and uses shall not
be permitted on any property subject to these restrictions:
(1) Residential of any type;
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(2) Trailer courts or recreation vehicle campgrounds;
(3) Hotels or motels;
(4) Junk yards or recycling facilities;
(5) Drilling for and/or the removal of oil, gas or other
hydrocarbon substances (except that this provision shall not be deemed to
prohibit the entry of subject property below a depth of five hundred (500) feet
for such purposes);
(6) Commercial excavation of building or construction
materials, except in the course of approved construction as provided by Article
III-Section 1 above;
(7) Distillation of bones;
(8) Dumping, disposal, incineration or reduction of
garbage, sewage, offal, dead animals or refuse;
(9) Fat rendering;
(10) Stockyard or slaughter of animals;
(11) Refining of petroleum or of its products;
(12) Smelting of iron, tin, zinc, or other ores;
(13) Cemeteries
(14) Jail or honor farms;
(15) Labor or migrant worker camps;
(16) Truck terminals;
(17) Petroleum storage yards.
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B. Nuisances: No nuisance shall be permitted to exist or operate
upon any site so as to be offensive or detrimental to any property in the
vicinity thereof or to its occupants. A "nuisance" shall include but not be
limited to any of the following conditions:
(1) Dirt, Dust and Waste Discharge: No use of the property
will be permitted which emits dust, sweepings, dirt or cinders into the
atmosphere, or discharges liquid, solid wastes or other harmful matter into any
stream, river or other body of water which, in the opinion of the Grantor may
adversely affect the health, safety, comfort of, or intended property use by
persons within the area. Nor shall waste or any substance or materials of any
kind be discharged into any public sewer serving the property, or any part
thereof, in violation of any regulations of any public body having jurisdiction.
(2) Fumes, Cases, Odors, Etc.: No fumes, odors, gases,
vapors, acids, or other substances shall be permitted to escape or be discharged
into the atmosphere which, in the opinion of Grantor, may be detrimental to the
health, safety or welfare of persons, or may interfere with the comfort of
persons within the area, or which may be harmful to property or vegetation.
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(3) Glare or Heat: Any operation producing intense glare
or heat shall be performed only within an enclosed or screened area and then
only in such manner that the glare or beat emitted will not be discernible from
any exterior lot line.
(4) Noise: At no point outside of any property plane shall
the sound pressure level of any machine, device, or any combination of same,
from any individual plant or operation exceed the decibel levels in the
designated preferred octave bands shown below:
<TABLE>
<CAPTION>
MAXIMUM SOUND
OCTAVE BAND PRESSURE LEVELS (DB) AT
CENTER FREQUENCY BOUNDARY PLANE OF LOT
<S> <C>
31.5 78
</TABLE>
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<TABLE>
<S> <C>
63 72
125 65
250 59
500 55
1000 52
2000 50
4000 48
8000 47
</TABLE>
A-scale levels for monitoring purposes are equivalent to 60 dB(A). The
maximum permissible noise levels for the octave bands shown above are equal to
an NC-50 Noise Criterion curve when plotted on the preferred frequency scale.
Noise from motor vehicles and other transportation facilities are exempted. The
operation of signaling devices and other equipment having impulsive or
non-continuous sound characteristics shall have the following corrections
applied:
<TABLE>
<S> <C>
CORRECTIONS
Pure tone content -5dB
Impulsive character -5dB
Duration for non-continuous
sounds in daytime only,
1 min/hr -5dB
10 sec/10 min -l0dB
2 sec/10 min -l5dB
</TABLE>
The reference level for the dB values listed above is the pressure of
0.0002 microbar or 0.0002 dyne/em.
(5) Smoke and Particulate Matter: Visible emissions of
smoke will not be permitted (outside any building) which exceed Ringlemann No. 1
on the Ringlemann Chart of the United States Bureau of Mines, other than the
exhausts emitted by motor vehicles or other transportation facilities. This
requirement shall also be applicable to the disposal of trash and waste
materials, Wind-borne dust, sprays and mists originating in plants will not be
permitted.
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(6) Vibration: Buildings and other structures shall be
constructed and machinery and equipment installed and insulated on each site so
that the ground vibration inherently and recurrently generated is not
perceptible without instruments at any point along any of the exterior lot
lines.
C. Condition of Property: The owner of any site or lot shall at
all times keep the premises, buildings, improvements and appurtenances in a
safe, clean and wholesome condition and comply in all respects with all
government, health, fire and police requirements and regulations, and the Owner
will remove at his or its own expense any rubbish of any character whatsoever
which may accumulate on such site or lot. In the event such Owner fails to
comply with any or all of such specifications or requirements, the Grantor shall
have the right, privilege and license to enter upon such premises and make any
and all corrections or improvements that may be necessary to meet such standards
and to charge such Owner the expenses incurred in doing so. Grantor or any of
its agents shall not thereby be deemed to have trespassed upon such lot and
shall be subject to no liability to the Owner or occupant of such lot for such
entry and any action taken in connection with the removal of any violation. The
cost of any abatement or removal hereunder shall be a binding personal
obligation on such Owner as well as a lien (enforceable in the same manner as a
mortgage) upon the lot in question. The lien provided in this Section shall not
be valid as against a bona-fide purchaser (or a bona-fide mortgagee) of a lot in
question unless a suit to enforce said lien shall have been filed in a court of
record in Santa Clara County, California, prior to the recordation among the
land records of Santa Clara County, of the deed (or mortgage) conveying the lot
in question to such purchaser, or subjecting the same to such mortgage.
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D. Repair of Buildings: No building or structure upon any site
shall be permitted to fall into disrepair, and each such building and structure
shall at all times be kept in good condition and repair and adequately painted
or otherwise finished.
E. Right of Entry: During reasonable hours and subject to
reasonable security requirements, Grantor, or its authorized representative,
shall have the right to enter upon and inspect any building, site or parcel and
the improvements thereon embraced for the purpose of ascertaining whether or not
the provisions of LOS GATOS BUSINESS PARK RESTRICTIONS have been or are being
complied with and neither Grantor nor its authorized representative, shall be
deemed to have committed a trespass or other wrongful act by reason of such
entry or inspection.
F. Refuse Collection Areas: All outdoor refuse collection areas
shall be visually screened so as not to be visible from streets, freeways and
neighboring property. No refuse collection areas shall be permitted between a
street and the front of a building.
G. Improvements: The Grantor reserves the sole right to grant
consents for the construction and operation of street railways, interurban,
rapid transit or other public utility facilities, freight railways, electric
light, telephone and telegraph pole lines aboveground or underground
conduits, and gas pipes in and upon any and all streets now existing or
hereafter established upon which any portion of the premises may now or
hereafter front or abut. The Grantor reserves and is hereby granted the
exclusive right to grant consents and to petition the proper authorities for any
and all street improvements such as grading, seeding, tree planting, sidewalks,
paving, sewer and water installation, whether it be on the surface or
sub-surface which in the opinion of the Grantor are necessary in or to the
property subject to these restrictions. The Grantor reserves the right to
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approve aboveground utility lines across any property subject to these
restrictions, when such utility lines, in the opinion of the Grantor, are
necessary to the property subject to these restrictions.
Section 3 - Other Operations and Uses: Operations and uses which are
neither specifically prohibited nor specifically authorized by these
restrictions may be permitted in a specific case if operational plans and
specifications are submitted to and approved in writing by Grantor. Approval or
disapproval of such operational plans and specifications shall be based upon the
effect of such operations or uses on other property subject to these
restrictions or upon the occupants thereof, but shall be in the sole discretion
of Grantor.
ARTICLE V
DURATION, MODIFICATION AND REPEAL
Section 1 - DURATION OF RESTRICTIONS: The LOS GATOS BUSINESS PARK
RESTRICTIONS shall continue and remain in full force and effect at all times
with respect to all property, and each part thereof now or hereafter made
subject thereto (subject, however, to the right to amend and repeal as provided
for herein) until January 1, 2009. However, unless within one (1) year prior to
January 1, 2009, there shall be recorded an instrument directing the termination
of the LOS GATOS BUSINESS PARK RESTRICTIONS signed by owners of not less than
two-thirds (2/3) of the property then subject to these restrictions, based on
the number of square feet subject to these restrictions (excluding dedicated
streets), the LOS GATOS BUSINESS PARK RESTRICTIONS, as in effect immediately
prior to the expiration date shall be continued automatically without any
further notice for an additional period of ten (10) years and thereafter for
such periods of ten (10) years unless within one (1) year prior to the expansion
of a such period the LOS GATOS BUSINESS PARK RESTRICTIONS are terminated as set
forth above in this Section.
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Section 2 - TERMINATION AND MODIFICATION: This Declaration or any
provision thereof, or any covenant, condition or restriction contained herein,
may be terminated, extended, modified or amended, as to the whole of said
property or portion thereof, with the written consent of the owners of sixty six
and two-thirds (66-2/3%) of the property subject to these restrictions, based on
the number of square feet owned as compared to the total number of square feet
subject to these restrictions (excluding dedicated streets), provided, however,
that so long as Grantor owns at least twenty five percent (25%) of the property
subject to these restrictions, or for a period of fifteen (15) years from the
effective date hereof, whichever period is longer, no such termination,
extension modification or amendment shall be effective without the written
approval of Grantor thereto. Provided further, that the provisions of Article
III and Article IV hereof shall inure to the benefit of and be enforceable
solely by Grantor, shall be capable of being amended by Grantor without the
consent of any other owner, person or entity, and shall not give any third party
any right or cause of action on account of the terms of this Declaration. No
such termination extension, modification or amendment shall be effective until a
proper instrument in writing has been executed and acknowledged and recorded in
the County where the land affected thereby is situated.
ARTICLE VI
ENFORCEMENT
Section 1 - ABATEMENT AND SUIT: Violation or breach of any restriction
herein contained shall give to Grantor the right to enter upon the property or
as to which said violation or breach exists and to summarily abate and remove at
the expense of the owner, lessee or occupant thereof, any structure, thing or
condition that may be or exist thereon contrary to the intent and meaning of the
provisions hereof, or to prosecute a proceeding at law or in equity against the
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person or persons who have violated or are attempting to violate any of these
restrictions to enjoin or prevent them from doing so, to cause said violation to
be remedied or to recover damages for said violation.
Section 2 - DEEMED TO CONSTITUTE A NUISANCE: The result of every action
or omission whereby any restriction herein contained is violated in whole or in
part is hereby declared to be and to constitute a nuisance, and every remedy
allowed by law or equity against an owner, either public or private, shall be
applicable against every such result and may be exercised by Grantor.
Section 3 - ATTORNEY FEES: In any legal or equitable proceeding for the
enforcement of this Declaration or any provision hereof, whether it be an action
for damages, declaratory relief or injunctive relief, the losing party or
parties shall pay the attorney fees of the prevailing party or parties, in such
reasonable amount as may be fixed by the court in such proceedings, or in a
separate action brought for that purpose. The prevailing party shall be entitled
to said attorney fees, even though said proceeding is settled prior to judgment.
All remedies provided herein or at law or in equity shall be cumulative and not
exclusive.
Section 4 - FAILURE TO ENFORCE NOT A WAIVER OF RIGHTS: The Grantor shall
have the right to waive or grant a variance from any requirement, restriction or
standard contained in these Restrictions. The failure of Grantor to enforce any
requirement, restriction or standard herein contained, shall in no event be
deemed to be a waiver of the right to do so thereafter, nor of the right to
enforce any other restriction.
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<PAGE> 47
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1 - ASSIGNMENT OF RIGHTS AND DUTIES: Any and all of the rights,
powers and reservations of Grantor herein contained may be assigned to any
person, corporation or association which will assume the duties of Grantor
pertaining to the particular rights, powers and reservations assigned, and upon
any such person, corporation or association evidencing its consent in writing to
accept such assignment and assume such duties, he or it shall, to the extent of
such assignment, have the same rights and powers and be subject to the same
obligations and duties as are given to and assumed by Grantor herein. The term
"Grantor" as used herein includes all such assignees and their successors and
assigns. If at any time Grantor ceases to exist and has not made such an
assignment, a successor Grantor may be appointed in the same manner as these
Restrictions may be terminated, extended, modified or amended under Article V -
Section 2. Any assignment or appointment made under this Section shall be in
recordable form and shall be recorded in the County where the land is situated.
Section 2 - CONSTRUCTION NOISE AND ACCEPTANCE: Every person or other
entity who now Or hereafter owns, occupies or acquires any right, title or
interest in or to any portion of the property made subject to these Restrictions
is and shall be conclusively deemed to have consented and agreed to every
covenant, condition and restriction contained herein, whether or not any
reference. to this Declaration is contained in the instrument by which such
person or entity acquired an interest in said property.
Section 3 - WAIVER: Neither Grantor nor its successors or assigns shall
be liable to any Owner, lessee, licensee, or occupant of land subject to this
Declaration by reason of any mistake in
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<PAGE> 48
judgment, negligence, nonfeasance, action or inaction or for the enforcement or
failure to enforce any provision of this Declaration. Every Owner, lessee,
licensee or occupant of any of said property by acquiring his interest therein
agrees that he will not bring any action or suit against Grantor to recover any
such damages or to seek equitable relief.
Section 4 - MUTUALITY, RECIPROCITY - RUNS WITH LAND: All covenants,
conditions, restrictions and agreements contained herein are made for the
direct, mutual and reciprocal benefit of each and every part and parcel of the
property now or hereafter made subject to this Declaration, shall create mutual,
equitable servitudes upon each parcel in favor of every other parcel; shall
create reciprocal rights and obligations between the respective Owners of all
parcels and privity of contract and estate between all grantees of said parcels,
their heirs, successors and assigns; and shall, as to the owner of each parcel,
his heirs, successors and assigns, operate as covenants running with the land,
for the benefit of all other parcels, except as provided herein.
Section 5 - RIGHTS OF MORTGAGEES: No breach of the restrictions and
other provisions. contained herein, or any enforcement thereof, shall defeat or
render invalid the lien of any mortgage or deed of trust now or hereafter
executed upon land subject to these Restrictions; provided, however, that if any
portion of said property is sold under a foreclosure of any mortgage or under
the provisions of any deed of trust, any purchaser of such sale and his
successors and assigns shall hold any and all property so purchased subject to
all of the restrictions and other provisions of this Declaration.
Section 6 - PARAGRAPH HEADINGS: Paragraph headings, where used herein,
are inserted for convenience only and are not intended to be a part of this
Declaration or in any way to define, limit or describe the scope and intent of
the particular paragraphs to which they refer.
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<PAGE> 49
Section 7 - EFFECT OF INVALIDATION: If any provisions of this
Declaration is held to be invalid by any court, the invalidity of such provision
shall not effect the validity of the remaining provisions hereof.
IN WITNESS WHEREOF, Grantor has executed this Declaration the day and
year first above written
LOS GATOS BUSINESS PARK
A Limited Partnership
s/ Howard J. White, III
By: Howard J. White, III
General Manager
Article VI, Section 4 entitled "Failure to Enforce Not a Waiver of
Rights" has been amended to read:
The Grantor is hereby authorized and empowered to grant reasonable
variances from the provisions of this Declaration in order to overcome practical
difficulties and in order to prevent unnecessary hardship in the application of
the provisions contained herein, provided, however, that said variances shall
not materially alter or be inconsistent with the general plan and intent of this
Declaration. The failure of Grantor to enforce any requirement, restriction or
standard herein contained, shall in no event be deemed to be a waiver of the
right to do so thereafter, nor of the right to enforce any other restriction.
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<PAGE> 1
EXHIBIT 10.13
LEASE
THIS LEASE is made on the 6th day of July, 1995, by and between Los Gatos
Business Park (hereinafter called "Lessor) and lntermart Systems, Inc.
(hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
A. Premises. Lessor leases to Lessee, and Lessee leases from Lessor, upon
the terms conditions herein set forth, those certain Premises
("Premises") situated in the City of Los Gatos, County of Santa Clara,
California, as outlined in Exhibit "A" attached hereto and described
follows: +/- 5,100 square feet of a larger building commonly known
131-D Albright Way, Los Gatos, California, 95030. Lessee's pro-rata
share shall be +/- 22.7%.
B. Term. The term of this Lease shall be for three (3) years, commencing
on August 1, 1995 and ending on July 31, 1998, unless sooner
terminated pursuant to any provision hereof.
C. Rent. Lessee shall pay to Lessor rent for the Premises of Two
Thousand Five Hundred Fifty and 00/100 Dollars ($2,550.00) per month in
lawful money of the United States of America, subject to adjustment as
provided in Section A of this Paragraph. Rent shall be paid without
deduction or offset, prior notice, or demand, at such place as may be
designated from time to time by Lessor as follows: $2,550.00 shall be
paid upon execution of the Lease, which sum represents the
amount of the first month's rent. A deposit of $5,355.00 as a Security
Deposit shall be made by Lessee and held by Lessor pursuant
to Paragraph 5 of this Lease, and shall be paid upon execution of the
Lease. If Lessee is not in default of any provision of this Lease, this
sum, without interest thereon, shall be applied toward the rent due for
the last month of the term of this Lease or the extended term, pursuant
to any extension of the Initial term in accordance with the provisions
of this Lease. Rent shall be paid in advance on the first (1st) day of
each succeeding calendar month as follows:
08/01/95 - 01/31/96 $2,550.00/mo/NNN
--------------------- ----------------
02/01/96 - 07/31/96 $3,825.00/mo/NNN
--------------------- ----------------
08/01/96 - 07/31/97 $5,100.00/mo/NNN
--------------------- ----------------
08/01/97 - 07/31/98 $5,355.00/mo/NNN
--------------------- ----------------
Rent for any period during the term hereof which is for less than one
(1) full month shall be a pro-rata portion of the monthly rent payment.
Lessee acknowledges that late payment by Lessee to Lessor of rent or
any other payment due Lessor will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include,
without limitation, processing and accounting charges, and late charges
that may be imposed on Lessor by the terms of any encumbrance and note
secured by any encumbrance covering the Premises. Therefore, in any
installment of rent or other payment due from Lessee is not received by
Lessor within five (5) days following the date it is due and payable,
Lessee shall pay to Lessor an additional sum of ten
<PAGE> 2
percent (10%) of the overdue amount as a late charge. The parties agree
that this late charge represents a fair and reasonable estimate of the
costs that Lessor will incur by reason of late payment by Lessee.
Acceptance of any late charge shall not constitute a waiver of Lessee's
default with respect to the overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies available to Lessor.
If, for any reason whatsoever, Lessor cannot deliver
possession of the Premises on the commencement date set forth in
Paragraph 2 above this Lease shall riot be void or voidable, nor shall
Lessor be liable to Lessee for any loss or damage resulting therefrom;
but in such event, Lessee shall not be obligated to pay rent until
possession of the Promises is tendered to Lessee and the commencement
and termination dates of this Lease shall be revised to conform to the
date of Lessor's delivery of possession. In the event that Lessor shall
permit Lessee to occupy the Premises prior to the commencement date of
the term, such occupancy shall be subject to all of the provisions of
this Lease, including the obligation to pay rent at the same monthly
rate as that prescribed for the first month of the Lease term.
[A. Cost of Living Increase. The rent payable in advance on the
first day of each month succeeding, 19 , shall be determined in the
following manner: the All Urban Consumer Price Index (all items) for
the San Francisco/Oakland Metropolitan Area, published by the United
States Department of Labor, Bureau of Labor Statistics ("Index"),
which is published most immediately preceding the date of, 19 , shall
be compared with the Index published for the date at the commencement
of the Lease ("Beginning Index").
If the , 19 , Index has increased over the Beginning Index,
the monthly rent payable during the , 19 , to , 19 , period shall be
set by multiplying the monthly rent paid for the period from, 19 ,
to , , by a fraction, the numerator of which is the , 19 , index and
the denominator of which is the Beginning Index. In no event shall the
monthly rent as determined by this adjustment be less than the monthly
rent immediately prior to such adjustment. On adjustment of the monthly
rent as herein provided, Lessor shall notify Lessee in writing of the
new monthly rent.]
B. All taxes, insurance premiums, Outside Area Charges, late
charges, costs and expenses which Lessee is required to pay hereunder,
together with all interest and penalties that may accrue thereon in the
event of Lessee's failure to pay such amounts, and all reasonable
damages, costs, and attorney's fees and expenses which Lessor may incur
by reason of any default of Lessee or failure on Lessee's part to
comply with the terms of this Lease, shall be deemed to be additional
rent (hereinafter, "Additional Rent"), and, in the event of non-payment
by Lessee, Lessor shall have all of the rights and remedies with
respect thereto as Lessor has for the nonpayment of monthly installment
of rent.
D. Option to Extend Term.
1. Lessee shall have the option to extend the term on all the
provisions contained in this Lease for one one-year periods
("extended term(s)") at an adjusted rental calculated as
provided in Subparagraph B below on the condition that:
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<PAGE> 3
(a) Lessee has given to Lessor written notice of exercise
of that option ("option notice") at least six (6)
months before expiration of the initial term or
extended term(s), as the case may be.
(b) Lessee is not in default in the performance of any of
the terms and conditions of the Lease on the date of
giving the option notice, and Lessee is not in
default on the date that the extended term is to
commence.
2. Monthly rent for the extended term shall be $5,610.00.
3. In no event shall the monthly rent for any extended term be
less than the monthly rent paid immediately prior to such
extended term.
E. Security Deposit. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of $5,355.00 to secure the full
and faithful performance by Lessee of each term, covenant, and
condition of this Lease. If Lessee shall at any time fail to make any
payment or fail to keep or perform any term, covenant, or condition on
its part to be made or performed or kept under this Lease, Lessor may,
but shall not be obligated to and without waiving or releasing Lessee
from any obligation under this Lease, use, apply, or retain the whole
or any part of said Security Deposit (a) to the extent of any sum due
to Lessor; or (b) to compensate Lessor for any loss, damage, attorneys'
fees or expense sustained by Lessor due to Lessee's default. In such
event, Lessee shall, within five (5) days of written demand by Lessor,
remit to Lessor sufficient funds to restore the Security Deposit to its
original sum. No interest shall accrue on the Security Deposit. Should
Lessee comply with all the terms, covenants, and conditions of this
Lease and, at the and of the term of this Lease, leave the Promises in
the condition required by this Lease, then said Security Deposit or any
balance thereof, less any sums owing to Lessor, shall be returned to
Lessee within fifteen (15) days after the termination of this Lease and
vacancy of the Promises by Lessee. Lessor can maintain the Security
Deposit separate and apart from Lessor's general funds, or can co-
mingle the Security Deposit with the Lessor's general and other funds.
F. Use of the Premises. The Premises shall be used exclusively for the
purpose of sales, marketing, light manufacturing and distribution of
computer systems.
Lessee shall not use or permit the Premises, or any part thereof,
to be used for any purpose or purposes other than the purpose for which
the Premises are hereby leased; and no use shall be made or permitted
to be made of the Premises, nor acts done, which will increase the
existing rate of insurance upon the building in which the Promises are
located, or cause a cancellation of any insurance policy covering said
building, or any part thereof, nor shall Lessee sell or permit to be
kept, used, or sold, in or about the Premises, any article which may be
prohibited by the standard form of fire insurance policies. Lessee
shall not commit or suffer to be committed any waste upon the Premises
or any public or private nuisance or other act or thing which may
disturb the quiet enjoyment of any other tenant in the building in
which the promises are located; nor, without limiting the generality of
the foregoing, shall Lessee allow the Premises to be used for any
improper, immoral, unlawful, or objectionable purpose.
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<PAGE> 4
Lessee shall not place any harmful liquids in the drainage
system of the Premises or of the building of which the Premises form a
part. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises outside of the building proper
except in trash containers placed inside exterior enclosures designated
for that purpose by Lessor, or inside the building proper where
designated by Lessor. No materials, supplies, equipment, finished or
semi-finished products, raw materials, or articles of any nature shall
be stored upon or permitted to remain on any portion of the Premises
outside of the building proper. Lessee shall comply with all the
covenants, conditions, and/or restrictions ("C.C. & R.'s") affecting
the Premises.
Lessor represents and warrants to Lessee that to the best of
its knowledge there are no Toxic or Hazardous materials present on, at
or under the Premises, which shall be deemed to include underlying land
and groundwater, at the time of Lessee's occupancy. Lessor shall
indemnify, defend and hold harmless Lessee, its partners, directors,
officers, employees, lenders, and successors against all claims,
obligations, liabilities, demands, damages, judgements, and costs,
including reasonable attorneys' fees arising from or in connection with
any prior Toxic or Hazardous materials that existed prior to Lessee's
occupancy of the Premises. Lessee in turn represents to Lessor that it
does not now and will not in the future permit the use or storage on
the Premises of Toxic or Hazardous materials, excluding, however basic
janitorial, maintenance and office supplies, and materials commonly
used in connection with Lessee's business as described in paragraph 6
hereof. For purposes of this paragraph 6 "Toxic or Hazardous Materials"
shall mean any product, substance, chemical, material or waste whose
presence, nature, quality and/or intensity or existence, use,
manufacture, disposal, transportation, spill, release or effect, either
by itself or in combination with other materials expected to be on the
leased premises, is either (i) potentially injurious to the public
health, safety or welfare, the environment, or the leased premises;
(ii) regulated or monitored by any governmental authority; or (iii) a
basis for potential liability of Lessee and Lessor to any governmental
agency or third party under any applicable statute or common law
theory. "Toxic or Hazardous Materials" shall include, but not be
limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof.
Lessee hereunder shall be responsible for and indemnify, and
hold Lessor and its partners, directors, officers, employees. lenders,
successors and assigns harmless from all claims, obligations,
liabilities, demands, damages, judgments and costs, including
reasonable attorneys' fees arising at any time during or in connection
with Lessee's causing or permitting any materials referred to under any
governmental provisions or regulatory scheme as "hazardous" or "toxic"
or which contain petroleum, gasoline, or other petroleum product, to be
brought upon, stored, manufactured, generated, handled, disposed, or
used on, under or about the Premises.
If, at any time during the term of this Lease, Lessor suspects
that toxic waste, spillage, or other contaminants may be present on the
Premises, Lessor may order a soils report, or its equivalent, at
Lessee's expense and Lessee shall pay such costs within fifteen (15)
days from the date of the invoice by Lessor. If any such toxic waste,
spillage, or other contamination are found upon the Premises, Lessee
shall deposit with Lessor, within fifteen (15) days of notice from
Lessor to Lessee to do so, the amount necessary to remove the
substances and remedy the problem.
4
<PAGE> 5
Lessee shall abide by all laws, ordinances, and statutes, as
they now exist or may hereafter be enacted by legislative bodies having
jurisdiction thereof, relating to its use and occupancy of the
Premises.
G. Improvements: Lessor will provide improvements to the Premises as
specified in Exhibit "B" attached hereto and by this reference made a
part hereof. Lessor will make reasonable efforts to complete such
improvements prior to August 1, 1995. Possession of the premises,
pursuant to Paragraph 13 of this lease, shall be deemed tendered upon
receipt of final city approvals.
H. TAXES AND ASSESSMENTS.
1. Lessee shall pay before delinquency any and all taxes, assessments,
license fees, and public charges levied, assessed, or Imposed upon or
against Lessee's fixtures, equipment, furnishings, furniture,
appliances, and personal property installed or located on or within the
Premises. Lessee shall cause said fixtures, equipment, furnishings,
furniture, appliances, and personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee
shall pay to Lessor the taxes attributable to Lessee within ten (10)
days after receipt of a written statement from Lessor setting forth the
taxes applicable to Lessee's property.
2. All property taxes or assessments levied or assessed by or hereafter
levied or assessed by any governmental authority against the Premises
or any portion of such taxes or assessments which becomes due or
accrued during the term of this Lease shall be paid by Lessor. Lessee
shall pay to Lessor Lessee's proportionate share of such taxes or
assessments within ten (10) days of receipt of Lessor's invoice
demanding such payment, Lessee's liability hereunder shall be prorated
to reflect the commencement and termination dates of this Lease.
I. INSURANCE.
1. Indemnity. Lessee agrees to indemnify and defend Lessor against and
hold Lessor harmless from any and all demands, claims, causes of
action, judgments, obligations, or liabilities, and all reasonable
expenses incurred in investigating or resisting the same (including
reasonable attorneys' fees) on account of. or arising out of, the
condition, use, or occupancy of the Premises. This Lease is made on the
express condition that Lessor shall riot be liable for, or suffer loss
by reason of, injury to person or property, from whatever cause, in any
way connected with the condition, use, or occupancy of the Premises,
specifically including, without limitation, any liability for injury to
the person or property of Lessee, its agents, officers, employees,
licensees, and invitees.
2. Liability Insurance. Lessee shall, at its expense, obtain and
keep in force during the term of this Lease a policy of comprehensive
public liability insurance insuring Lessor and Lessee, with
cross-liability endorsements, against any liability arising out of the
condition, use, or occupancy of the Premises and all areas appurtenant
thereto, including parking areas. Such
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<PAGE> 6
insurance shall be in an amount satisfactory to Lessor of not less
than one million dollars ($1,000,000) for bodily injury or death as a
result of one occurrence, and five hundred thousand dollars ($500,000)
for damage to property as a result of any one occurrence. The insurance
shall be with companies approved by Lessor, which approval Lessor
agrees not to withhold unreasonably. Prior to possession, Lessee shall
deliver to Lessor a certificate of insurance evidencing the existence
of the policy which (1) names Lessor as an additional insured, (2)
shall not be canceled or altered without thirty (30) days' prior
written notice to Lessor, (3) insures performance of the indemnity set
forth in Section A of Paragraph 9, and (4) coverage is primary and any
coverage by Lessor is in excess thereto.
3. Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or
damage to the Premises, in the amount of the full replacement value
thereof. Lessee shall pay to Lessor its pro-rata share of the cost of
said insurance within ten (10) days of Lessee's receipt of Lessor's
invoice demanding such payment. Lessee acknowledges that such insurance
procured by Lessor shall contain a deductible which reduces Lessee's
cost for such insurance, and, in the event of loss or damage, Lessee
shall be required to pay to Lessor the amount of such deductible.
Lessor does not currently carry earthquake insurance. However,
Lessor reserves the right to do so should it become available at
commercially reasonable rates.
4. Lessee hereby releases Lessor, and its partners, officers, agents,
employees, and servants, from any and all claims, demands, loss,
expense, or injury to the Premises or to the furnishings, fixtures,
equipment, inventory, or other property of Lessee in, about, or upon
the Promises, which is caused by or results from perils, events, or
happenings which are the subject of insurance in force at the time of
such loss.
J. Reimbursable Expenses and Utilities. Lessee shall pay for all water,
gas, light, heat, power, electricity, telephone, trash removal,
landscaping, sewer charges, and all other services, including normal
and customary property management fees, supplied to or consumed on the
Premises. In the event that any such services are billed directly to
Lessor, then Lessee shall pay Lessor for such expenses within ten (10)
days of Lessee's receipt of Lessor's invoice demanding payment.
K. Repairs and Maintenance.
1. Subject to provisions of paragraph 15, Lessor shall keep and
maintain in good order, condition and repair the structural elements of
the Promises including the roof, roof membrane, paving, floor slab,
foundation, exterior walls, landscaping, irrigation and elevators.
Lessor shall make such repairs, replacements, alterations or
improvements as Lessor deems reasonably necessary with respect to such
structural elements and Lessee shall pay to Lessor, within ten days of
Lessor's invoice to Lessee therefor, Lessee's pro-rata share of such
repairs, replacements, alterations or improvements. Notwithstanding the
foregoing, if the reason for any repair, replacement, alteration or
improvement is caused by Lessee or arises because of a
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<PAGE> 7
breach of Lessee's obligations under this Lease, then Lessee shall pay
100% of the costs or expense to remedy the same.
2. Except as expressly provided in Subparagraph A above, Lessee shall,
at its sole cost, keep and maintain the entire Premises and every part
thereof, including, without limitation, the windows, window frames,
plate glass, glazing, truck doors, doors, all door hardware, interior
of the Premises, interior walls and partitions, and electrical,
plumbing, lighting, heating, and air conditioning systems in good and
sanitary order, condition, and repair. Lessee shall, at all times
during the Lease term and at his expense, have in effect a service
contract for the maintenance of the heating, ventilating, and
air-conditioning (HVAC) equipment with an HVAC repair and maintenance
contractor approved by Lessor which provides for periodic inspection
and servicing at least once every three (3) months during the term
hereof. Lessee shall further provide Lessor with a copy of such
contract and all periodic service reports.
Should Lessee fail to maintain the Premises or make repairs
required of Lessee hereunder forthwith upon notice from Lessor, Lessor,
in addition to all other remedies available hereunder or by law, and
without waiving any alternative remedies, may make the same, and in
that event, Lessee shall reimburse Lessor as additional rent for the
cost of such maintenance or repairs on the next date upon which rent
becomes due.
Lessee hereby expressly waives the provision of Subsection 1
of Section 1932, and Sections 1941 and 1942 of the Civil Code of
California and all rights to make repairs at the expense of Lessor, as
provided in Section 942 of said Civil Code.
L. Alterations and Additions. Lessee shall not make, or suffer to be made
any alterations, improvements or additions in, on, or about, or to the
Premises or any part thereof, without prior written consent of Lessor
and without a valid building permit issued by the appropriate
governmental authority. Lessor retains, at his sole option, the right
to retain a General Contractor of his own choosing to perform all
repairs, alterations, improvements, or additions in, on, about, or to
said Premises or any part thereof. As a condition to giving such
consent, Lessor may require that Lessee agree to remove any such
alterations, improvements, or additions at the termination of this
Lease, and to restore the Premises to their prior condition. Any
alteration, addition, or improvement to the Premises, shall become the
property of Lessor upon installation, and shall remain upon and be
surrendered with the Premises at the termination of this Lease. Lessor
can elect, however, within thirty (30) days before expiration of the
term or within five (5) days after termination of the term, to require
Lessee to remove any alterations, additions, or improvements that
Lessee has made to the Premises. If Lessor so elects, Lessee shall
restore the Promises to the condition designated by Lessor in its
election, before the last day of the term, or within thirty (30) days
after notice of election is given, whichever is later. Alterations and
additions which are not to be deemed as trade fixtures include heating,
lighting, electrical systems, air conditioning, partitioning,
electrical signs, carpeting, or any other installation which has become
an integral part of the Premises. In the event that Lessor consents to
Lessee's making any alterations, improvements, or additions, Lessee
shall be responsible for the timely posting of notices of
non-responsibility on Lessor's behalf, which shall remain posted until
completion of the alterations, additions, or
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<PAGE> 8
improvements. Lessee's failure to post notices of non-responsibility as
required hereunder shall be a breach of this Lease.
If, during the term hereof, any alteration, addition, or
change of any sort through all or any portion of the Premises or of the
building of which the Premises form a part, is required by law,
regulation, ordinance, or order of any public agency, Lessee, at its
sole cost and expense, shall promptly make the same.
M. Acceptance of the Premises and Covenant to Surrender. By entry and
taking possession of the Premises pursuant to this Lease, Lessee
accepts the Premises as being in good and sanitary order, condition,
and repair, and accepts the Premises in their condition existing as of
date of such entry, and Lessee further accepts any tenant improvements
to be constructed by Lessor, if any, as being completed in accordance
with the plans and specifications for such improvements.
Lessee agrees on the last day of the term hereof, or on sooner
termination of this Lease, to surrender the Premises, together with all
alterations, additions, and improvements which may have been made in,
to, or on the Premises by Lessor or Lessee, unto Lessor in good and
sanitary order, condition, and repair, excepting for such wear and tear
as would be normal for the period of the Lessee's occupancy. Lessee, on
or before the end of the term or sooner termination of this Lease,
shall remove all its personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by
Lessee. Lessee further agrees that at the end of the term or sooner
termination of this Lease, Lessee, at its sole expense, shall have the
carpets steam cleaned, the walls and columns painted, the flooring
waxed, any damaged ceiling tile replaced, the windows cleaned, the
drapes cleaned, and any damaged doors replaced.
If the Premises are not surrendered at the end of the term or
sooner termination of this Lease, Lessee shall indemnify Lessor against
loss or liability resulting from delay by Lessee in so surrendering the
Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay.
N. Default. In the event of any breach of this Lease by the Lessee, or an
abandonment of the Premises by the Lessee, the Lessor has the option of
(1.) removing all persons and property from the Premises and
repossessing the Premises, in which case any of the Lessee's property
which the Lessor removes from the Premises may be stored in a public
warehouse or elsewhere at the cost of, and for the account of, Lessee:
or (2.) allowing the Lessee to remain in full possession and control of
the Premises. If the Lessor chooses to repossess the Premises, the
Lease will automatically terminate in accordance with the provisions of
the California Civil Code, Section 1951.2. In the event of such
termination of the Lease, the Lessor may recover from the Lessee: (1.)
the worth at the time of award of the unpaid -rent which had been
earned at the time of termination, including interest at the maximum
rate an individual is permitted by law to charge; (2.) the worth at the
time of award of the amount by which the unpaid rent which would have
been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been
reasonably avoided, including interest at the maximum rate an
individual is permitted by law to charge; (3.) the worth at the time of
award of the amount by which the unpaid rent for the balance of
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<PAGE> 9
the term after the time of award exceeds the amount of such rental loss
that the Lessee proves could be reasonably avoided; and (4.) any other
amount necessary to compensate the Lessor for all the detriment
proximately caused by the Lessee's failure to perform his obligations
under the Lease or which; in the ordinary course of things, would be
likely to result therefrom. The worth at the time of award," as used in
(1.) and (2.) of this Paragraph, is to be computed by allowing interest
at the maximum rate an individual is permitted by law to charge. "The
worth at the time of award," as used in (3.) of this Paragraph, is to
be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award, plus one
percent (1%).
If the Lessor chooses not to repossess the Premises, buy
allows the Lessee to remain in full possession and control of the
Premises, then, in accordance with provisions of the California Civil
Code, Section 1951.4, the Lessor may treat the Lease as being in full
force and effect, and may collect from the Lessee all rents as they
become due through the termination date of the Lease, as specified in
the Lease. For the purposes of this paragraph, the following do not
constitute a termination of Lessee's right to possession: (1.) acts of
maintenance or preservation, or efforts to relet the property; (2.) the
appointment of a receiver on the initiative of the Lessor to protect
his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs
Lessor incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by
the reletting, and like costs. Reletting can be for a period shorter or
longer than the remaining term of this Lease. Lessee shall pay to
Lessor the rent due under this Lease on the dates the rent is due, less
the rent Lessor receives from any reletting. No act by Lessor allowed
by this Section shall terminate this Lease unless Lessor notifies
Lessee that Lessor elects to terminate this Lease. After Lessee's
default and for as long as Lessor does not terminate Lessee's right to
possession of the Premises, if Lessee obtains Lessor's consent, Lessee
shall have the right to assign of sublet its interest in this Lease,
but Lessee shall not be released from liability. Lessor's consent to a
proposed assignment or subletting shall not be unreasonably withheld.
If Lessor elects to relet the Premises as provided in this
Paragraph, rent that Lessor receives from reletting shall be applied to
the payment of: (1.) any indebtedness from Lessee to Lessor other than
rent due from Lessee; (2.) all costs, including for maintenance,
incurred by Lessor in relenting; (3.) rent due and unpaid under this
Lease. After deducting the payments referred to in this Paragraph, any
sum remaining from the rent Lessor receives from relenting shall be
held by Lessor and applied in payment of future rent as rent becomes
due under this Lease. In no event shall Lessee by entitled to any
excess rent received by Lessor. If, on the date rent is due under this
Lease, the rent received from reletting is less than the rent due on
that date, Lessee shall pay to Lessor, in addition to the remaining
rent due, all costs, including for maintenance, Lessor incurred in
reletting that remain after applying the rent received from the
reletting, as provided in this Paragraph.
Lessor, at any time after Lessee commits a default, can cure
the default at Lessee's cost. If Lessor at any time, by reason of
Lessee's default, pays any sum or does any act that requires the
payment of any sum, the sum paid by Lessor shall be due immediately
from Lessee to Lessor at the time the sum is paid, and if paid at a
later date shall bear interest at the maximum rate an individual is
permitted by law to charge form the date the sum is paid by
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Lessor until Lessor is reimbursed by Lessee. The sum, together with
interest on it, shall be additional rent.
Rent not paid when due shall bear interest at the maximum rate
an individual is permitted by law to charge from the date due until
paid.
O. Destruction. In the event the Premises are destroyed in whole or in
part from any cause, Lessor may, at its option, (1.) rebuild or restore
the Premises to their condition prior to the damage or destruction or
(2.) terminate the Lease.
If Lessor does not give Lessee notice in writing within thirty
(30) days from the destruction of the Promises of its election either
to rebuild and restore the Premises, or to terminate this Lease, Lessor
shall be deemed to have elected to rebuild or restore them, in which
event Lessor agrees, at its expense, promptly to rebuild or restore the
Premises to its condition prior to the damage or destruction. If Lessor
does not complete the rebuilding or restoration within one hundred
eighty (180) days following the date of destruction (such period of
time to be extended for delays caused by the fault or neglect of Lessee
of because of acts of God, acts of public agencies, labor disputes,
strikes, fires, freight embargoes, rainy or stormy weather, inability
to obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of the contractors or subcontractors due to
such causes or other contingencies beyond control of Lessor), then
Lessee shall have the right to terminate this Lease by giving fifteen
(15)days prior written notice to Lessor. Lessor's obligation to rebuild
or restore shall not include restoration of Lessee's trade fixtures,
equipment, merchandise, or any improvements, alterations, or additions
made by Lessee to the Premises.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Lessee
hereby expressly waives the provisions of Section 1932, Subdivision 2,
and Section 1933, Subdivision 4, of the California Civil Code.
In the event that the building in which the Premises are
situated is damaged or destroyed to the extent of not less than
thirty-three and one-third percent (33 1/3%) of the replacement cost
thereof, Lessor may elect to terminate this Lease, whether the Premises
be injured or not.
P. Condemnation. If any part of the Premises shall be taken for any
public or quasi-public use, under any statute of by right of eminent
domain, or private purchase in lieu thereof, and a part thereof
remains, which is susceptible of occupation hereunder, this Lease
shall, as to the part so taken, terminate as of the date title shall
vest in the condemnor or purchaser, and the rent payable hereunder
shall be adjusted so that the Lessee shall be required to pay for the
remainder of the term only such portion of such rent as the value of
the part remaining after taking such bears to the value of the entire
Premises prior to such taking Lessor shall have the option to terminate
this Lease in the event that such taking causes a reduction in rent
payable hereunder by fifty percent (50%) or more. If all of the
Premises or such part thereof be taken so that there does not remain a
portion susceptible for occupation hereunder, as reasonably necessary
for Lessee's conduct of its business as contemplated in this Lease,
this Lease shall thereupon terminate. If a part of all of the Premises
be taken, all compensation awarded upon such taking shall go to the
Lessor, and the Lessee shall have no claim thereto, and the Lessee
hereby irrevocably assigns and transfers to the Lessor any right to
compensation or damages
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to which the Lessee may become entitled during the term hereof by
reason of the purchase or condemnation of all or a part of the
Premises, except that Lessee shall have the right to recover its share
of any award or consideration for (1.) moving expenses; (2.) loss or
damage to Lessee's trade fixtures, furnishings, equipment, and other
personal property; and (3.) business goodwill. Each party waives the
provisions of the Code of Civil Procedure, Section 1265.130, allowing
either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.
Q. Free from Liens. Lessee shall (1.) pay for all labor and services
performed for materials used by or furnished to Lessee, or any
contractor employed by Lessee with respect to the Premises, and (2.)
indemnity, defend, and hold Lessor and the Premises harmless and free
from any liens, claims, demands, encumbrances, or judgments created or
suffered by reason of any labor or services performed for materials
used by or furnished to Lessee or any contractor employed by Lessee
with respect to the Premises, and (3.) give notice to Lessor in writing
five (5) days prior to employing any laborer or contractor to perform
services related, or receiving materials for use upon the Premises, and
(4.) shall post, on behalf of Lessor, a notice of non-responsibility in
accordance with the statutory requirements of the California Civil
Code, Section 3904, or any amendment thereof. In the event an
improvement bond with a public agency in connection with the above is
required to be posted, Lessee agrees to include Lessor as an additional
obligee.
R. Compliance with Laws. Lessee shall, at its own cost, comply with and
observe all requirements of all municipal, county, state, and federal
authority now in force, or which may hereafter be in force, pertaining
to the use and occupancy of the Premises.
S. Subordination. Lessee agrees that this Lease shall, at the option of
Lessor, be subjected and subordinated to any mortgage, dead of trust,
or other instrument of security, which has been or shall be placed on
the land and building, or land or building of which the Premises form a
part, and this subordination is hereby made effective without any
further act of Lessee or Lessor. The Lessee shall, at any time
hereinafter, on demand, execute any instruments, releases, or other
documents that may be required by any mortgagee, mortgagor, trustor, or
beneficiary under any dead of trust, for the purpose of subjecting or
subordinating this Lease to the lion of any such mortgage, deed of
trust, or other instrument of security. If Lessee fails to execute and
deliver any such documents or instruments, Lessee irrevocably
constitutes and appoints Lessor as Lessee's special attorney-in-fact to
execute and deliver any such documents or instruments.
T. Abandonment. Lessee shall not vacate or abandon the Premises at any
time during the term; and if Lessee shall abandon, vacate, or surrender
said Premises, or be dispossessed by process of law, or otherwise, any
personal property belonging to Lessee and left on the Promises shall be
deemed to be abandoned, at the option of Lessor, except such property
as may be mortgaged to Lessor; provided, however, that Lessee shall not
be deemed to have abandoned or vacated the Premises so long as Lessee
continues to pay all rents as and when due, and otherwise performs
pursuant to the terms and conditions of this Lease.
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U. Assignment and Subletting. Lessee's interest in this Lease is no
assignable, by operation of law or otherwise, nor shall Lessee have the
right to sublet the Premises, transfer any interest of Lessee's
therein, or permit any use of the Premises by another party, without
the prior written consent of Lessor to such assignment, subletting, or
transfer of use.
If Lessee is a partnership, a withdrawal or change, voluntary,
involuntary, or by operation of law, of any partner (s) owning fifty
percent (50%) or more of the partnership, of the dissolution of the
partnership, shall be deemed as a voluntary assignment.
If Lessee consists of more than one person, a purported
assignment, voluntary, involuntary, or by operation of law, from one
person to the other or from a majority of persons to the others, shall
be deemed a voluntary assignment.
If Lessee is a corporation, any dissolution, merger,
consolidation, or other reorganization of Lessee, or the sale or other
transfer of a controlling percentage of the capital stock of Lessee, or
sale of at least fifty-one percent (51%) of the value of the assets of
Lessee, shall be deemed a voluntary assignment. The phrase "controlling
percentage" means the ownership of, and the right to vote, stock
possessing at least fifty-one percent (51 %) of the total combined
voting power of all classes of Lessee's capital stock issued,
outstanding, and entitled to vote for the election of directors. This
Paragraph shall not apply to corporations the stock of which is traded
through an exchange or over the counter.
In the event of any subletting or transfer which is consented
to, or not consented to, by Lessor, a subtenant or transferee agrees to
pay monies or other consideration, whether by increased rent or
otherwise, in excess of or in addition to those provided for herein,
then all of such excess or additional monies or other consideration
shall be paid solely to Lessor, and this shall be one of the conditions
to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as
security for Lessee's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted by this Lease,
and Lessor, as assignee and as attorney-in-fact for Lessee, or a
receiver for Lessee appointed on Lessor's application, may collect such
rent and apply it toward Lessee's obligations under this Lease; except
that, until the occurrence of an act of default by the Lessee, Lessee
shall have the right to collect such rent.
A consent to one assignment, subletting, occupation, or use by
another party shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation, or use by another party. Any
assignment or subletting without such consent shall be void and shall,
at the option of the Lessor, terminate this Lease. Lessor's waiver or
consent to any assignment or subletting hereunder shall not relieve
Lessee from any obligation under this Lease unless the consent shall so
provide. If Lessee requests Lessor to consent to a proposed assignment
or subletting, Lessee shall pay to Lessor, whether or not consent is
ultimately given, Lessor's reasonable attorneys' fees incurred in
conjunction with each such request.
V. Parking Charges. Lessee agrees to pay upon demand, based on its
percent of occupancy of the entire Premises, its pro-rata share of any
parking charges, surcharges, or any other cost hereafter levied or
assessed by local, state, or federal governmental agencies in
connection with the use of the parking facilities serving the Premises,
including, without limitation, parking surcharge imposed by or under
the authority of the Federal Environmental Protection Agency.
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W. Insolvency or Bankruptcy. Either (1.) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or
(2.) a general assignment by Lessee for the benefit of creditors, or
(3.) any action taken or suffered by Lessee under any insolvency or
bankruptcy act shall constitute a breach of this Lease by Lessee. Upon
the happening of any such event, this Lease shall terminate ten (10)
days after written notice of termination from Lessor to Lessee. This
section is to be applied consistent with the applicable state and
federal law in effect at the time such event occurs.
X. Lessor Loan or Sale. Lessee agrees promptly following request by
Lessor to (1.) execute and deliver to Lessor any documents, including
estoppel certificates presented to Lessee by Lessor, (a.) certifying
that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect and the date to
which the rent and other charges are paid in advance, it any, and (b.)
acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, and (c.) evidencing the
status of the Lease as may be required either by a lender making a loan
to Lessor, to be secured by deed of trust or mortgage covering the
Premises, or a purchaser of the Premises from Lessor, and (2.) to
deliver to Lessor the current financial statements of Lessee with an
opinion of a certified public accountant, including a balance sheet and
profit and loss statement, for the current fiscal year and the two
immediately prior fiscal years, all prepared in accordance with
Generally Accepted Accounting Principles consistently applied. Lessee's
failure to deliver an estoppel certificate within three (3) days
following such request shall constitute a default under this Lease and
shall be conclusive upon Lessee that this Lease is in full force and
effect and has not been modified except as may be represented by
Lessor. If Lessee fails to deliver the estoppel certificates within the
three (3) days, Lessee irrevocably constitutes and appoints Lessor as
its special attorney-in-fact to execute and deliver the certificate to
any third party.
Y. Surrender of Lease. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger nor
relieve Lessee of any of Lessee's obligations under this Lease, and
shall, at the option of Lessor, terminate all or any existing Subleases
or Subtenancies, or may, at the option of Lessor, operate as an
assignment to him of any or all such Subleases or Subtenancies.
Z. Attorneys' Fees. If, for any reason, any suit be initiated to enforce
any provision of this Lease, the prevailing party shall be entitled to
legal costs, expert witness expenses, and reasonable attorneys' fees,
as fixed by the court.
AA. Notices. All notices to be given to Lessee may be given in writing,
personally, or by depositing the same in the United States mail,
postage prepaid, arid addressed to Lessee at the said Premises, whether
or not Lessee has departed from, abandoned, or vacated the Premises.
Any notice or document required or permitted by this Lease to be given
Lessor shall be addressed to Lessor at the address set forth below, or
at such other address as ft may have theretofore specified by notice
delivered in accordance herewith:
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LESSOR: Los Gatos Business Park
900 Welch Road, Suite 10
Palo Alto, California 94304
LESSEE: Intermart Systems, Inc.
131-D Albright Way
Los Gatos, CA 95030
BB. Transfer of Security. If any security be given by Lessee to secure the
faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and/or deliver the security, as
such, to the purchaser of the reversion, in the event that the
reversion be sold, and thereupon Lessor shall be discharged from any
further liability in reference thereto, upon the assumption by such
transferee of lessor's obligations under this Lease.
CC. Waiver. The waiver by Lessor or Lessee of any breach of any term,
covenant, or condition, herein contained shall not be deemed to be a
waiver of such term, covenant, or condition, or any subsequent breach
of the same or any other term, covenant or condition herein contained.
The subsequent acceptance of rent hereunder by lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any term,
covenant, or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such
rent.
DD. Holding Over. Any holding over after the expiration of the term or any
extension thereof, with the consent of lessor, shall be construed to be
a tenancy from month-to-month, at a rental of one and one-half (1 1/2)
times the previous month's rental rate per month, and shall otherwise
be on the terms and conditions herein specified, so far as applicable.
EE. Covenants, Conditions, and Restrictions. Attached hereto, marked
Exhibit "C" and by this reference incorporated as if set out in full,
are Covenants, Conditions, and Restrictions pertaining to Los Gatos
Business Park. As a condition to t his Lease, Lessee agrees to abide by
all of said Covenants, Conditions, and Restrictions. Moreover, such
reasonable rules and regulations as may be hereafter adopted by Lessor
for the safety, care, and cleanliness of the Premises and the
preservation of good order thereon, are hereby expressly made a part
hereof, and Lessee agrees to obey all such rules and regulations.
FF. Limitation on Lessor's Liability. If Lessor is in default of this
Lease, and, as a consequence, Lessee recovers a money judgment against
Lessor, the judgment shall be satisfied only out of the proceeds of
sale received on execution of the judgment and levy against the right,
title, and interest of Lessor in the Promises, or in the building,
other improvements, and land of which the Premises are part, and out of
rent or other income from such real property receivable by Lessor or
out of the consideration received by Lessor from the sale or other
disposition of all or any part of Lessor's right, title, and interest
in the Premises or in the building, other improvements, and land of
which the Premises are part. Neither Lessor nor
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any of the partners comprising the partnership designated as Lessor
shall be personally liable for any deficiency.
GG. Miscellaneous.
1. Time is of the essence of this Lease, and of each and all of
its provisions.
2. The term "building" shall mean the building in which the
Premises are situated.
3. If the building is leased to more than one tenant, then each
such tenant, its agents, officers, employees, and invitees
shall have the non-exclusive right (in conjunction with the
use of the part of the building leased to such Tenant) to make
reasonable use of any driveways, sidewalks, and parking areas
located on the parcel of land on which the building is
situated, except such parking areas as may from time to time
be leased for exclusive use by other Tenant(s).
4. Lessee's such reasonable use of parking areas shall not exceed
that percent of the total parking areas which is equal to the
ratio which floor space of the Premises bears to floor space
of the building.
5. The term "assign" shall include the term "transfer."
6. The invalidity or unenforceabilfty of any provision of this
Lease shall not affect the validity or enforceability of the
remainder of this Lease.
7. All parties hereto have equally participated in the
preparation of this Lease.
8. The headings and titles to the Paragraphs of this Lease are
not a part of this Lease and shall have no effect upon the
construction or interpretation of any part thereof.
9. Lessor has made no representation(s) whatsoever to Lessee
(express or implied) except as may be expressly stated in
writing in this Lease instrument.
10. This instrument contains all of the agreements and conditions
made between the parties hereto, and may not be modified
orally or in any other manner than by agreement in writing,
signed by all of the parties hereto or their respective
successors in interest.
11. It is understood and agreed that the remedies herein given to
Lessor shall be cumulative, and the exercise of any one remedy
by Lessor shall riot be to the exclusion of any other remedy.
12. The covenants and conditions herein contained shall, subject
to the provisions as to assignment, apply to and bind the
heirs, successors, executors, and administrators, and
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assigns of all the parties hereto; and all of the parties
hereto shall jointly and severally be liable hereunder.
13. This Lease has been negotiated by the parties hereto and the
language hereof shall not be construed for or against either
party.
14. All exhibits to which reference is made are deemed
incorporated into this Lease, whether covenants or conditions,
on the part of Lessee shall be deemed to be both covenants and
conditions.
HH. First Right of Refusal. Lessee is granted first right of refusal to
lease additional space within the building as it becomes available
(subject to any other existing first rights of refusal) as outlined on
Exhibit A. Lessor shall notify Lessee of space available and Lessee
shall have three (3) business days to provide Lessor with written
acceptance. No response shall be deemed a rejection of the offer of
space.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date first
above-written.
LESSOR: LESSEE:
Los Gatos Business Park Intermart Systems, Inc.
BY: s\ BY: s\
------------------------------ ---------------------------------
DATE: 7/18/95 DATE: July 14, 1995
----------------------------- ------------------------------
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EXHIBIT A
OULINE OF PREMISES
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SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is entered into this 17th day of
December, 1996 by and between INTERMART SYSTEMS, INC. ("SUBLESSOR"), and SCM
MICROSYSTEMS, INC. ("SUBLESSEE").
Recitals:
II. Los Gatos Business Park ("MASTER LESSOR"), and Sublessor entered
into that certain Lease Agreement, dated as of July 6, 1995 (the "MASTER
LEASE"), respecting those premises (the "MASTER PREMISES") commonly known as
131-D Albright Way, Los Gatos, California 95030, as more particularly described
in the Master Lease. A copy of the Master Lease is attached to this Sublease as
EXHIBIT A.
JJ. Sublessor desires to sublet to Sublessee, and Sublessee desires to
sublet from Sublessor, a portion of the Master Premises consisting of
approximately 2,860 square feet of rentable area, as more particularly shown on
Exhibit B attached hereto (the "SUBLEASE PREMISES"), on the terms and conditions
set forth in this Sublease. Sublessor shall continue to occupy the remaining
portion of the Master Premises under the terms of the Master Lease consisting of
approximately 2,240 square feet (the "Remaining Premises").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Sublease and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
Agreement:
1. Sublease. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, the Sublease Premises on the terms
and conditions hereinafter set forth.
2. Term. The term of this Sublease shall commence on July 15,
1996 (the "COMMENCEMENT DATE") and shall expire on July 31, 1998 (the "SUBLEASE
TERM"), unless sooner terminated under the provisions of this Sublease.
3. Monthly Base Rent.
(a) Commencing on the Commencement Date and continuing
throughout the Sublease Term, Sublessee shall pay to Sublessor, in advance on
the first day of each calendar month, as monthly rent ("MONTHLY BASE RENT") the
sum of $ 4,147.00. Monthly Base Rent shall be prorated for any partial month
during the Sublease Term.
(b) Sublessee shall not be obligated to pay any Additional
Rent as defined in the Master Lease or for any utilities or expenses set forth
in Paragraph 10 of the Master Lease which are attributable to the Sublease
Premises.
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(c) Sublessee shall pay to Sublessor a deposit of $4,147.00,
such amount to be held as a prepayment of the monthly rent for the last month of
the Lease Term.
4. Place of Payment of Rent. All Monthly Base Rent and all other
amounts payable to Sublessor under this Sublease shall be paid to Sublessor when
due, without prior notice or demand and without deduction or offset, in lawful
money of the United States of America in cash or by check payable to Intermart
Systems, Inc., 131-D Albright Way, Los Gatos, CA 95030, Attention: Scott A.
Moore, or to such other address as Sublessor shall designate in writing.
5. Use. The Sublease Premises shall be used and occupied only
for those purposes set forth in the Master Lease, and for no other purpose.
6. Incorporation and Modification of Master Lease Terms.
(a) Except as expressly set forth below in Paragraph 6(b), the
Master Lease is incorporated herein in its entirety by this reference. For the
purpose of this Sublease, all references in the Master Lease to "Lessor" shall
be deemed to mean Sublessor, all references to "Lessee" shall be deemed to mean
Sublessee and all references to "Lease" shall mean this Sublease.
(b) The following provisions of the Master Lease are
specifically excluded from this Sublease: Paragraphs 1, 2, 3, 5, 7, 8.B., 10,
22, 27, 28, and 32 of the Master Lease.
(c) The waivers of rights of recovery and subrogation set
forth in Paragraph 9.D. of the Master Lease shall be deemed to be a three party
agreement binding among and inuring to the benefit of Sublessor, Sublessee and
Master Lessor.
(d) Notwithstanding anything to the contrary in Paragraph 8.A.
of the Master Lease, Sublessee shall be responsible only for payment of taxes
assessed on Sublessee's personal property, and for no other taxes levied in
connection with the Sublease Premises or the Master Premises.
(e) Notwithstanding anything to the contrary in Paragraph 12
of the Master Lease, Sublessee shall not be required to remove the following
alterations and improvements at the expiration of the Sublease Term: (i) the
built-in shelving on the Sublease Premises originally installed by Sublessor,
and (ii) the dividing walls to be erected by Sublessor between the Sublease
Premises and the Remaining Premises.
7. Telephone Console. Sublessee shall provide Sublessor with
reasonable access to the telephone console located on the Sublease Premises.
Sublessor shall have the right to enter onto the Sublease Premises for the
purposes of accessing the telephone console at reasonable times and upon
reasonable notice to Sublessee.
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8. Indemnity.
(a) Sublessee hereby agrees to indemnify and hold harmless
Sublessor from and against any and all claims, liabilities, losses, damages and
expenses (including reasonable attorneys' fees) incurred by Sublessor arising
out of, from or in connection with (i) the use or occupancy of the Sublease
Premises by Sublessee. (ii) any breach or default by Sublessee under this
Sublease, or (iii) the failure of Sublessee to perform any obligation under the
terms and provisions of the Master Lease assumed by Sublessee hereunder or
required to be performed by Sublessee as provided herein, from and after the
Commencement Date of this Sublease.
(b) Sublessor hereby agrees to indemnify and hold harmless
Sublessee from and against any and all claims, liabilities, losses, damages and
expenses (including reasonable attorneys' fees) incurred by Sublessee arising
out of, from or in connection with (i) the use or occupancy of the Remaining
Premises by Sublessor, (ii) Sublessor's breach or default of any provision of
this Sublease or any provisions of the Master Lease not assumed by Sublessee
hereunder, or (iii) acts or omissions of Sublessor under the Master Lease in
connection with the Premises prior to the Commencement Date of this Sublease.
9. Notices. All notices, demands or requests which may be or are
required to be given under this Sublease shall be in writing and shall be given
by personal delivery, or by certified or registered mail, return receipt
requested, postage prepaid, or by Federal Express or similar overnight courier,
charges prepaid, and addressed as follows:
Sublessor: Sublessee:
INTERMART SYSTEMS, INC. SCM MICROSYSTEMS, INC.
Scott A. Moore, General Manager William E. Ogdon, Controller
131-D Albright Way 131 Albright Way
Los Gatos, CA 95030 Los Gatos, CA 95030
Fax No.: 408/379-3666 Fax No.: 408/370-4880
The addresses of the parties may be changed from time to time by notice given in
the manner set forth in this Paragraph 9. Each notice, request, demand, advice
or designation given under this Sublease shall be deemed properly given only
upon actual receipt or refusal of delivery.
10. Termination of Master Lease. This Sublease is, and shall at all
times remain, subordinate to the Master Lease. In the event the Master Lease is
terminated for any reason, then, on the date of such termination, this Sublease
shall automatically terminate and be of no further force or effect. If the
termination of the Master Lease (and resulting termination of this Sublease)
occurs through no fault of Sublessor, Sublessor shall have no liability to
Sublessee for the resultant termination of this Sublease.
11. Consent of the Master Lessor. Under Paragraph 21 of the Master
Lease, a sublease of the Premises requires the written consent of the Master
Lessor. The parties to this Sublease hereby agree that such consent has been
given in the form of a letter attached hereto as Exhibit C.
20
<PAGE> 21
12. Brokers. Each party represents to the other that no brokerage
commission or finder's fee has been incurred in connection with this
transaction, and each party shall indemnify the other against any such
commission or fee which may be alleged to have been incurred by it in connection
with this Sublease.
13. Entire Agreement. This Sublease contains all of the terms,
covenants and conditions agreed to by Sublessor and Sublessee and may not be
modified orally or in any manner other than by an agreement in writing signed by
all the parties to this Sublease or their respective successors in interest.
14. Exhibits. All exhibits attached hereto are incorporated in
this Sublease, except as expressly excluded herein.
15. Counterparts. This Sublease may be executed in any number of
counterparts, each of which shall be deemed an original, and when taken together
they shall constitute one and the same sublease.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized representatives as of the day and year first
above written.
SUBLESSOR: SUBLESSEE:
INTERMART SYSTEMS, INC. SCM MICROSYSTEMS, INC.
By: By: s/ William E. Ogdon
Its: General Manager Its: Controller
-21-
<PAGE> 22
INTERMART SYSTEMS
131D Albright Way
Los Gatos, California 95030
Tel: 408 379 0770 Fax: 408 379 3666 [email protected]
Michelle Dillabough
Los Gatos Business Park
900 Welch Road, Ste. 10
Palo Alto, CA 94304
tel: 415 322 2121 fax: 415 322 5029
July 30, 1996
Dear Michelle,
Please be informed that we are subleasing office space to SCM, and that we give
Los Gatos Business Park Permission to enter the office and do renovation,
construction, office modification, or other similar activities as needed for
SCM. Please let use know if there is anything you need from us and we would be
happy to cooperate. Should you have any questions you may either contact myself
or Scott Moore.
Sincerely yours,
s\ Robert Bruce Thomson
Bruce Thomson
SM: bt
<PAGE> 23
http://www.intermartsys.com/
LOS GATOS BUSINESS PARK
July 31, 1996
Mr. Bruce Thomson
INTERMART SYSTEMS
131D Albright Way
Los Gatos, CA 95030
Re: Sublease
Dear Bruce:
By way of this letter, Los Gatos Business Park is consenting to your request to
sublease a portion of your space (as outlined on the attached plan) to SCM
Microsystems. The attached plan detailing the improvements to be done to your
space for the benefit and at the cost of SCM Microsystems is also approved.
If you have any questions or concerns, please do not hesitate to call.
Sincerely,
s\ Michelle Dillabough
Michelle Dillabough
Property Manager
cc: Howard White
Bill Kelly, SCM Microsystems
Karl Schneider, SCM Microsystems
<PAGE> 24
SUBLEASE MAP
<PAGE> 25
July 16, 1996
Mr. Karl Schneider
SCM Microsystems
131 Albright Way
Los Gatos, CA 95030
Re: Demise Suite D into Two Units
Revised to include light switching & T-Star relocation
Dear Karl:
H & S is pleased to submit an estimate for installing two new walls @ 131
Albright, Suite D per your request. The costs are as follows:
<TABLE>
<CAPTION>
A. Costs:
<S> <C> <C>
Frame, sht rock, & texture 2 openings, 104 sf............................$ 750.00
Paint (2 coats min.) 104 sf.............................................. 270.00
Rubber Base 24 lf........................................................ 90.00
Electrical............................................................... 650.00
HVAC..................................................................... 250.00
Supervision.............................................................. 225.00
Clean-up................................................................. 90.00
OH&P..................................................................... 233.00
TOTAL AMOUNT THIS ITEM...................................................$ 2,558.00
Add (1) Door w/custom keyed lock (no closer).............................$ 710.00
</TABLE>
B. Schedule Impact:
It will take approximately 8 working days to complete this work.
C. Status of work:
The work described above is on hold pending receipt of your written
approval of the costs as outlined above.
D. Qualifications:
o All work has been estimated to be performed during regular working
hours
<PAGE> 26
o All air-conditioning will be controlled by front tenant. There is
no means to separate air-conditioning between spaces.
o Lighting will be modified to provide separate switching
o No electrical receptacles will be added
o This quote does not include means to provide access from current
SCM space
o No adjustments will be made to acoustical ceiling tiles other
than to remove and replace as necessary.
E. Action Required:
To signify your acceptance of the cost and schedule impact as detailed
above, please sign at the line provided and return to H&S's office. Upon receipt
of your acceptance, we will make arrangements with our subcontractors as to when
work can begin and we will notify you of a start date.
Approved: Date: 7/23/96
------------------------------------------- --------------
Please initial here if you want the door installed
----------------------
Sincerely,
H & S, Inc.
s\ Patrick A. Forbeck
Patrick A. Forbeck
Project Manager
<PAGE> 27
MAP
<PAGE> 28
M E M O R A N D U M
DATE: April 5, 1997
TO: Michelle Dillabough
FROM: Pat Forbeck
RE: SCM MICROSYSTEMS & INTERMART - SUBLEASE INFORMATION
JOB #96-097
- --------------------------------------------------------------------------------
As discussed on Friday last week, I have reviewed my document regarding
the small project we did for SCM Microsystems. The original project was
requested by SCM with the intention to increase their amount of usable square
footage via an agreement with Intermart to sublease a portion of Intermart's
leased space. I built two walls to physically divide the intermart space into
two space into two separate areas.
My original calculation as to the division of the two spaces was as
follows:
Intermart: 2,240 Sq. ft.
SCM: 3,038 Sq. ft.
5,278 Sq. ft.
Since your inquiry regarding the sublease, I have reviewed the space
arrangements and need to amend my original calculation. The correct proportions
are as follows:
INTERMART: 2,240 Sq. ft.
SCM: 2,860 Sq. ft.
5,100 Sq. ft.
Reason for difference:
My original calculation included the electrical room located at the
rear of the Intermart space, (that area to become SCM). The electrical room is
approximately 178 Sq. ft.
Note:
Intermart's current lease does not include the square footage for the
electrical room.
Let me know if you need anything else.
Pat
<PAGE> 1
EXHIBIT 10.14
1
Contract no.
duplicate original for Lessor/Lessee
LEASE CONTRACT FOR COMMERCIAL SPACE
- --------------------------------------------------------------------------------
(* Bold-prints bullets at the margin indicate that an additional entry
or a deletion must be made.)
The lease parties shall be understood to be the Lessee and Lessor, even
if they consist of multiple persons and, if applicable, legal entities.
All persons named in the contract shall sign the lease contract
personally. Inapplicable portions of the lease contract shall be
crossed out. Empty spaces shall be filled out or crossed out.
The following lease contract is hereby concluded
o between Olbrich Franz
in Hochstr. 22, 85298 Scheyern Lessor
o represented by Mr. Olbrich Franz
o and SCM Microsystems GmbH
o in Pettenkofer Str. 7, 85276 Pfaffenhofen Lessee
represented by Mr. Bernd Meier.
Section 1 - LEASED ROOMS
o 1. For the operation of a production and distribution of computer
products.
(type of business or commercial activity)
the rooms in the building/real property located at Luitpoldstr.
Pfaffenhofen
are hereby rented, namely *)
(precise description of location)
In addition, the following shall be leased (free space, garages, etc.):
see attachment
o Leased space: approx. 627 m2. Maximum ceiling load: kg/m2.
o 2. The following may be used (vehicle parking places, washing
facilities, etc.):
[Excluded shall be the parking places in front of the leased surfaces,
to the extent that this rule is put into practice by all lessees.]
3. The keys shall be delivered to the Lessee for the lease period in
accordance with a separate possession transfer
protocol--immediately--upon moving in. The Lessee shall provide missing
keys at his own expense. All keys shall be surrendered to the Lessor at
the end of the lease relationship.
4. The Lessor shall grant the use of the leased rooms in a condition
which is appropriate in principle for the intended commercial purpose.
However, the Lessee shall satisfy governmental requirements at his own
expense; the rooms may only be used for the purposes which are
permissible under the respective governmental provisions.
5. This lease contract is concluded subject to the condition precedent
that the Lessee makes the first rent payment to the Lessor prior to
transfer of possession of the lease property.
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 2
Section 2 - LEASE TERM AND TERMINATION
o 1. The lease relationship shall begin on 6/1/95, depending on
completion of construction
o The lease relationship shall end on 6/30/2000
o It shall be extended by consecutive 1 year
terms if one of the parties does not object to extension no later than
12 months before expiration of the lease term.
o The lease relationship shall run for an indefinite period and may be
terminated upon notice of effective at the end of
2. Termination must be effected (or objection must be made) in writing
and served upon the other contracting party by no later than the first
working day prior to the beginning of the termination period.
3. During the termination period, the Lessee shall permit the
placement of lease signs on the windows and other appropriate
locations.
4. The Lessor may terminate the lease contract for good cause
effective immediately without compliance with a termination notice
period if the Lessee fails to satisfy his contractual obligations (for
example, payment default of at least two months rent, substantial
outstanding operating costs and/or heating costs and, in spite of
warning, substantial disturbance of the Lessor or Lessee's,
contractually violative use, unauthorized use by third parties, etc.).
5. [crossed out text]
6. The contract shall not be rescinded as a result of the death of the
Lessee. Both contracting parties hereby waive the right of early
termination arising from Section 569 BGB [German Civil Code].
7. Upon expiration of the lease period, Section 568 BGB shall have no
application to the two contracting parties.
*) Attachments, drawings, surface calculations, floor plans, etc.,
shall be attached to the contract.
Order-no. 25 203 No liability on the part of the publisher for
erroneous or incorrect legal application.
Printing, imitation and duplication are not
permitted. 2.94 AGB 40
<PAGE> 3
Section 3 - RENT AND ANCILLARY COSTS DM PER MONTH
o 1. Rent shall be DM 9,000.00 per month
in words: DM nine thousand
o 2. In addition to rent, payment shall be made each month for the
following:
currently
currently
currently
currently
+ value-added tax currently
TOTAL currently
3. At the request of the Lessor, the Lessee of rooms used commercially
or in an independent professional manner shall pay value-added tax in
addition to rent, if the Lessor has opted for the duty to pay
value-added tax. The parties are aware of the provisions of the
Value-Added Tax Act. In this case, the Lessor shall be obligated to
provide the Lessee with the necessary prepaid value-added tax slips.
o 4. [crossed out text]
The Lessor may allocate increases in operating costs. The Lessee hereby
obligates himself to assume payment of his appropriate share.
o 5. Cosmetic repairs and replacement of glass panes and mirrors shall be
assumed by
|X| the Lessee |_| the Lessor.
o 6. Minor maintenance shall be performed by him during the term of the
lease from 6/1/95 at his expense, to the extent that the other
contracting party is not responsible for the damages. Minor maintenance
shall encompass the remedying of minor damage, as well as maintenance
of lines and facilities for water, electricity and gas, sanitation
equipment, locks on windows and doors, roller blinds, ovens and stoves.
Minor damage shall be damage whose remedy consists of not more than the
total of 5% of the annual rent.
Section 4 - PAYMENT OF RENT AND ANCILLARY COSTS
1. Rent and ancillary costs shall be paid monthly in advance by no
later than the third working day of the month free of postage or fees
to the Lessor or the person or office authorized by the Lessor to
receive them.
o Rent and ancillary costs shall be deposited into account no.
at . The legal
timeliness of payment shall depend not on the dispatch, but rather on
the receipt of the money.
o Rent and ancillary costs shall be booked from an account to be named by
the Lessee using the automatic debit collection procedure. The Lessee
shall be obligated to give the Lessor a collection authorization. In
the event of a change of account, the Lessee shall be obligated to give
a new collection authorization.
o 2. The ancillary costs (heating costs, see Section 5) for operation, in
the amount of DM 600
o shall be collected in the form of monthly installment payments and
shall be settled with the Lessee annually after the closing date of
12/31 of each year. The compensation of subsequent payment of the
credit shall be carried out on the rent payment deadline following
settlement.
o 3. Any additional costs with regard to the fire insurance premium
resulting from an increase in danger created by the operation of the
Lessee shall be borne by the Lessee.
o 4. In the event of late payment, the Lessor shall be entitled to charge
warning costs in the amount of DM 50.00 per warning, without
prejudice
<PAGE> 4
to penalty interest.
Section 5 - CENTRAL HEATING AND HOT WATER SUPPLY
1. The Lessor shall be obligated to keep the central heating in
operation to the extent that the external temperatures so requires, but
shall do so at least during the period from October 1 through April 30.
o Hot water shall be supplied on a continuous basis. The Lessee shall not
have a claim to the supply of central heating and hot water on
Saturdays--Sundays--statutory holidays.
2. The Lessee shall be obligated to pay a pro rate portion of
operating and maintenance costs. Partial or complete shutdown of
heating and hot water supply resulting from a local fuel shortage
shall not entitle the Lessee to reduction claims or compensatory
damage claims. This shall also apply to necessary operational
interruptions of any kind.
3. Operating costs shall be allocated by the Lessor in accordance with
the statutory settlement standards, i.e., according to useful or
renovated space or according to a standard which takes heat
consumption into account. If heat meters and/or
o hot water cost allocators are used, a fixed portion of costs shall be
divided according to consumption namely % *).
o 4. The useful space, the renovated space, of the lease property shall
be approx. 627 m2/m3.
5. Prepayments shall be made each month toward the allocation amount
for operating costs; the amount thereof shall be reasonably set by the
Lessor. Said amount must be settled following the close of the heating
period.
6. If there are flow heaters or boilers for hot water preparation
and/or a separate storey heating system in the leased rooms, the Lessee
shall bear all operating, maintenance and cleaning costs within the
meaning of appendix 3, Section 27 of the Second Calculation Regulation.
Maintenance and cleaning shall take place on an annual basis.
Section 6 - USE OF THE ELEVATOR FACILITIES
o [1. The Lessee shall be entitled to use the elevators adjoining the
rooms which he has leased, with the exception of]
.
2. The Lessee shall have no claim to uninterrupted performance if
operational disruptions occur. The Lessee shall be obligated to satisfy
all aspects of the elevator provisions. No elevator service shall be
provided. Operational disruptions shall be reported to the Lessor or
his agent immediately.
Section 7 - CONDITION OF THE LEASED ROOMS
o 1. The Lessor shall be obligated to cause the work described in greater
detail in the separate appendix to be performed--before the Lessee
moves in or, if this is not possible, by no later than .
2. In the event that the performance of such work is delayed beyond
the stipulated deadline without gross culpability on the part of the
Lessor, the Lessee hereby grants the Lessor a reasonable remedial
period.
3. The Lessee shall be obligated to treat the leased rooms in a
careful manner and maintain and return them in a proper condition.
4. The Lessor is hereby released by the Lessee from strict liability
for initial defects (Section 538 BGB).
- -----------------------------
*) At least 50%, maximum of 70% (Regulation on Heating Cost Settlement dated
2/23/81, BGBl [German Legal Gazette] I p. 261)
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 5
Section 8 - USE OF THE LEASED ROOMS, SUBLEASING
1. The Lesse may only use the leased rooms for the commercial purposes
stated in Section 1. Modifications of the intended use shall require
the consent of the Lessor.
2. If the Lessee stores water-endangering substances or uses
water-endangering substances in connection with his commercial
activity, he shall, independent of any existing business liability
insurance policy, enter into a special liability insurance policy
relating to the storage or use of water-endangering substances and
document such insurance for the Lessor upon request. The same shall
apply mutatis mutandis to all other emissions as well.
3. Subleasing or other third-party use may take place only with the
consent of the Lessor
4. In the event of unauthorized subleasing, the Lessor may demand that
the Lessee terminate the sublease relationship as soon as possible,
but not later than within a period of one month. If this does not
occur, the Lessor may terminate the primary lease relationship without
compliance with a notice period. The Lessor may only exercise this
right within one month from the time at which he becomes aware of the
unauthorized sublease.
5. [The Lessor shall be entitled to make his consent to the sublease
conditional upon agreement to a sublease surcharge].
6. In the event of a sublease or permitted third-party use, the Lessee
shall be liable for all culpable acts or omissions of the sub-lessee
or the party permitted to use the leased rooms as if such acts or
omissions were the Lessee's own.
7. In the event of subleasing, the Lessee hereby assigns to the Lessor
at this time the claims which the Lessee holds against the sub-lessee,
in addition to a lien for security purposes in the amount of the
claims of the Lessor.
Section 9 - STRESS ON CEILINGS
The Lessee may not exceed the ceiling stress permitted under
construction law (see also Section 1, sec. 1).
Section 10 - ELECTRICITY, GAS, WATER
1. The existing line network for electricity, gas and water may be used
by the Lessee only to such an extent that no overload occurs. The
Lessee may cover additional needs through expansion of the supply lines
at his own expense upon prior consent by the Lessor.
2. Water may be taken from the water lines only for ordinary needs
(drinking water, sanitation purposes). In the case of water
consumption for commercial purposes, the Lessee shall attach an
intermediate water meter at his own expense and bear the water supply
and disposal costs according to information provided by the Lessor,
unless the water is purchased by the Lessee directly from the water
supply works.
3. In the case of disruption or damage to the supply line, the Lessee
shall ensure immediate shutdown and shall be obligated to notify the
Lessor or his agent immediately.
4. A change in energy supply, specifically a modification of the power
voltage, shall not entitle the Lessee to compensatory damage claims
against the Lessor.
5. If the power, gas, water supply, or the waste water disposal is
interrupted for reasons for which the Lessor is not responsible, or if
floods or other catastrophes occur, the Lessee shall have no rent
reduction rights and no compensatory damage claims against the Lessor.
Section 11 - PROMOTIONAL MEASURES
o 1. The Lessee shall be entitled to place one sign of normal size on the
surface designated by the Lessor
.
In the case of the existence or establishment of collective sign
facilities, the Lessee shall be obligated to use them and assume pro
rata portion of costs.
2. Other devices which serve promotion or sales may be attached to the
external surfaces of the building, including the window panes (company
signs, company logos, advertising text, display cases, automated
vending machine, etc.) only with the express consent of the Lessor.
Consent may be revoked. In such a case, as well as in the case of
vacation of the leased rooms, the Lessee shall be obligated to restore
the former condition
3. The Lessee shall be liable for all damage which arises in
connection with the devices
4. The Lessee shall be solely responsible for compliance with the
general technical and governmental provisions for the manner of
attachment and maintenance and for the measures necessary therefor.
Section 12 - IMPROVEMENTS AND STRUCTURAL MODIFICATIONS BY THE LESSOR
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 6
1. The Lessor may--even without the consent of the Lessee--make
improvements and structural modifications which are necessary in order
to preserve the building or the leased rooms or to prevent impending
danger or remedy damages. This shall also apply to work which is not
necessary, but is expedient, such as modernization of the building and
the leased rooms. The Lessee shall keep the affected rooms accessible;
he shall not be permitted to impair or delay the performance of the
work.
2. The Lessor may convert the central heating and hot water supply to
different heating fuels or have them connected to the long-distance
heat; he may also install heat meters, heat cost allocators, hot water
meters, hot water cost allocators and thermostats.
Section 13 - STRUCTURAL MODIFICATIONS BY THE LESSEE
1. Structural modifications by the Lessee, particularly renovations,
built-in items and installations, as well as the installation of grid
work on the windows and the construction and modification of fire
places, may be undertaken only with the consent of the Lessor. If the
Lessor gives such consent, the Lessee shall be responsible for
obtaining building authority permits and shall bear all costs in
connection herewith.
2. Any operational equipment or other equipment taken over by the
Lessor shall be deemed to not be part of the leased property and shall
be deemed to have been installed or put in place by the Lessee.
3. The Lessee may remove installations which he has provided for the
rooms. However, the Lessor may demand that the items be left at the
end of the lease relationship, provided that the Lessor pays an amount
which corresponds to the present market value--taking into account
economic wear and tear and technical progreSection The Lessee and
Lessor shall declare in a timely manner that agreements may be
concluded in this regard prior to move-out. If the Lessor does not
take over equipment installed by the Lessee, the Lessee shall be
required to restore the prior condition, including all ancillary work
necessary therefor, by the expiration of the contract.
4. The attachment of external antennas shall require the conclusion of
an antenna contract.
5. The Lessee shall be liable for all damage which arises in connection
with the construction measures which he has undertaken.
Section 14 - MAINTENANCE OF THE LEASED ROOMS
1. Damage to and in the building and in the leased rooms shall be
reported to the Lessor or his agent immediately. The Lessee shall be
responsible for additional damages caused by delayed notification.
2. The Lessee shall be liable to the Lessor for damage which is caused
by violation of a duty of care to which he is subject, specifically if
the supply and outlet lines, toilets, heating facilities, etc., are
improperly handled or the rooms are insufficiently ventilated or
heated or not adequately protected against frost. In each instance,
the Lessee shall remedy line clogs up to the main pipe at his own
expense.
3. The Lessee shall be liable in the same manner for damage which has
been culpably caused by his family members, employees, white-collar
employees, sub-lessees, visitors, suppliers and artisans.
<PAGE> 7
4. The Lessee shall treat the lines and equipment for electricity and
gas, the sanitation equipment, locks, rolling blinds, ovens, stoves and
similar equipment in a careful manner. The Lessee hereby assigns to the
Lessor any and all claims against culpable third parties. The Lessee
shall bear the expense of insurance, including reinsurance.
5. The Lessee shall eliminate the onset of insect pests in the leased
property at his own expense. This shall apply to leased or open space
which is used.
6. The Lessee shall immediately remedy damage for which he is
responsible. If he fails to satisfy this obligation within a
reasonable time, even after written warning, the Lessor may cause the
necessary work to be performed at the Lessee's expense. In the case of
potentially hazardous damage or in the event that the whereabouts of
the Lessee are unknown, written warning and the imposition of a
deadline shall be unnecessary.
Section 15 - THE LESSOR'S LIEN - SECURITY (SECURITY DEPOSIT)
o 1. The Lessee hereby declares that the property which is brought in
when he moves in is his own property and is not attached or pledged,
with the exception of the following objects:
2. The Lessee shall be obligated to notify the Lessor promptly of any
pledge of objects which have been brought in and identify the court
enforcement officer and the pledge creditor.
o 3. The Lessee shall provide the Lessor with security for the
performance of his obligations and/or to satisfy compensatory damage
claims in the amount of up to three months rent, excluding operating
cost advances, namely, in the amount of DM The Lessor shall invest the
security deposit separately from his assets at a public bank or
savings and loan under the terms for cash deposits with statutory
termination period. Interest shall accrue on the security deposit. The
security deposit shall be paid prior to transfer of possession of the
leased rooms. The security deposit may be replaced at any time by a
bank guarantee.
4. The security deposit, including interest, shall be paid back to the
Lessee at the end of the lease relationship, if it is clear that no
more claims exist against the Lessee.
Section 16 - ENTRY OF THE LEASED ROOMS BY THE LESSOR
1. The Lessor and/or his agent may enter the leased rooms during
business hours to inspect their condition or for other good cause. In
the event of danger, they shall be permitted to enter at any time of
day or night.
2. If the Lessor wishes to sell the real property, he and/or his agent
may enter the leased rooms together with the potential purchaser
during business hours. If the lease relationship has been terminated,
he and/or his agent may enter the rooms with the potential lessee
during business hours.
3. The Lessee must ensure that it is possible to enter the rooms
during his absence. In the case of extended absence (such as company
holidays), he shall deposit the keys at an easily accessible place and
notify the Lessor appropriately.
Section 17 - END OF THE LEASE TERM
AT the end of the lease term, the Lessee shall return the leased rooms
to the Lessor in a condition ready for occupancy with all keys,
including keys which he personally purchased, without a claim for
compensation. Otherwise, the Lessor shall be entitled to open and clean
the leased rooms and have new locks and keys created at the Lessee's
expense.
Section 18 - MULTIPLE PERSONS ACTING AS LESSOR OR LESSEE
The Lessor and/or Lessee shall be jointly and severally liable if
multiple persons are involved. It shall be sufficient for purposes of
the validity of a declaration by the Lessor if it is made to one of the
Lessees.
Section 19 - COMPETITION PROTECTION
o Competition protection for the Lessee shall be barred--is stipulated
to the following extent:
Section 20 - CHANGE IN LEGAL FORM, SALE OF THE BUSINESS OPERATION
<PAGE> 8
1. The Lessee shall notify the Lessor thereof promptly if the legal
form of the Lessee's enterprise changes or if changes arise in the
commercial register, the business registration or in other contexts
which are of significance to the lease relationship.
2. In the event of the sale of the Lessee's operation or a portion
thereof, a prior agreement with the Lessor shall be required
concerning the transfer of this contract to the legal successor. No
right to transfer this contract shall exist.
Section 21 - ADDITIONAL AGREEMENTS
1. The Lessee shall observe relevant environmental protection
provisions in the exercise of his commercial activity.
o 2. Waste from the commercial activity of the Lessee may not be placed
in waste containers provided by the Lessor for general use; instead,
it shall be disposed of--by the Lessee himself--at the expense of the
Lessor. 3. The building rules shall constitute a component of this
contract and shall likewise be signed by the parties.
4. Subsequent modifications of and addenda to this contract shall be
valid only by written agreement. If one of the provisions of this
contract is or should become legally invalid in whole or in part, the
validity of the remaining provisions shall not be affected thereby.
5. Additional agreements, such as the placement of signs, neon signs,
option rights, sliding clauses and value assurance clauses, insurance
duties, lease prepayments, snow removal, duty to make access ways
safe, etc.:
o APPENDICES: A, B, C, D, E,E1 F, G H I K
In order to secure rent and ancillary rent cost, the Lessee shall
provide an absolute bank guarantee for two months rent, which shall be
due 1 month after the signing of the lease contract. (A cash deposit is
also possible) Note: Distribution rights for drinks are held by
Paulaner Brauerei Munchen [Paulener Brewery, Munich].
9/30/94 9/30/94
-------------------------- --------------------------
Place, date Place, date
[signature] s/Bernd Meier
-------------------------- --------------------------
Lessor Lessee
Order no. 25 203
<PAGE> 1
EXHIBIT 10.15
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the
"Agreement"), is made and entered into as of April 11, 1997, by and among SCM
Microsystems, Inc., a Delaware corporation (the "Company"), certain existing
holders of the Company's Common Stock and Preferred Stock (the "Existing
Stockholders"), and the existing holders (the "Note Holders") of convertible
notes of the Company which are convertible into shares of the Company's Series C
or Series D Preferred Stock (the "Convertible Notes"), and the undersigned
purchasers of Series F Preferred Stock of the Company (the "Purchasers" and
together with the Existing Stockholders, the "Stockholders"), all as set forth
on Schedule A attached hereto.
RECITALS:
A. The Company, the Existing Stockholders and the Note Holders are parties
to that certain Amended and Restated Stockholders' Agreement dated February 28,
1997 (the "Prior Agreement"), providing those Existing Stockholders and Note
Holders with registration rights and certain other rights.
B. Concurrently herewith, the Purchasers and the Company are entering into
a Series F Preferred Stock Purchase Agreement pursuant to which the Purchasers
are purchasing from the Company shares of the Company's Series F Preferred
Stock.
C. Pursuant to Section 6.1 of the Prior Agreement, the Company and the
beneficial owners of a majority of the securities registrable pursuant to the
Prior Agreement wish to amend and restated the Prior Agreement so as to provide
the Purchasers with registration and certain other rights as set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereto hereby agree as
follows:
1. Registration Rights.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) The term "Debtholder Shares" shall mean any Common Stock
issued or issuable, or Common Stock issuable upon conversion of Preferred Stock
issued or issuable, to any bank, savings and loan association or other
institution or entity, including without limitation the Note Holders, which
provides debt financing to the Company upon conversion of debt outstanding as of
the date hereof, including without limitation the Convertible Notes, provided
that on or prior to the date on which the debt is converted such entity agrees
to be bound by the provisions hereof, which agreement shall be evidenced by such
entity's execution hereof (and upon execution hereof, such entity shall be
deemed to be included within the definition of "Stockholder" for all purposes
hereunder).
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(b) The terms "Holder" and "Holders" mean any person or
persons holding or having the right to acquire Registrable Securities and
transferees qualifying under paragraph 1.12 hereof.
(c) The term "Initiating Holders" shall mean the persons and
entities listed on Schedule B hereto (but shall exclude any such persons or
entities who no longer hold Registrable Securities).
(d) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of the effectiveness of such
registration statement.
(e) The term "Registrable Securities" means all of the
following to the extent the same have not been resold to the public: (i) shares
of Common Stock of the Company held by, or issuable upon conversion of the
Preferred Stock of the Company held by the Existing Stockholders, the Note
Holders and the Purchasers as of the date of this Agreement, (ii) the Debtholder
Shares, (iii) the Warrantholder Shares and (iv) all shares of Common Stock and
other securities issued or issuable in respect of the Common Stock referred to
in clauses (i), (ii) and (iii) by reason of a stock split, stock dividend, stock
combination, recapitalization or the like.
(f) The term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, accounting fees, fees and disbursements of counsel for the Company,
Blue Sky fees and expenses, and the fees and disbursements of one special
counsel retained by the Holders.
(g) The term "SEC" means the Securities and Exchange
Commission.
(h) The term "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of the Registrable
Securities.
(i) The term "Shares" shall mean the shares of Common Stock
and Preferred Stock of the Company, and in any provision where the context
requires a vote or counting of Shares, the shares of Preferred Stock shall be
counted based upon the number of shares of Common Stock into which such shares
of Preferred Stock are then convertible.
(j) The term "Warrantholder Shares" shall mean any Common
Stock issued or issuable, or Common Stock issuable upon conversion of Preferred
Stock issued or issuable, to any entity with which the Company enters into a
technology development, licensing or other agreement or to any bank, savings and
loan association, equipment lessor or other institution or entity which provides
debt financing to the Company, which entity now holds or is hereafter issued
warrants to purchase shares of the Company's equity securities provided that (i)
on or prior to the date on which a warrant is issued to such entity the Board of
Directors grants such entity rights hereunder and (ii) such entity agrees to be
bound by the provisions hereof, which agreement shall be evidenced
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<PAGE> 3
by such entity's execution hereof (and upon execution hereof, such entity shall
be deemed to be included within the definition of "Stockholder" for all purposes
hereunder).
1.2 Requested Registration.
(a) Demand for Registration. In the event that the Company
receives from Initiating Holders holding a majority of the Registrable
Securities then held by the Initiating Holders a written request that the
Company effect a registration, qualification or compliance with respect to all
or a part of the Registrable Securities (other than a registration on Form S-3
or any successor form regardless of its designation) having an aggregate
proposed offering price to the public of at least $5,000,000 the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications, or compliance
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable Blue Sky
or other state securities laws and appropriate compliance with applicable
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within thirty (30)
days after written notice from the Company is given under subparagraph 1.2(a)(i)
above; provided that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
paragraph 1.2:
(A) prior to the earlier of (i) June 30, 1997 or
(ii) six (6) months after the effective date of a registration statement
pertaining to the Company's initial registered offering;
(B) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(C) after the Company has effected two (2) such
registrations pursuant to this paragraph 1.2, which have been declared or
ordered effective and the securities offered pursuant to such registration have
been sold;
(D) within six (6) months following the effective
date of a prior registered offering of the Company's securities pursuant to this
paragraph 1.2 or paragraph 1.3 below; or
(E) more than five (5) years after the effective
date of a registration statement pertaining to the Company's initial registered
offering.
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<PAGE> 4
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement as soon as practicable after receipt of the request or
requests of the Initiating Holders but in any event within sixty (60) days of
receipt of such request; provided, however, that if the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
one hundred twenty (120) days (the "Postponement Period") after receipt of the
request of the Initiating Holders (and not more than once in any twelve month
period). During such Postponement Period the Company may not effect any
registration (other than a registration on Form S-8 relating solely to employee
stock option or purchase plans, or a registration on Form S-4 relating solely to
an SEC Rule 145 transaction, or a registration on any other form (other than
Form S-1, SB-2, S-2 or S-3, or their successor forms) or any successor to such
forms, which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities) for its own account or for the account of holders of
other registration rights, unless such registration had been filed prior to
receipt of the request or requests of the Initiating Holders. If the Company
shall postpone the filing of a registration statement pursuant to this
paragraph, Holders of Registrable Securities may withdraw their request for
registration by giving notice to the Company within thirty (30) days after
receipt of the President's certificate postponing registration. In the event of
such withdrawal, such request will not be counted for purposes of the requests
for registration to which Holders are entitled pursuant to paragraph
1.2(a)(ii)(C).
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this paragraph 1.2 and the Company shall include such information in
the written notice referred to in subparagraph 1.2(a)(i). The underwriter shall
be selected by the holders of a majority of the Registrable Securities proposed
to be sold in the offering, which underwriter shall be reasonably acceptable to
the Company. In such event, if so requested in writing by the Company, the
Holders shall negotiate with the underwriter so selected with regard to the
underwriting of such requested registration. The right of any Holder to
registration pursuant to paragraph 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected as above provided. Notwithstanding any other provision of this
paragraph 1.2, if the underwriter advises the Initiating Holders and the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, the Company shall so advise all Holders, and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders requesting inclusion in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held (or entitled to be held upon conversion) by such Holders at the
time of filing the registration statement; provided, however, that no
Registrable Securities held by any Initiating Holders shall be so excluded until
all Registrable Securities held by other Holders shall have been excluded. No
Registrable Securities excluded from
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<PAGE> 5
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The Registrable
Securities or other securities so withdrawn shall also be withdrawn from
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this paragraph 1.2.
1.3 Company Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its securities, for its own account or the account
of any of its stockholders, other than (i) a registration on Form S-8 relating
solely to employee stock option or purchase plans, or a registration on Form S-4
relating solely to an SEC Rule 145 transaction, or a registration on any other
form (other than Form S-1, SB-2, S-2 or S-3, or their successor forms) or any
successor to such forms, which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, or (ii) a registration statement
pursuant to paragraph 1.2 hereof, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder or Holders, except as set forth in subparagraph
1.3(b) below.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subparagraph 1.3(a)(i). In such event the right of any Holder to
registration pursuant to paragraph 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other Holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this paragraph 1.3, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, and (i) if the registration is the first
registered offering of the sale of the Company's securities to the general
public, the underwriter may limit the amount of securities (including
Registrable Securities) to be included in the registration and underwriting by
the Company's stockholders, or may exclude such securities entirely from such
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<PAGE> 6
registration and underwriting, provided, that securities (other than Registrable
Securities) of any of the Company's stockholders may not be included in the
registration and underwriting to the exclusion of Registrable Securities, or
(ii) if such registration is other than the first registered offering of the
Company's securities to the general public, the underwriter may limit the amount
of securities to be included in the registration and underwriting by the
Company's stockholders; provided, however, the number of Registrable Securities
to be included in such registration and underwriting shall not be reduced to
less than twenty-five percent (25%) of the aggregate number of shares included
in the registration and underwriting without the prior written consent of
Holders of a majority of the Registerable Securities; and provided, further,
that no Registrable Securities held by any Initiating Holder shall be so
excluded unless all Registrable Securities held by other Holders shall have been
excluded first. In the event of any such limitation or exclusion of Registrable
Securities, the Company shall so advise all Holders of Registrable Securities
which would otherwise be registered and underwritten pursuant hereto, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among Holders requesting
registration in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities (or securities convertible into Registrable
Securities) held by each of such Holders as of the date of the notice pursuant
to subparagraph 1.3(a)(i) above. If any Holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
1.4 Form S-3. The Company shall use its best efforts to qualify for
registration on Form S-3 or its successor form. After the Company has qualified
for the use of Form S-3, Holders of not less than twenty percent (20%) of the
Registrable Securities or Intel Corporation, if they are still a stockholder in
the Company, shall have the right to request registrations on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by such Holders), subject only to the following:
(a) The Company shall not be required to effect a registration
pursuant to this subparagraph 1.4 within six (6) months of any registration
referred to in this subparagraph 1.4 or in subparagraphs 1.2 and 1.3 above.
(b) The Company shall not be required to effect a registration
pursuant to this subparagraph 1.4 unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Securities having an
aggregate disposition price (before any Selling Expenses) of at least $500,000.
The Company shall give written notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this
paragraph 1.4 and shall provide a reasonable opportunity (no fewer than twenty
(20) days from the delivery of the notice) for other Holders to participate in
the registration, provided that if the registration is for an underwritten
offering, the terms of subparagraph 1.3(b) shall apply to all participants in
such offering. The underwriter shall be selected in the same manner as is set
forth in subparagraph 1.2(b). Subject to the foregoing, the Company will use its
best efforts to effect promptly the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by the Holder or Holders thereof
for purposes of disposition.
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<PAGE> 7
1.5 Lockup Agreement. In consideration for the Company's agreeing to
its obligations under this Section 1, each Holder agrees that, effective upon
the request of the underwriters managing the Company's initial public offering,
such Holder shall be obligated, so long as all executive officers and directors
of the Company are bound by a comparable obligation, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of such underwriters, for such period of time (not to
exceed one hundred eighty (180) days) from the effective date of such public
offering as the underwriters may specify.
1.6 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
paragraphs 1.2, 1.3 and 1.4 shall be borne by the Company; provided, however,
that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to paragraph 1.2 or 1.4 if the
registration request is subsequently withdrawn, unless the Holders agree to
forfeit their right to a demand registration pursuant to paragraph 1.2 or 1.4 as
the case may be; and provided, further, that the Holders may withdraw a request
for registration upon the occurrence of any event having a material adverse
effect upon the Company over which the Holders had no control or no knowledge
thereof at the time of the request or in response to receipt of the President's
certificate postponing registration pursuant to paragraph 1.2(a)(ii), in which
event the Holders shall not be required to pay any of the expenses and shall
retain the right to require the Company to register Registrable Securities
pursuant to paragraph 1.2 or 1.4, respectively.
1.7 Registration Procedures. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred eighty (180) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
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<PAGE> 8
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Apply for qualification and use its best efforts to
qualify the Registrable Securities being registered for inclusion on the
automated quotation system of the National Association of Securities Dealers,
Inc. or on a national securities exchange.
(g) Afford to each Holder and its representatives an
opportunity to make such examination and inquiry into the financial position,
business and affairs of the Company and any of its subsidiaries as the Holder or
its counsel may reasonably deem necessary to satisfy such Holder and its counsel
as to the accuracy and completeness of the registration statement.
(h) Otherwise use best efforts to comply with all applicable
rules and regulations of the Commission and, as soon as practicable after the
effective date of any such Registration Statement, and, in any event, within 16
months thereafter, make generally available to Holders an earnings statement
complying with the provisions of Section 11(a) of the Act and covering a period
of at least 12 consecutive months beginning after the effective date of such
Registration Statement;
(i) Use best efforts to cause all Registrable Securities
covered by such registration statement to be listed on the principal securities
exchange on which similar securities issued by the Company are then listed (if
any), if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) if no similar securities are then so listed, use
best efforts to (x) cause all such Registrable Securities to be listed on a
national securities exchange or (y) failing that, secure designation of all such
Registrable Securities as a National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System ("Nasdaq") "national market system security"
within the meaning of Rule 11Aa2-1 of the SEC or (z) failing that to secure
Nasdaq authorization for such shares and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such shares with the NASD;
(j) Deliver promptly to counsel to the Holders and each
underwriter if any, participating in the offering of the Registrable Securities,
copies of all correspondence between the SEC and the Company, its counsel or
auditors;
(k) Use best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(l) provide a CUSIP number for all Registrable Securities, no
later than the effective date of the registration statement; and
(m) make available its employees and personnel and otherwise
provide reasonable assistance to the underwriters (taking into account the needs
of the Company's businesses) in their marketing of Registrable Securities.
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<PAGE> 9
1.8 Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities, each of its officers, directors and partners, and each person
controlling such Holder, within the meaning of Section 15 of the Securities Act,
with respect to which such registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter (as defined in the
Act), if any, and each person who controls any underwriter, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto),
including any of the foregoing incurred in settlement of any litigation or
proceeding, commenced or threatened arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act or any
state securities law applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder,
within the meaning of Section 15 of the Securities Act, each such underwriter
and each person who controls any such underwriter, for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company in an
instrument duly executed by such Holder or underwriter specifically for use
therein; and provided, further, that the agreement of the Company to indemnify
any underwriter and any person who controls such underwriter contained herein
with respect to any such preliminary prospectus shall not inure to the benefit
of any underwriter from whom the person asserting any such claim, loss, damage,
liability or action purchased the stock which is the subject thereof, if at or
prior to the written confirmation of the sale of such stock a copy of the
prospectus (or the prospectus as amended or supplemented) was not sent or
delivered to such person, excluding the documents incorporated therein by
reference, and the untrue statement or omission of a material fact contained in
such preliminary prospectus was corrected in the prospectus (or the prospectus
as amended or supplemented).
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter as defined in the
Securities Act, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company within the meaning
of the Securities Act, and each other such Holder, each of its officers,
directors and partners and each person controlling such Holder, against all
claims, losses, expenses, damages and liabilities (or actions in respect
thereto), including any of the foregoing incurred in settlement of any
litigation or proceedings, commenced or threatened arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, each of its officers and directors
and each person who controls the Company within the meaning of the Securities
Act, such
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<PAGE> 10
Holders, their directors, officers, partners and persons controlling such
Holders or such underwriters for any reasonable legal or any other expenses
incurred in connection with investigating, defending or settling any such claim,
loss, damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder specifically for use therein; and provided, further, that the agreement
of the Holder to indemnify any underwriter and any person who controls such
underwriter contained herein with respect to any such preliminary prospectus
shall not inure to the benefit of any underwriter from whom the person asserting
any such claim, loss, damage, liability or action purchased the stock which is
the subject thereof, if at or prior to the written confirmation of the sale of
such stock a copy of the prospectus (or the prospectus as amended or
supplemented) was not sent or delivered to such person, excluding the material
fact contained in such preliminary prospectus was corrected in the prospectus
(or the prospectus as amended or supplemented). Notwithstanding the foregoing,
the total amount for which any Holder shall be liable under this subparagraph
1.8(b) shall not in any event exceed the aggregate proceeds received by such
Holder from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this
paragraph 1.8 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
1.9 Contribution. If the indemnification provided for in paragraph
1.8 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
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<PAGE> 11
1.10 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.11 Rule 144 Reporting. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times after ninety (90) days after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144.
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(c) So long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public) and of the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed by the Company as the
Holder may reasonably request in complying with any rule or regulation of the
SEC allowing the Holder to sell any such securities without registration.
(d) After its initial public offering, to take whatever
actions are necessary in order for it to qualify to use Form S-2 or S-3, or any
form subsequently adopted by the SEC to take the place of Form S-2 or S-3 which
does not require substantially more disclosure than the form which it replaces.
1.12 Transfer of Registration Rights. A Holder's rights to cause the
Company to register its securities and keep information available, granted to it
by the Company under paragraphs 1.2, 1.3, 1.4 and 1.10 may be assigned to a
transferee or assignee who the Company does not consider to be an existing or
potential competitor and (i) receives the lesser of 100,000 shares or all of the
Registrable Securities originally acquired by any transferring or assigning
Holder, or (ii) is a partner, retired partner or spouse of such partner of a
Holder or to any wholly-owned subsidiary or parent of, or to any corporation or
entity which is (within the meaning of the Securities Act) controlling,
controlled by or under common control with such Holder. Any transfer or
assignment permitted by the foregoing sentence shall be effective as long as the
Company is given written notice by such Holder at the time of or within a
reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
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<PAGE> 12
1.13 Termination of Registration Rights. The registration rights
contained in paragraph 1.2 hereof shall terminate on the later of (i) December
31, 2003 or (ii) five (5) years after the effective date of the Company's
initial registered public offering; provided, however, that no Holder shall have
any such registration rights at such date, commencing immediately after the
Company's initial registered public offering, as all remaining Registrable
Securities held or entitled to be held by such Holder may be sold under Rule 144
during any three (3) month period.
2. Rights of First Refusal; Right of Co-Sale.
2.1 Right of First Refusal on Company Issuances. The Company hereby
grants to each Stockholder and to each Note Holder, if any, (provided, in the
case of each Stockholder holding Series A or B Preferred Stock, such Stockholder
is then a current holder of at least ten percent (10%) of the shares of such
stock originally issued to such Stockholder in the Reorganization or, in the
case of each Stockholder holding Series C, D, E or F Preferred Stock, such
Stockholder is then a current holder of at least 10% of the shares of Series C,
D, E or F Preferred Stock, as the case may be, originally purchased by such
Stockholder or, in the case of each Note Holder, such Note Holder is then a
current holder of at least 10% of the stock issuable upon conversion of the
Convertible Notes originally issued to such Note Holder) (collectively,
hereinafter, the "Rights Holders") the right of first refusal to purchase, pro
rata, all or any part of New Securities (as defined in this Section 2.1) which
the Company may, after the date hereof from time to time, propose to sell and
issue. A pro rata share, for purposes of this right of first refusal, is the
ratio that the number of Shares then held by each Rights Holder bears to the sum
of the total number of Shares then outstanding.
(a) Equity Securities. "Equity Securities" shall mean any
securities having voting rights in the election of the Board of Directors not
contingent upon default, or any securities evidencing an ownership interest in
the Company, or any securities convertible into or exercisable for any shares of
the foregoing, or any securities issuable pursuant to any agreement or
commitment to issue any of the foregoing.
(b) New Securities. Except as set forth below, "New
Securities" shall mean any Equity Securities, whether now authorized or not, and
rights, options or warrants to purchase said Equity Securities. Notwithstanding
the foregoing, "New Securities" does not include (i) Common Stock issued or
issuable to employees, officers, consultants or directors of the Company
pursuant to sales or options granted at any time after the date of this
Agreement (plus any of such shares which are repurchased at cost or as to which
such options expire unexercised); (ii) securities offered to the public
generally pursuant to a registration statement under the Securities Act; (iii)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its stockholders own not less than
fifty-one (51%) percent of the voting power of the surviving or successor
corporation; (iv) shares of Series C and Series D Preferred Stock issuable upon
conversion of the Convertible Notes; (v) shares of Common Stock issued upon
conversion of the Series A Preferred Stock, the Series B Preferred Stock, Series
C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock or
Series F Preferred Stock; (vi) warrant or warrants for the purchase of shares of
capital stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of Directors of the
Company and
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<PAGE> 13
issued in connection with an equipment lease, equipment financing or bank line
financing; (vii) stock issued pursuant to any rights or agreements including
without limitation convertible securities, options and warrants, provided that
the rights of first refusal established by this Section 2.1 apply with respect
to the initial sale or grant by the Company of such rights or agreements, or
(viii) stock issued in connection with any stock split, stock dividend, stock
combinations, recapitalizations or the like by the Company.
(c) Notice. In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Rights Holder written notice of
its intention, describing the type of New Securities, and the price and terms
upon which the Company proposes to issue the same. Each Rights Holder shall have
thirty (30) days from the date of receipt of any such notice to agree to
purchase up to its respective pro rata share of such New Securities for the
price and upon the applicable terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(d) Failure to Exercise Right. In the event a Rights Holder
fails to exercise the right of first refusal within said thirty (30) day period,
the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within sixty (60) days from the date of said agreement) to
sell the New Securities not elected to be purchased by Rights Holders at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice. In the event the Company has not sold
the New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the date
of said agreement), the Company shall not thereafter issue or sell any New
Securities, without first offering such securities in the manner provided above.
2.2 Right of First Refusal on Sales by Stockholders.
(a) The Right. If at any time any of the Holders other than
Intel Corporation (a "Selling Holder") proposes to sell any of the Shares held
by such Selling Holder (the "Offered Securities") to parties other than the
Company in a transaction (the "Transaction") not registered under the Securities
Act in reliance upon a claimed exemption thereunder, then any other Stockholder
(a "Purchasing Holder" for purposes of this subsection 2.2) that notifies the
Selling Holder in writing within thirty (30) days after receipt of the Transfer
Notice referred to in Section 2.2(b), shall have the opportunity to purchase a
pro rata portion of Offered Securities that the Selling Holder proposes to sell
to such third party in the Transaction. For the purposes of this Section 2, the
"pro rata portion" that the Purchasing Holder shall be entitled to purchase
shall be an amount of Shares equal to a fraction of the total amount of Offered
Securities proposed to be sold. The numerator of such fraction shall be the
number of Shares owned by a Purchasing Holder and the denominator shall be the
total number of Shares owned by all Purchasing Holders and the Selling Holder.
Each Purchasing Holder shall be entitled to apportion Shares to be purchased
among its partners and affiliates, provided that such Purchasing Holder notifies
the Selling Holder of such allocation, and provided that such allocation does
not threaten the Company's reliance on any exemption from the registration
provisions of the Securities Act or the qualification provisions of applicable
state securities laws.
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<PAGE> 14
(b) Transfer Notice. If at any time any of the Holders other
than Intel Corporation proposes to sell Shares to one or more third parties
pursuant to an understanding with such third parties in a transaction not
registered under the Securities Act, in reliance upon a claimed exemption
thereunder (the "Transfer"), then such Selling Holder shall give the Company and
each other Holder written notice of his or its intention (the "Transfer
Notice"), describing the Offered Securities, the identity of the prospective
transferee and the consideration and the material terms and conditions upon
which the proposed Transfer is to be made. The Transfer Notice shall certify
that the Selling Holder has received a firm offer from the prospective
transferee and in good faith believes a binding agreement for Transfer is
obtainable on the terms set forth, and shall also include a copy of any written
proposal or letter of intent or other agreement relating to the proposed
Transfer. The Company, upon request of the Selling Holder, will provide a list
of the addresses of the other Holders.
(c) Failure to Notify. If within thirty (30) days after the
Selling Holder gives the aforesaid notice to the Holders, the Holders do not
notify the Selling Holder that they desire to purchase any or all of their pro
rata portions of the Offered Securities described in such notice for the price
and on the terms and conditions set forth therein, then, after complying with
Section 2.3 below, the Selling Holder may sell such Offered Securities as to
which the Holders do not elect to purchase. Any such sale shall be made only to
persons identified in the Transfer Notice and at the same price and upon the
same terms and conditions as those set forth in the Transfer Notice simultaneous
with any Selling Holder's sale. In the event the Selling Holder has not sold the
Offered Securities or entered into an agreement to sell the Offered Securities
within sixty (90) days of the date of the Transfer Notice, the Selling Holder
shall not thereafter sell any Offered Securities without first notifying the
Holders in the manner provided above.
(d) Limitation on Right. Without regard and not subject to the
other provisions of this Section 2.2, any Initiating Holder may sell or
otherwise assign, with or without consideration, any Shares or any other
securities issued in respect of such Shares, to any other Initiating Holder, and
any Holder may sell or otherwise assign, with or without consideration, any
Shares or any other securities issued in respect of such Shares to such Holder
to any Related Person (as defined below) or any or all of his or her ancestors,
descendants, spouse, or members of his immediate family, or to a custodian,
trustee (including a trustee of a voting trust), executor, or other fiduciary
for the account of his or her ancestors, descendants, spouse, or members of his
or her immediate family, provided that each such transferee or assignee, prior
to the completion of the sale, transfer, or assignment, shall have executed
documents assuming the obligations of the Holder under this Agreement with
respect to the transferred securities.
2.3 Right of Co-Sale.
(a) The Right. To the extent that the other Holders do not
exercise or are not entitled to exercise the Right of First Refusal set forth
under Section 2.2 above, then any other Holder (a "Participating Holder" for
purposes of this subsection 2.3) that notifies the Selling Holder in writing
within thirty (60) days after receipt of the Transfer Notice referred to in
Section 2.2(b), shall have the opportunity to sell a pro rata portion of Offered
Securities that the Selling Holder proposes to sell to such third party in the
Transaction. In such instance, the Selling Holder shall assign to the
Participating Holder(s) such of his interest in the proposed agreement of sale
as the
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<PAGE> 15
Participating Holder(s) shall be entitled to and shall request hereunder, and
the Participating Holders shall assume such part of the obligations of the
Selling Holder under such agreement as shall relate to the sale of the
securities by the Participating Holder. Each Participating Holder shall be
entitled to apportion the Shares to be sold among its partners and affiliates,
provided that such Participating Holder notifies the Selling Holder of such
allocation, and provided that such allocation does not threaten the Company's
reliance on any exemption from the registration provisions of the Securities Act
or the qualification provisions of applicable state securities laws.
(b) Failure to Notify. If within sixty (60) days after the
Selling Holder gives the aforesaid notice to the Holders, the Holders do not
notify the Selling Holder that they desire to sell any or all of their pro rata
portions of the Offered Securities described in such notice for the price and on
the terms and conditions set forth therein, then the Selling Holder may sell
such Offered Securities as to which the Holders do not elect to purchase. Any
such sale shall be made only to persons identified in the Transfer Notice and at
the same price and upon the same terms and conditions as those set forth in the
Transfer Notice simultaneous with any Selling Holder's sale. In the event the
Selling Holder has not sold the Offered Securities or entered into an agreement
to sell the Offered Securities within sixty (90) days of the date of the
Transfer Notice, the Selling Holder shall not thereafter sell any Offered
Securities without first notifying the Holders in the manner provided above.
(c) Limitation on Right. The co-sale right granted under this
Section 2.3 shall not be available to any Holder that is not an Initiating
Holder if the Selling Holder is an Initiating Holder. Further, without regard
and not subject to the other provisions of this Section 2.3, any Initiating
Holder may sell or otherwise assign, with or without consideration, any Shares
or any other securities issued in respect of such Shares to any other Initiating
Holder, and any Holder may sell or otherwise assign, with or without
consideration, any Shares or any other securities issued in respect of such
Shares to such Holder to any Related Person (as defined below) or any or all of
his or her ancestors, descendants, spouse, or members of his immediate family,
or to a custodian, trustee (including a trustee of a voting trust), executor, or
other fiduciary for the account of his or her ancestors, descendants, spouse, or
members of his or her immediate family, provided that each such transferee or
assignee, prior to the completion of the sale, transfer, or assignment, shall
have executed documents assuming the obligations of the Holder under this
Agreement with respect to the transferred securities.
2.4 Termination. The rights described in this Section 2 shall
terminate on the effective date of the registration statement filed by the
Company with the SEC in connection with the Company's initial registered public
offering. The rights set forth in this Section 2 shall not apply to proposed
transfers pursuant to any acquisition or reorganization of the Company requiring
approval of the stockholders of the Company or inclusion of shares in a
registered public offering by the Company.
3. Repurchase Right.
3.1 The Company's Right. If any Holder listed on Schedule C (an
"Employee Holder") ceases to be an employee of the Company or any parent or
subsidiary of the Company on or before December 31, 1998 by reason of either (i)
the Employee Holder's voluntary resignation
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<PAGE> 16
from his or her employment with the Company or any parent or subsidiary of the
Company or (ii) the termination of such Employee Holder's employment by the
Company for cause, then the Company shall have the right to repurchase any or
all shares of the Company's Common Stock held by such Employee Holder under the
terms and subject to the conditions set forth in this Section 3.
3.2 Exercise of Repurchase Right. The Company may exercise its
repurchase right under this Section 3 by written notice to the Employee Holder
within thirty (30) days after such termination of employment. If the Company
fails to give notice within such thirty (30) day period, the repurchase right
shall terminate unless the Company and the Employee Holder have extended the
time for the exercise of the repurchase right.
3.3 Payment for Shares and Return of Shares. Payment of the
Repurchase Price (as defined below) shall be made in cash in five equal
installments. The first payment hereunder shall be due and payable six months
after the date specified in the written notice to the Employee Holder delivered
to Section 3.2 above (the "Repurchase Date"). Each subsequent payment shall be
due and payable six months after the date on which the previous payment became
due and payable. Interest at the rate of 6% per annum, compounded annually,
shall accrue on the unpaid portions of the Repurchase Price from the Repurchase
Date. The shares being repurchased shall be delivered to the Company by the
Employee Holder on the Repurchase Date.
3.4 Assignment of Repurchase Right. The Company shall have the right
to assign its rights under this Section 3 to any stockholder of the Company
other than the Employee Holder whose shares are being repurchased.
3.5 Repurchase Price. The Repurchase Price per each share to be
repurchased shall be an amount determined by dividing the greater of (a) the net
consolidated assets of the Corporation (as determined in accordance with
generally accepted accounting principles) and (b) four times the average annual
consolidated net income of the Company (as determined in accordance with
generally accepted accounting principles) for the four most recent fiscal years
immediately prior to the Repurchase Date by the number of shares of the
Company's Preferred Stock (on an as converted basis) and Common Stock
outstanding on the Repurchase Date.
3.6 Effect of Repurchase. From and after the Repurchase Date, the
shares of the Company's Common Stock to be repurchased shall be canceled and
deemed to be part of the authorized but unissued Common Stock of the Company.
The Employee Holder shall have no voting or other rights with respect to the
shares of Common Stock so repurchased from and after the Repurchase Date except
as set forth in this Section 3.
3.7 Termination. This Section 3 shall terminate the effective date
of the registration statement filed by the Company with the SEC in connection
with the Company's initial registered public offering.
4. Drag-Along Agreement. In the event that the board of directors of the
Company submits a proposal for approval by the stockholders of the Company,
which if approved by the required vote of stockholders under the Company's
Certificate of Incorporation, as then amended and restated, and the applicable
law would authorize the board of directors to effect a merger or
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<PAGE> 17
consolidation of the Company with or into another entity or a sale of all or
substantially all of the Company's assets, all parties to this Agreement agree
that they will vote in favor of such transaction and will not exercise any
rights which would otherwise accrue to dissenting stockholders upon the
effectiveness of such transaction if the holders of 75% of the outstanding
voting stock of the Company of each class or series entitled to vote on such
transaction approve such transaction. This Section 4 shall terminate on the
effective date of the registration statement filed by the Company with the SEC
in connection with the Company's initial registered public offering.
5. Information Rights.
5.1 Financial Information. As soon as practicable after the end of
each fiscal year, and in any event within ninety (90) days thereafter, the
Company will mail to Intel Corporation, as long as it remains a stockholder of
the Company, and, as soon as practicable after receipt of a written request from
any other Information Rights Holder (as defined below), to such Information
Rights Holder consolidated balance sheets of the Company and its subsidiaries,
if any, as of the end of such fiscal year, and consolidated statements of income
and consolidated statements of changes in financial position of the Company and
its subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year all in reasonable detail and
audited by independent public accountants of national standing selected by the
Company. As used in this Section 5, the term "Information Rights Holder" shall
mean any Holder that holds at least the lesser of (a) 75% of the Shares held by
it as of the date of this Agreement, as shown on Schedule A attached hereto, and
(b) 25,000 shares of Registrable Securities (as adjusted to reflect stock
dividends, stock splits, stock combinations, recapitalizations or the like).
As soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company and in any event
within forty-five (45) days thereafter, the Company will mail to Intel
Corporation, as long as it remains a stockholder of the Company, and, as soon as
practicable after receipt of a written request from any other Information Rights
Holder, to such Information Rights Holder a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated statements of
changes in financial condition of the Company and its subsidiaries for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments, all in reasonable
detail and signed by the principal financial or accounting officer of the
Company.
The Company also will provide to all members of its Board of Directors, to
Intel Corporation and, upon prior written request, to any Information Rights
Holder as soon as practicable after the end of each month, and in any event
within thirty (30) days thereafter, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such month, and consolidated
statements of income and consolidated statements of changes in financial
condition of the Company and its subsidiaries for such month and for the current
fiscal year to date, prepared in accordance with the Company's standard internal
accounting practices.
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<PAGE> 18
The Company also will provide to all members of its Board of Directors, to
Intel Corporation and, upon prior written request, to any Information Rights
Holder on or before November 15 or each year a budget, in reasonable detail,
setting forth the Company's planned expenditures and operating plans for the
following calendar year.
5.2 Additional Information. The Company also will provide to each
Information Rights Holder such other information and data, including access
(during regular business hours upon at least two (2) days prior written notice)
to books, records, officers and accountants, with respect to the Company and its
subsidiaries as any such holder may from time to time reasonably request;
provided, however, that the Company shall not be obligated to provide any
information that it reasonably considers in good faith to be a trade secret or
to contain confidential or classified information except that the Company shall
provide such information to its directors as may be necessary to perform their
duties as directors.
5.3 Assignment of Rights to Financial Information. The rights
granted pursuant to Sections 5.1 and 5.2 may not be assigned or otherwise
conveyed by any Information Rights Holder or by any subsequent transferee of any
such rights without the prior written consent of the Company (which consent
shall not be unreasonably withheld); provided, however, that without such
consent any Information Rights Holder may assign to any transferee, other than
an actual or potential competitor of the Company, and after giving notice to the
Company, the rights granted pursuant to Section 5.1 and 5.2 to (i) a transferee
who is or upon transfer of shares becomes an Information Rights Holder, or (ii)
any partner, stockholder, or person in control of, controlled by or under common
control with an Information Rights Holder ("Related Person"); and further
provided, however, that the rights of directors pursuant to the third paragraph
of Section 5.1 shall not be assignable.
5.4 Termination of Financial Information Rights. The covenants set
forth in Sections 5.1, 5.2 and 5.3 shall terminate and be of no further force or
effect with respect to all Information Rights Holders on the first to occur of
(i) the effective date of the Company's registration of any of its securities
pursuant to Section 12(b) or 12(g) of the Exchange Act; (ii) the first date on
which quotations for the Common Stock of the Company are reported by the
automated quotations system operated by the National Association of Securities
Dealers, Inc. or by an equivalent quotations system; or (iii) the first date on
which shares of the Common Stock of the Company are listed on a national
securities exchange registered under Section 6 of the Exchange Act; provided,
however, that notwithstanding the foregoing, Intel's rights under the first and
second paragraphs of Section 5.1 with respect to annual and quarterly financial
information of the Company and the right of Intel to transfer its rights under
Section 5.1 to a Related Person shall terminate on the first date on which Intel
holds no shares of the Company's stock.
6. General.
6.1 Waivers and Amendments. With the written consent of the holders
of a majority of the Registrable Securities, the obligations of the Company and
the rights of the Holders under this Agreement may be waived (either generally
or in a particular instance, either retroactively or prospectively, and either
for a specified period of time or indefinitely), amended or modified, and, with
the same consent, the Company when authorized by resolution of its Board of
Directors may
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enter into a supplementary agreement for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Agreement. Upon the effectuation of each such waiver, consent, agreement of
amendment or modification, the Company shall promptly give written notice
thereof to the record Holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent otherwise provided in this
paragraph 6.1.
6.2 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Delaware as such laws are applied to agreements
between Delaware residents entered into and to be performed entirely within
Delaware.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.4 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and this Agreement shall supersede and cancel all prior agreements between the
parties hereto with regard to the subject matter hereof.
6.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by either first
class mail, postage prepaid, certified or registered mail, return receipt
requested, or overnight courier service addressed (a) if to any Holder, at such
Holder's address as such Holder shall have furnished to the Company in writing,
and (b) if to the Company, at 131 Albright Way, Los Gatos, California 95030, or
at such other address as the Company shall have furnished to the Holders in
writing.
6.6 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
6.7 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 20
6.9 Prior Agreement; Waiver. This Agreement supersedes and replaces
the Prior Agreement in its entirety, and such Prior Agreement shall be of no
further force or effect upon execution of this Agreement by all parties hereto.
In addition, the Stockholders hereby waive any and all rights they may have
under the Prior Agreement to purchase a pro rata portion of the Series F
Preferred Stock of the Company, and any failure by the Company to comply with
the terms of Section 2.1 of said Prior Agreement with respect to the issuance of
the Series F Preferred Stock.
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IN WITNESS WHEREOF, the parties hereby have executed this Stockholders'
Agreement on the date first above written.
COMPANY:
SCM MICROSYSTEMS, INC.,
a Delaware corporation
By:
-----------------------------------
Steven Humphreys, President
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<PAGE> 22
SCM MICROSYSTEMS, INC.
COUNTERPART SIGNATURE PAGE
TO
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
APRIL 11, 1997
"HOLDER"
------------------------------------------
Print Name of Holder
By:
---------------------------------------
Signature
------------------------------------------
Print Name of Signatory
------------------------------------------
Print Title
Address:
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<PAGE> 23
SCHEDULE A
Schedule of Stockholders and Note Holders
<TABLE>
<S> <C>
Zweite Beteiligungs-Kommanditgesellschaft Telenor Venture AS
der TVM Techno Venture Management ITOCHU Corporation
Gesellschaft mbH & Co. KG Intellicard Systems
Algomquin Trust S.A. The Special Index Fund
TVM Eurotech Limited Partnership Jaochim Graf zu Ortenburn
Alpinvest International B.V. Per Knudsen
Banque SCS Alliance L.B. Finance S.A.
Banque SCS Alliance S.A. Merifin Capital N.V.
KBL Founders Ventures S.C.A. Murdoch & Company
Oscar Gruss Lombard Odier
Vertex Investment (II) Ltd. Ken O. Pelton
Genevest Consulting Group S.A. Pictet et Cie
The Index Special Situations Fund Societe Financiere Mirelis S.A.
Vision Capital Partners Societe de Banque Suisse (SBS)
Alvet Covo Union de Banque Suisse (UBS)
Peter Andersson Candida von Braun
British Bank of Middle East Emmeram von Braun
Bulk Partners A.S. Leitpold von Braun
CERN Pension Fund Dieter Haas
Cook & Cie Detlef Jenett
Claus Dieckell Ronald Lautenschlager
Friedrich Dieckell Torsten Maykranz
Faisal Finance (Jersey), LTD Bernd Meier
Eric Favre Sonja Meier
Fidulex Management Inc. Reiner Prummer
Fondation Galba Thomas Rachor
The Forum Finance S.A. Robert Schneider
The Gifford Fund Ursula Schneider
Jay M. Haft Lembit Soobik
Hoegh Invest A/S Sigfried Vater
Intel Corporation Andreas Wolf
Hambrecht & Quist California, Inc. Jean-Yves LeRoux
WS Investments 97A
Jeffrey Saper
Kenneth M. Siegel
Joshua M. Rafner
Daniel H. Case III
Nippon Investment & Finance Co. Ltd.
Investment Enterprise Partnership "NIF8"
Investment Enterprise Partnership "NIF9"
Investment Enterprise Partnership "NIF10A"
Investment Enterprise Partnership "NIF10B"
</TABLE>
-23-
<PAGE> 24
SCHEDULE B
Initiating Holders
<TABLE>
<S> <C>
Zweite Beteiligungs-Kommanditgesellschaft WS Investments 97A
der TVM Techno Venture Management Jeffrey Saper
Gesellschaft mbH & Co. KG Kenneth M. Siegel
Algonquin Trust S.A. Joshua M. Rafner
TVM Eurotech Limited Partnership Daniel H. Case III
Alpinvest International B.V. Nippon Investment & Finance Co. Ltd.
Banque SCS Alliance Investment Enterprise Partnership "NIF8"
Banque SCS Alliance S.A. Investment Enterprise Partnership "NIF9"
KBL Founders Ventures S.C.A. Investment Enterprise Partnership "NIF10A"
Oscar Gruss Investment Enterprise Partnership "NIF10B"
Vertex Investment (II) Ltd. Telenor Venture AS
Genevest Consulting Group S.A. ITOCHU Corporation
The Index Special Situations Fund Intellicard Systems
Vision Capital Partners The Special Index Fund
Alvet Covo Jaochim Graf zu Ortenburn
Peter Andersson Per Knudsen
British Bank of Middle East L.B. Finance S.A.
Bulk Partners A.S. Merifin Capital N.V.
CERN Pension Fund Murdoch & Company
Cook & Cie Lombard Odier
Claus Dieckell Ken O. Pelton
Friedrich Dieckell Pictet et Cie
Faisal Finance (Jersey), LTD Societe Financiere Mirelis S.A.
Eric Favre Societe de Banque Suisse (SBS)
Fidulex Management Inc. Union de Banque Suisse (UBS)
Fondation Galba Candida von Braun
The Forum Finance S.A. Emmeram von Braun
The Gifford Fund Leitpold von Braun
Jay M. Haft
Hoegh Invest A/S
Intel Corporation
Hambrecht & Quist California, Inc.
</TABLE>
-24-
<PAGE> 25
SCHEDULE C
Employee Holders
Dieter Haas
Detlef Jenett
Ronald Lautenschlager
Torsten Maykranz
Bernd Meier
Sonja Meier
Reiner Prummer
Thomas Rachor
Robert Schneider
Ursula Schneider
Lembit Soobik
Sigfried Vater
Andreas Wolf
Jean-Yves LeRoux
-25-
<PAGE> 26
================================================================================
SCM MICROSYSTEMS, INC.
--------------------
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
--------------------
APRIL 11, 1997
--------------------
================================================================================
<PAGE> 27
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Registration Rights....................................................1
1.1 Definitions......................................................1
1.2 Requested Registration...........................................2
1.3 Company Registration.............................................4
1.4 Form S-3.........................................................5
1.5 Lockup Agreement.................................................6
1.6 Expenses of Registration.........................................6
1.7 Registration Procedures..........................................7
1.8 Indemnification..................................................8
1.9 Contribution....................................................10
1.10 Information by Holder...........................................10
1.11 Rule 144 Reporting..............................................10
1.12 Transfer of Registration Rights ................................11
1.13 Termination of Registration Rights .............................11
2. Rights of First Refusal; Right of Co-Sale ............................11
2.1 Right of First Refusal on Company Issuances.....................11
2.2 Right of First Refusal on Sales by Stockholders.................13
2.3 Right of Co-Sale................................................14
2.4 Termination.....................................................15
3. Repurchase Right......................................................15
3.1 The Company's Right.............................................15
3.2 Exercise of Repurchase Right ...................................15
3.3 Payment for Shares and Return of Shares.........................16
3.4 Assignment of Repurchase Right .................................16
3.5 Repurchase Price................................................16
3.6 Effect of Repurchase............................................16
3.7 Termination.....................................................16
4. Drag-Along Agreement..................................................16
5. Information Rights....................................................17
5.1 Financial Information...........................................17
5.2 Additional Information..........................................17
5.3 Assignment of Rights to Financial Information...................18
5.4 Termination of Financial Information Rights.....................18
</TABLE>
-i-
<PAGE> 28
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6. General...............................................................18
6.1 Waivers and Amendments..........................................18
6.2 Governing Law...................................................18
6.3 Successors and Assigns..........................................18
6.4 Entire Agreement................................................19
6.5 Notices, etc....................................................19
6.6 Severability....................................................19
6.7 Titles and Subtitles............................................19
6.8 Counterparts....................................................19
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 10.16
8/26/93
TFM/RHL/HSz/sz/M
15.000-0393
EMPLOYMENT CONTRACT
BETWEEN
SCM SCHNEIDER MICROSYSTEMS ENTWICKLUNGS - UND VERTRIEBS GMBH
Fraunhoferstr. 11A,
82152 Planegg,
represented by [the shareholder committee,
which is represented by] [handwritten:] FRIEDRICH BORNIKOEL
pursuant to shareholder resolution dated 8/28/93
(hereinafter referred to as the "Corporation")
and
Mr. Robert Schneider
Berta-von-Suttner-Weg 1
82152 Martinsried
(hereinafter referred to as the "General Manager")
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 2
- - 2 -
Section 1
ACTIVITY
1. The Corporation has appointed the General Manager to the position of
General Manager by shareholder resolution dated 3/29/90. This
appointment shall not preclude the appointment of additional General
Managers.
2. The General Manager shall conduct the transaction of the Corporation
conscientiously with the care of an ordinary prudent businessman and
shall perform the obligations assigned to him by statue, by-laws or
contract in a responsible manner.
3. The primary activity of the General Manager shall consist of the
responsibility for managing and supervising the Corporation, including
arranging, coordinating and implementing all measures.
4. In the event of appointment of additional General Managers, the
functions of the General Managers shall be defined by the shareholder
committee.
In engaging in his activities, the General Manager shall coordinate
with the remaining General Managers.
5. Upon resolution of the shareholder committee, the General Manager shall
also undertake other comparable activities.
6. The General Manager shall be exempt from the restrictions set forth in
Section 181 BGB [German Civil Code].
<PAGE> 3
- - 3 -
7. The scope of responsibility of the General Manager pursuant to this
contract may be restricted or modified only with his written consent.
Without such agreement, the restriction or modifications shall be
deemed to constitute termination of the employment contract by the
Corporation.
Section 2
SHAREHOLDER RESOLUTIONS
1. The General Manager shall be bound by resolutions and instructions of
the shareholder committee and/or the general meeting of shareholders.
2. The shareholder committee may define general guidelines with regard to
the conduct of transactions.
3. The shareholder committee and/or general meeting of shareholders may
issue a binding set of by-laws which set forth the delineation of the
activities of the General Managers.
4. The General Managers shall require the consent of the shareholder
committee for the following management activities:
- annual budget
- purchase, sale or creation of encumberments on real property
or rights equivalent to real property
<PAGE> 4
- - 4 -
- call for deposits towards the share premium
- disposition of industrial property rights and conclusion of
patent contracts, license contracts (with the exception of
simple product licenses for users), know-how contracts and
cooperation contracts
- conclusion of exclusive distribution contracts and entering
into delivery obligations which substantially restrict the
Corporation's freedom to act
- establishment, purchase and sales of business operations,
divisions or branch offices
- formation of Corporations or enterprises, purchase and sale of
equity interests in other enterprises
- conclusion of business lease and business management contracts
- sale of corporate assets as a whole or a substantial portion
thereof
- drawing and granting of credits in excess of DM 100,000.00 (in
the individual instance or in total)
- investments which (in the individual instance or in total) are
in excess of DM 200,000.00 (including leasing contracts)
- initiation of development projects with a volume in excess of
DM 200,000.00 (in the individual instance or in total)
- submission of guarantees and suretyships; excluded therefrom
shall be the usual guarantee for products of the Corporation
<PAGE> 5
- - 5 -
- hiring of employees if their compensation exceeds 1.5 times
the respective premium measurement threshold in the pension
insurance scheme
- internal organizational changes of substantial importance
- all other extraordinary management measures
- management measures which the shareholder committee has made
subject to its consent.
Section 3
TERM
1. This employment contract shall begin when it is signed and is concluded
for an indefinite term. However, the provisions in Sections 6 through
10 shall not take effect until 1/1/94. Until that point in time, the
provisions in this regard set forth in Section 3 of the General
Manager's prior General Manager employment contract dated 5/14/90 shall
continue to apply.
2. It shall end no later than upon the expiration of the month in which
the General Manager reaches the age of 65.
<PAGE> 6
- - 6 -
Section 4
TERMINATION/DISMISSAL
1. Regular termination
Each party may terminate this contract upon notice of six (6) months
effective at the end of any calendar half-year, but no earlier than
December 31, 1994.
In the case of doubt, the corporate law dismissal of the General
Manager shall be interpreted as termination of this contract at the
next possible point in time.
2. Extraordinary termination
The termination of this contract for good cause shall remain
unaffected.
Good cause for the Corporation shall exist in particular if the General
Manager violates substantial provisions of this contract or substantial
restrictions which are imposed upon him inter se with regard to
management.
3. Release
In each case of termination, the Corporation may release the General
Manager independent of the validity of the termination and subject to
his other rights.
<PAGE> 7
- - 7 -
Section 5
REPRESENTATIVE AUTHORITY
1. The General Manager shall represent the Corporation judicially and
extra-judicially along with the other General Managers in accordance
with his appointment and the by-laws.
2. The General Manager shall observe the limitations imposed upon him by
this contract, the by-laws, the statute or a resolution by the
shareholder committee or general meeting of shareholders.
Section 6
COMPENSATION
1. As compensation for his activity, the General Manager shall receive an
annual salary in the amount of DM 180,000.00, payable in 12 monthly
installments, each at the end of the month minus the statutory
deductions.
2. In addition, the General Manager shall receive an annual bonus, the
amount of which shall be calculated from the amount of the result
earned for the fiscal year, as shown in appendix 1.
However, the bonus shall be at least DM 30,000.00.
3. As an advance towards the bonus, the General Manager shall receive
additional salary with his June and November salary installments, each
in the amount of one twelfth (1/12) of the annual salary set forth in
par. 1. Otherwise, the bonus shall be payable 14 days after the general
meeting of shareholders which adopts the annual financial statements.
4. The compensation provided pursuant to this provision shall constitute
settlement for the entirety of the activity of the General Manager,
including activity for subsidiaries, affiliated companies and other
companies, if any, as well as activity on Sundays, holidays and the
like. To the extent that the General Manager receives direct
compensation for holding such positions, such compensation shall be
offset against compensation set forth in this contract first--against
the bonus--unless expressly stipulated to the contrary.
<PAGE> 8
- - 8 -
Section 7
FRINGE BENEFITS
1. For the duration of this contract, a company vehicle of the higher
middle class (approximately DM 2,000.00 per month leasing rate
excluding maintenance and insurance) shall be provided for the General
Manager; the General Manager may use said vehicle for personal purposes
as well. The General Manager shall bear income tax which accrues.
2. Direct insurance/retirement pension
For the duration of this contract, the Corporation shall bear the
premiums for a direct insurance policy in the respective maximum
permissible amount from a tax standpoint. The Corporation shall bear
the lump-sum income tax and church tax which accrues. In addition, the
Corporation may promise the shareholder a reasonable company retirement
pension without thereby creating a legal claim on the part of the
General Manager.
3. Risk insurance
In order to cover the increased risk resulting from the intensive
travel activity, the Corporation shall bear the expense of a risk
accident insurance policy payable in the event of the death of the
General Manager, with an insurance sum in favor of the General Manager
or his family members in the amount of DM 400,000.00 in the event of
death and DM 1 million in the event of disability.
<PAGE> 9
- - 9 -
4. The Corporation shall pay 50% of the premiums of both a private capital
life insurance policy with disability protection to be concluded by the
General Manager and a voluntary health insurance policy. The taxes
allocable to said insurance policies shall be paid by the General
Manager.
The monthly allowance for life insurance shall be 50% of the respective
applicable maximum amount which must be paid into the statutory health
insurance system each month for employees liable to contribute to the
social insurance; however, said allowance shall not exceed DM 900.00.
Section 8
EXPENSES
The Corporation shall be obligated to the General Manager to reimburse necessary
and reasonable outlays. In individual cases, the outlays shall be documented in
accordance with the tax provisions, unless permissible lump-sum amounts are
settled in accordance with the tax provision.
Section 9
VACATION
1. The General Manager shall have a claim to annual vacation of 25 working
days.
2. The timing of the vacation shall be coordinated with the other General
Managers and the general meeting of shareholders and shall be in
observance of the interests of the Corporation.
3. The vacation right shall lapse no later than 3/31 of the following
year. No claim for compensation for unused vacation days shall exist.
<PAGE> 10
- - 10 -
Section 10
CONTINUED PAYMENT OF SALARY IN THE EVENT OF SICKNESS OR DEATH
1. In the event of sickness or other blameless disability, payment of the
monthly compensation (Section 6 par. 1) shall continue for the period
of six (6) months. The continuation of payments shall begin in the
month which follows the occurrence of the work disability. In
addition, the Corporation shall enter into a sick day insurance policy
or assume the existing insurance policy which provided DM 10,000.00 in
coverage per month starting from the expiration of 6 months through 2
years.
2. Any third-party payments, such as payments on the basis of liability
claims, sick day insurance, etc., shall be offset against the payments
of the Corporation in such a manner that the aggregate of said
miscellaneous payments and the payments of the Corporation reach the
net compensation which the General Manager would have, had he been able
to work.
3. In the event of the death of the General Manager during the term of his
General Manager activity, payment of the monthly compensation (Section
6 par. 1) to his survivors (widow or orphans) shall continue for a
period of three (3) months. The continued payments shall begin upon
the death of the General Manager.
Section 11
DUTIES, ANCILLARY ACTIVITIES
1. The General Manager shall provide the entirety of his work energy and
the results thereof, as well as all experience and knowledge, solely
and exclusively to the Corporation.
2. All activity focused on gain shall require the prior written consent of
the shareholder committee. The General Manager shall be obligated to
notify the Corporation of outside employment which requires or may
require consent.
<PAGE> 11
- - 11 -
3. The written consent of the shareholder committee shall also be required
for taking on a seat on a supervisory board, advisory board,
administrative board, trade association body, among others.
4. At the end of the employment relationship (or at the time of the
release, in the event of early release), the General Manager shall be
obligated by resolution of the shareholder committee to relinquish all
seats which he assumed or exercised on the basis of or in connection
with his activity with the Corporation.
Section 12
COMPETITION PROHIBITION
1. During the term of this contract, the General Manager shall not be
permitted to work directly or indirectly, professionally or
occasionally, for his own account or the account of a third party,
independently or dependently, in the business sector of the
Corporation; moreover, the General Manager shall not be permitted to
acquire an enterprise which engages in transactions in the business
sector of the Corporation or obtain an equity interest in, or otherwise
support, such an enterprise.
2. The restriction on competition set forth in the preceding paragraph
shall likewise apply to the territory of the Federal Republic of
Germany and the United States of America for a period of 1 (one) year
from the end of this employment contract. As compensation for
compliance with this restriction on competition, the General Managers
shall receive compensation in the amount of his basic salary set forth
in Section 6 section 1, which shall be payable as indicated therein.
Everything which the General Manager earns elsewhere through the
exploitation of his work energy or maliciously fails to earn during
the relevant time period shall be offset against this.
<PAGE> 12
- - 12 -
Upon request, the General Manager shall be obligated to provide the
Corporation with information concerning the amount of his earnings.
Prior to the end of the employment relationship, the Corporation may
waive the competition prohibition by written declaration, with the
effect that the Corporation shall be free from the obligation to pay
the compensation.
3. Specifically included in the business sector of the Corporation for
purposes of this provision shall be the sector of personal computer
memory cards, but not the activity involving Personal Computer Memory
Cards Interface Association (PCMCIA).
Section 13
BUSINESS AND OPERATIONAL SECRETS
The General Manager shall be obligated to maintain unrestricted and complete
secrecy with regard to all business and operational secrets, as well as all
other confidential information or data relating to the Corporation or its
enterprise. The duty of confidentiality on the part of the General Manager under
this Section 13 shall apply after the end of the contractual relationship.
The General Manager is aware of the special provisions concerning the criminal
punishability of violation of business and operational secrets under Section 17
of the Act Against Unfair Competition.
Section 14
RELEASE OF DOCUMENTS
When this employment relationship ends (or at the time of release, in the event
of earlier release,), the General Manager shall be obligated to return to the
Corporation--without being requested to do so--all documents, records and other
materials which are related to his General Manager activity.
<PAGE> 13
- - 13 -
Section 15
INVENTIONS, COPYRIGHTS
1. Rights to inventions or technical improvements which the General
Manager made or worked out during his activity on behalf of the
Corporation, in connection with his activity on behalf of the
Corporation, as a result of his experiences arising from his activity
on behalf of the Corporation or on the basis of studies of the
Corporation shall be held solely by the Corporation. The General
Manager hereby assigns all relevant rights at this time. The
Corporation shall not be obligated to make any additional compensation
in this regard. The Employee Invention Act shall not be applicable in
the absence of employee status on the part of the General Manager.
2. Accordingly, the General Manager hereby assigns to the Corporation
exclusive use, at no charge, of any copyrights arising through him for
works created in connection with his activity, as a result of his
experience arising from his activities on behalf of the Corporation or
on the basis of studies by the Corporation.
Section 16
NO COLLATERAL AGREEMENTS, MODIFICATIONS, WRITTEN FORM
This contract contains all agreements of the parties. Unless they are separately
mentioned, no collateral agreements exist. Contractual modifications must be in
writing in each instance. The General Manager employment contract dated 5/14/90,
as well as the previous bonus provision and pension assurance, shall become
invalid effective immediately, except as stated in Section 3 par. 1. The General
Manager can no longer assert claims arising therefrom.
<PAGE> 14
- - 14 -
Section 17
SEVERANCE CLAUSE
In the event that individual contracts are or should become invalid, this shall
not affect the validity of the remaining provisions. In place of the invalid
provision, a provision shall be agreed upon which comes as close as possible to
the economic intent of the parties. The same shall apply in the event that the
contract contains loopholes.
Section 18
PLACE OF PERFORMANCE AND PLACE OF VENUE
The place of performance and place of venue for all possible disputes arising
from this contract shall be the domicile of the Corporation.
Martinsried, 8/26/93
s\Friedrich Bornikoel s\Robert Schneider
- --------------------------------- ------------------------------
(SCM Schneider Microsysteme (Robert Schneider)
Entwicklungs- und Vertrieds
GmbH)
<PAGE> 15
APPENDIX TO THE GENERAL MANAGER CONTRACT OF MR. ROBERT SCHNEIDER
Mr. Robert Schneider shall receive a bonus in the amount of
DM 60,000
for 1994 if SCM Schneider Microsysteme Entwicklungs- und Vertriebs GmbH has
worldwide sales of at least DM 18.0 million in 1994 and achieves a balanced
result from ordinary business activity. In any case, however, he shall receive
DM 30,000.
For the ensuing years, new agreements shall be concluded through the shareholder
committee, for which the consent of the Zweiten Beteiligungsgesellschaft [Second
Holding Company] of TVM Techno Venture Management GmbH & Co. KG is necessary.
Munich, August 26, 1993
FB/GR
<PAGE> 16
MANAGEMENT COMPENSATION 1997
GENERAL GUIDE LINES:
- - Robert Schneider, Steven Humphreys and Bernd Meier shall have the same fixed
income and target bonus in US-Dollars, since SCM Inc.'s internal currency is
US-Dollar.
- - The Bonus shall be now and in the future based on:
- budget, business model, profit, stock price
- internal organization, IPO, investors' relations
- strategic goals, strategic partnerships which are relevant not only for
the result in 1997, but also in future years.
THE PROPOSAL IS:
Fix salary incl. BoD fee: US$ 190k
Bonus up to US$ 75k
The bonus shall be based on the following:
I. PROFIT
US$ 0 to US$ 15k linear in proportion to a net income before tax (but before
interest expense)
US$ 10k if the confirmed order backlog (in writing) as of December 31, 1997
which is shipable in Q1 1998 exceeds 70% of the revenues planned in Q1 1998.
II: INTERNAL ORGANIZATION, IPO, INVESTORS' RELATIONS
US$ 15k if the company has a successful IPO or if the company is ready to
go public in Q3 1997 at a price range of US$ 10 -12 per share.
US$ 15k for the strategic investment of Intel, NIF, Itochu and Telenor.
<PAGE> 17
MANAGEMENT COMPENSATION 1997 - CONTINUED
III. STRATEGIC GOALS
Robert Schneider:
- - US$ 5,000 if the Intel partnership develops fine and US$ 5,000 if this
relationship leads to business of US$ 0.5 million in 1997 or up to US$ 3.0
million in 1998.
- - US$ 5,000 for a clear strategy to secure SCM's access to chip technology and
to integrate SCM's technology in chips, i.e. UART (similar to Oak
Technology's strategy)
Time frame: July/August
Board approval: September
- - US$ 5,000 for a strategic paper on SCM's strategy in the security business
SCM's options (cooperations, acquisitions)
Time frame: July/August
BoD Approval: September
Steven Humphreys and Bernd Meier
- - US$ 3,000 for each strategic new major customer for Smart Card readers in
America, the target is three customers
Steven Humphreys:
- - US$ 10,000 if 30% of revenues in the USA in 1997 is not related to the US
government
Bernd Meier:
- - US$ 3,000 for each new major customer for Smart Card readers (DVB CAM, DVB
SWAPBOX, InterNet COMMERCE, InterNet access) in Europe and Asia.
Robert Schneider, Steven Humphreys and Bernd Meier:
- - US$ 3,000 for each major contract worth US$ 1.0 million for chips plus
firmware with SCM' technology inside i.e. UART
<PAGE> 1
EXHIBIT 10.17
SCM
MICROSYSTEMS
By this letter which is equivalent to an employment contract as soon as you
accept, we hire you
Jean - Yves LE ROUX
as of: 5/15/95
in the capacity of: Head of French SCM office, position III, level A
gross annual salary: 445,000 FF (including 100% Bonus)
Fixed salary: 375,000 FF
Bonus: 70,000 FF
Place of work: Bandol (83)
Trial period: 3 months
The Bonus plan will be specified in a separate document and [updated] quarterly.
Your gross monthly salary will be 31,250 FF paid in 12 monthly installments.
Your place of work will be BANDOL. It is understood that the progress of the
company may lead to proposing other tasks to you, implying a change of this
place of work.
This contract, executed for an undetermined term, will become final only after a
trial period of three months, and may always be terminated at the initiative of
one of the parties, pursuant to legal and contractual provisions.
Our Company is governed by the National Collective Bargaining Agreement of
Metallurgical Engineers and Executives.
Initials:
<PAGE> 2
SCM
MICROSYSTEMS
You promise to inform us immediately of any change in the situations you
indicated to us (address, family situation, etc.).
Your acceptance of this employment contract formally implies that you will not
be linked to any other company and that you will be free of all commitments to
your prior employer when you effectively join our Company.
For good order, please return this contract as well as its addendum, initialed
on each page and bearing on the last page, your signature preceded by the
mention "Read and Approved".
Sincerely.
<PAGE> 3
SCM
MICROSYSTEMS
ADDENDUM TO EMPLOYMENT CONTRACT
By this document, and in my capacity as employee of
(hereinafter the Company), I make the following commitments:
1. I commit to immediately inform the Company, pursuant to the provisions
of Article 3, Law No. 78-742 of July 13, 1978, and according to the
methods set forth in Decree No. 79-797 of September 4, 1979, of any
invention, improvement, modification, discovery and development,
patentable or not (hereinafter, generically referred to as
Developments), made or designed by me or under my management at any
time between the date of this contract and its cancellation date. My
reporting obligations extend to all Developments without exception,
whether or not made or designed (a) in the premises of the company, (b)
during normal work hours, (c) during the performance of my tasks, (d)
in the field of the activities of the company, (e) by knowing or using
techniques or means specific to the Company or data supplied by it.
2. Property rights for all Developments designed or made by me will be
attributed pursuant to the provisions of Law No. 78-742 of July 13,
1978. Thus, if my actual tasks include the mission of making
inventions, pursuant to said Law, all patented or patentable
Developments, made or designed by me or under my management while
performing my Employment Contract, will automatically belong to the
Company or to any person designated by it without any additional
remuneration being owed to me by the Company.
<PAGE> 4
SCM
MICROSYSTEMS
Furthermore, all patented or patentable Developments, made or designed
by me or under my management during the performance of studies and
research entrusted to me, will automatically belong to the Company or
to any person designated by it without any additional remuneration
being owed to me by the Company.
In the case of Developments which, although not designed or made in the
execution of an inventive mission or during the execution of studies
and research entrusted to me, and although they consequently constitute
personal inventions, would be designed by me or under my management,
either in the performance of my functions, or in the field of activity
of the company, or by the knowledge or use of techniques or means
specific to the company, or data supplied by it, the Company will have
the right to receive, under the conditions established in Decree No.
79-797 of September 4, 1979, all or part of the royalties arising from
the patents protecting said Developments. In exchange, the Company will
pay to me a remuneration in an amount established by taking into
consideration my activities in the Company, the circumstances of the
design or realization of said Developments, and their industrial and
commercial usefulness for the Company.
In this case, I must submit proof that the Developments in question
constitute personal inventions in the sense of this Article.
In addition, concerning the Developments defined in paragraphs 1, 2 and
3 of this Article, I commit to sign at the request of the Company all
papers and patent applications and all other documents, to submit them
for use in any country at the request of the Company, to fully
cooperate with the Company or with any person designated by it for the
filing and processing of such patent applications, and in general to
make any other effort so that the Company obtains full, complete
protection. These commitments taken under this article will continue to
be binding for me after the cancellation of this Employment Contract.
<PAGE> 5
SCM
MICROSYSTEMS
3. I certify that, to date, I am not obligated in any manner to any former
employer or any other individual or entity concerning the obligations
described in Article 2 above. On the other hand, I am not obligated
under any non-competition clause covering my activities in the Company.
4. I commit to transfer to the Company free of charge any copyright on any
document prepared by me in the framework of my activities in the
Company.
Software: I acknowledge that, pursuant to Article 45 of the Law of July
3, 1985, software created by me in the performance of my functions
belongs to the Company, which is entitled to all rights recognized for
me as author.
In addition, I acknowledge that, concerning software:
a. My function extends to any activity of the Company, even if
unrelated to the nature of the work set forth in my Employment
Contract.
b. I perform my function both in my place of work and during my work
time and outside said work place and time, as long as I use even,
partially, computer equipment belonging to the Company.
I commit to strictly inform the Company about all my
activities related to software.
5. If any of the Developments referred to in Article 2 above is subject to
a patent application in the name of the Company, it is understood that
my name will be mentioned in said application, which will not create
any property right for me concerning said patent.
6. Furthermore, it is understood that, after being informed by me of a
Development referred to in Article 2, paragraph 3 above, the Company
will not, under any circumstances, be expected to obtain the rights to
said Development. In this case, no compensation will be owed to me.
<PAGE> 6
SCM
MICROSYSTEMS
7. It may occur, during the time I remain employed by the Company, that I
will come to know confidential information concerning the Company,
related to matters generally unknown to all persons alien to the
Company, such as, on the one hand, Developments, improvements,
procedures, etc. related to the products and services manufactured,
sold or used by the Company and, on the other hand, the general
activity of the Company (sales, costs, profits, organization, client
lists, pricing methods, etc.). I commit not to disclose any information
and not to use it myself, both during the term of my Employment
Contract and after its cancellation, whether or not such information
was obtained by my own efforts, without expressed written authorization
from the Company.
Furthermore, it may occur that I become aware of equipment, procedures,
or information of any nature, which are known to the public in
themselves, but whose use by the Company is generally unknown to the
public. I commit not to disclose to anybody, both during the term of my
Employment Contract and after its cancellation, the use given by the
Company to said equipment, procedures and information, whether or not
such use arises from my own efforts.
8. I will not disclose to the Company, and I will not incite the Company
to use any confidential information received by me from other
individuals or entities, including my former employers.
9. I commit to dedicate all my time to the task entrusted to me under my
Employment Contract and to give the necessary care to the performance
of said tasks. Unless I obtain the prior written agreement of the
Company, signed by the general director or the director of personnel, I
commit, for the term of my Employment Contract, not to perform any
other professional activity, either directly or indirectly.
<PAGE> 7
SCM
MICROSYSTEMS
10. If the Company asks me to continue my activities in a branch or
affiliate of the Company, as the case may be, such change will not
constitute cancellation of my Employment Contract, and the commitments
contained in this Addendum will remain in effect for the entire term of
my Employment Contract. In addition, I commit in advance to respect the
commitments contained in the standard contracts of the Company to which
I will be assigned, Siemens, these commitments being similar, in the
essential points, to those undertaken by me under this Addendum. If a
provision of this Addendum contradicts one of the provisions of the
standard contract valid at the Company to which I will be assigned, the
latter provision will prevail.
11. At the date of termination of my activities in the service of the
Company, except in the event of transfer to an affiliate of the
Company, or at any other time if the Company so requests, I commit to
deliver to the person designated for this purpose all files, plans,
drawings and other documents containing confidential information
concerning the Company, made by me or by any other person, as well as
all equipment, tools or materials of any type whatsoever, found in my
possession at the time and belonging to the Company.
This commitment is an integral part of the Employment Contract between myself
and the Company.
This contract was signed in two copies,
SCM: Yves Le Roux
[signature] 2/6/95 [signature] 2/6/95
- ------------------------------------ ---------------------------------
Signature Date Signature Date
NICHOLAS EFTHYMIOU JEAN-YVES LE ROUX
- ------------------------------------ ----------------------------------
Name typed or printed Name typed or printed
V.P. Marketing/Procurist R and D Manager
- ------------------------------------ ----------------------------------
Title Title
<PAGE> 8
SCM
MICROSYSTEMS
ADDENDUM TO CONTRACT
It is agreed upon that SCM and Mr. Le Roux consent that all new product
developments derived from Mr. Le Roux's employment at SCM wouldn't come under
scrutiny of right infringements from Mr. Le Roux's previous employment.
SCM will not be held accountable or liable for any future developments derived
from Mr. Le Roux's employment that might infringe on rights or trademarks
stemming out of his developments during his previous employment activities.
<PAGE> 1
EXHIBIT 10.18
FRANCE TELECOM National Contracts Department
Research and Development Contracts
COMMITMENT INSTRUMENT
CONTRACT No. 96 6M 753 NOTIFIED ON AUGUST 7, 1996
Please quote the above number in correspondence
RE: Design of an external PCMCIA module (Personal Computer Memory Card
International Association) for VIACCESS access control supporting the
common interface for DVB decoding.
Between:
France Telecom, a public utility company governed by the law of July 2, 1990,
with headquarters at 6, Place d'Alleray - 75505 PARIS Cedex 15 - registered as
follows:
No. in the Register of Commerce and Companies: PARIS B 380 129 866
SIRET No.: 380 129 866 23 487
APE Code No.: 642 A
Domiciled at 7, Boulevard Romain Rolland - 92128 MONTROUGE Cedex,
Hereinafter "France Telecom," represented by Mr. Michel DUPIRE, acting with
regular power of attorney as Director of Research and Development and External
Partners, or by Mr. Georges FALCOU, his assistant,
party of the first part,
and the 3 companies,
1) MATRA COMMUNICATION, with headquarters at 50, rue du President Sadate -
29562 QUIMPER Cedex 9 - registered as follows:
No. in the Register of Commerce and Companies: QUIMPER B 552 150 724
SIRET No.: 552 150 724 00086
APE Code No.: 322 B
Domiciled at rue Jean-Pierre Timbaud - RP No. 26 - 78392 BOIS D'ARCY Cedex,
represented by Mr. Roger PRAT, acting with regular power of attorney as Director
of the Image Division,
2) SCM MICROSYSTEMS, with headquarters at ARGEO ATHELIA III - Voie ATLAS -
<PAGE> 2
13705 LA CIOTAT Cedex - registered as follows:
No. in the Register of Commerce and Companies: pending
SIRET No.: 401 185 350 00030
APE Code No.: 516 G
Domiciled at the place of its headquarters,
represented by Mr. Jean-Yves LE ROUX, acting with regular power of attorney as
Manager of SCM FRANCE,
3) MATRA MHS, with headquarters at route de Gachet - CP 3008-44087 NANTES
Cedex - registered as follows:
No. in the Register of Commerce and Companies: NANTES B 315 629 246 SIRET No.:
315 629 246 00028
APE Code No.: 321 B
Domiciled at the place of its headquarters,
represented by Mr. Michel DESBARD, acting with regular power of attorney as CEO,
All the companies act as joint co-contractors, MATRA COMMUNICATION being the
"representative." They are hereinafter referred to as "the Awardee,"
party of the second part,
it is agreed as follows:
<PAGE> 3
PREAMBLE - SHARED FINANCING CONTRACT
France Telecom and the Awardee wish to design an external PCMCIA module for
VIACCESS access control supporting the common interface for DVB decoding.
The total cost of the work is [*] not including taxes ([*]
including all taxes).
France Telecom participates financially in this operation under the conditions
of this contract (see below article 3).
ARTICLE 1 - OBJECT OF THE CONTRACT -
The object of this contract is the design of an external PCMCIA module for
VIACCESS access control supporting the common interface for DVB decoding.
The Awardee pledges to France Telecom to produce the items according to the
specifications of the Special Technical Clauses enclosed herewith.
MATRA COMMUNICATION, designated as representative, is in charge of the
management and punctual performance of the project for France Telecom.
ARTICLE 2 - GENERAL CONDITIONS - REFERENCE DOCUMENTS -
The items are subject to the clauses of the documents listed below, in
decreasing order of priority, which the parties declare to know well:
This commitment instrument, and its appendix "Detailed items - Prices -
Deadlines,"
- - Special Administrative Clauses (CCAP Edition of March 1994), enclosed,
- - Special Technical Clauses (CCTP Ref.: CCETT/AMS/TCA/114/96/AC, Edition of May
15, 1996) also enclosed herewith, with the summary of the answer of the
consortium MATRA COMMUNICATION, SCM MICROSYSTEMS and MATRA MHS referenced
IMAGE/CH/TB/SO/1978/960 4517 of May 10, 1996,
- - General Clauses and Conditions applicable to the contracts of France Telecom
concerning Telecommunications Systems and Equipment (CCCG/SBT, Edition of
November 1991).
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 4
ARTICLE 3 - AMOUNT -
The amount of this contract, itemized in the appendix, is established as
follows:
<TABLE>
<CAPTION>
Participant PRICES NOT VAT PRICES INCL.
companies INCL. TAXES TAXES
<S> <C> <C> <C>
[*] [*] [*] [*]
</TABLE>
[ * ]
This is a fixed amount.
ARTICLE 4 - VAT PAYMENT -
The above amount includes Value Added Tax at the rate of 20.6%. VAT payment,
applied pursuant to current legislation, is:
- - payable by the 3 participating companies.
Payment requests (deposits or balance) must mention the requirement to pay VAT.
ARTICLE 5 - COST ANALYSIS -
The provisions of article 7 of CCCG/SET apply to this contract.
ARTICLE 6 - CHARACTER OF THE PRICE -
The amount of this contract is firm and non-adjustable.
ARTICLE 7 - INDUSTRIAL PROPERTY -
7.1. Industrial property status
7.1.a. Preamble
The products arising from this contract will include:
- - software supported by a hardware module, including a software module for
VIACCESS access control,
- - a hardware module developed under the contract, with [*]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 5
[*]
The software module for VIACCESS access control is developed based on a core
software supplied by France Telecom. [*] are developed under this
contract, from existing components manufactured with the own funds of the
awardees, or benefitting under previous contract from the D option of CCCG/SET.
The other software modules and the hardware module are developed under this
contract. France Telecom assures [*]% of financing for these new developments.
7.1.b. Applicable option
The provisions of Option B, Article 37.2.1 of CCCG/SET apply to this contract
concerning the software module for VIACCESS access control.
The provisions of Option C, Article 37.2.1 of CCCG/SET apply, under the
conditions defined below, to components [*], to the other software
developed under this contract and to the hardware module.
7.2. Licenses
The awardees may market freely the products studied, including the access
control software module. France Telecom grants hereunder, for the access control
software module and for its use in the only product design and the only software
version described in the CCTP of the contract, a non-exclusive license without
right to sublicense. This license concession is made in consideration of the
royalties on sales established below. This license concession does not cover the
derivative products possibly studied by the awardees subsequently.
France Telecom may use the rights to sublicense to a third party contingent upon
the occurrence of at least one of the conditions below:
- - Failure of the awardees to supply the modules in industrial stage,
Failure is understood as the awardee's inability to deliver the modules to
France Telecom, or the inability to cover the growth of the demand of France
Telecom, established by registered letter sent by France Telecom to the
awardees, whereby such inability is not corrected within a term of 90 days of
notification.
- - After supply by the awardees, or placement of a firm order by France
Telecom with the awardees in the quantity of [*] modules,
- - In the framework of a tender for the acquisition of [*] modules, of
which half are allocated to one or several awardees.
If France Telecom uses its right to sublicense to a third party under conditions
more advantageous for the third party than those agreed upon with the awardees,
the royalties defined in this contract will
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 6
be reviewed accordingly.
7.3 Commercial use by the awardee: royalties of France Telecom on sales
The rate of the royalties payable by the awardees to France Telecom pursuant to
Article 37.2.2 of CCCG/SET, which applies to sales of products obtained under
the contract or derivative products, but with the exception of sales to the
parent company of France Telecom, is established as follows:
<PAGE> 7
- - Royalty with a fixed portion of [*] by VIACCESS module hereunder,
[*], will be paid to France Telecom by the awardees. This amount
includes the royalty owed for the concession of the license mentioned
above,
- - A royalty of X% of the price of the module derived from the VIACCESS
product, not including the VIACCESS control, with a maximum of [*]
per module, will be paid to France Telecom by the awardees. Derivative
products are understood as PCMCIA modules not including the VIACCESS
access control, comprising the common interface for DVB decoder, and
including all or part of the results of this design contract.
- - The value of x is established as follows:
[*]
ARTICLE 8 - TIME SCHEDULE FOR IMPLEMENTATION -
In this contract, the time schedule is indicated in the Appendix, with
possibility of completing the items sooner.
These deadlines begin from the day following the notification to the awardee of
the signing of the contract by France Telecom.
They take into account the fact that the awardee's offices may be closed for
vacation.
ARTICLE 9 - METHODS OF CONTROL AND IMPLEMENTATION OF THE CONTRACT
9.1. Verifications
The authority in charge of the verification of the contract is CCETT (Common
Center for studies in telebroadcast and telecommunications).
The time available to France Telecom for verifications are described below.
Each lot will be subject to pre-verification of the first copies supplied, and
verifications of the entire lot. France Telecom has one month to complete
pre-verifications. This time is included in the term of the contract.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 8
Each lot will be verified after the pre-verification has given positive results.
For the verification of each lot under the conditions established in the CCTP of
the contract, France Telecom has a term of one month from the presentation of
the lot.
9.2. Modification during implementation
By derogation from Article 22 of CCCG/SET, any modification causing a change in
price must be the object of a rider.
In case of minor technical modification not affecting prices, the parties agreed
to be represented by:
- - Mrs. MONMAUR for France Telecom,
- - Mr. HERNANDEZ for the awardee.
ARTICLE 10 - PAYMENT UNDER THE CONTRACT -
10.1 Down payment and balance
Payments will be made for each company according to the following accounting
schedule:
<TABLE>
<CAPTION>
MATRA % SCM % MHS %
------- ----- -----
<S> <C> <C> <C>
[*] [*] [*] [*]
</TABLE>
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 9
10.2. Methods
Invoices and statements must be issued to France Telecom (SNM/CRD) in one
original and two copies.
They must be sent to the following address:
France Telecom
SNM/CRD
38, rue du General Leclerc
92131 ISSY-LES-MOULINEAUX CEDEX
The department in charge of making the payments is the Department of Programs
and Finances, Accounting Office, Group C1-Operational Accounting - 6, Place
d'Alleray - 75015 PARIS Cedex
15.
10.3 Oppositions
Oppositions arising from assignments of receivables or liens must be sent to the
department in charge of payment mentioned in Article 10.2 above.
ARTICLE 11 - PAYMENT TERMS -
The provisions concerning payment terms in Article 14 of CCG/SET are replaced by
the following:
Payment of invoices for deposits, including deposits for orders
The awardee indicates on its invoice the date on which payment must be made.
This date is at the earliest equal to T + 60 days, T being the date of issuance
of the invoice by the supplier, which may not be prior to the cause of the
invoice (notification of contract, delivery, production of the items).
The awardee sends the invoice within a maximum term of 5 business days after
issuance, as evidenced by the postmark. If this term is exceeded, the awardee is
informed and, unless otherwise agreed with the latter, the beginning of the 60
day payment term is the date of receipt of the invoice by France Telecom.
Payment of the balance
For the payment of the balance, the awardee indicates in its invoice the date on
which payment must take place. This date is equal to T + 90 days, T being the
issuance date of the invoice which may not be prior to the reason for the
issuance of the invoice (receipt of the items).
Penalties for late payment
Penalties for late payment will be paid at the request of the awardee. They are
calculated from the first day of arrears until the day of the actual credit to
the awardee's account at a rate equal to one
<PAGE> 10
and a half the legal interest rate. The rate of legal interest retained is the
rate valid on the day of issuance of the invoice.
<PAGE> 11
ARTICLE 12 COMMITMENT CONCERNING SELLING PRICES TO FRANCE TELECOM -
12.1. Commitment concerning selling target prices to the France
Telecom group
Concerning the sales to one of the companies of the France Telecom group, the
awardees pledge to charge the ceiling prices (PVP0) established below and the
economic conditions valid as of October 1995, not including the royalties owed
to France Telecom under the above clauses.
PVP0: maximum unit price not including taxes as of October, 1995
[*]
12.2. Penalty
[*]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 12
The awardees pledge that the expected contractual performances will be
satisfactory. For this reason any possible modifications in the definition of
the product that become necessary in order to satisfy the performance of the
contractual functional specifications, will be at the expense of the awardees,
or will lead to the application of the maximum penalties for non-compliance with
price commitments.
The amount of the penalty P is limited to [*]% of the amount of the contract.
ARTICLE 13 - WARRANTY -
Under the conditions established in Article 28 of CCCG/SET, the term of the
technical warranty of the hardware and software is 12 months.
ARTICLE 14 - FIRM BID -
The awardees guarantee, for 10 years from the receipt of the contract,
corrective or progressive maintenance of the software and hardware studied. If
not covered by the technical warranty, these services will be rendered under
conditions to be defined by mutual agreement of the parties.
ARTICLE 15 - DELAY PENALTIES -
The penalties applied will be equal to 0.05% of the amount V, by calendar day of
delay, counted between the contractual end of the lot and the presentation for
acceptance of the items.
A delay of more than 6 months entitles France Telecom to cancel the contract
under the conditions of Article 42.3 of CCCG/SET.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 13
The representative of each contracting party, undersigned:
- - States under penalty of automatic cancellation of the contract or its being
taken over by the state, for its exclusive fault (or for the exclusive fault of
the company on whose behalf he intervenes) that he is not concerned (or that
said company is not concerned) by the prohibition arising from Article 50 of Law
No. 52-401 of April 14, 1952, amended by Article 56 of Law No. 78-753 of July
17, 1978,
- - Declares on his honor that the work will be done by regular full-time
employees as mandated by Articles L.620-3, L.143-3 and L.143-5 of the Labor
Code.
<TABLE>
<CAPTION>
The representative The Contractor
<S> <C>
MATRA COMMUNICATION SCM MICROSYSTEMS
Issued in Bois d'Arcy on July 25, 1996 Issued in La Ciotat on
July 25, 1996
Read and accepted Read and accepted
(written in hand) (written in hand)
[Handwritten:] Read and accepted [Handwritten:] Read and
accepted
Signature Signature
[Name] [Name]
Director of the Image Division Director of SCM France
Signature Signature
(Name and title of signatary) (Name and title of signatary)
The Contractor France Telecom
MATRA MHS Issued in Montrouge on
Issued in Nantes on July 29, 1996 8/1/96
Read and accepted Read and accepted
(written in hand) (written in hand)
[Handwritten:] Read and accepted [Handwritten:] Read and
accepted
Michel DESBARD Georges FALCOU
CEO Assistant Director
MATRA MHS of Research and Dev.
Signature and Foreign Partnerships
(Name and title of signatary)
DRAWN UP IN FOUR COPIES
</TABLE>
<PAGE> 14
APPENDIX TO CONTRACT NO. 96 6M 753
"Detailed Price - Terms - Items"
<TABLE>
<CAPTION>
LOTS DESCRIPTION MATRA SCM MATRA MHS Total amount by Completion of
OF THE COMMUNICATION MICROSYSTEMS (Contractor) lot contractual
ITEMS (Representative)F/not (Contractor) F/not including F/not including performance (in
including taxes F/not including taxes taxes taxes months)
----- ----------- --------------------- --------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*] [*]
</TABLE>
To: Date of notification to the awardees of the signing of the contract by
France Telecom
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 15
FRANCE TELECOM National Department of Contracts
Research and Development Contracts
SPECIAL ADMINISTRATIVE CLAUSES
APPLICABLE TO DESIGN CONTRACTS
Edition of March 1994
<PAGE> 16
TITLE I - PERFORMANCE OF THE CONTRACT
ARTICLE 1 - PROGRESS REPORTS
Subject to the special provisions contained in the commitment instrument
the awardee must submit every three months a detailed report describing the
following aspects concerning the contract and, if necessary, the project:
- services performed (volumes, amounts, results obtained) since the
notification of the contract or since the preceding report,
- progress of the contract,
- detailed planning of the tasks to be continued or performed,
- follow-up of significant indicators during all the stages of the
implementation of the contract or project to which the contract contributes,
- the name of the project manager.
Periodic reports must be sent to the technical director of the contract
or to the file manager of DRI. Copy of the cover letter of these documents must
be sent at the same time by the awardee to the National Department of Contracts
- - Research and Development Contracts (SNM/DRD): 38, rue du General Leclerc -
92131 ISSY-LES-MOULINEAUX CEDEX.
A final synthesis report will be delivered by the awardee at the same
time as the last invoice under the contract. It will specify in particular for
software the significant data of the programs developed (language: number of
code lines; size, number and volume of the programs).
The procedure is the same for the final synthesis report except that it
is sent by registered letter return receipt requested and that the last invoice
sent to SNM/CRD is accompanied by a copy of the report.
ARTICLE 2 - TERMS
The only contractual terms, implying an obligation to show results are
those mentioned as such in the commitment instrument. The terms mentioned in the
other documents referred to in the contract, especially CCTP, are mentioned as
an indication, only to facilitate following up the progress of the work.
Extensions of the term or delivery interruptions may be agreed upon
pursuant to the provisions of Article 15.3 of CCCG/SET. The request referred to
in paragraph 15.3.3 of this Article must be sent to SNM/CRD.
<PAGE> 17
Under the provisions of Article 16 of CCCG/SET, the formula to be
applied for the calculation of penalties enforced in the event of late
performance is the following:
P = V x R
-----
2000
where the parameters P, V and R have the same definition as in Article 16.1
CCCG/SET.
ARTICLE 3 - SUBCONTRACTING
In the event of joint contracting or sub-contracting by several
entities, the company designated as representative is responsible toward France
Telecom for the performance and punctual completion of the project.
ARTICLE 4 - DEFAULT PENALTIES
In the event that the contract is cancelled by the fault of the awardee
as set forth in Article 42.3 CCCG/SET, and pursuant to Article 41 CCCG/SET,
France Telecom reserves the right to apply to the awardee default penalty in a
maximum amount equal to 50% of the amounts paid under this contract.
ARTICLE 5 - CANCELLATION
In addition to the "other cases of cancellation" set forth in Article
42.4 CCCG/SET, France Telecom may cancel the contract in the event of
significant changes in capital structure, organization of the group or identity
of the majority shareholder of the awardee.
In this case the awardee shall receive the amount due for items already
delivered, in exchange for results obtained.
<PAGE> 18
TITLE II - VERIFICATION OF THE ITEMS
ARTICLE 6 - VERIFICATION OPERATIONS
The items hereunder are subject to verifications under the conditions
possibly set forth in CCTP and in their absence in Chapter 5 CCCG/SET. The
authority in charge of verification is either the Centre National d'Etudes des
Telecommunications (CNET), or the entity indicated in the commitment instrument.
The awardee must notify the technical director of the contract, by
registered letter with return receipt requested about the date at which the
items will be presented for such verifications. A copy of the notice of
presentation must be sent at the same time to the project manager of DRI and to
the SNM/CRD Department.
The date of receipt of the presentation notice, or on the presentation
date indicated in such notice, if later, has a twofold effect:
- As date of delivery of the items, to be used for calculation of delay
penalties, if any,
- As starting date of the term(s) available to France Telecom to make
the verifications and notify its decision:
* This term is two months, in the absence of special provisions set forth in the
commitment instrument. It replaces the terms set forth in Article 26.2 CCCG/SET,
* However, concerning contracts including verifications of correct operation
(VABF) and or a verification of regular service (VSR), the terms available to
France Telecom for such verifications are those appearing in Article 27
CCCG/SET, in the absence of special contractual provisions specified in
instrument.
TITLE III - PAYMENTS
ARTICLE 7 - DEPOSITS
Deposits are paid at the request of the awardee.
A first deposit may be paid when the contract is notified. In the
absence of exceptions set forth in the commitment instrument, this deposit is 5%
of the total price of the items to be produced in the first twelve months after
notification.
The following deposits will be paid, after France Telecom accepts the
service rendered, and taking into the consideration the periodic statements
referred to in Article 1 above.
Except if otherwise set forth in the commitment instrument, the total
amount of the deposits may
<PAGE> 19
not exceed 80% of the amount of the contract.
If the latter contains independent contractual lots, each of them may be
subject to payment of a deposit within the limit of 80% of the amount;
acceptance by France Telecom of all items in such lots allows total payment of
the lot.
An independent contractual lot is herein understood as that mentioned in
the commitment instrument with its object, amount and contractual delivery term.
ARTICLE 8 - BALANCE
After receipt of the items under the contract, the awardee shall send a
report for the balance of the contract to SNM/CRD.
In the event of a dispute concerning the items produced, a balance
statement will be sent to he awardee, which may object within one month after
receipt of such statement. After this term, it shall be considered that the
awardee accepted it.
ARTICLE 9 - PAYMENTS TO THE CONTRACTORS OR SUBCONTRACTORS PAID DIRECTLY
As a complement to article 3.2 CCCG/SET, it is specified that only
service suppliers which executed a performance contract with the awardee of the
contract may be considered subcontractors.
In the event that the contract does not regulate them, payments to
individual contractors shall be made to a single account, and payments to joint
contractors to separate accounts.
Concerning contractors and subcontractors paid directly, deposits and
statements shall be itemized in a number of lots equal to the number of persons
to be paid separately.
The representative is the only party authorized to submit requests for
deposits and statements for itself and co-contractors: only claims issued or
transmitted by it shall be accepted.
In the event of subcontracting with the direct payment of the
subcontractor, the awardee is the only party authorized to submit requests for
deposits and statements concerning the subcontracted items:
only claims issued or transmitted by it shall be accepted.
In the event of co-contracting, requests for deposits and statements
concerning the subcontracted items must be submitted by the subcontracting
co-contractor and transmitted by the representative.
PAYMENTS TO SUBCONTRACTORS
Payments owed to a subcontractor are made based on backup documents
accepted by the awardee as set forth in this article, and transmitted by it or
by the representative to France Telecom.
Upon receipt of the documents referred to in the preceding paragraph,
France Telecom shall notify directly the subcontractor about the receipt date
indicating the amounts accepted as payable by the
<PAGE> 20
awardee.
The awardee shall have a term of fifteen days from receipt of the backup
documents based on which direct payments must be made, to accept them or to
notify the subcontractor of its motivated refusal. If the awardee does not
answer within this term, it shall be considered that it accepted.
In the event of default of the awardee which did not send a motivated
refusal, nor transmitted to Telecom the request for deposit or statement within
15 days, the subcontractor shall send directly a copy of these documents to
France Telecom (SNM/CRD). It shall enclose a copy of the acknowledgment of
receipt for its shipment of backup documents to the awardee.
France Telecom shall immediately request the awardee to prove within
fifteen days that it sent a motivated refusal to the subcontractor. As soon as
it becomes aware of the receipt of this request, France Telecom shall inform the
subcontractor.
At the end of this term, if the awardee cannot bring proof of its
motivated refusal, France Telecom shall have the terms set forth in Article 14,
CCCG/SET to pay the amounts owed to the subcontractor.
<PAGE> 21
TITLE IV - MISCELLANEOUS PROVISIONS
ARTICLE 10 - COMMUNICATIONS AND PUBLICATIONS
10.1. Contracts referring to option A, Article 37.2.1 CCCG/SET
The work referred to in the contract and the new materials obtained from
such work may not be communicated or published in any manner whatsoever without
prior written agreement of France Telecom concerning the project submitted to
it.
10.2. Contracts referring to option B, Article 37.2.1 CCCG/SET
The provisions of paragraph 10.1 apply as long as France Telecom did not
grant an exploitation or non-exclusive use license. Subsequently they shall
continue to apply unless France Telecom decides otherwise.
10.3. Contracts referring to options C and D, Article 37.2.1 CCCG/SET
10.3.1. Until the receipt of the contract, any communication concerning
the work covered by the contract must be submitted to the prior
agreement of France Telecom.
10.3.2. After receipt of the contract, the awardee shall be free to make
communications but only on the results of the contract.
10.4. - Methods
Any communication or publication made on behalf of the awardee of the
contract under the conditions set forth in Article 10.1, 10.2 and 10.3 above
must obtain the agreement of France Telecom to mention the latter's contribution
in these actions.
ARTICLE 11 - OWNERSHIP OF MATERIALS PURCHASED AND PRODUCED
11.1. Materials purchased
The materials and software purchased by France Telecom for the
implementation of the contract remain its property. Materials purchased by the
awardee for the implementation of the contract are property of France Telecom if
financed under the contract.
11.2. Materials produced and software developed
Unless otherwise set forth in the commitment instrument, or if not
governed by CCTP, the materials, modes or prototypes produced under the contract
shall become property of France Telecom, which may either receive them or
entrust them to the awardee for the continuation of the studies or
industrialization, whereby the awardee assumes the responsibility of depository.
Software included in these materials, models or prototypes or necessary
for their operation, shall be made available to France Telecom under the same
conditions.
<PAGE> 22
When the contract refers to the specific development of software, a copy
of the software developed shall be made available to France Telecom under the
same conditions mentioned above.
ARTICLE 12 - INDUSTRIAL PROPERTY
The provisions of Chapter VII CCCG/SET (industrial or intellectual
property clauses) apply to the contract, and therefore the various declarations
or communications of documents and information referred to in this chapter shall
be sent to France Telecom DRI/SEDE-Industrial Property group - 7, Boulevard
Romain Rolland - 92123 MONTROUGE Cedex with copy to the ... department of
"Patents and Invention Exploitation" (BVI) - 38/40, rue du General Leclerc -
92131 ISSY-LES-MOULINBAUX Cedex
In the event of assignment or transfer of rights or know-how concerning
the results obtained form the contract, the awardee must preserve the rights of
France Telecom on such results: it must include any clause useful for this
purpose in the assignment transfer or know-how transfer contract.
The awardee pledges to cause its subcontractor(s) if any, to comply with
industrial property clauses applicable to this contract.
ARTICLE 13 - ROYALTY OF FRANCE TELECOM ON SALE
13.1. Application conditions
The provisions of Article 37.2.2. of CCCG/SET, which constitute a
contractual obligation hereunder, apply to the contract provided the first sale
contract of a product obtained by using the results obtained under the contract
was executed by the awardee less than 10 years after the receipt of the items
under the contract.
The awardee must inform France Telecom within one month about the
execution of the first sale contact.
Subsequently, it must send to it, in the first month of each calendar
year, a statement, even if containing nothing, of the sale contracts executed
during the preceding year and the amounts to be taken into account during such
period for the calculation of the royalty owed.
Sales shall be itemized separating:
- those made to the parent company of France Telecom,
- to the affiliates of the France Telecom group,
- to third parties.
The awardee must offer the qualified representative of France Telecom
facilities to verify the exactness of the statements sent. If the awardee does
not send said statements within the established terms, it shall pay a delay
penalty on the amounts owed, calculated at legal interest rate.
The provisions of this Article apply to any co-contractor, designated or
not, as representative.
<PAGE> 23
France Telecom reserves the possibility, concerning individual
co-contractors in the event of default by one of them, to question the other
contractors and in particular the representative.
13.2 Assignment of industrial of intellectual property rights
In the event that the awardee assigns its industrial or intellectual
rights, the provisions of Article 37.2.1 CCCG/SET, options C and D, paragraph 4,
shall apply. The awardee must communicate to France Telecom the amount of the
assignment, if not specified in the contract.
If the contract established the methods of the assignment of industrial
or intellectual property rights, the awardee must take all measures to preserve
in full the rights of France Telecom, regardless of the consideration received
for the assignment.
13.3 Know-how transfer
If the awardee transfers know-how or part of the know-how arising from
this contract to any industrialist, the contract for assignment of know-how must
indicate that, in the event of sale of all or part of the products manufactured
using the results of the contract, the awardee shall owe France Telecom a
royalty calculated under the same conditions as the royalty owed by the awardee
pursuant to the provisions of Article 37.2.2 CCCG/SET.
13.4 Licenses and sublicenses
If the awardee sells, under licenses and/or sublicenses, of all or part
of the products manufactured using the results of the contract, the awardee is
responsible towards France Telecom:
- to declare the income obtained by it through such licenses and or
sublicenses, including income arising from sales of such licenses and/or
sublicenses sold to the awardee,
- payment to France Telecom of royalties on income received under such
licenses and or sublicenses.
13.5 Subcontracting
Pursuant to the provisions of 3.2.2.1 CCCG/SET, in its request for
acceptance and approval of the subcontractor, the awardee must specify the
obligations entrusted to the subcontractor that would allow paying royalties to
France Telecom on the sales made by the latter of all or part of the products
using the results of the contract. The absence of these elements in such a
request, given if the request is accepted, does not exempt the awardee from the
aforementioned obligation.
13.6 Payment term
The amounts owed shall be paid within 30 days from the receipt of the
payment issued by France Telecom.
NOTE: The obligations arising from the application of this article shall
survive even if, after the receipt of the contract, the awardee transfers its
activities (related to the object of the contract) to another
<PAGE> 24
company.
Such transfer must be immediately communicated in writing to France
Telecom within the next month.
France Telecom shall have the choice:
- either to require the awardee to continue with the obligations
arising from the contract,
- or to release the awardee from the obligation arising from the
contract:
o by signing a contract between the awardee and the transferee,
covering the same obligations,
o by commercial agreement with France Telecom.
<PAGE> 25
CONTRACT No. 96 6M 753
* * * *
SPECIAL TECHNICAL CONDITIONS
OF CONTRACT
<PAGE> 26
May 15, 1996 Reference: CCETT/AMS/TCA/114/96/AC
SPECIAL TECHNICAL CONDITIONS OF CONTRACT
"Development of an external PCMCIA module for VIACCESS access control which
supports the DVB decoder common interface."
1. SUBJECT OF THE CONTRACT
This set of Special Technical Conditions of Contract concerns the design of
an external PCMCIA module for VIACCESS(1) access control which supports the DVB
decoder common interface. This document refers to the technical conditions of
consultation no. 95 PE 3060. Its purpose is to furnish precise information
regarding the various functionalities required. It indicates the departures from
the technical conditions of the consultation.
2. CONTRACTUAL DOCUMENTS
Awardees shall be held to accomplish the services set out in the Contract in
compliance with the following technical reference documents in descending order
of priority:
a. This CCTP: CCETT/AMS/TCA/114/96/AC;
b. The technical conditions of consultation (CCTC), Appendix D of the
referenced consultation file FT/DRI/SEDE/1SD/95/331/HC of 08/31/95;
c. The synthesis of the response of the Consortium (MATRA Communication,
SCM and MATRA MHS) to the referenced consultation:
IMAGE/CH/TB/SO/1978/960-4517.
Awardees shall undertake to realize the VIACCESS module [*] according to the
solutions and choices presented in that latter document (c) for which they shall
be solely responsible. The constraints which result from that document shall not
be opposable to the obligations which result from documents (a) and (b) cited
above.
3. REFERENCE DOCUMENTS
Awardees shall be held to comply with the following documents:
[1] PCMCIA PC Card Standard - February 1995, Personal Computer Memory Card
International Association;
[2] prEN50221, Common Interface Specification for Conditional Access and other
Digital Video Broadcasting Decoder Applications, version CENELEC, April
1996, Draft D or more recent;
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- --------
(1) New name for the Eurocrypt access control system for MPEG2-DVB type
signals.
<PAGE> 27
[3] Information Technology, Generic coding of moving pictures and associated
audio: Systems Recommendation
H.222.0 ISO/IEC 13818-1 DIS.
ISO/IEC JTC1/SC79/WG11 N0801, November 13, 1994
[4] prETS 300 468: Digital broadcasting systems for television, sound and data
services; specification for Service Information (SI) in Digital Broadcasting
(DVB) Systems, version of February, 1996, Final Draft;
ETR 211: Guidelines on implementation and usage of service information,
February 1996.
[5] ISO 7816-1, 2, 3: card couplers, 1989 Version plus Amendment 2 of ISO 7816
(1994), management.
[6] Access Control System for Digital Broadcasting Systems, Software Interface
Specification, Version 0.74.
[7] UTE 90 007: "Conditional Access System for Digital Broadcast Systems.
[8] Implementation Guide for the DVB Common Interface Specification.
[9] Implementation of the VIACCESS system within the framework of MPEG2-DVB
specifications.
AMS/05/102/95/VL (Version 1.2 or later)
[10] Technical Conditions of Consultation, Development of an integrated MPEG2
decoding system (System, Video, Audio) with video overlay in a PC
environment.
[11] European directives 89/336/EEC and 92/31/EEC.
[12] Digital TV Assistance Service (TMS/THO/366/95/BA, rev. 1.6).
[13] France Telecom private descriptor coding (AMS/MPS/416/95/FG).
4. SPECIFIC INFORMATION ON THE GENERAL SPECIFICATIONS
In this section are to be found the general operational specifications and
the performance to be achieved for the [*]. The specification and performance
restrictions of the [*] are listed in the document (c: Section 5), (intermediate
step in the fulfillment, lot 1).
The module created shall be able to be connected to PCMCIA interfaces in the
computer world (PC's or others). Such a connection must not degrade either the
module itself or the receiving equip ment.
4.1 PHYSICAL INTERFACE
These functions are to be installed on a card of PCMCIA extended Type II
format. The module developed shall comply with the mechanical properties set out
in PC card standard [1].
4.2 TSI (TRANSPORT STREAM INTERFACE)
4.2.1 ELECTRICAL PROPERTIES
This interface is defined in document prEN50221 [2]. It corresponds to the
transport layer of the MPEG-2 system. The carried data are organized into
transport packets of 188 or 204 bytes, including the 16 Reed-Solomon bytes
processed upstream. The module shall be able to process both data
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<PAGE> 28
formats, taking the associated control signals into account.
If the terminal should cause a break in the data stream within a packet and
indicate such by means of a MIVAL envelope signal, the VIACCESS module must
process same without errors and limit the jitter in the output signal, in
conformity with the rules of specification document prEN50221.
[*]
4.3 CI (COMMAND INTERFACE)
4.3.1 ELECTRICAL PROPERTIES
The management of this interface shall conform to the electrical properties
and timing stipulated in the PC Card standard (section 4) (1). Only an 8 bit
parallel bidirectional bus (D0-D7) associating the various control signals shall
be used.
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<PAGE> 29
This interface is used in the memory mode during the configuration phase of the
module described in the PC Card standard, then in I/O mode in the utilization
phase, according to the DVB common interface specifications.
Appendix A of the DVB common interface specification sets out the electrical
and physical properties which are to be implanted during development. Module
input voltage shall be 5 V.
During data transfer, the rate supported in read or write mode shall be at
least 3.5 Mbit/sec.
4.3.2 EXCHANGE PROTOCOL
[*]
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<PAGE> 30
4.4 DEMULTIPLEXING
The demultiplexing component must analyze the PSI and SI tables necessary
for the essential access control functions and to construct a rich man-machine
dialog from the various SI tables. It must also process the private stream of
the various programs viewed, in particular to supply to the user the information
for access to future programs (private VIACCESS descriptors).
The component used in the module must be the 16 PID demultiplexer.
4.5 DESCRAMBLER
Program providers may broadcast their programs in clear or in scrambled
mode. The scrambling logarithm is defined by DVB.
[*]
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<PAGE> 31
the BCM's). [*]
4.6 PROGRESSIVE SCRAMBLING
The progressive scrambling procedure is described in the document [9]. This
functionality enables the program provider to present a broadcast in a degraded
mode--alternatively scrambled and in clear, for a period of several minutes, so
as to suggest buying the program to the user.
The conditional access module shall process this functionality with an ECM.
4.7 CONDITIONAL ACCESS MESSAGING
The VIACCESS access control system specifications are described in document
UTE 90 007: "Systeme d'acces conditionnel pour systemes de diffusion numerique
[7]" [Conditional Access Control System for Digital Broadcast Systems].
The document "Mise en oeuvre du systeme VIACCESS dans the cadre des
specifications MPEG-2- DVB" [9] [Implementation of the VIACCESS System within
the Framework of the MPEG-2-DVB Specifications] stipulates the contents of
certain private data fields (CA_descriptor, access control message formats,
etc.).
The module must process an ECM broadcast rate of between 100 and 500 ms,
support a renewal of control words of between 5 and 10 seconds, to the extent
that the processing time required by the security module to consecutively
calculate 8 ECM's does not exceed 4 seconds. The notion of phase (lifespan of a
CW) is directly linked to the component. Each elementary stream has its own
tempo and its own instants of CW change.
The maximum stream rate of EMM's broadcast is 500 Kbit/sec. The module must
be capable of filtering and extracting all the messages addressed to the user
[from] among all the EEM's broadcast according to the rules in effect in the
VIACCESS access control system. The module shall accomplish a "hardware"
filtering of the messages received as a function of the type of EEM (toggle bit
filtering the for EMM-GA's and EMM-GH's, unique address (UA) filtering for
EMM-U's or shared address (SA) for EMM-S's). It shall be capable of receiving
the four types of EMM's simultaneously.
[*]
4.8 ACCESS CONTROL MODULE SOFTWARE (ACS)
France Telecom shall supply a software kernel for the ACS module managing
all the functions (ECM processing, PMM consultation, enumeration of consumption
[usage counter/log], etc.) linked to the VIACCESS conditional access [6]. The
size of the code and size of the data are furnished in the specifications
document (page 6). This kernel software conforms to documents [7] and [9]. It
meets
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<PAGE> 32
the functional requirements expressed in documents (a), (b) and (c) and [1]
through [13]. Awardees shall commit themselves to not preserve the source code
of this software beyond the date of closure of the contract.
Within the framework of this development, the manufacturing firm shall
develop a software layer for calling the entry primitives of this kernel and
adapting the messages linked to the man/machine dialog or to a modem toward the
objects defined in the common interface specification.
The CCETT will answer any questions concerning the problems that the
manufacturing firm might encounter during the implementation of this software.
Any modifications to this software that the manufacturing firm may deem
necessary shall be at its expense. However, possible functional modifications
rendered necessary in order to satisfy the requirements expressed in documents
(a), (b) and (c) and [1] through [13] shall be at France Telecom's expense.
4.9 CARD-MEMORY INTERFACE
The interface card shall accomplish the function of transferring card orders
between the access control software module (ACS) and the security module PC2.
This shall be a dedicated function.
<PAGE> 33
The card memory interface must comply with the ISO 7816 specifications [5],
using the T-0 protocol. The module must accept the components of the PC2 E-PROM
family, using a programming voltage of 5 V (VPP connected).
Data exchanges at the I/O contact may be accomplished at 115 Kbits if the
memory card so requests in its reply to the request to reset to zero. In this
framework, the PTS procedure shall be incorporated.
The physical support used by the PC2 security component shall be a format
7816 plastic card.
4.10 VIACCESS ASSISTANCE DATA
These are contained in the private descriptors of the SI DVB stream and
enable a module to reply to the host on the conditions of access to future
events. The precise use of these data shall be discussed at the beginning of the
contract. See documents [12] and [13].
4.11 ENUMERATION OF CONSUMPTION [usage]
[*]
The types of bidirectional communication, via modem or cable return route,
may be requested according to the list proposed in the common interface
specification, Section 3.1.1. [or possibly 8.1.1]. The specific functions (error
correction, return management, P1.6., etc.) associated with the modem link used
shall be processed by the receiver. The modules shall log on to this resource in
function of the possibilities offered by the receiver.
To date, if a receiver is used on the national [French] territory, it may
offer two types of resource: a V23 modem (1200/75 bits/sec) or a private type to
identify a V23 bis modem. Eventually, modem resources V27 ter and V29 may be
offered by receivers.
4.12 CAM_LOCK FUNCTION
This function enables a terminal to verify that the connected module is
authorized to process the signal received by the terminal. Recognition of the
module by the terminal is to be provided for. Such may be accomplished by the
loading in the terminal of a specific program contained in the module. This
procedure shall use private objects on the CI interface and shall be specified
at the beginning of the contract.
4.13 PCMCIA AUTHENTIFICATION MODULE - SECURITY MODULE
The PCMCIA authentification module-security module is introduced so as to
enable linking the descrambler and the PC2 card. It is required in the framework
of the contract to implant reciprocal PC2 card-module authentification according
to a plan using public key cryptography which shall be communicated by the CCETT
as soon as possible. In order to assist the development, the CCETT undertakes to
supply the software kernel in ANSI C and/or in assembler (80C51 family)
implementing the calculations to be initiated by the module.
The CCETT will answer any questions concerning the problems that the
manufacturing firm might encounter during the implementation of this software.
All constraints imposed (due to the environment chosen) by the manufacturing
firm must be mentioned to the CCETT before T0 + 1 month so as to facilitate the
implementation of this software. Such constraints must not lead to a diminution
in performance of the calculation kernel. The manufacturing firms may request,
at France Telecom's expense, any modifications of the software deemed necessary
to satisfy the requirements expressed in
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<PAGE> 34
documents (a), (b) and (c) and [1] through (13].
4.14 DOWNLOADING OF THE SOFTWARE
For the needs of development and tests, software downloading facilities
shall be specified at the beginning of the contract. A highly secure protocol
shall be discussed between the CCETT and the manufacturing firm. This
functionality shall be validated or not in the beginning of the life of the
module, but may not be used for other purposes during the utilization phase.
4.15 IDENTIFICATION OF THE MODULE
A permanent marking enabling identification of the module is required on all
modules supplied under this contract (inscription of the "VIACCESS" logo,
version number, series number to be specified).
<PAGE> 35
5. PROGRESSION OF THE CONTRACT
The services required break down into two lots:
- LOT 1:
- definition of the functional and detailed specifications of the hardware
and software, including the options (downloading, modem dialog);
- test book;
- development of[*]
- creation of satellite-borne software and tests of the whole;
- [*]
- LOT 2:
- test book
- development of [*]
- porting and creation of satellite-borne software linked to the interfaces
of that new component and tests of the whole;
- [*]
6. CONTROL OPERATIONS
The verification operations shall comprise two phases:
- pre-verification which shall consist in verifying the design services for
lots 1 and 2;
- verification of the modules supplied under each lot.
6.1 METHODS OF CONTROL
All of the functionalities described above shall be tested separately and
within the framework of actual use. The tests conducted shall be described in a
detailed fashion in the test book proposed by the awardees and approved by
France Telecom.
The basic principle is that it shall be up to the awardees to prove a
functioning which complies with the specifications. The control operations do
not have the objective of debugging the supplied material. France Telecom
reserves the right to reject a[ny given] control without having to perform the
entirety of the tests foreseen.
Without either France Telecom's written approval or its request, awardees
shall not make any alterations in the supplied material during a control
operation. The various versions used shall be listed and preserved by the
awardees. They shall be re-implantable at any time upon request of either France
Telecom or the awardees.
The pre-verification operations shall be conducted on the awardee's
premises. The test means developed or supplied by the awardees shall be put at
France Telecom's disposition according to rules to be established and stipulated
in the test book, prior to the realization of the pre-series of 50 units for
each of the lots.
The verification operations shall be explicitly written down in the test
book. Their objective shall be to verify the proper functioning of the various
accomplished items supplied under lots 1 and 2.
6.2 ENVIRONMENTAL BEHAVIOR
The module shall comply with the European standards in effect in order to
obtain the mandatory "CE" label.
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For such, it must comply with European directives 89/336/EEC and 92/31/EEC:
- limited electromagnetic disturbances;
- adequate level of intrinsic immunity to electromagnetic disturbances and
electrostatic discharges.
Awardees undertake to present the certificates issued by the specialized
organizations having authorized use of the "CE" label.
Moreover, it [the module] must also comply with the operational conditions
set out in the PC Card Standard specifications, volume 3 (Physical
Specifications) (mechanical properties, multiple insertions, behavior at ambient
temperature and humidity conditions).
Test reports shall be furnished to France Telecom upon request.
<PAGE> 37
6.3 TEST TOOLS
During the development phase, the awardees must supply the proof that they
have available to them the testing tools which will enable verification of the
ensemble of functionalities prior to presentation of the products to France
Telecom for acceptance.
France Telecom will not make available to awardees the testing tools it has
developed for its own needs, such not being a part of this contract. However,
such may possibly be negotiated in the course thereof.
6.4 CONTRACT LANDMARKS
- Lot 1: [*]
- Lot 2: [*]
6.5 DOCUMENTATION
The documentation shall be supplied in French in hard copy and in electronic
files (Word 6). It shall comprise in particular:
- the external [user] specifications files of the hardware,
- the external [user] specifications files of the software,
- the cahiers de recette (pre-verification and verification).
The industrial file shall comprise in particular:
- the fabrication files, schematics, nomenclature,
- the software and hardware validation files,
- the source code of the software developed or modified.
This industrial file shall be supplied only if France Telecom makes use of
its option to sub-license a third party according to the conditions cited in the
Industrial Property Section - applicable options of the awarded contract.
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7. MONITORING OF THE PROGRESSION OF THE CONTRACT IMPLEMENTATION
The awardees shall draw up and present the general project schedule.
This general schedule shall consist of a collection of documents which
clearly outline:
- the tasks and operations involved in the realization of the various items
to be supplied under the contract;
- the services to be rendered by the various project participants and their
interlocutors (the departments of France Telecom concerned by the project,
represented by the Technical Contract Representative, the awardee's teams,
the co-contractors and sub-contractors are examples of "participants");
- the logistics, infrastructure or environment and supplies procurement
tasks;
- the activities of testing, trials and durability verification of the
performance objectives;
- the activities of quality assurance, control and approval;
- the logical sequencing of these elements;
- the identified phases of development, such being in compliance with the
development and quality plans;
<PAGE> 39
- the key points of the project (organizational and decisional techniques);
- the critical points of the technical strategy adopted;
- the project tasks highly sensitive with respect to the final result,
especially in the matter of timing;
- the provisions implemented within the context of the prevention of
identified risks.
This general plan and schedule is to be established by the titular agent in
cooperation with the various participants in the project in order that its
content may be validated by them. Acceptance of the schedule by the participants
will thus engage them to comply therewith within the limits of the contractual
commitments.
The level of detail of the schedule is to be defined by mutual agreement
among the participants in order to allow control of progress and impart the
visibility expected by France Telecom. On the one hand, the objective of the
general plan is not to replace the detailed scheduling of each participant and,
on the other hand, the scheduling of each participant may not substitute for or
go against the general plan, which shall constitute the sole reference for the
project within the limits of compliance with contractual obligations. The
titular agent shall ensure that the general plan remains valid for each
participant in the project.
Resource management shall not be governed by the general plan, but rather
the detailed plans and schedules of each participant.
Each participant shall designate a planning correspondent, duly authorized
to represent him, who shall be the interface with the planning manager. Such
planning correspondent shall have as a mission to:
- report regularly on the state of progress of the tasks the participant he
represents is responsible for;
- make known any element of a nature as to necessitate a modification of the
general plan;
- guarantee the coherence with the general plan of the eventual detailed
schedule implemented within the participant's establishment;
The general plan shall be presented and commented upon at each work progress
meeting and shall reflect the progress of the project.
The keeping up to date of this document shall consist of only two sorts of
operation:
- the updating of progress which, within the framework of regular follow-up
on the project, shall consist of recording at least once a month the tasks
terminated and updating the duration of the tasks under way;
- the updating of the plan which, in exceptional conditions, may necessitate
revision of the initial work of scheduling when the plan has become
obsolete or unusable owing to serious perturbing events (addition,
elimination or modification of tasks). Such updates, as with the initial
plan, shall require the participation of a representative of each
participant in the project. Each update shall also be signed off on by
each project participant.
The titular representative shall systematically distribute a copy of each
new edition of the general plan to each participant.
Each new edition of the plan shall be accompanied by a document which
presents and justifies the changes from the preceding edition.
A procedure shall be implemented for the distribution of minor updates not
requiring a new edition.
A procedure shall be implemented for the regular gathering of information on
progress which each participant shall furnish to the planning manager.
<PAGE> 40
Monthly and quarterly progress reports shall refer to the current edition of
this document.
By its set format (PERT network, e.g.), the planning document shall display
for each task:
- its precise label;
- its effective duration (expressed in business days, weeks or months);
- its total margin [time overallowance] and free margin [overallowance
remaining] (expressed in business days);
- if necessary, its implementation calendar (the calendar for each task is
the sum of the working days and non-working days in the period in which it
can be accomplished);
- its estimated workload (expressed in man-days);
- its logical dependency links with the other project tasks;
- its projected beginning and ending dates (ddmmyy);
- its current status (a task is either terminated, in course, or not yet
begun);
- possibly, its actual beginning date and the time remaining (for tasks in
course);
- possibly, its actual beginning and ending dates (for tasks terminated).
Lists of tasks (for example, sorted by persons in charge) as well as
representations of schedules in the form of Gantt graphs (bar graph schedules)
may be requested.
<PAGE> 41
8. DESIGNATION OF LEAD TECHNICIANS [engineers]
For France Telecom, the lead technician shall be Mr. Andre CODET
(CCETT/AMS/TCA);
For the titular agent, the technical representative of MATRA Communication
is Mr. Charles HERNANDEZ.
<PAGE> 42
MATRA [LOGO]
COMMUNICATION
VIACCESS
SYNTHESIS OF THE [ILLEG] CONSULTATION
MATRA [ILLEG]
<PAGE> 43
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<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
1. INTRODUCTION 4
2. SPECIFICATIONS OF THE MODULE 4
2.1 DESCRIPTION OF THE HARDWARE 4
2.1.1 Architecture 4
2.1.2 Mechanical 5
2.1.3 Electronic
2.1.3.1 Specific circuit "Conditional Access Processor [*] 6
2.1.3.1.1 Descrambler 6
2.1.3.1.2 Demultiplexer 6
2.1.3.1.3 TSI/TSO interface 9
2.1.3.1.4 CI interface 10
2.1.3.1.5 PC2 interface 10
2.1.3.2 V80C52 micro-controller "Conditional Access Controller (CAC)" 10
2.1.3.3 Flash memory program "Conditional Access Flash Memory (CAP)" 11
2.1.3.4 Time base 11
2.2 DESCRIPTION OF THE SOFTWARE 11
2.2.1 Architecture 11
2.2.2 "VIACCESS" task 14
2.2.3 "PCMCIA" task 14
2.2.4 "PC2" task 14
2.2.5 "TSI/TSO" task 14
2.2.6 "DVB_CI" task 15
2.2.7 "Hardware environment" task 15
3. ENVIRONMENTAL BEHAVIOR 15
4. CHARACTERIZATION AND COMPLIANCE TESTS 15
5. INTERMEDIATE STEP: [*] 15
5.1 DESCRAMBLER 16
5.2 DEMULTIPLEXER 16
5.3 TSI/TSO INTERFACE 17
5.4 CI INTERFACE 17
5.5 PC2 INTERFACE 17
</TABLE>
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<TABLE>
<S> <C>
5.6 INFLUENCE ON THE SOFTWARE 17
5.6.1 "VIACCESS" task 17
5.6.2 "TSI/TSO" task 17
</TABLE>
<PAGE> 45
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1. INTRODUCTION
This document describes the offer made to France Telecom by the consortium of
MATRA Communication, SCM Microsystems and MATRA MHS for the development of the
Viaccess external access control PCMCIA module.
2. SPECIFICATIONS OF THE MODULE
2.1 DESCRIPTION OF THE HARDWARE
2.1.1 ARCHITECTURE
The Viaccess DVB module, hereinbelow called the "module," is an electronic card
in the PCMCIA format, compatible with the DVB standard as described in the
document CENELEC prEN 50221, "Common Interface Specification for Conditional
Access and other Digital Video Broadcating Decoder Applications."
This module operates on +5 volts and physically interfaces with a chip card in
the ISO 7816 format.
It is constituted of the following functions:
"Conditional Access Processor [*]"
"Conditional Access Controller (CAC)"
"Conditional Access Flash Memory (CAF)"
collected together as in the block diagram below.
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[SEE SOURCE DOCUMENT]
FIGURE 1: SYSTEM BLOCK DIAGRAM
The "Conditional Access Processor [*]" circuit is specific. It is to be
developed within the framework of this program. [*]
The "Conditional Access Controller (CAC)" function is to be provided by an eight
bit 80C52 micro-controller (Intel architecture) with a rate of 28.6 MHz. This
circuit is the engine which executes the program in reaction to high level
events.
The "Conditional Access Flash Memory (CAF)" block enables storage of the
program. A one Mbit flash memory has been selected to provide that function. It
allows gene ralizing the uploading of the software to the base version of the
module.
2.1.2 MECHANICAL
The module shall be realized in the [*] format. It shall accept a chip card in
the ISO 7816 format.
The PCMCIA connector selected has a single row of pins. That row is [*].
[*]
2.1.3 ELECTRONIC
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2.1.3.1 SPECIFIC CIRCUIT "CONDITIONAL ACCESS PROCESSOR CAP54"
2.1.3.1.1 DESCRAMBLER
[*]
2.1.3.1.2 DEMULTIPLEXER
[*]
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[*]
ACQUISITION OF THE ECM:
[*]
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EMM ACQUISITION:
[*]
ACQUISITION OF THE PSI/SI'S AND ASSISTANCE DATA:
[*]
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[*]
2.1.3.1.3 TSI/TSO INTERFACE
[*]
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2.1.3.1.4 CI INTERFACE
The DVB control interface is implemented on the PCMCIA type interface. [*]
2.1.3.1.5 PC2 INTERFACE
The circuit enables direct management of all types of chip cards in [*]
2.1.3.2 V80C52 MICRO-CONTROLLER "CONDITIONAL ACCESS CONTROLLER (CAC)"
The micro-controller selected is the type 80C52.
Its usable resources are: 8 kb of program memory, 256 bytes of RAM, and three
timers.
Its maximum operational frequency is above 30 MHz.
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2.1.3.3 FLASH MEMORY PROGRAM "CONDITIONAL ACCESS FLASH MEMORY (CAF)"
The external program memory shall have a capacity of 128 kbytes (divided into
two 64 kb pages).
This memory is erasable by sectors and shall be seen by the micro-controller as
a space for executable code and/or data.
One of the advantages of flash memory is to enable downloading software.
2.1.3.4 TIME BASE
The time base selected for the chip card is based on ISO standard 7816:
9600 x 372 x 8 = 28.57 MHz
It is to be obtained from a CMS resonator connected to the terminals of the
micro-con troller's internal oscillator and is to be redistributed to the [*]
circuit.
That frequency allows processing of the "PTS" protocol at 115.2 kbaud.
2.2 DESCRIPTION OF THE SOFTWARE
We shall retain the following terminology which is used in the chapters to
follow:
MULTICRYPT module: physical module, the subject of this response;
Software task: function or group of software functions of the
same type;
VIACCESS: software task constituted by the ACS and its high
level man/machine interface portion (high level MMI).
2.2.1 ARCHITECTURE
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FIGURE 2: MODEL IN LAYERS
[SEE SOURCE DOCUMENT]
-----------------------
Hardware Environment
Flash management
ITA management
-----------------------
The layer model defined by figure 2 allows effective hierarchization of the
various soft ware tasks and to comprehend their interfaces.
This diagram shows the organization and arrangement of the tasks and functions:
- The interface with the external environment is made via task DVB-C1 which
implements the software portion of the DVB Common Interface, as described in
the consultation document [2]. This task communicates with the PCMCIA and
TSI/TSO tasks, Hardware Environment and VIACCESS;
- The PCMCIA task is linked to the common portion between the PCMCIA inter
face (documents [1], [2], [7] and [9] of the consultation) and the DVB
Common Interface;
- [*] (documents [2], [3], [4], [7], [9] and [11] of the consultation);
- The Hardware Environment task is linked to the hardware implementation of
the module: management of the flash memory and management of the various
software and hardware interrupts.
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- The task which corresponds to the access control per se is called the
VIACCESS task (documents [6] and [9]). This integrates the MMI scenarios. It
is in communication only with tasks DVB-C1 and PC2.
- The task which effects the interface with the security processor is called
the PC2 task (documents [6] and [9]). It is in direct communication only
with tasks ISO7816-8 and VIACCESS.
- And finally, task ISO7816-8 mplements the software portion of the interface
with the chip cards which meet the ISO 7816 standard (document [5]). This is
the low est level function associated with the access control function.
<TABLE>
<S> <C> <C>
----------------------
TSI/TSO
EMM/ECM extraction
CW management
----------------------
- ---------------------- ----------------------
Hardware Environment
Flash Management PCMCIA
IT Management
- ---------------------- ----------------------
----------------------
DVD-CI
----------------------
----------------------
VIACCESS
----------------------
----------------------
PC2
----------------------
----------------------
ISO
7816-8 [OR 3?]
----------------------
</TABLE>
FIGURE 3: SOFTWARE ARCHITECTURE
[See source document
for flow relationships.]
The architecture and organization of the software layers are defined in figure
3.
The entire program is articulated around the DVB-C1 function, the unique point
of access to the MULTICRYPT module by the DVB decoder.
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2.2.2 "VIACCESS" TASK
The VIACCESS task issues from the France Telecom ACS kernel. It shall be adapted
to take account of the hardware environment, in particular the memory space
management.
The VIACCESS task also comprises the elements corresponding to the specific MMI
scenarios in the document "Access Control System for Digital Video Broadcasting
Software Interface Specification."
The VIACCESS task can be interrogated by the DVB decoder only by way of the DVB-
C1 software interface.
2.2.3 "PCMCIA" TASK
The PCMCIA task shall have the role of carrying messages from the physical layer
of the control interface in conformity with the DVB standard. This task is
divided into three parts:
- [*]
2.2.4 "PC2" TASK
The PC2 task must manage the dialogs with the PC2 card according to the 7816-3
standard. It includes the management of the PTS protocol.
This task is divided into five parts:
- [*]
After the response to the reset of the card, this procedure shall, in a
systematic fashion, engage the PTS request to the card. Following that response,
the transmission stream may attain 115.2 kbaud (enabling eventual use of PC2-8
cards).
2.2.5 "TSI/TSO" TASK
The TSI/TSO task has the job of managing the MPEG2 transport stream to the
descrambler.
In particular, it shall effect the operations of PSI/SI data retrieval necessary
to its opera tion, management of the EMM/ECM messaging acquisition filters, the
retrieval thereof, and the loading of the control words into the descrambler
portion of the [*].
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The ECM message addresses, which depend on the program selected, are to be
furnished by the DVB decoder by way of the DVB-C1 task (CA_PMT object
management).
2.2.6 "DVB_CI" TASK
The DVB-C1 task corresponds to the implementation of the software part of the
DVB common interface as specified in the document [2].
It has the job of transmitting information between the DVB decoder (via the
control interface (CI and the PCMCIA task) and the VIACCESS access control task.
The DVB-C1 has the job of information exchanges between the "hardware
environment" task and the various other tasks concerned (e.g.: extraction from
the PC2 card).
2.2.7 "HARDWARE ENVIRONMENT" TASK
It is this task which manages, among others, the function of loading the
software by means of the control interface. It enables updating the code
resident in the flash memory by downloading to it.
Following reception of messages carrying the update data, there is an activation
of the task which will transfer the new code into the flash memory.
3. ENVIRONMENTAL BEHAVIOR
The module shall conform to the standards in effect relative to the safety of
the user, to climatic conditions, mechanical behavior and to the TESD/CEM to the
extent that such are applicable to the module.
4. CHARACTERIZATION AND COMPLIANCE TESTS
Qualification of the hardware and software necessitate the creation and
exploitation of a large number of operational scenarios (several hundred). Use
of the stream generators and analyzers developed and marketed by MATRACOM and
SCM within the framework of the France Telecom design contracts will enable
exhaustive exploitation.
5. [*]
In order to have modules quickly available, development of an [*] is provided
for, including the descrambler/demultiplexer coming from the MATRA
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Communication "Mer de Portes" study and the PCMCIA interface from SCM. The [*].
At the hardware level, all the rest of the module will conform to chapter 2 of
this document.
5.1 DESCRAMBLER
[*]
- processing at the PES and transport levels.
However, the maximum stream rate is [*].
5.2 DEMULTIPLEXER
The [*] shall comprise a group of registers, comparitors and acquisition
buffers enab ling the acquisition of the ECM's, EMM's, PSI/SI's and assistance
data.
The acquisition buffers shall be the following:
- [*]
ECM acquisition:
Four registers are available, each containing:
- [*].
EMM acquisition:
Two registers are available, each containing:
- [*]
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- one address value for type U or S EMM's.
Acquisition of the PSI/SI's and assistance data:
Two registers are available, each containing:
- [*]
5.3 TSI/TSO INTERFACE
The [*] shall have a transport stream I/O interface identical to that
of the [*], both from the point of view of protocol as from the point of view
of I/O signals.
The MICLK and MOCLK clocks shall have a maximum frequency of at least 6.75 MHz,
which corresponds to a maximum stream rate of at least [*].
5.4 CI INTERFACE
[*]
5.5 PC2 INTERFACE
[*]
5.6 INFLUENCE ON THE SOFTWARE
5.6.1 "VIACCESS" TASK
The VIACCESS task shall integrate an unoptimized version (at the level of the
memory fields) of the ACS kernel. It shall use a RAM with a 32 kbyte capacity,
external to the [*] component and shall meet the actual needs of the VIACCESS
ACS kernel supplied by France Telecom.
5.6.2 "TSI/TSO" TASK
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The TSI/TSO shall take account [*] as concerns the ECM, EMM and PSI/SI
acquisition routines and the buffer management.
[*]
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<PAGE> 1
EXHIBIT 10.22
TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT
THIS AGREEMENT is made and entered into on and as of September 27,1996
by and between SCM Microsystems, Inc., a Delaware corporation, (hereinafter
called "SCM") and Sun Microsystems, Inc., a Delaware corporation (hereinafter
called "Sun").
WHEREAS, Sun is an industry leader in the design, development and
manufacture of computing hardware platforms and related software, and
WHEREAS, SCM Microsystems has the technical and professional capability,
qualifications and existing technology required to perform hardware development
and systems integration tasks.
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties hereby agree as follows:
1. DEFINITIONS
1.1. "Acceptance Criteria": A set of criteria developed to
determine if the S-bus Card Adaptor delivered to Sun conforms to the Statement
of Work and the Specifications.
1.2. "Enhancement" means a work which is based upon one or more
pre-existing works, such as a revision, modification, translation, abridgement,
condensation, expansion, collection, compilation or any other form in which such
pre-existing works may be recast, transformed or adapted.
1.3. "Loaned Equipment": Equipment either (i) owned by Sun and
loaned to SCM Microsystems, or (ii) purchased by SCM Microsystems and paid for
by Sun, which is used in the performance of the Services. Such equipment shall
be listed in Exhibit A, attached hereto, as the same may be amended from time to
time.
1.4. "Loaned Software": Software either (i) owned by Sun and
licensed to SCM Microsystems, or (ii) licensed by SCM Microsystems from a
third-party licensor, the fees for which are paid by Sun, and which is used in
the performance of the Services. Such software shall be listed in Exhibit A,
attached hereto, as the same may be amended from time to time.
1.5. "New Technology": Technology, ideas, methods and inventions
designed or implemented in the performance of this Agreement by SCM Microsystems
and resulting from the NRE, as that term is defined in paragraph 4.1, paid to
SCM Microsystems by Sun for the Services.
1.6. "S-bus Card Adaptor": A dual slot drive bay accessed S-bus
to PC card adapter extended over a flat ribbon or other cable to an available
drive bay on a computer, utilizing SCM Microsystems' bus extension technology to
ensure compatibility with current and future PC cards and conforming to Sun's
specifications for S-bus to PCMCIA ASICs developed by Sun.
<PAGE> 2
1.7. "SCM Microsystems Base Enhancements": Enhancements in or to
the SCM Microsystems Base Technology made or conceived in the performance of
this Agreement.
1.8. "SCM Microsystems Base Technology": Technology owned by SCM
Microsystems and developed outside the performance of this Agreement, including
technology that existed prior to the date of this Agreement as well as
technology that is developed concurrently with the term of this Agreement.
1.9. "Specifications": The electrical, mechanical and functional
specifications for the S-bus Card Adaptor as set out in the Statement of Work.
1.10. "Services": The services to be performed by SCM
Microsystems under this Agreement to design, develop and deliver to Sun the
S-bus Card Adaptor as described in the Statement of Work, as the same may be
amended from time to time.
1.11. "Statement of Work": The description of services to be
performed and specific product(s) to be developed pursuant to this Agreement and
delivered to Sun. The Statement of Work, as modified from time to time as
permitted by this Agreement, shall be attached hereto as Exhibit B.
1.12. "Sun Base Enhancements": Enhancements in or to the Sun
Base Technology made or conceived in the performance of this Agreement.
1.13. "Sun Base Technology": Technology owned by Sun and
developed outside this Agreement, including technology that existed prior to the
date of this Agreement as well as technology that is developed concurrently with
the term of this Agreement.
2. SCOPE OF SERVICES
2.1. SCM Microsystems shall design, develop and manufacture the
S-bus Card Adaptor conforming to the Specifications and within the schedule set
out in the Statement of Work.
2.2. The Statement of Work includes certain preliminary
specifications which may, during the term of this Agreement, be modified as the
design and development effort is undertaken. The Statement of Work may only be
modified as set out herein, in which case the Statement of Work as so modified
shall become the new Exhibit B and become part of this Agreement.
2.3. On or before the commencement of the term of this Agreement,
each party shall designate in writing a project manager who shall have overall
responsibility for the coordination of the development and implementation of the
Statement of Work. The project managers shall coordinate the joint
responsibilities of the parties as required hereunder, act as the communication
point for their respective companies, confer regularly and shall have
responsibility and authority for resolving any disputes that may arise with
respect to the Statement of Work or Specifications. The project managers shall
serve as the initial point of contact for the resolution of problems and
shall be
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<PAGE> 3
responsible for devising and implementing problem management procedures with
respect to any dispute that may arise with respect to the scope or direction of
the development.
2.4. At the time(s) set out in the Statement of Work, SCM
Microsystems shall deliver to Sun ten (10) prototypes of the S-bus Card Adaptor
conforming to the Specifications.
2.4.1. Prior to the scheduled delivery of the prototypes,
the parties shall agree upon the final Specifications and the Acceptance
Criteria to determine if the prototype conforms to the Specifications.
2.4.2. SCM Microsystems shall demonstrate to Sun that the
prototype conforms to the Acceptance Criteria. Thereafter if Sun notifies SCM
Microsystems in writing and demonstrates to SCM Microsystems that the prototypes
do not substantially meet the Acceptance Criteria, SCM Microsystems shall make
corrections and modifications to the design of the S-bus Card Adaptor, the
manufacturing process or otherwise as necessary, to cause the S-bus Card Adaptor
to conform to the Specifications. Upon delivery of new prototypes, Sun shall
repeat the acceptance test as soon as reasonably requested by SCM Microsystems
and Sun shall notify SCM Microsystems within five (5) days of such request if
and when the new prototypes are accepted.
2.5. Upon notification from Sun that the prototypes described in
2.4.2 above conform to the specifications, SCM Microsystems shall deliver to Sun
fifty (50) pre-production prototypes of the S-bus Card Adaptor to verify that
the S-bus Card Adaptor can be manufactured in quantity.
2.6. Support. SCM Microsystems shall, from time to time at Sun's
request, provide to Sun, support and maintenance services for the S-bus Card
Adaptors. The fees, if any for such support shall be negotiated prior to any
services being performed. In addition, SCM Microsystems shall provide
enhancements to keep current with each Sun operating system (OS) release, chosen
for Sun's IR production usage, provided that porting of the covered software to
the then new OS requires no or minimal source code changes. Porting efforts
requiring substantial source code changes shall be done on a time and materials
basis. SCM Microsystems shall use its best efforts to make such new releases
available within ninety (90) days after Sun delivers a copy of the latest OS
version to SCM Microsystems.
2.7. During the term of this Agreement, SCM Microsystems and
each of its contractors and suppliers who will perform any work hereunder, shall
become and remain compliant with ISO 9002 standards.
3. PURCHASE OF PRODUCTION QUANTITIES
3.1. From time to time Sun may purchase from SCM Microsystems,
and SCM Microsystems shall sell to Sun, the S-bus Card Adaptor (herein the
"Product"). The prices to be paid by Sun for the Product shall be as set out in
Exhibit C, attached hereto and incorporated herein. For purchases by Sun of the
Product for release or other distribution, from time to time Sun shall deliver
-3-
<PAGE> 4
to SCM Microsystems a one hundred eighty (180) day forecast (herein the
"Forecasts") of anticipated purchases of Product. An updated Forecast will be
provided to SCM Microsystems by Sun on or about the first calendar day of each
month. Purchase and delivery of products shall be made pursuant to purchase
orders and purchase order change notices that are issued in writing or
electronically by Sun. Individual purchase orders shall identify the quantities
of products ordered, the price, shipping schedule and destinations.
A purchase order for Products will be placed in accordance with
the schedule from the Forecast. The schedule will be comprised of three
categories as defined below. Sun may submit orders for incremental or advance
delivery according to the definitions set forth in each of the forecast zones.
Each Forecast shall be divided into three (3) periods: Fixed,
Firm and General, as further defined herein, below, and the quantities of
Product to be purchased within each period. Each period and applicable
quantities shall commence anew for each updated Forecast.
A. The Fixed Quantity shall mean the forecasted demand for
calendar days one through sixty (60) (herein the "Fixed Period") of the then
current Forecast. Sun shall purchase and take delivery of that Fixed Quantity of
Products specified in Sun's purchase orders for delivery within the Fixed
Period. SCM Microsystems shall sell and deliver Product to Sun consistent with
such schedule.
(i) Sun may request, and SCM Microsystems shall
deliver, subject to availability of component materials and labor, quantities of
Products in excess of the Fixed Quantity in an amount up to ten percent (10%) of
the Fixed Quantity in the then current Forecast.
(ii) In addition, if directed by Sun, SCM
Microsystems shall deliver, subject to availability of component materials and
labor, a quantity of Products of up to ten percent (10%) of the Fixed Quantity
for the then current Fixed Period that had originally been scheduled for
delivery in the then current Firm Period. The purchase and sale of such quantity
of Products in the Fixed Period shall not increase the overall quantity of
Products set forth in the Forecast.
B. The Firm Quantity shall mean the forecasted demand for
calendar days sixty-one (61) through ninety (90) (herein the "Firm Period") of
the then current Forecast. In the event Sun fails to purchase such quantity of
Product, Sun shall purchase from SCM Microsystems, at SCM Microsystems' cost,
long lead time component parts and materials (as defined by SCM Microsystems and
agreed to by Sun, which agreement shall be in writing signed by both parties and
made a part hereof). Sun shall not be required to purchase any long lead time
materials or components that SCM Microsystems is able to readily and in a timely
manner divert to use in other products or Products sold to third parties. SCM
Microsystems shall plan its material, labor and manufacturing capacity to
produce no more than the Firm Quantity for delivery within the Firm Period. On
or before the first business day of each month, Sun may increase or decrease the
Firm Quantity by no more than twenty percent (20%).
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<PAGE> 5
C. The General Quantity shall mean the forecasted
demand for calendar days ninety-one (91) through one hundred eighty (180)
(herein the "General Period") of the then current Forecast. Sun shall not be
required to purchase nor take delivery of any Product comprising the General
Quantity and shall have no liability to SCM Microsystems for labor or materials
purchased by SCM Microsystems for Products to be delivered in the General
Period.
3.2. The terms of purchase and sale of the S-bus Card Adaptor are
set out in Exhibit D, attached hereto and incorporated herein by reference. In
the event of a conflict between the terms set out in Exhibit D and the terms of
this Agreement, this Agreement shall govern.
3.3. In the event SCM Microsystems must make commitments to AT&T
to procure ASIC chips ("AT&T Chips") in quantities in excess of those ultimately
needed to satisfy the requirements of Sun, Sun shall reimburse SCM Microsystems
the price paid by SCM Microsystems for such excess AT&T Chips that SCM
Microsystems is unable to use or resell to others. Prior to making any
commitment to AT&T for the purchase of AT&T Chips, SCM Microsystems shall first
notify Sun and obtain Sun's written approval as to the quantity of AT&T Chips
that SCM Microsystems may purchase hereunder. Sun shall not be liable to
reimburse SCM Microsystems for any AT&T Chips in excess of the quantity approved
by Sun. For those AT&T Chips for which SCM Microsystems receives reimbursement
from Sun, SCM Microsystems shall deliver the same, and transfer all right title
and interest therein, to Sun.
3.4. SCM Microsystems shall not sell the S-bus Card Adaptor to
third parties without the express written consent of Sun, provided, however,
such consent shall not be withheld so long as SCM Microsystems is satisfying
Sun's demand for the S-bus Card Adaptor, and remains capable of doing so. For
each S-bus Card Adaptor sold, or otherwise conveyed for value, by SCM
Microsystems to third parties as permitted hereunder, SCM Microsystems shall pay
to Sun the amount equal to [ * ] Within ten (10) business days after the end of
each calendar quarter, SCM Microsystems shall provide Sun with written reports
indicating the number of S-bus Card Adaptors sold by SCM Microsystems to third
parties [ * ]. Payments hereunder shall be made with, and at the time of, such
report.
4. CONSIDERATION
4.1. In consideration of SCM Microsystems' performance of the
Services and the delivery of the Deliverables and the other rights, licenses and
obligations herein set out, Sun shall pay to SCM Microsystems the amount of
[ * ] (herein, the "NRE") payable as follows:
[ * ]
[ * ]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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[ * ]
4.2. Payment terms are net-30 days after receipt of a correct
invoice. Late payments shall accrue interest at the prime rate plus one
percentage point. The prime rate shall be the prime rate quoted by the Bank of
America on the date that the payment becomes past due. Before such late charges
may be assessed against Sun for late payments, SCM Microsystems shall have
notified Sun in writing of said late payment and Sun has not, within ten (10)
days after receipt of such notice, made such payment.
4.3. All payments shall be made in U.S. dollars.
5. LOAN OF EQUIPMENT/SOFTWARE
5.1. On or before execution of this Agreement, Sun shall have
delivered to SCM Microsystems the Loaned Equipment and Loaned Software. SCM
Microsystems shall be responsible for the care and maintenance of the Loaned
Equipment from the time it is delivered to SCM Microsystems until it is returned
to Sun. SCM Microsystems shall reimburse Sun for any damage to the Loaned
Equipment sustained during the period it is in SCM Microsystems' possession,
reasonable wear and tear excepted. SCM Microsystems shall insure the Loaned
Equipment against loss or damage during the term of this Agreement, and shall
deliver to Sun, upon request, proof of such insurance. If applicable, upon
return of the Loaned Equipment, Sun shall provide SCM Microsystems with an
invoice for damage to the equipment, payable by SCM Microsystems upon receipt.
Failure by Sun to provide such an invoice within sixty (60) days following
return of the Loaned Equipment by SCM Microsystems shall constitute acceptance
of the equipment by Sun "as is" and no reimbursement by SCM Microsystems shall
be required. SCM Microsystems shall maintain the Loaned Equipment used in either
production or test capacity consistent with ISO 9002 standards.
5.2. Sun hereby grants to SCM Microsystems a nontransferable,
nonexclusive, limited right and license to use the Loaned Software in
machine-readable form on the Loaned Equipment at SCM Microsystems' facilities in
California, Singapore, and Germany, subject to SCM Microsystems obtaining any
necessary export and import licenses. Title to all copies of the Loaned Software
remains in Sun or in third parties from whom Sun has acquired license rights. No
license is granted for use of the Loaned Software on other than the Loaned
Equipment or for use on any work other than in the performance of the Services.
Loaned Software is the confidential and proprietary information of Sun or its
licensors and shall be subject to the obligations of Article 18.
Confidentiality, SCM Microsystems shall not disassemble, decompile, or reverse
engineer the Loaned Software.
5.3. THE LOANED EQUIPMENT AND LOANED SOFTWARE ARE PROVIDED "AS
IS." SUN MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF
DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
LOANED EQUIPMENT AND/OR SOFTWARE. IN NO EVENT SHALL SUN BE LIABLE FOR ANY
DIRECT, SPECIAL, INDIRECT, INCIDENTAL
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 7
OR CONSEQUENTIAL DAMAGES RELATED TO THE USE OF THE LOANED EQUIPMENT AND/OR
LOANED SOFTWARE, EVEN IF SUN HAS BEEN ADVISED OF OR OTHERWISE HAS REASON TO KNOW
OF THE POSSIBILITY OF SUCH DAMAGES.
5.4. Upon the expiration or earlier termination of this
Agreement, SCM Microsystems shall return to Sun, at Sun's facility in Palo Alto,
California, or such other location in Northern California as Sun may designate,
the Loaned Equipment and return all copies of the Loaned Software and related
documentation. Upon such return, SCM Microsystems shall certify to Sun that it
has returned or, with the approval of Sun, destroyed all copies of the Loaned
Software. SCM Microsystems shall, at its cost and expense, de-install the Loaned
Equipment and package the same for return to Sun. The costs of shipping the
Loaned Equipment to Sun shall be borne by Sun.
6. INTELLECTUAL PROPERTY RIGHTS
6.1. Ownership of Technology
6.1.1. SCM Microsystems is and shall remain the
sole owner of the SCM Microsystems Base Technology and SCM Microsystems Base
Enhancements.
6.1.2. Sun is and shall remain the sole owner of the Sun
Base Technology and Sun Base Enhancements.
6.1.3. SCM Microsystems shall, subject to the limitations
hereinafter set forth, be owner of the New Technology.
6.2. Designation of Technology. During the performance of the
Services, Sun and SCM Microsystems shall designate whether any designs,
discoveries, inventions, product, computer programs (including source code, if
applicable), procedures, improvements, developments, drawings, specifications,
data, memoranda, notes, documents, manuals, information, and other materials,
made, conceived, or developed hereunder are SCM Microsystems Base Enhancements,
Sun Base Enhancements or New Technology. Such designation shall be evidenced by
a writing signed by an authorized representative of each party. In the event the
parties are unable to agree upon the correct designation of such technology,
such disagreement shall be resolved in the manner provided in Article 16.
Arbitration.
6.3. Protection of Intellectual Property Rights
6.3.1. Each party shall disclose in writing to the other,
all designs, discoveries, inventions, product, computer programs (including
source code), procedures, improvements, developments, drawings, specifications,
data, memoranda, notes, documents, manuals, information, and other materials,
made, conceived, or developed by such party which result from or relate to the
Services and which are either SCM Microsystems Base Enhancements, Sun Base
Enhancements or New Technology. Sun shall cooperate with and assist SCM
Microsystems, at SCM Microsystems'
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<PAGE> 8
expense, as necessary to allow for the application for, and execution of, any
patent, copyright, trademark or other statutory protection for the New
Technology.
6.3.2. SCM Microsystems shall obtain from its employees
such agreements as will permit SCM Microsystems to full comply with the
provisions of this Article 6, and Article 15. Confidentiality.
6.4. Grant of License to Sun. SCM Microsystems shall, and does
hereby, grant to Sun a worldwide, nonexclusive, royalty free, right and license
to (i) use the New Technology and to make, have made, sell, transfer or
otherwise convey products incorporating the New Technology and (ii) sublicense
the New Technology to others, provided, however that the same is incorporated
into, or is a part of, other technology owned by Sun.
7. NO REVERSE ENGINEERING
Except as specifically provided in this Agreement, and then only to the
extent necessary to perform the Services, neither party shall, either directly,
or through a third party, reverse engineer, disassemble or decompile any
software provided by the other, or make any attempt in any fashion to obtain the
source code to any software of the other not delivered under this Agreement or a
separate license granted pursuant to this Agreement.
8. TERMINATION
8.1. SCM Microsystems may terminate this Agreement:
(a) Upon thirty (30) days prior, written notice in the
event Sun, its officers or employees violate any material provision of this
Agreement, including, but not limited to, Article 4. Consideration and Article
15. Confidentiality, provided that SCM Microsystems is in substantial compliance
with the terms of this Agreement. In the event a material breach occurs, SCM
Microsystems shall provide written notice of the breach to Sun. Sun shall have
thirty (30) days from the receipt of notice to remedy the breach to the
satisfaction of SCM Microsystems. If Sun is unable to correct the breach within
such period, SCM Microsystems may terminate this Agreement, unless the breach is
one which, by its nature, cannot be fully remedied in thirty (30) days, and Sun
has undertaken reasonable, good faith efforts toward remedying the breach within
such thirty (30) days, and continues to use reasonable, good faith and diligent
efforts to promptly remedy the breach.
In the event of termination pursuant to this Section 8.1
(a), Sun shall cease use of the Licensed Technology, except such Licensed
Technology for which all license fees or other consideration have been paid. As
for any Licensed Technology for which the license fees or other consideration
have been paid, Sun's right to use the same shall continue notwithstanding the
termination of this Agreement.
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<PAGE> 9
(b) In the event Sun (i) terminates or suspends its
business, (ii) becomes subject to any bankruptcy or insolvency proceeding under
federal or state statute, or (iii) becomes insolvent or becomes subject to
direct control by a trustee, receiver or similar authority.
Without limiting the foregoing, in the event SCM
Microsystems terminates this Agreement for Sun's material breach that remains
uncured as provided above, Sun shall continue to be obligated for any payments
due prior to the termination date.
8.2. Sun may terminate this Agreement:
(a) Upon thirty (30) days prior, written notice in the
event SCM Microsystems, its officers or employees violate any material provision
of this Agreement, including, but not limited to, Article 15. Confidentiality,
provided, however, that Sun is in substantial compliance with the terms of this
Agreement. In the event a material breach occurs, Sun shall provide written
notice of the breach to SCM Microsystems. The default notice must be clearly
identified as such and specify in detail the basis for the alleged material
breach(es). SCM Microsystems shall have thirty (30) days from the receipt of
notice to remedy the breach to the satisfaction of Sun. If SCM Microsystems is
unable to correct the breach within such period, Sun may terminate this
Agreement, unless the breach is one which, by its nature, cannot be fully
remedied in thirty (30) days, and SCM Microsystems has undertaken reasonable,
good faith efforts toward remedying the breach within such thirty (30) days, and
continues to use reasonable, good faith and diligent efforts to promptly remedy
the breach.
(b) in the event SCM Microsystems (i) terminates or
suspends its business; (ii) becomes subject to any bankruptcy or insolvency
proceeding under federal or state statute; or (iii) becomes insolvent or becomes
subject to direct control by a trustee, receiver or similar authority.
(c) for Sun's convenience. In the event of
termination for Sun's convenience Sun shall give SCM Microsystems ninety (90)
days prior written notice. Upon receipt of notice of termination for Sun's
convenience SCM Microsystems shall immediately cease all work and Services and
attempt to terminate any subcontracts or contracts for the acquisition of goods
or services related to the performance of the Services by SCM Microsystems.
Within ninety (90) days after the effective date of termination SCM Microsystems
shall submit to Sun a final invoice for costs incurred by SCM Microsystems
(which may include payments made for professional services) and paid or payable
to third parties which could not be avoided and resulted from the early
termination of this Agreement. SCM Microsystems shall be entitled to recover, in
addition to the other costs described herein, the amount equal to (i) the
development costs described in paragraph 4.1 divided by (ii) the Commitment,
multiplied by the sum of (ii) the Commitment less the total number of S-bus Card
Adaptors actually purchased by Sun and the third parties described in paragraph
3.4, hereof, prior to termination. Such invoice, if not contested by Sun, shall
be payable as provided in Article 4.0. Consideration, above.
(d) for Sun's good faith dissatisfaction with either
the progress of the work or the quality of the work product delivered by SCM
Microsystems. In the event Sun is dissatisfied
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<PAGE> 10
with the progress or quality of the work Sun shall advise SCM Microsystems in
writing of Sun's dissatisfaction. Such notice shall specify the reasons for such
dissatisfaction. SCM Microsystems shall have thirty (30) days from receipt of
such notice to correct the work to the satisfaction of Sun. If SCM Microsystems
is not able to correct the work to the satisfaction of Sun within such thirty
(30) day period Sun may terminate this Agreement on ten (10) days written
notice. Upon termination for Sun's dissatisfaction SCM Microsystems shall
immediately cease all work and Services and attempt to terminate any
subcontracts or contracts for the acquisition of goods related to the
performance of the Services by SCM Microsystems. Within ninety (90) days after
the effective date of termination SCM Microsystems shall submit to Sun a final
invoice for costs incurred by SCM Microsystems (which may include payments made
for professional services) and paid or payable to third parties, that could not
be avoided and resulted from the early termination of this Agreement. Such
invoice, if not contested by Sun shall be payable as provided in Article 4.0.
Consideration, above.
8.3. Effect of Termination
(a) Upon early termination of this Agreement for any
reason SCM Microsystems shall be entitled to receive payment only as provided
herein.
(b) As a condition to receiving any payment under this
Article, SCM Microsystems shall deliver to Sun, within fifteen (15) days from
the date of termination of this Agreement or otherwise as stated in this
Agreement:
(i) Any property of Sun, including, but not
limited to Loaned Equipment and Loaned Software, in the possession or control of
SCM Microsystems in good condition, reasonable wear and tear accepted; and
(ii) All documentation and files and all copies
thereof related to Sun Base Technology or Sun Base Enhancements whether finished
or unfinished, prepared or produced by SCM Microsystems for the benefit of Sun
under this Agreement.
(iii) Copies of all documentation and files
related to New Joint Technology whether finished or unfinished, prepared or
produced by SCM Microsystems for the benefit of Sun under this Agreement.
(c) Except as provided in clauses 8.2 (c) and 8.2 (d),
above in no event shall Sun be responsible for payment for Services or expenses
of SCM Microsystems provided or incurred after the effective date of termination
of this Agreement. Sun reserves the right to audit the relevant books, time
sheets, or other records of SCM Microsystems prior to any payment to SCM
Microsystems under this Article 8.
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<PAGE> 11
9. WARRANTY
9.1. SCM Microsystems warrants that, subject to the terms of the
SCM Microsystems warranty, attached hereto as Exhibit D, for a period of three
(3) years after delivery, the S-bus Card Adaptor as purchased by Sun will
substantially conform to the Specifications.
9.2. SCM Microsystems warrants that (i) it is the exclusive owner
of all right, title and interest in the SCM Microsystems Base Technology and,
(ii) with respect to third party proprietary rights incorporated into the S-bus
Card Adaptor, it has the necessary rights to manufacture and sell the same to
Sun as provided in this Agreement.
10. COMPLIANCE WITH LAW
This Agreement is subject to all laws, regulations, orders or other
restrictions on the export of the Deliverables, or information about the
Deliverables, which may be imposed at any time or from time to time by the U.S.
Government. The parties (i) shall comply with all such laws, regulations,
permits, orders and other restrictions to the extent that they are applicable
and (ii) shall not, directly or indirectly, export or re-export (as defined in
the United States Export Administration Regulations) the Deliverables or any
information about the Deliverables to any country for which the U.S. Government,
or any agency thereof, requires an export license or other governmental approval
without first obtaining the same.
11. APPLICABLE LAW
The laws of the State of California, as applied to transactions to be
carried out wholly within California by California residents, applies to this
Agreement and the rights, duties and obligations of the parties hereto. The
United Nations Convention on Contracts for the International Sale of Goods is
excluded from application hereto.
12. PROPRIETARY RIGHTS INDEMNITY
12.1. SCM Microsystems shall defend, indemnify and hold harmless
Sun with respect to any claim, demand, cause of action, debt, or liability,
including attorneys' fees, to the extent that it is based upon a claim that the
SCM Microsystems Base Technology or the products derived therefrom and purchased
by Sun pursuant to this Agreement infringes any patent, copyright, or any trade
secret protected under federal or state law; provided that SCM Microsystems is
immediately notified in writing of such claim and provided further that SCM
Microsystems shall have the exclusive right to control such defense. Sun shall
not settle or compromise any claim, lawsuit or proceeding without SCM
Microsystems' prior written approval unless SCM Microsystems has failed to
defend and indemnify or is unable to defend and indemnify Sun. In the event of
any such claim, litigation or threat thereof, SCM Microsystems, at its sole
option and expense, shall either (i) procure for Sun the right to continue to
use the Deliverables, or (ii) replace or modify the Deliverables with
functionally compatible software and materials. If such settlement or such
modification is not reasonably practical and Sun is required to remove the S-bus
Card Adaptor from its systems or is otherwise prohibited
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<PAGE> 12
from using the same, SCM Microsystems may, upon fifteen (15) days' written
notice to Sun, refund to Sun the purchase price paid for the S-bus Card Adaptor
The foregoing states the entire liability of SCM Microsystems
with respect to the infringement of any third party proprietary rights by the
S-bus Card Adaptor or any of its parts.
13. GENERAL INDEMNITY
The parties acknowledge that it may be necessary for the employees of
each to be present at the facilities of the other for extended periods of time.
The parties agree to provide the employees of the other with all reasonable
facilities and services to assure that the Services may be properly performed.
Each party shall instruct its employees to conform with the internal regulations
and procedures of the other party while on such party's premises. In addition,
each party agrees to indemnify, defend, and hold harmless the other party, its
officers, agents and employees from any and all claims, demands and causes of
action arising out of or resulting from any personal injury or tangible property
damage suffered by a third party (which term shall include the employees, agents
and contractors of each party hereto) by reason of the sole negligence of the
party against whom indemnification is sought (the "Indemnitor"), provided that
the Indemnitor is immediately notified in writing of such claim and provided
further that the Indemnitor shall have the exclusive right to control such
defense. The indemnified party shall not settle or compromise any claim, lawsuit
or proceeding without the Indemnitor's prior written approval unless the
Indemnitor has failed to defend and indemnify or is unable to defend and
indemnify the indemnified party.
14. LIMITATION OF LIABILITY
Except as otherwise provided, neither party shall be liable to the other
for incidental, consequential or special damages regardless of whether the party
was made aware of the possibility of such damages.
15. CONFIDENTIALITY
15.1. During the term of this Agreement each party (the
"Disclosing Party") may disclose to the other (the "Receiving Party") certain
information which the Disclosing Party deems to be the proprietary and
confidential information of the Disclosing Party, including, but not limited to,
documents and discussion of its technology, strategy, operations, internal
corporate information, sources of supply, and methods and procedures.
The Receiving Party agrees that all oral communications, which at
the time of the oral disclosure are identified as confidential or are identified
as such in a writing delivered to the Receiving Party within thirty (30) days
after the oral disclosure, and written materials received by it bearing an
appropriate legend indicating the confidential nature of the material, or to
which it may gain access, during or in connection with the performance of
Services will be deemed the Proprietary Information of the disclosing Party,
unless and until such time as:
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(a) Such information is generally available to the public,
through no fault of the Receiving Party and without breach of this Agreement,
(b) Such information was already in the possession of the
Receiving Party without restriction and prior to any disclosure hereunder,
(c) Such information is or has been lawfully disclosed to
the Receiving Party by a third party without obligation of confidentiality upon
the Receiving Party,
(d) The Receiving Party can prove that such information
was developed independently by employees of the Receiving Party.
15.2. The Receiving Party agrees that for a period of five (5)
years from the date of disclosure to it will:
1. not copy, sell, disclose, make public, or
authorize any disclosure or publication of any Proprietary Information;
2. take all reasonable and necessary steps to assure
that all principals, officers, agents, employees, representatives, or any other
persons affiliated in any manner with SCM Microsystems are given Proprietary
Information on a need-to-know basis only, and they in turn do not disclose, or
make public, or authorize any disclosure or publication of any Proprietary
Information;
3. not use the Proprietary Information for any
purpose other than for the purpose of performing the obligations under this
Agreement;
4. return all such Information to the Disclosing
Party no later than fifteen (15) days after the date of termination or
expiration of this Agreement unless otherwise directed in writing by the
Disclosing Party; and
5. require each individual assigned by the Receiving
Party to perform Services hereunder to execute a Confidential Disclosure
Agreement conforming to the requirements of this Article.
15.3. SCM Microsystems and Sun admit for all purposes that
monetary damages for any breach or threatened breach of this Article are
inadequate and that any breach or threatened breach shall constitute an
irreparable injury to the party whose information has been improperly disclosed.
In addition to all other rights provided by law to which a party shall hereby be
entitled, Sun or SCM Microsystems, as the case may be, shall have the right to
have an injunction issued against the other to prevent any further breach. In
the event that a party seeks an injunction hereunder, the non-moving party
hereby waives any requirement for the posting of a bond or any other security.
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15.4. Nothing herein shall convey to the Receiving Party any
right or license to the confidential information disclosed to the Receiving
Party.
15.5. Either party and its Subsidiaries that receive Proprietary
Information of the other shall be free to use the residuals of such party's
Proprietary Information, for any purpose including use and distribution in the
development, manufacture, marketing and maintenance of the using party's
products and services, subject to the obligation of confidentiality for the
period specified in Section 15.2, above, and provided that such use does not
violate any patent rights (including rights under any patent applications filed
and patents pending during the term of this Agreement) or copyrights of the
Disclosing Party and provided, further that such residual information was not
gained with the intent to use such information to compete against the other
party. As used herein the term "residuals" means information, data, ideas and
concepts in non-tangible form which may be retained by the employees of the
Receiving Party or its Subsidiaries who have had access to the Proprietary
Information of the Disclosing Party disclosed pursuant to this Agreement.
16. ARBITRATION
16.1. Resolution of Disputes In the event of any dispute between
the parties hereto, the matter(s) in dispute shall first be brought to the
attention of the project manager of each party for resolution. If the project
managers are unable to resolve the dispute the matter shall then be brought to
the attention of a Sun's Vice President of Information Resources and SCM
Microsystems' President for resolution. Such individuals shall meet at a
mutually convenient location to attempt to resolve such dispute. If such parties
are unable to resolve the dispute the matter shall be subject to arbitration as
provided in this Article 16.
16.2. Notice to Arbitrate. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by
arbitration held in Palo Alto, California, and in such event either party may
serve upon the other a written notice demanding that the dispute be submitted to
arbitration pursuant to this Article 16.
16.3. Appointment of Arbitrators
16.3.1. After the giving of a notice to arbitrate pursuant
to Section 16.1 hereof, each party within fifteen (15) days of such notice shall
nominate and appoint an arbitrator and shall, within the fifteen (15) day
period, notify the other party in writing of the name and address of the
arbitrator so chosen. Upon the foregoing appointment of the two (2) arbitrators,
such arbitrators shall forthwith, and within fifteen (15) days after their
appointment and before exchanging views as to the question at issue, jointly
appoint in writing a third arbitrator and give prompt written notice of such
appointment concurrently to each of the parties.
16.3.2. If either party fails to appoint an arbitrator
within fifteen (15) days of a notice to arbitrate or if the two (2) arbitrators
appointed by the parties shall fail to appoint or agree upon such third
arbitrator within fifteen (15) days after their appointment and in the latter
case if the parties do not agree upon such third arbitrator, then either party
on behalf of both parties in
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the latter case, may request such appointment by the then President of the San
Francisco chapter of the American Arbitration Association (or any organization
successor thereto) or any person or committee designated by such President.
Thereafter, the arbitration shall proceed as set forth in this Article 16.
16.3.3. The arbitrators appointed pursuant to this Section
16.3 need not be selected from any list of the American Arbitration Association,
but may not be employees, affiliates or contractors of either party. All
arbitrators selected hereunder shall have at least five years experience in
distributed data processing systems.
16.4. Arbitration Proceedings.
16.4.1. The arbitrators chosen in accordance with Section
16.3 hereof shall, after affording to both parties a reasonable opportunity to
undertake discovery, take depositions and then submit evidence and to otherwise
be heard, make their determination in writing and shall give prompt written
notice thereof concurrently to both parties. In conducting such proceedings, the
arbitrators shall be governed by the commercial Arbitration Rules of the
American Arbitration Association then in effect in San Francisco, California.
The concurring determination of a majority of said arbitrators shall be binding
upon both parties, or, in case a majority of the arbitrators shall not render a
concurring determination, then the determination of the third arbitrator
appointed pursuant to Section 16.3, above, as the case maybe shall be binding
upon the parties and, in either case, such determination shall not be
appealable. Judgment upon the determination rendered by the arbitrator or
arbitrators may be entered in any court having jurisdiction thereof. The
arbitrator or arbitrators shall have no power to award punitive or consequential
damages.
16.4.2. The fees and expenses of the arbitrators shall be
borne equally between both parties hereto. If either party (hereinafter in this
sentence referred to as the "defaulting party") shall fail to pay its share of
any fees or expenses of the arbitrators, then the other party (hereinafter in
this sentence referred to as the "creditor party") may pay the share of the
defaulting party on behalf of the defaulting party and the defaulting party
shall, upon demand, reimburse the creditor party for such payment together with
interest thereon at the prime rate (as quoted by the Bank of America on the date
the obligation to make payment arises). Each party shall bear its own expenses
arising from such arbitration, except as may be otherwise determined by the
arbitrators.
16.4.3. Each party shall have the right to obtain discovery
and, upon leave of the arbitrators, to take depositions, of the scope and in the
manner provided in Sections 1283.05 and 1283.1 of the Code of Civil Procedure of
the State of California, whether or not the California Arbitration Act is deemed
to apply to said arbitration.
17. NOTICES
Any notice, request, or other communication to be given in writing under
this Agreement shall be deemed to have been given by either party to the other
party:
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<PAGE> 16
(a) Five (5) days after the date of mailing thereof, as shown on
the post office receipt, if mailed to the other party by registered or certified
mail at the applicable address specified by the other party in writing; or
(b) Upon the date of the receipt thereof by such other party, if
not so mailed by registered or certified mail.
The mailing addresses for the parties are as follows:
For Sun:
Sun Microsystems, Inc.
2550 Garcia Ave
Mountain View, California 94043
M/S UMIL09-03
Attn: Carol Borgardt, Commodity Manager
With a copy to the Office of the General Counsel, M/S:
UPAL 01-521
For SCM Microsystems:
SCM Microsystems, Inc.
131 Albright Way
Los Gatos, CA 95030 Attention: John Lynch
with copy to William Kelly, Chief Financial Officer
18. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties' respective successors and permitted assigns. Neither party may assign
this Agreement and/or any of its rights and/or obligations hereunder without the
prior written consent of the other party and any such attempted assignment shall
be void, except that either party may assign this Agreement and/or any of its
rights and/or obligations hereunder, upon written notice to the other party or
to another entity in that party's merger or consolidation with another entity,
without the consent of the other party, provided that the assignee is capable of
fulfilling and intends to fulfill the obligations of the assigning party under
this Agreement.
19. GENERAL
19.1. Audit Rights. During the term of this Agreement and for a
period of three (3) years after the termination or expiration hereof, Supplier
shall keep proper books of record and account in accordance with generally
accepted accounting practices consistently applied. Upon five (5) business days
notice Supplier shall permit Sun or an independent accounting firm designated by
Sun to examine and inspect, at Supplier's facility and during normal business
hours, the books and financial records of Supplier and make copies therefrom for
the purpose of determining Supplier's
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<PAGE> 17
compliance with the terms of this Agreement, including, but not limited to
paragraph 3.4, and the correctness of any bills or invoices for costs and
expenses for which Supplier has sought reimbursement or payment under this
Agreement.
19.2. This Agreement constitutes the complete and exclusive
statement of the agreement between the parties as relates to the subject matter
and supersedes all proposals, oral or written, and all other representations,
statements, negotiations and undertakings relating to the subject matter.
19.3. No change in, addition to, or waiver of any of the
provisions of this Agreement shall be binding upon either party unless in
writing signed by an authorized representative of such party. No waiver by
either party of any breach by the other party of any of the provisions of this
Agreement shall be construed as a waiver of that or any other provision on any
other occasion.
19.4. In the event any one or more of the provisions of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, the remaining provisions of this Agreement shall
remain in effect and the Agreement shall be read as though the offending
provision had not been written or as the provision shall be determined by such
court to be read.
19.5. Upon termination or other expiration of this Agreement,
each party shall forthwith return to the other all papers, materials and other
properties of the other held by it for purposes of the performance of this
Agreement.
19.6. The captions used in this Agreement are inserted for the
convenient reference of the parties and in no way define, limit or describe the
scope or intent of this Agreement or any part hereof.
19.7. Except as otherwise permitted herein, neither Sun nor SCM
Microsystems shall disclose the contents of this Agreement to third parties
unless required to do so by legal proceedings.
19.8. This document, its contents, Exhibits, Attachments, and
Amendments, and any and all correspondence and Deliverables related thereto
shall be considered and treated as "Confidential Information" of each party.
19.9. Dates or times by which SCM Microsystems is required to
make performance under this license shall be postponed automatically for so long
as SCM Microsystems is prevented from meeting them by causes which are Sun's
responsibility.
19.10. The prevailing party in a controversy or claim shall have
the right to collect its reasonable expenses incurred in enforcing this
Agreement, including reasonable attorney's fees.
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19.11. This Agreement may be executed in two original
counterparts, which together shall constitute the same Agreement, but only one
of which need be produced to evidence the Agreement.
19.12. The parties further agree that the rights and obligations
set forth in Sections 2.5, 3.1, 3.3, 3.4, 8.3 and 19.5 and Articles 5, 6, 7, 10,
12, 13, 14, 15, 16 and 17 shall survive the completion or termination of this
Agreement for any reason and enforcement thereof pursuant to this article shall
not be subject to any conditions precedent.
IN WITNESS WHEREOF, each party has caused counterpart originals of this
Agreement to be executed as of the date first above written, by its authorized
representative.
SUN MICROSYSTEMS, INC. SCM MICROSYSTEMS, INC.
By:________________________ By:________________________
___________________________ ___________________________
(Print Name) (Print Name)
Title:_____________________ Title:_____________________
Date: _____________________ Date:_____________________
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EXHIBIT A
LOANED EQUIPMENT & SOFTWARE
<PAGE> 20
EXHIBIT B
STATEMENT OF WORK & SPECIFICATIONS
SCOPE
SCM Microsystems shall design, manufacture, test and deliver to Sun,
S-bus Card Adaptors fully compatible with Sun's SS-5; SS-20, Ultra 1 and Ultra 2
products.
SCM Microsystems shall study the SBus specifications (IEEE 1496
standard), the specifications of the proprietary S-Bus to PCMCIA ASIC developed
by Sun, as well as the existing rear--access S-Bus PC Card adapter (X1030)
design currently sold by Sun to determine what additional technical challenges
might present themselves in the development and system-level qualification of
their product.
SCM Microsystems will use Sun's supporting software for testing and
demonstrating the functionality of their product. SCM Microsystems will perform
all necessary tests and evaluations to determine the electrical conditions that
exist within Sun workstation products in which the S-bus Card Adaptor will be
installed to determine what design precautions will be required to ensure system
safety, EMI compliance to Class B, and functional compatibility.
Sun shall provide SCM Microsystems with information regarding Sun's
products and their components as necessary to allow SCM to make the S-bus Card
Adaptor fully compatible with the Sun products.
FIRST ARTICLE INSPECTION
Mechanical Fit - SMCC D/T Mechanical Engineering
Functional Compatibility - SMI IR
Installation - SMI IR
Documentation - SMI IR
QUALITY REQUIREMENTS
TBD
ACCEPTANCE CRITERIA
Mechanical Fit - SMCC D/T Mechanical Engineering
Functional Compatibility (SSQA PCMCIA Test Suite) - SMI IR
Installation Process Review - SMI IR
Documentation Review - SMI IR
<PAGE> 21
Each S-bus Card Adaptor shall be packaged in a single box to allow Sun
to assign a single part number to the S-bus Card Adaptor.
SHIPPING INSTRUCTIONS
Detailed in Purchase Order.
WARRANTY
See Section 9 of this Agreement.
HARDWARE DELIVERABLES
Qty. Description Due Date
---- ----------- --------
10 ea Prototype Units [ * ]
50 ea Pre-production Units [ * ]
DOCUMENTATION DELIVERABLES
Qty. Description Due Date
Mechanical Design Drawings yes, tbd SCM Microsystems
Electrical (DVT) Test Report yes, tbd SCM Microsystems
EMI Test Report yes, tbd SCM Microsystems
Functional Test Plan yes, tbd SCM Microsystems
MILESTONE SCHEDULE
Event Due Date
Preliminary Schematic [ * ]
Schematics, Layout & 1st Prototype [ * ]
Electrical Testing [ * ]
Delivery of 10 Prototypes [ * ]
Pre-production Units [ * ]
US, FCC, CE and CSA Approvals [ * ]
Ship production units [ * ]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 22
EXHIBIT C
PRODUCTION UNIT PRICES
The purchase price of S-bus Card Adaptors shall be as follows:
[ * ]
The foregoing notwithstanding, Sun acknowledges that certain mechanical
and enclosure design specifications in its Ultra2 machine may require
modifications to the S-bus Card Adaptor by SCM Microsystems, which modifications
may affect the unit price to be paid by Sun for such product. The parties shall
negotiate in good faith the affect of the same on the unit price.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 23
EXHIBIT D
PRODUCTION UNITS TERMS AND CONDITIONS OF SALE
1. Definitions:
Award Letter shall mean that document delivered by Sun to, and accepted
by, SCM Microsystems setting out the particular commitments of the parties with
respect to specific Products, prices, Product Leadtimes, and other terms
relative to the purchase of specific Products.
Leadtime shall mean the number of days from placement of a Purchase
Order to the date of delivery to the F.O.B. point. Leadtimes shall be set out in
the Award Letter.
Notice shall mean the giving of notice in the following manner: notices
or communications made in writing and hand delivered, or sent by registered mail
return receipt requested, or sent by overnight courier service to the receiving
party at the address specified in the Award Letter, or such other address as a
party may specify.
Product(s) shall mean those component parts, materials or finished goods
offered for sale by SCM Microsystems and as further described in the Award
Letter.
Purchase Order shall mean an offer from Sun received by SCM
Microsystems, whether in written or other form, or in electronic form pursuant
to Exhibit 1, attached hereto and incorporated herein, to purchase or schedule
delivery of a particular amount of Products. The Purchase Order shall specify
the relevant information such as quantity, price and proposed delivery dates of
the Products. When acknowledgment of receipt and acceptance thereof is made by
SCM Microsystems the Purchase Order shall be deemed a commitment to purchase and
sell the Products pursuant to the terms of this Agreement and the Purchase
Order.
Specifications shall mean the applicable product specifications for
Products from SCM Microsystems Sun shall issue and deliver to SCM Microsystems
Purchase Orders setting out the agreed upon schedule of deliveries. SCM
Microsystems shall accept Sun's Purchase Order to the extent that such Purchase
Order is consistent with Sun's forecast and SCM Microsystems' Leadtimes.
2. Purchase of Product(s): In the event that Sun elects to purchase
Products from SCM Microsystems Sun shall issue and deliver to SCM Microsystems
Purchase Orders setting out the agreed upon schedule of deliveries. SCM
Microsystems shall accept Sun's Purchase Order to the extent that such Purchase
Order is consistent with Sun's forecast and SCM Microsystems' Leadtimes.
3. [ * ]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 24
4. Payment Terms: Sun shall make payment to SCM Microsystems in the
manner and at the times set out in the Award Letter.
5. Delivery: Unless otherwise set out in the Award Letter delivery shall
be F.O.B. point of manufacture.
6. Cancellation/Rescheduling. Sun may cancel or reschedule all or any
part of a Purchase Order prior to Product shipment. Sun shall pay a cancellation
or rescheduling charge, as the case may be, as follows:
Cancellation notice given more than sixty (60) days of original
scheduled delivery date.... No cancellation fee.
Cancellation notice given more than thirty (30) but less than sixty (60)
days of original scheduled delivery date...cancellation fee equal to...percent
of the purchase price of Products cancelled.
Cancellation notice given more than ten (10) but less than thirty (30)
days of original scheduled delivery date...cancellation fee equal to...percent
of the purchase price of Products cancelled.
Cancellation notice given more than one (1) but less than ten (10) days
of original scheduled delivery date...cancellation fee equal to...percent of the
purchase price of Products cancelled.
No rescheduling fee shall be payable if the Product is to be delivered
within thirty (30) days of the original scheduled delivery date.
Rescheduling notice given more than thirty (30) days of original
scheduled delivery date.... A rescheduling fee of...if the Product is to be
delivered more than thirty (30) days of the original scheduled delivery date.
Rescheduling notice given more than ten (10) but less than thirty (30)
days of original scheduled delivery date.... A rescheduling fee of...if the
Product is to be delivered more than thirty (30) days of the original scheduled
delivery date.
Rescheduling notice given more than one (1) but less than (10) days of
original scheduled delivery date.... A rescheduling fee of...if the Product is
to be delivered more than thirty (30) days of the original scheduled delivery
date.
7. Upside Support: When requested by Sun from time to time, SCM
Microsystems shall use best efforts to sell and deliver to Sun Product(s) (i) in
excess of the then latest forecast or (ii) at an accelerated delivery schedule
(collectively "Upside Support"). The particulars of SCM Microsystems' obligation
to provide Upside Support shall be set out in the Award Letter.
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<PAGE> 25
8. Allocation: If SCM Microsystems is unable to deliver the quantities
set out in a Purchase Order, due to shortages of Product, raw materials or SCM
Microsystems' capacity, SCM Microsystems shall allocate Product to Sun under
whichever of the following formulas would give Sun the greatest amount of
Product:
a. In proportion to Sun's percentage of all of SCM Microsystems'
customer orders and forecast for such Products in effect at the time of the
shortage; or
b. The most favorable allocation formula used with any of SCM
Microsystems' customers.
9. Product Discontinuance: SCM Microsystems shall provide Sun with one
(1) year's written notice prior to discontinuing the manufacture or sale of a
Product.
10. Subsidiaries. All current and future subsidiaries of Sun
Microsystems, Inc., and contractors of Sun, designated by Sun, may purchase
Product pursuant to this Agreement.
11. Attorney's Fees: In the event of any litigation arising out of this
Agreement or its enforcement by either party, the prevailing party shall be
entitled to recover as part of any judgment, reasonable attorneys' fees and
court costs.
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<PAGE> 1
EXHIBIT 10.23
[logo] SCM
MICROSYSTEMS
COOPERATION CONTRACT
between
SCM Microsystems GmbH
Luitpoldstrasse 6
85276 Pfaffenhofen
- hereinafter referred to as SCM -
and
STOCKO Metallwarenfabriken
Henkels und Sohn GmbH & Co
Simonshofchen 31
42327 Wuppertal (Vohwinkel)
- hereinafter referred to as STOCKO -
PREAMBLE
SCM has extensive know-how and experience in the area of the development and
manufacture and the distribution of electronic devices, computer hardware and
software, as well as silicon, particularly in the area of PCMCIA cards
(so-called PC, Smart or Chip Cards).
STOCKO has extensive know-how in the area of the development, manufacture and
distribution of housing, connectors and mechanical requirements for electronic
devices.
SCM and Stocko have extensive customer contacts in the area of PCMCIA and Smart
Card technology (such as, for example, national telecom companies, manufactures
of electronic components, etc.). SCM is also a member of industrial consortia
which deal with future applications of this technology.
1. PURPOSE
The purpose of this contract is the joint research and development of reader
devices on the basis of PCMCIA housings for Smart Cards and other modules for
an undetermined number of already existing and future applications (for
example, Pay TV, DVB, DAB, banking, online services, patient cards, etc.) and
the joint exploitation of the research and development results.
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MICROSYSTEMS
2. DEFINITIONS
The following terms shall have the following meanings:
o Research and development: Acquisition of technical knowledge,
theoretical and practical analyzes, tests, including the test
manufacture and testing of products and processes, the establishment
of the installations and facilities necessary therefor.
o Contract processes: Processes which arise from research and
development.
o Contract products: Products or services which arise from research and
development or are manufactured or rendered using the contract
processes; parts of such goods or services shall also be deemed to
constitute contracts products.
o Results of research and development: Industrial property rights and
know-how which contribute substantially to technical and economic
progress and which are critical for the manufacture of contract
products or the application of the contract processes.
o Exploitation of the products: Manufacture of contract products and
use of the contract processes, assignment of industrial property
rights, issuance of manufacturing and/or use licenses to said rights
and the dissemination of know-how with the goal of permitting such
manufacture or use. However, the term "exploitation" shall not
include the distribution of the contracts products.
o Technical knowledge: Knowledge of which an industrial property right
exists or which is not obvious (know-how).
3. JOINT RESEARCH AND DEVELOPMENT
3.1 DEVELOPMENT PROGRAM AND GOAL
It is intended that the joint research and development be carried out in the
area of reader devices for Smart Cards and other reader devices in the form of
a PCMCIA card or combined solutions and that said joint research and
development pursue the goal of bringing customer-specific and standard products
to serial readiness. SCM's contribution shall be the overall concept and the
development of electronic components and software; Stocko's contribution shall
be the entire housing mechanics, including connectors.
Development work shall not begin until each contracting party has signed the
respective project plan set forth in appendix 1. Research and development
shall be divided between the contracting parties on the basis of their
respective specialization in such a manner that the contracting parties perform
the development work independently and at their own expense and risk in
accordance with the project plan and in accordance with their receptive
know-how; in each instance, STOCKO shall be responsible for the development of
housings and connectors and for the mechanical requirements and assembly
technology of the reader device, SCM shall be in charge of the development of
hardware, software and, if applicable, silicon, as well as for the test
procedures and test software for service fabrication.
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[logo] SCM
MICROSYSTEMS
3.2 DEVELOPMENT PROJECTS
3.2.1 CUSTOMER-SPECIFIC DEVELOPMENT PROJECTS
The details concerning the respective specific customer-specific development
project shall be agreed upon between the contracting party who acquires the
order and the respective contractor or purchaser; the other contracting party
shall be included in the negotiations with the contractor as early as possible
and to the extent necessary. A duty to provide complete information shall
exist between the contracting parties.
Following the conclusion of, and in accordance with, the negotiations with the
respective contractor or purchaser, the contracting parties shall create
precise project plans for each development project in accordance with the model
attached as appendix 1 to this contract; said plan shall define the technical
specifications for the reader device which is to be developed--any licenses for
the proprietary rights of third parties which must be acquired in connection
with the development project, other technical details, scheduling, including
the setting of milestones, testing parameters for prototypes, key financial
data, including the projected development cost through serial readiness, as
well as the intended return on investment (Rol), etc.--for the respective
development project. The individual project plans shall be binding upon the
contracting parties and shall, in each instance, constitute a component of this
contract.
3.2.2 DEVELOPMENT PROJECTS FOR STANDARD PRODUCTS
For each development project for standard products, the contracting parties
shall jointly create a precise project plan in accordance with appendix 1,
which shall be binding upon the contracting parties, and shall in each
instance, constitute a component of this contract.
3.4 PROTOTYPES
Following the successful conclusion of the respective development work, the
contracting parties shall jointly manufacture the number of prototypes
established in the project plan, test them with the help of the specification
and release them following successful testing. The delivery of prototypes to
the contractor or purchaser can only take place following release by the two
contracting parties.
3.5 COMPETITIVE RESTRICTION
During the implementation of the program, no contracting party may conclude
agreements concerning research and development in the program area, or in an
area closely related thereto, with third parties which are in competition with
the other contracting party, unless the other contracting party consents
thereto in writing.
3.6 RESULTS OF RESEARCH AND DEVELOPMENT
All rights to the results of the respective development work, including the
right to apply for relevant industrial property rights, shall be held by the
contracting party in whose purview the development work was performed and which
is responsible for the development. Industrial property rights for joint
inventions shall be applied for jointly. However, all results of joint
research and development shall be accessible to both contracting parties.
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[logo] SCM
MICROSYSTEMS
4. JOINT EXPLOITATION OF THE RESULTS
The results of joint research and development shall be exploited by the
contracting parties jointly in such a manner that the manufacture of the
contract products and the application of the contract processes is divided
among the contracting parties in such a manner that STOCKO manufactures the
housing and connectors, and SCM manufactures the electronics, hardware,
software and, if applicable, silicon. Each contracting party shall be solely
responsible for the contract products which it manufactures and shall release
the other contracting party from any and all claims of third parties in this
connection.
Each contracting party shall supply the other with the other with the contract
products which it manufactures.
If one of the contracting parties suspends production of the contract products
which it is manufacturing in connection with this contract, the other
contracting party shall be entitled to take over manufacturing. If the other
contracting party has no interest in doing so, the contracting parties shall
assign the manufacturing to a third-party enterprise. The contracting party
which suspends production shall grant all manufacturing and/or use licenses
necessary for manufacture by the other contracting party or a third-party
enterprise.
The additional issuance of manufacturing and/or use licenses to industrial
property rights (to outside third parties) held individually or jointly by the
contracting parties shall be possible at any time by mutual agreement.
5. DELIVERY OBLIGATIONS/PURCHASE OBLIGATIONS OF THE CONTRACTING PARTIES
Each contracting party shall fill orders of the other contracting party for
delivery of contract products which it manufactures; they shall do so on the
basis of individual orders in which delivery quantities, delivery times, prices
and other terms and conditions are defined.
The contracting parties shall be obligated to purchase contract products
exclusively from the contracting partner, joint installations or enterprises or
third-party facilities or enterprises which are jointly entrusted with
manufacture.
Joint or third-party enterprises which are entrusted with the manufacture of
contract products shall be obligated to supply said products exclusively to the
contracting parties.
6. TERRITORY RESERVATIONS
6.1 TERRITORIES
The territory of the U.S. and Japan shall be [handwritten interlinear
insertion:] non-exclusively reserved for SCM. The contracting parties may also
reserve territories within the European Union by mutual written agreement.
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[logo] SCM
MICROSYSTEMS
6.2 MANUFACTURE
The manufacture of contract products and/or the use of contract processes in
[crossed out text] a territory reserved for one of the contracting parties
shall require an agreement between the contracting parties.
6.3 DISTRIBUTION
6.3.1 OUTSIDE OF THE EUROPEAN UNION
If a territory outside of the European Union is reserved for one of the
contracting parties, the other contracting party may distribute contract
products there only with the prior written consent of the former.
6.3.2 WITHIN THE TERRITORY OF THE EUROPEAN UNION
If middlemen and consumers are able to acquire the contract products from other
suppliers as well, neither of the contracting parties may conduct an active
distribution policy in the territory which is reserved for the other
contracting party for a period of five years from the date of the first
marketing of the contract products in the European Union; specifically, they
may not engage in specifically focused advertising in such territory, establish
any branch focused on the contract products or maintain a supply warehouse
there.
However, neither contracting party may, without an objectively justified
reason, refuse orders from consumers and resellers which are established in its
territory and wish to market the contract products in other parts of the
European Union; neither contracting may make it difficult for the consumers or
middlemen to purchase the contract products from other resellers or the
marketing of the contract products within the European Union.
After the end of the aforementioned five-year period, neither contracting party
shall be prevented from marketing the contract products in the territory of the
European Union which is reserved for the other contracting party or engaging in
an active distribution policy there with respect to such products.
7. NO QUANTITY, PRICE AND CUSTOMER RESTRICTIONS
If a contracting party is permitted to manufacture the contract products and/or
use the contract processes, that party shall not be restricted from determining
the quantity of contract products to be manufactured or sold and the number of
acts of use with respect to the contract processes, setting the prices, price
components or discounts for the contract objects or selecting its customers.
If it turns out that certain sales projects which arise from the business
activity of a contracting party in individual countries and/or regions cannot
be successfully concluded by that party alone, the contracting parties shall
jointly establish a strategy which ensures the respective project and leads it
to success.
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[logo] SCM
MICROSYSTEMS
8. LICENSING OF KNOWLEDGE AND EXCHANGE OF EXPERIENCE
The contracting parties shall reasonably support one another to the extent
necessary. In this connection, the parties shall mutually grant one another
non-exclusive licenses for protected or technical knowledge which is necessary
in order to implement the program and manufacture the contract products or use
the contract process.
The contracting parties shall inform one another of their experiences in the
manufacturing of the contract products and in the use of the contract processes
and shall mutually grant one another non-exclusive no-fee licenses to
improvement and application inventions.
9. CONFIDENTIALITY
Neither contracting party may use the know-how of the other contracting party
for purposes other than the implementation of the program and the use of the
results.
The contracting parties shall preserve the confidential nature of the know-how
which they convey to one another or which arises in the course of the
implementation of the program; this obligation shall remain in effect following
the expiration of this agreement.
The exchange of such confidential information shall be made in each instance on
the basis of a confidentiality agreement to be concluded separately for each
development product in accordance with the model attached as appendix 2 to this
contract.
10. REGISTRATION AND MAINTENANCE OF THE INDUSTRIAL PROPERTY RIGHTS
The contracting parties shall be obligated to create and maintain industrial
property rights for the contracts products or processes to the extent legally
possible; this shall also apply to joint proprietary rights as well as
industrial property rights to which one of the contracting parties is entitled.
Each contracting party shall inform the other concerning infringements of joint
proprietary rights and the industrial property rights of a contracting partner.
The contracting party which discovers the infringement of joint industrial
property rights may initiate legal action against the infringer and demand that
the other contracting party support it in the judicial proceeding and share in
the cost.
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[logo] SCM
MICROSYSTEMS
11. ATTACK UPON INDUSTRIAL PROPERTY RIGHTS
During the implementation of the research and development program, neither
contracting party may attack industrial property rights of the other
contracting party which are connected with the implementation of the program.
During the term of this agreement, neither contracting party may attack
industrial property rights which are held individually by the other contracting
partner, held jointly by the contracting parties or which protect the results
of the research and development.
12. COMPENSATION
Compensation which the contracting parties receive from third-party enterprises
for the transfer or licensing of joint commercial rights or know-how in
connection with the exploitation of research and development results shall be
divided between them on a pro rata basis in accordance with their respective
contribution to development. A contracting party shall be exclusively entitled
to compensation which it receives from third-party enterprises for the transfer
or licensing--entered into by mutual agreement with the other contracting
party--of its commercial rights or know-how in connection with the exploitation
of research and development results.
Any inequality in the contributions of the contracting parties to the joint
research and development shall be reflected in the setting of the prices for
the contract products to be purchased from the other contracting partner. If
the contracting partners exploit the results unequally, this shall be settled
by means of compensation to be negotiated between the contracting parties.
13. CONTRACT TERM
This contract shall take effect when signed by the two contracting parties. It
shall be concluded for an indefinite term and may be terminated in writing by
either contracting party upon compliance with a notice period of six (6)
months--however, said termination may not be noticed earlier than June 30,
2000, effective December 31, 2000. The provisions concerning confidentiality,
rights to the development results, manufacturing and distribution shall remain
in effect following the end of the contract until they expire in accordance
with their purpose and intent. The right to extraordinary termination shall
remain unaffected.
14. MISCELLANEOUS CONTRACT TERMS
An assignment of rights and/or delegation of duties arising from this contract
shall be effective only with the prior written consent of the other contracting
party.
Each contracting party shall remain an independent entrepreneur which is
responsible only for its own acts. This agreement shall establish no corporate
law relationship between the contracting parties.
The law of the Federal Republic of Germany shall apply. The exclusive place of
venue for all disputes arising from this contract and the performance thereof
shall be in Munich.
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[logo] SCM
MICROSYSTEMS
If a provision of this contract or a portion of a provision is or should become
invalid, the remaining provisions of the contract or the remaining portion of
the provision shall remain valid. In lieu of the invalid provision or portion
thereof, the contracting parties shall agree upon a valid provision which comes
as close as possible to the economic content of the invalid provision or
invalid portion of a provision.
Neither contracting party may communicate the existence or the content of this
contract to third parties or the general public without the prior written
consent of the other contracting party. This obligation shall also remain in
effect after the end of this contract.
This contract contains all agreements between the contracting party relating to
the subject matter of the contract; no collateral agreements exist.
Modifications of or addenda to this contract must be in writing and must be
signed by both contracting parties.
Wuppertal, 3/25/96 Pfaffenhofen, 2/23/96
[stamp]
SCM
MICROSYSTEMS
SCM Microsystems GmbH
Luitpoldstrasse 6 . 85276 Pfaffenhofen
Tel. 03441/896 - 0 . Fax 08441/8 28 84
[signature] [signature]
- ---------------------------------- --------------------------------------
STOCKO Metallwarenfabriken SCM Microsystems GmbH
Page 8
<PAGE> 1
EXHIBIT 10.24
The following
AGREEMENT
is hereby concluded by and between
BetaDigital Gesellschaft fur digitale Fernsehdienste mbH, represented by
General Manager, Mr. Gabor Toth, Betastr. 1, 85774 Unterfohring
and
SCM Microsystems GmbH, represented by General Manager, Mr. Bernd Meier, Luit-
poldstr. 6, 85276 Pfaffenhofen:
I. DEVELOPMENT CONTRACT
1. BetaDigital hereby engages SCM to develop a Conditional Access Module
(module) in accordance with the specification, construction plans and
bill of material attached as appendices 1 through 3; express reference
is hereby made thereto.
A component of the development order shall be the delivery of 10
prototypes of the module. Half of the prototypes shall, in addition to
the foregoing description, be equipped with sockets for EEPROM 8 Pin,
EPROM 64 K x 8 and for the Micro Controller ST 90 R 52.
For this purpose, BetaDigital shall provide 30 chips descrambling ASIC
in the TQFP housing (Euro-I Chip); the 20 Euro-I Chips which have
already been delivered shall be offset against this amount. Upon
availability of a new version of the descrambling chip, BetaDigital
shall provide such new version; SCM shall be obligated to incorporate
the newest version of the descrambling chip into the development of the
module and later serial fabrication.
BetaDigital shall supply the software download files for the 64 K X 8
EPROM and the EEPROM 8 pin or for derivative storage building blocks.
Each module shall be provided with the label "BetaDigital" in accordance
with the description set forth in appendix 4.
2. SCM shall deliver to BetaDigital the development documentation, which
must be fully created, as well as all other documents in connection with
the development for the hardware (such as electric circuit diagrams,
mechanical plans, PCB layout) and the software for the
<PAGE> 2
development and testing tools, to the extent that these are created by
SCM or in joint collaboration with BetaDigital.
3. SCM shall transfer to BetaDigital the right to use the copyright arising
in connection with the development of the module, including the
developmental tools and test tools; said use right shall be exclusive,
chronologically unrestricted, not unilaterally revokable and
transferrable.
<PAGE> 3
The provisions of SectionSection 69 a and 69 b UrhG [German Copyright
Act] and SectionSection 69 d through 69 g UrhG shall remain unaffected.
4. It shall be responsibility of SCM that the services rendered by SCM do
not infringe upon the proprietary rights of third parties.
SCM shall defend BetaDigital in its own name against all claims which
are asserted by a third party on the grounds of alleged infringement of
industrial property rights (patents, patent applications, copyrights,
trademarks, rights to masks and semiconductor topologies, etc.) as a
result of the delivered or licensed products and shall compensate
BetaDigital for all judicially imposed costs and compensatory damage,
provided that BetaDigital - informs SCM promptly and in writing
concerning the assertion of such claims, - provides SCM with all
necessary information, - provides reasonable support and - provided that
the authority to decide whether such claims shall be defended or settled
shall remain exclusively with SCM.
5. It shall be the responsibility of BetaDigital that the hardware and
software provided by BetaDigital does not infringe upon proprietary
rights of third parties.
BetaDigital shall defend SCM in its own name against all claims which
are asserted by a third party on the grounds of alleged infringement of
industrial property rights (patents, patent applications, copyrights,
trademarks, rights to masks and semiconductor topologies, etc.) as a
result of the delivered or licensed products and shall compensate SCM
for all judicially imposed costs and compensatory damage, provided that
SCM
- informs BetaDigital promptly and in writing concerning the assertion
of such claims,
- provides BetaDigital with all necessary information,
- provides reasonable support and - provided that the authority to
decide whether such claims shall be defended or settled shall remain
exclusively with BetaDigital.
6. SCM promises that it shall develop the module set forth in paragraph 1
by no later than 10/15/96 and shall do so in such a manner that serial
fabrication shall be possible starting November 1996.
7. Acceptance of the prototypes shall take place with the help of the
performance description in section 1, above, within a period of 2 months
following delivery of the prototypes.
8. The descrambling chips which are delivered shall remain the property of
BetaDigital. If a loss of ownership occurs as a result of combination,
mixture or processing, BetaDigital shall receive a co-ownership share of
the overall object in accordance with the chips provided. The delivery
of chips shall not include a right on the part of SCM to utilize, use or
transfer any existing copyrights.
<PAGE> 4
9. The development, manufacture and delivery of prototypes shall be
carried out without compensation.
<PAGE> 5
10. In the event of default in performance by SCM, BetaDigital shall be
entitled to withdraw from the entire agreement following the imposition
of a deadline and the threat of refusal. Claims for compensatory damages
for failure to perform shall be barred.
Default in performance shall not occur to the extent that BetaDigital
fails to perform in a timely manner a duty to supply to which it is
subject.
Otherwise, the statutory regulations shall apply; specifically, the
right of termination set forth in Section 649 BGD [German Civil Code]
shall remain unaffected.
II. PILOT SERIES PRODUCTION
1. BetaDigital shall order [ * ] units of the pilot series of the modules
in accordance with the performance description in section 1 of the
development order. If, during the development phase, the parties
mutually agree to modify the performance description, delivery shall be
made in accordance with the modified specification.
The release of the pilot series production shall be carried out by
BetaDigital. It shall take place in writing within 10 business days
following acceptance of the prototypes.
2. The components supplied by BetaDigital shall remain the property of
BetaDigital. If a loss of ownership occurs as a result of combination,
mixture or processing, BetaDigital shall receive a co-ownership share of
the overall object in accordance with the components provided. The
delivery of components shall not include a right on the part of SCM to
utilize, use or transfer any existing copyrights.
3. The delivery of the pilot series lot shall take place by no later than
10/31/96.
4. The per module price of the pilot series shall be DM [*]. It shall be
understood that this price does not include the descrambling chip to be
provided by BetaDigital.
5. Delivery shall be made at the expense and risk of SCM to Nokia Satellite
Systems AB, Manvagen, 59183 Motala, Sweden.
6. Acceptance shall be carried out by Nokia in the capacity of
representative of BetaDigital. Checking shall be done by means of random
samples (5% of the delivery).
If the receiving inspection reveals a projected defect ratio of [ * ] or
more, BetaDigital--represented by Nokia, if applicable--shall be
entitled to return the entire delivery at SCM's expense. SCM shall be
obligated to provide prompt replacement in the event of a return. In the
event of failure or delay of the replacement delivery, BetaDigital shall
be entitled to cancellation.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 6
III. ORDER QUANTITY GUARANTEE
1. BetaDigital shall be obligated to order [ * ] modules (less the pilot
series) [ * ] and [ * ]. The following shall fall within said order
quantity guarantee:
- orders of a further developed Conditional Access Module
based on a separate development contract (concerning
software and/or hardware) and/or conditional access
module with Common Interface, and
- all orders by third parties, to the extent that they use
the module in connection with the d-box technology.
BetaDigital shall be entitled to hire an auditor to
inspect the orders of third parties at SCM.
For the first [ * ] units in connection with the order quantity
guarantee, the parties hereby agree among themselves upon a price per
module of DM [ * ]. It shall be understood that this price does not
include the descrambling chip to be provided by BetaDigital.
3. SCM shall be obligated to supply at least [ * ] modules during [ * ].
BetaDigital shall order [ * ] units for delivery by [ * ]
and an additional [ * ] units for delivery by no later than [ * ].
To the extent that BetaDigital does not call for the second
25,000 units for delivery in the [ * ], an advance
toward material costs in the amount of [ * ] of the module price shall
be paid by [ * ], for the difference in unit number. The residual price
shall be paid according to the usual payment rules.
4. For the following [ * ] units in connection with the order quantity
guarantee, the parties hereby agree among themselves upon a price
determination by BetaDigital as follows:
[ * ]
- It is intended that the price determination [ * ] be
exercised in advance by BetaDigital--one month after
sending the cost lists, if possible.
5. If the order quantity guarantee is not satisfied within the stipulated
period of time, BetaDigital shall be obligated to pay [ * ](in lieu of
stipulated performance) for the order quantity not purchased.
6. To the extent that components are delivered by BetaDigital for the
production of the modules, SCM shall check them for their functionality
prior to use. The components shall remain the property of BetaDigital.
If a loss of ownership occurs through combination, mixture or
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 7
processing, BetaDigital shall receive a co-ownership share of the
overall object in accordance with the components provided.
<PAGE> 8
The delivery of components shall not include a right on the part of SCM
to utilize, use or transfer any existing copyrights. In the case of
orders by third parties in connection with the order quantity guarantee,
SCM shall be obligated to obtain consent in advance from BetaDigital
concerning the use of the components.
IV. DELIVERY TERMS FOR DELIVERIES IN CONNECTION WITH THE ORDER QUANTITY
GUARANTEE
1. The lot size shall be [ * ] units.
2. The delivery times shall be a maximum of 16 weeks from the time of the
order. Order and delivery time provisions shall be made by BetaDigital
or Nokia in its capacity as representative upon presentation of a power
of attorney.
3. Delivery shall be made at the expense and risk of SCM to Nokia Satellite
Systems AB, Manvagen, 59183 Motala, Sweden.
4. The described delivery deadline shall be binding with the exception of
the delivery of the first [ * ] units.
If SCM defaults with regard to a delivery or portions thereof, SCM shall
be obligated to pay lump-sum compensatory damages in the amount of 0.5%
of the invoice amount of the delivery affected by the defaults or
portion thereof for each week which is started as of the beginning of
the default. The lump-sum compensatory damage claim, however, shall be
limited to a maximum of 10% of the relevant invoice amount. SCM shall be
entitled to provide documentation of lower or an absence of damages; in
such a case, compensation shall be made therefor.
Default shall not take place to the extent that BetaDigital does not
provide the descrambling chip a timely manner.
Acceptance shall be carried out by Nokia in the capacity of
representative of BetaDigital. Checking shall be done by means of random
samples (0.5% of the delivery).
5. If the receiving inspection reveals a projected defect ratio of [ * ] or
more, BetaDigital--represented by Nokia, if applicable--shall be
entitled to return the entire delivery at SCM's expense. SCM shall be
obligated to provide prompt replacement in the event of a return. In the
event of failure or delay of the replacement delivery, BetaDigital shall
be entitled to cancellation. If a projected total of less than 4% of the
delivered modules are defective, BetaDigital shall be entitled to a
reduction on a percentage basis. Otherwise, guarantee shall be barred.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 9
V. LIABILITY
1. SCM shall be liable without restriction for damages--regardless of the
legal grounds therefor--to the extent that such damages were caused by
intentional conduct or gross negligence or are attributable to the
absence of a promised attribute, or to the extent that the Product
Liability Act provides for mandatory liability.
2. Unless otherwise provided in section I.4, I.5, IV.4 or V.1, SCM shall be
liable up to a maximum of DM 2,000,000.00 (in words two million German
marks) for personal injury and property damage and up to a maximum of DM
1,000,000.00 (in words one million German marks) for other damage, but
not for lost profits or damages whose occurrence was typically not
foreseeable at the time of the conclusion of the contract.
3. Otherwise, further liability shall be barred.
VI. PAYMENT TERMS
Unless expressly agreed to the contrary, payments shall be due 10 days
after invoicing.
VII. MISCELLANEOUS
1. This agreement shall replace the contractual relationship concerning the
fabrication and order of Conditional Access Modules with Common
Interface order letter dated [ * ] in its entirety.
2. In accordance with the non-disclosure agreements already stipulated on
12/15/95, the parties shall be obligated to treat information and
knowledge arising from the collaboration in a strictly confidential
manner.
The parties hereby agree to pay a contractual penalty in the amount of
DM 100,000.00 for each instance of violation (the defense of a single
continuing offense shall be barred).
3. The appendices to this contract shall constitute substantial components
thereof.
4. This contract shall be governed by the law of the Federal Republic of
Germany.
5. The place of venue for all disputes concerning the validity and
performance of this agreement shall be Munich.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 10
6. No oral collateral agreements exist. The parties hereby agree that
modifications of this contract and its appendices must be made in
writing; this shall also apply to modification of the written form
clause.
<PAGE> 11
7. If individual provisions of this contract or portions thereof are or
should become invalid or void, the validity of the remaining provisions
shall not be affected.
Unterfohring, 10/9/96
s/Bernd Meier
[signature]
SCM Microsystems GmbH BetaDigital, Gessellschaft
fur digitale Fernsehdienste
mbH
General Manager General Manager
<PAGE> 1
EXHIBIT 10.25
FRAMEWORK CONTRACT
concerning the creation/conversion of software products for Siemens Nixdorf
Informationssysteme AG
between
Siemens Nixdorf Informationssysteme AG
[Region] GE TELECOM, 64347 Griesheim, Im Leuschnerpark 3 -
hereinafter referred to as SNI -
and
SCM Microsysteme GmbH, 85276 Pfaffenhofen
- --------------------------------------------------------------------------------
- - Contractor -
1. SUBJECT MATTER OF THE CONTRACT
1.1 SNI shall be entitled, but not obligated, to give the Contractor orders
concerning the creation of programs, program specifications or studies
or concerning the conversion of programs.
1.2 Contract subject matters, delivery deadlines, prices and other details
shall be agreed upon in each of the individual contracts. Otherwise, the
following provisions shall apply.
2. COLLABORATION BETWEEN THE CONTRACTING PARTIES
2.1 SNI shall provide the Contractor with the information necessary to
perform the individual contracts. If the Contractor does not believe
that the information is adequate, it shall communicate this promptly.
2.2 The Contractor shall do the following for SNI at any time upon request:
- report in writing concerning the status of work on the subject matter
of the contract, - indicate the computer time used, - provide access to
its records concerning the work on the subject matter of the contract, -
facilitate an exchange of ideas with its employees on the subject matter
of the contract at a place to be agreed upon.
2.3 In its work on the subject matter of the contract, the Contractor shall
attempt to utilize the state of the art in science and technology to
achieve the best possible result. The Contractor shall follow the
instructions of SNI in connection with the contract. However, SNI shall
not be entitled to give instruction directly to employees of the
Contractor.
2.4 Each contracting party shall identify for the other a knowledgeable
employee who can provide necessary information concerning the
implementation of this contract and either make or initiate decisions.
2.5 If the individual contract is to be viewed as an indirect public
contract, SNI shall notify the Contractor in writing at the time of the
conclusion of the contract. In such a case, the Contractor shall subject
itself to the provisions of
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 2
public price law (VO PR [Price Law Regulations] 30/53) and the price
audit.
[3. COMPUTER TIME *)
3.1 SNI shall provide the Contractor with computer time to the extent
stipulated in the individual contract on an appropriate data processing
facility for testing the subject matter of the contract.
3.2 Required computer times shall be agreed upon with SNI in writing as
early as possible.]
*) Not applicable if no computer time is required
*) Not applicable if no computer time is required
H37-D4744-N31 Framework contract conc. creation/conv. of software products for
SNI A'090 9 90 507
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 3
4. RIGHTS TO THE SUBJECT MATTER OF THE CONTRACT
4.1 When created and in their respective state of processing, the subject
matter of the contract and the appurtenant records shall be the property
of SNI. The Contractor shall retain the records for SNI until their
delivery. SNI shall hold the exclusive transferrable right to modify the
subject matter of the contract and the appurtenant records as well as to
use them or publish or exploit them in a form which it has processed.
4.2 In contracts with its employees, the Contractor shall ensure that the
rights set forth in section 4.1 are held exclusively and without
chronological limitation by SNI and are not affected by an end to the
contracts between the Contractor and its employees. The Contractor shall
impose an obligation in accordance with sentence 1 upon other third
parties participating in the implementation.
5. ACCEPTANCE, GUARANTEE
5.1 After all records belonging to the subject matter of the contract have
been properly delivered to SNI, SNI shall perform the acceptance test
for the subject matter of the contract. If defects are detected, the
Contractor shall promptly remedy them at no charge and make the subject
matter of the contract available once again for acceptance. SNI shall
then perform the acceptance test again.
5.2 The Contractor shall announce the making available of the subject matter
of the contract for acceptance in writing no later than one week in
advance. If, after it is made available, SNI does not accept the subject
matter of the contract for a reason other than a defect, the subject
matter of the contract shall be deemed to be accepted two months after
being made available for acceptance.
5.3 Defects complained of in writing by SNI within a guaranteed period of 12
months following acceptance of the subject matter of the contract shall
be remedied promptly at no charge by the Contractor.
5.4 If defects in the subject matter of the contract are attributable to
circumstances for which SNI is responsible, the Contractor shall remedy
them at SNI's request at reasonable prices and terms to be agreed upon.
6. COMPENSATION
6.1 The stipulated compensation shall constitute settlement of all services
to be rendered by the Contractor.
6.2 If compensation on a time basis is agreed upon, the proof of performance
shall be provided on the basis of records which the Contractor shall
coordinate with SNI in each instance in advance.
6.3 The Contractor's travel and lodging expenses shall be refunded if
employees of the Contractor take trips for reasons for which the
Contractor is not responsible and at the express request of SNI or if
the computer time stated in section 3.1 of the contract is made
available on a data processing facility which is over 30 kilometers from
the location named therein. In such cases, the following shall be
refunded following deduction of possible prepaid value-added tax sums:
<TABLE>
<S> <C>
federal railway system in consultation with SNI and upon
presentation of appropriate records
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
aircraft tourist class, in each instance upon
presentation of appropriate records
mileage reimbursement in accordance with the guidelines set by the
tax authorities
lump-sum lodging allowance in accordance with the
guidelines set by the tax authorities (in
consultation with SNI, higher lodging costs
will also be reimbursed upon presentation of
appropriate records).
</TABLE>
In each instance, the Contractor shall coordinate the details of trips
and events with SNI, for example, scheduling and the use of an
automobile in lieu of the federal railway systems or aircraft.
6.4 The Contractor shall send SNI invoices in a timely manner in advance for
the respective payments which are due; the invoices shall list the
travel costs/lodging costs and the respective value-added tax.
<PAGE> 5
7. IMPOSSIBILITY OF PERFORMANCE OF CONTRACT BY CONTRACTOR, INCREASE IN
PAYMENT
7.1 If the Contractor believes that it is prevented from performing the
individual contract as a result of circumstances (regardless of the
type), it shall promptly notify SNI in writing. If the Contractor is not
responsible for the circumstances which prevent performance, the
contracting parties shall agree upon a reasonable postponement of the
stipulated deadlines. If prompt notification is not made, the Contractor
may not later invoke such circumstances.
7.2 If the Contractor believes that instructions by SNI pursuant to section
2.3 or other circumstances for which SNI is responsible will lead to an
increased expenditure of labor or computer time, it shall notify SNI
promptly in writing. The parties shall then agree upon a reasonable
increase in the compensation or the computer time which is made
available. If prompt notification is not made, the Contractor may not
later claim an increase in compensation or increase of computer time
which is made available.
8. INTRODUCTION AND MAINTENANCE OF THE SUBJECT MATTER OF THE CONTRACT *)
At the request of SNI, the Contractor shall provide support in preparing
for use of the subject matter of the contract and shall assume
maintenance of the subject matter of the contract. To the extent that
such services are not included in the services to be rendered under the
contract without separate compensation, the contracting parties shall
agree upon reasonable compensation.
9. ISSUANCE OF SUBCONTRACTS, CONFIDENTIALITY, DATA PROTECTION
9.1 The Contractor shall assign the contractual services to freelance
employees or other third parties only with the prior written consent of
SNI; otherwise it shall perform using its own employees. In the case of
non-German employees, the Contractor shall document the existence of the
necessary work permit.
9.2 The Contractor shall use all information, documents and other aids which
it receives in connection with the contract solely for the purpose of
performing the contract. As long as and to the extent that they have not
become generally known or SNI has not consented to dissemination in
writing in advance, the Contractor shall treat the information and
records, the conclusion of the contract and the subject matter and
contents of the duties assumed confidential vis-a-vis parties other than
the third party participating in the performance of section 9.1.
These duties shall remain in effect after the end of the contract.
9.3 Any exchange of opinions concerning the subject matter of the contract
between the Contractor and customers of SNI shall, in each individual
instance, require the prior written consent of SNI.
9.4 To the extent that, in its work on the subject matter of the contract,
the Contractor has to process personal data, the Contractor shall
observe the data confidentiality protection statutes, agree upon
measures with SNI concerning data security and enable SNI to inform
itself concerning compliance with its agreement.
9.5 The Contractor shall impose an obligation in accordance with sections
9.2 through 9.4 on those employees from its operation who participates
in the implementation of the contract and on third parties participating
in the implementation of the contract.
<PAGE> 6
10. SURRENDER OF DOCUMENTS
The Contractor shall surrender all records and other aids, including
copies, which it received or created in connection with the contract by
no later than acceptance or, to the extent that it needs them in order
to satisfy any guarantee duties, promptly after the end of the guarantee
period.
11. ASSIGNMENT OF CLAIMS
The Contractor may assign its claims against SNI only if SNI has
consented in writing. SNI shall refuse consent only for good cause.
*) Inapplicable in the case of program specification/studies
<PAGE> 7
12. TERMINATION
[This framework contract shall take effect on ..... and may be
terminated in writing by either contracting party upon notice of three
months effective at the end of the calendar month. The provisions of the
framework contract shall remain valid after the end thereof with regard
to individual contracts which were previously concluded in the scope of
applicability of the framework contract.]
13. COLLATERAL AGREEMENTS
Collateral agreements must be in writing.
Siemens Nixdorf Informationssysteme AG Pfaffenhofen 12/23/96
Siemens Nixdorf Informationssysteme AG SCM MICROSYSTEMS GmbH
Im Leuschnerpark 3
64347 Griesheim
/s/ /s/
- --------------------------------------- ------------------------------------
Bernd Meier
General Manager
NOTE:
Language indicated as being shown by strike out in the typeset document, or
manually struck-through, is enclosed in brackets " [ " and " ] " in the
electronic format.
<PAGE> 1
EXHIBIT 10.27
B1 TRADEMARK LICENSE AND KNOW-HOW CONTRACT
BETWEEN
Deutsche Telekom AG,
D-53105 Bonn
- hereinafter referred to as the Licensor -
AND
SCM MICROSYSTEMS GmbH
D-85276 Pfaffenhofen
- hereinafter referred to as the Licensee -
CONCERNING
the use of the trademark and know-how
"B1 TECHNOLOGY"
[logo] B1 TECHNOLOGY
<PAGE> 2
I. PREAMBLE
1. In the course of its research and development activity, the Licensor has
developed the intelligent ship card interface "B1" and related know-how
(hereinafter referred to as "contract know-how"). In this connection,
the Licensor has established the title "B1" in the market as a statement
concerning standards and quality and has the "B1-TECHNOLOGY" logo
(hereinafter referred to as the "trademark"), concerning which an
application has been made with the German Patent Office for registration
as a trademark (reference number of the DPA [German Patent Office] 395
51 647.1, 395 51 649.8, 396 00 838.0).
2. The Licensee is interested in using the trademark, related know-how and
B1 standardization information held by the Licensor for the Licensee's
development of PCMCIA card reader.
II. DEFINITIONS
1. THE CONTRACT COMPONENTS SHALL BE THE FOLLOWING:
> The Telesec B1 controller software B1 KLC v4.0 in the source
code,
> the Telesec B1 driver software B1 KLT v4.0 in the source code for
the MS-DOS operating system and the MS-WINDOWS 3.xx user
interface,
> the Telesec B1 programmer handbook (B0/B1 HTSI); contained
therein is a description of the interfaces
- B1pc between the card access device B1 and the host (PC),
- B1api of the B1 driver in the host (PC) to application
programs,
- B1icc between the card access device B1 and the chip card
(ICC),
> the description of layers one and two of the B1pc interface,
> the "B1-TECHNOLOGY" trademark in the form described in point III.
Section 9.
2. THE FOLLOWING SHALL BE INCLUDED IN CONTRACT KNOW-HOW:
> the contract component "B1 KLC" (Source Code) and "B1 KLT"
(Source Code) defined under point II.1 of this contract, their
comments--including oral comments--as well as the technical
ideas, principles and methods contained therein.
> the contract component "Telesec B1 programmer handbook" defined
under point II.1 of this contract, its comments--including oral
comments--as well as the technical ideas, principles and methods
contained therein.
This technical knowledge is secret and substantial, fundamentally
usable and of interest to the Licensee.
<PAGE> 3
"Secret" shall mean that the contract know-how, either in its entirety
or in the precise structure and composition of its components, is not
generally known or easily accessible, such that part of its value lies
in the head start which the Licensee will gain if it is communicated to
the Licensee. The term "secret" shall not be limited to the narrow
meaning, according to which each individual component of the contract
know-how must be completely unknown or may not be available outside of
the operation of the Licensor.
The contract know-how is "substantial" because it consists of
information which is important for the entirety or a significant portion
a) of a manufacturing process, b) a product or service or c) for the
development thereof and excludes everyday information. This information
is useful, i.e., at the time of the conclusion of the contract, it is
expected with regard to said information that it will help, for example,
to advance into a new market or provide the Licensee with a competitive
advantage vis-a-vis other manufacturers or service providers which have
no access to the secret disseminated information or other comparable
secret information.
3. USE SHALL MEAN:
Permitted use (use, sale, rent, lease, or marketing) of B1 components of
any type, including for in-house use by the Licensee, unless the
Licensee proves that neither the contract components nor parts thereof
nor the licensed know-how (including services in connection with the
interface maintenance) were used.
4. NET SALES PRICE SHALL BE:
the price which the Licensee has charged its customer, less packaging,
freight and insurance, as well as taxes and other fees associated with
the sale (commissions are not deductible). In the case of use in the
in-house needs of the Licensee, the respective cost price shall
constitute the net sales price.
III. CONTRACT CONTENT
SECTION 1 SUBJECT MATTER OF THE CONTRACT
(1) For the duration of the contract, the Licensor shall grant the
Licensee the non-exclusive and geographically unrestricted right to use the
contract component and the contract know-how in accordance with the following
terms, either personally or through the American SCM corporation SCM
Microsystems Inc. In the case of use by the aforementioned American SCM
corporation, the Licensee shall be liable to the Licensor with regard to
compliance with all obligations arising from this contract.
(2) When this contract is signed by both contracting parties, the
contract shall take effect and the Licensee shall be permitted to use the
contract components. Following the conclusion of the contract, the contracting
parties shall define by mutual agreement the form in which the contract
components shall be delivered.
<PAGE> 4
SECTION 2 SCOPE OF USE
(1) The Licensee shall have the following use rights with respect to the
contract components:
> the right to use the Telesec B1 controller software or portions
thereof without restriction for its own development of PCMCIA
card readers (modification, integration, further development,
etc., but not dissemination in the source code),
> the right to use the Telesec B1 driver software or portions
thereof without restriction for its own development of PCMCIA
card reader (modification, integration, further development,
etc., but not the dissemination in the source code),
> the right to use the Telesec B1 programmer handbook (B0/B1 HTSI)
in all of the Licensee's own development, duplicate said handbook
or cause the duplication thereof (in the form in which it was
given for use) or make it available to the purchasers of B1
components in a form which discourages additional copying (for
example on "DO NOT COPY" paper) (the Licensee shall have the same
right for the acquisition of potential purchasers). Overall
authority over the interface shall remain without exception with
the Licensor;Section3 paragraph 3 shall be observed.
> the right to use the trademark "B1-Technology" in accordance
with the conditions defined in Section 9,
> the right to use the description of the layers one and two of the
interface B1pc, duplicate said description or cause the
duplication thereof (in the form in which it was given for use)
or make it available to the purchasers of B1 components in a form
which discourages additional copying (for example on [original in
English] "DO NOT COPY" paper) (the Licensee shall have the same
right for the acquisition of potential purchasers). Overall
authority over the interface shall remain without exception with
the Licensor; Section 3 paragraph 3 shall be observed.
(2) The list set forth in paragraph 1 is exhaustive. Further use rights
shall require a separate agreement. The Licensee shall specifically not be
entitled to grant sub-licenses to an extent beyond that defined in Section 9
paragraph 1.
SECTION 3 CONSULTING AND INFORMATION SERVICES BY THE LICENSOR
(1) If the Licensor needs instructive oral explanations in the case of
substantial problems with respect to the contract components which it has been
permitted to use by the Licensor, the Licensor shall provide such explanations
to a reasonable extent for a reasonable introduction period.
(2) The Licensor shall inform the Licensee early and in an appropriate
manner concerning B1 standardization efforts and expected changes in the B1
interface descriptions.
(3) At regular intervals, the Licensor shall invite the Licensee to
standardization discussions of the B1 licensees. If the Licensee makes proposals
for the modification, supplementation or further development of the B1
interfaces at such discussions, the Licensor shall examine them and, if
appropriate, cause them to be introduced into the standardization discussion.
<PAGE> 5
If the Licensee wishes to memorialize modifications, supplements or further
developments of the B1 interfaces in writing and make them available to third
parties before they are taken into consideration by the Licensor, the Licensee
shall only be permitted to do so in the form of its own documentation which
unmistakably points out that the modification, supplementation or further
development of the B1 interfaces is its own and has not yet been cleared by the
Licensor; mixture with the B1 interface descriptions of the Licensor shall not
be permissible.
(4) Additional consulting or information shall be provided by the
Licensor only in connection with separate consulting contracts.
SECTION 4 PROTECTION OF THE CONTRACT COMPONENTS AND CONTRACT KNOW-HOW,
CONFIDENTIALITY
(1) Subject to the use rights granted pursuant to Section 2, the
Licensor hereby reserves all rights to the information, contract know-how and
contract components (including potential copyrights and the right to apply for
patents and other industrial property rights) communicated during the term of
the contract. Beyond the licensed trademark, the Licensor shall have no duty to
apply for industrial property rights (Section 10).
(2) The contracting parties shall be obligated to maintain
confidentiality with respect to all information exchanged or to be exchanged
before and during the term of this contract, to the extent that such information
can be ascertained from the contract component and is not fundamentally free
under the provisions of this contract or has been designated as secret by the
contracting parties. This shall also apply to knowledge concerning principles,
working methods, manufacturing, new developments and improvements acquired in
connection with this contract. To the extent that they are not already required
to do so on the basis of their employment contract, employees of the contracting
party shall be obligated to maintain confidentiality.
(3) The restrictions set forth in paragraph 2 shall not apply to
information
> which can be documented to have been in the rightful possession
of the recipient contracting party prior to the conclusion of the
contract,
> which became available to the general public on the basis of the
publications by third parties without any actions on the part of
the recipient contracting party,
> which a contracting party is required to communicate to
governmental authorities or other third parties pursuant to legal
provisions (in such a case, prompt notice to the other
contracting party shall be provided),
> which was legally made accessible to the recipient contracting
party by a third party which is subject to no duty of
confidentiality vis-a-vis the conveying contracting party in this
connection,
> which can be documented to have been worked out independently by
the recipient contracting party.
(4) The foregoing obligations shall remain in effect following the end
of the contract of the term for a period of three years.
<PAGE> 6
SECTION 5 LICENSE PAYMENTS
(1) For the use of the rights which are the subject matter of the
contract, the Licensee shall pay the Licensor a license fee of [ * ] per use,
but not to exceed [ * ].
(2) The basis of calculation for the license fee shall be the net
sales price.
(3) The Licensee shall give the Licensor semiannual license fee
settlement statements in duplicate in a form recommended by the Licensor and
acceptable to the Licensee. The statements shall include at least the type,
quantity and sales price of the licensed components and the license fees. The
settlement statement shall be given within 30 days after March 31 and September
30 of each year.
(4) All payments which are to be made by the Licensee pursuant to this
contract shall be remitted to the "booking office of the Telekom," into the
account at Postbank Frankfurt/Main, account no. 76700-607, bank wire no. 500 100
60, in German marks--net without deduction of taxes or charges, which shall be
borne by the Licensee--within 14 days after the settlement closing dates named
in paragraph (3); the purpose of the use TSECE22AO4A shall be indicated. License
fees which are denominated in currencies of other countries shall be converted
into German marks at the listed exchange rate most favorable to the Licensee at
the Bundesbank in Frankfurt on the date on which the payment is due. The
Licensee may only offset against claims which are undisputed or established by
final judicial adjudication.
(5) If the license fees paid to the Licensor by the Licensee do not
exceed [ * ] per half year in two successive half years, the contracting
parties shall have the right to terminate the contract without notice. The
contracting parties may exercise this right no earlier than 6/1/98.
(6) In the event of late payment, penalty interest in the amount of 4%
above the prevailing re-discount rate shall be due.
(7) A disclosure of information given to the Licensee by third parties
shall have no effect on the payment obligations of the Licensee and specifically
shall not result in an obligation to repay already paid license fees.
(8) For the delivery of B1 components to the Licensor, the Licensee
shall be released from the obligation to pay license fees. The average license
fee paid for the B1 components in question in the half year preceding the
delivery shall serve for purposes of the calculation according to paragraph 5
(right of termination in the event of failure). To the extent that the Licensor
requests B1 components from the Licensee, the Licensee shall be obligated to
grant the most favorable terms and conditions to the Licensor for B1 components
which have been granted to other customers to date.
SECTION 6 BOOKKEEPING DUTY
(1) The Licensee is in agreement that the Licensor may hire a certified
public accountant independent of the two contracting parties to audit the
license fee settlement statements presented to the Licensor. The Licensee shall
make it possible for such certified public accountant to inspect the relevant
books and documents of the Licensee to the extent necessary for such an audit;
books and documents shall be maintained by the Licensee and held ready for
inspection for a period of six years, with the exception of those years for
which audits have been performed and a settlement has been achieved to the
satisfaction of the Licensor. All information which the Licensor obtains as a
result of such audit shall be treated confidentially.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 7
(2) The Licensor shall bear the expense of the audit. The Licensee shall
bear the expense of the audit if errors are detected which increase the current
license fee payment by more than 5% above the obligation reported by the
Licensee of for two successive calendar quarters.
SECTION 7 MAINTENANCE, GUARANTEE AND LIABILITY
(1) The Licensee is aware that the use of the B1-KLC and B1-KLT software
(each in the source code) shall serve exclusively to provide the Licensee with a
rapidly available basis for continued developments, improvements etc. in this
connection. The Licensee knows that this software was developed by the Licensor
for system integration (i.e., further processing) and has not been checked for
absolute liability in all application environments and therefore cannot be taken
over and used by the Licensee untested. Instead, the Licensee shall have the
duty to personally check these contract components prior to any use (which is
not provided by this contract) to determine freedom from errors and suitability
for a specific application environment. For the stated reasons, the Licensor
shall neither maintain the software nor assume a guarantee therefor. However, if
the Licensor becomes aware of errors or defects in the B1-KLC and B1-KLT
software, it shall promptly inform the Licensee.
(2) The Licensor shall guarantee neither the marketability nor the
economic exploitability of the trademark, know-how or interface information.
(3) No guarantee is assumed that the use of the license does not
infringe upon proprietary rights or copyrights of third parties or that it
causes no damage to third parties. This shall not apply in cases in which the
Licensor is aware of contrary rights or damage of third parties or is unaware
thereof as a result of gross negligence. At this time, the Licensor is aware of
no third-party rights which are in opposition to the intended use by the
Licensee. If the Licensor becomes aware of rights of the aforementioned type,
the Licensor shall promptly notify the Licensee.
(4) Liability between the parties is hereby barred for compensation of
damages--regardless of the legal ground--specifically arising from default,
impossibility, Verschulden bei Vertragasabschluss,1 positive breaches of
contract and tortious activity, except in cases of mandatory liability involving
intentional conduct, gross negligence or absense of promised characteristics. In
such cases, mutual liability between the contracting parties for personal injury
and property damage shall be limited to one million German marks and, for other
direct damages, shall be limited to the amount which corresponds to the license
payments which are to be made by the Licensee under this contract (not including
VAT) in the year prior to the damage event. The Licensor shall not be liable for
the lack of economic result, indirect damages, consequential damages or atypical
or unforeseeable damages resulting from defects in the contract components or
any consulting which is provided, or for the fact that the contract components
and contract know-how are free from rights of third parties beyond the assurance
pursuant to paragraph 3.
SECTION 8 ADVERTISING RIGHT
The contracting parties shall be entitled to refer to the other
contracting party as a license partner in a non-damaging manner. This shall also
apply to written publications.
- --------
1 Verschulden bei Vertragsabschluss, or culpa in contrahendo (lit.:
"fault at the time of concluding the contract"). A German legal doctrine which
holds that once a negotiation has been undertaken there is an obligation implied
in law to negotiate in good faith. See Culpa in Contrahendo, Bargaining in Good
Faith, and Freedom of Contract: A Comparative Study (1964) 77 Harv.L.Rev. 401
(Kessler & Fine).--Trans.
<PAGE> 8
SECTION 9 USE OF THE TRADEMARK, QUALITY CONTROL, PRODUCT LIABILITY
(1) The Licensee shall have the right (but not the duty) to place the
trademark in any quantity on B1 components for use with PCMCIA card readers and
media related thereto (prospectuses, advertising, etc.) in an appropriate and
non-harmful manner; paragraphs 4 and 5 shall be observed.
If the Licensee produces B1 components as a supplier and the supplied B1
components, as part of an overall system of the principal, are no longer remain
visible to the observer to an extent sufficient for application of the trademark
(printed circuit board, for example), the Licensee shall have the right to
permit the principal to apply the trademark in relation to the supplied
components. The Licensee shall be responsible for the principal's compliance
with the provisions of this contract relating to the trademark.
(2) The trademark shall be used exclusively in the layout presented
below. Reductions or enlargements permissible pursuant to paragraph one may only
be carried out proportionally.
[Graphic] B1 TECHNOLOGY
Since it is not possible to rule out color deviations in the manner of printing
selected for this contract, the colors are described as follows:
"B" Border color, black (Euro scale: 100% black; Pantone:
black 6 U 2 X; RAL: 9011 graphite black)
Fill-color gray (Euro scale: 47% black, Pantone: Cool
Gray 7 U; RAL; 7045 Tele gray 1)
"1" Border color, black (Euro scale: 100% black; Pantone:
black 6 U 2 X; RAL: 9011 graphite black)
Fill color, white (Pantone: 9060 C; RAL; 9010 white)
<PAGE> 9
"TECHNOLOGY" No border
Fill color, black (Euro scale: 100% black; Pantone:
black 6 U 2 X; RAL: 9011 graphite black)
SURFACE No border
Fill-color magenta (Euro scale: magenta; Pantone;
Rhodamine red U; RAL; 4010 Tele magenta)
(3) To the extent necessary, the border and fill colors may be adapted
to the material colors. This shall require the written consent of the Licensor.
Consent may not and shall not be refused in an unreasonable manner.
(4) A successful check of the respective B1 components in accordance
with the requirements of the effective B1 specification shall be an
indispensable prerequisite for use of the trademark. The respective effective B1
specification shall be made available to the Licensee at no charge. Each receipt
of a new B1 specification shall be deemed to constitute a revocation and
replacement of the preceding specifications.
For purposes of testing, the Licensee shall contact an auditor for IT
[information media] security named by the Licensor and follow the test office's
test requirements.
The Licensee is in agreement with the fact that, in individual instances, the
Licensor will request test reports from the Licensee for control purposes for
the B1 components in question. The Licensee shall present them promptly at its
own expense.
(5) The Licensee shall be required to ensure that the Licensee's
function as a manufacturer of the B1 components is made clear in an appropriate
manner on the components and is not concealed by the trademark. If the Licensor
is nevertheless confronted with claims by third parties arising from product
liability, the Licensee shall hold the Licensor harmless with respect to such
claims This shall also apply if joint liability does not exist between the
contracting parties.
SECTION 10 APPLICATION, MAINTENANCE AND DEFENSE
(1) The Licensor is informed of the fact that, at the time of the
conclusion of the contract, an application had been made for registration of the
trademark with the German Patent Office, but registration had not yet taken
place. However, the contracting parties are in agreement that market conditions
in existence at the time of the conclusion of the contract justify the risk of
non-registration. The Licensor shall make all efforts which are necessary for a
successful registration. If these efforts definitively fail and no registration
takes place, the provisions of paragraph 4 shall apply mutatis mutandis.
(2) The Licensor shall inform the Licensee appropriately if the Licensor
acquires proprietary rights to the trademark in countries other than the Federal
Republic of Germany. Such an expansion of the proprietary rights shall not
result in an increase in license fees.
(3) To the extent that proprietary rights to the trademark have been
granted, the Licensor shall ensure their maintenance. The Licensor shall bear
the expense thereof.
(4) If the licensed trademark is declared void in whole or in part by
final legal adjudication in one country, the validity of the contract shall not
be affected thereby, as long as a proprietary right to the trademark exists in
at least one other country or the co-licensed know-how is still secret at that
point in time; the Licensor shall bear the burden of proof in this regard. No
adjustment of the license fees shall take place.
<PAGE> 10
(5) The contracting parties shall inform one another of all
contractually relevant infringements by third parties. Neither parties shall be
obligated to proceed against infringers. If a contracting party wishes to
proceed judicially against infringers, the other party shall support in such a
proceeding. If necessary, the Licensor shall provide the Licensee with all
necessary powers of attorney and authorizations. If the Licensee proceeds
judicially against an infringer, the Licensor shall receive 25% of the proceeds
after deduction of the costs which Licensee incurs on the basis of a legally
final decision. Otherwise, the contracting parties shall bear their own
expenses.
(6) If the Licensee is sued by third parties for infringement of
proprietary rights arising from the use of the contract components or the
contract know-how, the Licensee shall notify the Licensor promptly. The Licensor
shall be obligated to provide the Licensee with information and documents for
the defense against such accusations, to the extent that the Licensor is able to
do so without violating obligations to third parties and is able to protect its
own confidentiality interests. The Licensor shall be entitled to join in any
legal dispute. Each contracting party shall bear the expense incurred in the
prosecution of such a legal dispute.
SECTION 11 FURTHER DEVELOPMENTS OF THE B1 DRIVER SOFTWARE
(1) The Licensee shall notify the Licensor concerning further
developments of the B1 driver software and make them available to the Licensor
at no charge for free and unrestricted use in connection with its own
applications.
(2) The Licensee shall assume no guarantee for the further developments
which are given for use; Section 7 shall apply mutatis mutandis.
SECTION 12 CONTRACT TERM, TERMINATION
(1) The contract shall run for an indefinite term and may be terminated
by registered mail upon notice of 6 months effective at the end of the year.
Other termination possibilities provided in this contract shall remain
unaffected.
(2) The contractual relationship may be terminated by either contracting
party for good cause without compliance with a notice period. Such termination
may only be effected within two weeks after secured receipt of knowledge of a
ground justifying termination and shall specifically be possible for one of the
following--non-exclusive--grounds:
> in the event of violation by the other contracting party of one
of the substantial contractual duties of this contract and futile
expiration of a period of 10 days following warning by the other
party,
> in the case of application for the opening of bankruptcy or
composition proceedings concerning the assets of the other party
or in the case of a suspension of payments,
> in the case of substantial changes in the control over the other
contracting party, excluding changes in the Licensor as a result
of the postal structure,
> in the event of failure within the meaning of and in accordance
with Section5 paragraph 5.
<PAGE> 11
SECTION 13 RIGHTS AFTER TERMINATION OF CONTRACT
(1) All rights of the licensee to use the contract components and
contract know-how shall end when the contract ends. This shall apply to the
contract know-how only to the extent that, and as long as, it is still secret;
the Licensor shall bear the burden of proof in this regard.
(2) Following the end of the contract, the Licensee shall be obligated
to return all contract components with the exception of the interface
descriptions.
(3) If, prior to termination, the licensee has entered into obligations
which remain in effect beyond the end of the contract, the Licensee shall
definitively satisfy them at the next possible point in time. In such cases, the
end of the contract within the meaning of paragraph 1 shall be replaced by the
end of the obligation. New obligations may no longer be entered into following
the receipt of termination notice,.
(4) Paragraphs 1 through 3 shall apply mutatis mutandis to further
developments given for use in accordance with Section 11.
SECTION 14 MISCELLANEOUS
(1) If individual provisions of this contract are invalid, the validity
of the remaining provisions of the contract shall not be affected thereby. The
invalid provisions shall be replaced by a provision which comes as close as
possible to the economic goal of the invalid provision; the same shall apply in
the case of a loophole. However, the contract shall be invalid in its entirety
if adherence thereto would represent an unreasonable hardship for a contracting
party, even taking into account the modifications provided pursuant to sentence
2.
(2) Other contractual relationships between the parties shall remain
unaffected and shall not be modified by this contract.
(3) In the course of use, the Licensee shall be obligated to observe any
export provisions.
(4) No collateral agreements were concluded. Modifications of and
addenda to this contract shall be designated as such, must be in writing and
shall be binding as soon as they are signed by the contracting parties. All
collateral agreements shall be valid only if they have been confirmed in
writing. This written form reservation may only be rescinded by an agreement
drafted in writing and signed by both contracting parties.
(5) It is hereby stipulated that the Munich I State Court shall have
jurisdiction over all disputes arising from this contract. The applicable law
shall be the law of the Federal Republic of Germany.
<PAGE> 12
(6) Contact persons for all questions as well as for all service of
process and communications shall be:
Licensor Deutsche Telekom AG
PZ Telesec
Paul Mertes
Untere Industriestrasse 20
57250 Netphen
Tel.: (0271) 708-1610
Fax: (0271) 708-1625
Licensee SCM MICROSYSTEMS GmbH
Bernd Meier
Luitpoldstrasse 6
85276 Pfaffenhofen
Tel.: (08441) 896-0
Fax: (08441) 82884
Bonn, 7/7/96 Pfaffenhofen, 9/4/96
------------------ ------------------
Deutsche Telekom AG, SCM MICROSYSTEMS GmbH
[signature] [signature] [signature] [signature]
- ----------------------- --------------------------
(legally valid signatures) (legally valid signatures)
<PAGE> 13
MODIFICATION AGREEMENT
TO THE
B1 TRADEMARK LICENSE AND KNOW-HOW CONTRACT
- hereinafter referred to as the "BASIC AGREEMENT" -
BETWEEN
Deutsche Telekom AG,
D-53105 Bonn
- hereinafter referred to as the Licensor -
AND
SCM MICROSYSTEMS GmbH
D-85276 Pfaffenhofen
- hereinafter referred to as the Licensee -
[logo] B1 TECHNOLOGY
<PAGE> 14
SECTION 1 CONTRACT TERM, TERMINATION
Section 12 Paragraph 1 of the basic agreement is hereby amended and now
provides as follows:
The contract shall run for an indefinite term and may be terminated by
registered mail upon notice of 6 months effective at the end of the
year, but not earlier than the end of 1998. Other termination
possibilities provided in this contract shall remain unaffected.
SECTION 2 MISCELLANEOUS
This addendum agreement shall become valid when signed by both
contracting parties and shall become a direct component of the basic
agreement, whose provisions shall continue to apply to the extent not
otherwise expressly provided in this addendum agreement.
Bonn, 8/29/96 Pfaffenhofen, 9/4/96
--------------- ---------------
Deutsche Telekom AG, SCM MICROSYSTEMS GmbH
[signature] [signature] [signature] [signature]
- -------------------------- --------------------------
(legally valid signatures) (legally valid signatures)
<PAGE> 1
EXHIBIT 10.29
PATENT LICENSE AGREEMENT
THIS PATENT LICENSE AGREEMENT ("Agreement") is entered into effective as
of November 15, 1995 ("Effective Date") by and between SCM Microsystems, having
offices at 131 Albright Way, Los Gatos, California 95030 ("SCM") and MIPS
Dataline America, Inc.("MIPS"), having offices at 13240 Evening Creek Drive,
Suite 311, San Diego, California 92128.
WHEREAS, MIPS owns United States patents number 5,036,429, 5,136,467 and
5,396,617, and any and all extensions, continuations, continuations-in-part,
divisionals, reissues-in-part, reissues and reissues-in-part of each and any of
such patent and any and all foreign counterparts of any of the foregoing (the
foregoing collectively referred to herein as the "Licensed Patents", and United
States patent number 5,396,617, specifically, being referred to herein
specifically as the "617 Patent"); and
WHEREAS, SCM desires to license and MIPS desires to grant licenses under
the Licensed Patents on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises above and the parties'
mutual promises below, and other good and valuable consideration, the
sufficiency of which is hereby acknowledged by the parties, SCM and MIPS hereby
agree as follows:
1. Grant of Rights.
1.1 License Grant. Subject to the terms and conditions of this
Agreement, MIPS hereby grants to SCM, and SCM accepts a perpetual, irrevocable,
fee-bearing, worldwide, and transferable right and license under the Licensed
Patents and any and all of MIP's right, title and interest therein and thereto,
with right to grant sublicenses of the foregoing rights, to manufacture, use and
sell, have manufactured, lease and import "Exclusive Products" and "Nonexclusive
Products" (as such terms are defined below) and provide related services of any
kind or nature.
1.2 Exclusivity. The rights and licenses granted to SCM in
Section 1.1 above are and will be exclusive with respect to the "Exclusive
Products". For purposes of this Agreement, "Exclusive Products" means the
following: PC cards and related products, including but not limited to smart
cards, ethernet cards, adapters, connectors and extensions; but specifically
excluding (i) products marketed by MIPS as of the Effective Date ("Current MIPS
Products") and (ii) products not competitive (directly or indirectly) with
products that may be offered by SCM from time to time ("Future MIPS Products"),
which Future Products are functionally similar to Current MIPS Products.
1.3 Nonexclusivity. The rights and licenses granted to SCM in
Section 1.1 are and will be nonexclusive with respect to the "Nonexclusive
Products". For purposes of this Agreement, "Nonexclusive Products" means the
following: Products of any kind for data storage, communication and/or transfer,
including but not limited to the Exclusive Products, and related applications
and interfaces, but specifically excluding Current MIPS Products.
-1-
<PAGE> 2
2. Compensation.
2.1 License Fees. For and in consideration of the rights and
licenses granted to SCM under this Agreement, subject to Sections 2.2, 2.3 and
2.4 below. SCM agrees to pay, on the terms set forth in Section 2.5, below, the
following MIPS license fees:
(a) An up-front fee of [ * ] and
(b) A per unit fee of [ * ] on the sale by SCM of the
"Floppy IC Card Combination Product" unit (as defined in SCM marketing
literature published as of the Effective Date) covered by the 617 Patent; and
(c) A sublicensing fee of [ * ] of "Hardware Sublicense
Royalties" received by SCM. As used in this Section, "Hardware Sublicense
Royalties" means Licensed Patent sublicense royalties received by SCM and
allocated to hardware content (as opposed to software or firmware content)
according to the terms of the Licensed Patent sublicense agreement between SCM
and the third party sublicensee. However, if no such allocation is made in such
sublicense agreement, then all royalties payable under the sublicense agreement
will be deemed to be allocated to hardware content; and
(d) A supplemental annual fee of [ * ]
2.2 Accrual of Fees. Fees payable in accordance with Section 2.1
above will accrue only upon actual receipt of revenues by SCM in respect of the
commercial disposition of products covered by one or more of the Licensed
Patents. However, no fees will accrue on revenues received by SCM from any of
its affiliates, by any SCM affiliates from SCM or by any SCM affiliates from one
another. However, SCM will not license through its affiliates in order to avoid
fees hereunder; and revenues received by such affiliates from third parties will
be deemed to accrue for purposes of calculating royalties of this Agreement.
2.3 Maximum Annual Fees. Fees payable to SCM in accordance with
Section 2.1 above will not exceed [ * ] per year (commencing with the Effective
Date and each anniversary thereof), and no fees in excess of such amount will
accrue to MIPS for any such year.
2.4 Patent Coverage. No fees will be payable under this agreement
unless there is a transaction for the commercial disposition of a product
covered by one or more unexpired, valid and enforceable Licensed Patents issued
in the jurisdiction in which the transaction occurs; provided that, except for
the U.S. patents specifically listed in the Recitals to this Agreement, SCM must
receive, in advance of the accrual of fees hereunder, unequivocal and
unambiguous written notice from MIPS of the issuance of such Licensed Patents.
For purposes of the preceding sentence, a transaction will be deemed to occur in
the jurisdiction in which physical possession of such product is received by the
recipient in such transaction (e.g., a purchaser or lessee).
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-2-
<PAGE> 3
2.5 Payment Terms. SCM shall pay MIPS fees as provided in
Section 2.1 above, by valid bank check to be drawn on a U.S. bank, as follows:
(a) Up-front fees are payable within fifteen (15) days
after the Effective Date; and
(b) Per unit fees are payable within forty-five (45)
days after the fiscal quarter of SCM during which revenue is received by SCM on
the sale of the Floppy IC Card Combination Product unit; and
(c) Sublicensing fees are payable within forty-five
(45) days after the fiscal quarter of SCM during which sublicense royalty
revenue is received by SCM; and
(d) Supplemental annual fees are payable in advance at
least fifteen (15) days after each anniversary of the effective date during the
term of this Agreement, although the first such annual fee will be paid within
fifteen (15) days after the Effective Date.
2.6 Most Favored Licensee. MIPS represents and warrants to SCM
that MIPS has not granted any third party rights within the scope of the rights
and licenses granted to SCM under this Agreement on terms and conditions any of
which are more favorable than the terms and conditions provided to SCM in this
Section 2 above. MIPS agrees that, if at any time, MIPS offers or grants any
such more favorable terms and conditions to a third party, MIPS will notify SCM
in writing as soon as practicable. SCM will be entitled to substitute any such
more favorable terms and conditions for corresponding terms and conditions, if
any, provided in this Agreement.
2.7 Currency Conversion. SCM shall pay all fees under this
Agreement in U.S. dollars. If SCM receives sublicense royalties (upon which
sublicensing fees are based, as above) in currencies other than U.S. dollars,
then SCM shall convert such other currencies, for purposes of calculating
sublicensing fees, at currency conversion rates published by the Wall Street
Journal, U.S. West Coast Edition, on the last day of publication in the quarter
during which revenues accrue.
2.8 Taxes. MIPS shall bear all taxes, other than taxes on the
income of SCM, resulting from the grant or exercise of the rights and licenses
provided to SCM herein. Without limiting the foregoing, SCM may deduct from fees
payable to MIPS, and pay to taxing authorities in each jurisdiction, taxes
levied on fees payable to MIPS in connection with such grant or exercise. SCM
agrees to provide MIPS with certificates or other documents received by SCM in
connection with the payment of such withholding taxes to such authorities (which
may be usable by MIPS in obtaining foreign tax credits under U.S. federal law in
respect of such foreign taxes withheld).
2.9 Reports and Audits.
(a) SCM agrees to include with each quarterly payment of
fees a reasonably detailed report setting forth the information used to
calculate such fees.
-3-
<PAGE> 4
(b) SCM agrees to keep reasonably detailed books and
records containing such information.
(c) MIPS shall have the right to have its auditors
reasonably acceptable to SCM inspect such books and records to determine whether
quarterly payments made to MIPS under this Agreement are accurate; provided
that, SCM may condition any such inspection upon (i) reasonable notice to SCM;
(ii) conduct of the inspection during SCM's normal business hours, (iii)
initiation of any such inspection not more often than once a year and (iv) the
written agreement of the auditors to keep information SCM reasonably deems
confidential from unauthorized disclosure and to disclose to MIPS only the
amount of any overpayments or underpayments under this Agreement. MIPS shall
bear the cost of any such inspection; provided that SCM shall reimburse MIPS for
the reasonable cost of any such inspection which discloses an aggregate
underpayment to MIPS for the period for which books and records are inspected of
five percent (5%) or more (provided that SCM shall be obligated for such
reimbursement for any period only once).
3. Marketing Participation by MIPS.
SCM will consider including MIPS as a participant in SCM's
marketing activities related to products manufactured by SCM and covered by the
Licensed Patents, including sharing certain sales and marketing data and
reports, as well as potential technical collaboration and possible cooperative
selling activities. Such participation will be subject to written agreement of
both parties.
4. Expiration and Termination.
4.1 Expiration of Specific Licenses. The licenses granted to SCM
under each Licensed Patent as provided in this Agreement will expire, as to each
jurisdiction, upon the expiration, or a ruling of invalidity or unenforceability
of each Licensed Patent in any such jurisdiction; and SCM's payment obligations
under this Agreement in respect of such Licensed Patent will cease upon such
expiration; provided that SCM may continue to practice the inventions covered by
such Licensed Patent.
4.2 Termination. SCM may terminate this Agreement at any time for
any reason or for no reason upon thirty (30) days' written notice to MIPS. Upon
any such termination of this Agreement (or any other termination agreed by both
parties in writing), all rights and licenses granted to SCM under Section 2 of
this Agreement will cease; except that SCM will continue to have a perpetual
right to continue to manufacture and distribute replacement products and
components and provide product services in accordance with SCM's warranties
given to its customers and reasonable service policies.
4.3 Survival of Obligations. All payment obligations that have
accrued as of the effective date of expiration of any license or termination of
this Agreement shall survive termination for any reason. In addition, the
provisions of Sections 4 et seq. will survive termination of this Agreement for
any reason.
-4-
<PAGE> 5
5. Warranty and Authority. MIPS hereby represents and warrants to SCM
that MIPS owns all right, title and interest in and to the Licensed Patents
necessary in order for SCM to practice the inventions covered by the Licensed
Patents free from interference or claim by any third party. MIPS further
represents and warrants to SCM that MIPS has not granted or entered into (and
MIPS covenants to SCM that MIPS will not grant or enter into) any license or
agreement inconsistent with this Agreement. MIPS agrees to indemnify and hold
SCM harmless from and against any and all expenses, costs (including the
reasonable fees of attorneys and other professionals), damages, judgments,
awards and other liabilities of any nature incurred by SCM as a result of a
breach of the foregoing representations and warranties by MIPS, and MIPS shall
reimburse SCM or pay any of the foregoing promptly upon written request by SCM.
6. Limitation of Liability. IN NO EVENT WILL SCM BE LIABLE UNDER THIS
AGREEMENT FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR INDIRECT DAMAGES OR FOR ANY
AMOUNT IN EXCESS OF AMOUNTS EXPRESSLY PROVIDED HEREIN, UNDER ANY LEGAL OR
EQUITABLE THEORY, WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. General Provisions.
7.1 Governing Law; Venue. This Agreement will be governed and
interpreted in accordance with the laws of the State of California, excluding
its conflicts of law principles. The parties agree that any proceeding to
resolve any dispute under or in connection with this Agreement shall be brought
in the state or federal courts in Santa Clara County, California.
7.2 Notices. Any notices permitted or required under this
Agreement shall be sent in writing via certified U.S. Mail or internationally
recognized courier to the recipient party's address first set forth in this
Agreement. Notices will be deemed to be effective three (3) days after sending.
7.3 Severability. The invalidity or unenforceability of any term
or provision of this Agreement shall in no way affect the validity or
enforceability of any other term of provision.
7.4 Complete Agreement. This Agreement is the final, complete and
exclusive understanding between SCM and MIPS with respect to its subject matter.
This Agreement supersedes all prior agreements and promises relating to its
subject matter. No promises or agreements made at or after the Effective Date
are binding unless in writing and signed by both parties.
-5-
<PAGE> 6
IN WITNESS WHEREOF, THE PARTY SIGNATORIES BELOW AGREE TO THIS AGREEMENT
AS SET FORTH ABOVE.
SCM MICROSYSTEMS, INC. MIPS DATALINE AMERICA, INC.
By:_________________________ By:_________________________
Robert Schneider, Dipl. Phys. Thomas Villwock,
President President
-6-
<PAGE> 1
EXHIBIT 10.31
MANUFACTURER'S SALES REPRESENTATIVE AGREEMENT
This Agreement is dated as of December 8, 1994 between SCM
Microsystems, Inc., with an office located at 131 Albright Way, Los Gatos, CA
59030 (hereinafter called the "Manufacturer"), and the undersigned, AGM, with
an office located at 15505 Quail Run Drive, North Potomac, MD 20878
(hereinafter called the "Representative").
NOW, THEREFORE, in consideration of the mutual agreements of the
parties hereto, Manufacturer and Representative agree as follows:
1. Appointment and Territory.
Subject to the terms and conditions hereafter set forth, Manufacturer
hereby appoints and grants to Representative the exclusive and nonassignable
right to sell all products of Manufacturer described in Exhibit A hereto
(hereinafter called the "Products") in the geographic territory described in
Exhibit A hereto (hereinafter called the "Territory") and Representative hereby
accepts such appointment.
2. Obligations of Representative and Manufacturer.
A. As Manufacturer's exclusive sales representative for the
Products in the Territory, Representative shall:
1. Actively and fully promote the Products, identify
potential customers in the Territory and exploit, expand and cover existing and
potential customers in the Territory on a regular basis, consistent with good
business practice, and bear all costs and expenses incurred by Representative
in connection therewith;
2. Cooperate with and assist Manufacturer in all
advertising and merchandising campaigns initiated by Manufacturer with respect
to the Products; provided, however, that the costs and expenses of such
campaigns initiated by Manufacturer shall be borne by Manufacturer;
3. Employ such sales personnel on such compensation
terms (payable by Representative) and on such other terms and conditions as
Representative may deem appropriate to market and sell the Products in the
Territory and otherwise carry out its obligations under this Agreement;
provided, however, Representative, in so employing such sales personnel, shall
act individually and not as an agent for Manufacturer, and such sales personnel
shall for all purposes be employees of Representative and not Manufacturer;
4. When requested by Manufacturer, travel to the main
office of Manufacturer in Los Gatos, California, or any other location deemed
appropriate by Manufacturer to report to and consult with Manufacturer and to
acquaint itself with the Products and all phases of Manufacturer's sales and
manufacturing capabilities; and
<PAGE> 2
5. Immediately notify Manufacturer in the event
Manufacturer introduces a new Product that may be competitive with other
products that Representative markets or sells for other manufacturers.
B. Manufacturer shall assist Representative with Representative's
performance of its obligations under this Agreement by:
1. Furnishing Representative, without charge, reasonable
amounts of promotional sales and technical information and other literature and
brochures representing the Products, and, with respect to new Products,
endeavoring to provide such information in advance of initial production or
sale of such Products;
2. Providing reasonable sales and service assistance;
3. Furnishing Representative with current price lists
and schedules; and
4. Endeavoring to keep Representative fully informed of
all changes in the Products.
3. Commissions; Collection of Accounts.
A. Manufacturer shall pay Representative commissions on sales
made to Representative's customers in the Territory in accordance with the
Commission Schedule set forth on Exhibit A hereto. Direct customers of
Manufacturer which are identified on Exhibit A hereto as being a "House
Account" shall under no circumstances be deemed customer of Representative for
purposes of this Agreement notwithstanding that such "House Account" customers
may be located in the Territory. Representative's commission shall be computed
on the net invoice price (i.e., the gross price less customary charges for such
items a taxes, freight and trade discounts) of the Products as billed to
Representative's customers by Manufacturer and shall be payable by
Manufacturer. Commission amounts will be paid to the Representative after the
customer's invoice has been paid.
B. Manufacturer shall provide Representative with copies of all
invoices sent to Representative's customers in the Territory. All Products for
which sales orders are accepted by Manufacturer shall be billed and shipped
directly to Representative's customers by Manufacturer and all payments by such
customers shall be made directly to Manufacturer. Manufacturer shall be
responsible for all collections from Representative's customers and, unless
otherwise agreed by Manufacturer and Representative in writing, Representative
shall have no authority to make any such collections; provided, however, upon
request by Manufacturer, Representative shall assist Manufacturer in collecting
overdue accounts. Manufacturer has the sole authority and discretion to
collect, compromise and settle the accounts of all customers of Representative.
Nevertheless, Manufacturer shall exercise reasonable diligence to collect the
full invoice amount for all Products sold by Representative to its customers in
the Territory.
-2-
<PAGE> 3
4. Commission Charge-Back
Manufacturer shall have the right to charge back to Representative's
commission account:
A. In the event of any refund or credit to the account of any
customer of Representative because of rejection or return by such customer of
any Products, the amount which represents the commission previously paid to
Representative or credited to Representative's commission account in respect of
such refunded or credited amount;
B. In the event final settlement of an account of a customer of
Representative is made on less than a full payment basis or in the event an
account of any such customer is charged off in whole or in part by
Manufacturer, the amount which represents the commission previously paid to
Representative or credited to Representative's commission account in respect of
the uncollected portion of such customer's account resulting from such final
settlement or charge-off; and
C. In the event Representative assumes responsibility for an
existing account which was previously the responsibility of another sales
representative of Manufacturer or which previously was a House Account, all
commission charge-backs of the nature described in Clauses 4A an B above made
on or after 60 days after Representative assumes responsibility for such
account notwithstanding that Representative may not have earned any commissions
with respect to such account at the time of such charge-back.
5. Prices and Terms.
Representative shall conduct its business as an independent sales
representative and shall have no authority to bind Manufacturer. All sales
orders, including, without limitation, the prices and terms thereof, shall be
subject to the final approval of and acceptance by Manufacturer.
Representative acknowledges that the price lists and schedules for the Products
and the prices and terms of all sales orders constitute confidential
information of Manufacturer, and Representative shall not disclose any of such
information to any other person except as may be necessary to enable
Representative to perform its obligations under this Agreement.
6. Termination.
A. This Agreement shall be effective as of the date first written
above and may be terminated at any time by either party hereto upon thirty (30)
days' prior written notice to the other party at the address for such party set
forth in the opening paragraph of this Agreement, or such other address as such
party shall designate in writing to the other party. Each notice under this
Agreement shall be sent certified U.S. mail, return receipt requested, postage
prepaid and shall be effective upon the earlier of receipt or three (3) days
after the mailing thereof.
B. Representative shall be entitled to a commission in accordance
with the provisions of this Agreement on all sales orders which are transmitted
to and accepted by Manufacturer prior to the effective date of termination of
the Agreement; provided, however, that under no circumstances shall
-3-
<PAGE> 4
Representative be entitled to commissions on any shipments made by Manufacturer
with respect to such sale orders more than thirty (30) days after the effective
date of termination of this Agreement.
7. Indemnification.
A. Manufacturer shall have sole responsibility for the design,
development, and performance of the Products and the protection of its trade
name.
B. Manufacturer agrees to indemnify and hold Representative
harmless from, and to pay all losses, costs, or expenses which Representative
may have to incur on account of, any infringement of patents, trademarks, trade
names or copyrights resulting from sales of the Products.
8. Entire Agreement.
This Agreement supersedes all prior agreements between the parties
hereto relating to the subject matter hereof and all such prior agreements are
declared to be null and void and without further force or effect. This
Agreement constitutes the entire agreement between Manufacturer and
Representative and there are no oral or other agreements, arrangements,
representations, or understandings between Manufacturer or Representative.
This Agreement may not be amended or modified except by an instrument in
writing duly signed by both parties hereto.
9. Miscellaneous.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
-4-
<PAGE> 5
In WITNESS WHEREOF, Representative has hereunto affixed his/her
signature and an authorized officer of Manufacturer has hereunto affixed
his/her signature, both as of the day and year first above written.
MANUFACTURER:
SCM MICROSYSTEMS, INC.
s/signature By: s/Michael Hunter
- ----------------------------- -----------------------------
Witness Name: Michael Hunter
Title: Vice President of Sales
---------------------------
REPRESENTATIVE:
s/signature AGM
- ----------------------------- --------------------------------
Witness Name: s/signature
---------------------------
<PAGE> 6
EXHIBIT A
A. The Products
All SCM Microsystems Brand Products
<TABLE>
<CAPTION>
B. The Territory: State Zip-Code
<S> <C>
DC 20000-20500
DE 19700-19900
MD 20600-21900
NJ 08000-08700
PA 16800-19600
VA 22000-24500
</TABLE>
C. The Commission Schedule:
[*]
* CERTAIN CONFIDENTIAL INFORMATION ON THIS
PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 1
EXHIBIT 11.1
SCM Microsystems, Inc. and Subsidiaries
Statement Regarding Computation of Net Income Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three month
Year ended, period ended,
December 31, 1996 March 31, 1997
----------------- --------------
<S> <C> <C>
Net loss $(1,110) $ (475)
Interest expense on convertible notes payable 96 --
------- ------
Net loss used in earnings per share calculation $(1,024) $ (475)
------- ------
Weighted average common shares outstanding 1,280 1,468
Weighted average convertible preferred stock and notes payable 2,631 3,225
Staff Accounting Bulletin No. 83 issuances and grants(1) 1,361 1,361
------- ------
Shares used to compute pro forma net loss per share 5,272 6,054
------- ------
Pro forma net loss per share $ (0.19) $(0.08)
------- ------
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock, convertible preferred stock and convertible notes payable
issued for consideration below the assumed initial public offering (IPO) price,
and stock options and warrants granted with exercise prices below the IPO price
during the 12-month period preceding the date of the initial filing of the
Registration Statement, have been included in the calculation of common
equivalent shares, using the treasury stock method, as if they were outstanding
for all periods presented.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
SCM Microsystems GmbH, a wholly owned subsidiary of Registrant,
is a corporation organized under the laws of Germany.
SCM Microsystems (U.S.) Inc., a wholly owned subsidiary of Registrant,
is a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
SCM Microsystems, Inc.:
The audits referred to in our report dated March 31, 1997, except as to Note 11,
which is as of May 30, 1997, included the related financial statement schedule
as of December 31, 1996, and for each of the years in the three-year period
ended December 31, 1996, included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the registration statement.
KPMG Peat Marwick LLP
Palo Alto, California
June 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SCM MIROSYSTEMS, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND
REGISTRATION STATEMENT ON FORM S-1.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 2,593 4,946
<SECURITIES> 0 0
<RECEIVABLES> 5,237 4,516
<ALLOWANCES> 210 203
<INVENTORY> 2,279 2,411
<CURRENT-ASSETS> 10,628 12,546
<PP&E> 1,274 1,323
<DEPRECIATION> 456 508
<TOTAL-ASSETS> 11,459 13,374
<CURRENT-LIABILITIES> 12,415 5,503
<BONDS> 0 0
5,068 14,554
1 1
<COMMON> 1 2
<OTHER-SE> (6,026) (6,686)
<TOTAL-LIABILITY-AND-EQUITY> 11,459 13,374
<SALES> 21,520 4,365
<TOTAL-REVENUES> 21,520 4,365
<CGS> 14,880 2,800
<TOTAL-COSTS> 14,880 2,800
<OTHER-EXPENSES> 7,620 2,041
<LOSS-PROVISION> 159 0
<INTEREST-EXPENSE> 304 66
<INCOME-PRETAX> (1,110) (475)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,110) (475)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,110) (475)
<EPS-PRIMARY> (0.19) (0.08)
<EPS-DILUTED> (0.19) (0.08)
</TABLE>
