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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
VASCO DATA SECURITY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3577 36-4169320
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
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1919 S. HIGHLAND AVE., SUITE 118-C
LOMBARD, ILLINOIS 60148
(630) 932-8844
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------
T. KENDALL HUNT
CHIEF EXECUTIVE OFFICER
VASCO DATA SECURITY INTERNATIONAL, INC.
1919 S. HIGHLAND AVE., SUITE 118-C
LOMBARD, ILLINOIS 60148
(630) 932-8844
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
Copies to:
CHARLES J. MCCARTHY
STEPHEN J. CAMPO
TIMOTHY R. DONOVAN
JENNER & BLOCK
ONE IBM PLAZA
CHICAGO, ILLINOIS 60611
(312) 222-9350
-------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or contingent basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
-------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
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Common Stock, par value $.001 per
share................................ 32,503,111 shares(1) $2.5775(2) $83,776,768(2) $25,387
Series B Preferred Stock, par value
$.01 per share....................... 9,000 shares N/A(3) $30(3) $1
Options to Purchase Common Stock....... 11,418,775 options(4) N/A(5) N/A(5) N/A(5)
Warrants to Purchase Common Stock...... 1,056,922 warrants(6) N/A(5) N/A(5) N/A(5)
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(1) Includes up to 19,422,979 shares that may be issued pursuant to the Exchange
Offer for shares of common stock of VASCO CORP. described in the Prospectus
contained in the Registration Statement, 10,053,264 shares that may be
issued upon the exercise or conversion of preferred stock, options
(including options under stock option plans and options under convertible
notes) and warrants that may be issued pursuant to the Exchange Offer, and
3,026,868 additional shares that may be issued pursuant to the Registrant's
1997 Stock Option Plan, as amended. Pursuant to Rule 416 under the
Securities Act of 1933, as amended (the "Securities Act"), there is also
being registered such number of additional shares of common stock which may
be issued to prevent dilution resulting from stock splits, stock dividends
or similar transactions, or other readjustment provisions of options,
warrants or convertible preferred stock being registered.
(2) Based on the average of the bid and asked price of Common Stock of VASCO
CORP. as quoted on the Over-the-Counter Bulletin Board on September 8, 1997,
estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) under the Securities Act.
(3) Pursuant to Rule 457(f)(2) under the Securities Act, the registration fee
was calculated based on the aggregate par value of the shares of Current
VASCO Series B Preferred Stock to be received (cancelled) by the Registrant
in the Exchange Offer. VASCO CORP. has an accumulated capital deficit, and,
in accordance with Rule 457(f)(2), the proposed maximum aggregate offering
price was calculated by dividing the aggregate par value of the Current
VASCO Series B Preferred Stock by 3.
(4) Based upon the maximum number of options (including options under stock
option plans and options under convertible notes) that may be issued
pursuant to the Exchange Offer in exchange for currently outstanding options
to acquire shares of common stock of VASCO CORP. and 3,026,868 additional
options that may be issued pursuant to the Registrant's 1997 Stock Option
Plan, as amended; the shares of common stock of the Registrant underlying
the options hereby registered are included in the number of shares of common
stock of the Registrant set forth in footnote (1) above.
(5) In accordance with Rule 457(g) under the Securities Act, no separate
registration fee is paid with respect to the options or warrants being
registered as the registration fee is being paid on the underlying common
stock that may be issued on exercise of the options or warrants.
(6) Based upon the maximum number of warrants that may be issued pursuant to the
Exchange Offer in exchange for currently outstanding warrants to purchase
shares of common stock of VASCO CORP.; the shares of common stock of the
Registrant underlying the warrants hereby registered are included in the
number of shares of common stock of the Registrant set forth in footnote (1)
above.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED SEPTEMBER 12, 1997
VASCO DATA SECURITY INTERNATIONAL, INC.
OFFER TO EXCHANGE SHARES, OPTIONS AND WARRANTS
FOR
VASCO CORP.
SHARES, OPTIONS AND WARRANTS
(AND ASSOCIATED CORPORATE MATTER CLAIMS)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. CHICAGO, ILLINOIS TIME, ON
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). SHARES, OPTIONS,
AND WARRANTS NOT PREVIOUSLY ACCEPTED FOR EXCHANGE MAY BE WITHDRAWN AT ANY TIME
PRIOR TO THE EXPIRATION DATE.
VASCO Data Security International, Inc. ("New VASCO") is a Delaware
corporation newly formed by representatives of VASCO CORP., a Delaware
corporation ("Current VASCO"), to effect a reorganization (the "Reorganization")
of Current VASCO through an exchange of securities.
Certain historical corporate actions taken by Current VASCO and its
predecessor entities were not in compliance with applicable corporate law or are
not reflected in proper documentation (collectively these actions are referred
to in this document as "Corporate Matters"). The Board of Directors of Current
VASCO believes that the Corporate Matters may hinder or preclude Current VASCO
in its future efforts to raise capital. For a more complete description of the
Corporate Matters, see "REORGANIZATION OF CURRENT VASCO -- Reasons for the
Reorganization."
The Board of Directors of Current VASCO believes that through an exchange
of outstanding Current VASCO securities for securities of New VASCO (the
"Exchange Offer"), efforts to raise capital in the future by New VASCO will be
facilitated. See "SUMMARY -- Benefits and Disadvantages of Participating in the
Exchange Offer."
New VASCO hereby offers to exchange:
(a) Its Common Stock (par value $0.001 per share) and Series B
Preferred Stock (par value $0.01 per share) for (i) shares of Current VASCO
Common Stock (par value $0.001 per share) and Current VASCO Series B
Preferred Stock (par value $0.01 per share) on a one-for-one basis of the
same class or series, and (ii) a release by each exchanging holder of any
and all potential claims against Current VASCO and its predecessor entities
arising out of or relating to the Corporate Matters (collectively these
potential claims are referred to in this document as the "Associated
Corporate Matters Claims");
(b) Its options (collectively such options are referred to in this
document as "New VASCO Stock Options") to purchase its Common Stock in
exchange for (i) the cancellation of outstanding options to purchase
Current VASCO Common Stock granted under Current VASCO stock option
programs (collectively such options are referred to in this document as
"Current VASCO Stock Options"), and (ii) a release by each exchanging
holder of any and all Associated Corporate Matter Claims. The New VASCO
Stock Options will be for the same number of shares and have the same
exercise price, vesting terms, termination provisions and expiration dates
as the Current VASCO Stock Options and will be issued under New VASCO's
1997 Stock Option Plan, as amended, as nonqualified options for federal
income tax purposes;
(continued on next page)
SEE "RISK FACTORS" HEREIN, BEGINNING AT PAGE 13, FOR MATTERS THAT SHOULD BE
CONSIDERED WITH RESPECT TO THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS OR THE
NEW VASCO SHARES, OPTIONS OR WARRANTS TO BE ISSUED IN THE EXCHANGE OFFER, AND
THEY HAVE NOT DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
FURTHERMORE, NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES REGULATOR HAS DETERMINED THE FAIRNESS OR MERITS OF THE EXCHANGE
OFFER. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is dated , 1997.
<PAGE> 3
(c) Its options (collectively such options are referred to in this
document as "New VASCO Conversion Options") to acquire its Common Stock in
exchange for (i) the cancellation of outstanding options to acquire Current
VASCO Common Stock pursuant to conversion of Current VASCO convertible
notes (collectively such options are referred to in this document as
"Current VASCO Conversion Options"), and (ii) a release by each exchanging
holder of any and all Associated Corporate Matter Claims. The New VASCO
Conversion Options will be for the same number of shares and will have the
same conversion price, conversion period and other terms of conversion as
the Current VASCO Conversion Options;
(d) Its warrants (collectively such warrants are referred to in this
document as "New VASCO Warrants") to purchase its Common Stock in exchange
for (i) the cancellation of outstanding warrants to purchase Current VASCO
Common Stock (collectively such warrants are referred to in this document
as "Current VASCO Warrants"), and (ii) a release by each exchanging holder
of any and all Associated Corporate Matter Claims. The New VASCO Warrants
will be for the same number of shares and have the same exercise price and
expiration dates as the Current VASCO Warrants.
The release to be executed in connection with an exchange of Current VASCO
securities will release and waive any and all Associated Corporate Matter Claims
the exchanging holder (or, if the Current VASCO securities are held in a nominee
name, the beneficial owner of the Current VASCO securities) may have even if
less than all of the exchanging holder's (beneficial owner's) Current VASCO
securities are exchanged; provided that if a nominee holds Current VASCO
securities on behalf of more than one beneficial owner, any release executed by
the nominee will be effective only with respect to any Associated Corporate
Matter Claims of beneficial owners directing such nominee to exchange all or any
part of the Current VASCO securities in which such beneficial owner has an
interest. For a more complete description of the Associated Corporate Matter
Claims, see "THE EXCHANGE OFFER -- Terms of the Exchange Offer."
The Exchange Offer is subject to the terms and conditions set forth in this
Prospectus, including the condition that there must as of the Expiration Date be
tendered for exchange (i) at least 80% of the outstanding shares of Current
VASCO Common Stock, and (ii) at least 80% of the outstanding shares of Current
VASCO Series B Preferred Stock (collectively, the conditions set forth in
clauses (i) and (ii) are referred to in this document as the "Minimum
Condition"). Based on the number of shares of Current VASCO outstanding on
August 31, 1997, if (i) an aggregate of 15,538,383 shares of Current VASCO
Common Stock and (ii) 7,200 shares of Current VASCO Series B Preferred Stock are
tendered for exchange, the Minimum Condition will be satisfied.
The Exchange Offer is intended for federal income tax purposes to be a
tax-free transaction with respect to the exchange of the Current VASCO Common
Stock, the Current VASCO Series B Preferred Stock, the Current VASCO Stock
Options and those Current VASCO Warrants which were originally issued for
services. The exchange of the Current VASCO Conversion Options and of Current
VASCO Warrants (other than Current VASCO Warrants originally issued for
services) are expected to be taxable events for federal income tax purposes. See
"REORGANIZATION OF CURRENT VASCO -- Federal Income Tax Consequences."
The Exchange Agent for the exchange of Current VASCO Common Stock and
Current VASCO Series B Preferred Stock is Illinois Stock Transfer Company, 223
West Jackson Boulevard, Suite 1210, Chicago, Illinois 60606; telephone (312)
427-2953.
Exchanges of Current VASCO Stock Options, Current VASCO Conversion Options
and Current VASCO Warrants are to be made through Gregory T. Apple, Vice
President and Treasurer, VASCO Data Security International, Inc., 1919 South
Highland Avenue, Suite 118-C, Lombard, Illinois 60148; telephone (630) 932-8844.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
The Companies............................................. 1
Reorganization of Current VASCO........................... 1
The Exchange Offer........................................ 2
Questions and Answers About The Exchange Offer............ 5
WHERE YOU CAN FIND MORE INFORMATION......................... 11
SUMMARY FINANCIAL INFORMATION............................... 12
RISK FACTORS................................................ 13
Risks Relating To Exchange Offer And New VASCO............ 13
Factors Relating To Operations............................ 15
CURRENT VASCO AND NEW VASCO................................. 20
REORGANIZATION OF CURRENT VASCO............................. 20
Organizational History of Current VASCO................... 21
The Reorganization........................................ 22
Reasons for the Reorganization............................ 24
Federal Income Tax Consequences........................... 26
Differences in Capital Stock.............................. 29
No Appraisal Rights....................................... 29
THE EXCHANGE OFFER.......................................... 30
Terms of the Exchange Offer............................... 30
Other Arrangements Relating to the Exchange Offer......... 31
Expiration Date; Extensions; Termination; Amendment....... 32
Procedure for Tendering Current VASCO Shares.............. 32
Guaranteed Delivery Procedure for Current VASCO Shares.... 33
The Exchange Agent........................................ 34
Procedures for Tendering Current VASCO Equity Equivalent
Securities............................................. 34
Withdrawal Rights......................................... 34
Conditions to the Exchange Offer.......................... 35
Acceptance of Current VASCO Securities and Issuance of New
VASCO Securities....................................... 35
Payment of Expenses....................................... 36
MARKET PRICE OF CURRENT VASCO COMMON STOCK AND DIVIDEND
POLICY.................................................... 37
SELECTED CONSOLIDATED FINANCIAL INFORMATION................. 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 39
CERTAIN INFORMATION CONCERNING CURRENT VASCO................ 53
Business.................................................. 53
Management................................................ 68
Current VASCO Equity Equivalent Securities................ 74
PRINCIPAL STOCKHOLDERS...................................... 77
CERTAIN INFORMATION CONCERNING NEW VASCO.................... 79
Organization of New VASCO................................. 79
Management................................................ 79
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DESCRIPTION OF CAPITAL STOCK OF NEW VASCO.................................................................. 80
Common Shares............................................................................................ 80
Preferred Shares......................................................................................... 80
Stock Options, Warrants and Convertible Notes............................................................ 81
Registration Rights and Other Arrangements............................................................... 83
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 83
Comparison of Current VASCO Stockholder Rights Following the Exchange Offer.............................. 83
Comparison of Rights of Holders of Stock Options and Warrants Following the Exchange Offer............... 84
LEGAL MATTERS.............................................................................................. 84
EXPERTS.................................................................................................... 84
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ii
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Exchange Offer and the reorganization of VASCO CORP., you should read carefully
this entire document and, as applicable, the Letter of Transmittal and Release,
the New VASCO Option Agreement, the New VASCO Convertible Note Agreement or the
New VASCO Warrant Agreement that accompanies this document. We also refer you to
certain exhibits and other information not included in this document. See "WHERE
YOU CAN FIND MORE INFORMATION."
THE COMPANIES
VASCO CORP., a Delaware corporation incorporated on August 16, 1990
(referred to herein as "Current VASCO"). VASCO Data Security International,
Inc., a Delaware corporation incorporated on July 15, 1997 (referred to herein
as "New VASCO"), 1919 South Highland Avenue, Suite 118-C, Lombard, Illinois
60148, (630) 932-8844.
Current VASCO, through its operating subsidiaries, designs, develops,
markets and supports open standards-based hardware and software security systems
which manage and secure access to information assets. Current VASCO's hardware
products include time-synchronous response only, challenge/response and
time-synchronous challenge/response user authentication devices, some of which
incorporate an electronic signature feature to guarantee the integrity of data
transmissions. These devices are commonly referred to as security tokens.
Current VASCO's security tokens are based upon Current VASCO's core encryption
technology, which utilizes two widely known and accepted algorithms, Data
Encryption Standard ("DES") and Rivest, Shamir, Adelman ("RSA"). Current VASCO's
Cryptech division produces high speed hardware and software encryption products
used both internally for Current VASCO's security tokens and for original
equipment manufacturer ("OEM") vendors requiring real time encryption services.
In addition, Current VASCO recently has introduced a smartcard security token
that uses the challenge/response mode and the X.509 certificate authentication
standard. Current VASCO's security tokens are designed to be used with the VASCO
Access Control Manager server software or to be integrated directly into
applications.
New VASCO is a newly organized corporation. It was formed by
representatives of Current VASCO for purposes of the Reorganization and will be
dissolved if the Exchange Offer is not consummated.
REORGANIZATION OF CURRENT VASCO
Current VASCO plans to reorganize so that its security holders who, in the
Exchange Offer exchange their securities and release Associated Corporate Matter
Claims become security holders of New VASCO. If you exchange your Current VASCO
Common Stock or Current VASCO Series B Preferred Stock (collectively such shares
of common stock and preferred stock are referred to in this document as "Current
VASCO Shares") you will become a holder, respectively, of New VASCO Common Stock
or New VASCO Series B Preferred Stock (collectively such shares of common stock
and preferred stock are referred to in this document as "New VASCO Shares").
Similarly, if you exchange your Current VASCO Stock Options, Current VASCO
Conversion Options or Current VASCO Warrants (collectively such stock options,
conversion options and warrants are referred to in this document as "Current
VASCO Equity Equivalent Securities"), you will become a holder of, as the case
may be, New VASCO Stock Options, New VASCO Conversion Options or New VASCO
Warrants (collectively such stock options, conversion options and warrants are
referred to in this document as "New VASCO Equity Equivalent Securities"). If
the Exchange Offer is consummated, Current VASCO will become a majority-owned
subsidiary of New VASCO.
For ease of reference, Current VASCO Shares and Current VASCO Equity
Equivalent Securities are referred to collectively in this document as "Current
VASCO Securities," and New VASCO Shares and New VASCO Equity Equivalent
Securities are referred to collectively in this document as "New VASCO
Securities."
<PAGE> 7
THE EXCHANGE OFFER
In the Exchange Offer, New VASCO is offering to exchange New VASCO
Securities for (i) Current VASCO Securities, and (ii) a release by each
exchanging holder of any and all Associated Corporate Matter Claims. The New
VASCO Securities you receive in exchange for Current VASCO Securities will have
the same material terms as the Current VASCO Securities you surrender, except
that (a) in order to satisfy a federal tax requirement for a tax-free exchange
of shares, the New VASCO Series B Preferred Stock will be entitled to vote,
together with the holders of New VASCO Common Stock, on all matters submitted
for a vote of the holders of New VASCO Common Stock, (b) certain clarifying and
conforming changes have been made in the terms of the New VASCO Common Stock and
New VASCO Series B Preferred Stock, and (c) the New VASCO Stock Options will be
issued under and subject to the terms of the 1997 VASCO Data Security
International, Inc. Stock Option Plan, as amended (the "New VASCO 1997 Stock
Option Plan"). The New VASCO Stock Options will be for the same number of shares
and have the same vesting, exercise price, termination provisions and expiration
dates as the Current VASCO Stock Options you exchange. With respect to the
Current VASCO Conversion Options, the New VASCO Conversion Options will have the
same conversion price, conversion period and other terms of conversion as the
Current VASCO Conversion Options you exchange. The New VASCO Warrants will also
be for the same number of shares, with the same exercise price and expiration
dates, as the Current VASCO Warrants you surrender. In addition, New VASCO's
Certificate of Incorporation, as amended, authorizes the issuance of up to
75,000,000 shares of common stock, while the Restated and Amended Certificate of
Incorporation of Current VASCO, as amended, authorizes the issuance of
50,000,000 common shares. See "COMPARISON OF STOCKHOLDER RIGHTS."
Your release of any and all Associated Corporate Matter Claims will be
effected when the Exchange Offer is consummated if you exchange your Current
VASCO Securities and sign and deliver the Letter of Transmittal and Release, the
New VASCO Option Agreement, the New VASCO Convertible Note Agreement or the New
VASCO Warrant Agreement, as applicable, that accompanies this Prospectus. YOU
SHOULD CAREFULLY REVIEW THE PROVISIONS OF ANY OF THESE DOCUMENTS THAT YOU USE TO
EFFECT THE EXCHANGE OF YOUR CURRENT VASCO SECURITIES.
BENEFITS AND DISADVANTAGES OF PARTICIPATING IN THE EXCHANGE OFFER.
Current VASCO's management believes that, subject to all of the factors set
forth in this document under the heading "RISK FACTORS," the following are the
principal benefits and disadvantages of participating in the Exchange Offer,
from the perspective of a holder of Current VASCO Securities:
Benefits
- Consummation of the Exchange Offer should minimize the effect of the
Corporate Matters on Current VASCO's ability to realize its plans for
growth, by establishing a new holding company that would not be hindered
by the Corporate Matters from raising capital in the public and private
markets.
- Current VASCO has executed engagement letters with Banque Paribas S.A.
and Generale Bank for a possible future public offering. Any such
offering would be conditioned on the completion of the Exchange Offer and
would involve New VASCO Common Stock. The possible public offering is
subject to a number of additional contingencies and there can be no
assurance that it will occur. If the Exchange Offer is consummated and
New VASCO's future capital-raising efforts in the public markets are
successful, New VASCO intends to apply for quotation of the New VASCO
Common Stock on the Nasdaq National Market, and to register to become a
reporting company under the Securities Exchange Act of 1934, as amended.
If the New VASCO Common Stock is quoted on the Nasdaq National Market, it
is likely that the shares of New VASCO Common Stock will be more liquid
than the shares of Current VASCO Common Stock presently outstanding, as
well as any shares of Current VASCO Common Stock that are not exchanged
in the Exchange Offer. There can be no assurance, however, that New
VASCO's capital-raising efforts will be successful or that the New VASCO
Common Stock will be so quoted or registered under the Securities
Exchange Act of 1934, as amended.
2
<PAGE> 8
Disadvantages
- Current VASCO's plans to raise capital in the future, to the extent
facilitated by consummation of the Exchange Offer, are likely to result
in dilution of the interests of the holders of Current VASCO Shares or,
after the Exchange Offer, of New VASCO Shares. See "RISK FACTORS -- Risks
Relating to Exchange Offer and New VASCO -- Potential Dilution," and "--
Factors Relating to Operations -- Additional Capital Needed."
- The exchange of the Current VASCO Conversion Options, or Current VASCO
Warrants that were not originally issued for services, for New VASCO
Conversion Options or New VASCO Warrants are expected to be taxable
transactions. See "REORGANIZATION OF CURRENT VASCO -- Federal Income Tax
Consequences."
- Holders of Current VASCO Securities must relinquish any and all
Associated Corporate Matter Claims they may hold in order to receive any
New VASCO Securities in the Exchange Offer. See "RISK FACTORS -- Risks
Relating to Exchange Offer and New VASCO -- Not all Potential Claims will
be Eliminated."
THERE ARE NUMEROUS OTHER SIGNIFICANT FACTORS THAT YOU SHOULD CONSIDER IN
EVALUATING THE EXCHANGE OFFER. IN PARTICULAR, YOU SHOULD CAREFULLY REVIEW THE
INFORMATION SET FORTH IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS, AS WELL
AS CONSIDER THE TAX CONSEQUENCES OF THE EXCHANGE OFFER, WHICH ARE SET FORTH
UNDER THE HEADING "REORGANIZATION OF CURRENT VASCO -- FEDERAL INCOME TAX
CONSEQUENCES."
Certain Features of the Exchange Offer. The following are highlights of
certain features of the Exchange Offer:
- EXPIRATION DATE: The Exchange Offer expires at 5:00 p.m., Chicago,
Illinois time, on , 1997, unless extended by New
VASCO (the "Expiration Date").
- PROCEDURE FOR TENDERING CURRENT VASCO SHARES: To tender your Current
VASCO Shares you should deliver your Current VASCO stock certificates and
a duly signed Letter of Transmittal and Release so as to be received
prior to the Expiration Date by the following exchange agent (the
"Exchange Agent"):
Illinois Stock Transfer Company
223 West Jackson Boulevard, Suite 1210
Chicago, Illinois 60606
(312) 427-2953
Under certain circumstances, your signature on the Letter of Transmittal
and Release must be guaranteed and there is also a procedure for a
guaranteed delivery if you are unable to deliver all your documents prior
to the Expiration Date. IF YOUR CURRENT VASCO STOCK CERTIFICATES ARE
REGISTERED IN THE NAME OF A NOMINEE, THE LETTER OF TRANSMITTAL AND RELEASE
MUST BE SIGNED BY THE NOMINEE AND BY THE BENEFICIAL OWNER(S) OF THE
CURRENT VASCO SHARES. The instructions to the Letter of Transmittal and
Release and the sections of this document entitled "THE EXCHANGE OFFER --
Procedures for Tendering Current VASCO Shares" and "-- Guaranteed Delivery
Procedure for Current VASCO Shares" explain these features.
- PROCEDURE FOR TENDERING CURRENT VASCO EQUITY EQUIVALENT SECURITIES: To
exchange your Current VASCO Equity Equivalent Securities you should
complete, sign and deliver one or more of the following agreements, as
appropriate, which accompany this document: the New VASCO Option
Agreement with respect to Current VASCO Stock Options; the New VASCO
Convertible Note Agreement with respect to Current VASCO Conversion
Options; or the New VASCO Warrant
3
<PAGE> 9
Agreement with respect to Current VASCO Warrants (and deliver the Current VASCO
Warrants). These agreements (and, if applicable, the Current VASCO Warrants)
must be delivered to, and received by, the following individual prior to the
Expiration Date:
Gregory T. Apple
Vice President and Treasurer
VASCO Data Security International, Inc.
1919 S. Highland Avenue, Suite 118-C
Lombard, Illinois 60148
(630) 932-8844
- WITHDRAWAL RIGHTS: If you want to withdraw your deposit of Current VASCO
Securities, you must deliver written notice of withdrawal to the Exchange
Agent in the case of Current VASCO Shares, or to Mr. Apple in the case of
Current VASCO Equity Equivalent Securities, prior to 5:00 p.m., Chicago,
Illinois time on the Expiration Date, which is , 1997 (or
such later date if extended), or unless the tender has previously been
accepted, after [60 days after date of commencement of the offer].
- CONDITIONS TO THE EXCHANGE OFFER. The consummation of the Exchange Offer
is conditioned on the following as of the Expiration Date:
- there must be no Securities and Exchange Commission order threatened or
in effect suspending the effectiveness of the Registration Statement of
which this document is a part;
- shares representing at least 80% of the outstanding shares of Current
VASCO Common Stock must be tendered;
- shares representing at least 80% of the outstanding shares of Current
VASCO Series B Preferred Stock must be tendered;
- there must be no pending or threatened action or proceeding which, in
the judgment of the Board of Directors of New VASCO, might impair the
Exchange Offer or have a material adverse effect on the benefits of the
Exchange Offer to New VASCO; and
- there must be no proposed, adopted or enacted new law, statute, rule or
regulation that might materially impair the Exchange Offer or have a
material adverse effect on the benefits of the Exchange Offer to New
VASCO or make the exchange of Current VASCO Shares in the Exchange
Offer taxable for federal income tax purposes.
New VASCO may in its discretion waive or amend any of the foregoing
conditions and reserves the right to terminate and abandon the Exchange
Offer at any time prior to acceptance of Current VASCO Securities. See "THE
EXCHANGE OFFER -- Expiration Date; Extensions; Termination; Amendment" and
"-- Conditions to the Exchange Offer."
Exchange by Directors of Current VASCO. As of August 31, 1997, 19,422,979
shares of Current VASCO Common Stock were outstanding of which 11,934,035 were
owned by Current VASCO's directors and their spouses ("Current VASCO
Affiliates"), and 9,000 shares of Current VASCO Series B Preferred Stock were
outstanding of which 1,000 were owned by a Current VASCO Affiliate. In addition,
as of August 31, 1997 the Current VASCO Affiliates owned, directly or
indirectly, Current VASCO Stock Options for an aggregate of 1,089,507 shares of
Current VASCO Common Stock and Current VASCO Warrants for an aggregate of
205,883 shares of Current VASCO Common Stock. The Current VASCO Affiliates have
indicated their intent to exchange all of their Current VASCO Securities in the
Exchange Offer.
4
<PAGE> 10
QUESTIONS AND ANSWERS
ABOUT THE EXCHANGE OFFER
Q. WHY IS CURRENT VASCO PROPOSING THE EXCHANGE OFFER?
A. Current VASCO plans on expanding and raising additional capital which could
include financings and public stock offerings. In this connection, Current
VASCO's independent legal counsel reviewed the historical corporate
proceedings of Current VASCO and its predecessors and noted the absence of
certain corporate documentation and the noncompliance with certain
procedural requirements, which matters are referred to in this document as
"Corporate Matters" and more fully discussed below under "REORGANIZATION OF
CURRENT VASCO -- Reasons for the Reorganization." While these Corporate
Matters have not hindered Current VASCO's business operations, they present
problems in obtaining legal opinions as to compliance with applicable
corporate law governing prior reorganizations and certain prior issuances of
Current VASCO capital stock. The inability to obtain a legal opinion does
not mean that the transactions were invalid but that a legal opinion as to
their compliance with applicable corporate law cannot be given. Opinions as
to validity of the issuance of all outstanding shares may be required in
future financings, stock offerings or other transactions that could be
beneficial to security holders.
Management of Current VASCO believes that the Reorganization will
facilitate obtaining legal opinions as to the validity of stock issuances
by the new corporation. Consequently, Current VASCO has proposed that you
become a stockholder, or the holder of options or warrants to purchase
stock, of New VASCO through the Exchange Offer and that New VASCO be the
entity in the future that issues shares to future stockholders.
THE BOARD OF DIRECTORS OF CURRENT VASCO BELIEVES THAT THE EXCHANGE OFFER IS
IN THE BEST INTERESTS OF CURRENT VASCO AND HAS UNANIMOUSLY APPROVED THE
EXCHANGE OFFER. THE DIRECTORS OF CURRENT VASCO AND THEIR SPOUSES OWN IN THE
AGGREGATE APPROXIMATELY 61% OF THE CURRENT VASCO COMMON STOCK OUTSTANDING
AND APPROXIMATELY 11% OF THE CURRENT VASCO SERIES B PREFERRED STOCK
OUTSTANDING. THEY HAVE INDICATED THEIR INTENT TO EXCHANGE THEIR CURRENT
VASCO SHARES FOR NEW VASCO SHARES PURSUANT TO THE EXCHANGE OFFER.
To review the reasons for the Exchange Offer in greater detail, see
"REORGANIZATION OF CURRENT VASCO -- Reasons for the Reorganization." To
review a comparison of the principal benefits and disadvantages of the
Exchange Offer, see "Benefits and Disadvantages of Participating in the
Exchange Offer" above.
Q. WHAT ARE THE CORPORATE MATTERS?
A. The company's history dates back to 1984 when VASCO CORP., a predecessor,
but distinct legal entity, of Current VASCO was incorporated in the State of
Delaware. In 1986, VASCO CORP. reorganized with a publicly held Utah
company, which later was combined with Current VASCO in 1990. The
documentation and procedure surrounding these corporate transactions, as
well as other corporate actions taken by Current VASCO and its predecessors,
appear to have been irregular and not in full compliance with requisite
corporate law. These corporate irregularities are collectively referred to
in this document as "Corporate Matters." The principal instances of
non-compliance were:
- the absence of formal minutes of certain board of director and
stockholder proceedings;
- the issuance of common shares not authorized by corporate charter or in
excess of the number authorized by corporate charter;
- the issuance of preferred shares not authorized by corporate charter;
- the administrative dissolution in Utah of Current VASCO's predecessor
Utah company prior to the filing in Delaware in 1990 of a Certificate of
Merger for merging the Utah company into Current VASCO;
5
<PAGE> 11
- the absence of a filing in Utah of Articles of Merger for the merger of
the Utah predecessor into Current VASCO in 1990;
- no record as to whether Current VASCO's original Delaware corporate
predecessor afforded its stockholders preemptive rights provided by its
certificate of incorporation in connection with issuances of the entity's
capital stock;
- no record that stockholders of the Utah predecessor were afforded
statutory Utah appraisal rights in connection with the 1990 merger
transaction; and
- the failure to properly design, approve, adopt, administer, or authorize
the number of shares subject to, stock option plans or programs,
including actions required to allow for options granted to be treated as
incentive stock options for federal income tax purposes.
See "REORGANIZATION OF CURRENT VASCO -- Reasons for the Reorganization" for
a more complete discussion of the Corporate Matters.
Current VASCO had been operating with the understanding that the 1990
merger was effected in full compliance with the applicable laws of Delaware
and Utah. If the 1990 merger was not valid, the succession to the Utah
predecessor's assets by Current VASCO may not have been properly effected
in 1990. In April 1997, Current VASCO contacted the Division of
Corporations of the Utah Department of Commerce and inquired whether the
Division would accept for filing Articles of Merger relating to the
intended 1990 merger transaction. The Division responded that it would not
accept the Articles of Merger for filing. Management of Current VASCO
believes that the Utah predecessor's assets, which consisted primarily of
furniture, fixtures and office equipment that are no longer in use by
Current VASCO, are not material, and are not related to, the business
presently conducted by Current VASCO. However, as documentation to further
support the intended 1990 merger transaction, which was approved by
approximately 90% of the shares of the Utah predecessor entitled to vote on
the 1990 merger, the individuals who were members of the Board of Directors
of the Utah predecessor in 1990 have recently executed a transfer document
assigning all of the Utah predecessor's right, title and interest in its
assets to Current VASCO. No assurance can be given as to what effect, if
any, this attempt to document retroactively what was intended at the time
may have had on Current VASCO's title to the Utah predecessor's assets.
The Corporate Matters uncovered in the review of the historical
organization of Current VASCO and its predecessors have not previously
caused problems in the business operations of Current VASCO. However, these
issues do preclude the obtaining of a legal opinion as to the validity of
the issuances of certain shares by predecessors of Current VASCO, of the
1990 merger transaction and of the issuance of shares by Current VASCO
pursuant to and subsequent to the 1990 merger transaction.
To review the Corporate Matters in greater detail, see "REORGANIZATION OF
CURRENT VASCO -- Organizational History of Current VASCO" and
"REORGANIZATION OF CURRENT VASCO -- Reasons for the Reorganization."
Q. IF I AM A CURRENT VASCO STOCKHOLDER, WHAT AM I BEING ASKED TO GIVE UP?
A. You are being asked to exchange for New VASCO Shares, your Current VASCO
Shares and the release of any and all Associated Corporate Matter Claims.
The release of Associated Corporate Matter Claims will be effected by the
accompanying Letter of Transmittal and Release, which you should review
carefully. By executing and delivering the Letter of Transmittal and
Release, you will release any and all Associated Corporate Matter Claims you
may have, even if you do not exchange all of your Current VASCO Shares.
Although no claims based on the Corporate Matters have been asserted and the
existence and extent of any such rights, interests and claims are uncertain,
under certain theories the Associated Corporate Matter Claims could include,
among other things, claims for rescission of stock issuances, acquisitions,
sales or exchanges, claims of a direct interest in assets of Current VASCO
or one of its predecessor entities, claims for rescission of corporate
transactions, or claims for monetary damages in connection with, resulting
from or relating to the Corporate Matters.
6
<PAGE> 12
For a more specific description of the Associated Corporate Matter Claims,
see "THE EXCHANGE OFFER -- Terms of the Exchange Offer."
Q. WHAT WILL I RECEIVE IN THE EXCHANGE OFFER?
A. If you exchange a Current VASCO Share (and release any and all Associated
Corporate Matter Claims), you will receive one New VASCO Share of the same
kind as your Current VASCO Share surrendered. For example, for each share of
Current VASCO Common Stock you will receive one share of New VASCO Common
Stock. If you exchange Current VASCO Series B Preferred Stock, you will
receive New VASCO Series B Preferred Stock, which has the same material
terms and provisions as the Current VASCO Series B Preferred Stock except
that the New VASCO Series B Preferred Stock will be entitled to vote one
vote per share, together with the holders of New VASCO Common Stock, on all
matters submitted to a vote of the holders of New VASCO Common Stock. These
voting rights are being added to the New VASCO Series B Preferred Stock so
that holders of Current VASCO Common Stock and Current VASCO Series B
Preferred Stock will not suffer any adverse federal income tax consequences
by virtue of the Exchange Offer. See "REORGANIZATION OF CURRENT VASCO --
Federal Income Tax Consequences."
Accordingly, if all shares of Current VASCO Common Stock and of Current
VASCO Series B Preferred Stock are exchanged, based on the number of such
shares outstanding as of August 31, 1997, an aggregate of 9,000 additional
votes will be entitled to be cast together with the 19,422,979 votes
entitled to be cast by holders of New VASCO Common Stock.
Current VASCO Common Stock is quoted on the Over-the-Counter Bulletin Board
(the "OTC BB"). However, there has been no public market for the New VASCO
Common Stock, and there can be no assurance that an active public market
for the New VASCO Common Stock will develop or that the New VASCO Common
Stock will be quoted or listed on the OTC BB or any other quotation system
or stock exchange following the Exchange Offer.
To review in greater detail the terms of the Exchange Offer, see "THE
EXCHANGE OFFER -- Terms of the Exchange Offer." To review in greater detail
the rights of stockholders of New VASCO, see "DESCRIPTION OF CAPITAL STOCK
OF NEW VASCO" and "COMPARISON OF STOCKHOLDER RIGHTS."
Q. WHAT IF I DON'T EXCHANGE MY CURRENT VASCO SHARES?
A. If the Exchange Offer is consummated and you did not exchange your Current
VASCO Shares and release any and all Associated Corporate Matter Claims you
may have, you will remain a stockholder of Current VASCO and will continue
to be afforded your rights as such, including your rights under Delaware law
and the Current VASCO Restated and Amended Certificate of Incorporation, as
amended, to participate in dividends, if any, to holders of Current VASCO
Common Stock or Current VASCO Series B Preferred Stock, as applicable.
However, as the principal stockholder of Current VASCO, New VASCO will have
the power to control and direct the affairs of Current VASCO. New VASCO may,
without the consent of any other stockholder of Current VASCO, but subject
to appraisal rights, if any, and/or other remedies, if any, available under
Delaware law, at a later date merge Current VASCO into New VASCO or into or
with a subsidiary of New VASCO on a stock or cash basis or undertake some
other corporate reorganization of Current VASCO without a meeting of
stockholders and, if New VASCO is the owner of at least 90% of the
outstanding shares of each class of stock of Current VASCO, the Board of
Directors of New VASCO could effect a merger of Current VASCO with and into
New VASCO without a vote of the stockholders of Current VASCO (again,
subject to appraisal rights or other available remedies, if any, under
Delaware law). In addition, it is possible that the Current VASCO Common
Stock will not be quoted on the OTC BB if the Exchange Offer is consummated.
If you do not exchange any of your Current VASCO Shares or any of your
Current VASCO Equity Equivalent Securities, you will retain your ability to
assert Associated Corporate Matter Claims, if any, which may be available
under applicable law.
7
<PAGE> 13
See "RISK FACTORS -- Risks Relating to Exchange Offer and New VASCO --
Stockholders Who Do Not Exchange will become Minority Stockholders of
Current VASCO," "-- Reduced Liquidity of Current VASCO Common Stock," and
"-- Limited or No Liquidity in New VASCO Common Stock and New VASCO Series
B Preferred Stock" for more detail on the effects of not participating in
the Exchange Offer.
Q. WILL MY RIGHTS AS A STOCKHOLDER OF NEW VASCO BE ANY DIFFERENT THAN MY RIGHTS
AS A STOCKHOLDER OF CURRENT VASCO?
A. No, except that you will have released any and all Associated Corporate
Matter Claims and, for tax reasons, the New VASCO Series B Preferred Stock
will be entitled to vote together with the holders of New VASCO Common Stock
on all matters submitted to a vote of the holders of New VASCO Common Stock.
Both Current VASCO and New VASCO are Delaware corporations and are governed
by the laws of the State of Delaware. The certificates of incorporation and
bylaws of the two companies are substantially the same, except for (i) the
authorization to issue up to 75,000,000 shares of New VASCO Common Stock in
New VASCO's Certificate of Incorporation, as amended, whereas Current
VASCO's Restated and Amended Certificate of Incorporation, as amended,
authorizes the issuance of 50,000,000 shares of Current VASCO Common Stock,
(ii) changes in the provisions of the New VASCO Series B Preferred Stock to
provide general voting rights, (iii) the fact that New VASCO will not
designate Series A Preferred Stock since there are no longer any shares of
Current VASCO Series A Preferred Stock outstanding, (iv) the deletion from
New VASCO's Certificate of Incorporation of a general requirement that all
dividends on preferred stock be paid before payment of dividends on common
stock, which deletion will permit the creation of a class or series of
preferred stock that could participate with common stock in dividend
payments, and (v) certain clarifying and conforming changes and certain
changes included to reflect current Delaware law.
See "RISK FACTORS -- Risks Relating to Exchange Offer and New VASCO --
Potential Dilution," "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO" and
"COMPARISON OF STOCKHOLDER RIGHTS" for further detail on rights of New
VASCO stockholders.
Q. WHAT DO I DO TO EXCHANGE MY CURRENT VASCO SHARES (AND ANY AND ALL ASSOCIATED
CORPORATE MATTER CLAIMS) FOR NEW VASCO SHARES?
A. You should complete and sign the Letter of Transmittal and Release that
accompanied this Prospectus and deliver the Letter of Transmittal and
Release with your stock certificates for Current VASCO Shares, and any other
documentation or signatures required by the Letter of Transmittal and
Release, to the Exchange Agent prior to the Expiration Date:
Illinois Stock Transfer Company
223 West Jackson Boulevard, Suite 1210
Chicago, Illinois 60606
(312) 427-2953
Read carefully the instructions on the Letter of Transmittal and Release.
You will bear the risk of loss in delivering the stock certificates to the
Exchange Agent. IF YOU MAIL THEM, WE SUGGEST THAT YOU USE PROPERLY INSURED,
REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO
THE EXCHANGE AGENT ON OR PRIOR TO THAT TIME.
Q. IF I AM THE HOLDER OF OPTIONS OR WARRANTS EXERCISABLE FOR CURRENT VASCO
COMMON STOCK, CAN I EXCHANGE THEM FOR OPTIONS OR WARRANTS OF NEW VASCO?
A. Yes. The Current VASCO Stock Options are exchangeable for New VASCO Stock
Options for the same number of shares of New VASCO Common Stock with the
same exercise price, same vesting terms, same termination provisions and the
same expiration date as presently exist for the corresponding
8
<PAGE> 14
Current VASCO Stock Options. The New VASCO Stock Options will be issued
under the New VASCO 1997 Stock Option Plan and will be nonqualified stock
options for tax purposes.
The Current VASCO Conversion Options are exchangeable for New VASCO
Conversion Options for the same number of shares of New VASCO Common Stock,
with the same conversion price, conversion expiration date and other
conversion terms as the Current VASCO Conversion Options surrendered.
New VASCO is also offering to exchange New VASCO Warrants, having the same
number of shares, exercise price and exercise terms as corresponding
Current VASCO Warrants tendered for exchange.
For further information on New VASCO Stock Options, New VASCO Conversion
Options and New VASCO Warrants see "DESCRIPTION OF CAPITAL STOCK OF NEW
VASCO -- Stock Options, Warrants and Convertible Notes."
Q. WHAT AM I BEING ASKED TO GIVE UP IN EXCHANGE FOR NEW VASCO OPTIONS OR
WARRANTS?
A. You are being asked to agree to the cancellation of your Current VASCO Stock
Options, Current VASCO Conversion Options or Current VASCO Warrants and to
release any and all Associated Corporate Matter Claims. The release of any
and all Associated Corporate Matter Claims will be effected by, as
appropriate, the New VASCO Option Agreement, the New VASCO Convertible Note
Agreement or the New VASCO Warrant Agreement. By executing and delivering
one or more of these documents, which you should review carefully, you will
release any and all Associated Corporate Matter Claims you may have, even if
you do not exchange all of your Current VASCO Equity Equivalent Securities.
Also, you are being asked to exchange your Current VASCO Stock Option for a
New VASCO Stock Option which will not be an incentive stock option, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended
("ISOs"). There is different tax treatment for ISOs and for nonqualified
stock options such as those offered by New VASCO in the Exchange Offer. For
example, if the holder of an ISO exercises it and meets certain applicable
holding requirements, the holder may avoid current taxability on the gain
realized upon exercise. When the holder of a nonqualified option exercises
it, the holder is taxable upon the gain realized. Holders of ISOs
frequently exercise them and fail to comply with the holding requirements
with the result that their tax effects are the same as those that would
have applied if the options had been nonqualified in any event.
Q. WHAT IF I DON'T EXCHANGE MY OPTIONS OR WARRANTS?
A. If you do not exchange any of your Current VASCO Equity Equivalent
Securities, you will continue to be a holder of options or warrants to
purchase shares of Current VASCO Common Stock, and if you also do not
exchange any of your Current VASCO Shares, you will retain your ability to
assert Associated Corporate Matter Claims, if any, which may be available
under applicable law. If the Exchange Offer is consummated and you
subsequently exercise your Current VASCO Equity Equivalent Securities and
acquire Current VASCO Common Stock you will be a minority stockholder of
Current VASCO. In this connection, see the response above to the question:
"What if I don't exchange my shares?"
Q. WHAT DO I DO TO EXCHANGE MY OPTIONS OR WARRANTS?
A. To exchange your Current VASCO Stock Options, Current VASCO Conversion
Options or Current VASCO Warrants, you will need to deliver a signed New
VASCO Option Agreement, New VASCO Convertible Note Agreement or New VASCO
Warrant Agreement (with your Current VASCO Warrants), as applicable, to the
following individual prior to the Expiration Date:
Gregory T. Apple
Vice President and Treasurer
VASCO Data Security International, Inc.
1919 S. Highland Avenue
Suite 118-C
Lombard, Illinois 60148
9
<PAGE> 15
The exchange of Current VASCO Equity Equivalent Securities won't be
effective unless the Exchange Offer is consummated.
Q. WILL THERE BE ANY DIFFERENCES IN THE MANAGEMENT OF CURRENT VASCO AND NEW
VASCO?
A. No. The persons who are officers and the persons who are directors of both
companies are currently identical. Changes in the persons who are officers
and directors of the companies may occur after the completion of the
Exchange Offer, however.
See "CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Management" and
"CERTAIN INFORMATION CONCERNING NEW VASCO -- Management" for further
information on directors and officers.
Q. WILL THE EXCHANGE OFFER AFFECT THE BUSINESS OPERATIONS OF CURRENT VASCO?
A. No. Current VASCO presently conducts business through two operating
subsidiaries. The subsidiaries will continue business operations without
regard to the Exchange Offer and will remain as subsidiaries of Current
VASCO. If the Exchange Offer is consummated, the subsidiaries will become
indirect subsidiaries of New VASCO. However, if not all of the Current VASCO
Shares are exchanged or if not all of the Current VASCO Equity Equivalent
Securities are exchanged and after the Exchange Offer are converted or
exercised into Current VASCO Common Stock, New VASCO will own less than 100%
of Current VASCO and, indirectly, these two subsidiaries.
Q. WHAT IS REQUIRED FOR THE EXCHANGE OFFER TO BE EFFECTED?
A. In order for the Exchange Offer to be consummated, (i) stockholders of
Current VASCO who possess at least 80% of the outstanding shares of Current
VASCO Common Stock, and (ii) stockholders owning at least 80% of the
outstanding shares of Current VASCO Series B Preferred Stock, must tender
their shares for exchange and execute and deliver a Letter of Transmittal
and Release prior to the Expiration Date. This is called the "Minimum
Condition."
Current VASCO's present directors and their spouses owned at August 31,
1997 approximately 61% of the outstanding shares of Current VASCO Common
Stock and approximately 11% of the outstanding shares of Current VASCO
Series B Preferred Stock, and they have indicated their intention to tender
their Current VASCO Shares (and to release any and all Associated Corporate
Matter Claims) in exchange for New VASCO Shares.
There are certain other conditions to the Exchange Offer and information on
these conditions is set forth under "THE EXCHANGE OFFER -- Conditions to
the Exchange Offer."
Q. WHAT IS THE DEADLINE FOR THE EXCHANGE OFFER?
A. The Expiration Date for the Exchange Offer is at 5:00 p.m. Chicago, Illinois
time on , 1997, unless extended by New VASCO.
For greater detail on the Expiration Date, see "THE EXCHANGE OFFER --
Expiration Date; Extensions; Termination; Amendment."
Q. WHAT IF I DEPOSIT MY STOCK CERTIFICATES WITH THE EXCHANGE AGENT OR MY
AGREEMENT WITH RESPECT TO OPTIONS OR WARRANTS WITH MR. APPLE AND THEN CHANGE
MY MIND? WILL I BE ABLE TO WITHDRAW MY STOCK CERTIFICATES OR AGREEMENT?
A. Stock certificates or agreements may be withdrawn at any time prior to the
Expiration Date or, unless the tender has previously been accepted for
exchange after , 1997 [60 days after date of commencement of the
offer].
For greater detail on withdrawal rights, see "THE EXCHANGE OFFER --
Withdrawal Rights."
10
<PAGE> 16
Q. WHAT ARE THE TAX CONSEQUENCES FOR EXCHANGING MY SHARES, OPTIONS AND WARRANTS
(AND ANY AND ALL ASSOCIATED CORPORATE MATTER CLAIMS)?
A. The exchange of Current VASCO Shares, Current VASCO Stock Options and those
Current VASCO Warrants originally issued for services (and the release of
any and all Associated Corporate Matter Claims) for New VASCO Shares, New
VASCO Stock Options or New VASCO Warrants will be tax-free for federal
income tax purposes. The exchange of the Current VASCO Conversion Options,
or Current VASCO Warrants that were not originally issued for services (and
the release of any and all Associated Corporate Matter Claims) for New VASCO
Conversion Options or New VASCO Warrants are expected to be taxable
transactions.
To review the tax consequences in greater detail, see "REORGANIZATION OF
CURRENT VASCO -- Federal Income Tax Consequences."
Q. ARE THERE APPRAISAL RIGHTS?
A. Under Delaware law, holders of Current VASCO Securities do not have any
right to an appraisal of the value of their securities in connection with
the Exchange Offer.
For information regarding the security holdings of Current VASCO's
management (who also serve as New VASCO's management), as well as other
arrangements concerning Current VASCO and its management, see "CERTAIN
INFORMATION CONCERNING CURRENT VASCO" and "CERTAIN INFORMATION CONCERNING
NEW VASCO."
Q. ARE ANY STATE OR FEDERAL REGULATORY APPROVALS REQUIRED FOR THE EXCHANGE
OFFER?
A. No special state or federal regulatory approvals of the Exchange Offer must
be obtained, except for necessary filings under securities laws.
* * * * * * * * * *
WHERE YOU CAN FIND MORE INFORMATION
New VASCO has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 to register the New VASCO Securities to be
issued to holders of Current VASCO Securities in the Exchange Offer, as well as
to register the New VASCO Common Stock that may be purchased upon the exercise
of certain New VASCO Securities. This document is a part of that Registration
Statement and constitutes a Prospectus of New VASCO. As allowed by Securities
and Exchange Commission rules, this document does not contain all the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
You may read and copy the full Registration Statement and the exhibits at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Registration Statement and exhibits are also available to the public from
commercial document retrieval services and are available to the public at the
web site maintained by the Commission at "http://www.sec.gov."
* * * * * * * * * *
11
<PAGE> 17
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)(1)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ -----------------------
1992 1993 1994 1995 1996(2)(3) 1996 1997
---- ---- ---- ---- ---------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1):
Total revenues........... $ 2,302 $ 2,199 $ 2,693 $ 3,695 $10,192 $ 3,184 $ 6,592
Operating income
(loss)................. 557 138 192 (534) (8,658) (2,916) (647)
Net income (loss)
available to common
stockholders........... 289 50 30 (465) (9,349) (2,979) (1,291)
Net income (loss) per
common share........... 0.02 0.00 -- (0.03) (0.53) (0.19) (0.07)
Shares used in computing
per share amounts...... 13,686 13,877 14,260 14,817 17,533 15,614 18,496
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
ACTUAL PRO FORMA(4)
------ ------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data(1):
Cash........................................................ $ 2,863 $ 2,863
Working capital............................................. 3,022 3,022
Total assets................................................ 11,914 11,914
Long term obligations, less current portion................. 8,278 8,278
Common stock subject to redemption.......................... 495 495
Stockholders' equity (deficit).............................. (2,418) (2,418)
</TABLE>
For a discussion of factors that affect the comparability of the financial
information set forth above, such as significant acquisitions undertaken by
Current VASCO and the disposition of Current VASCO's VASCO Performance Systems
line of business in 1996, see "REORGANIZATION OF CURRENT VASCO -- Organizational
History of Current VASCO," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and "RISK FACTORS."
- -------------------------
(1) Represents the financial information of Current VASCO. New VASCO has not
begun operations.
(2) Includes the results of operations of Lintel Security NV/SA from March 1996
and Digipass SA from June 1996; see "FINANCIAL STATEMENTS."
(3) Includes a pretax charge for acquired in-process research and development of
$7,351.
(4) Represents the pro forma balance sheet data assuming the Exchange Offer was
completed as of June 30, 1997, based upon a 100% exchange of equity
interests.
12
<PAGE> 18
RISK FACTORS
This Prospectus contains forward-looking statements. All forward-looking
statements included in this Prospectus are based on information available to New
VASCO and Current VASCO on the date hereof and assumptions which New VASCO and
Current VASCO believe are reasonable. Neither New VASCO nor Current VASCO
assumes any obligation to update any such forward-looking statements. These
forward-looking statements involve risks and uncertainties. Current VASCO's (and
if the Exchange Offer is consummated, New VASCO'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.
The following risk factors, as well as the other information set forth
elsewhere in this Prospectus, should be considered carefully in evaluating
whether to participate in the Exchange Offer.
RISKS RELATING TO EXCHANGE OFFER AND NEW VASCO
The following factors relate primarily to the Exchange Offer and New VASCO,
and will apply if the Exchange Offer is consummated.
STOCKHOLDERS WHO DO NOT EXCHANGE WILL BECOME MINORITY STOCKHOLDERS OF
CURRENT VASCO. Any holder of Current VASCO Shares who participates in the
Exchange Offer will receive an ownership interest in New VASCO which in turn
will own a controlling interest in Current VASCO but, if such stockholder has
exchanged all of its Current VASCO Shares, will cease to own shares in Current
VASCO. Holders of Current VASCO Shares who do not participate in the Exchange
Offer with respect to all of their Current VASCO Shares will retain a direct
ownership interest in Current VASCO as a holder of a minority interest in a
subsidiary of New VASCO. Those holders of Current VASCO Shares who do not
participate in the Exchange Offer will retain their ability to assert Associated
Corporate Matter Claims, if any, which may be available under applicable law and
will continue to be afforded their rights as holders of Current VASCO Shares,
including the right under Delaware law and the Current VASCO Restated and
Amended Certificate of Incorporation, as amended, to participate in dividends
declared and paid, if any, to the holders of Current VASCO Common Stock or
Current VASCO Series B Preferred Stock, as applicable.
Upon consummation of the Exchange Offer, New VASCO, as the principal
stockholder of Current VASCO, will have the power to control and direct the
affairs of Current VASCO by written consent and without the consent of any other
stockholder of Current VASCO, and, if New VASCO is the owner of at least 90% of
the outstanding shares of each class of stock of Current VASCO, the Board of
Directors of New VASCO could, subject to appraisal rights, if any, and other
remedies, if any, available under Delaware law, effect a merger of Current VASCO
into New VASCO without a vote of the stockholders of Current VASCO.
REDUCED LIQUIDITY OF CURRENT VASCO COMMON STOCK. The shares of Current
VASCO Common Stock are currently traded in the over-the-counter market and
quoted on the OTC BB. There has been only limited trading of the Current VASCO
Common Stock and such trading volume is likely to decrease following the
Exchange Offer. It is likely that the trading market for, and liquidity of an
investment in, Current VASCO, if any, would be reduced or eliminated upon
consummation of the Exchange Offer. In addition, it is likely that Current VASCO
Common Stock would no longer be quoted on the OTC BB. The consummation of the
Exchange Offer may have the further effect of depressing the market value of
Current VASCO Common Stock. See "REORGANIZATION OF CURRENT VASCO -- Differences
in Capital Stock."
LIMITED OR NO LIQUIDITY IN NEW VASCO COMMON STOCK AND NEW VASCO SERIES B
PREFERRED STOCK. Prior to the Exchange Offer there has been no public market for
the New VASCO Common Stock, and there can be no assurance that an active public
market for the New VASCO Common Stock will develop or that the New VASCO Common
Stock will be quoted on the OTC BB or otherwise. Consequently, after the
Exchange Offer the holders of Current VASCO Common Stock and New VASCO Common
Stock may not be able to sell their shares at any particular time or at a price
which would reflect an active public market. In addition, there is currently no
public trading market for the shares of Current VASCO Series B Preferred
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Stock, and it is not expected that a market will develop for the shares of New
VASCO Series B Preferred Stock exchanged in the Exchange Offer.
POSSIBLE VOLATILITY OF STOCK PRICE. The market prices for securities of
technology-dependent companies have been volatile. Factors such as announcements
of variations in quarterly financial results, a reduction in sales, changes in
governmental regulations, competitive developments, and sales of substantial
blocks of the securities of New VASCO by the holders thereof, among other
things, could cause the market price of New VASCO's Common Stock to fluctuate
significantly. The sale in the public trading markets of a significant number of
shares of New VASCO Common Stock issued in connection with future financing
requirements or acquisitions, if any, may also cause substantial fluctuations
in, or may adversely affect, the price of the New VASCO Common Stock over short
time periods. In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies 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 New VASCO Common Stock following the
Exchange Offer.
ADVERSE EFFECTS OF EXERCISE OF EXISTING OPTIONS AND CONVERTIBLE
SECURITIES. A substantial number of shares of Current VASCO Common Stock are
issuable upon exercise or conversion of outstanding Current VASCO Equity
Equivalent Securities, Current VASCO Series B Preferred Stock and pursuant to
other contractual arrangements of Current VASCO. Certain of these shares may be
issued at below-market prices. In the event these rights are exchanged in the
Exchange Offer (or, in the case of the other contractual arrangements, if
corresponding contractual arrangements are entered into by New VASCO), the
shares of New VASCO Common Stock issued upon exercise of these rights may become
available for sale in the future in the public market, which could have an
adverse effect on the market price of New VASCO Common Stock. In the event that
a significant number of Current VASCO Equity Equivalent Securities are not
exchanged pursuant to the Exchange Offer and, subsequent to consummation of the
Exchange Offer, are converted or exercised into shares of Current VASCO Common
Stock so that New VASCO ceases to be a holder of more than 80% of the
outstanding equity of Current VASCO, New VASCO would not be able to account for
Current VASCO and its subsidiaries on a consolidated basis for tax purposes,
with the possible result that income taxes of the entities reporting on a
separate basis may in the aggregate be higher than if the entities reported on a
consolidated basis which could, in turn, have an adverse effect on New VASCO's
results of operations and financial condition.
POTENTIAL DILUTION. New VASCO's Certificate of Incorporation, as amended,
authorizes the issuance of seventy-five million (75,000,000) shares of New VASCO
Common Stock. As of August 31, 1997, there were 74,999,900 authorized but
unissued shares of New VASCO Common Stock available for issuance, and 100 shares
of New VASCO Common Stock issued and outstanding, all of which are held of
record by Current VASCO. New VASCO's Board of Directors has the power to issue
any or all of such authorized but unissued shares without stockholder approval.
In the event the Reorganization is completed, it is anticipated that New
VASCO will attempt to meet its future financing needs through the issuance of
equity or debt securities in public or private offerings. Current VASCO has
executed engagement letters with Banque Paribas S.A. and Generale Bank for a
possible future public offering, the completion of which is subject to a number
of contingencies. To the extent that any such offering was to involve the sale
of New VASCO Common Stock or a derivative thereof at a price lower than that
paid by any investors prior thereto, including investors in Current VASCO and
its predecessors, such offering would have an immediate and possibly substantial
impact on investors who purchased prior thereto at higher prices. In addition,
to the extent outstanding options and warrants to purchase New VASCO Common
Stock are exercised, there will be further dilution to new investors. See
"Factors Relating to Operations -- Additional Capital Needed" below.
PREFERRED STOCK ISSUANCE. New VASCO's Certificate of Incorporation, as
amended, also authorizes the issuance of five hundred thousand (500,000) shares
of preferred stock with such designations, rights, powers and preferences as may
be determined from time to time by the New VASCO Board of Directors. The New
VASCO Board of Directors is empowered, without stockholder approval, to issue up
to 500,000 shares of
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preferred stock with such dividend, liquidation, conversion, voting or other
rights, powers and preferences as may be determined from time to time by the New
VASCO Board of Directors, and pursuant to such authority the Board of Directors
has designated 9,500 shares of preferred stock as New VASCO Series B Preferred
Stock, and has authorized the issuance of 9,000 shares of the 9,500 shares of
New VASCO Series B Preferred Stock that have been designated. The issuance of
preferred stock could adversely affect the voting power or other rights of the
holders of shares of New VASCO Common Stock. In addition, the authorized
preferred stock and shares of New VASCO Common Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying, or preventing a
change in control of New VASCO, depending upon the determination of the New
VASCO Board of Directors as to whether such a change in control would be in the
best interests of New VASCO's stockholders.
NOT ALL POTENTIAL CLAIMS WILL BE ELIMINATED. While Current VASCO believes
that, following the Reorganization, New VASCO will be in a better position to
raise capital through public and private markets, there is no assurance that the
Reorganization will eliminate all potential claims based on or arising out of
the Corporate Matters. Holders of Current VASCO Securities who do not
participate in the Exchange Offer may attempt to assert Associated Corporate
Matter Claims against Current VASCO (or its predecessors) after the Exchange
Offer is consummated. The assertion of Associated Corporate Matter Claims could
have an adverse effect on Current VASCO's or, following the Exchange Offer, New
VASCO's ability to raise capital and in turn an adverse effect on its results of
operations and financial condition.
LACK OF DIVIDENDS. Current VASCO has not paid any dividends on Current
VASCO Common Stock to date. The future payment of dividends on New VASCO Common
Stock by New VASCO upon consummation of the Exchange Offer will be contingent
upon New VASCO's revenues and earnings, if any, capital requirements and general
financial condition. The payment of any future dividends will be subject to the
discretion of New VASCO's Board of Directors. It is the present intention of the
New VASCO Board of Directors to retain all earnings, if any, for use in New
VASCO's consolidated business operations and, accordingly, it is not anticipated
that any dividends will be declared on the New VASCO Common Stock in the
foreseeable future. See "MARKET PRICE OF CURRENT VASCO COMMON STOCK AND DIVIDEND
POLICY" and "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Common Shares."
FACTORS RELATING TO OPERATIONS
The following factors are applicable to the operations of Current VASCO and
are not dependent on the completion of the Reorganization. However, in the event
the Reorganization is completed, the factors will also apply to New VASCO.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. Current VASCO has
incurred losses from continuing operations before interest and taxes for the
years ended December 31, 1995 and December 31, 1996 and the first six months of
1997. As of June 30, 1997, Current VASCO had an accumulated deficit of
$11,194,000, which amount includes a write-off of acquired in-process technology
related to the acquisitions of Lintel Security NV and Digipass SA for the year
ended December 31, 1996 in the amount of $7,351,000. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." In
view of Current VASCO's loss history, there can be no assurance that Current
VASCO will be able to achieve or sustain profitability on an annual or quarterly
basis in the future.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. Current VASCO'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 Current VASCO's competitors; adoption of new
technologies and standards; changes in pricing by Current VASCO or its
competitors; the ability of Current VASCO to develop, introduce and market new
products and product enhancements on a timely basis, if at all; component costs
and availability; Current VASCO's success in expanding its sales and marketing
programs; technological changes in the market for data security products;
foreign currency exchange rates; and general economic trends and other factors.
In addition, because a high
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percentage of Current VASCO'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.
ADDITIONAL CAPITAL NEEDED. Current VASCO requires additional capital to
finance its working capital and other needs, including the repayment of
outstanding obligations and the financing of future growth. While Current VASCO
intends to raise capital in the near future through, among other potential
financing sources, a possible public offering of New VASCO Common Stock, the
inability of Current VASCO to obtain additional funds will adversely affect its
results of operations and financial condition and its ability to conduct its
business. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources." In addition, while
the Reorganization of Current VASCO pursuant to the Exchange Offer is intended
to enhance New VASCO's ability to raise capital in the public markets, there can
be no assurance that the Reorganization will be successful or, if it is
successful, that the Reorganization will improve New VASCO's ability to raise
capital in the public markets or otherwise.
RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCTS. The market for
Current VASCO's products is very dynamic and characterized by rapidly changing
technology, evolving industry standards and government policies, changing
customer requirements, price-competitive bidding and frequent product
enhancements and innovations. The introduction by Current VASCO or its
competitors of products embodying new technologies and the emergence of new
industry standards could render Current VASCO's existing products obsolete and
unmarketable. Therefore, Current VASCO's future success will depend in part upon
its ability to enhance its current products and develop innovative products to
distinguish itself from the competition and to meet customers' changing needs in
the data security industry. Current VASCO is presently expending significant
resources to enhance its existing products and develop and introduce the next
generation of token and other security products. There can be no assurance that
security-related product developments and technology innovations by others will
not adversely affect Current VASCO's competitive position or that Current VASCO
will be able to successfully anticipate or adapt to changing technology,
industry standards or customer requirements on a timely basis. Any failure by
Current VASCO to anticipate and respond to such changes could have a material
adverse effect on Current VASCO's results of operations and financial condition.
DEPENDENCE ON MAJOR CUSTOMERS. Approximately 43% (approximately 21% on a
pro forma basis after giving effect to the Digipass SA and Lintel Security NV
acquisitions and assuming the acquisitions had occurred on January 1, 1996) of
Current VASCO's revenues during 1996 were derived from the sale of Current
VASCO's security products to one European distributor, Concord-Eracom Nederland
BV. On the same pro forma consolidated basis, taking into account Lintel
Security NV and Digipass SA sales for the calendar year 1996, two other European
customers each would have accounted for approximately 10% of Current VASCO's
total revenues. There can be no assurance that Current VASCO will be able to
modify its existing products or develop new products that will continue to meet
the specifications of these customers. Absent significant future revenues from
alternative sources, the unforeseen loss of one or more of Current VASCO's major
customers' business, or the inability to maintain reasonable profit margins on
sales to any of these customers, would have a material adverse effect on Current
VASCO's results of operations and financial condition. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Business -- Customers and
Markets."
PRODUCT CONCENTRATION. Sales of Current VASCO's AccessKey II and Digipass
security tokens together comprised the majority of Current VASCO's net sales
during fiscal 1995 and 1996. Should the demand for or pricing of either of these
products decline due to the introduction of superior or lower cost products by
competitors, changes in the computer industry or other factors, Current VASCO's
results of operations and financial condition would be adversely affected.
DEPENDENCE ON DEVELOPMENT OF INDUSTRY RELATIONSHIPS. Current VASCO is party
to collaborative arrangements with a number of corporations and evaluates, on an
ongoing basis, potential strategic alliances and intends to continue to pursue
such relationships. Current VASCO's future success will depend
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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 "CERTAIN
INFORMATION CONCERNING CURRENT VASCO -- Business -- Current VASCO Security
Products -- Strategic Relationships."
RISKS OF INTERNATIONAL OPERATIONS. Sales to customers outside the United
States accounted for approximately 44%, 61% and 97% of Current VASCO's net
revenues in the years ended December 31, 1994, 1995 and 1996, respectively.
Because a significant number of Current VASCO's principal customers are located
in other countries, management expects that international sales will continue to
generate a significant portion of Current VASCO's (and, upon consummation of the
Exchange Offer, New VASCO's) total revenue. Current VASCO's international
business is subject to a variety of risks, including tariffs and other trade
barriers, the establishment and expansion of indirect distribution channels in
certain countries or regions, delays in expanding its international distribution
channels, difficulties collecting international accounts receivable from
distributors or resellers, increased costs associated with maintaining
international marketing efforts, the introduction of non-tariff barriers and
difficulties in enforcing intellectual property rights. In addition, the
majority of the supply and sales transactions of VASCO Data Security, Inc. are
denominated in U.S. dollars, whereas many of the supply and sales transactions
of VASCO Data Security NV/SA are denominated in various foreign currencies. A
decrease in the value of any of these foreign currencies relative to the U.S.
dollar could affect the profitability in U.S. dollars of Current VASCO's
products sold in these markets. Current VASCO is therefore subject to the risks
associated with fluctuations in currency exchange rates. In order to reduce the
risk of fluctuations in currency exchange rates, VASCO Data Security NV/SA began
in 1997 to buy U.S. dollars based on three to six month estimated future needs
for U.S. dollars, has developed price lists denominated in both U.S. dollars and
foreign currencies, and endeavors to denominate its new supply and sales
transactions in U.S. dollars. VASCO Data Security NV/SA is also beginning to
attempt to match as to timing of delivery, amount of product and denomination of
currency, some purchase orders from vendors with sales orders to customers.
There can be no assurance that these matching efforts will be successful in
reducing currency exchange risks or that the risks of international operations
will not have a material adverse effect on Current VASCO's financial condition
or results of operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
COMPETITION. The market for computer and network security products is
highly competitive and subject to rapid change. Current VASCO believes that the
principal competitive factors affecting the market for computer and network
security products include name recognition, technical features, ease of use,
quality/reliability, level of security, customer service and support,
distribution channels and price. Current VASCO's competitors include
organizations that provide computer and network security products based upon
approaches similar to and different from those employed by Current VASCO. There
can be no assurance that the market for computer and network security products
will not ultimately be dominated by approaches other than the approach marketed
by Current VASCO. See "CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Business
- -- The Data Security Industry -- Industry Background," " -- Current VASCO
Security Products" and " -- Competition."
Many of Current VASCO's potential competitors have significantly greater
financial, marketing, technical and other competitive resources than Current
VASCO. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than can Current VASCO.
Competition could increase if new companies enter the market or if existing
competitors expand their product lines. Any reduction in gross margins resulting
from competitive factors could have a material adverse effect on Current VASCO's
financial condition or results of operations.
Although Current VASCO believes it has certain technological and other
advantages over its competitors, maintaining such advantages will require
continued investment by Current VASCO in research and development and sales and
marketing. There can be no assurance that Current VASCO will have sufficient
resources to make such investments or that Current VASCO will be able to make
the technological advances necessary to maintain such competitive advantages. In
addition, current and potential competitors have established or may in the
future establish collaborative relationships among themselves or with third
parties,
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including third parties with whom Current VASCO has strategic relationships, to
increase the ability of their products to address the security needs of Current
VASCO's prospective customers. Accordingly, it is possible that new competitors
or alliances may emerge and rapidly acquire significant market share. If this
were to occur, the financial condition and results of operations of Current
VASCO would be materially adversely affected. See "CERTAIN INFORMATION
CONCERNING CURRENT VASCO -- Business -- Competition."
DEPENDENCE ON SINGLE SOURCE SUPPLIERS. The majority of Current VASCO's
products are manufactured by two independent vendors headquartered in Hong Kong.
One of the vendors is under a contract that extends to January 21, 1999, with
automatic one-year renewals subject to termination on six months notices and
purchases from the other vendor are on a purchase order by purchase order basis.
Each vendor assembles Current VASCO's security tokens at facilities in mainland
China. The importation of these products from China exposes Current VASCO to the
possibility of product supply disruption and increased costs in the event of
changes in the policies of the Chinese government, political unrest or unstable
economic conditions in China or developments in the United States that are
adverse to trade, including enactment of protectionist legislation. While
Current VASCO believes that it could find substitute contractors for the
manufacture and assembly of its products, and has had discussions to that effect
with a vendor in Belgium, in the event that the supply of components or finished
products is interrupted or relations with either of the two principal vendors is
terminated, there could be a considerable delay finding suitable replacement
sources to manufacture Current VASCO's products which could have a material
adverse effect on Current VASCO's results of operations and financial condition.
In addition, Current VASCO's AccessKey II product contains a custom-designed
microprocessor which is fabricated by a single supplier located in the United
States and is procured by purchase orders. Current VASCO expects AccessKey II
production to be reduced by the end of 1997 and be replaced by AccessKey III,
which will employ a widely available microprocessor. However, any unforeseen
interruption in the supply of microprocessors for the AccessKey II from the sole
supplier prior to the full phase-in of the AccessKey III product would have a
material adverse effect on Current VASCO's results of operations and financial
condition. See "CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Business --
Production."
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY. Current VASCO's success
depends significantly upon its proprietary technology. Current VASCO currently
relies on a combination of patent, copyright and trademark laws, trade secrets,
confidentiality agreements and contractual provisions to protect its proprietary
rights. Current VASCO seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Current VASCO generally enters into confidentiality and
nondisclosure agreements with its employees and with key vendors and suppliers.
Current VASCO holds several patents in the United States and a corresponding
patent in certain European countries, which cover certain aspects of its
technology. The remaining terms of the U.S. patents are between six and nine
years. There can be no assurance that Current VASCO will develop proprietary
products or technologies that are patentable, that any issued patent will
provide Current VASCO with any competitive advantages or will not be challenged
by third parties, or that patents of others will not have a material adverse
effect on Current VASCO's business.
There has also been substantial litigation in the technology industry
regarding intellectual property rights, and litigation may be necessary to
protect Current VASCO's proprietary technology. Current VASCO expects that
companies in the computer and information security market will increasingly be
subject to infringement claims as the number of products and competitors in
Current VASCO's target market grows. Any such claims or litigation may be
time-consuming and costly, cause product shipment delays, require Current VASCO
to redesign its products or require Current VASCO to enter into royalty or
licensing agreements, any of which could have a material adverse effect on
Current VASCO's results of operations and financial condition.
Despite Current VASCO's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Current VASCO's products or
to obtain and use information and software that Current VASCO regards as
proprietary. To the extent Current VASCO believes its proprietary rights are
being violated, and regardless of its desire to do so, it may not have adequate
financial resources to engage in litigation against the party or parties who may
infringe on its proprietary technology. In addition, the laws of
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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 Current VASCO's means of protecting its proprietary and
intellectual property rights will be adequate or that Current VASCO's
competitors will not independently develop similar technology, duplicate Current
VASCO's products or design around patents issued to Current VASCO or other
intellectual property rights of Current VASCO.
PRODUCT LIABILITY RISKS. Customers rely on Current VASCO's token-based
security products to prevent unauthorized access to their data. A malfunction of
or design defect in Current VASCO's products could result in tort or warranty
claims. In order to reduce the risk of exposure from such claims, Current VASCO
attempts to obtain warranty disclaimers and liability limitation clauses in its
agreements with distributors, resellers and end-user clients. However, there can
be no assurance that Current VASCO will be successful in obtaining such
provisions in its agreements or that such measures will be effective in limiting
Current VASCO'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 Current VASCO's results of operations and financial condition.
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 Current VASCO's products in
particular, regardless of whether such breach is attributable to Current VASCO's
products. This could result in a decline in demand for Current VASCO's products,
which would have a material adverse effect on Current VASCO's results of
operations and financial condition.
GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS. Current VASCO's international
sales and operations are subject to risks such as the imposition of government
controls, new or changed export license requirements, restrictions on the export
of critical technology, trade restrictions and changes in tariffs. While Current
VASCO believes its products are designed to meet the regulatory standards of
foreign markets, any inability to obtain foreign regulatory approvals on a
timely basis could have a material adverse effect on Current VASCO's financial
condition or results of operations.
Certain products of Current VASCO are subject to export controls under U.S.
law, and Current VASCO believes it has obtained or will obtain all necessary
export approvals as required. There can be no assurance, however, that the list
of products and countries for which export approval is required, and the
regulatory policies with respect thereto will not be revised from time to time.
The inability of Current VASCO to obtain required approvals under these
regulations could materially adversely affect the ability of Current VASCO to
make international sales. For example, U.S. governmental controls on the
exportation of encryption technology prohibit Current VASCO from exporting some
of its products with the more sophisticated data security encryption technology.
As a result, foreign competitors facing less stringent controls may be able to
compete more effectively than Current VASCO in the global data security market.
There can be no assurance that these factors will not have a material adverse
effect on Current VASCO's financial condition or results of operations.
Similarly, VASCO Data Security NV/SA, the Belgian operating subsidiary of
Current VASCO, is subject to export licensing requirements under Belgian law.
The inability of VASCO Data Security NV/SA to obtain required approvals or
licenses under Belgian law also could have a material adverse effect on Current
VASCO's financial condition or operations.
DEPENDENCE ON KEY PERSONNEL. Current VASCO now depends, and upon the
consummation of the Exchange Offer New VASCO will depend, to a significant
degree on the efforts of Current VASCO's President, Chief Executive Officer and
the Chairman of its Board of Directors, T. Kendall Hunt, and those of other key
personnel employed by or serving as consultants to its subsidiaries, including
John Haggard, Mario Houthooft, Frank Hoornaert, Hyon Im, Jan Valcke and Richard
Vaden. Neither Mr. Hunt nor Current VASCO's other key personnel have entered
into employment agreements with Current VASCO or New VASCO, with the exception
of Mr. Houthooft, who has entered into a consulting agreement with VASCO Data
Security NV/SA, Current VASCO's European operating subsidiary. As a result,
there are no restrictions on competition by these individuals (other than Mr.
Houthooft) after termination of employment or consulting services. Key man
insurance in the amount of $1.5 million is currently maintained by Current VASCO
on the life of Mr. Hunt but not on any of the other key personnel. The loss of
the services of
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Mr. Hunt or one or more of its other key personnel could have an adverse effect
on Current VASCO's business and operating results.
Current VASCO's continued success is also dependent upon its ability to
attract and retain qualified employees to support its future growth. Competition
for such personnel is intense, and there can be no assurance that Current VASCO
can retain its key employees or that it can attract, assimilate or retain other
highly qualified personnel in the future.
MANAGEMENT AND CONTROL. Control of Current VASCO presently is, and after
the consummation of the Exchange Offer control of New VASCO will be, largely in
the hands of its Board of Directors, management and T. Kendall Hunt. Upon
consummation of the Exchange Offer, based on the number of shares of Current
VASCO Common Stock outstanding on August 31, 1997, the Board of Directors of New
VASCO and their spouses will own beneficially and of record approximately 61%
(and Mr. Hunt and his family will own beneficially and of record 53.3%) of the
outstanding shares of New VASCO Common Stock, assuming all of the shares of
Current VASCO Common Stock are exchanged for shares of New VASCO Common Stock.
Mr. Hunt will also be Chairman of the New VASCO Board of Directors, Chief
Executive Officer and President of New VASCO. As a result, T. Kendall Hunt will
have significant control over the direction and operation of New VASCO and with
his family will be able to elect the directors of New VASCO and to approve
corporate action requiring majority stockholder approval. Such concentration of
control may have an adverse effect on the market price of New VASCO Common
Stock.
CURRENT VASCO AND NEW VASCO
Current VASCO is a Delaware corporation which, through its operating
subsidiaries, designs, develops, markets and supports open standards-based
hardware and software security systems which manage and secure access to data.
Current VASCO's hardware products include time-synchronous response only,
challenge/response and time-synchronous challenge/response user authentication
devices, some of which incorporate an electronic signature feature to guarantee
the integrity of data transmissions. These devices are commonly referred to as
security tokens. Current VASCO's security tokens are based upon Current VASCO's
core encryption technology, which utilizes two widely known and accepted
algorithms, Data Encryption Standard ("DES") and Rivest, Shamir, Adelman
("RSA"). Current VASCO's Cryptech division produces high speed hardware and
software encryption products used both internally for Current VASCO's security
tokens and for OEM vendors requiring real time encryption services. In addition,
Current VASCO recently has introduced a smartcard security token that uses the
challenge/response mode and the X.509 certificate authentication standard.
Current VASCO's security tokens are designed to be used with the VASCO Access
Control Manager server software or to be integrated directly into applications.
See "CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Business" for further
information about the business of Current VASCO.
New VASCO is a newly incorporated Delaware corporation which has been
organized by representatives of Current VASCO for the purpose of effecting the
Reorganization of Current VASCO through the Exchange Offer. See "REORGANIZATION
OF CURRENT VASCO" and "THE EXCHANGE OFFER" for details on the Reorganization of
Current VASCO and on the Exchange Offer.
The principal executive offices of Current VASCO and of New VASCO are
located at 1919 South Highland Avenue, Suite 118-C, Lombard, Illinois 60148;
telephone: (630) 932-8844.
REORGANIZATION OF CURRENT VASCO
Current VASCO is essentially a holding company that conducts its business
through operating subsidiaries in the United States and Europe.
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ORGANIZATIONAL HISTORY OF CURRENT VASCO
Current VASCO's Present Organizational Structure. Current VASCO presently
has two operating subsidiaries. VASCO Data Security, Inc. ("VDSI"), a Delaware
corporation headquartered in Lombard, Illinois, is owned directly by Current
VASCO. Current VASCO's other operating subsidiary, VASCO Data Security NV/SA
("VDS NV/SA") is a Belgian corporation headquartered in a suburb of Brussels,
Belgium. VDS NV/SA is owned by Current VASCO's European holding company
subsidiary, VASCO Data Security Europe SA ("VDSE"). VDSI and VDS NV/SA are
engaged in the design, development, marketing and support of open
standards-based hardware and software based security systems which manage and
secure access to data and also provide products that permit their customers to
encrypt data.
Organizational Chart of Companies
* All shares are held by the parent corporation, except that shares representing
less than 1% are held by T. Kendall Hunt.
VDSI. In November 1989, a Utah corporate predecessor of Current VASCO
acquired an option to purchase a controlling interest in ThumbScan, Inc.
("ThumbScan"). Current VASCO acquired a controlling interest in ThumbScan in
January 1991, and in December 1991 Current VASCO increased its holdings in
ThumbScan. Current VASCO subsequently acquired the remaining shares of
ThumbScan. In July 1993, ThumbScan was renamed VASCO Data Security, Inc.
VDS NV/SA. VDS NV/SA is a combination of two European companies (Lintel
Security NV and Digipass SA) acquired by Current VASCO, through VDSE, in 1996,
and accounts for a substantial portion of Current VASCO's consolidated revenues.
ACQUISITION OF LINTEL SECURITY. Effective March 1, 1996, Current VASCO
began a significant expansion of its computer security business by acquiring a
15% interest in Lintel Security NV ("Lintel Security"). Lintel Security, a newly
formed Belgian corporation, concurrently purchased from Lintel NV, a Brussels,
Belgium based company, certain assets associated with the development of
security tokens and security technologies for personal computers ("PCs"),
computer networks and telecommunications systems using DES and RSA cryptographic
algorithms. Current VASCO acquired the remaining 85% of Lintel Security in June
1996. At the time of acquisition of Lintel NV's assets by Lintel Security,
Lintel NV was a competitor of Current VASCO in Europe. The purchase price paid
for Lintel Security was approximately $4.4 million, and was paid in cash, shares
of Current VASCO Common Stock, Current VASCO Warrants and notes that include
Current VASCO Conversion Options.
ACQUISITION OF DIGIPASS. In July 1996, Current VASCO acquired the stock of
Digipass SA ("Digipass") for an aggregate purchase price of $8.2 million.
Digipass, based in a suburb of Brussels, was also a developer of
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security tokens and security technologies for PCs, computer networks and
telecommunications systems using the DES cryptographic algorithm. At the time of
acquisition, Digipass was a competitor of Current VASCO in Europe.
Prior to Current VASCO's acquisition of Digipass, certain assets and
liabilities of the interactive voice response ("IVR") business of Digiline SA,
an integrator of IVR products based in Belgium, were transferred to Digipass.
Digipass' IVR products are used primarily in telebanking applications and
incorporate authentication and access control technology. In some cases,
customers for Digipass' IVR products are the same as those for Digipass'
computer security products.
In January 1997, Digipass changed its name to VASCO Data Security NV/SA
("VDS NV/SA"). Concurrent with this event Lintel Security's operations were
consolidated with those of VDS NV/SA at a single location near Brussels.
CURRENT VASCO'S HISTORICAL TRANSACTIONS. VASCO CORP. ("Old VASCO") was
incorporated as a Delaware corporation on May 22, 1984. Current VASCO's
President, T. Kendall Hunt, was an initial director and stockholder of Old
VASCO. On September 5, 1986 Old VASCO was combined with Ridge Point Enterprises,
Inc. ("Ridge Point"), a non-operating company incorporated in Utah on January 7,
1985. This combination was effected by means of share exchange, resulting in Old
VASCO becoming a subsidiary of Ridge Point, which concurrently changed its name
to Vasco Corp. ("VASCO Utah"). Old VASCO then filed a certificate of dissolution
with the State of Delaware on August 3, 1987. On August 20, 1990, a certificate
of merger was filed with the Secretary of State of the State of Delaware for the
intended merger of VASCO Utah with a newly formed Delaware corporation and since
that date business has been conducted as VASCO CORP., a Delaware corporation
(referred to in this document as "Current VASCO"). The organization of, and
certain corporate transactions undertaken by, Current VASCO and/or its
predecessors were not effected in strict accordance with applicable statutory
and procedural requirements. See "Reasons for the Reorganization" below.
Current VASCO's original business was providing consulting, training and
software services to companies and government agencies. These services were
marketed as VASCO Performance Systems ("VPS"). In 1996, management determined
that Current VASCO should focus its energies and resources on the data security
industry, where it believes significant growth and profit potential exist and on
August 20, 1996 Current VASCO sold the assets of VPS to Wizdom Systems, Inc. and
withdrew from the consulting and technical training business.
THE REORGANIZATION
The Board of Directors of Current VASCO has concluded that reorganizing
Current VASCO's corporate structure is in the best interests of Current VASCO's
stockholders. After considering various alternatives, management determined that
Current VASCO should effect the Reorganization by means of the Exchange Offer by
New VASCO to the holders of all outstanding Current VASCO Securities. In the
Exchange Offer, New VASCO is offering to exchange New VASCO Securities for (i)
Current VASCO Securities and (ii) a release by each exchanging holder of Current
VASCO Securities of any and all Associated Corporate Matter Claims. See "Reasons
for the Reorganization" below and "THE EXCHANGE OFFER -- Terms of the Exchange
Offer."
Current VASCO has two classes of equity securities outstanding: Current
VASCO Common Stock and Current VASCO Series B Preferred Stock. In addition,
Current VASCO has issued Current VASCO Equity Equivalent Securities, consisting
of Current VASCO Stock Options, Current VASCO Conversion Options and Current
VASCO Warrants, all of which are exercisable or convertible into Current VASCO
Common Stock.
New VASCO has created two classes of equity securities: New VASCO Common
Stock and New VASCO Series B Preferred Stock, the provisions of which are
substantially identical with the corresponding Current VASCO Common Stock and
Current VASCO Series B Preferred Stock with the exception of the general voting
rights conferred upon the New VASCO Series B Preferred Stock for tax reasons and
the fact
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that New VASCO's Certificate of Incorporation, as amended, authorizes the
issuance of 75,000,000 shares of New VASCO Common Stock as compared to
50,000,000 shares of authorized Current VASCO Common Stock. See "Federal Income
Tax Consequences" below, "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO" and
"COMPARISON OF STOCKHOLDER RIGHTS."
New VASCO has also created New VASCO Stock Options and New VASCO Warrants
as substitutes for the Current VASCO Stock Options and Current VASCO Warrants,
and is offering to grant New VASCO Conversion Options to those holders of
Current VASCO Conversion Options that do not already provide for conversion into
New VASCO Common Stock.
New VASCO has entered into an agreement with Current VASCO that provides
for New VASCO's assumption, upon consummation of the Exchange Offer, of certain
Current VASCO obligations under a financing agreement with Generale Bank for a
$2.5 million loan and with respect to a registration rights agreement with
certain holders of Current VASCO Equity Equivalent Securities, as well as for
the substitution of New VASCO Common Stock for Current VASCO Common Stock in
connection with Current VASCO Equity Equivalent Securities that are exchanged in
the Exchange Offer and certain related agreements of Current VASCO. See
"DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Registration Rights and Other
Arrangements."
In order for the Reorganization and the Exchange Offer to become effective,
as of the Expiration Date the Minimum Condition must be satisfied, unless waived
by New VASCO. Based on the number of Current VASCO Shares outstanding at August
31, 1997, at least 15,538,383 shares of Current VASCO Common Stock and at least
7,200 shares of Current VASCO Series B Preferred Stock must be tendered for
exchange to satisfy the Minimum Condition. See "THE EXCHANGE OFFER -- Conditions
to the Exchange Offer" for more detail on conditions of the Exchange Offer.
If the Exchange Offer is consummated, New VASCO will initially be a holding
company owning at least 80% of the outstanding shares of each class of
outstanding capital stock of Current VASCO and possessing the requisite voting
power to control the affairs of Current VASCO. Current VASCO stockholders who
exchange their Current VASCO Shares and release their Associated Corporate
Matter Claims will become stockholders of New VASCO. Holders of Current VASCO
Shares who do not exchange such shares and release their Associated Corporate
Matter Claims for New VASCO Shares will remain stockholders of Current VASCO.
See "RISK FACTORS -- Risks Relating to Exchange Offer and New VASCO."
New VASCO has conducted no operations and has virtually no assets. The
Reorganization will not result in any change in the business or the consolidated
assets, liabilities or net worth of Current VASCO and will not result in any
change in the persons who constitute the Board of Directors and management of
Current VASCO or New VASCO (although the officers and directors may change
following completion of the Exchange Offer). See "CERTAIN INFORMATION CONCERNING
CURRENT VASCO -- Management" and "CERTAIN INFORMATION CONCERNING NEW VASCO --
Management."
The Reorganization may be abandoned by the Board of Directors of New VASCO
prior to its consummation if circumstances arise which, in the opinion of the
New VASCO Board of Directors, make the Reorganization inadvisable. The New VASCO
Board of Directors currently has no reason to believe that the Reorganization
will be abandoned.
After the Exchange Offer, New VASCO may merge Current VASCO with or into
New VASCO or a subsidiary of New VASCO, cause Current VASCO to distribute assets
to New VASCO, or make other changes in the corporate structure, assets,
liabilities and businesses among New VASCO and its subsidiaries subject to
appraisal rights, if any, or any other remedies available under Delaware law.
The acquisition of Current VASCO Shares by New VASCO pursuant to the Exchange
Offer will be treated by New VASCO for accounting purposes as an "as if" pooling
of interest of entities under common control.
See "Reasons for the Reorganization" below; "DESCRIPTION OF CAPITAL STOCK
OF NEW VASCO" and "COMPARISON OF STOCKHOLDER RIGHTS."
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REASONS FOR THE REORGANIZATION
Management of Current VASCO consulted with independent legal counsel to
explore the possibility of registering the Current VASCO Common Stock under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and to prepare
for registering future capital offerings under the Securities Act of 1933, as
amended (the "Securities Act"). After reviewing the organizational history of
Current VASCO and its predecessors, legal counsel noted the absence of certain
historical corporate documentation and certain other corporate procedural
irregularities. These corporate irregularities, collectively referred to in this
document as "Corporate Matters," include all acts or omissions occurring on or
before the date of this Prospectus which arise from or in connection with the
following, whether undertaken by, involving or relating to Current VASCO or any
of its predecessor entities:
(i) any prior authorization, designation or issuance of stock, any
stock split, reclassification, redesignation, dividend or distribution of
or upon stock, any amendment to the certificate or articles of
incorporation or bylaws including those affecting the amount, rights,
powers or preferences of stock, and any failure to properly authorize,
approve or effect any of the foregoing actions, including
(a) the failure by Old VASCO to document whether an amendment to
its Certificate of Incorporation was duly authorized or to file a
Certificate of Amendment with the Delaware Secretary of State to amend
its Certificate of Incorporation in 1984 to effect a three-for-one stock
split of its common stock and to provide for 600,000 shares of
non-voting common stock prior to purportedly effecting the stock split
and issuing such non-voting common shares, (b) the failure by Old VASCO
to document whether director and stockholder approval was obtained for
an amendment to its Certificate of Incorporation increasing the number
of authorized shares of common stock in 1986, (c) the purported issuance
of Series A preferred stock in 1989 by VASCO Utah at a time when the
issuance of preferred shares was not authorized by VASCO Utah's charter,
and (d) the purported issuance of preferred stock by Current VASCO in
connection with the 1990 merger when the rights, powers and preferences
of such stock were not specified in Current VASCO's Certificate of
Incorporation and when its Certificate of Incorporation did not provide
its Board of Directors the power to designate such rights, powers and
preferences;
(ii) any failure to properly design, approve, adopt, administer, or
authorize the number of shares subject to, any stock option plan or
program, including actions required to allow for options awarded thereunder
to be treated as ISOs under the Internal Revenue Code of 1986, as amended
(the "Code"), including the failure by Old VASCO, VASCO Utah and/or Current
VASCO to
(a) document approval by the Board of Directors and stockholders of
stock option plans, (b) specify and authorize the number of shares of
stock to be subject to such plans, (c) reserve the number of shares
subject to such plans, (d) document the authorization for the grant of
options pursuant to such plans and the issuance of shares upon exercise
of such options, and (e) design such plans in a manner that would ensure
options granted thereunder would be treated as ISOs;
(iii) any organization or any merger, consolidation, share exchange,
reorganization, recapitalization, sale of assets or like event, or any
failure properly to authorize, approve, effect or consummate same,
including
(a) the failure to document the approval by Old VASCO's
stockholders of the 1986 reorganization through the share exchange
undertaken by Old VASCO and Ridge Point/VASCO Utah, (b) the failure to
document whether all stockholders of Old VASCO voluntarily exchanged
their shares for shares of Ridge Point/VASCO Utah, (c) the failure to
document the mechanics of the exchange of Old VASCO shares for shares of
Ridge Point/VASCO Utah, and (d) the following procedural irregularities
which call into question the validity of the intended 1990 merger of
VASCO Utah and Current VASCO, as well as Current VASCO's title to the
assets of VASCO Utah purportedly succeeded to by Current VASCO by virtue
of the merger: (1) the incorporation of Current VASCO after the date of
the 1990 merger agreement, (2) Current VASCO's approval of the plan of
merger, including approval of the plan of merger prior to the
incorporation of Current
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VASCO, the lack of documented stockholder approval as called for by the
plan of merger and the effectiveness of the approval by Current VASCO's
then Board of Directors, (3) the authorization and issuance of stock by
Current VASCO pursuant to the merger, (4) the adoption of Current
VASCO's initial bylaws, the appointment of Current VASCO's initial
directors and the election of its initial officers, (5) the
administrative dissolution of VASCO Utah prior to the filing of a
Certificate of Merger with the State of Delaware, and (6) the failure to
file Articles of Merger with the State of Utah in connection with the
intended merger of VASCO Utah and Current VASCO;
(iv) the dissolution, liquidation or winding up of any of Current
VASCO's predecessors, or any failure properly to approve or effect said
dissolution, liquidation or winding up, including
(a) the failure to properly document any stockholder approval of
the dissolution of Old VASCO and to document actions taken to dissolve,
liquidate and wind-up Old VASCO in 1987, (b) the failure to vest
effectively title and ownership in VASCO Utah of Old VASCO's assets and
to document the assumption by VASCO Utah of Old VASCO's liabilities, and
(c) the administrative dissolution of VASCO Utah in 1990 prior to the
intended merger transaction with Current VASCO and before the filing of
a Certificate of Merger with the State of Delaware; and
(v) any failure to afford security holders any appraisal, preemptive
or other rights, whether accorded by statute or by the articles of
incorporation, certificate of incorporation or bylaws of Current VASCO or
any of its predecessors, in connection with any of the matters described in
the foregoing clauses (i), (ii), (iii) or (iv), including
(a) the failure of Old VASCO to document whether it afforded its
stockholders, in connection with issuances of Old VASCO capital stock,
the preemptive rights to purchase, upon the issuance or sale of Old
VASCO stock (or securities convertible into Old VASCO stock), shares (or
securities) in proportion to the amount of Old VASCO common stock then
owned by such holder, subject to conditions and time limitations
prescribed (and at a price determined as permitted by law), by Old
VASCO's Board of Directors, as provided for in the Old VASCO Certificate
of Incorporation and (b) the failure of VASCO Utah to document whether
it afforded its stockholders the appraisal rights provided for by Utah
law in connection with the intended 1990 merger of VASCO Utah with
Current VASCO.
In April 1997, Current VASCO contacted the Division of Corporations of the
Utah Department of Commerce and inquired whether the Division would accept for
filing Articles of Merger relating to the intended 1990 merger transaction. The
Division responded that it would not accept the Articles of Merger for filing.
Current VASCO had been operating on the belief that all prior issuances of
capital stock, as well as all corporate organizations and reorganizations had
been effected in compliance with requisite corporate law. The Corporate Matters
have not previously presented any problems to Current VASCO in the conduct of
its business operations. However, the Corporate Matters may preclude legal
opinions as to the compliance with applicable corporate law with respect to the
issuance of certain shares of Current VASCO presently outstanding, and may
complicate a future public offering. In the proposed Reorganization, the holders
of Current VASCO Securities who exchange their securities for New VASCO
Securities will also release any and all Associated Corporate Matter Claims. See
"THE EXCHANGE OFFER -- Terms of the Exchange Offer."
If the Exchange Offer is consummated, New VASCO would initially serve as a
holding company for Current VASCO and its subsidiaries and be the entity for
raising capital in the public market. Management believes that the
Reorganization, if consummated, will facilitate plans to raise additional
capital to meet financing needs by increasing the likelihood of obtaining an
opinion of counsel concerning the validity of to-be-issued New VASCO Shares.
However, there can be no assurance that the Reorganization will successfully
facilitate the raising of capital by New VASCO.
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FEDERAL INCOME TAX CONSEQUENCES
Introduction. The following discussion is based upon the advice of Jenner &
Block as to certain of the material United States federal income tax
consequences that may be relevant to a citizen or resident of the United States,
a corporation, partnership or other entity created or organized under the laws
of the United States and an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source (any of the foregoing a
"U.S. Person") who is the beneficial holder of (i) shares of Current VASCO
Common Stock or Current VASCO Series B Preferred Stock (each a "U.S.
Stockholder"), (ii) Current VASCO Warrants, (iii) Current VASCO Stock Options
and (iv) Current VASCO Conversion Options. This summary is based upon U.S.
federal income tax laws, regulations, rulings and decisions in effect as of the
date of this Registration Statement, all of which are subject to change at any
time (possibly with retroactive effect). There can be no assurance that future
changes in applicable law or administrative and judicial interpretations
thereof, any of which could have a retroactive effect, will not adversely affect
the tax consequences discussed herein or that there will not be differences of
opinion as to the interpretation of applicable law. Because the law is technical
and complex, the discussion below necessarily only represents a summary.
This summary addresses the U.S. federal income tax consequences to U.S.
Persons who currently own Current VASCO Securities and who will, with the
exception of the compensatory options discussed below, hold those shares,
options and/or warrants as capital assets within the meaning of Section 1221 of
the Code. This summary does not address all aspects of U.S. federal income
taxation that may be relevant to a particular holder in light of his, her or its
individual investment circumstances or to certain types of holders subject to
special treatment under the U.S. federal income tax laws such as dealers in
securities or foreign currency, financial institutions, insurance companies,
tax-exempt organizations, and taxpayers holding the Current VASCO Common Stock
and/or Current VASCO Series B Preferred Stock as part of a "straddle," "hedge,"
"conversion transaction," "synthetic security" or other integrated investment.
Moreover, the effect of any applicable state, local or foreign laws is not
discussed. HOLDERS OF CURRENT VASCO SECURITIES SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE APPLICATION OF THE U. S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION.
Current VASCO Common Stock and Current VASCO Series B Preferred Stock
Exchange Treated as a "B" Reorganization. In the opinion of Jenner & Block,
assuming the consummation of the Exchange Offer meets certain conditions
outlined below (including the Minimum Condition), the exchange of Current VASCO
Common Stock and Current VASCO Series B Preferred Stock will qualify as a
reorganization under Code Section 368(a)(1)(B). In order for the exchange to
qualify as a reorganization under Code Section 368(a)(1)(B), New VASCO will have
to acquire Current VASCO Shares solely in exchange for New VASCO voting stock,
and after the transaction, New VASCO must own Current VASCO Shares possessing at
least 80% of Current VASCO's voting power and at least 80% of each class of
Current VASCO's nonvoting stock. Thus, in order to qualify, the Exchange Offer
will need to result in the acquisition by New VASCO of at least 80% of the
Current VASCO Common Stock and at least 80% of the Current VASCO Series B
Preferred Stock. In addition to the New VASCO voting stock issued in the
Exchange Offer, no other consideration may be paid to the stockholders of
Current VASCO for their interests in the capital stock of Current VASCO.
Assuming the exchange qualifies as a reorganization under Code Section
368(a)(1)(B), the following will be the U.S. federal income tax consequences to
holders of Current VASCO Common Stock and Current VASCO Series B Preferred
Stock:
1. The U.S. Stockholders taking part in the Exchange Offer will
recognize no gain or loss on the exchange of the New VASCO Common Stock for
Current VASCO Common Stock.
2. The U.S. Stockholders taking part in the Exchange Offer will
recognize no gain or loss on the exchange of the New VASCO Series B
Preferred Stock for Current VASCO Series B Preferred Stock.
3. The holding period of the New VASCO Common Stock received by a U.S.
Stockholder taking part in the Exchange Offer will include the holding
period of the Current VASCO Common Stock exchanged therefor.
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4. The holding period of the New VASCO Series B Preferred Stock
received by a U.S. Stockholder taking part in the Exchange Offer will
include the holding period of the Current VASCO Series B Preferred Stock
exchanged therefor.
5. The tax basis of the New VASCO Common Stock received by a U.S.
Stockholder taking part in the Exchange Offer will be the same as the tax
basis of the Current VASCO Common Stock exchanged therefor.
6. The tax basis of the New VASCO Series B Preferred Stock received by
a U.S. Stockholder taking part in the Exchange Offer will be the same as
the tax basis of the Current VASCO Series B Preferred Stock exchanged
therefor.
Taxation of Exchange of Certain Current VASCO Warrants. In the opinion of
Jenner & Block, the exchange of New VASCO Warrants for Current VASCO Warrants
other than with respect to Current VASCO Warrants issued for services
("compensatory warrants") will not be included in the tax-free reorganization
transaction described above. As a result, the U.S. federal income tax impact of
the exchange upon holders of the Current VASCO Warrants that were not issued for
services will be determined under the general rules of the Code applicable to
sale or exchange transactions. Those rules provide that gain or loss is realized
from the exchange of property for other property which differs materially either
in kind or extent. Thus, if the New VASCO Warrants are deemed materially
different than such Current VASCO Warrants, the Exchange Offer will result in a
taxable transaction to the holders of such Current VASCO Warrants.
Although there is some authority to the contrary, the weight of authority
supports the conclusion that the exchange of warrants in conjunction with a
reorganization transaction under Code Section 368(a)(1)(B) is a taxable sale or
exchange, even in those circumstances in which the only modification to the
warrants is to make them convertible into the stock of the acquiring company. As
a result, in the opinion of Jenner & Block the Exchange Offer will be a taxable
sale or exchange for holders of the Current VASCO Warrants (other than with
respect to compensatory warrants). Assuming such a sale or exchange occurs, the
following would be the U.S. federal income tax consequences to holders of
Current VASCO Warrants (other than with respect to compensatory warrants, the
tax treatment of which is discussed under "Cancellation of Current VASCO Stock
Options, Issuance of New VASCO Stock Options, and Exchange of Certain Warrants"
below).
1. The holders of Current VASCO Warrants taking part in the Exchange
Offer will recognize a gain or loss equal to the difference between (a) the
fair market value of the New VASCO Warrants over (b) the holder's tax basis
in the Current VASCO Warrants. For these purposes, the tax basis of any
holder of a Current VASCO Warrant will be equal to the fair market value of
the consideration paid by the holder for the Current VASCO Warrant. In
those circumstances in which the holder acquired both a Current VASCO
Warrant and a share of Current VASCO Common Stock as an integrated
investment unit, the holder's tax basis is equal to (a) the fair market
value of the consideration paid for the entire unit, multiplied by (b) a
fraction the numerator of which is the fair market value of the warrant on
the date of the acquisition and the denominator of which is the fair market
value of the entire investment unit on the date of acquisition.
2. The holding period of the New VASCO Warrants received by holders of
Current VASCO Warrants taking part in the Exchange Offer will begin on the
date on which the Exchange Offer is consummated.
3. The tax basis of the New VASCO Warrants received by holders of
Current VASCO Warrants taking part in the Exchange Offer will be equal to
the fair market value of the New VASCO Warrants on the date on which the
Exchange Offer is consummated.
Cancellation of Current VASCO Stock Options, Issuance of New VASCO Stock
Options And Exchange of Certain Warrants. Options issued in exchange for the
provision of services ("compensatory options") are generally not taxable upon
their issuance. An exception to this rule applies if the options have a readily
ascertainable fair market value. If an option does have a readily ascertainable
fair market it is taxable to the holder upon its issuance. For these purposes if
an option is not actively traded on an established market, it does not have a
readily ascertainable fair market value unless its fair market value can
otherwise be measured with
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reasonable accuracy. In particular, if an option is not actively traded on an
established market, the option does not have a readily ascertainable fair market
value when granted unless the taxpayer can show that all of the following
conditions exist: (i) the option is transferable by the optionee; (ii) the
option is exercisable immediately in full by the optionee; (iii) the option or
the property subject to the option is not subject to any restriction or
condition (other than a lien or other condition to secure the payment of the
purchase price) which has a significant effect upon the fair market value of the
option; and (iv) the fair market value of the option privilege is readily
ascertainable. Given the market for the Current VASCO Common Stock it is
unlikely that the option privilege of the Current VASCO Stock Options could be
said to have a readily ascertainable fair market value.
Because compensatory options which are not qualified as incentive stock
options under Code Sections 421 through 424 are not taxed until exercised and
incentive stock options are not taxed on exercise but rather upon sale of the
underlying stock, the Internal Revenue Service has generally taken the view that
they may be canceled and reissued without incidence of taxation. Accordingly,
assuming the Current VASCO Stock Options do not have a readily ascertainable
fair market value, Jenner & Block is of the opinion that the cancellation of
Current VASCO Stock Options and the issuance of the New VASCO Stock Options will
not be a taxable event to the holders of the Current VASCO Stock Options.
Warrants issued in exchange for services receive treatment for U.S. federal
income tax purposes similar to the tax treatment for compensatory nonqualified
options. Accordingly, assuming the compensatory warrants issued by Current VASCO
in exchange for services do not have a readily ascertainable fair market value,
Jenner & Block is of the opinion that the exchange of such warrants for New
VASCO Warrants will not be a taxable event to the holders of such Current VASCO
Warrants.
Taxation of Exchange of Current VASCO Conversion Options. In the opinion of
Jenner & Block, the exchange of New VASCO Conversion Options for Current VASCO
Conversion Options will not be included in the tax-free reorganization
transaction described above. As a result, the U.S. federal income tax impact of
the exchange upon holders of Current VASCO Conversion Options will be determined
under the general rules of the Code applicable to sale or exchange transactions.
As described above in respect of those Current VASCO Warrants that are not
compensatory warrants, those rules provide that gain or loss is realized from
the exchange of property for other property which differs materially either in
kind or extent.
The exchange of Current VASCO Conversion Options for New VASCO Conversion
Options will be effected pursuant to the New VASCO Convertible Note Agreement,
which provides for the amendment (or modification) of debt instruments issued by
Current VASCO that contain Current VASCO Conversion Options to provide for New
VASCO Conversion Options. As a result, New VASCO may be deemed to be an obligor
under these debt instruments upon consummation of the Exchange offer by virtue
of New VASCO's commitment to issue shares of New VASCO Common Stock pursuant to
the New VASCO Conversion Options. The Internal Revenue Service has promulgated
specific regulations to determine when a modification to a debt instrument is
sufficiently material to be deemed a sale or exchange of the debt instrument for
U.S. federal income tax purposes. Subject to certain exceptions not applicable
here, those rules generally provide that any change in the obligor on a debt
instrument is deemed a significant modification (even if the change in obligor
occurs by operation of the terms of the debt instrument itself). Accordingly,
the proposed modifications of the debt instruments pursuant to the New VASCO
Convertible Note Agreements will be deemed sales or exchanges of those debt
instruments.
The gain or loss on the sale or exchange of one privately held debt
instrument for another privately held debt instrument is determined by comparing
the adjusted issue price ("AIP") of the old debt instrument and the issue price
of the new debt instrument. The AIP of the old debt instrument is its original
issue price plus any accrued but unpaid interest plus any original issue
discount. In the case of the Current VASCO debt instruments, Current VASCO has
represented that there is no original issue discount and no accrued but unpaid
interest. The issue price of the new debt instrument is its face amount so long
as it bears adequate interest which is equal to or less than the applicable
federal rate. Current VASCO has represented that the interest rate on the new
debt will equal or exceed the applicable federal rate, since the debt
instruments with Current VASCO Conversion Options will be amended only to
provide for New VASCO Conversion Options
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<PAGE> 34
and no change in the interest rate payable under such instruments will be made
by virtue of the New VASCO Convertible Note Agreements.
DIFFERENCES IN CAPITAL STOCK
With the exception of the authorization of an additional 25,000,000 shares
of common stock from the number authorized in Current VASCO's Restated and
Amended Certificate of Incorporation, as amended, the lack of a class of New
VASCO preferred stock comparable to the Series A Preferred Stock designated in
Current VASCO's Restated and Amended Certificate of Incorporation, as amended
(no shares of which are presently outstanding), and the general voting rights to
which the holders of New VASCO Series B Preferred Stock will be entitled, there
are no material differences in the capital stock of Current VASCO and New VASCO.
The authorized capital stock of New VASCO is in all other material respects the
same as Current VASCO's authorized capital stock, except for the deletion from
New VASCO's Certificate of Incorporation, as amended, of a general requirement
that all dividends on preferred stock be paid before payment of dividends on
common stock, which deletion will permit the creation of a class or series of
preferred stock that could participate with common stock in dividend payments,
and for certain changes included to reflect current Delaware law. See "CERTAIN
INFORMATION CONCERNING NEW VASCO -- Organization of New VASCO," "DESCRIPTION OF
CAPITAL STOCK OF NEW VASCO," and "COMPARISON OF STOCKHOLDER RIGHTS."
In contrast to shares of Current VASCO Series B Preferred Stock, which have
no voting rights, shares of New VASCO Series B Preferred Stock have general
voting rights. As of August 31, 1997, there were 9,000 shares of Current VASCO
Series B Preferred Stock currently outstanding. Therefore, assuming all
currently outstanding shares of Current VASCO capital stock are exchanged in the
Exchange Offer, the number of voting shares of New VASCO would be 9,000 shares
higher than the number of voting shares of Current VASCO. Based on the number of
Current VASCO Shares outstanding as of August 31, 1997, the voting shares would
increase from 19,422,979 to 19,431,979. The grant of voting rights, however,
will not change the proportionate equity interest of holders of New VASCO
Shares. See "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Preferred Shares --
New VASCO Series B Preferred Stock."
Holders of Current VASCO Shares who do not exchange such shares for the
appropriate class of New VASCO Shares will, in the event the Exchange Offer is
consummated, collectively become holders of a minority interest in Current
VASCO. As minority stockholders of Current VASCO, their shares are likely to be
more illiquid than prior to the Reorganization, and New VASCO will have the
power to control and direct the affairs of Current VASCO by written consent
without consulting with or requiring a vote of such holders. See "RISK FACTORS
- -- Risks Relating to Exchange Offer and New VASCO -- Stockholders who do not
Exchange will become Minority Stockholders of Current VASCO," and "-- Reduced
Liquidity of Current VASCO Common Stock."
NO APPRAISAL RIGHTS
Holders of Current VASCO Shares, Current VASCO Stock Options, Current VASCO
Conversion Options or Current VASCO Warrants are not entitled to appraisal
rights in connection with the Reorganization under the Delaware General
Corporation Law.
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<PAGE> 35
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Current VASCO Shares. New VASCO hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal and Release (the "Letter of Transmittal and Release"), to exchange
New VASCO Shares for Current VASCO Shares as follows:
<TABLE>
<CAPTION>
ONE CURRENT VASCO SHARE AND ALL
ASSOCIATED CORPORATE MATTER CLAIMS ONE SHARE OF NEW VASCO
- ---------------------------------- ----------------------
<S> <C> <C>
Current VASCO Common Stock for New VASCO Common Stock
Current VASCO Series B Preferred for New VASCO Series B
Stock Preferred Stock
</TABLE>
Associated Corporate Matter Claims. The Letter of Transmittal and Release,
in addition to providing for the assignment and transfer of Current VASCO
Shares, provides for the release, waiver and relinquishment of any and all of
the following (collectively referred to in this document as "Associated
Corporate Matter Claims") in accordance with the express terms of the Letter of
Transmittal and Release:
all direct or indirect demands, claims, payments, obligations, actions or
causes of action, assessments, losses, liabilities, damages (including
without limitation special, consequential, exemplary, punitive and similar
damages), reasonable costs and expenses paid or incurred, or diminutions in
value of any kind or character (whether or not known or asserted prior to
the date hereof, fixed or unfixed, conditional or unconditional, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise), that the holder of Current VASCO
Securities now has or ever had against Current VASCO, any of its
predecessor entities, or their respective assets, together with the
respective successors and assigns of Current VASCO and any of its
predecessor entities, as a result of acts or omissions occurring on or
before the date of this Prospectus which arise from or are in connection
with the Corporate Matters.
Although no claims based on the Corporate Matters have been asserted to
date and the ability of any particular holder of Current VASCO Securities to
assert any Associated Corporate Matter Claim is uncertain, and although certain
Associated Corporate Matter Claims may or may not be barred by applicable
statutes of limitations or any corresponding doctrines of laches, the Associated
Corporate Matter Claims could include, among other things:
(i) claims for rescission of stock (or other securities) issuances,
acquisitions, sales or exchanges;
(ii) claims of a direct interest in assets (including securities or
other property) of Current VASCO or one of its predecessor entities;
(iii) claims for rescission of corporate transactions; or
(iv) claims for money damages.
The Associated Corporate Matter Claims which you are being asked to
release, waive and relinquish in the Exchange Offer do not include claims, if
any, that an exchanging holder of Current VASCO Securities may or may not be
entitled to assert against any past or present officers, directors,
shareholders, or agents of Current VASCO or its predecessors, arising from or in
connection with the Corporate Matters, regardless of whether such claims are
raised in an individual or a derivative capacity. Any such claim not released
may or may not be subject to factual, legal or equitable defenses and, if
asserted against an officer or director, may or may not be subject to
indemnification by Current VASCO to the extent permitted by applicable law.
Stock Options. New VASCO hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying New VASCO Option
Agreement, to exchange New VASCO Stock Options for Current VASCO Stock Options
and a release of any and all Associated Corporate Matter Claims. The New VASCO
Stock Options will be issued pursuant to the New VASCO 1997 Stock Option Plan
and
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<PAGE> 36
will be for the same number of shares and have the same vesting, termination,
exercise price and exercise expiration terms as the Current VASCO Stock Options
tendered for exchange, but, in all cases, they will be nonqualified stock
options. The New VASCO Option Agreement, in addition to providing for the New
VASCO Stock Options also provides for the cancellation of the Current VASCO
Stock Options and a release of any and all Associated Corporate Matter Claims,
and includes a provision for the adjustment of the number of shares underlying
the New VASCO Stock Options and of the exercise price for such shares in the
event of a change in the capital structure of New VASCO. A copy of the New VASCO
Option Agreement and a copy of the New VASCO 1997 Stock Option Plan are being
distributed with this document to holders of outstanding Current VASCO Stock
Options. See "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Stock Options,
Warrants and Convertible Notes" for further information on the New VASCO 1997
Stock Option Plan.
Conversion Options. New VASCO hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying New VASCO
Convertible Note Agreement, to exchange New VASCO Conversion Options (i.e.,
options to convert notes into shares of New VASCO Common Stock) for Current
VASCO Conversion Options (options to convert notes into shares of Current VASCO
Common Stock) on substantially the same terms and conditions, and a release of
any and all Associated Corporate Matter Claims. The New VASCO Convertible Note
Agreement, in addition to providing for the grant of New VASCO Conversion
Options, also provides for the cancellation of the Current VASCO Conversion
Options and a release of any and all Associated Corporate Matter Claims. A copy
of the New VASCO Convertible Note Agreement is being distributed with this
document to holders of Current VASCO Conversion Options.
Warrants. New VASCO hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying New VASCO Warrant
Agreement, to exchange New VASCO Warrants for Current VASCO Warrants and a
release of any and all Associated Corporate Matter Claims. The New VASCO
Warrants will be for the same number of shares and have the same exercise price,
expiration date and other terms as the Current VASCO Warrants tendered for
exchange. The New VASCO Warrant Agreement provides for the grant of New VASCO
Warrants, the cancellation of Current VASCO Warrants and the release of any and
all Associated Corporate Matter Claims, and includes a provision for the
adjustment of the number of shares underlying the New VASCO Warrants and of the
exercise price for such shares in the event of a change in the capital structure
of New VASCO. A copy of the New VASCO Warrant Agreement is being sent with this
document to holders of Current VASCO Warrants.
Exchange of Any Current VASCO Securities Releases Any and All Associated
Corporate Matter Claims. The exchange of any of the Current VASCO Securities by
a holder will release and waive any and all Associated Corporate Matter Claims
the exchanging holder (or, if the Current VASCO Securities are held in a nominee
name, the beneficial owner of the Current VASCO Securities) may have even if
less than all of the exchanging holder's (beneficial owner's) Current VASCO
Securities are exchanged; provided that if a nominee holds Current VASCO
Securities on behalf of more than one beneficial owner, any release executed by
the nominee will be effective only with respect to any Associated Corporate
Matter Claims of beneficial owners directing such nominee to exchange all or any
part of the Current VASCO Securities in which such beneficial owner has an
interest.
OTHER ARRANGEMENTS RELATING TO THE EXCHANGE OFFER
Certain holders of Current VASCO Shares, Current VASCO Warrants and Current
VASCO Conversion Options have entered into agreements with Current VASCO which
grant such holders the right, under certain circumstances, to either sell the
shares they hold to Current VASCO or to require Current VASCO to register under
the Securities Act the shares they now hold or the shares they may acquire upon
exercise or conversion of Current VASCO Warrants or Current VASCO Conversion
Options. In the event that the holders of these rights exchange their Current
VASCO Shares, Current VASCO Warrants or Current VASCO Conversion Options upon
the terms and conditions set forth in this Prospectus and, as applicable, the
accompanying Letter of Transmittal and Release, the New VASCO Warrant Agreement
or the New VASCO Convertible Note Agreement, New VASCO, if the holders of these
rights so request, may enter into registration rights agreements with provisions
substantially the same as those of the respective registration rights agreements
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<PAGE> 37
entered into by Current VASCO that have not been performed as of the Expiration
Date. See "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Registration Rights and
Other Arrangements."
Upon consummation of the Exchange Offer, New VASCO may at a later date
merge Current VASCO into New VASCO or into or with a subsidiary of New VASCO on
a stock or cash basis or undertake some other corporate reorganization of
Current VASCO, subject to appraisal rights, if any, and any other remedies
available under Delaware law. New VASCO also reserves the right in its sole
discretion to purchase or make offers for any Current VASCO Shares that remain
outstanding subsequent to the Expiration Date. The terms of any such purchases
or offers could differ from the terms of the Exchange Offer.
Tendering holders of Current VASCO Securities will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal and Release, transfer taxes with respect to the exchange of Current
VASCO Securities pursuant to the Exchange Offer. New VASCO will pay all charges
and expenses, other than certain applicable taxes, in connection with costs
incurred by it for the Exchange Offer. See "Payment of Expenses" below.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., Chicago, Illinois time, on the
Expiration Date, , 1997 [+21 business days], subject to extension by
New VASCO by notice to the Exchange Agent as herein provided. New VASCO reserves
the right to so extend the Exchange Offer at its discretion, in which event the
term "Expiration Date" shall mean the time and date on which the Exchange Offer
as so extended shall expire. New VASCO will notify the Exchange Agent of any
extension by oral or written notice and will make a public announcement thereof,
each prior to 8:00 a.m., Chicago, Illinois time, on the next business day after
the previously scheduled Expiration Date.
New VASCO reserves the right in its sole discretion (i) to delay accepting
any Current VASCO Securities for exchange or to extend or terminate the Exchange
Offer and not accept for exchange any Current VASCO Securities if the Minimum
Condition shall not have been satisfied or any of the events set forth below
under the caption "Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by New VASCO by giving oral or written notice of such
delay or termination to the Exchange Agent, (ii) to amend the terms of the
Exchange Offer in any manner, or (iii) to terminate and abandon the Exchange
Offer at any time prior to acceptance of Current VASCO Securities. Any such
delay in acceptance for exchange, extension, amendment or termination and
abandonment will be followed as promptly as practicable by public announcement
thereof. If the Exchange Offer is amended in a manner determined by New VASCO to
constitute a material change, New VASCO will promptly disclose such amendment in
a manner reasonably calculated to inform the holders of Current VASCO Securities
of such amendment. New VASCO will extend the Exchange Offer so that there is a
period of at least ten business days from the announcement of the amendment to
the Expiration Date, depending upon the significance of the amendment and the
manner of disclosure to the holders of Current VASCO Securities, if the Exchange
Offer would otherwise expire during such ten business-day period. The rights
reserved by New VASCO in this paragraph are in addition to New VASCO's rights
set forth below under the caption "Conditions to the Exchange Offer."
PROCEDURE FOR TENDERING CURRENT VASCO SHARES
The tender of any Current VASCO Shares as set forth below and the
acceptance thereof by New VASCO will constitute a binding agreement between the
tendering holder and New VASCO upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal and
Release. Holders of Current VASCO Shares who wish to tender in exchange for New
VASCO Shares pursuant to the Exchange Offer must transmit the certificates for
the Current VASCO Shares together with a properly completed and duly executed
Letter of Transmittal and Release, and all other documents required by such
Letter of Transmittal and Release, so as to be received by the Exchange Agent on
or prior to the Expiration Date, except as otherwise provided below under the
caption "Guaranteed Delivery Procedure for Current VASCO Shares." LETTERS OF
TRANSMITTAL AND RELEASE AND CURRENT VASCO
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<PAGE> 38
SHARES SHOULD NOT BE SENT TO NEW VASCO; THEY SHOULD BE SENT TO THE EXCHANGE
AGENT AT THE ADDRESS SET FORTH BELOW.
Illinois Stock Transfer Company
223 West Jackson Boulevard, Suite 1210
Chicago, Illinois 60606
(312) 427-2953
If any Letter of Transmittal and Release, endorsement, or other document
required by the Letter of Transmittal and Release or the Notice of Guaranteed
Delivery is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by New VASCO, proper evidence satisfactory to New
VASCO of such person's authority to so act, including the authority to release,
waive and relinquish any and all Associated Corporate Matter Claims on behalf of
the holder, must be submitted.
Signatures on a Letter of Transmittal and Release or a notice of
withdrawal, as the case may be, are not required to be guaranteed if the Letter
of Transmittal and Release is tendered (i) by a registered holder of Current
VASCO Shares who has not completed the box entitled "Special Issuance and
Delivery Instructions" on the Letter of Transmittal and Release or (ii) for the
account of an Eligible Institution (as defined below). Signatures on all other
Letters of Transmittal and Release must be guaranteed by an Eligible
Institution. If signatures on a Letter of Transmittal and Release or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a firm that is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution").
If the Letter of Transmittal and Release is signed by a person other than a
registered holder of any certificates representing Current VASCO Shares listed
thereon, such Current VASCO Shares must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on such Current VASCO Shares.
IF THE CURRENT VASCO SHARES ARE HELD IN "STREET NAME" OR BY OTHER NOMINEE, BOTH
THE REGISTERED STOCKHOLDER AND THE BENEFICIAL OWNER ARE REQUIRED TO SIGN THE
LETTER OF TRANSMITTAL AND RELEASE.
GUARANTEED DELIVERY PROCEDURE FOR CURRENT VASCO SHARES
If a holder of Current VASCO Shares desires to tender shares and
certificate(s) representing such shares are not immediately available, or time
will not permit such holder's certificate(s) or any other required documents to
reach the Exchange Agent before 5:00 p.m., Chicago, Illinois time, on the
Expiration Date, a tender of Current VASCO Shares will be acceptable if:
(a) The tender is made by or through an Eligible Institution;
(b) Prior to 5:00 p.m., Chicago, Illinois time, on the Expiration
Date, the Exchange Agent receives from (i) the registered holder of Current
VASCO Shares (as well as from the beneficial owner of such shares, if
applicable), a properly completed and duly executed Letter of Transmittal
and Release, and (ii) such Eligible Institution, a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery), setting forth the name and address of such holder
and the number of Current VASCO Shares tendered, stating that the tender is
being made thereby and guaranteeing that, within five business days after
the Expiration Date, the certificate(s) representing such Current VASCO
Shares (for which a properly completed and duly executed Letter of
Transmittal and Release was received by the Exchange Agent prior to 5:00
p.m., Chicago, Illinois time on the Expiration Date) and all other
documents required by the Letter of Transmittal and Release, will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) The certificate(s) for all tendered Current VASCO Shares, as well
as all other documents required by the Letter of Transmittal and Release,
are received by the Exchange Agent within five business days after the
Expiration Date.
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<PAGE> 39
THE EXCHANGE AGENT
Illinois Stock Transfer Company has been appointed as Exchange Agent for
the Exchange Offer. All correspondence in connection with the Exchange Offer for
Current VASCO Shares and the Letters of Transmittal and Release should be
addressed to the Exchange Agent, as follows:
Illinois Stock Transfer Company
223 West Jackson Boulevard, Suite 1210
Chicago, Illinois 60606
(312) 427-2953
PROCEDURES FOR TENDERING CURRENT VASCO EQUITY EQUIVALENT SECURITIES
Holders of Current VASCO Stock Options, Current VASCO Conversion Options,
and Current VASCO Warrants who wish to exchange their options or warrants should
deliver a signed New VASCO Stock Option Agreement with respect to the Current
VASCO Stock Options, New VASCO Convertible Note Agreement with respect to the
Current VASCO Conversion Options or New VASCO Warrant Agreement (with original
Current VASCO Warrants attached thereto) with respect to the Current VASCO
Warrants, as applicable, to the following individual prior to the Expiration
Date:
Gregory T. Apple
Vice President and Treasurer
VASCO Data Security International, Inc.
1919 South Highland Avenue, Suite 118-C
Lombard, Illinois 60148
(630) 932-8844
The exchange of Current VASCO Equity Equivalent Securities will not be
effected unless the Exchange Offer for the Current VASCO Shares is effected.
WITHDRAWAL RIGHTS
All holders of Current VASCO Securities who have tendered Current VASCO
Securities are free to withdraw such tendered Current VASCO Securities at any
time prior to 5:00 p.m., Chicago, Illinois time, on the Expiration Date, which
is , 1997 (or such later date if extended), or unless such tender has
been previously accepted for exchange, at any time after , 1997 [60
days after date of commencement of the offer], by delivery of a written notice
of withdrawal as provided below. However, once the Exchange Offer has expired
and the tendered Current VASCO Securities are accepted by New VASCO, holders of
Current VASCO Securities will have no right to withdraw tendered Current VASCO
Securities.
Current VASCO Shares. For a withdrawal of Current VASCO Shares to be
effective, a written notice of withdrawal must be received by the Exchange
Agent, Illinois Stock Transfer Company, at the address set forth above. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Current VASCO Shares to be withdrawn, (ii) identify the Current VASCO Shares
to be withdrawn (including the certificate number or numbers and number of
Current VASCO Shares), and (iii) be signed in the same manner required for the
Letter of Transmittal and Release by which such Current VASCO Shares were
tendered. Any Current VASCO Shares which have been tendered for exchange, but
which are withdrawn, will be returned to the holders of Current VASCO Shares
without cost to such holders as soon as practicable after withdrawal. The
Current VASCO Shares so withdrawn, if any, will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Properly
withdrawn Current VASCO Shares may be re-tendered by following the procedures
described above under "Procedure for Tendering Current VASCO Shares" at any time
on or prior to the Expiration Date.
Current VASCO Equity Equivalent Securities. For a withdrawal of Current
VASCO Equity Equivalent Securities to be effective, a written notice of
withdrawal must be received by Gregory T. Apple at the address set forth above.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Current VASCO Equity Equivalent Securities to be withdrawn, (ii)
identify the Current VASCO Equity
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<PAGE> 40
Equivalent Securities to be withdrawn (including the warrant number in the case
of Current VASCO Warrants or the date of the agreement concerning the Current
VASCO Stock Options or Current VASCO Conversion Options), and (iii) be signed in
the same manner as the New VASCO Warrant Agreement, New VASCO Stock Option
Agreement or New VASCO Convertible Note Agreement pursuant to which such Current
VASCO Equity Equivalent Securities were tendered. Any Current VASCO Equity
Equivalent Securities which are tendered for exchange but are withdrawn will be
returned, without cost to the holder, as soon as practicable after withdrawal.
The Current VASCO Equity Equivalent Securities so withdrawn, if any, will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Properly withdrawn Current VASCO Equity Equivalent Securities
may be re-tendered by following the procedures above under "Procedures for
Tendering Current VASCO Equity Equivalent Securities" at any time on or prior to
the Expiration Date.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by New VASCO, whose determination
shall be final and binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
New VASCO will not accept for exchange any Current VASCO Securities, and no
New VASCO Securities will be issued in exchange for any such Current VASCO
Securities (any and all Associated Corporate Matter Claims) if, on the
Expiration Date of the Exchange Offer, the Minimum Condition has not been
satisfied, unless such condition shall have been waived by New VASCO and notice
of waiver has been given as discussed below.
Further, notwithstanding any other term of the Exchange Offer, New VASCO
will not be required to accept for exchange any Current VASCO Securities
tendered and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Current VASCO Securities, if any of the following
conditions exist:
(a) any Securities and Exchange Commission order suspending the
effectiveness of the Registration Statement of which this Prospectus is a
part is threatened or in effect;
(b) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority with
respect to the Exchange Offer which might, in the judgment of the Board of
Directors of New VASCO, materially impair the ability of New VASCO to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to New VASCO; or
(c) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation which might materially impair the ability of
New VASCO to proceed with the Exchange Offer, or have a material adverse
effect on the contemplated benefits of the Exchange Offer to New VASCO, or
result in the consummation of the Exchange Offer not being a tax-free
transaction for federal income tax purposes with respect to the exchange of
Current VASCO Shares.
The foregoing conditions are for the sole benefit of New VASCO and may be
asserted by New VASCO regardless of the circumstances giving rise to such
conditions or may be waived by New VASCO in whole or in part at any time and
from time to time. If New VASCO waives or amends the foregoing conditions, New
VASCO will extend the Exchange Offer for a minimum of five business days (ten
business days if the Minimum Condition is waived) from the date that New VASCO
first gives notice, by public announcement or otherwise, of such waiver or
amendment if the Exchange Offer would otherwise expire within such five (or, if
applicable, ten) business-day period. As noted above, New VASCO also reserves
the right in its sole discretion to terminate and abandon the Exchange Offer at
any time prior to acceptance of Current VASCO Securities. See "Expiration Date;
Extensions; Termination; Amendment" above.
ACCEPTANCE OF CURRENT VASCO SECURITIES AND ISSUANCE OF NEW VASCO SECURITIES
Upon the terms of, and subject to the satisfaction or waiver of all
conditions to, the Exchange Offer, as promptly as possible after the Expiration
Date New VASCO will accept all Current VASCO Securities that
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<PAGE> 41
are properly tendered and not withdrawn. As soon as practicable thereafter, New
VASCO will issue the appropriate number of corresponding New VASCO Shares to
eligible holders of tendered Current VASCO Shares, and will execute and deliver
New VASCO Option Agreements, New VASCO Warrant Agreements and New VASCO
Convertible Note Agreements, as applicable. For purposes of the Exchange Offer,
New VASCO shall be deemed to have accepted (i) Current VASCO Shares that are
tendered for exchange when, as, and if New VASCO has given oral or written
notice thereof to the Exchange Agent, and (ii) Current VASCO Equity Equivalent
Securities that are tendered for exchange when, as, and if New VASCO has given
such oral or written notice of acceptance of the Current VASCO Shares to the
Exchange Agent.
If any tendered Current VASCO Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates or other instruments or documents representing
any such unaccepted Current VASCO Securities will be returned, without expense,
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
THE METHOD OF DELIVERY OF THE CURRENT VASCO SECURITIES, LETTERS OF TRANSMITTAL
AND RELEASE AND ALL OTHER REQUIRED DOCUMENTS (INCLUDING, AS APPLICABLE, NEW
VASCO STOCK OPTION AGREEMENTS, NEW VASCO CONVERTIBLE NOTE AGREEMENTS AND NEW
VASCO WARRANT AGREEMENTS) IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY RECEIPT BY THE EXCHANGE AGENT OR MR. GREGORY T. APPLE,
AS THE CASE MAY BE, PRIOR TO THE EXPIRATION DATE.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of the Current VASCO Securities tendered
for exchange will be determined by New VASCO in its sole discretion, which
determination shall be final and binding. New VASCO reserves the absolute right
to reject any and all tenders of any of the Current VASCO Securities not
properly tendered or to reject any of the Current VASCO Securities, the
acceptance of which might, in the judgment of New VASCO or its counsel, be
unlawful. New VASCO also reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer as to any of
the Current VASCO Securities (including the right to waive the ineligibility of
any holder who seeks to tender the Current VASCO Securities in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer by
New VASCO shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Current VASCO Securities for
exchange must be cured within such time as New VASCO shall determine. Neither
New VASCO nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Current VASCO Securities
for exchange, nor shall any of them incur any liability for failure to give such
notification. Tenders of the Current VASCO Securities will not be deemed to have
been made until such irregularities have been cured or waived.
PAYMENT OF EXPENSES
Current VASCO has agreed to pay all costs incurred by New VASCO in
connection with the Exchange Offer, including registration fees, Exchange Agent,
accounting and legal fees and expenses, mailing and printing expenses and other
associated costs.
New VASCO will pay all transfer taxes, if any, applicable to the exchange
of Current VASCO Securities pursuant to the Exchange Offer. If, however,
tendered Current VASCO Shares are registered in the name of any person other
than the person signing the Letter of Transmittal and Release or if a transfer
tax is imposed for any reason other than the exchange of Current VASCO Shares
pursuant to the Exchange Offer, the amount of any such transfer tax (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such tax or exemption
therefrom is not submitted, the amount of such transfer tax will be billed
directly to such tendering holder.
36
<PAGE> 42
MARKET PRICE OF CURRENT VASCO COMMON STOCK
AND DIVIDEND POLICY
Shares of Current VASCO Common Stock are quoted on the OTC BB under the
symbol "VASC." The following table sets forth the high and low closing bid
quotations for the periods indicated within the past two fiscal years. None of
the Current VASCO Series B Preferred Stock, Current VASCO Stock Options, Current
VASCO Conversion Options or Current VASCO Warrants are publicly traded.
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
------------ ---- ---
<S> <C> <C> <C> <C>
1995
First Quarter............................................... 1 1/16 1/4
Second Quarter.............................................. 1 7/8 7/16
Third Quarter............................................... 3 1/16 3/4
Fourth Quarter.............................................. 8 5/8 1 1/2
1996
First Quarter............................................... 7 1/8 4
Second Quarter.............................................. 10 1/2 4 1/4
Third Quarter............................................... 8 5/8 5 1/8
Fourth Quarter.............................................. 7 1/2 3 1/2
1997
First Quarter............................................... 5 7/8 3 7/16
Second Quarter.............................................. 4 5/8 2 1/4
Third Quarter (through September 8, 1997)................... 3 9/16 2 7/16
</TABLE>
On September 8, 1997, the closing bid quotation on the OTC BB was 2 9/16.
The above quotations represent prices between dealers and do not include retail
markups or markdowns or commissions. They may not necessarily represent actual
transactions.
As of August 31, 1997, there were 167 holders of record of Current VASCO
Common Stock, two holders of record of Current VASCO Series B Preferred Stock,
68 holders of Current VASCO Stock Options, five holders of Current VASCO
Conversion Options and 48 holders of Current VASCO Warrants. These numbers of
holders do not include the number of persons or entities who beneficially own
shares of Current VASCO Common Stock held of record in "street name" through
various brokerage firms, banks or other depositories.
New VASCO has not conducted any business and there are only one hundred
outstanding shares of New VASCO Common Stock, all of which are held by Current
VASCO. Therefore, there is no trading market for any New VASCO Securities at
present, and there can be no assurance that a market will develop following the
consummation of the Exchange Offer.
No dividends have been paid on the Current VASCO Common Stock since Current
VASCO's inception and Current VASCO presently anticipates that it (and upon
consummation of the Exchange Offer, New VASCO) 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. Current VASCO
has paid dividends in the amount of $108,000 and $108,000 on the Current VASCO
Series B Preferred Stock for the years ended December 31, 1996 and 1995,
respectively, and in the amount of $54,000 for the six months ended June 30,
1997.
37
<PAGE> 43
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)(1)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ ------------------
1992 1993 1994 1995 1996(2)(3) 1996 1997
---- ---- ---- ---- ---------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data(1):
Total revenues............... $ 2,302 $ 2,199 $ 2,693 $ 3,695 $10,192 $ 3,184 $ 6,592
Operating income (loss)...... 557 138 192 (534) (8,658) (2,916) (647)
Net income (loss) available
to common stockholders..... 289 50 30 (465) (9,349) (2,979) (1,291)
Net income (loss) per common
share...................... 0.02 0.00 -- (0.03) (0.53) (0.19) (0.07)
Shares used in computing per
share amounts.............. 13,686 13,877 14,260 14,817 17,533 15,614 18,496
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data(1):
Cash..................................... $ 3 $ 209 $ 38 $ 745 $ 1,814 $ 2,863
Working capital.......................... 479 514 764 1,074 1,502 3,022
Total assets............................. 1,340 1,522 2,111 2,414 12,368 11,914
Long term obligations, less current
portion................................ 512 746 60 7 5,714 8,278
Common stock subject to redemption....... -- -- 371 741 -- 495
Stockholders' equity (deficit)........... 243 340 1,364 966 (1,205) (2,418)
</TABLE>
For a discussion of factors that affect the comparability of the financial
information set forth above, such as significant acquisitions undertaken by
Current VASCO and the disposition of Current VASCO's VASCO Performance Systems
line of business in 1996, see "REORGANIZATION OF CURRENT VASCO -- Organizational
History of Current VASCO," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and "RISK FACTORS."
- -------------------------
(1) Represents the financial information of Current VASCO. New VASCO has not
begun operations.
(2) Includes the results of operations of Lintel Security from March 1996 and
Digipass from June 1996; see "FINANCIAL STATEMENTS."
(3) Includes a pretax charge for acquired in-process research and development of
$7,351.
38
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations are forward-looking
statements. All forward-looking statements included herein are based on
information available to New VASCO and Current VASCO on the date hereof and
assumptions which New VASCO and Current VASCO believe are reasonable. Neither
New VASCO nor Current VASCO assumes any obligation to update any such
forward-looking statements. These forward-looking statements involve risks and
uncertainties. Current VASCO's (and if the Exchange Offer is consummated, New
VASCO'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 "RISK FACTORS" and elsewhere in this Prospectus.
New VASCO has not had any operations and therefore no Management's
Discussion and Analysis of Financial Condition and Results of Operations for New
VASCO is included in this Prospectus.
OVERVIEW
Current VASCO designs, develops, markets and supports open standards-based
hardware and software security systems which manage and secure access to data.
Current VASCO's original corporate predecessor was founded in 1984, and Current
VASCO entered the data security market in 1991 when it acquired a controlling
interest in what is today one of Current VASCO's two operating subsidiaries,
VASCO Data Security, Inc. ("VDSI") (formerly known as "ThumbScan, Inc."), a
company that designs, develops and sells security tokens, primarily to European
customers. In 1996, Current VASCO began developing and marketing open
standards-based security systems by introducing a hardware and software package,
VACMan, that is based on industry-accepted remote access protocols. In addition,
in 1996 Current VASCO co-developed the Internet AccessKey, a product designed to
limit access to proprietary websites on the Internet.
Recent Acquisitions. In 1996 Current VASCO significantly expanded its
presence in the European data security market through the acquisition of two
Belgian companies, Lintel Security (effective March 1, 1996) and Digipass
(effective July 1, 1996), which today comprise Current VASCO's other operating
subsidiary, VASCO Data Security NV/SA ("VDS NV/SA"). Both Lintel Security and
Digipass at the time of acquisition were involved in designing, developing and
marketing data security products, and Digipass was to a lesser extent involved
in developing interactive voice response ("IVR") products used primarily for
telebanking applications. Lintel Security and Digipass were combined in January
1997 and renamed VASCO Data Security NV/SA. Current VASCO is presently
evaluating options related to the possible disposition of its IVR business,but
does not expect the planned discontinuance of its IVR business to have a
material adverse effect on Current VASCO's results of operations and financial
condition.
The acquisition of Lintel Security was accomplished in two steps. Current
VASCO, through VDSE, acquired 15% of the capital stock of Lintel Security in
March of 1996, and then acquired the remaining 85% in June of 1996. As a result,
Current VASCO's consolidated results for 1996 include 100% of Lintel Security's
results for the period from March through June of 1996, with a minority interest
elimination for the 85% not owned for this period, and 100% of Lintel Security's
results for the remainder of 1996, and all references to inclusion of Lintel
Security's results since the date of acquisition reflect these percentage
ownership figures for the appropriate time periods.
The Lintel Security purchase involved a cash payment in the amount of
$289,482 and the issuance of (i) $747,500 in convertible notes due May 30, 1998,
(ii) 428,574 shares of Current VASCO's common stock, and (iii) 100,000 warrants
entitling the holders to purchase an equal number of shares of Current VASCO's
common stock at $7.00 per share. The note bears interest at the rate of 8% per
annum, which is payable quarterly, in cash or shares of Current VASCO's common
stock at the option of the holders. The notes can be converted at any time, at
the option of the holders, into shares of Current VASCO's common stock at $7.00
per share. The warrants were valued at their fair value at the date of grant.
39
<PAGE> 45
The purchase of Digipass was a cash transaction involving an initial
payment of $4,800,000 and an obligation to pay an additional $3,400,000 on or
before December 31, 1997. Underlying this obligation was a guarantee to the
seller of Digipass, furnished by a European commercial bank, which was secured
by various personal and company guarantees. Current VASCO renegotiated the
guarantee into a convertible loan due September 30, 2002 that bears interest at
a rate of 3.25%, payable annually, and the obligation to the seller of Digipass
was paid in full in August 1997. See "Liquidity and Capital Resources."
Prior Lines of Business. Before entering the data security industry in
1991, Current VASCO's primary endeavor was providing consulting, training and
software services to various institutions in the public and private sectors
through its VASCO Performance Systems division ("VPS"). In 1996, Current VASCO
sold this line of business, which represented in 1994 nearly 50%, and in prior
years substantially more than 50%, of Current VASCO's revenues. Since Current
VASCO's revenues prior to 1996 were derived from data security products and the
training and consulting service business which was sold in 1996, a comparison of
financial information for periods prior to 1996 with 1996 and subsequent periods
may not be meaningful.
Revenue and Earnings. Taken together, the majority of sales made by VDSI
and VDS NV/SA are in the European markets, although Current VASCO intends to
actively pursue additional markets outside of Europe, particularly Asia and
North and South America.
Revenues from sales of security tokens, specifically the AccessKey II and
Digipass tokens, continue to represent the majority of Current VASCO's total
revenues. Although Current VASCO believes it is likely that sales of security
tokens will continue to account for a majority of Current VASCO's total revenues
for the foreseeable future, Current VASCO also believes that revenues from sales
of its other hardware and software data security products, including the
additional product offerings made possible by the Lintel Security and Digipass
acquisitions, will continue to increase in the future. No assurance, however,
can be given that revenues will increase in the future.
In excess of 90% of VDSI's sales were comprised of AccessKey II devices,
with Concord-Eracom Nederland BV accounting for 97% and 95% of VDSI's sales in
1996 and 1995, respectively. On a consolidated basis, these percentages are 43%
and 64% for 1996 and 1995, respectively. However, the percentages for 1996
include the sales of the Lintel Security and Digipass operations only from their
respective acquisition dates in 1996. Sales to Concord-Eracom are expected to
account for a smaller percentage of Current VASCO's sales in 1997 as the full
year impact of the acquisition of Lintel Security and Digipass is realized. It
is expected that sales to other customers and markets will increase and,
assuming this occurs, the degree of concentration attributable to this major
customer will decrease further. However, Current VASCO expects that this major
customer will continue to be a meaningful contributor to Current VASCO's
revenues and earnings for the foreseeable future. Consequently, the unforeseen
loss of this customer's business, or the inability to maintain reasonable profit
margins on sales to this customer, may have an adverse effect on Current VASCO's
results of operations and financial condition.
Research and Development. Current VASCO is devoting its capital and other
resources to enhancing its existing security products and developing new
products to provide enterprise-wide hardware and software security solutions.
Costs of research and development, principally the design and development of
hardware and software prior to the determination of technological feasibility,
are expensed as incurred on a project-by-project basis. Current VASCO's
capitalization policy currently defines technological feasibility as a
functioning beta test prototype with confirmed manufacturability (a working
model), within a reasonably predictable range of costs. Additional criteria
include receptive customers, or potential customers, as evidenced by interest
expressed in a beta test prototype, at some suggested selling price.
Once technical feasibility has been established, ongoing development costs
incurred prior to actual sales of the subject product are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed."
Product development costs are capitalized on a product-by-product basis and are
amortized by the greater of (i) the ratio that current gross revenues for a
product bear to the total of current and anticipated future gross revenues for
that product or (ii) the straight-line method over the remaining estimated
economic life of the product. The remaining estimated economic life of these
products are reviewed at least quarterly.
40
<PAGE> 46
Management has concluded that, in today's rapidly evolving technology
markets, and with the expanding state of the computer and network security
industry in general, it may be impractical to anticipate product life cycles in
excess of two years. Historically, however, Current VASCO has experienced
significantly longer product lives than the two year cycle.
Variations in Operating Results. Current VASCO'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 Current VASCO's competitors; adoption of new technologies and
standards; changes in pricing by Current VASCO or its competitors; the ability
of Current VASCO to develop, introduce and market new products and product
enhancements on a timely basis, if at all; component costs and availability;
Current VASCO's success in expanding its sales and marketing programs;
technological changes in the market for data security products; foreign currency
exchange rates; and general economic trends and other factors.
In addition, Current VASCO has experienced, and may experience in the
future, seasonality in its business. The seasonal trends have included higher
revenue in the last quarter of the calendar year and lower revenue in the next
succeeding quarter. Current VASCO believes that revenue has tended to be higher
in the last quarter due to the tendency of certain customers to implement or
complete changes in computer or network security prior to the end of the
calendar year. In addition, revenue has tended to be lower in the summer months,
particularly in Europe, when many businesses defer purchase decisions. Because
Current VASCO's operating expenses are based on anticipated revenue levels and a
high percentage of Current VASCO's expenses are fixed, a small variation in the
timing of recognition of revenue could cause significant variations in operating
results from quarter to quarter.
Currency Fluctuations. The majority of the supply and sales transactions of
VASCO Data Security, Inc. are denominated in U.S. dollars, whereas many of the
supply and sales transactions of VDS NV/SA are denominated in various foreign
currencies. In order to reduce the risks associated with fluctuations in
currency exchange rates, VDS NV/SA began in 1997 to buy U.S. dollars based on
three to six month estimated future needs for U.S. dollars, has developed price
lists denominated in both U.S. dollars and foreign currencies, and endeavors to
denominate its new supply and sales transactions in U.S. dollars. VDS NV/SA is
also beginning to attempt to match as to timing of delivery, amount of product
and denomination of currency some purchase orders from vendors with sales orders
to customers. See "RISK FACTORS -- Factors Relating to Operations -- Risks of
International Operations."
41
<PAGE> 47
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of revenue for the six months ended
June 30, 1996 and 1997 and the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
--------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................... 52.8 78.1 57.6 59.7 50.0
----- ----- ----- ----- -----
Gross profit......................................... 47.2 21.9 42.4 40.3 50.0
Operating costs
Sales and marketing................................ 5.8 6.6 13.8 6.9 27.2
Research and development........................... 7.8 6.5 5.6 6.8 5.3
General and administrative......................... 26.4 23.1 35.8 27.1 27.3
Acquired-in-process research and development....... -- -- 72.1 91.1 --
----- ----- ----- ----- -----
Total operating costs......................... 40.0 36.2 127.3 131.9 59.8
Operating (loss) income.............................. 7.1 (14.4) 84.9 (91.6) (9.8)
Interest expense..................................... (3.6) (2.0) (3.4) (0.8) (7.0)
Other expense, net................................... -- -- (0.4) -- (1.1)
----- ----- ----- ----- -----
Income (loss) before income taxes.................... 3.5 (16.4) (88.8) (92.4) (17.9)
Provision (benefit) for income taxes................. 1.4 (6.8) 1.4 (0.6) 0.9
----- ----- ----- ----- -----
Net (loss) income.................................... 2.1 (9.6) (90.7) (91.8) (18.8)
===== ===== ===== ===== =====
</TABLE>
The following discussion is based upon Current VASCO's consolidated results
of operation for the six months ended June 30, 1997 and 1996 and for the years
ended December 31, 1996, 1995 and 1994. References to "VASCO NA" mean Current
VASCO and VDSI, excluding the acquisition of Lintel Security and Digipass.
References to "VASCO Europe" mean the operation of Lintel Security and Digipass
following their acquisition by Current VASCO. (Percentages in the discussion are
rounded to the closest full percentage point.)
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Revenues
Current VASCO's consolidated revenues for the six months ended June 30,
1997 were $6,592,000, an increase of 3,408,000, or 107%, as compared to the six
months ended June 30, 1996. VASCO Europe contributed $5,103,000 or 77% of total
consolidated revenues for the 1997 period. Of the $5,103,000 of revenues
contributed by VASCO Europe, $5,002,000 or 98% represent data security product
revenues, with the remaining $101,000, or 2%, representing revenues from IVR
products. Revenues (and other operating results) attributable to VASCO Europe
are included only from the time of acquisition of Lintel Security (four months
for 1996 and six months for 1997) and of Digipass (not included in 1996 but
included for six months in 1997).
VASCO NA's revenues were $1,489,000 for the six months ended June 30, 1997,
a decrease of $1,030,000, or 41%, as compared to the same period in 1996. VASCO
NA's revenues accounted for 23% of consolidated revenues for the six months
ended June 30, 1997. Security product sales for VASCO NA decreased $960,000, or
40%, as compared to the six months ended June 30, 1996 due in large part to the
decrease in sales to VASCO NA's principal customer described below. VPS, the
former technical and training unit which was sold in August of 1996, contributed
revenues of $185,000 for the six months ended June 30, 1996 and no revenues for
the comparable period in 1997.
42
<PAGE> 48
On a pro forma basis (after giving effect to the acquisition of both Lintel
Security and Digipass as of January 1, 1996), consolidated revenues for Current
VASCO for the six months ended June 30, 1996 were $6,869,000. This amount is
$277,000, or 4%, higher than Current VASCO's consolidated revenues for the six
months ended June 30, 1997. The decline in revenues for the six month period
ended June 30, 1997 as compared to the same period in 1996 can be attributed to
several factors: (1) a decrease in the revenues generated by the IVR business of
VASCO Europe in the amount of $565,000; and (2) a decrease in revenue from sales
to VASCO NA's principal customer in the amount of $767,000, due to a build-up in
the reseller's inventory of data security products purchased from VASCO NA. The
decrease in revenues from the IVR business, which Current VASCO is considering
discontinuing, and from sales to VASCO NA's principal customer was partially
offset by an increase of $1,055,000 in revenues from other customers, generated
primarily from sales by VASCO Europe.
Cost of Goods Sold
Consolidated cost of goods sold for the six months ended June 30, 1997 was
$3,296,000, an increase of $1,396,000, or 73%, as compared to the six months
ended June 30, 1996. This increase is primarily attributable to the inclusion of
VASCO Europe in cost of goods sold for the period ended June 30, 1997. This
increase in cost of goods sold, attributable to the full period effect of the
VASCO Europe acquisitions, was partially offset by a decrease in VASCO NA's
combined cost of goods sold. VASCO Europe's cost of goods sold was $2,669,000,
as compared to $549,000 from the same period last year.
VASCO NA's cost of goods sold was $627,000 for the first six months of
1997, representing a decrease of $817,000, or 57%, from 1996. This decline was
primarily a result of a decrease of $663,000 in cost of goods sold related to
security products, due primarily to lower sales for the period and, to a lesser
extent, VASCO NA's ability to purchase component parts at somewhat lower costs.
The sale of VPS also contributed to the decrease. Its cost of goods sold for the
six months ended June 30, 1996 was $154,000. There was no cost of goods sold for
VPS for the comparable period in 1997 due to its disposal in August 1996.
Current VASCO's consolidated cost of goods sold on a pro forma basis for
the six months ended June 30, 1996 was $3,509,000. This amount is $213,000, or
6% higher than Current VASCO's consolidated cost of goods sold for the six
months ended June 30, 1997. The decrease in revenues for the six months ended
June 30, 1997 as compared to the same period in 1996 is attributable, in large
part, to the decrease in revenues discussed above, as well as the more favorable
pricing of certain components purchased during 1997 and because VASCO Europe
began to purchase certain component parts directly from manufacturers rather
than through distributors.
Gross Profit
Current VASCO's consolidated gross profit for the six months ended June 30,
1997 was $3,296,000, an increase of $2,012,000, or 157%, over the same period in
1996. This represents a consolidated gross margin of 50%, as compared to a gross
margin of 40% for the period ended June 30, 1996. VASCO Europe contributed
$2,434,000 to the consolidated gross profit. VASCO Europe's gross margin for the
period ended June 30, 1997 was 48%. VASCO NA contributed $862,000 to gross
profit for the period ended June 30, 1997 as compared to $1,191,000 for the
first six months of 1996, a decrease of $329,000, or 28%, due to the decline in
VASCO NA's revenues described above. Data security products accounted for 100%
of VASCO NA's gross profit for the first six months of 1997 due to the
disposition of VPS during 1996, whereas data security products accounted for 97%
of gross profit during the first six months of 1996, with VPS accounting for the
remaining 3% of gross profit.
VASCO NA's gross margin percentage increased to 58% from 45% in the first
six months of 1996, primarily because of sales of higher margin security
products as opposed to lower margin VPS services. Historically, VASCO NA has
sold security products to large customers in large quantities, thus resulting in
significant quantity discounts and lower margins. As VASCO NA begins to build
business in the U.S., new customers typically place smaller initial orders that
do not qualify for quantity discounts, resulting in higher gross margins.
Management anticipates that any follow-up orders from such customers could be
for larger quantities that may qualify for quantity discounts.
43
<PAGE> 49
Current VASCO's consolidated gross profit on a pro forma basis for the
first six months of 1996 was $3,360,000, representing a gross margin of 49%. The
decline in gross profits for the period ended June 30, 1997 as compared to June
30, 1996 on a pro forma basis was approximately $64,000 and was due primarily to
the decrease in revenues.
Sales and Marketing Expenses
Consolidated sales and marketing expenses for the six months ended June 30,
1997 were $1,793,000, an increase of $1,573,000, or 715%, over the same period
in 1996. Of the total increase, $856,000, or 54%, can be attributed to the
addition of VASCO Europe. Sales and marketing expenses increased by $717,000, or
326%, for VASCO NA. The increase for VASCO NA can be attributed to increased
sales efforts, including the addition of four sales people and increased travel
costs; an increase in marketing initiatives, including print media campaigns and
other efforts and a stepped-up presence at trade shows.
Research and Development
Consolidated R&D costs for the six months ended June 30, 1997 were
$348,000, an increase of $130,000, or 60%, as compared to the period ended June
30, 1996. R&D costs represented 5% of consolidated revenues for the first six
months of 1997 as compared to 7% for the same period in 1996. R&D efforts are
undertaken by both VASCO NA and VASCO Europe on behalf of the consolidated group
of companies, with VASCO NA being primarily responsible for the development of
software products and VASCO Europe being responsible for hardware development.
Consequently, management does not believe it is meaningful to address R&D costs
separately at the operating company level.
Current VASCO has expensed, as cost of revenues, $180,000 for the six month
period ended June 30, 1996, reflecting the amortization of capitalized software
development costs. Net product development costs carried on Current VASCO's
books as an asset were $0 and $43,000 at June 30, 1997 and 1996, respectively.
There were no product development costs capitalized in the first six months of
1997 or 1996.
General and Administrative Expenses
Consolidated general and administrative expenses for the six months ended
June 30, 1997 were $1,802,000, an increase of $939,000, or 109%, over the same
period in 1996. The total increase can be attributed to the addition of VASCO
Europe, with $412,000 being attributed to the amortization of goodwill and other
intangibles related to the acquisitions of Lintel Security and Digipass.
Acquired In-process Research and Development
For the six months ended June 30, 1996, Current VASCO expensed $2,900,000
pertaining to in-process research and development acquired in the Lintel
Security acquisition. Based upon an independent appraisal, approximately 67% of
the acquisition premium has been expensed in accordance with generally accepted
accounting principles ("GAAP").
Operating Loss
Current VASCO's consolidated operating loss for the six months ended June
30, 1997 was $647,000, compared to the consolidated operating loss of $2,917,000
for 1996. The 1996 consolidated operating loss included a write-off of acquired
in-process research and development in the amount of $2,900,000. The operating
loss, before the write-off, was $17,000 and of this amount, VASCO NA contributed
a loss of $15,000 and VASCO Europe contributed net operating income of $21,000.
The remaining $23,000 was attributable to amortization of intangibles.
Current VASCO's operating loss for the first six months of 1997 was
attributable to continued investment in R&D (primarily for AccessKey III), sales
and marketing investments in North America, one-time professional fees, the
expenses for development of corporate infrastructure and, in general, the costs
associated with consolidating and assimilating the Lintel Security and Digipass
acquisitions.
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Current VASCO's consolidated operating loss on a pro forma basis was
$2,250,000 for the six month period ended June 30, 1996. As compared to the
operating loss of $647,000 for the same period in 1997, this represents a
decrease of $1,603,000, or 71%. The decrease was due primarily to the absence in
the six month period ended June 30, 1997 of a write-off of in process research
and development acquired from Lintel Security and because of operating
efficiencies realized due to the combination of Lintel Security and Digipass.
Interest Expense
Consolidated interest expense for the six months ended June 30, 1997 was
$533,000 compared to $26,000 for the same period in 1996, attributable to higher
borrowing levels. See "Liquidity and Capital Resources" below.
Net Loss Before Taxes
Current VASCO reported a net loss before taxes of $1,180,000 for the six
months ended June 30, 1997. This compares to a net loss before taxes of
$2,943,000 for the corresponding period in 1996. The 1997 pretax losses were
$1,339,000 for VASCO NA, with VASCO Europe posting pretax income of $805,000.
The remaining $646,000 consisted of $412,000 for amortization of intangibles and
$234,000 for interest expense.
For the six months ended June 30, 1996, pretax losses for VASCO NA were
$41,000, while VASCO Europe had pretax income of $21,000. Of the $2,943,000 net
loss before taxes for this six month period, the remaining $2,923,000 consisted
of $2,900,000 related to the write-off of acquired in-process research and
development, and $23,000 to the amortization of intangibles.
Current VASCO's consolidated net loss before taxes on a pro forma basis was
$2,310,000 for the six months ended June 30, 1996 as compared to a loss of
$1,180,000 for the same period in 1997. This represents a decrease of
$1,130,000, or 49%. The decrease was due to the absence in the six month period
ended June 30, 1997 of a write-off comparable to the write-off of acquired
in-process research and development recorded by Current VASCO in 1996, and
reflects certain operating efficiencies.
Income Taxes
Current VASCO recorded tax expense for the six months ended June 30, 1997
of $57,000. Current VASCO has net operating loss carryforwards of approximately
$2,965,000 as of June 30, 1997, which may be used to offset future taxable
income of Current VASCO generated in the United States. The net operating loss
carryforwards expire in various amounts beginning in 2010 and continuing through
2011.
Dividends and Accumulated Deficit
Current VASCO paid dividends of $54,000 in each of the six months ended
June 30, 1997 and 1996. These dividend payments were attributable to 9,000
shares of Current VASCO Series B Preferred Stock issued in 1994. Current VASCO
began 1997 with an accumulated deficit of $9,903,000. As a result of 1997
operations, this deficit has increased to $11,194,000 at June 30, 1997.
Current VASCO's loss before taxes, the resulting net loss after taxes, and
the resulting increase in accumulated deficit for the first six months of 1997,
can be attributed primarily to the acquisitions of Lintel Security and Digipass
and the write-off of acquired in-process research and development. The write-off
of acquired in-process research and development accounted for 98% of Current
VASCO's loss before taxes for the six months ended June 30, 1996.
1996 COMPARED TO 1995
The following discussion and analysis should be read in conjunction with
Current VASCO's Consolidated Financial Statements for the years ended December
31, 1996 and 1995.
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Revenues
Current VASCO's consolidated revenues for the year ended December 31, 1996
were $10,192,000, an increase of $6,497,000, or 176%, as compared to the year
ended December 31, 1995. VASCO Europe contributed $5,374,000, or 53%, of total
consolidated revenues. Of the $5,374,000 total revenues contributed by VASCO
Europe, $5,180,000, or 96%, represent data security product revenues, with the
remaining $194,000, or 4%, representing revenues from the IVR products. Revenues
(and other operating results) attributable to VASCO Europe are included only
from the time of acquisition of Lintel Security and of Digipass.
However, taking into account Lintel Security and Digipass on a full year
basis for each of 1995 and 1996, Current VASCO's consolidated revenues on a pro
forma basis were $11,623,000 and $13,654,000 for the years ended December 31,
1995 and 1996, respectively. This represents an increase of $2,031,000, or 17%.
VASCO NA's revenues were $4,818,000 for 1996, an increase of $1,118,000, or
30%, as compared to 1995 and accounted for 47% of consolidated revenues in 1996.
Security product sales increased $2,157,000 to $4,614,000 in 1996, representing
a 88% increase over 1995. Conversely, VPS, the former technical and training
unit which was sold in August of 1996, had revenues of $204,000 in 1996,
representing a decrease of $1,034,000, or 84%, for the comparable period in
1995. VPS accounted for just 4% of VASCO NA's revenues in 1996, down from 33% in
1995.
Cost of Goods Sold
Consolidated cost of goods sold for the year ended December 31, 1996 was
$5,871,000, an increase of $2,984,000, or 103%, as compared to the year ended
December 31, 1995. This increase is primarily attributable to the acquisition of
VASCO Europe in 1996 and offset to some extent by a decrease in VASCO NA's
combined cost of goods sold. VASCO Europe's cost of goods sold was $3,378,000,
accounting for 58% of the consolidated cost of goods sold.
Current VASCO's consolidated cost of sales on a pro forma basis, i.e.,
including Lintel Security and Digipass for the entire year, were $7,422,000 and
$7,460,000 for the years ended December 31, 1995 and 1996, respectively. This
represents an increase of $38,000.
VASCO NA's cost of goods sold was $2,493,000 in 1996, representing a
decrease of $394,000, or 14%, from 1995. This decrease was primarily a result of
a decrease of $814,000, attributable to VPS's operations prior to its disposal.
This was partially offset by an increase in cost of goods sold related to
security products of $420,000. VASCO NA's cost of goods sold for security
products was $2,453,000 in 1996, as compared to $2,033,000 in 1995, representing
an increase of 21%. The cost of goods sold for security products increased as a
percentage less than revenues for security products. This is due to certain
non-recurring costs related to capitalized development costs (approximately
$350,000) and inventory write-downs (approximately $100,000) included in the
cost of goods sold for security products in 1995.
Gross Profit
Current VASCO's consolidated gross profit for the year ended December 31,
1996 was $4,321,000, an increase of $3,513,000, or 435%, over 1995. This
represents a consolidated gross margin of 42%, as compared to 1995's
consolidated gross margin of 22%. VASCO Europe contributed $1,996,000 to the
consolidated gross profit representing a gross margin of 37%. VASCO NA
contributed $2,325,000 to the 1996 gross profit as compared to $808,000 for
1995, an increase of $1,517,000 or 188%. Data security products accounted for
93% of VASCO NA's 1996 gross profit due to the reduction in VPS activity and the
eventual disposition of VPS during the year. Data security products only
accounted for 57% of gross profit during 1995, with VPS accounting for the
remaining 43% of gross profit.
Assuming Current VASCO had acquired Lintel Security and Digipass as of
January 1, 1995, Current VASCO's consolidated gross profit on a pro forma basis
was $4,201,000 and $6,194,000 for the years ended December 31, 1995 and 1996,
respectively. This represents an increase of $1,993,000, or 47%, and a gross
margin of 36% and 45% for 1995 and 1996, respectively.
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VASCO NA's gross margin increased in 1996 to 46% from 22% in 1995. This is
attributable to 1995 non-recurring costs related to capitalized development
costs and write-down of certain inventory, and increased sales of higher margin
security products as opposed to lower margin VPS services.
Sales and Marketing Expenses
Consolidated sales and marketing expenses for the year ended December 31,
1996 were $1,405,000, an increase of $1,160,000, or 473%, over 1995. Of the
total increase, $548,000, or 47%, can be attributed to the addition of VASCO
Europe. Sales and marketing expenses increased by $612,000, or 250%, for VASCO
NA. The increase for VASCO NA can be attributed to increased sales efforts,
including, in part, the addition of four sales people, and increased travel
costs; an increase in marketing activities, including print media campaigns and
other efforts, and an increased presence at trade shows.
Research and Development
Consolidated R&D costs for the year ended December 31, 1996 were $575,000,
an increase of $333,000, or 138%, as compared to the year ended December 31,
1995. R&D costs represented 6% of consolidated revenues for 1996, approximately
the same percentage as 1995. R&D efforts are undertaken by both VASCO NA and
VASCO Europe on behalf of the consolidated group of companies. Whereas VASCO NA
is primarily responsible for the development of software products, VASCO Europe
is responsible for hardware development. Consequently, management of Current
VASCO believes it is not meaningful to address R&D costs separately at the
operating company level.
Current VASCO expensed, as cost of goods sold, $180,000 and $445,000 in
1996 and 1995, respectively, reflecting the amortization of capitalized
development costs. In the fourth quarter of 1995 Current VASCO accelerated the
amortization of capitalized development costs to reflect an adjustment to the
estimated economic life of certain products. The accelerated portion of 1995
amortization amounted to approximately $350,000.
Net product development costs carried on Current VASCO's books as an asset
were $0 and $157,000 at December 31, 1996 and December 31, 1995, respectively.
There were no product development costs capitalized in 1996 or 1995.
General and Administrative Expenses
Consolidated general and administrative expenses for the year ended
December 31, 1996 were $3,648,000, an increase of $2,793,000, or 326%, over
1995. Of the total increase, $1,426,000, or 51%, can be attributed to the
addition of VASCO Europe. General and administrative expenses increased by
$1,367,000, or 160%, for VASCO NA. The increase for VASCO NA can be attributed
to an increase in administrative infrastructure to support the efforts of other
areas of the Current VASCO, as well as amortization of intangibles associated
with the acquisitions of Lintel Security and Digipass.
Acquired In-process Research and Development
Current VASCO has expensed, as an operating expense, $7,351,000 pertaining
to the in-process research and development acquired in the Lintel Security and
Digipass acquisitions. Based upon independent appraisals, approximately 67% of
the acquisition premium has been expensed in accordance with GAAP. As of
December 31, 1996, there remains $3,372,000 of intangible assets related to the
acquisitions which will be carried on Current VASCO's books and be amortized
over an additional 30 - 78 months. As noted above, $440,000 of the intangible
assets were amortized to expense in 1996.
Operating Loss
Current VASCO's consolidated operating loss for the year ended December 31,
1996 was $8,658,000, compared to the consolidated operating loss of $534,000 for
1995. The 1996 consolidated operating loss included a write-off of acquired
in-process research and development in the amount of $7,351,000 and the
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$440,000 of intangible assets amortized to expense in 1996. The operating loss,
before the write-off and the amortization of intangibles expensed, was $867,000.
Of this amount, VASCO NA contributed a loss of $911,000 and VASCO Europe
contributed net operating income of $44,000.
Current VASCO's 1996 operating loss, before the write-off of acquired
in-process research and development and the amortization of intangibles
expensed, was attributable to continued investment in R&D (primarily for
AccessKey III), sales and marketing investments in North America, one-time
professional fees associated with the acquisitions of Lintel Security and
Digipass, the expenses for development of corporate infrastructure, such as
sales personnel and administrative staff and office equipment, and, in general,
the costs associated with consolidating and assimilating the Lintel Security and
Digipass acquisitions.
Taking into account the results of Lintel Security and Digipass for the
full fiscal years, Current VASCO's consolidated operating loss on a pro forma
basis was $339,000 and $7,868,000 for the years ended December 31, 1995 and
1996, respectively. This represents an increase of $7,529,000. This increase is
related principally to the write-off of in-process research and development
acquired in conjunction with the acquisitions of Lintel Security and Digipass.
Interest Expense
Consolidated interest expense in 1996 was $346,000 compared to $74,000 in
1995. The increase can be attributed to average borrowings in 1996 being
substantially above those levels of the previous year. See "Liquidity and
Capital Resources" below.
Net Loss Before Taxes
As a result of the above factors, Current VASCO reported a net loss before
taxes of $9,047,000 for the year ended December 31, 1996. This compares to a net
loss before taxes of $608,000 for the previous year. The pretax loss was
$1,206,000 for VASCO NA, with VASCO Europe posting pretax income of $21,000. The
remainder of the loss, $7,862,000, was attributed to write-off of acquired
in-process research and development of $7,351,000, the $440,000 of intangibles
expensed and $71,000 for interest expense.
Current VASCO's consolidated net loss before taxes on a pro forma basis
(including Lintel Security and Digipass for the full 1995 and 1996 fiscal year
periods) was $380,000 and $8,397,000 for the years ended December 31, 1995 and
1996, respectively. This represents an increase of $8,017,000, due primarily to
the write-off of in-process research and development described above, or 2110%.
Income Taxes
Current VASCO recorded tax expense for the year ended December 31, 1996 of
$162,000 for VASCO NA and $32,000 for VASCO Europe. The tax expense recorded for
VASCO NA represents the revaluation (write-down) of deferred tax assets. Current
VASCO has net operating loss carryforwards of $1,626,000 as of December 31,
1996, which may be used to offset future taxable income of Current VASCO
generated in the United States. The net operating loss carryforwards expire in
various amounts beginning in 2010 and continuing through 2011.
Dividends and Accumulated Deficit
Current VASCO paid dividends of $108,000 in each of 1996 and 1995. These
dividend payments were attributable to 9,000 shares of Current VASCO Series B
Preferred Stock issued in 1994. Current VASCO began 1996 with an accumulated
deficit of $554,000. As a result of the 1996 net loss, this deficit has
increased to $9,903,000.
Current VASCO's 1996 loss before taxes, the resulting net loss after taxes,
and the resulting increase in accumulated deficit, can be attributed primarily
to the acquisitions of Lintel Security and Digipass and the write-off of
acquired in-process research and development. The write-off of acquired
in-process research and development accounted for 81% of Current VASCO's 1996
loss before taxes.
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1995 COMPARED TO 1994
As previously noted, there was a gradual shift in Current VASCO's business
to the point that security products accounted for the majority of consolidated
revenues for the year ended December 31, 1995. In 1996, VPS, the consulting and
technical training unit, was sold. In the following discussion for 1995 and 1994
references to VDSI mean the VDSI security products activity.
The following discussion and analysis should be read in conjunction with
Current VASCO's Consolidated Financial Statements for the years ended December
31, 1995 and 1994. In the 1995 audited financial statements, Revenues and Cost
of Revenues are categorized as "Security Hardware and Software" and "Training
and Consulting Services" which equate to the operations of VDSI and VPS,
respectively.
Revenues
Current VASCO's consolidated revenues for the year ended December 31, 1995
were $3,695,000, an increase of $1,002,000, or 37%, over the previous year ended
December 31, 1994.
VDSI revenues were $2,458,000 for 1995, an increase of $1,001,000, or 69%,
over 1994, representing virtually all of the increase in consolidated revenues.
The majority of VDSI's sales were comprised of AccessKey II devices. One
European customer accounted for 95% and 80% of VDSI's sales in 1995 and 1994
respectively, and 64% and 44% of consolidated revenues in 1995 and 1994,
respectively. Revenues for VPS were $1,237,000 and $1,236,000 for the comparable
periods.
Cost of Goods Sold
Consolidated cost of goods sold for the year ended December 31, 1995 was
$2,887,000, an increase of $1,464,000, or 103%, over the previous year ended
December 31, 1994.
VDSI's cost of goods sold was $2,033,000 in 1995, representing an increase
of $1,308,000, or 180%, over 1994, and accounting for the majority of the
increase in consolidated cost of goods sold. The majority of the increase in
VDSI's cost of goods sold can be attributed to a corresponding increase in
sales, but was further impacted by an adjustment to capitalized development
costs amounting to approximately $350,000, and the write down of certain
inventory valuations amounting to approximately $100,000, both occurring in the
fourth quarter of 1995.
VPS's cost of goods sold was $854,000 in 1995, representing an increase of
$156,000, or 22%, over 1994. This increase is reflective of higher costs
associated with the inclusion of increased third party goods and services in the
delivery of certain assignments.
Sales and Marketing Expenses
Consolidated sales and marketing expenses for the year ended December 31,
1995 were $245,000, an increase of $88,000, or 56%, over 1994. The entire
increase can be attributed to VDSI and reflects additions of personnel and
related expenses and investments in the development of the North American
market.
Research and Development
Total research and development costs for the year ended December 31, 1995
were $242,000, an increase of $31,000, or 15%, over the prior year. R&D costs
are principally attributable to the operations of VDSI.
Current VASCO has expensed, as cost of revenues, $445,000 and $54,000 in
1995 and 1994, respectively, reflecting the amortization of capitalized
development costs. In the fourth quarter of 1995, Current VASCO accelerated the
amortization of capitalized development costs to reflect an adjustment to the
estimated economic life of certain products, which amounted to approximately
$350,000.
Net product development costs carried as an asset were $157,000 and
$602,000 at December 31, 1995 and December 31, 1994, respectively. There were no
product development costs capitalized in 1995 as compared to $228,000 in 1994.
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General and Administrative Expenses
Consolidated general and administrative expenses for the year ended
December 31, 1995 were $855,000, an increase of $143,000, or 20%, over 1994. The
entire increase can be attributed to VDSI and reflects additions of personnel
and related expenses and investments in the development of the North American
market.
Operating (Loss) Income
Current VASCO's consolidated operating loss for the year ended December 31,
1995 was $534,000, compared to an operating profit of $192,000 for the previous
year. The loss was primarily due to the accelerated amortization of capitalized
development costs described above, increased expenditures in virtually all areas
of VDSI, and expenses in the development of corporate infrastructure, such as
sales personnel, administrative staff and office equipment.
Interest Expense
Consolidated interest expense for the year ended December 31, 1995 was
$74,000, compared to $97,000 in 1994. The decrease of $23,000 can be attributed
to average borrowings in 1995 being below those levels of the previous year, and
generally lower interest rates throughout 1995.
Income Taxes
Current VASCO recorded a tax benefit of $251,000 for the year ended
December 31, 1995 based upon a loss before taxes of $608,000, compared to a
prior year tax expense of $37,000 based upon income before taxes of $95,000.
Net (Loss) Income Before Taxes
Current VASCO reported a net loss of $357,000 for the year ended December
31, 1995. This compares to net income of $58,000 for the previous year.
Dividends and Accumulated Deficit
Dividends of $108,000 and $27,000 were paid in 1995 and 1994, respectively.
These dividend payments were attributable to 9,000 shares of Current VASCO
Series B Preferred Stock issued in 1994. The Current VASCO Series B Preferred
Stock dividend payments of $108,000, and the net loss after taxes of $357,000,
yielded an accumulated deficit of $554,000 at December 31, 1995, compared to an
accumulated deficit of $9,000 at the end of the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Current VASCO has financed its operations through a
combination of the issuance of equity securities, private borrowings, short-term
commercial borrowings, cash flow from operations, and loans from Mr. T. Kendall
Hunt, Current VASCO's Chief Executive Officer and one of the stockholders of its
original corporate predecessor.
In 1995 Current VASCO borrowed $130,000 from Mr. Hunt, resulting in a total
loan payable balance of $190,000 at the end of 1995. This loan was repaid in
1996 from the proceeds of private placements during 1996.
Also during 1995, Current VASCO privately placed units consisting of
217,352 shares of Current VASCO Common Stock and 108,676 Current VASCO Warrants
to purchase one share of Current VASCO Common Stock at $6.00. The Current VASCO
Warrants are exercisable at the option of the holder; however, Current VASCO
maintains the right to require exercise of the warrants 30 days prior to a
public offering of Current VASCO's stock. Total issue fees and costs of $22,261
have been netted against $369,498 of proceeds from the placement.
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Of the total 108,676 units issued in the private placement described in the
immediately preceding paragraph, 53,000 units were sold to a group of investors
subject to a Registration Rights Agreement ("Rights Agreement") entered into on
October 19, 1995. The agreement required that the common stock portion of the
units (106,000 shares) be covered by an effective registration statement under
the Securities Act or the Exchange Act, by July 1, 1996. The described remedy in
the event of default was a put option (the "put"), allowing the investor to
exchange their units for consideration of $7.00 per unit, or $3.50 per common
share. Due to a delay in making the required filing with the Securities and
Exchange Commission, Current VASCO agreed to an extension and renegotiation of
the Rights Agreement. This resulted in a requirement for an effective
registration statement on or before March 31, 1997 and an increase in the put
price to $14.00 per unit, or $7.00 per share. This filing deadline also was not
satisfied and Current VASCO and the investor group entered into an amended
agreement under which (i) the investors "put" approximately one-third of their
shares (35,328 shares) back to Current VASCO with payments totaling $247,296
being remitted to the investor group, (ii) additional Current VASCO Warrants to
purchase an aggregate of 141,344 shares of Current VASCO Common Stock at a price
of $5.19 per share were granted to the investor group, (iii) the March 31, 1997
filing deadline was changed to March 31, 1998, and (iv) the investor group
received the right to put their shares to Current VASCO if after March 31, 1997
Current VASCO raises financing of $5,000,000 or more.
During the second quarter of 1996, Current VASCO placed additional units
consisting of 666,666 shares of Current VASCO Common Stock and 137,777 warrants,
each of which entitles the holder to purchase one share of Current VASCO Common
Stock at $4.50. The private placement of shares and warrants generated gross
proceeds of $3,000,000. In addition, in the same transaction, Current VASCO
borrowed $5,000,000 and issued a $5,000,000 convertible note due on May 28,
2001. The note bears interest at 9%, with interest payable to the holder on a
quarterly basis. The holder may, at its option, elect to receive interest
payments in cash or common stock. In calculating the shares of Current VASCO
Common Stock to be issued in lieu of cash interest, the average closing price
for shares of Current VASCO Common Stock for the previous 20 trading days is
used. In the event Current VASCO receives funds equal to or greater than
$30,000,000 from a public offering of its common stock, the holder of this note
has the right to require Current VASCO to pay all amounts due and owing under
the note within 30 days of receipt by Current VASCO of notice from the holder of
exercise of this right. Total issue fees and costs of $170,000 related to the
equity portion of this transaction have been netted against the $3,000,000 of
proceeds from the equity private placement. In addition, 55,555 shares of
Current VASCO Common Stock and 8,889 Current VASCO Warrants, each of which
entitles the holder to purchase one share of Current VASCO Common Stock at
$4.50, were issued as commissions related to the placement.
The proceeds from the $8,000,000 private placement ($3,000,000 equity and
$5,000,000 debt) were used to make the first installment of $4,800,000 toward
the Digipass purchase, to satisfy one-time expenses related to the Lintel
Security and Digipass acquisitions, to retire Current VASCO's debt to its
commercial lender and to Mr. Hunt, and to fund working capital requirements in
general.
In 1996 Current VASCO raised additional funds in a private placement of
units consisting of 237,060 shares of Current VASCO Common Stock and 35,329
Current VASCO Warrants, each of which entitles the holder to purchase one share
of Current VASCO Common Stock at $4.50. Total issue fees and costs of $47,885
were netted against the $1,066,770 in total proceeds from the placement in
Current VASCO's financial statements. In addition, 16,489 shares of Current
VASCO Common Stock were issued as commissions related to the placement.
The net effect of 1996 activity resulted in an increase in cash of
$1,069,000, resulting in a cash balance of $1,814,000 at December 31, 1996,
compared to $745,000 at the end of 1995. Current VASCO's working capital at
December 31, 1996 was $1,502,000, an increase of $348,000, or 30%, from
$1,154,000 at the end of 1995. The majority of the improvement is attributable
to an increase in all current asset categories, aided by the addition of VASCO
Europe's assets and the private placements made during the year, offset with the
final payment related to the Digipass acquisition in the amount of $3,400,000.
Current VASCO's current ratio was 1.21 at December 31, 1996, compared to 2.09 at
the end of 1995.
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Effective in June, 1997, Current VASCO established a bridge loan with
Generale Bank in the amount of $2,500,000, evidenced by five convertible notes
in the amount of $500,000 each. These notes bear interest at a rate of 3.25%,
payable quarterly, and are due September 30, 1998, at which time 116% of the
principal amount becomes due and payable. In the event Current VASCO (or New
VASCO) completes a public offering prior to September 30, 1998, the holder of a
note has the option within seven days after the completion of a public offering
to require the note to be repaid at 100% of the principal amount thereof in cash
or in common shares (valued at the public offering price), at the holder's
election, together with all accrued and unpaid interest to the date of repayment
plus additional special interest payable in cash as follows: $55,556 if
repayment is on or before December 31, 1997; $88,235 if repayment is between
January 1, 1998 and March 31, 1998, both dates inclusive; and $125,000 if
repayment is between April 1, 1998 and September 30, 1998, both dates inclusive.
In the event that the holder of the note does not elect within seven days after
completion of the public offering to require the note to be repaid, the holder
may at any time thereafter (until the close of business on the September 30,
1998 maturity date) require the principal amount of the note to be repaid in
shares of common stock (valued at the public offering price) plus accrued and
unpaid interest to the date of repayment (but no additional special interest
shall be payable). If the notes have not been repaid prior to the September 30,
1998 maturity date, and Current VASCO (or New VASCO) fails to repay the note
prior to November 1, 1998, then on and from November 1, 1998 (but before payment
of the note), in the event a public offering has not been completed the bank may
convert the principal amount into shares of Current VASCO Common Stock (i) at a
conversion price equal to a historical 20 day trading price in the United States
if the stock is listed or quoted on the NASDAQ, EASDAQ or another national U.S.
stock exchange, plus the payment of $250,000 in special interest, payable in
cash or shares at the option of the bank, or (ii) if the shares are not so
listed, at a conversion price of $1.00. These five notes also expressly provide
that they are convertible into shares of New VASCO Common Stock, upon the same
terms and conditions, in the event the Exchange Offer is consummated. Current
VASCO also issued to the bank warrants entitling the bank to acquire an
aggregate of 40,000 shares of Current VASCO Common Stock (or New VASCO Common
Stock if the Exchange Offer is consummated) at exercise prices ranging from $4
to $10 per share.
As a result of the foregoing activities, at June 30, 1997 Current VASCO had
a cash balance of $2,863,000 and its current ratio was 1.54.
VDSE entered into a convertible loan agreement with Banque Paribas Belgique
S.A. effective August, 1997, in order to refinance the $3.4 million payment due
December 31, 1997 in connection with Current VASCO's acquisition of Digipass.
The terms of the agreement provide that the $3.4 million principal amount is
convertible, at the option of the lender, into shares of Current VASCO Common
Stock or, if the Exchange Offer is consummated, into shares of New VASCO Common
Stock. This loan bears interest at the rate of 3.25%, payable annually, and
matures on September 30, 2002. The loan is convertible, commencing on the
earlier of January 1, 1999 or the date of a public offering of Current VASCO (or
New VASCO) shares on the EASDAQ and/or NASDAQ and terminating on August 31,
2002, at a conversion price equal to the per share public offering price,
provided, however, that if no such offering has occurred prior to January 1,
1999, and the loan is converted after such date but prior to a public offering,
the conversion price is the average closing market price for shares of Current
VASCO Common Stock on the OTC BB for the 20 trading days prior to the date of
the notice of conversion, less 10%. In the event a public offering is completed,
the lender may at its option (by written notice within seven days after receipt
by Current VASCO (or New VASCO) of proceeds of the public offering) require the
principal amount of the loan to be repaid in cash, in which case additional
special interest is payable as follows: $340,000 if repayment is on or before
June 30, 1998, $510,000 if repayment is between July 1, 1998 and December 31,
1998 (both dates inclusive), and $680,000 if repayment is on January 1, 1999 or
later.
Current VASCO intends to seek acquisitions of businesses, products and
technologies that are complementary or additive to those of Current VASCO. While
from time to time Current VASCO engages in discussions with respect to potential
acquisitions, Current VASCO has no plans, commitments or agreements with respect
to any such acquisitions as of the date of this Prospectus and currently does
not have excess cash for use in making acquisitions. There can be no assurance
that any such acquisition will be made.
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Current VASCO believes that its current cash balances and anticipated cash
revenues from its 1997 operations will be sufficient to meet its anticipated
cash needs through the end of 1997. Current VASCO is currently seeking to
establish a new credit facility with a commercial lender and has entered into
engagement letters with Banque Paribas S.A. and Generale Bank for a possible
future public offering. There can be no assurance, however, that Current VASCO
will be successful in establishing a new credit facility or effecting a public
offering.
PREVIOUS INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP audited Current Vasco's financial statements for the
two fiscal years ended 1995. Following the acquisition of Lintel Security and
Digipass, the Audit Committee dismissed Price Waterhouse LLP as the independent
accountants of Current Vasco. The reports of Price Waterhouse LLP on the
financial statements of Current Vasco for the two years ended December 31, 1995
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. In connection
with its audits for the two years ended December 31, 1995, there have been no
disagreements with Price Waterhouse LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Price Waterhouse LLP
would have caused them to make reference thereto in their report on the
financial statements for such years. During the course of Price Waterhouse's
audit of the 1995 financial statements discussion were held with Current VASCO's
management concerning enhancements necessary in internal controls to enable
Current VASCO to develop reliable financial statements on a timely basis.
Management has taken steps, based on Price Waterhouse's recommendations, to
enhance internal controls.
NEW INDEPENDENT ACCOUNTANTS
Concurrently with the dismissal of Price Waterhouse LLP, the Company
engaged KPMG Peat Marwick LLP as Current Vasco's independent auditor for 1996,
in large part due to KPMG Peat Marwick LLP's resources in Belgium. KPMG Peat
Marwick LLP was also engaged to reaudit the financial statements of Current
VASCO for the two years ended December 31, 1995. Current VASCO did not consult
with KPMG Peat Marwick LLP with respect to any particular accounting issues
prior to KPMG Peat Marwick LLP's engagement by Current VASCO.
CERTAIN INFORMATION CONCERNING CURRENT VASCO
BUSINESS
INTRODUCTION
Current VASCO designs, develops, markets and supports open standards-based
hardware and software security systems which manage and secure access to
information assets. Current VASCO's hardware products include time-synchronous
response only, challenge/response and time-synchronous challenge/response user
authentication devices, some of which incorporate an electronic digital
signature feature to guarantee the integrity of data transmissions. These
devices are commonly referred to as security tokens.
Current VASCO's security tokens are based upon Current VASCO's core
encryption technology, which utilizes two widely known and accepted algorithms,
Data Encryption Standard ("DES") and Rivest, Shamir, Adelman ("RSA"). Current
VASCO's Cryptech division produces high speed hardware and software encryption
products used both internally for Current VASCO's security tokens and for OEM
vendors requiring real time encryption services. In addition, Current VASCO
recently has introduced a smartcard security token that uses the
challenge/response mode and the X.509 certificate authentication standard.
Current VASCO's security tokens are designed to be used with the VASCO
Access Control Manager ("VACMan") server software or to be integrated directly
into applications. Together, Current VASCO's software and hardware products
provide what it believes is an economical state-of-the-art authentication,
authorization and accounting security system.
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Current VASCO's security products are sold primarily to value-added
resellers and distributors, and to a lesser extent end-users. Current VASCO had
sold over 1.8 million security token devices, its primary product line, as of
June 30, 1997.
Current VASCO has embarked upon an aggressive campaign to expand its
distributor and reseller network. Distributors and resellers that have entered
into agreements with Current VASCO's operating subsidiaries include, among
others, Concord-Eracom Nederland BV, The Peripheral People, Protect Data Norge
AS, Sirnet AB, All Tech Data Systems, Inc., Clark Data Systems, Inc., HUCOM,
Inc. and SEI Information Technology.
Representative end-users of Current VASCO's products include ABN-AMRO Bank,
Generale Bank, Banque Paribas Belgique S.A., Rabobank, S-E Banken, AMP Inc.,
Volvo Data North America, Inc., France Telecom, Manitoba Telephone, Andrew
Corp., and Molson Breweries.
THE DATA SECURITY INDUSTRY
Industry Background. The increasing use and reliance upon proprietary or
confidential data by businesses, government and educational institutions that is
accessible remotely by users, together with the growth in electronic commerce,
has made data security a paramount concern. Current VASCO believes that data
security concerns will spur significant growth in the demand for both enterprise
and consumer security solutions.
ENTERPRISE SECURITY. With the advent of personal computers and distributed
systems in the form of wide area networks ("WANs"), intranets which connect
users in disparate facilities, local area networks ("LANs"), which connect users
located in a single facility and the public network known as the Internet/ World
Wide Web (the "Internet"), and other direct electronic links, many organizations
have implemented applications to enable their work force and third parties,
including vendors, suppliers and customers, to access and exchange data. As a
result of the increased number of users having direct and remote access to
enterprise networks and data, including a growing number of mobile computer
users and telecommuters that perform some or all of their work from home or
other remote locations, data has become increasingly vulnerable to unauthorized
access.
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 such 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. As a result of unauthorized
access stemming from the increased use of enterprise-wide computing and remote
access, network security has become a primary concern to most companies that use
and rely on data. This increased attention to data security has stimulated
demand for data security products. Current VASCO believes that enterprises are
seeking solutions which will continue to allow them to expand access to data
while maintaining adequate security.
CONSUMER SECURITY. In addition to the need for enterprise-wide security,
the proliferation of PCs in both home and office, combined with widespread
access to the Internet, have created significant opportunities for electronic
commerce such as electronic bill payment, home banking and home shopping. All of
these activities are primarily based on the use of the Internet and, according
to published reports, the growth in the number of Internet users alone is
expected to increase from approximately 28 million Web users worldwide in 1996
to approximately 175 million users worldwide by the end of 2001.
The public generally perceives that there is a risk involved in using
credit cards to make purchases via the Internet and this perception has hampered
the development of consumer-based electronic commerce. Accordingly, Current
VASCO believes that successful expansion of electronic commerce, particularly in
North America which has generally lagged behind Europe in this area, requires
the implementation of improved security measures, which accurately identify
users and reliably encrypt data transmissions over the Internet.
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CURRENT DATA SECURITY SOLUTIONS
BUILDING BLOCKS OF DATA SECURITY GRAPHIC
BUILDING BLOCKS OF DATA SECURITY
Data security and secured access to on-line commerce generally consist of
five components:
Encryption: Maintains data privacy by converting information into an
unreadable pattern and allowing only authorized parties to decrypt the
data. Encryption can also maintain data integrity by creating digital
signatures for transmitted data, enabling the recipient to check whether
the data was changed since or during transmission.
Identification and Authentication: Serves as the foundation for other
security mechanisms by verifying that a user is who he or she claims to be.
Identification and authentication mechanisms are often employed with
encryption tools to authenticate users, to determine the proper encryption
key for encrypting/decrypting data, or to enable users to digitally "sign"
or verify the integrity of transmitted data.
Access Control: Includes firewalls, which limit a user's access to
data to only that data which he or she is authorized to access, and
authorization and accounting systems, which also limit access to data and
keep track of a user's activities after access has been granted.
Anti-virus: Programs that scan for and, in many cases, remove
destructive computer programs known as computer viruses that can become
imbedded into programs residing on a computer.
Administration and Management Tools: Set, implement and monitor
security policies, the access to which is typically regulated by access
control systems. These tools are extremely important to the overall
effectiveness of a security system.
The most effective security policies employ most, if not all, of these five
components. However, most companies only implement a patchwork combination of
these components which can result in their security systems being compromised.
Historically, Current VASCO's primary products have been security tokens.
Security tokens are an integral part of identification and authentication
systems, which in turn serve as the foundation for each of the five components
of data security outlined above. Current VASCO has sought to leverage its
identification and authentication expertise by expanding its product offerings
to include the other components of data security, in each case incorporating
Current VASCO's security tokens. Current VASCO has sought to expand its product
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offerings to reach its ultimate goal of supplying a full range of security
products for integrated, enterprise-wide security solutions which will meet the
needs of the emerging data security market.
IDENTIFICATION AND AUTHENTICATION. Identification and authentication
systems provide the foundation for security systems by validating the identity
of each user attempting to access information or data contained in a system,
regardless of location. The most common use of an identification and
authentication device is to authenticate local and remote users who have
established a network connection to a company's computer network. Authentication
is often done in conjunction with a firewall to authenticate internal users of
stand-alone PCs on networks or to authenticate customers and suppliers who have
been granted access to a restricted portion of the company's data or other
information.
There are three basic methods used to authenticate a user. The first method
identifies WHO THE USER IS, utilizing a hard-to-forge physical attribute such as
the user's fingerprints, voice patterns or eye retina patterns. In each case the
physical attribute, or biometric, must be capable of being scanned and converted
to a digital document. While biometric devices offer a high level of
authentication, they are susceptible to replay attacks. Replay attacks collect
samples of a user's biometric "print" (i.e. voice, finger, retina) and then
replay the "print" to access a target system. Furthermore, current technology
requires additional hardware to acquire, or read, the biometric "print." The
added hardware presents two challenges for biometric solutions, one is the cost
and the second is installation and maintenance.
The second authentication method is identifying WHAT THE USER KNOWS,
usually a password known only to the specific user. Passwords, while easy to
use, are also the least secure because they tend to be short and static, and are
often transmitted without encryption ("clear text"). As a result, passwords are
vulnerable to decoding or observation and subsequent use by unauthorized
persons. Once a user's password has been compromised, the integrity of the
entire computer network can be compromised.
The third authentication method identifies WHAT THE USER HAS, generally a
physical device or token intended for use by that specific user. Tokens are
small devices ranging from simple credit card-like devices to more complex
devices capable of generating time-synchronized challenge/response access codes.
Early examples of simple tokens include building access passes.
Certain token-based systems require both possession of the token itself and
a 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 implementations of two-factor authentication include automatic
teller machine ("ATM") cards. ATM cards require the user to possess the card and
to know the PIN before engaging in the transaction. Current VASCO believes that
the use of the two-factor authentication system is the optimal solution for
reliable computer and network security and has targeted its products toward this
end.
Security Tokens. A security token is a small, portable computing device
designed to generate a one-time password. They are normally difficult to
counterfeit and are assigned to an individual user. The user transmits a
token-generated password, along with an assigned user ID, to a host or
authentication server, requesting access, generally to a network.
Token-generated passwords are derived from a secret key or seed value. An
authentication server on the network receives and decrypts the token password
with a corresponding decryption key, validates the user, and (if validated)
grants access. Currently available security tokens are event-based,
time-synchronous, response only or challenge/response based.
Event-based tokens have the same list of predetermined passwords as the
authentication server. Passwords are generated by the token in a predetermined
manner, which is expected by the server, and the passwords remain valid for
indefinite periods of time. As a result of the passwords being generated from a
predetermined list and their ease of calculation by unauthorized users,
event-based tokens are the easiest to compromise.
Time-synchronous tokens require the authentication server and the token to
be password time-synchronous. When used, the token will calculate and display a
password using a stored secret seed value and the current time of day. The
server then determines whether the password received is correct for the time
frame that it was used in. The principal drawbacks for time-synchronous tokens
are extensive maintenance
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with respect to clock synchronization and the possibility of multiple uses
within the specified time frame. Usually, steps are taken to limit the re-use of
a password, however, when a time-synchronous token is defined to multiple
authentication servers, a common practice, then there is a risk of a password
being re-used to access other servers. Nevertheless, these devices provide a
higher level of security than event-based tokens.
Response only tokens use either an "event" or time to calculate the
response only password. Response only tokens require the user to activate the
token and read the password.
Challenge/response tokens provide the highest level of security. The
authentication server responds to a request for access by issuing a randomly
generated challenge in the form of a numeric or alphanumeric sequence. The
token, using its embedded seed value, or key, encrypts the challenge. The result
is an encrypted response which the user then transmits back to the
authentication server via the user's PC keyboard. The server in turn retrieves
the key that has been assigned to that user and decrypts the user's response.
Assuming a match exists, the server authenticates the user and grants access.
As with time-synchronous tokens, challenge/response tokens do not transmit
an encryption key. However, unlike time-synchronous tokens, passwords of
challenge/response tokens are one-time passwords that can never be reused. In
addition, there is no opportunity to initiate a second, illegal session with a
challenge/response token. Each attempt at access is accompanied by a new
challenge and a correspondingly unique password response.
Although challenge/response tokens generate true one-time passwords, it is
possible to compromise the internal seed value of pure challenge/response tokens
that only use the seed value and the challenge to calculate the response.
Time synchronous challenge/response tokens can be used to add another
variable in the calculation of the onetime password. In addition to the secret
seed value and the challenge from the host server, the time of day can be used.
Because there is a challenge, the time synchronization does not have to be
nearly as exact as with time-synchronous tokens. When time is used as an input
variable for challenge response tokens, it is impossible, with today's most
advanced computers, to use dictionary attacks to compromise the token.
Smartcards. Smartcards are credit card sized devices that contain an
embedded microprocessor, memory and secure operating system. Smartcards have
been used in many applications, for example, as stored value cards, either for
making general purchases or for specific applications such as prepaid calling
cards, and as health care cards, which are used to store patient and provider
information and records. Major smartcard chip and card manufacturers include
Gemplus SA, Schlumberger Ltd., Philips Electronics N.V., Siemens A.G. and Groupe
Francois Charles Oberthur (FCO). These vendors, together with cryptographic
vendors, have worked to make smartcard standards compatible with cryptographic
standards to offer a security solution with authentication and digital signature
capabilities.
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CURRENT VASCO SOLUTION
The following illustrates a sample configuration of a network and
components of a security system:
<TABLE>
<S><C>
STARTING POINT/REMOTE USERS: AUTHENTICATION LEVEL -
Typically defined as OFF-premise with Tokens, smartcards, encryption.
a laptop or pc, customers, employees 1. Before the firewall, VASCO tokens
on-premise but not on the LAN. provide access control.
- ------------------------------------------------------------------------------------------------------------------------------------
STARTING POINT/LOCAL USERS: FIREWALL LEVEL - separates off-the-net
Typically defined as ON-PREMISE, from on-the-net users. Resides within
past the firewall, and on the LAN. the NAS (network Access Server).
Available from 3rd party vendors
[SEAMLESS SECURITY FLOW CHART] AUTHORIZATION LEVEL -
Uses RADIUS server.
2. Beyond the firewall, VACMan
provides SELECTIVE access control.
AUTHENTICATION/AUTHORIZATION
& ACCOUNTING LEVEL - Security Server
w/RADIUS, TACACS, XTACACS, & TACACS+.
3. Within the net VACMan provides SSO
(Single-Sign-On) services for network users.
</TABLE>
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To date, most approaches to network security have been limited in scope and
have failed to address critical aspects of data security. Current VASCO believes
that the computer security industry is moving away from incremental or point
solutions to enterprise-wide, fully integrated solutions. Current VASCO believes
that an effective enterprise-wide solution must address and assimilate issues
relating to the following: ease of use and administration, reliability,
interoperability with heterogeneous enterprise environments and existing
customer applications, and scaleability. Current VASCO also believes that in
order to capitalize on this growing market need for enterprise-wide security
solutions, network security products must embody both hardware and software
components and provide an industry-accepted, open standards-based solution.
Accordingly, Current VASCO has adopted the following approach to data
security:
(i) In designing its products, it has sought to incorporate all
industry-accepted, open, non-proprietary, remote access protocols, such as
RADIUS and TACACS+. This permits interoperability between Current VASCO's
security token products and leading remote access servers.
(ii) It has incorporated the two most widely known and accepted
algorithms -- the DES and RSA algorithms -- into its products and has
sought to refine its offering of single-function, multi-function,
challenge/response, response only and digital signature security token
products. Current VASCO believes that its combination of software and
hardware products provide security with added speed, cryptographic
functionality, reliability and flexibility not attainable with
software-only programs. Its products provide two-factor authentication
requiring the authorized user to possess both the token and the appropriate
PIN.
(iii) In addition to providing identification and authentication
features in its security products, Current VASCO has included in its
security systems accounting and auditing features that allow customers to
track and analyze all user access and attempted access to network systems.
This permits easier customer implementation and monitoring of corporate
security policies.
(iv) Current VASCO has designed its security systems to support
various platforms -- such as Windows NT -- thereby allowing customers to
ensure the same security for remote users as is provided to office-based
users.
(v) Current VASCO has sought to design products that are easy to use
and competitively priced. It also is increasing its customer support
capabilities to ensure the smooth installation and maintenance of its
systems.
As a result of this approach, Current VASCO believes it has positioned
itself to market a new generation of open standards-based hardware and software
security systems, including those designed to provide security to Internet
users, and it intends to continue to grow to provide a full range of
identification and authentication and other security products. See "Strategy."
Security Token Products. Generally, Current VASCO's challenge/response
tokens work as follows: when a user logs onto a computer or enters a program or
network with a user ID, the computer generates a numeric or alphanumeric
challenge and displays both the challenge and a flashing bar pattern on the
terminal screen. The user holds a token up to the flashing pattern on the
screen, and the token reads and interprets the pattern and then displays a
unique, or one-time, password on its liquid crystal display. The user then
enters this password on the computer keyboard and, if a match exists, access to
the computer, program or network is granted. If the terminal screen is not able
to display a flashing bar pattern, the user can enter the numeric or
alphanumeric challenge into the keypad on the token. PIN protected, break-in
attempts to unlock the key are tracked by the token internally. After a
pre-programmed number of invalid attempts, the token will be locked out of the
system for a specified period of time.
Some of Current VASCO's products also are able to perform "digital
signatures" for applications which require proof that a transaction was
authorized. A combination of numbers from the transaction are entered into a
token which produces an encrypted number that only that specific token, and the
information from the transaction, could have created. This number is then
entered as part of the transaction, acting as a digital signature authorizing
the transaction.
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Current VASCO's security tokens include AccessKey II and AuthentiCard, each
an optical, hand-held challenge/response security token with a liquid crystal
display and numeric keypad that generates a unique password each time it is
used, and Digipass, a time-synchronous response only token that generates a
one-time password, to authenticate users of PCs and networks and to verify data
transmissions by electronic signature. In late 1997, Current VASCO expects to
begin shipping its AccessKey III, which is an optical, hand-held multiple-mode
security token capable of operating in time-synchronous response only,
challenge/response and time synchronous challenge/response modes and of
performing digital signature functions.
Smartcards are also emerging as viable security devices. Current VASCO
recently announced a new smartcard product, VACMan/CryptaPak, that combines two
authentication standards on one smartcard. VACMan/CryptaPak is a standards based
smartcard solution that secures Internet applications based on the X.509
authentication standard and also secures remote dial-in access based on the
RADIUS authentication standard. It includes a smartcard, smartcard reader and
software that enables Netscape Communications Corporation's Communicator to
authenticate users via the X.509 certificate standard and software that enables
remote dial-in users to be authenticated via the RADIUS authentication standard.
See "Current VASCO Security Products" below.
Encryption Products. Hardware encryption product offerings from Current
VASCO include DES and RSA microprocessor chips that perform algorithmic
functions for use in, among other things, ATMs, fax machines, modems and
security servers. Current VASCO's DES and RSA chips are also the central
component of its PC DES/RSA Cards, which are printed circuit boards that enable
software applications to provide encryption security. Current VASCO also has
acquired a software encryption application, Point 'n Crypt, which resides on a
PC workstation and enables the user to encrypt or decrypt Windows files or
folders. See "Current VASCO Security Products" below.
Access Control Products. Current VASCO has, through a strategic
relationship, developed the VACMan access control system, which centralizes
security services in a single location, supports all of Current VASCO's token
devices, and is based on industry standard protocols to maximize
interoperability. VACMan also incorporates authorization and accounting
features. See "Current VASCO Security Products" below.
STRATEGY
Current VASCO's objective is to establish itself as a single source data
security solutions vendor and to become a leader in the data security market.
Current VASCO's growth is largely dependent on the successful implementation of
its business strategy. There can be no assurance that Current VASCO will be able
to successfully implement its business strategy or that, if implemented, such
strategy will be successful. See "RISK FACTORS." Key elements of Current VASCO's
strategy for achieving this objective are listed below:
Increase Name Recognition. Current VASCO intends to increase the name
recognition of its products. It believes that by establishing itself as a brand
name, it will obtain a key competitive advantage. Current VASCO believes that
the market for data security products is confused by multiple technologies and
conflicting claims and that end-users will ultimately be more comfortable buying
a well-known product. Current VASCO intends to increase its name recognition by
emphasizing sales to well-known visible end-users, expanding its distribution
network, increasing its presence at technology trade shows and other increased
marketing activities such as print media campaigns.
Expand Product Line. Current VASCO plans to continue to broaden its line of
security products to meet its customers' needs and to establish itself as a
single source security solutions vendor. Current VASCO intends to accomplish
this by continuing to develop identification and authentication expertise, as
well as by seeking strategic relationships and acquiring complementary assets or
businesses.
Expand Global Presence. The implementation of data security products for
electronic banking in the European market has become widespread and as a result,
the market for Current VASCO's products has grown more quickly in Europe than in
North America. While sales by VDS NV/SA and VDSI represented 54% and 44%,
respectively, of Current VASCO's total revenue for the year ended December 31,
1996, Current VASCO's sales to United States customers represented approximately
4.6% of all sales for the year ended
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December 31, 1996. Current VASCO believes that there are significant
opportunities for its products in the developing North American market and
further believes it is well positioned to take advantage of this growing market.
Current VASCO intends to maintain and expand its leadership role in the
identification, authentication, authorization and accounting markets in Europe
and to leverage its European expertise to introduce and promote Current VASCO's
identification, authentication, authorization and accounting products to the
North American and other global markets. Enterprises that allow remote access to
proprietary databases or information, or need to ensure secure data transmission
for purposes of electronic commerce (including via the Internet), are potential
customers for Current VASCO's security products. Current VASCO intends to pursue
these potential customers through its growing network of distributors and
resellers. See "Expand Marketing Channels" below.
Expand Marketing Channels. Current VASCO intends to aggressively recruit
and support a network of value added resellers worldwide that specialize in both
vertical (banking, financial, health, telecommunications and government) markets
and horizontal (remote access and Internet application) markets. By undertaking
these activities, Current VASCO intends to address and fulfill the requirements
of the growing remote access market that is in need of advanced identification,
authentication, authorization and accounting products. Some of the distributors
and resellers that have entered into agreements to distribute Current VASCO's
products in various strategic markets include:
<TABLE>
<CAPTION>
EUROPE NORTH AND SOUTH AMERICA ASIA/AUSTRALIA
------ ----------------------- --------------
<S> <C> <C>
Concord-Eracom Nederland B.V. All Tech Data Systems, Inc. Horizon Systems
(Netherlands) (Midwestern United States) (Hong Kong)
ME Networks AG Clark Data Systems, Inc. HUCOM, Inc.
(Switzerland) (Southwestern United States) (Japan)
Protect Data Norge AS Excelsys, SA The Peripheral People
(Scandinavia) (Chile) (Australia)
Secureware LatinWare Ltda.
(France) (Colombia)
Sirnet AB SEI Information Technology
(Scandinavia) (Midwestern United States)
</TABLE>
Develop Strategic Relationships. To accomplish its strategic goals, Current
VASCO has established and is developing strategic relationships with other
vendors of complementary security products and may seek to acquire complementary
assets or businesses. Also, Current VASCO has identified vendors of security or
remote access products that relied solely on static passwords which Current
VASCO believes its products can enhance.
Current VASCO also has entered into co-development agreements with certain
companies to gain access to technology critical to the acceptance and adoption
of Current VASCO technology and products. The first such agreement, with TriNet
Services, Inc., resulted in Current VASCO's Internet AccessKey, enabling Current
VASCO to become the first security authentication vendor to enhance security
when accessing the Internet. The Internet AccessKey won the Sun Microsystems
Java Cup International award for productivity tools.
Current VASCO also entered into a co-development agreement with SHIVA Corp.
("SHIVA"), a leader in remote access communications equipment, pursuant to which
Current VASCO licensed from SHIVA a generic security server. The resulting
product, VACMan, enables Current VASCO technology and products to be inserted
into virtually any organization that allows remote dial-in access to its
computer networks.
In addition, Current VASCO has entered into an original equipment
manufacturer agreement with Netscape Communications Corporation ("Netscape") to
bundle Netscape technology and products with Current VASCO products. The first
result is a new product - VACMan/LDAP - which allows installations to define
user information, including all token information, into Netscape's Directory
Server. Netscape is the first
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vendor to offer a product that supports a newly adopted world wide standard for
directory services. Current VASCO intends to offer a product that supports the
same newly-adopted worldwide standard for directory services which will result
in a globally distributed security database accessible by a number of
applications requiring information about users.
CURRENT VASCO SECURITY PRODUCTS
Current VASCO's family of hardware products include time-synchronous
response only, challenge/response and time-synchronous challenge/response user
authentication token devices or security tokens. Through June 30, 1997, Current
VASCO had sold over 1.8 million security tokens (AccessKey II, AuthentiCard and
Digipass). In addition, Current VASCO recently began marketing a smartcard
security token that uses the challenge/response mode and the X.509 certificate
authentication standard. Current VASCO also designs, develops and markets
encryption chips and encryption boards through a division called Cryptech. The
primary customers of the Cryptech products are OEMs of telecommunications
equipment that require real time encryption.
All Current VASCO's security tokens are used with its software
authentication server, VACMan, to provide a complete identification,
authentication, authorization and accounting security system. VACMan supports
each of Current VASCO's security devices and permits users to centralize their
security systems in a single server or network of servers. It is designed for
small, medium and large enterprises and Internet service providers, and it
provides a centralized and flexible solution for managing network access. VACMan
is scaleable for large remote access systems and a single server can support
numerous distributed network access servers.
Current VASCO also offers numerous additional products to extend the
security services of VACMan/Server to platforms and/or applications that do not
yet support the RADIUS protocol. Examples of such products are VACMan/Client NT,
VACMan/Client Enterprise (Netscape Web server), VACMan/Client IIS (Microsoft Web
Server), and VACMan/Client Solarias. In addition Current VASCO offers
workstation software to enhance network connections when using advanced products
like AccessKey II or VACMan/CryptaPak. These products have unique workstation
requirements to generate a terminal flash pattern for AccessKey II and to
communicate to a smartcard reader attached to the workstation in the case of
VACMan/CryptaPak.
Current VASCO also provides a software development kit ("SDK") that can be
used by other vendors or by clients to build RADIUS support into their products
or applications. This SDK enables them to perform one integration project and
gain support for all RADIUS compliant security servers. The SDKs are written in
the C programming language and can be used in numerous operating system
environments such as MVS, VMS, UNIX, Windows, NetWare and DOS. The SDKs enable
Current VASCO's strategic partners to integrate Current VASCO's products into
their own product offerings.
The following chart describes each of Current VASCO's principal products:
<TABLE>
<CAPTION>
HARDWARE FEATURES
- -------- --------
<S> <C> <C>
AccessKey II - Time-synchronous, challenge/response token generates
one-time password with each use by application of patented
technology
- Optical interface reads flashing pattern on computer screen
from
which token generates one-time password
- Optional PIN protection feature
AuthentiCard - Time-synchronous, challenge/response token generates
one-time password with each use
- Utilizes DES algorithm
- Operates optically or numerically
- PIN protection and token lock/unlock feature
- Programmable user messages
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
HARDWARE FEATURES
- -------- --------
<S> <C> <C>
Digipass - Time-synchronous, response only token generates one-time
password
- Utilizes DES algorithm
- PIN protection feature
- Digital signatures feature
- Storage of multiple secret keys for up to 8
tokens/applications in one
DES and RSA - Incorporate DES or RSA algorithms
Microprocessors* - Cryptographic functionality
- Potential uses include ATMs, wireless telephone networks,
modems, fax machines, PCs, servers
PC DES/RSA Card* - Printed circuit boards incorporating Current VASCO's DES/RSA
microprocessor chips
- Can be integrated into applications requiring encryption
security or used as development and evaluation tool for
DES/RSA microprocessor chips
- Development package includes technical manuals, layouts and
documented programming source code for DOS, Windows, Windows
NT, OS/2 and SCO/UNIX.
VACMan/CryptaPak - Hardware and software package
(including smartcard) - Includes smartcard token, smartcard reader and enabling
software
- Provides challenge/response and X.509 authentication based
dentification and authentication.
SCHEDULED FOR SHIPMENT BEFORE YEAR-END 1997
AccessKey III - Multiple mode token capable of operating in time-synchronous
response only, challenge/response, and time-synchronous
challenge/response
- Utilizes DES algorithm
- Operates optically and/or numerically
- PIN protection and token lock/unlock feature
- Digital signature function
- Storage of multiple secret keys for up to 3
tokens/applications in one
</TABLE>
<TABLE>
<CAPTION>
SOFTWARE FEATURES
- -------- --------
<S> <C> <C>
VACMan Suite - Centralizes security services (authentication, authorization
and accounting) into single set of security servers to
manage network access
- Supports all Current VASCO tokens
- Bundled with Netscape servers
- Open standards based, supports RADIUS and TACACS+ industry
standard protocols and offers numerous additional RADIUS
client products to extend the security services of
VACMan/Server to a broad range of platforms
- Utilizes either ODBC (Other Data Base Compatibility)
compliant
relational data bases for administration and reporting, or
an LDAP (Lightweight Directory Access Protocol) compliant
directory server
- Scaleable for large remote access systems
- Interoperability with a majority of remote access servers
including SHIVA, Ascend Communications, Cisco Systems and US
Robotics
Internet AccessKey - In conjunction with Current VASCO tokens, limits access to
proprietary Websites
- Challenge/response authentication system
- Winner of 1996 Sun Microsystems Java Cup International award
for productivity tools
</TABLE>
- -------------------------
* Not offered in the United States.
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<TABLE>
<CAPTION>
SOFTWARE FEATURES
- ------------------------------ -------------------------------------------------------------------------------------------
<S> <C> <C>
Point'n Crypt - Encryption software application
- Resides on PC workstation
- Encrypts and decrypts Windows files or folders
- When used with Current VASCO's VACMan/CryptaPak, user's
encryption key can be stored on the user's smartcard
</TABLE>
- -------------------------
VASCO, AccessKey, VACMan Server and VACMan/CryptaPak are trademarks of Current
VASCO, applications for which are pending in the United States. In addition,
AuthentiCard and Digipass are trademarks registered in Belgium. This Prospectus
also contains trademarks of other companies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Current VASCO relies on a combination of patent, copyright, trademark and
trade secret laws, as well as employee and third-party non-disclosure agreements
to protect its proprietary rights. In particular, Current VASCO holds several
patents in the United States and a corresponding patent in certain European
countries, which cover certain aspects of its technology. The majority of its
patents cover Current VASCO's AccessKey II, AccessKey III (which will replace
AccessKey II), Digipass and AuthentiCard tokens. The remaining terms of the U.S.
patents are between six and nine years. Current VASCO believes these patents to
be valuable property rights and relies on the strength of its patents and trade
secret law to protect its intellectual property rights. To the extent that
Current VASCO believes its patents are being infringed upon, it intends to
vigorously assert its patent protection rights, including but not limited to,
pursuing all available legal remedies.
While Current VASCO believes that its patents are material to its future
success, there can be no assurance that Current VASCO's present or future
patents, if any, will provide a competitive advantage. It also may be possible
for others to develop products with similar or improved functionality that will
not infringe upon Current VASCO's intellectual property rights. Furthermore, to
the extent that Current VASCO believes that its proprietary rights are being
violated, and regardless of its desire to do so, it may not have adequate
financial resources to engage in litigation against the party or parties who may
infringe on its proprietary technology. See "RISK FACTORS -- Factors Relating to
Operations -- Proprietary Technology and Intellectual Property."
RESEARCH AND DEVELOPMENT
Current VASCO's research and development efforts are concentrated on
product enhancement, new technology development and related new product
introductions. Current VASCO employs 13 full-time engineers and, from time to
time, independent engineering firms to conduct non-strategic R&D efforts on its
behalf. For the fiscal years ended December 31, 1994, 1995 and 1996, Current
VASCO expended $211,000, $242,000 and $575,000, respectively, on R&D,
representing approximately 7.8%, 6.5%, and 5.6% of consolidated revenues for
1994, 1995 and 1996, respectively. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
While management is committed to enhancing its current product offerings,
and introducing new products, there can be no assurance that Current VASCO's R&D
activities will be successful in this regard. Furthermore, there can be no
assurance that Current VASCO will have the financial resources required to
identify and develop new technologies and bring new products to market in a
timely and cost effective manner, or that any such products will be commercially
successful if and when they are introduced.
PRODUCTION
Current VASCO's security hardware products are manufactured by third
parties pursuant to purchase orders issued by Current VASCO. Its hardware
products are comprised primarily of commercially available electronic components
which are purchased globally. Current VASCO's software products are controlled
in-house by Current VASCO personnel and can be produced either in-house or by
several outside sources in
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North America and in Europe. At June 30, 1997, Current VASCO had firm purchase
orders from customers for an aggregate of 120,800 AccessKey II, AuthentiCard and
Digipass security token units, exclusive of the units shipped under the orders
as of June 30, 1997.
With the exception of the AccessKey II token, Current VASCO's security
tokens utilize commercially available programmable microprocessors, or chips.
Current VASCO uses two microprocessors, made by Samsung and Epson, for the
various hardware products produced other than the AccessKey II token. The
Samsung microprocessors are purchased from Samsung Semiconductor in Belgium, and
the Epson microprocessors are purchased from Alcom Electronics NV/SA, also
located in Belgium. The microprocessors are the only components of Current
VASCO's security tokens that are not commodity items readily available on the
open market. While there is an inherent risk associated with each supplier of
microprocessors, Current VASCO believes having two sources reduces the overall
risk.
AccessKey II uses a custom-designed and fabricated microprocessor which is
currently available from a single source, Micronix Integrated Systems, in the
United States. Current VASCO does not have a long-term contract with Micronix,
but rather submits blanket purchase orders for the AccessKey II microprocessor.
Current VASCO expects AccessKey II production to be reduced by the end of 1997
and be replaced by AccessKey III which will employ a widely available
microprocessor.
Orders of microprocessors and some other components generally require a
lead time of 12-16 weeks. Current VASCO attempts to maintain a sufficient
inventory of all parts to handle short term spikes in orders. Large orders that
would significantly deplete Current VASCO's inventory are typically required to
be placed with more than 12 weeks of lead time, allowing Current VASCO to
attempt to make appropriate arrangements with its suppliers.
Current VASCO purchases the majority of its product components and arranges
for shipment to third parties for assembly and testing in accordance with design
specifications. Current VASCO's three security token products are assembled
exclusively by two independent companies, each of which is based in Hong Kong.
Purchases from one of the companies are made on a purchase order by purchase
order basis. Purchases from the other company are under a contract that extends
to January 21, 1999, with automatic one-year renewals and subject to termination
on six months notice. Each of these companies assembles Current VASCO's security
tokens at facilities in mainland China. One of the companies also maintains
manufacturing capacity in Hong Kong. Equipment designed to test product at the
point of assembly is supplied by Current VASCO and periodic visits are made by
Current VASCO personnel for purposes of quality assurance, assembly process
review and supplier relations.
There can be no assurance that Current VASCO will not experience
interruptions in the supply of either the component parts that are used in its
products or fully-assembled token devices in general. In the event that the flow
of components or finished product was interrupted there could be a considerable
delay in finding suitable replacement sources for those components, as well as
in replacement assembly subcontractors with the result that Current VASCO's
business and results of operations could be adversely affected. See "RISK
FACTORS -- Factors Relating to Operations -- Dependence on Single Source
Suppliers."
COMPETITION
The market for computer and network security solutions is very competitive
and, like most technology-driven markets, is subject to rapid change and
constantly evolving products and services. The industry is comprised of many
companies offering hardware, software and services that range from simple
locking mechanisms to sophisticated encryption technologies. Current VASCO
believes that competition in this market is likely to intensify as a result of
increasing demand for security products. Current VASCO's competition comes from
a number of sources, including (i) software operating systems suppliers and
application software vendors that incorporate a single-factor static password
security system into their products, and (ii) token-based password generator
vendors promoting response only and/or challenge/ response technology, such as
ActivCard, Inc., AXENT Technologies, Inc. CRYPTOCard, Inc., Leemah DataCom
Security Corporation, Racal-Guardata, Inc., Secure Computing Corp., and Security
Dynamics Technologies, Inc. ("SDTI").
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<PAGE> 71
In some cases, these vendors also support Current VASCO's products and
those of its competitors. Current VASCO also may face competition in the future
from these and other parties in the future that develop computer and network
security products based upon approaches similar to or different from those
employed by Current VASCO. There can be no assurance that the market for
computer and network security products will not ultimately be dominated by
approaches other than the approach marketed by Current VASCO.
Current VASCO believes that the principal competitive factors affecting the
market for computer and network security products include name recognition,
technical features, ease of use, quality/reliability, level of security,
customer service and support, distribution channels and price. Although Current
VASCO believes that its products currently compete favorably with respect to
such factors, other than name recognition in certain markets, there can be no
assurance that Current VASCO can maintain its competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other competitive
resources.
Many of Current VASCO's present and potential competitors have
significantly greater financial, technical, marketing, purchasing and other
resources than Current VASCO, 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 Current VASCO's prospective customers.
Accordingly, it is possible that new competitors or alliances may emerge and
rapidly acquire significant market share. If this were to occur, the financial
condition or results of operations of Current VASCO could be materially
adversely effected. See "RISK FACTORS -- Factors Relating to Operations --
Competition."
Current VASCO's products are designed to allow authorized users access to a
computing environment, in some cases using patented technology as a replacement
for the static password. Although certain Current VASCO security token
technologies are patented, there are other organizations that offer token-type
password generators incorporating challenge-response or response only approaches
that employ different technological solutions and compete with Current VASCO for
market share.
SALES AND MARKETING
Current VASCO's computer and network security products are marketed
primarily through an indirect sales channel and distribution network and, to a
lesser extent, directly to end-users. Current VASCO markets its products
primarily in North America and Europe through a combination of value-added
resellers, original equipment manufacturers, independent distributors and direct
sales efforts. A sales staff of 15 coordinates sales through the distribution
network and makes direct sales calls either alone or with sales personnel of
vendors of computer systems. The sales staff also provides product education
seminars to sales personnel of vendors and distributors with whom Current VASCO
has working relations and to potential end-users of Current VASCO's products.
In January of 1997, Current VASCO introduced the VASCO Advantage Reseller
("VAR") program. The goal of this program is to expand Current VASCO's marketing
channels by engaging companies already proficient in reselling computer network
products and security solutions to distribute Current VASCO's products. The
graph below depicts the number of value added resellers, resellers, OEM's and
distributors (collectively referred to as "Resellers") that resell Current
VASCO's products.
Current VASCO works with these Resellers through its United States and
European operating subsidiaries, VDSI and VDS NV/SA. VDSI, which is primarily
responsible for North America, South America and Japan, started in 1997 with one
Reseller. Since January 1, 1997, arrangements have been made with 24 additional
Resellers, for a total of 25. VDS NV/SA, which is generally responsible for
developing sales in the remainder of the world, had an existing base of 17
Resellers prior to the announcement of the VAR program. Since January 1, 1997,
VDS NV/SA has engaged an additional 19 Resellers, for a total of 36.
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<PAGE> 72
Combined, VDSI and VDS NV/SA have established relationships with a total of 61
Resellers to date, against a target of 64 for year-end 1997.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD US ACTUAL EUROPE ACTUAL
(FISCAL YEAR COVERED)
<S> <C> <C>
JAN 1 17
FEB 1 20
MAR 1 23
APR 2 25
MAY 7 27
JUN 10 31
JUL 15 34
AUG 25 36
</TABLE>
CUSTOMERS AND MARKETS
Customers for Current VASCO's security products include, to some extent,
businesses that purchase products directly from Current VASCO for use by their
employees, clients or vendors, but the majority are value-added resellers or
distributors of related security products or services who in turn sell to other
businesses.
To date, virtually all of Current VASCO's security products have been sold
in Europe. Sales to one European distributor, Concord-Eracom Nederland BV,
accounted for 64% and 43% of Current VASCO's consolidated revenues in 1995 and
1996, respectively. On a pro forma basis (i.e., including Lintel Security and
Digipass sales for all of 1995 and 1996) this customer would have accounted for
31% and 21% of Current VASCO's consolidated revenues, respectively. On the same
pro forma consolidated basis, taking into account Lintel Security and Digipass
sales for the calendar year 1996, Rabo Bank and SE Banken each would have
accounted for approximately 10% of Current VASCO's total revenues.
Current VASCO is aware of the risks associated with this degree of customer
concentration and expects to further minimize its reliance on these customers in
1997 and beyond. There can be no assurance, however, that Current VASCO's
efforts to minimize this risk will ultimately be successful or that Current
VASCO can sustain comparable sales volume with these customers. Furthermore, the
loss of these customers' business, or an inability to maintain reasonable profit
margins on these sales, may have an adverse effect on Current VASCO. See "RISK
FACTORS -- Factors Relating To Operations -- Dependence on Major Customers" and
"-- Risks of International Operations."
EMPLOYEES
As of August 1, 1997, Current VASCO employed 38 full-time employees and 7
full-time consultants. Of these, 21 were located in North America and 24 were
located in Europe. Of the 45 total, 15 were involved in sales, marketing and
customer support, 16 in product production, research and development and 14 in
administration.
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<PAGE> 73
PROPERTY
Current VASCO's corporate offices and North American administrative, sales
and marketing, research and development and support facilities are located in
the United States in an office complex in Lombard, Illinois, a western suburb of
Chicago. These facilities are leased through November 30, 1997, and consist of
approximately 5,100 square feet. Current VASCO plans to move before October 1997
to leased quarters covering approximately 10,000 square feet located in Oak
Brook Terrace, Illinois, a western suburb of Chicago. The term of the sublease
for the Oak Brook Terrace office space runs from September 15, 1997 through
November 15, 1999, and Current VASCO believes that the new facilities will be
adequate for its present growth plans.
Current VASCO's European administrative, sales and marketing, research and
development and support facilities are located in Belgium in an industrial park
in a southwestern suburb of Brussels. These facilities consist of approximately
10,000 square feet of office space which are occupied under a lease expiring in
July of 1998. Current VASCO believes that these facilities are adequate through
the term of the current lease.
LITIGATION
Current VASCO is not currently involved in any material litigation.
However, Current VASCO has a product acceptance dispute with its principal
customer involving the sale in 1995 of approximately $315,000 of certain
smartcard readers produced by Current VASCO in response to written
specifications submitted by the customer. Current VASCO has tested the readers
and believes the readers comply with the original specifications. Current VASCO,
which continues to sell other of its products to this customer, believes that it
has a good relationship with the customer and that it will be able to amicably
resolve the dispute so that the ultimate outcome will not have a material
adverse effect on the business or operating results of Current VASCO. The amount
of the dispute has been fully provided for in Current VASCO's accompanying
consolidated financial statements.
MANAGEMENT
DIRECTORS AND OFFICERS OF CURRENT VASCO AND KEY PERSONNEL OF ITS SUBSIDIARIES
The executive officers and directors of Current VASCO and key personnel of
its subsidiaries, and their respective ages, as of August 1, 1997 are as
follows:
Directors and Officers of Current VASCO
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. Kendall Hunt........................... 54 Chief Executive Officer, President, Chairman of the
Board and Director
Forrest D. Laidley........................ 53 Secretary and Director(1)(2)
Robert E. Anderson........................ 48 Director(1)(2)
Gerald Guice.............................. 56 Director(1)(2)
Michael A. Mulshine....................... 57 Director(1)(2)
Gregory T. Apple.......................... 31 Vice President -- Finance and Administration
</TABLE>
Key Personnel of VDSI
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John C. Haggard........................... 38 President and Chief Operating Officer
Richard M. Vaden, Jr...................... 40 Vice President -- Business Development and Sales
Hyon C. Im................................ 35 Vice President -- Research and Development
</TABLE>
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Key Personnel of VDS NV/SA
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mario Houthooft........................... 44 Managing Director(3)
Frank Hoornaert........................... 36 Technical Manager
Jan Valcke................................ 43 Direct Sales Manager
</TABLE>
- -------------------------
(1) Member of the Audit Committee of Current VASCO's Board of Directors.
(2) Member of the Compensation Committee of Current VASCO's Board of Directors.
(3) Mr. Houthooft is not an employee of VDS NV/SA, but serves as an officer of
VDS NV/SA and performs services pursuant to a consulting agreement with VDS
NV/SA. See "-- Consulting Arrangements -- Mario Houthooft Consulting
Agreement."
T. KENDALL "KEN" HUNT -- serves, since 1990, as a Director, the Chairman of
the Board and President of Current VASCO and prior thereto served in similar
capacities during certain periods from 1984 with Current VASCO's predecessors.
Mr. Hunt also serves as Current VASCO's Chief Executive Officer. Prior to
founding Current VASCO's Delaware predecessor in 1984, he was the President and
CEO of Deltak, Inc., an international technical services company which
specialized in the creation and distribution of information programs, training,
and job support and productivity software tools. Prior to joining Deltak, he was
President of Itel Corporation's Computer System Division which sold, leased and
serviced IBM products worldwide. Prior to Itel, he had positions with
Proprietary Systems Corporation and IBM. Mr. Hunt received his B.A. from the
University of Miami (Florida) and his M.B.A. from Pepperdine University.
FORREST D. LAIDLEY -- serves, since 1990, as Director, Secretary and
General Counsel of Current VASCO. He has been involved with Current VASCO and
its predecessors for certain periods in these capacities since 1984. He has been
a partner in the law firm of Laidley & Porter in Libertyville, Illinois since
1985. He serves on the Advisory Council on Main Street Libertyville and is a
director of Harris Bank Libertyville, an Illinois chartered banking institution,
and Carmel High School, Mundelein, Illinois. Mr. Laidley received his B.A.
degree in History from Yale University and his juris doctorate degree from
DePaul University.
ROBERT E. ANDERSON -- serves, since 1990, as a Director of Current VASCO
and as Chairman of the Audit and Compensation Committees. Mr. Anderson was
involved with Current VASCO and its predecessors since 1984 as a consultant and
served as Executive Vice President and Chief Financial Officer of one of Current
VASCO's predecessors between 1987 and 1989. Since 1994 he has been an
independent consultant. From 1990 to 1994 he served as President, Chief
Executive Officer and a Director of The Bruss Company, a Chicago-based processor
and international distributor of high-value food products to the food service
industry. Between 1989 and 1990 he served as Chief Operating Officer for Comfab
Technologies, Inc., a Chicago area telecommunications industry manufacturer. Mr.
Anderson received his B.S. degree in Accounting from the University of
Bridgeport.
GERALD GUICE -- serves, since 1990, as a Director of Current VASCO. From
1990 until the present, Mr. Guice has been Managing Director of INTEGRAL (GH)
LTD, a Ghana-based producer and exporter of agricultural products, serving the
U.S. and European markets. Previously, he was a founder and former President of
Sentinel Computer Services, Inc. (now Sentinel Technologies, Inc.), a large
Midwest regional computer hardware maintenance provider. Prior to Sentinel
Computer Services, Inc., he held senior management and executive positions with
several computer industry companies, including Control Data and IBM.
MICHAEL A. MULSHINE -- serves, since 1992, as a Director of Current VASCO.
He is, and since 1977 has been, a principal of Osprey Partners, a management
consulting firm. Since 1985 he has been a Director and Secretary of
Scangraphics, Inc. (NASDAQ: SCNG), a provider of Geographic Information Systems
database management software products and a leader in scanning and image
processing technology.
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Mr. Mulshine has served as a Director of Environmental Tectonics Corporation
(AMEX:ETC), since 1994. Additionally, Mr. Mulshine is a Director of Intertec,
Inc., an import/export trading company, and a Director of Inresco Inc., a
manufacturer of circuit protection devices. Mr. Mulshine received his B.S.
degree in Electrical Engineering from Newark College of Engineering.
GREGORY T. APPLE -- serves, since 1996, as Vice President of Finance and
Administration of Current VASCO. His responsibilities encompass all accounting
and administrative aspects of Current VASCO and its subsidiaries. Before joining
Current VASCO in 1996, he was employed as Controller and Vice President of
Finance of a privately held software company, Napersoft, Inc., from 1993 until
1996, with essentially similar responsibilities. From 1988 until joining
Napersoft, he was an auditor for KPMG Peat Marwick LLP. Mr. Apple received his
B.S. degree in Financial Accounting -- Business Information Systems from
Illinois State University and is a Certified Public Accountant.
JOHN C. HAGGARD -- serves, since 1994, as President and Chief Operating
Officer of VDSI. Prior to joining VDSI, Mr. Haggard was Assistant Vice President
of Research and Development and Technical Owner for Computer Associates'
Security Control and Audit ("SCA") division from 1988. Prior to Computer
Associates Mr. Haggard was employed by SKK, Inc. which developed ACF2, an IBM
mainframe data security product from 1982. During his 15 years in the data
security industry Mr. Haggard has specialized in user authentication
technologies ranging from biometric recognition to a variety of complex
encryption schemes, including DES, RSA, and Kerberos. Mr. Haggard received his
B.S. degree in Computer Science from Northern Illinois University.
RICHARD M. VADEN, JR. -- serves, since 1995, as VDSI's Vice President of
Business Development and Sales. He has over twenty-one years experience in the
data processing field. The past fifteen years have been spent specializing in
the security of large main-frame, mid-range and micro systems. Prior to joining
VDSI in 1995, Mr. Vaden spent eight years with Computer Associates
International, Inc. ("CA") in various management positions. While with the
Federal Division of CA, Mr. Vaden held the positions of Product Technical
Manager, Security Products, Technical Director, Business Development, and
Technical Director.
HYON C. IM -- serves, since 1996, as Vice President of Research and
Development for VDSI. His primary objective is to orchestrate the research,
design, and development efforts of his engineering staff. Prior to joining VDSI
in 1996, Mr. Im was Senior System Software Developer at Computer Associates
since 1988. During that time, he has been involved in the development of
multi-platform security and client/server products both at application and
operating system kernel levels. Mr. Im received his B.S. in Computer Science
from Northern Illinois University.
MARIO HOUTHOOFT -- serves, since January 1, 1997, as Managing Director of
VDS NV/SA pursuant to a consulting agreement. From 1992 until joining VDS NV/SA,
he served in various management positions with Lintel Security. Prior thereto,
he was with Cryptech Company from 1986 where he served in various positions. Mr.
Houthooft received his degree in electronic engineering from the University of
Ghent, Ghent, Belgium.
FRANK HOORNAERT -- serves, since 1996, as Technical Manager of VDS NV/SA.
From 1993 until joining VDS NV/SA, he served as Technical Manager, Crypto
Products of Lintel Security. Prior thereto, he was employed from 1991 as an
engineer with Philips Industrial Company. Mr. Hoornaert received his degree in
civil engineering from the University of Leuven, Leuven, Belgium.
JAN VALCKE -- serves, since 1996, as Direct Sales Manager of VDS NV/SA.
From 1992 until joining VDS NV/SA, he served as Vice President of Sales and
Marketing of Digipass.
Term of Office of Directors and Officers. Each Director holds office for a
one-year term and until his respective successor has been duly elected and
qualified. Executive officers of Current VASCO are elected by and serve at the
discretion of the Board of Directors of Current VASCO.
BOARD COMMITTEES
The Board of Directors of Current VASCO currently maintains two standing
committees, the Audit Committee and the Compensation Committee. The Audit
Committee, currently comprised of directors
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<PAGE> 76
Robert E. Anderson, Forrest D. Laidley, Gerald Guice and Michael A. Mulshine,
recommends to the Board of Directors the engagement of Current VASCO's
independent accountants, reviews with such accountants the plan, scope and
results of their audit of the consolidated financial statements and reviews the
independence of such accountants. The Compensation Committee, currently
comprised of the same directors as the Audit Committee, reviews and makes
recommendations to the Board of Directors regarding all forms of compensation to
be provided to the executive officers and directors of, and consultants to,
Current VASCO and its subsidiaries.
COMPENSATION OF DIRECTORS
Directors of Current VASCO are reimbursed for expenses incurred in
connection with their attendance at periodic Board meetings. Directors receive
no cash compensation for their services; however, non-employee directors are
eligible to receive stock option grants from time to time. In 1996 the
non-employee directors of Current VASCO, Messrs. Laidley, Anderson, Guice and
Mulshine, each received options to purchase 10,000 shares of Current VASCO's
Common Stock, at an exercise price of $4.25 per share, pursuant to Current
VASCO's Stock Option Program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Current VASCO's Compensation Committee is comprised of Messrs. Anderson,
Guice, Laidley and Mulshine. Mr. Laidley, although not an employee, served as
Current VASCO's Secretary during 1996 and Mr. Anderson served as Current VASCO's
Chief Financial Officer and Executive Vice President from 1987 through 1989 and
served Current VASCO as a consultant from January 1996 through March 1997.
Forrest D. Laidley serves as Director and Secretary of Current VASCO. Mr.
Laidley is also a partner in the law firm of Laidley & Porter which has
performed various legal services for Current VASCO since its inception. Mr.
Laidley and his partners have made equity investments in Current VASCO from time
to time through various private placements and are currently stockholders and
warrant holders. On March 29, 1996, Mr. Laidley was issued warrants, expiring
October 31, 2000, to purchase 5,883 shares of Current VASCO Common Stock at an
exercise price of $6.00 per share, as compensation for services rendered to
Current VASCO in connection with financing activities. See "PRINCIPAL
STOCKHOLDERS." Mr. Laidley's firm is currently performing legal services for
Current VASCO and is expected to continue to do so. Mr. Laidley's services
currently are and, except as noted above, during 1996 were on a noncompensation
basis, although his firm is compensated for services rendered to Current VASCO
by attorneys other than Mr. Laidley. For 1996 services, Mr. Laidley's firm was
paid approximately $57,000 ($47,000 of which was paid in 1997).
On June 2, 1992 Current VASCO entered into an Investment Banking and
Management Consulting Agreement with Osprey Partners ("Osprey"), pursuant to
which, among other things, Current VASCO agreed to appoint Mr. Mulshine as a
member of Current VASCO's Board of Directors. Michael A. Mulshine, a Director of
Current VASCO, is a principal of Osprey. In 1993 and 1994 Osprey provided
services to Current VASCO in connection with obtaining financing for Current
VASCO and, pursuant to the Agreement, Osprey was paid fees aggregating $60,000
during 1993, 1994 and 1995. The Agreement also granted Osprey a warrant to
purchase 400,000 shares of Current VASCO's common stock at a price of $.25 per
share. On January 20, 1996 Current VASCO exercised its election to terminate the
Agreement and deemed that 200,000 of the 400,000 shares of Current VASCO Common
Stock underlying the warrant were earned and vested as of that date. Osprey may
exercise its right to purchase such 200,000 shares of common stock at $.25 per
share anytime before June 1, 1999.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to Current VASCO in all capacities during the year
ended December 31, 1996 for Current VASCO's Chief Executive Officer and
President and VDSI's President and Chief Operating Officer, who are the only
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<PAGE> 77
executive officers of Current VASCO and its subsidiaries whose salary and bonus
for such year exceeded $100,000 (collectively, Messrs. Hunt and Haggard are
referred to herein as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------- ---------------------
NAME AND SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
------------------ ---- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
T. Kendall Hunt.................... 1996 116,457 -0- -0- -0-
President, Chairman of
the Board and Director
of Current VASCO
John C. Haggard.................... 1996 105,750 -0- 40,000 -0-
President and Chief
Operating Officer of VDSI
</TABLE>
- -------------------------
(1) Current VASCO was not subject to the reporting requirements of the Exchange
Act in 1995 or 1994. Accordingly, information with respect to 1995 or 1994
is not required to be disclosed.
STOCK OPTION PROGRAM AND INCENTIVE PLAN
Stock Option Program. Current VASCO has granted Current VASCO Stock Options
designed to serve as a performance incentive for employees, directors,
consultants and other key persons performing services for Current VASCO to
encourage such persons to acquire or increase a proprietary interest in the
success of Current VASCO (the "Option Program"). The Option Program is
administered by the Compensation Committee.
The Option Program permits the grant of Current VASCO Stock Options to
employees of Current VASCO and its subsidiaries. All Current VASCO Stock Options
granted to employees are for a period of ten years, are granted at a price equal
to the fair market value of Current VASCO Common Stock on the date of the grant
and are vested 25% at the time of grant and 25% on each subsequent anniversary
of the grant. Current VASCO Stock Options are therefore fully vested on the
third anniversary of the date of grant.
The Option Program further permits the grant of Current VASCO Stock Options
to directors, consultants and other key persons. All Current VASCO Stock Options
granted to non-employees are for a period of ten years, are granted at a price
equal to the fair market value of the Current VASCO Common Stock on the date of
the grant, and may contain vesting requirements and/or restrictions as
determined by the Compensation Committee at the time of grant.
Executive Incentive Compensation Plan. In February of 1995 the Compensation
Committee adopted the Executive Incentive Compensation Plan ("Incentive Plan")
to become effective for the year ended December 31, 1994. The Incentive Plan
covers Current VASCO's eligible executives and key employees (each a
"participant"), with such eligibility determined at the end of each year at the
sole discretion of the Compensation Committee. Awards are based on prior year
operating results, such results being subject to audit by Current VASCO's
independent accountants, and are distributed following the completion of such
audit.
The Incentive Plan allows for the creation of a cash pool ("Pool") in the
amount of 10% of Current VASCO's annual pre-tax earnings. Fifty percent (50%) of
the Pool is awarded to the participants based on each participant's earned
salary as a percentage of all participants' salaries. The remaining fifty
percent (50%) is awarded at the sole discretion of the Compensation Committee.
Awards, in whole or in part, may be offered in the form of shares of
Current VASCO's Common Stock or cash at the sole discretion of the Compensation
Committee and the Compensation Committee also may elect
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<PAGE> 78
to delegate the choice of cash or stock to the individual participants. To the
extent that shares of stock are awarded in lieu of cash, the number of shares is
based on the market value of Current VASCO Common Stock on the date the award is
determined, and are taxable to the participant in the year the award is granted.
Such shares are restricted and cannot be sold or transferred except pursuant to
registration under the Securities Act or an exemption from such registration.
Option Grants During 1996. The following table sets forth all options
granted to the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
PERCENT OF OF STOCK
NUMBER OF TOTAL ---------------------
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE(1) 5%($) 10%($)
---- ---------- ------------ -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
T. Kendall Hunt................... -- -- -- -- -- --
John C. Haggard................... 40,000 14.8% 4.25 04/15/06 107,100 270,300
</TABLE>
- -------------------------
(1) The options vest as follows: 25% at the time of the grant, and 25% on each
subsequent anniversary of the grant.
(2) The potential realizable value amounts shown illustrate the values that
might be realized upon exercise immediately prior to the expiration of their
term using five percent and ten percent appreciation rates as required to be
used in this table by the Securities and Exchange Commission, compounded
annually, and are not intended to forecast possible future appreciation, if
any, of Current VASCO's stock price. Additionally, these values do not take
into consideration the provisions of the options providing for
nontransferability or termination of the options following termination of
employment. Therefore, the actual values realized may be greater or less
than the potential realizable values set forth in the table.
Year-End Option Values. The following table sets forth the aggregate value
as of December 31, 1996 of unexercised stock options held by the Named Executive
Officers. The Named Executive Officers did not exercise any stock options during
1996 and the relevant columns have therefore been omitted.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
T. Kendall Hunt............................... -- -- -- --
John C. Haggard............................... 88,750 108,750 250,031.25 250,031.25
</TABLE>
- -------------------------
(1) Market value of underlying securities is based on the average of the bid and
asked price per share ($3.375) of Current VASCO Common Stock as reported on
the OTC BB on December 31, 1996 minus the exercise price.
(2) Options vest as follows: 25% at the time of the grant, and 25% on each
subsequent anniversary of the grant. Options indicated as exercisable are
those options which were vested as of December 31, 1996. All options which
had not vested as of December 31, 1996 are indicated to be unexercisable.
CONSULTING ARRANGEMENTS
Mario Houthooft Consulting Agreement. Mr. Houthooft was one of the two
principals of Lintel NV, the company that sold certain assets relating to data
security products to Lintel Security, which was then acquired by Current VASCO.
Mr. Houthooft's services as Managing Director of VDS NV/SA are rendered pursuant
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<PAGE> 79
to a management agreement by and between VDS NV/SA and LINK BVBA, the company
that employs Mr. Houthooft. The management agreement has an indefinite term,
although it is terminable by either party upon six months notice, or without
prior notice upon payment of a specified amount. Mr. Houthooft is to devote at
least forty-five hours per week to his VDS NV/SA duties pursuant to the
agreement, which also contains confidentiality obligations and precludes Mr.
Houthooft from soliciting VDS NV/SA employees or engaging in competing
businesses during the term of the agreement. The agreement further provides that
Mr. Houthooft will not render services to a competitor or start a competing
business in the Benelux countries (Belgium, the Netherlands and Luxembourg) for
a one month period following termination of the agreement. In addition to these
restrictions, Mr. Houthooft is subject to a covenant not to compete contained in
the Lintel Security acquisition agreements pursuant to which Mr. Houthooft
agreed not to compete, directly or indirectly, with Current VASCO (or any of its
affiliates) in the manufacture and sale of computer security products through
December 31, 2001.
Robert Anderson Consulting Agreement. From January 1996 until March 1997,
pursuant to an oral arrangement, Robert Anderson served as a consultant to
Current VASCO. Pursuant to this arrangement, Mr. Anderson was compensated in the
amount of $50,000 in 1996 and $15,000 in 1997. The oral arrangement between
Current VASCO and Mr. Anderson called for compensation in the amount of $5,000
per month, and is no longer in effect.
CERTAIN TRANSACTIONS
Loans from Principal Stockholder. Since its inception, Current VASCO and
its predecessors have relied from time to time on T. Kendall Hunt, Current
VASCO's President and Chairman of the Board, to provide various forms of working
capital. Throughout 1994 and 1995 Current VASCO was indebted to Mr. Hunt for
borrowed money. In 1994 the balance owing to Mr. Hunt was $150,000 which was
liquidated in a refinancing as described below. Subsequent to the refinancing of
this $150,000 note, Mr. Hunt loaned Current VASCO an additional $60,000 which
remained outstanding at December 31, 1994. In 1995 Mr. Hunt made additional
loans of $130,000 to Current VASCO. The aggregate principal amount of the
outstanding loans due to Mr. Hunt, $190,000, remained outstanding at December
31, 1995. All notes evidencing such borrowing have been interest bearing with
interest payable annually at the rate of prime plus 1%. Current VASCO made all
interest payments on a timely basis and the notes, if not repaid, were extended
at maturity. In January 1996 Current VASCO paid Mr. Hunt $100,000 and reduced
its note obligation by an equal amount. Current VASCO paid Mr. Hunt the
remaining balance, $90,000 plus accrued interest, during 1996.
In September 1994 Mr. Hunt surrendered a Current VASCO note in the
principal amount of $150,000 in exchange for 1,000 shares of Current VASCO
Series B Preferred Stock and 250,000 shares of Current VASCO Common Stock. Mr.
Hunt has committed not to convert his 1,000 shares of Current VASCO Series B
Preferred Stock into Current VASCO Common Stock prior to September 16, 1997.
Pledge of Common Stock by Principal Stockholder. In August 1997, VDSE
completed the restructuring of an existing obligation of $3.4 million which was
incurred in connection with the acquisition of Digipass and was to have matured
in December 1997. In the restructuring, Banque Paribas Belgique S.A., which had
issued a guarantee of the obligation, paid the obligation and received a $3.4
million convertible note due 2002 from VDSE. As part of the restructuring, Mr.
Hunt entered into a pledge agreement with Banque Paribas Belgique S.A. pursuant
to which he pledged, as collateral for the VDSE convertible note, 1,416,666 of
his shares of Current VASCO Common Stock, which number of shares is subject to
adjustment based on the market value of the shares.
CURRENT VASCO EQUITY EQUIVALENT SECURITIES
In connection with the Exchange Offer, New VASCO is offering to exchange
for all outstanding Current VASCO Stock Options, Current VASCO Conversion
Options and Current VASCO Warrants, together, in each case, with a release of
any and all Associated Corporate Matter Claims, New VASCO Stock Options, New
VASCO Conversion Options, and New VASCO Warrants with substantially the same
terms and conditions. See "THE EXCHANGE OFFER -- Terms of the Exchange Offer"
and "DESCRIPTION OF CAPITAL STOCK OF NEW VASCO -- Stock Options, Warrants and
Convertible Notes."
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<PAGE> 80
CURRENT VASCO STOCK OPTIONS
Current VASCO has granted Current VASCO Stock Options designed to serve as
a performance incentive for employees, directors, consultants and other key
persons performing services for Current VASCO to encourage such persons to
acquire or increase a proprietary interest in the success of Current VASCO (the
"Option Program"). The Option Program is administered by the Compensation
Committee.
The Option Program permits the grant of Current VASCO Stock Options to
employees of Current VASCO and its subsidiaries. All Current VASCO Stock Options
granted to employees are for a period of ten years, are granted at a price equal
to the fair market value of Current VASCO Common Stock on the date of the grant
and are vested 25% at the time of grant and 25% on each subsequent anniversary
of the grant. Current VASCO Stock Options are therefore fully vested on the
third anniversary of the date of grant.
The Option Program further permits the grant of Current VASCO Stock Options
to directors, consultants and other key persons. All Current VASCO Stock Options
granted to non-employees are for a period of ten years, are granted at a price
equal to the fair market value of the Current VASCO Common Stock on the date of
the grant, and may contain vesting requirements and/or restrictions as
determined by the Compensation Committee at the time of grant.
As of August 31, 1997 there were 1,973,132 Current VASCO Stock Options
outstanding of which 1,476,254 were exercisable at prices between $.125 and
$6.00 per share.
CURRENT VASCO WARRANTS
From time to time Current VASCO has issued Current VASCO Warrants to
purchase shares of Current VASCO Common Stock at various exercise prices. As of
August 31, 1997 there were Current VASCO Warrants to purchase 1,056,922 shares
of Current VASCO Common Stock outstanding with exercise prices ranging from
$0.25 to $10.00. Current VASCO Warrants for an aggregate of 280,761 shares of
Current VASCO Common Stock are callable at the respective exercise prices of
such Current VASCO Warrants, which range from $5.19 to $6.00, in the event of a
public offering of Current VASCO Common Stock. Most Current VASCO Warrants
contain registration rights provisions.
CONVERTIBLE NOTES AND CURRENT VASCO CONVERSION OPTIONS
Generale Bank. Current VASCO presently has outstanding five notes which are
held by Generale Bank, a bank based in Belgium, and represent indebtedness in
the aggregate principal amount of $2.5 million. Each of these notes is in the
principal amount of $500,000, bears interest, payable quarterly, at the rate of
3.25% per annum, and matures on September 30, 1998, at which time 116% of the
principal amount becomes due and payable. In the event Current VASCO (or New
VASCO) completes a public offering prior to September 30, 1998, the holder of a
note has the option within seven days after the completion of a public offering
to require the note to be repaid at 100% of the principal amount thereof in cash
or in common shares (valued at the public offering price), at the holder's
election, together with all accrued and unpaid interest to the date of repayment
plus additional special interest payable in cash as follows: $55,556 if
repayment is on or before December 31, 1997; $88,235 if repayment is between
January 1, 1998 and March 31, 1998, both dates inclusive; and $125,000 if
repayment is between April 1, 1998 and September 30, 1998, both dates inclusive.
In the event that the holder of the note does not elect within seven days after
completion of the public offering to require the note to be repaid, the holder
may at any time thereafter (until the close of business on the September 30,
1998 maturity date) require the principal amount of the note to be repaid in
shares of common stock (valued at the public offering price) plus accrued and
unpaid interest to the date of repayment (but no additional special interest
shall be payable). If the notes have not been repaid prior to the September 30,
1998 maturity date, and Current VASCO (or New VASCO) fails to repay the note
prior to November 1, 1998, then on and from November 1, 1998 (but before payment
of the note), in the event a public offering has not been completed the bank may
convert the principal amount into shares of Current VASCO Common Stock (i) at a
conversion price equal to a historical 20 day trading price in the United States
if the stock is listed or quoted on the NASDAQ, EASDAQ or another national U.S.
stock exchange, plus the payment of $250,000 in special interest, payable in
cash or shares at the option of the bank, or (ii) if the shares are not so
listed, at a conversion price of $1.00. These five notes also expressly provide
that they are convertible into shares of New VASCO Common Stock, upon the same
terms and conditions, in the event the Exchange Offer is
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<PAGE> 81
consummated. These notes are not prepayable except under limited circumstances.
Current VASCO and New VASCO have entered into an agreement providing for New
VASCO's assumption, upon consummation of the Exchange Offer, of Current VASCO's
obligations under the agreement pursuant to which the five convertible notes
were issued.
Banque Paribas Belgique S.A. Effective August, 1997, VDSE entered into a
convertible loan agreement with Banque Paribas Belgique S.A. in the principal
amount of $3.4 million. The principal amount is convertible, at the option of
the lender, into shares of Current VASCO Common Stock or, if the Exchange Offer
is consummated, into shares of New VASCO Common Stock. This loan bears interest
at the rate of 3.25%, payable annually, and matures on September 30, 2002. The
loan is convertible, commencing on the earlier of January 1, 1999 or the date of
a public offering of Current VASCO (or New VASCO) shares on the EASDAQ and/or
NASDAQ and terminating on August 31, 2002, at a conversion price equal to the
per share public offering price, provided, however, that if no such offering has
occurred prior to January 1, 1999, and the loan is converted after such date but
prior to a public offering, the conversion price is the average closing market
price for shares of Current VASCO Common Stock on the OTC BB for the 20 trading
days prior to the date of the notice of conversion, less 10%. In the event a
public offering is completed, the lender may at its option (by written notice
within seven days after receipt by Current VASCO (or New VASCO) of proceeds of
the public offering) require the principal amount of the loan to be repaid in
cash, in which case additional special interest is payable as follows: $340,000
if repayment is on or before June 30, 1998, $510,000 if repayment is between
July 1, 1998 and December 31, 1998 (both dates inclusive), and $680,000 if
repayment is on January 1, 1999 or later.
Other Notes. In addition to the convertible notes described above, Current
VASCO has issued three other notes. These notes provide that they are
convertible into shares of Current VASCO Common Stock but do not provide for
conversion into shares of New VASCO Common Stock. However, Current VASCO has
consented, pursuant to an agreement with New VASCO, to amend the notes in
connection with the Exchange Offer to provide for the right to convert the notes
into shares of New VASCO Common Stock, or in other words, to provide for the
exchange of New VASCO Conversion Options for the Current VASCO Conversion
Options contained in such notes. These amendments are set forth in the form of
the New VASCO Convertible Note Agreement.
The first convertible note is in the aggregate principal amount of $5
million, matures on May 29, 2001, and bears interest at an annual rate of 9%.
Interest on the note is payable quarterly, and at the option of the holder
interest payments are to be made either in cash or in a number of shares of
Current VASCO Common Stock determined on the basis of an average market price.
The Current VASCO Conversion Option of this note provides that the note is
convertible in whole or in part at any time, at the option of the holder, into
shares of Current VASCO Common Stock at a conversion price of $12.00 per share.
The note by its terms is not prepayable; however, Current VASCO and the holder
of this note have amended the note to provide that, if during the term of the
note Current VASCO receives funds of $30,000,000 or more from a public offering
of its common stock, the holder shall have the right to require Current VASCO to
pay in cash all amounts due and owing pursuant to the note within 30 days of
receipt by Current VASCO of notice from the holder of the exercise of this
right.
The remaining two notes are each in the aggregate principal amount of
$373,750, and Current VASCO has the right to prepay each of these notes at any
time. Pursuant to the prepayment option, the principal amount of one of these
two notes has been reduced by $33,750. The other terms of these two notes are
identical. The notes mature on May 30, 1998, bear interest at an annual rate of
8%, payable quarterly, at the option of the holder, in cash or in a number of
shares of Current VASCO Common Stock determined on the basis of an average
market price. The holder of each of the notes has the right to convert the note
in whole or in part at any time into shares of Current VASCO Common Stock at a
price of $7.00 per share. The shares of Current VASCO Common Stock issuable upon
conversion of each of these notes are subject to an agreement dated March 1,
1996, which provides for the right under certain circumstances to have the
shares into which these notes are convertible registered under the Securities
Act.
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<PAGE> 82
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Current VASCO's Common Stock as of August 31, 1997 for
(i) each person or entity who is known to Current VASCO to beneficially own five
percent or more of Current VASCO's Common Stock, (ii) each of Current VASCO's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers as a group. The persons named in the table have sole
voting and investment power with respect to all shares of Current VASCO shown as
beneficially owned by them unless otherwise indicated. For purposes of the
table, a person or group of persons is deemed to have beneficial ownership of
any shares as of a given date which such person has the right to acquire within
60 days after such date.
Each director and Named Executive Officer listed below has stated his
intention to exchange his Current VASCO Securities for New VASCO Securities in
the Exchange Offer. Accordingly, if the Exchange Offer is consummated and the
individual's securities are exchanged, the individual will beneficially own the
number of shares of each class of New VASCO capital stock equal to the number of
shares of each class of Current VASCO capital stock set forth below. However,
the percentage such shares will represent of the total number of shares of each
class of New VASCO capital stock outstanding after consummation of the Exchange
Offer will be greater if less than 100% of the issued and outstanding shares of
each class of Current VASCO capital stock are exchanged pursuant to the Exchange
Offer.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS CLASS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER STOCK OWNERSHIP(1) OF CLASS
------------------- -------- ------------ --------
<S> <C> <C> <C>
Directors and Named Executive Officers
T. Kendall Hunt......................................... Common 10,201,766(2) 52.26%
1919 S. Highland Avenue Preferred B 1,000 1.11%
Suite 118-C
Lombard, Illinois 60148
Forrest D. Laidley...................................... Common 592,403(3) 3.03%
185 Milwaukee Avenue
Suite 240
Libertyville, Illinois 60069
Robert E. Anderson...................................... Common 665,342(4) 3.27%
831 West North Street
Hinsdale, Illinois 60521
Gerald Guice............................................ Common 1,418,333(5) 7.27%
House Number 91 Achimota Cantonments Rd.
P.O. Box 10219
Accra-North Ghana, West Africa
Michael A. Mulshine..................................... Common 235,000(6) 1.20%
2517 Route 35, Suite D-201
Manasquan, New Jersey 08736
John C. Haggard......................................... Common 200,950(7) 1.03%
1919 S. Highland Avenue
Suite 118-C
Lombard, Illinois 60148
All Executive Officers and Directors as a Group (8
persons).............................................. Common 13,849,542(8) 65.73%
</TABLE>
77
<PAGE> 83
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS CLASS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER STOCK OWNERSHIP(1) OF CLASS
------------------- -------- ------------ --------
<S> <C> <C> <C>
Other 5% Stockholders
KYOTO Securities, Ltd................................... Common 1,341,355(9) 6.70%
1800 Avenue, McGill College
Suite 2440
Montreal, Quebec H3A-3J6
Barbara J. Hunt......................................... Common 1,111,300 5.72%
11735 Briarwood Court
Burr Ridge, Illinois 60525
</TABLE>
- -------------------------
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the individual has sole or shared voting
power or investment power and also any shares which the individual has the
right to acquire within 60 days after August 31, 1997 through the exercise
of any stock option or other right. The inclusion herein of such shares,
however, does not constitute an admission that the named stockholder is a
direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(2) Includes 31,250 shares underlying Current VASCO Stock Options held by Mr.
Hunt exercisable within 60 days of August 31, 1997, 67,179 shares into which
Mr. Hunt's 1,000 shares of Current VASCO Series B Preferred Stock are
convertible as of August 31, 1997, and 1,111,300 shares held by Barbara J.
Hunt, Mr. Hunt's spouse. Mr. Hunt disclaims beneficial ownership of any
portion of his spouse's holdings. Mr. Hunt also holds 1 share of capital
stock in each of VDSE and VDS NV/SA, in each case representing less than 1%
of the shares of capital stock of such company.
(3) Includes 125,000 shares underlying Current VASCO Stock Options exercisable
within 60 days of August 31, 1997, 5,883 shares underlying warrants
exercisable within 60 days of August 31, 1997 and 250,000 shares held by Mr.
Laidley and his spouse as joint tenants.
(4) Includes 609,507 shares underlying Current VASCO Stock Options exercisable
within 60 days of August 31, 1997.
(5) Includes 95,000 shares underlying Current VASCO Stock Options exercisable
within 60 days of August 31, 1997.
(6) Includes 35,000 shares underlying Current VASCO Stock Options held by Mr.
Mulshine which are exercisable within 60 days of August 31, 1997, and
200,000 shares underlying Current VASCO Warrants exercisable within 60 days
of August 31, 1997 granted to Osprey Partners, a management consulting firm
in which Mr. Mulshine is a principal, in connection with certain investment
banking activities undertaken on behalf of Current VASCO. Mr. Mulshine
disclaims beneficial ownership of the shares underlying the warrants held by
Osprey Partners except to the extent of his proportionate equity interest in
the firm. See "Certain Relationships and Related Transactions."
(7) Includes 148,125 shares underlying Current VASCO Stock Options exercisable
within 60 days of August 31, 1997.
(8) Includes 1,163,882 shares underlying Current VASCO Stock Options, 368,383
shares underlying Current VASCO Warrants, and 115,930 shares into which
convertible notes and shares of Current VASCO Series B Preferred Stock are
exercisable within 60 days of August 31, 1997, including those referred to
in footnotes (2) through (7) above, as well as the shares held by Mr. Hunt's
spouse.
(9) Includes 166,943 shares underlying Current VASCO Warrants exercisable within
60 days of August 31, 1997, and 416,667 shares into which a convertible note
is exercisable within 60 days of August 31, 1997.
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CERTAIN INFORMATION CONCERNING NEW VASCO
ORGANIZATION OF NEW VASCO
New VASCO was incorporated in Delaware on July 15, 1997. New VASCO was
organized by representatives of Current VASCO to effect the Exchange Offer,
which if consummated would result in New VASCO becoming a holding company for
Current VASCO and its subsidiaries. Since New VASCO was organized for the
purpose of effecting the Exchange Offer, New VASCO has not conducted any
business and has only nominal assets. See "THE REORGANIZATION." If the
Reorganization is completed, New VASCO presently intends to continue the
business of Current VASCO. See "CERTAIN INFORMATION CONCERNING CURRENT VASCO --
Business."
The Certificate of Incorporation of New VASCO, as amended, is substantially
the same as the Restated and Amended Certificate of Incorporation of Current
VASCO, as amended, with four exceptions: (i) New VASCO's Certificate of
Incorporation, as amended, authorizes the issuance of 75,000,000 shares of
common stock (as opposed to 50,000,000 shares of common authorized in Current
VASCO's Restated and Amended Certificate of Incorporation, as amended), (ii)
general voting rights have been added to the certificate of designation of the
New VASCO Series B Preferred Stock to be issued by New VASCO in exchange for the
issued and outstanding shares of the Current VASCO Series B Preferred Stock that
are tendered pursuant to the Exchange Offer, (iii) the New VASCO Certificate of
Incorporation, as amended, does not designate a series of preferred stock
comparable to Current VASCO Series A Preferred Stock, since there are no such
shares of Current VASCO presently outstanding, and (iv) New VASCO's Certificate
of Incorporation, as amended, does not contain a general requirement that all
dividends on preferred stock be paid before payment of dividends on common
stock, which deletion will permit the creation of a class or series of preferred
stock that could participate with common stock in dividend payments. See
"REORGANIZATION OF CURRENT VASCO -- Differences in Capital Stock and Rights of
Stockholders" and "Federal Income Tax Consequences." The certificates of
incorporation of Current VASCO and New VASCO are otherwise substantially the
same, except for certain clarifying and conforming changes and certain changes
included to reflect current Delaware law. New VASCO's bylaws are the same as
those of Current VASCO. See "COMPARISON OF STOCKHOLDER RIGHTS."
If the Exchange Offer is consummated, New VASCO's assets will immediately
thereafter consist principally of the number of Current VASCO Shares tendered
pursuant to the Exchange Offer. As a result, upon consummation of the Exchange
Offer and during the period New VASCO's activities are solely those of a holding
company, New VASCO will be dependent for its income, if any, on dividends
received from its subsidiaries, including Current VASCO, as well as from
interest on any loans New VASCO might make to its subsidiaries. If the Exchange
Offer is not consummated, New VASCO will be dissolved. See "THE REORGANIZATION"
and "THE EXCHANGE OFFER."
MANAGEMENT
New VASCO's directors and officers consist of the same individuals who
serve as Current VASCO's present directors and officers, although changes in the
persons who are officers and directors of New VASCO may occur after the Exchange
Offer is completed. For information regarding the persons who comprise New
VASCO's Board of Directors and who have been elected to serve as its officers
upon consummation of the Exchange Offer, see "CERTAIN INFORMATION CONCERNING
CURRENT VASCO -- Management."
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DESCRIPTION OF CAPITAL STOCK OF NEW VASCO
New VASCO's authorized capital stock consists of 75,000,000 shares of
common stock, par value $.001 per share, and 500,000 shares of preferred stock,
par value $.01 per share. The authorized preferred stock has been designated, in
part, to provide for 9,500 shares of New VASCO Series B Preferred Stock. No
shares of New VASCO Series B Preferred Stock have been issued and only 100
shares of New VASCO Common Stock, all of which are owned or record by Current
VASCO, have been issued.
COMMON SHARES
The holders of New VASCO Common Stock will be entitled to one vote for each
share on all matters voted upon by stockholders, including the election of
directors. There is no cumulative voting with respect to the election of
directors. As a result, subject to the rights of holders of New VASCO Series B
Preferred Stock and any other series of New VASCO preferred stock that may be
designated in the future, holders of more than 50% of the outstanding shares of
New VASCO Common Stock can elect all of the directors. Subject to the rights of
any outstanding shares of New VASCO Series B Preferred Stock or the rights of
any other series of preferred stock then outstanding, the holders of New VASCO
Common Stock will be entitled to such dividends as may be declared at the
discretion of the New VASCO Board of Directors out of funds legally available
therefor. Holders of New VASCO Common Stock will be entitled to share ratably in
the net assets of New VASCO upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any preferred stock then
outstanding, including the New VASCO Series B Preferred Stock.
The holders of New VASCO Common Stock will have no preemptive or other
subscription rights to purchase shares of New VASCO. Shares of New VASCO Common
Stock will not be subject to any redemption provisions and will not be
convertible into any other securities of New VASCO. All shares of New VASCO
Common Stock will be, when issued pursuant to the Exchange Offer, fully paid and
nonassessable.
PREFERRED SHARES
The preferred stock authorized in New VASCO's Certificate of Incorporation,
as amended, may be issued from time to time by the New VASCO Board of Directors
as shares of one or more series. Subject to the provisions of New VASCO's
Certificate of Incorporation, as amended, and limitations imposed by law, the
New VASCO Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any series of the
preferred stock, in each case subject to the rights of the holders of any series
of preferred stock then outstanding, but without any further action or vote by
the holders of New VASCO Common Stock.
One of the effects of undesignated preferred stock may be to enable the New
VASCO Board of Directors to render more difficult or discourage an attempt to
obtain control of New VASCO by means of a tender offer, proxy contest, merger or
otherwise, and thereby to afford time to the New VASCO Board of Directors to
determine whether such change in control is in the best interests of New VASCO
and all its shareholders. The issuance of shares of preferred stock pursuant to
the Board of Directors' authority described in the preceding paragraph may
adversely affect the rights of the holders of New VASCO Common Stock. For
example, preferred stock issued by New VASCO may rank prior to the New VASCO
Common Stock as to dividend rights, liquidation preference or both, may have
full or limited voting rights and may be convertible into shares of New VASCO
Common Stock. Accordingly, the issuance of shares of preferred stock may
discourage bids for the New VASCO Common Stock at a premium or may otherwise
adversely affect the market price of the New VASCO Common Stock.
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NEW VASCO SERIES B PREFERRED STOCK
The Certificate of Designation for New VASCO Series B Preferred Stock
authorizes 9,500 shares of convertible preferred stock that carry a cumulative
dividend payable monthly of 12% per annum based on a liquidation value of $100
per share. Each share of New VASCO Series B Preferred Stock is convertible, at
the option of the holder, into the number of shares of New VASCO Common Stock
determined as follows: the quotient obtained by dividing the liquidation value
of such shares, or $100, by 50% of the average market price of New VASCO Common
Stock for the period of 20 consecutive business days on which the New VASCO
Common Stock was traded prior to the notice date. Dividends are payable monthly
at the rate of 1% per month, provided that if dividend payments are delinquent
for more than a month, and for so long as such delinquency continues, the
monthly dividend rate shall be 1.5%. In addition, holders of the New VASCO
Series B Preferred Stock have the right, with proper notice, to purchase New
VASCO Common Stock in satisfaction of accrued and unpaid dividends at a price
per share of New VASCO Common Stock equal to one-half of the average trading
price of New VASCO Common Stock for 20 days prior to the notice given by such
stockholder of the election to so purchase shares of New VASCO Common Stock.
Except as otherwise required by law, shares of the New VASCO Series B Preferred
Stock are entitled to vote together with the New VASCO Common Stock and the
holders of such other classes and series of stock that vote together with the
New VASCO Common Stock as a single class, on all matters submitted to a vote of
the holders of New VASCO Common Stock. In addition, if the monthly dividend is
more than 30 days in arrears, and remains in arrears after proper notice by a
holder of New VASCO Series B Preferred Stock, a majority of the holders of such
shares, voting separately as a class, shall be entitled to elect a majority of
the New VASCO Board of Directors until the default in the dividend payments has
been paid in full. The New VASCO Certificate of Incorporation, as amended, also
prohibits New VASCO from redeeming or repurchasing shares of New VASCO capital
stock while dividends on the New VASCO Series B Preferred Stock are in arrears.
The New VASCO Series B Preferred Stock will become convertible at the
option of New VASCO if and when the New VASCO Common Stock is quoted on NASDAQ
or is listed for trading on either the American Stock Exchange or the New York
Stock Exchange. Shares of New VASCO Series B Preferred Stock carry a liquidation
preference over the New VASCO Common Stock in the amount of $100 per share, plus
the amount of any accrued and unpaid dividends, upon the liquidation,
dissolution or winding up of New VASCO.
STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES
Pursuant to the Exchange Offer, New VASCO is offering to exchange for all
outstanding Current VASCO Stock Options, Current VASCO Conversion Options and
Current VASCO Warrants, and, with respect to the holder of each such security
exchanged, the release of any and all Associated Corporate Matter Claims, New
VASCO Stock Options, New VASCO Conversion Options and New VASCO Warrants with
substantially the same terms and conditions. In addition, certain notes
convertible into Current VASCO Common Stock presently provide the holders with
the right to convert into New VASCO Common Stock in the event the Exchange Offer
is consummated. See "THE EXCHANGE OFFER -- Terms of the Exchange Offer" and
"CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Current VASCO Equity Equivalent
Securities."
OPTIONS
The purpose of the New VASCO 1997 Stock Option Plan is to promote the
long-term success of New VASCO and its subsidiaries for the benefit of New
VASCO's stockholders by encouraging officers and employees of New VASCO and its
subsidiaries to have meaningful investments in New VASCO so that, as
stockholders themselves, those individuals will be more likely to represent the
views and interests of other stockholders and by providing incentives to such
officers and employees for continued service. New VASCO believes that the
possibility of participation under the New VASCO 1997 Stock Option Plan will
provide this group of officers and employees an incentive to perform more
effectively and will assist New VASCO and its subsidiaries in attracting and
retaining people of outstanding training, experience and ability. The New VASCO
1997 Stock Option Plan also allows for the grant of stock options to directors
of, and consultants and advisors to, New VASCO and its subsidiaries.
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The New VASCO 1997 Stock Option Plan was adopted by New VASCO's Board of
Directors and approved by Current VASCO, as the present sole stockholder of New
VASCO, effective as of July 23, 1997, and will remain in effect until terminated
by the New VASCO Board of Directors or a committee appointed by the New VASCO
Board of Directors to administer the plan (the "Committee"), which has exclusive
authority to make awards under the New VASCO 1997 Stock Option Plan and all
interpretations and determinations affecting the New VASCO 1997 Stock Option
Plan. Participation in the New VASCO 1997 Stock Option Plan is limited to
officers, directors, employees, consultants and advisers of New VASCO and its
subsidiaries who are selected from time to time by the Committee. Participants
in the New VASCO 1997 Stock Option Plan may also participate in other incentive
plans of New VASCO. The New VASCO 1997 Stock Option Plan provides for the grant
of either ISOs or non-qualified stock options for tax purposes.
5,000,000 shares of New VASCO Common Stock are available for issuance under
the New VASCO 1997 Stock Option Plan, subject to adjustment by the Committee
under certain circumstances. Such shares may consist in whole or in part of
authorized and unissued shares of New VASCO Common Stock, or treasury shares.
The shares of New VASCO Common Stock which may be issued pursuant to the
New VASCO Stock Options exchanged in the Exchange Offer, will be issued pursuant
to the New VASCO 1997 Stock Option Plan. All such New VASCO Stock Options issued
in exchange for Current VASCO Stock Options shall be for the same number of
shares of New VASCO Common Stock and shall have the same exercise price, vesting
term, termination provision and expiration date as the Current VASCO Stock
Options for which they are exchanged. New VASCO will enter into New VASCO Option
Agreements with exchanging Current VASCO Stock Option holders which will contain
the same vesting, exercise price, termination provision and exercise expiration
terms and conditions as the original agreements such holders have entered into
with Current VASCO, and provide for the release of any and all Associated
Corporate Matter Claims. The New VASCO Option Agreement also includes a
provision for the adjustment of the number of shares underlying the New VASCO
Stock Options and of the exercise price for such shares in the event of a change
in the capital structure of New VASCO. As of August 31, 1997 there were
1,973,132 Current VASCO Stock Options outstanding for an aggregate of 1,973,132
shares of Current VASCO Common Stock with exercise prices ranging between $.125
and $6.00 per share, of which options for 1,476,254 shares were fully vested and
exercisable. See "CERTAIN INFORMATION CONCERNING CURRENT VASCO -- Current VASCO
Equity Equivalent Securities -- Current VASCO Stock Options."
WARRANTS
From time to time Current VASCO issued Current VASCO Warrants to purchase
shares of Current VASCO Common Stock at various exercise prices. Pursuant to the
terms of the Exchange Offer, New VASCO is offering to exchange New VASCO
Warrants for all outstanding Current VASCO Warrants and the release of any and
all Associated Corporate Matter Claims by each exchanging holder. All such New
VASCO Warrants issued in exchange for Current VASCO Warrants shall be for the
same number of shares of New VASCO Common Stock and shall have the same exercise
price and expiration date as the Current VASCO Warrants for which they are
exchanged. New VASCO will enter into New VASCO Warrant Agreements with
exchanging Current VASCO Warrant holders that will provide for the release of
any and all Associated Corporate Matter Claims, and include a provision for the
adjustment of the number of shares underlying the New VASCO Warrants and of the
exercise price for such shares in the event of a change in the capital structure
of New VASCO.
As of August 31, 1997, there were outstanding Current VASCO Warrants for an
aggregate of 1,056,922 shares of Current VASCO Common Stock with exercise prices
ranging from $0.25 to $10.00. See "CERTAIN INFORMATION CONCERNING CURRENT VASCO
- -- Current VASCO Equity Equivalent Securities -- Current VASCO Warrants."
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CONVERTIBLE NOTES
Certain notes convertible into Current VASCO Common Stock grant the holders
the right to convert such notes into shares of New VASCO Common Stock if the
Exchange Offer is consummated. New VASCO has entered into an agreement with
Current VASCO under which New VASCO has agreed to assume certain contractual
obligations of Current VASCO relating to such notes. See "Registration Rights
and Other Arrangements" below.
Pursuant to the terms of the Exchange Offer, New VASCO will also offer to
holders of notes presently convertible solely into Current VASCO Common Stock
(referred to in this document as Current VASCO Conversion Options) the
opportunity to exchange their Current VASCO Conversion Options for New VASCO
Conversion Options, which would enable such holders to convert their notes, on
the same terms and conditions, into shares of New VASCO Common Stock. This
exchange will be effected, if at all, by virtue of the New VASCO Convertible
Note Agreements, pursuant to which the holders will transfer and release any and
all Associated Corporate Matter Claims. For more detailed information on the
conversion privileges of all notes that may become convertible into shares of
New VASCO Common Stock if the Exchange Offer is consummated, see "CERTAIN
INFORMATION CONCERNING CURRENT VASCO -- Current VASCO Equity Equivalent
Securities -- Convertible Notes and Current VASCO Conversion Options."
REGISTRATION RIGHTS AND OTHER ARRANGEMENTS
Certain holders of Current VASCO Common Stock have the contractual right,
under certain circumstances, to sell shares of Current VASCO Common Stock to
Current VASCO at a price of [$7.00] per share. In the event these holders
exchange the shares of Current VASCO Common Stock subject to such rights in the
Exchange Offer, New VASCO may enter into an agreement granting the exchanging
holders the right to require New VASCO to purchase the number of shares of New
VASCO Common Stock issued in exchange for such shares at the same price, and
subject to the same terms and conditions, as provided for in the agreement such
holders have entered into with Current VASCO.
New VASCO has entered into an agreement with Current VASCO that provides
for New VASCO's assumption, upon consummation of the Exchange Offer, of certain
Current VASCO obligations under a financing agreement with Generale Bank for a
$2.5 million loan and with respect to a registration rights agreement with
certain holders of Current VASCO Equity Equivalent Securities, as well as for
the substitution of New VASCO Common Stock for Current VASCO Common Stock that
may be issued after the Exchange Offer pursuant to the Current VASCO Equity
Equivalent Securities and other agreements of Current VASCO.
New VASCO may also enter into agreements comparable to those entered into
by Current VASCO with certain of its security holders to provide for
registration rights with respect to the shares of Current VASCO Common Stock
that such holders presently own, or have the right to acquire pursuant to the
terms of their Current VASCO Securities. In the event such holders exchange
their Current VASCO Securities for New VASCO Securities in the Exchange Offer,
New VASCO may enter into registration rights agreements with such holders
containing provisions substantially the same as those of the respective
registration rights agreements entered into by Current VASCO that have not been
performed as of the Expiration Date.
COMPARISON OF STOCKHOLDER RIGHTS
COMPARISON OF CURRENT VASCO STOCKHOLDER RIGHTS FOLLOWING THE EXCHANGE OFFER
Both Current VASCO and New VASCO are Delaware corporations and are governed
by the laws of Delaware. Except for the differences described below and for the
release of any and all Associated Corporate Matter Claims by each exchanging
holder, there will be no appreciable difference in the rights of those Current
VASCO stockholders who become stockholders of New VASCO by virtue of the
Exchange Offer. The certificates of incorporation, as amended, of the two
companies are substantially the same, except for the authorization of 75,000,000
shares of common stock, as opposed to 50,000,000, the lack of a designation of a
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series of New VASCO preferred stock comparable to Current VASCO Series A
Preferred Stock and changes made in the New VASCO Series B Preferred Stock
provisions of New VASCO's Certificate of Incorporation, as amended, to (i)
provide general voting rights of one vote per share of New VASCO Series B
Preferred Stock, to be voted together with the shares of New VASCO Common Stock
on all matters submitted for a vote of the shares of New VASCO Common Stock,
(ii) remove certain triggering dates that will have passed prior to the
Expiration Date and remove references to Series A Preferred Stock, (iii) provide
that holders of New VASCO Series B Preferred Stock may not convert such shares
into New VASCO Common Stock if the per share purchase price is less than the par
value of the New VASCO Common Stock, and (iv) make clarifying and conforming
changes. In addition, New VASCO's Certificate of Incorporation, as amended,
differs from that of Current VASCO in that the New VASCO Certificate of
Incorporation, as amended, does not contain a requirement found in the Restated
and Amended Certificate of Incorporation of Current VASCO, as amended, that all
dividends on preferred stock must be paid before payment of dividends on common
stock, which deletion will permit the creation of a class or series of preferred
stock that could participate with common stock in dividend payments. In
addition, the New VASCO Certificate of Incorporation, as amended, contains
certain clarifying and conforming changes and certain changes for consistency
with current Delaware law, including provisions with respect to the liability of
directors for monetary damages. New VASCO's bylaws are the same as those of
Current VASCO.
COMPARISON OF RIGHTS OF HOLDERS OF STOCK OPTIONS AND WARRANTS FOLLOWING THE
EXCHANGE OFFER
There will be no change in the rights of holders of Current VASCO Stock
Options and Current VASCO Warrants who become holders of New VASCO Stock Options
and New VASCO Warrants, as the case may be, by exchanging their instruments in
the Exchange Offer since all New VASCO Stock Options and New VASCO Warrants will
be identical to the Current VASCO Stock Options and Current VASCO Warrants for
which they are exchanged, except that (A) under the New VASCO Stock Option
Agreement and the New VASCO Warrant Agreement, (i) the holders of such Current
VASCO Securities will have released any and all Associated Corporate Matter
Claims, (ii) there are provisions for adjustment of the number of shares
underlying such Current VASCO Securities and the exercise price for such shares
in the event of a change in the capital structure of New VASCO, and (B) the New
VASCO Stock Options will be issued under the New VASCO 1997 Stock Option Plan
and will not be ISOs. In addition, upon exercise of New VASCO Stock Options and
New VASCO Warrants, the holders thereof will become stockholders of New VASCO,
as opposed to Current VASCO. There will be certain limited differences in the
rights of New VASCO stockholders as compared to the rights of Current VASCO
stockholders prior to the Exchange Offer. See "COMPARISON OF STOCKHOLDER RIGHTS
- -- Comparison of Current VASCO Stockholder Rights Following The Exchange Offer."
LEGAL MATTERS
The legality of the New VASCO Securities to be issued in the Exchange Offer
and certain tax consequences associated with the Exchange Offer will be passed
upon for New VASCO by Jenner & Block, Chicago, Illinois.
EXPERTS
The balance sheet of VASCO Data Security International, Inc. as of July 16,
1997 appearing in this Registration Statement has been audited by KPMG Peat
Marwick LLP, independent public accountants, as set forth in their report
thereon appearing elsewhere herein, and is included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of VASCO CORP. as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996 appearing in this Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein. Such consolidated financial
statements are included herein in reliance on such report given on the authority
of said firm as experts in auditing and accounting.
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The financial statements of Lintel NV as of December 31, 1995 and for the
years ended December 31, 1994 and 1995 appearing in this Registration Statement
have been so included in reliance upon the report of Price Waterhouse and
Partners, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The combined financial statements of Digipass SA and Digiline SA as of
December 31, 1995 and for the years ended December 31, 1994 and 1995 appearing
in this Registration Statement have been so included in reliance upon the report
of Price Waterhouse and Partners, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
DESCRIPTION NUMBER
----------- ------
<S> <C>
PRO FORMA FINANCIAL STATEMENTS
VASCO DATA SECURITY INTERNATIONAL, INC. ("NEW VASCO")
Pro Forma Balance Sheet as of June 30, 1997 (unaudited)..... F-2
Pro Forma Statement of Operations for the year ended
December 31, 1996 (unaudited)............................. F-3
Pro Forma Statement of Operations for the six months ended
June 30, 1997 (unaudited)................................. F-4
Notes to Pro Forma Financial Statements (unaudited)......... F-5
HISTORICAL FINANCIAL STATEMENTS
VASCO DATA SECURITY INTERNATIONAL, INC.
Report of KPMG Peat Marwick LLP............................. F-7
Balance Sheet as of July 16, 1997........................... F-8
Notes to Balance Sheet...................................... F-9
VASCO CORPORATION
Report of KPMG Peat Marwick LLP............................. F-11
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited)............................. F-12
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1996 (unaudited) and June 30, 1997
(unaudited)............................................... F-13
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1997 (unaudited)........ F-14
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1996 (unaudited) and June 30, 1997
(unaudited)............................................... F-17
Notes to Consolidated Financial Statements.................. F-19
LINTEL NV
Report of Price Waterhouse and Partners..................... F-31
Statements of Financial Position as of December 31, 1995.... F-32
Statements of Operations for the years ended December 31,
1994 and 1995............................................. F-33
Statements of Cash Flows for the years ended December 31,
1994 and 1995............................................. F-34
Statements of the Accumulated Deficit for the years ended
December 31, 1994 and 1995................................ F-35
Notes to Financial Statements............................... F-36
DIGIPASS SA/DIGILINE SA
Report of Price Waterhouse and Partners..................... F-40
Statements of Combined Financial Position as of December 31,
1995...................................................... F-41
Statements of Operations for the years ended December 31,
1994 and 1995............................................. F-42
Statements of Cash Flows for the years ended December 31,
1994 and 1995............................................. F-43
Statements of Accumulated Deficit for the years ended
December 31, 1994 and 1995................................ F-44
Notes to Financial Statements............................... F-45
Statement of Combined Financial Position as of June 30, 1996
(unaudited)............................................... F-52
Statement of Operations for the six months ended June 30,
1996 (unaudited).......................................... F-53
Statement of Cash Flows for the six months ended June 30,
1996 (unaudited).......................................... F-54
Statement of Retained Earnings for the six months ended June
30, 1996 (unaudited)...................................... F-55
Notes to Financial Statements (unaudited)................... F-56
</TABLE>
F-1
<PAGE> 92
VASCO DATA SECURITY INTERNATIONAL, INC. ("NEW VASCO")
PRO FORMA BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
VASCO NEW VASCO
NEW VASCO CORP. ADJUSTMENTS PRO FORMA
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. $-- $ 2,862,690 $ -- $ 2,862,690
Accounts receivable, net of allowance for doubtful
accounts............................................ -- 2,772,146 -- 2,772,146
Inventories, net...................................... -- 1,876,907 -- 1,876,907
Prepaid expenses...................................... -- 321,159 -- 321,159
Deferred income taxes................................. -- 283,000 -- 283,000
Other current assets.................................. -- 465,284 -- 465,284
--- ------------ -------- ------------
Total current assets.................................. -- 8,581,186 -- 8,581,186
PROPERTY AND EQUIPMENT:
Furniture and fixtures................................ -- 143,560 -- 143,560
Office equipment...................................... -- 632,835 -- 632,835
--- ------------ -------- ------------
-- 776,395 -- 776,395
Accumulated depreciation.............................. -- (433,885) -- (433,885)
--- ------------ -------- ------------
-- 342,510 -- 342,510
Goodwill, net of accumulated amortization............. -- 763,828 -- 763,828
Other assets.......................................... -- 2,226,299 -- 2,226,299
--- ------------ -------- ------------
TOTAL ASSETS.......................................... $-- $ 11,913,823 $ -- $ 11,913,823
=== ============ ======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt.................. $-- $ 3,459,034 $ -- $ 3,459,034
Accounts payable...................................... -- 860,672 -- 860,672
Customer deposits..................................... -- 458,037 -- 458,037
Other accrued expenses................................ -- 781,134 -- 781,134
--- ------------ -------- ------------
Total current liabilities............................. -- 5,558,877 -- 5,558,877
--- ------------ -------- ------------
Long-term debt........................................ -- 8,277,878 -- 8,277,878
--- ------------ -------- ------------
Common stock subject to redemption.................... -- 494,668 -- 494,668
--- ------------ -------- ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, 8% cumulative series A convertible,
$.01 par value -- 317,181 shares authorized; 117,181
shares issued and outstanding....................... -- 1,172 (1,172) --
Preferred stock, 12% cumulative series B convertible,
$.01 par value -- 9,500 shares authorized; 9,000
shares issued and outstanding....................... -- 90 (90) --
Common stock, $.001 par value -- 50,000,000 shares
authorized; 18,576,471 shares issued and
outstanding......................................... -- 18,576 (18,576) --
Preferred stock, $.01 par value -- 500,000 shares
authorized; 9,000 shares of 12% cumulative series B
convertible issued and outstanding on a pro forma
basis............................................... -- -- 90 90
Common stock, $.001 par value -- 75,000,000 shares
authorized; 19,357,778 shares issued and outstanding
on a pro forma basis................................ -- -- 19,358 19,358
Additional paid-in capital............................ -- 8,948,492 390 8,948,882
Accumulated deficit................................... -- (11,194,402) -- (11,194,402)
Cumulative translation adjustment..................... -- (191,526) -- (191,526)
--- ------------ -------- ------------
-- (2,417,598) -- (2,417,598)
Less: Treasury stock, 2,824 common shares at cost..... -- (2) -- (2)
--- ------------ -------- ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).................. -- (2,417,600) -- (2,417,600)
--- ------------ -------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)........................................... $-- $ 11,913,823 $ -- $ 11,913,823
=== ============ ======== ============
</TABLE>
See accompanying notes to pro forma financial statements.
F-2
<PAGE> 93
VASCO DATA SECURITY INTERNATIONAL, INC. ("NEW VASCO")
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
VASCO NEW VASCO
NEW VASCO CORP. ADJUSTMENT PRO FORMA
--------- ----- ---------- ---------
<S> <C> <C> <C> <C>
Total revenues.............................. $ -- $10,192,485 $3,461,935 $13,654,420
Cost of goods sold.......................... -- 5,871,468 1,588,652 7,460,120
-------- ----------- ---------- -----------
Gross profit................................ -- 4,321,017 1,873,283 6,194,300
-------- ----------- ---------- -----------
Operating costs:
Sales and marketing....................... -- 1,405,453 -- 1,405,453
Research and development.................. -- 574,766 -- 574,766
General and administrative................ -- 3,647,760 1,579,435 5,227,195
Acquired in-process research and
development............................ -- 7,350,992 -- 7,350,992
-------- ----------- ---------- -----------
Total operating costs.................. -- 12,978,971 1,579,435 14,558,406
Operating income (loss)..................... -- (8,657,954) 293,848 (8,364,106)
Interest expense............................ -- (346,248) (423,999) (770,247)
Other income (expense), net................. -- (42,407) 145,754 103,347
-------- ----------- ---------- -----------
Income (loss) before income taxes........... -- (9,046,609) 15,603 (9,031,006)
Provision for income taxes.................. -- 194,000 282,070 476,070
-------- ----------- ---------- -----------
Net loss.................................... -- (9,240,609) (266,467) (9,507,076)
Preferred stock dividends................... -- (108,160) -- (108,160)
-------- ----------- ---------- -----------
Net loss available to common stockholders... $ -- $(9,348,769) $ (266,467) $(9,615,236)
======== =========== ========== ===========
Net loss per common share................... $ (0.53)
===========
Weighted average common shares
outstanding............................... 18,314,576
===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE> 94
VASCO DATA SECURITY INTERNATIONAL, INC. ("NEW VASCO")
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW VASCO NEW VASCO
VASCO CORP. ADJUSTMENTS PRO FORMA
----- ----- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues.................................. $ -- $ 6,591,694 $ -- $ 6,591,694
Cost of goods sold.............................. -- 3,296,091 -- 3,296,091
----- ----------- ----------- -----------
Gross profit.................................... -- 3,295,603 -- 3,295,603
----- ----------- ----------- -----------
Operating costs:
Sales and marketing........................... -- 1,792,724 -- 1,792,724
Research and development...................... -- 347,623 -- 347,623
General and administrative.................... -- 1,802,343 -- 1,802,343
----- ----------- ----------- -----------
Total operating costs...................... -- 3,942,690 -- 3,942,690
Operating loss.................................. -- (647,087) -- (647,087)
Interest expense................................ -- (460,137) -- (460,137)
Other expense, net.............................. -- (72,750) -- (72,750)
----- ----------- ----------- -----------
Loss before income taxes........................ -- (1,179,974) -- (1,179,974)
Provision for income taxes...................... -- 57,171 -- 57,171
----- ----------- ----------- -----------
Net loss........................................ -- (1,237,145) -- (1,237,145)
Preferred stock dividends..................... -- (54,000) -- (54,000)
----- ----------- ----------- -----------
Net loss available to common stockholders....... $ -- $(1,291,145) $ -- $(1,291,145)
===== =========== =========== ===========
Net loss per common share....................... $ (0.07)
===========
Weighted average common shares outstanding 19,277,065
===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-4
<PAGE> 95
VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND PROPOSED EXCHANGE OF SECURITIES
VASCO Data Security International, Inc. ("New VASCO") is a Delaware
Corporation and was incorporated on July 15, 1997.
New VASCO was formed by representatives of VASCO CORP. ("Current VASCO"),
to effect an exchange of outstanding VASCO CORP. securities for securities of
New VASCO (the "Exchange Offer"). In the Exchange Offer, New VASCO offers to
exchange:
(a) Its Common Stock and Series B Preferred Stock for (i) shares of
Current VASCO Common Stock and Series B Preferred Stock, respectively, on a
one-for-one basis and (ii) a release by the exchanging holder of all
potential claims against New VASCO and its predecessor entities arising out
of or relating to certain corporate matters (the "Associated Corporate
Matter Claims") described elsewhere herein.
(b) Its options ("New VASCO Stock Options") to purchase its Common
Stock in exchange for (i) the cancellation of outstanding options to
purchase Current VASCO Common Stock granted under various Current VASCO
stock option programs ("Current VASCO Stock Options"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Stock Options will be for the same number of shares
and have the same exercise price, vesting terms and expiration dates as the
Current VASCO Stock Options and will be issued under New VASCO's 1997 Stock
Option Plan, as amended, as nonqualified options for federal income tax
purposes;
(c) Its options ("New VASCO Conversion Options") to acquire its Common
Stock in exchange for (i) the cancellation of outstanding options to
acquire Current VASCO Common Stock pursuant to conversion of Current VASCO
convertible notes ("Current VASCO Conversion Options"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Conversion Options will be for the same number of
shares and will have the same conversion price, conversion period and other
terms of conversion as the Current VASCO Conversion Options;
(d) Its warrants ("New VASCO Warrants") to purchase its Common Stock
in exchange for (i) the cancellation of outstanding warrants to purchase
Current VASCO Common Stock ("Current VASCO Warrants"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Warrants will be for the same number of shares and
have the same exercise price and expiration dates as the Current VASCO
Warrants.
The Exchange Offer is subject to certain terms and conditions, including
the condition that there must as of the Expiration Date be tendered for exchange
(i) at least 80% of the outstanding shares of Current VASCO Common Stock, and
(ii) at least 80% of the outstanding shares of Current VASCO Series B Preferred
Stock.
Assuming the requirements of the Exchange Offer are met, Current VASCO will
become a subsidiary of New VASCO, and the assets and liabilities of Current
VASCO will be recorded by New VASCO in consolidation at their historical
carrying values. New VASCO has not yet begun operations.
CAPITAL STOCK
On July 16, 1997, 100 shares of New VASCO's Common Stock were issued to
Current VASCO, for $100.
New VASCO's authorized capital stock consists of 75,000,000 shares of
Common Stock, $.001 par value, and 500,000 shares of Preferred Stock, $.01 par
value per share. The authorized Preferred Stock has been designated, in part, to
provide for 9,500 shares of New VASCO's Series B Preferred Stock, which carries
a cumulative dividend payable monthly of 12% per annum based on a liquidation
value of $100 per share. The Series B Preferred Stock is convertible into Common
Stock based on a formula and has other provisions
F-5
<PAGE> 96
VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
described elsewhere herein. The New VASCO Series B Preferred Stock will be
entitled to vote together with the holders of New VASCO Common Stock on all
matters submitted to a vote of the holders of New VASCO Common Stock. The
issuance of 100 shares of Common Stock is reflected as a pro forma adjustment in
the accompanying pro forma balance sheet.
Effective as of July 23, 1997, the New VASCO 1997 Stock Option Plan was
adopted. The New VASCO 1997 Stock Option Plan provides for the grant of either
incentive stock options or non-qualified stock options. 5,000,000 shares of New
VASCO Common Stock are available for issuance under the plan.
PRO FORMA PRESENTATION
The pro forma balance sheet as of June 30, 1997 reflects adjustments for
(i) the issuance by New VASCO of 100 shares of Common Stock on July 16, 1997,
(ii) the conversion of Current VASCO's 117,181 shares of Series A Convertible
Preferred Stock into 781,207 shares of New VASCO's Common Stock and the exchange
of 100% of Current VASCO's outstanding Common Stock and cumulative Series B
Convertible Preferred Stock into New VASCO's Common Stock and Series B Preferred
Stock, respectively, pursuant to the Exchange Offer. No shares of Preferred
Stock have been issued.
The pro forma statement of operations for the year ended December 31, 1996
reflects the historical operations of Current VASCO for the year ended December
31, 1996, adjusted to reflect the acquisitions of Lintel and Digipass as if such
acquisitions had occurred as of January 1, 1996. The pro forma adjustments
include the operations of Lintel and Digipass for the respective periods in 1996
prior to their acquisition by Current VASCO, as well as adjustments to reflect
interest expense on the the debt incurred to fund the acquisitions in the amount
of $249,000, and amortization of the related intangible assets and goodwill in
the amount of $386,000.
The pro forma statement of operations for the six months ended June 30,
1997 reflects the operations of Current VASCO for such six month period.
The pro forma net loss per share is computed based on the weighted average
of 18,314,576 shares outstanding during 1996 and 19,277,065 for the six months
ended June 30, 1997, assuming that the conversion of 117,181 shares of Current
VASCO's Series A Convertible Preferred Stock into 781,207 shares of Common Stock
of New VASCO and the Exchange Offer were affected as of January 1, 1996.
If pursuant to the Exchange Offer, 80% or more of the outstanding shares of
Current VASCO Common Stock and 80% of the outstanding shares of Current VASCO
Series B Preferred Stock are tendered, the exchange will become effective but
any equity interest not exchanged would be reflected as minority interest
between liabilities and stockholders' equity (deficit) on the pro forma balance
sheet.
F-6
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholder of VASCO Data Security International, Inc.:
We have audited the accompanying balance sheet of VASCO Data Security
International, Inc. as of July 16, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of VASCO Data Security International,
Inc. as of July 16, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
September 11, 1997
F-7
<PAGE> 98
VASCO DATA SECURITY INTERNATIONAL, INC. ("NEW VASCO")
BALANCE SHEET
JULY 16, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS - CASH....................................... $100
----
TOTAL ASSETS................................................ $100
====
LIABILITIES AND STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par value -- 500,000 shares
authorized; none issued and outstanding................ $ --
Common stock, $.001 par value -- 75,000,000 shares
authorized; 100 shares issued and outstanding.......... --
Additional paid-in capital................................ 100
----
Total stockholder's equity.................................. 100
----
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $100
====
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 99
VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO BALANCE SHEET
ORGANIZATION AND PROPOSED EXCHANGE OF SECURITIES
VASCO Data Security International, Inc. ("New VASCO") is a Delaware
Corporation and was incorporated on July 15, 1997.
New VASCO was formed by representatives of VASCO CORP. ("Current VASCO"),
to effect an exchange of outstanding VASCO CORP. securities for securities of
New VASCO (the "Exchange Offer"). In the Exchange Offer, New VASCO offers to
exchange:
(a) Its Common Stock and Series B Preferred Stock for (i) shares of
Current VASCO Common Stock and Series B Preferred Stock, respectively, on a
one-for-one basis and (ii) a release by the exchanging holder of all
potential claims against New VASCO and its predecessor entities arising out
of or relating to certain corporate matters (the "Associated Corporate
Matter Claims") described elsewhere herein.
(b) Its options ("New VASCO Stock Options") to purchase its Common
Stock in exchange for (i) the cancellation of outstanding options to
purchase Current VASCO Common Stock granted under various Current VASCO
stock option programs ("Current VASCO Stock Options"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Stock Options will be for the same number of shares
and have the same exercise price, vesting terms and expiration dates as the
Current VASCO Stock Options and will be issued under New VASCO's 1997 Stock
Option Plan, as amended, as nonqualified options for federal income tax
purposes;
(c) Its options ("New VASCO Conversion Options") to acquire its Common
Stock in exchange for (i) the cancellation of outstanding options to
acquire Current VASCO Common Stock pursuant to conversion of Current VASCO
convertible notes ("Current VASCO Conversion Options"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Conversion Options will be for the same number of
shares and will have the same conversion price, conversion period and other
terms of conversion as the Current VASCO Conversion Options;
(d) Its warrants ("New VASCO Warrants") to purchase its Common Stock
in exchange for (i) the cancellation of outstanding warrants to purchase
Current VASCO Common Stock ("Current VASCO Warrants"), and (ii) a release
by each exchanging holder of any and all Associated Corporate Matter
Claims. The New VASCO Warrants will be for the same number of shares and
have the same exercise price and expiration dates as the Current VASCO
Warrants.
The Exchange Offer is subject to certain terms and conditions, including
the condition that there must as of the Expiration Date be tendered for exchange
(i) at least 80% of the outstanding shares of Current VASCO Common Stock, and
(ii) at least 80% of the outstanding shares of Current VASCO Series B Preferred
Stock.
Assuming the requirements of the Exchange Offer are met, Current VASCO will
become a subsidiary of New VASCO, and the assets and liabilities of Current
VASCO will be recorded by New VASCO in consolidation at their historical
carrying values. New VASCO has not yet begun operations.
CAPITAL STOCK
On July 16, 1997, 100 shares of New VASCO's Common Stock were issued to
Current VASCO, for $100.
New VASCO's authorized capital stock consists of 75,000,000 shares of
Common Stock, $.001 par value, and 500,000 shares of Preferred Stock, $.01 par
value per share. The authorized Preferred Stock has been
F-9
<PAGE> 100
designated, in part, to provide for 9,500 shares of New VASCO's Series B
Preferred Stock, which carries a cumulative dividend payable monthly of 12% per
annum based on a liquidation value of $100 per share. The Series B Preferred
Stock is convertible into Common Stock based on a formula. The New VASCO Series
B Preferred Stock will be entitled to vote together with the holders of New
VASCO Common Stock on all matters submitted to a vote of the holders of New
VASCO Common Stock. No shares of Preferred Stock have been issued.
Effective as of July 23, 1997, the New VASCO 1997 Stock Option Plan was
adopted. The New VASCO 1997 Stock Option Plan provides for the grant of either
incentive stock options or non-qualified stock options. 5,000,000 shares of New
VASCO Common Stock are available for issuance under the plan.
F-10
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of VASCO Corp.:
We have audited the accompanying consolidated balance sheets of VASCO Corp.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VASCO Corp. 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
Chicago, Illinois
September 11, 1997
F-11
<PAGE> 102
VASCO CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 744,612 $ 1,813,593 $ 2,862,690
Accounts receivable, net of allowance for doubtful
accounts of $182,000, $452,000 and $459,000............. 447,490 3,242,618 2,772,146
Inventories, net.......................................... 252,646 2,182,743 1,876,907
Prepaid expenses.......................................... 229,315 471,902 321,159
Notes receivable.......................................... -- 225,141 --
Deferred income taxes..................................... 445,000 283,000 283,000
Other current assets...................................... 14,741 399,963 465,284
---------- ----------- ------------
Total current assets.................................. 2,133,804 8,618,960 8,581,186
Property and equipment:
Furniture and fixtures.................................... 183,375 143,560 143,560
Office equipment.......................................... 123,773 592,965 632,835
---------- ----------- ------------
307,148 736,525 776,395
Accumulated depreciation.................................. (183,807) (360,079) (433,885)
---------- ----------- ------------
123,341 376,446 342,510
Software costs, net of accumulated amortization of
$371,000 in 1995........................................ 157,311 -- --
Goodwill, net of accumulated amortization of $58,571 and
$113,784 in 1996 and 1997............................... -- 819,041 763,828
Other assets.............................................. -- 2,553,108 2,226,299
---------- ----------- ------------
Total assets................................................ $2,414,456 $12,367,555 $ 11,913,823
========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 199,678 $ 3,491,160 $ 3,459,034
Notes payable............................................. 664,050 -- --
Accounts payable.......................................... 93,776 1,945,644 860,672
Customer deposits......................................... -- 1,022,195 458,037
Other accrued expenses.................................... 102,072 658,084 781,134
---------- ----------- ------------
Total current liabilities............................. 1,059,576 7,117,083 5,558,877
---------- ----------- ------------
Long-term debt, including stockholder note of $5,000,000 in
1996 and 1997............................................. 7,258 5,713,750 8,277,878
---------- ----------- ------------
Excess acquired net assets over cost, net of accumulated
amortization of $43,000 in 1995........................... 10,735 -- --
---------- ----------- ------------
Common stock subject to redemption.......................... 370,894 741,894 494,668
---------- ----------- ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, 8% cumulative series A convertible, $.01
par value -- 317,181 shares authorized; 317,181 shares
issued and outstanding in 1995 and 117,181 shares issued
and outstanding in 1996 and 1997........................ 3,172 1,172 1,172
Preferred stock, 12% cumulative series B convertible, $.01
par value -- 9,500 shares authorized; 9,000 shares
issued and outstanding in 1995, 1996 and 1997........... 90 90 90
Common stock, $.001 par value -- 50,000,000 shares
authorized 15,793,575 shares issued and outstanding in
1995; 18,453,332 shares issued and outstanding in 1996;
18,576,471 shares issued and outstanding in 1997........ 15,794 18,454 18,576
Additional paid-in capital................................ 1,508,534 8,783,425 8,948,492
Accumulated deficit....................................... (554,488) (9,903,257) (11,194,402)
Cumulative translation adjustment......................... -- (105,056) (191,526)
---------- ----------- ------------
973,102 (1,205,172) (2,417,598)
Less: Treasury stock, 287,923, -0- and 2,824 common
shares, at cost, in 1995, 1996 and 1997................. (7,109) -- (2)
---------- ----------- ------------
Total stockholders' equity (deficit)........................ 965,993 (1,205,172) (2,417,600)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $2,414,456 $12,367,555 $ 11,913,823
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 103
VASCO CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenues................ $ 2,693,167 $ 3,695,133 $10,192,485 $ 3,184,266 $ 6,591,694
Cost of goods sold............ 1,422,587 2,887,403 5,871,468 1,899,885 3,296,091
----------- ----------- ----------- ----------- -----------
Gross profit.................. 1,270,580 807,730 4,321,017 1,284,381 3,295,603
----------- ----------- ----------- ----------- -----------
Operating costs:
Sales and marketing......... 156,511 245,212 1,405,453 220,144 1,792,724
Research and development.... 210,535 242,002 574,766 217,271 347,623
General and
administrative........... 711,598 854,979 3,647,760 862,453 1,802,343
Acquired in-process research
and development.......... -- -- 7,350,992 2,900,031 --
----------- ----------- ----------- ----------- -----------
Total operating costs.... 1,078,644 1,342,193 12,978,971 4,199,899 3,942,690
Operating income (loss)....... 191,936 (534,463) (8,657,954) (2,915,518) (647,087)
Interest expense.............. (97,244) (73,576) (346,248) (26,933) (460,137)
Other expense, net............ -- -- (42,407) -- (72,750)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes....................... 94,692 (608,039) (9,046,609) (2,942,451) (1,179,974)
Provision (benefit) for income
taxes....................... 37,000 (251,000) 194,000 (17,700) 57,171
----------- ----------- ----------- ----------- -----------
Net income (loss)............. 57,692 (357,039) (9,240,609) (2,924,751) (1,237,145)
Preferred stock
dividends.............. (27,254) (108,254) (108,160) (54,000) (54,000)
----------- ----------- ----------- ----------- -----------
Net income (loss) available to
common stockholders......... $ 30,438 $ (465,293) $(9,348,769) $(2,978,751) $(1,291,145)
=========== =========== =========== =========== ===========
Net income (loss) per common
share....................... $ -- $ (0.03) $ (0.53) $ (0.19) $ (0.07)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding................. 14,259,915 14,817,264 17,533,369 15,614,498 18,495,858
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 104
VASCO CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B
STOCK PREFERRED STOCK COMMON STOCK
------------------- --------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 317,181 $3,172 -- $-- 15,343,575 $15,344
Net income..................................
Cash dividends paid on preferred B..........
Dividends payable on preferred A upon
conversion................................
Issuance of Series B preferred stock........ 8,000 80
Exchange of note payable for stock.......... 1,000 10 250,000 250
Exercise of stock options................... 100,000 100
-------- ------ ----- --- ---------- -------
Balance at December 31, 1994.................. 317,181 3,172 9,000 90 15,693,575 15,694
Net loss....................................
Cash dividends paid on preferred B..........
Dividends payable on preferred A upon
conversion................................
Issuance of treasury stock..................
Stock compensation.......................... 50,000 50
Exercise of stock options 50,000 50
Common stock subject to redemption..........
-------- ------ ----- --- ---------- -------
Balance at December 31, 1995.................. 317,181 3,172 9,000 90 15,793,575 15,794
Net loss....................................
Cash dividends paid on preferred B..........
Dividends payable on preferred A upon
conversion................................
Exercise of stock options................... 22,750 23
Issuance of common stock.................... 1,163,023 1,163
Issuance of common stock in connection with
Lintel Acquisition........................ 140,651 141
Conversion of Series A preferred stock...... (200,000) (2,000) 1,333,333 1,333
Cumulative translation adjustment...........
Common stock subject to redemption..........
-------- ------ ----- --- ---------- -------
Balance at December 31, 1996.................. 117,181 1,172 9,000 90 18,453,332 18,454
1997 Activity (Unaudited):
Net loss....................................
Cash dividends paid on preferred B..........
Dividends payable on preferred A upon
conversion................................
Exercise of stock options................... 121,250 121
Cancellation of common stock................ (16,489) (17)
Issuance of common stock.................... 18,378 18
Redemption of common stock..................
Record legal fees associated with Private
Placement.................................
Cumulative translation adjustment...........
-------- ------ ----- --- ---------- -------
Balance at June 30, 1997 (Unaudited).......... 117,181 $1,172 9,000 $90 18,576,471 $18,576
======== ====== ===== === ========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 105
VASCO CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993............................ $ 481,745 $ (119,633) $ --
Net income............................................ 57,692
Cash dividends paid on preferred B.................... (27,000)
Dividends payable on preferred A upon conversion...... (254)
Issuance of Series B preferred stock.................. 750,783
Exchange of note payable for stock.................... 149,740
Exercise of stock options............................. 12,320
---------- ------------ ---------
Balance at December 31, 1994............................ 1,394,588 (89,195) --
Net loss.............................................. (357,039)
Cash dividends paid on preferred B.................... (108,000)
Dividends payable on preferred A upon conversion...... (254)
Issuance of treasury stock............................ 159,688
Stock compensation.................................... 66,708
Exercise of stock options............................. 78,244
Common stock subject to redemption.................... (190,694) -- --
---------- ------------ ---------
Balance at December 31, 1995............................ 1,508,534 (554,488) --
Net loss.............................................. (9,240,609)
Cash dividends paid on preferred B.................... (108,000)
Dividends payable on preferred A upon conversion...... (160)
Exercise of stock options............................. 5,215
Issuance of common stock.............................. 4,252,240
Issuance of common stock in connection with Lintel
Acquisition........................................ 3,387,769
Conversion of Series A preferred stock................ 667
Cumulative translation adjustment..................... (105,056)
Common stock subject to redemption.................... (371,000) -- --
---------- ------------ ---------
Balance at December 31, 1996............................ 8,783,425 (9,903,257) (105,056)
1997 Activity (Unaudited):
Net loss.............................................. (1,237,145)
Cash dividends paid on preferred B.................... (54,000)
Dividends payable on preferred A upon conversion......
Exercise of stock options............................. 28,817
Cancellation of common stock..........................
Issuance of common stock.............................. 193,145
Redemption of common stock............................
Record legal fees associated with Private Placement... (56,895)
Cumulative translation adjustment..................... (86,470)
---------- ------------ ---------
Balance at June 30, 1997 (Unaudited).................... $8,948,492 $(11,194,402) $(191,526)
========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 106
VASCO CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
--------------------- EQUITY
SHARES AMOUNT (DEFICIT)
------ ------ -------------
<S> <C> <C> <C>
Balance at December 31, 1993.............................. 1,201,250 $ (40,650) $ 339,978
Net income.............................................. 57,692
Cash dividends paid on preferred B...................... (27,000)
Dividends payable on preferred A upon conversion........ (254)
Issuance of Series B preferred stock.................... 750,863
Exchange of note payable for stock...................... 150,000
Exercise of stock options............................... 12,420
--------- --------- -----------
Balance at December 31, 1994.............................. 1,201,250 (40,650) 1,283,699
Net loss................................................ (357,039)
Cash dividends paid on preferred B...................... (108,000)
Dividends payable on preferred A upon conversion........ (254)
Issuance of treasury stock.............................. (217,352) 7,349 167,037
Stock compensation...................................... (250,975) 8,486 75,244
Exercise of stock options............................... (445,000) 17,706 96,000
Common Stock subject to redemption...................... (190,694)
--------- --------- -----------
Balance at December 31, 1995.............................. 287,923 (7,109) 965,993
Net loss................................................ (9,240,609)
Cash dividends paid on preferred B...................... (108,000)
Dividends payable on preferred A upon conversion........ (160)
Exercise of stock options............................... 5,238
Issuance of common stock................................ 4,253,403
Issuance of common stock in connection with Lintel
Acquisition.......................................... (287,923) 7,109 3,395,019
Conversion of Series A preferred stock.................. --
Cumulative translation adjustment....................... (105,056)
Common Stock subject to redemption...................... (371,000)
--------- --------- -----------
Balance at December 31, 1996.............................. -- -- (1,205,172)
1997 Activity (Unaudited):
Net loss................................................ (1,237,145)
Cash dividends paid on preferred B...................... (54,000)
Dividends payable on preferred A upon conversion........ --
Exercise of stock options............................... 28,938
Cancellation of common stock............................ (17)
Issuance of common stock................................ (32,504) 33 193,196
Redemption of common stock.............................. 35,328 (35) (35)
Record legal fees associated with Private Placement..... (56,895)
Cumulative translation adjustment....................... (86,470)
--------- --------- -----------
Balance at June 30, 1997 (Unaudited)...................... 2,824 $ (2) $(2,417,600)
========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 107
VASCO CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 57,692 $(357,039) $(9,240,609)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Acquired in-process research and development......... -- -- 7,350,992
Depreciation and amortization........................ 154,965 483,545 728,734
Interest paid in shares of common stock.............. -- -- 118,750
Deferred income taxes................................ 37,000 (251,000) 162,000
Compensation expense................................. -- 75,244 --
Changes in current assets and current liabilities,
net of acquisitions:
Accounts receivable, net.......................... (391,859) 168,858 (1,067,374)
Inventories, net.................................. (119,323) 53,302 578,143
Other current assets.............................. (129,184) (48,640) (279,940)
Accounts payable.................................. 2,545 (23,911) 459,068
Customer deposits................................. -- -- 1,022,195
Other accrued expenses............................ (47,897) (41,660) (1,728,397)
--------- --------- -----------
Net cash provided by (used in) operations................... (436,061) 58,699 (1,896,438)
--------- --------- -----------
Cash flows from investing activities:
Acquisition of Lintel/Digipass............................ -- -- (4,461,144)
Additions to property and equipment....................... (14,626) (93,749) (283,142)
Capitalized software...................................... (227,985) -- --
--------- --------- -----------
Net cash used in investing activities....................... (242,611) (93,749) (4,744,286)
--------- --------- -----------
Cash flows from financing activities:
Net proceeds from issuance of series B preferred stock.... 750,783 -- --
Series B preferred stock dividends........................ (27,000) (108,000) (108,000)
Net proceeds from sales of common stock................... 12,500 443,237 4,133,605
Proceeds from exercise of stock options................... -- -- 5,238
Redemption of common stock................................ -- -- --
Proceeds from issuance of debt............................ 463,500 810,986 4,986,096
Repayment of debt......................................... (692,177) (404,697) (1,202,178)
--------- --------- -----------
Net cash provided by financing activities................... 507,606 741,526 7,814,761
--------- --------- -----------
Effect of exchange rate changes on cash..................... -- -- (105,056)
--------- --------- -----------
Net increase (decrease) in cash............................. (171,066) 706,476 1,068,981
Cash, beginning of period................................... 209,202 38,136 744,612
--------- --------- -----------
Cash, end of period......................................... $ 38,136 $ 744,612 $ 1,813,593
--------- --------- -----------
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 80,747 $ 67,087 $ 51,929
========= ========= ===========
Supplemental disclosure of noncash investing and financing
activities:
Fair value of assets acquired from Lintel/Digipass........ $12,003,644
Cash paid................................................. (4,461,144)
-----------
Notes payable, common stock and warrants issued........... $ 7,542,500
===========
Common stock issued upon conversion of Series A
preferred stock........................................ $ 2,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 108
VASCO CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(2,924,751) $(1,237,145)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Acquired in-process research and development........... 2,900,031 --
Depreciation and amortization.......................... 48,524 528,939
Interest paid in shares of common stock................ -- 193,196
Deferred income taxes.................................. -- --
Compensation expense................................... -- --
Changes in current assets and current liabilities, net
of acquisitions:
Accounts receivable, net............................. (319,896) 470,472
Inventories, net..................................... (186,560) 305,836
Other current assets................................. 9,334 85,422
Accounts payable..................................... (6,830) (1,084,972)
Customer deposits.................................... -- (564,158)
Other accrued expenses............................... (70,394) 123,050
----------- -----------
Net cash provided by (used in) operations................... (550,542) (1,179,360)
----------- -----------
Cash flows from investing activities:
Acquisition of Lintel/Digipass............................ (315,482) --
Additions to property and equipment....................... (86,496) (39,870)
Capitalized software...................................... -- --
----------- -----------
Net cash used in investing activities....................... (401,978) (39,870)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of series B preferred stock.... -- --
Series B preferred stock dividends........................ (54,000) (54,000)
Net proceeds from sales of common stock................... 2,830,000 (56,895)
Proceeds from exercise of stock options................... 28,938
Redemption of common stock................................ (247,261)
Proceeds from issuance of debt............................ 5,000,000 2,716,141
Repayment of debt......................................... (671,308) (32,126)
----------- -----------
Net cash provided by financing activities................... 7,104,692 2,354,797
----------- -----------
Effect of exchange rate changes on cash..................... -- (86,470)
----------- -----------
Net increase (decrease) in cash............................. 6,152,172 1,049,097
Cash, beginning of period................................... 744,612 1,813,593
----------- -----------
Cash, end of period......................................... $ 6,896,784 $ 2,862,690
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 50,995 $ 106,411
=========== ===========
Supplemental disclosure of noncash investing and financing
activities:
Fair value of assets acquired from Lintel/Digipass........ $ 4,142,518
Cash paid................................................. (289,482)
-----------
Notes payable, common stock and warrants issued........... $ 3,853,036
===========
Common stock issued upon conversion of Series A preferred
stock..................................................
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 109
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
VASCO CORP. and its wholly owned subsidiaries, VASCO Data Security, Inc.,
and VASCO Data Security NV/SA (the Company), offer a variety of computer
security products and services. The Company's patented and proprietary hardware
and software products provide computer security, Advanced Authentication
Technology and RSA/DES encryption for financial institutions, industry and
government. The primary market for these products is Europe.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of VASCO CORP.
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenues from the sale of computer security hardware and imbedded software
are recorded upon shipment assuming that no significant vendor obligations
remain outstanding and collectibility is reasonably assured.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the related assets
ranging from three to seven years. Additions and improvements are capitalized,
while expenditures for maintenance and repairs are charged to operations as
incurred. The cost and accumulated depreciation of property sold or retired are
removed from the respective accounts and the resultant gains or losses, if any,
are included in current operations.
Software Costs
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86. Research and
development costs, prior to the establishment of technological feasibility,
determined based upon the creation of a working model, are expensed as incurred.
The Company's policy is to amortize capitalized costs by the greater of (a) the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product, generally two
to five years, including the period being reported on. Unamortized capitalized
costs determined to be in excess of the net realizable value of a product are
expensed at the date of such determination.
The Company expensed $54,207, $444,795 and $180,275 in 1994, 1995 and 1996,
respectively, for the amortization of capitalized software costs. Approximately
$350,000 of fiscal 1995 amortization is as a result of the Company's revision of
the remaining estimated economic life of previously capitalized development
costs, resulting in acceleration of the amortization of these assets.
F-19
<PAGE> 110
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are accounted for under 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 amounts 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.
Fair Value of Financial Instruments and Long-Lived Assets
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. The fair values of the Company's
financial instruments were not materially different from their carrying amounts
at December 31, 1996 and 1995, except for notes payable and long-term debt, for
which the fair value is not determinable.
Stock-Based Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize the compensation
expense associated with the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principles Board (APB) Opinion 25, "Accounting for
Stock Issued to Employees," and provide pro forma net income and earnings per
share disclosures as if the fair value method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion 25 and
provide the pro forma disclosures of SFAS No. 123.
Foreign Currency Translation and Transactions
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Accordingly, assets and liabilities are translated into U.S. dollars using
current exchange rates as of the balance sheet date. Revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments arising from differences in exchange rates are included as a
separate component of stockholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations.
Goodwill
Goodwill is amortized on a straight-line basis over the expected period to
be benefited, which is seven years. Adjustments to the carrying value of
goodwill are made if the sum of expected future undiscounted net cash flows from
the business acquired is less than the book value of goodwill.
Income (Loss) per Common Share
Income (loss) per common share in fiscal 1994, 1995 and 1996 has been
computed using the weighted average number of common shares outstanding during
the year. Common stock equivalents and the effect of conversion of preferred
stock have been excluded from the calculation of loss per common share for
fiscal 1995 and 1996 as such items are anti-dilutive. Income per common share in
1994 is computed considering the dilutive effect of common stock equivalents,
consisting primarily of options.
F-20
<PAGE> 111
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications and Restatement
Certain prior year balances have been reclassified to conform to the 1996
presentation. Based on an analysis of information not previously considered,
management has determined that certain accounts receivable were doubtful of
collection and a certain sale should be deferred as of December 31, 1994. As a
result, the Company has restated the accompanying 1994 financial statements, the
effect of which was to decrease net income by $80,000.
NOTE 2 -- ACQUISITIONS
Effective March 1, 1996, the Company acquired a 15% interest in Lintel NV
(Lintel). On June 1, 1996, the Company acquired the remaining 85% of Lintel.
Lintel, located in Brussels, Belgium, was a developer of security technologies
for personal computers, computer networks and telecommunications systems, using
cryptographic algorithms such as DES and RSA. The results of Lintel's operations
are included in the Company's consolidated statement of operations from March 1,
1996 with minority interest being reflected in other expense in the consolidated
statement of operations for the period from March 1, 1996 to June 1, 1996. The
purchase price was $4,432,000, consisting of $289,482 in cash, $747,500 in 8%
convertible notes payable due May 30, 1998 and convertible to common stock at a
rate of $7.00 per share, 428,574 shares of the Company's common stock valued at
$7.00 per share, and 100,000 purchase warrants for the Company's common stock at
an exercise price of $7.00. The warrants were recorded at their fair value on
the date of grant.
The acquisition of Lintel was accounted for as a purchase and, accordingly,
the acquired assets have been recorded at their estimated fair values at the
date of the acquisition. Acquired in-process research and development in the
amount of $2,900,000 was expensed during 1996 in conjunction with the
acquisition, based upon an independent third-party valuation. Goodwill related
to this transaction was $387,000, which is being amortized over a period of
seven years.
Effective July 1, 1996, the Company acquired Digipass s.a. (Digipass).
Digipass, located in Belgium, was a developer of security technologies for
personal computers, computer networks and telecommunications systems using the
DES cryptographic algorithm. Prior to the Company's acquisition of Digipass, the
assets of the interactive voice response (IVR) business of Digiline SA were
transferred to Digipass. Digipass' IVR products are used primarily in
telebanking applications and in corporate authentication and access control
technology. The purchase price was $8,200,000, with $4,800,000 being paid at the
effective date of the acquisition, and the balance of $3,400,000 due on or
before December 31, 1997 (see Note 13).
The acquisition of Digipass was accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of the acquisition. Acquired in-process
research and development in the amount of $4,451,000 was expensed during 1996,
based upon an independent third-party valuation. Goodwill related to this
transaction was $491,000, which is being amortized over a period of seven years.
The results of operations for Digipass have been included in the consolidated
statement of operations subsequent to July 1, 1996.
Other assets, resulting from the acquisitions of Lintel and Digipass, are
comprised of the following at December 31, 1996 (net of accumulated
amortization):
<TABLE>
<S> <C>
Software and hardware technology............................ $1,540,417
Workforce................................................... 514,167
Customer lists.............................................. 498,524
----------
$2,553,108
==========
</TABLE>
F-21
<PAGE> 112
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Software and hardware technology is being amortized over a period of three
to four years while workforce and customer lists are being amortized over a
period of seven years. Amortization of these assets was $374,892 for the year
ended December 31, 1996.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisitions had occurred at the beginning of 1996. This
summary is provided for informational purposes only. It does not necessarily
reflect the actual results that would have occurred had the acquisitions been
made as of those dates or of results that may occur in the future.
<TABLE>
<CAPTION>
1996
----
<S> <C>
Total revenues.............................................. $13,654,420
Net loss.................................................... (9,507,076)
Net loss per common share................................... (0.53)
</TABLE>
NOTE 3 -- INVENTORIES
Inventories, consisting principally of hardware and component parts, are
stated at the lower of cost or market. Cost is determined using the
first-in-first-out (FIFO) method.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---- ----
<S> <C> <C>
Component parts........................................ $ 260,243 $ 338,325
Work-in-process and finished goods..................... 72,915 1,998,286
Obsolescence reserves.................................. (113,585) (153,868)
--------- ----------
$ 219,573 $2,182,743
========= ==========
</TABLE>
The Company uses multiple suppliers for the microprocessors used in the
production of hardware products, as well as for the assembly of the products.
The microprocessors are the only components of the Company's hardware devices
that would be considered non-commodity items and may not be readily available on
the open market. There is, however, an inherent risk associated with each
supplier of microprocessors. In order to increase orders of microprocessors a
lead time of 12 weeks is typically needed. The Company maintains a sufficient
inventory of all parts to handle short-term spikes in order quantities.
NOTE 4 -- OTHER ACCRUED EXPENSES
Other accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
---- ----
<S> <C> <C>
Accrued expenses......................................... $ 7,264 $330,919
Accrued interest......................................... 22,967 126,966
Accrued payroll.......................................... 10,555 --
Accrued dividends........................................ 1,566 196,977
Professional fees........................................ 30,000 --
Other.................................................... 29,720 3,222
-------- --------
$102,072 $658,084
======== ========
</TABLE>
F-22
<PAGE> 113
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards
approximating $1,626,000. Such losses are available to offset future taxable
income at VASCO CORP. and its U.S. subsidiary and expire in varying amounts
beginning in 2010 and continuing through 2011. In addition, if certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the carryforward which could be utilized. In
fiscal 1994 and 1995, the Company had no current tax provision due to the
utilization of approximately $96,000 and $66,000 respectively, of loss
carryforward benefits.
The differences between income taxes at the statutory federal income tax
rate of 34% and the provisions (benefits) for income taxes reported in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate...................... 34.0% (34.0)% (34.0)%
State income taxes, net of federal benefit............. 4.5 (4.6) (4.8)
Adjustment of prior year accrual....................... -- (2.8) --
Valuation allowance.................................... -- -- 37.8
Other, net............................................. 0.6 0.1 1.1%
---- ----- -----
39.1% (41.3)% 0.1%
==== ===== =====
</TABLE>
The deferred income tax balances are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.......................... $358,000 $631,000
Inventory................................................ 45,000 60,000
Accounts receivable...................................... 72,000 175,000
Fixed assets............................................. -- 44,000
Other.................................................... 31,000 4,000
-------- --------
Total gross deferred income tax assets................... 506,000 914,000
Less valuation allowance................................. -- (631,000)
-------- --------
Net deferred income tax assets........................... 506,000 283,000
Deferred tax liabilities:
Research and development costs........................... (61,000) --
-------- --------
Net deferred income taxes................................ $445,000 $283,000
======== ========
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1995 and 1996 was $-0- and an increase of $631,000, respectively.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which these temporary differences become deductible. This assessment was
performed considering the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies. The Company has
determined that it is more likely than not that $283,000 of deferred tax assets
will be realized. The remaining valuation allowance of $631,000 is maintained on
deferred tax assets which the Company has not determined to be more likely than
not realizable at this time. This valuation allowance will be reviewed on a
regular basis and adjustments made as appropriate.
F-23
<PAGE> 114
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---- ----
<S> <C> <C>
Bank notes, interest payable at prime plus 1%............... $ 664,050 $ --
Stockholder loan, interest payable at prime plus 1%......... 190,000 --
Convertible stockholder note, interest payable at 9%........ -- 5,000,000
Convertible notes, interest payable at 8%................... -- 713,750
Note related to Digipass acquisition, interest payable at
5.33%..................................................... -- 3,400,000
Installment notes payable................................... -- 88,578
Installment notes payable, secured by certain equipment of
the Company............................................... 16,936 2,582
--------- ----------
870,986 9,204,910
Less current maturities and notes payable................... (863,728) (3,491,160)
--------- ----------
Long-term debt.............................................. $ 7,258 $5,713,750
========= ==========
</TABLE>
The Company borrowed $130,000 from its principal stockholder in fiscal
1995, increasing the total amount outstanding to that stockholder at December
31, 1995 to $190,000. Interest on this note was the prime rate (8.5% at December
31, 1995) plus 1%. The amount was paid in full in 1996.
In September 1995, the Company entered into a $1.2 million credit facility
with a bank consisting of a $700,000 note due February 29, 1996 and a $500,000
note due June 30, 1996. The $700,000 note is secured by separately identifiable
export-related accounts receivable and inventory. This note is guaranteed by the
principal stockholder. The $500,000 note is secured by all of the tangible
assets of the Company, with $250,000 guaranteed by the principal stockholder.
Both notes bear interest at the prime rate plus 1%. Amounts outstanding at
December 31, 1995 were $599,530 and $64,520 under each respective note. This
credit facility was paid in full in 1996 and not renewed. The Company is
currently investigating additional capital formation alternatives including the
issuance of additional debt and/or the sale of equity securities (see Note 13).
The Company will continue to explore all capital formation alternatives that
will facilitate growth within the parameters set forth by its Board of
Directors.
During 1996, the Company acquired two companies located in Europe (see Note
2). To facilitate the first acquisition, Lintel, one component of the purchase
price was represented by two convertible notes payable in the amount of $373,750
($747,500 total) due May 30, 1998. The notes are convertible at the holders'
option at a rate of $7.00 per share of common stock. In October 1996, one of
these notes was paid down by $33,750, leaving the balance of $713,750 at
December 31, 1996. Each of these notes bears an interest rate of 8%, with
interest payments made on a quarterly basis. At the holders' option, the
interest may be paid either in cash or in common stock of the Company. In
calculating the shares of common stock to be issued in lieu of cash interest,
the average closing price for the Company's common stock for the previous 20
trading days is used.
The consideration related to the 1996 Digipass acquisition included a note
payable in the amount of $3,400,000 due December 31, 1997 (see Note 13). This
note bears interest at an effective rate of 5.33%, with interest payments
payable monthly beginning January 1, 1997. The Company has a bank guarantee on
this note for which it pays 2% annually on the outstanding note balance.
During 1996, the Company continued to raise capital privately, including a
private placement consisting of the issuance of 666,666 shares of common stock
and a $5,000,000 convertible note due May 28, 2001. The note bears interest at
9%, with interest payable to the holder on a quarterly basis. The holder may, at
its option, elect to receive interest payments in cash or common stock. In
calculating the shares of common stock to be
F-24
<PAGE> 115
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued in lieu of cash interest, the average closing price for the Company's
common stock for the previous 20 trading days is used.
Aggregate maturities of debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $3,491,160
1998........................................................ 713,750
1999........................................................ --
2000........................................................ --
2001........................................................ 5,000,000
----------
Total................................................ $9,204,910
==========
</TABLE>
Interest expense to stockholders was $9,600, $12,900 and $265,565 for the
years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 7 -- STOCKHOLDERS' EQUITY
Preferred Stock
The Company has the authority to issue 500,000 shares of preferred stock of
which 317,181 have been designated Series A, 8% convertible preferred stock and
9,500 have been designated Series B, 12% convertible preferred stock. The
remaining 173,319 shares are undesignated.
The Series A, 8% convertible preferred stock (Series A Shares) consists of
317,181 shares that carry a cumulative dividend, payable upon conversion, of 8%
per annum. During 1996, 200,000 Series A Shares were converted into 1,333,333
shares of common stock, leaving 117,181 Series A Shares outstanding at December
31, 1996. The remaining shares are convertible at the option of the holder, at
any time, into 781,206 shares of common stock. The holder of the Series A Shares
is entitled to cast that number of votes per share as is equal to the number of
full shares of common stock into which shares are convertible. Cumulative
dividends, which become payable upon conversion of the Series A Shares, have
been accrued in the Company's financial statements.
The Series B, 12% convertible preferred stock (Series B Shares) consists of
9,000 shares that carry a cumulative dividend, payable monthly, of 12% per annum
based on a liquidation value of $100 per share. The Series B Shares are
convertible, at the option of the holders or the Company, into shares of the
Company's common stock, at a price per share determined by dividing the
liquidation value of such shares, or $100, by 50% of the average of the bid and
ask price of the Company's common stock for 20 days prior to the conversion
date. Dividends are payable monthly at the rate of 1% per month, provided that
if dividends are delinquent for more than a month, and for so long as such
delinquency continues, the monthly dividend rate shall be 1.5%. In addition,
holders of the Series B Shares have the right, with proper notice, to purchase
common stock in satisfaction of accrued and unpaid dividends at a price per
common share determined by dividing the accrued and unpaid dividends by 50% of
the average of the bid and ask price of the Company's common stock for 20 days
prior to the notice of such shareholder to purchase such shares of common stock.
The Series B Shares are non-voting, except with respect to certain amendments
changing the terms of such shares or creating any class of preferred stock
ranking prior to, or on a parity with the Series B Shares. In addition, if the
monthly dividend is more than 30 days in arrears and remains in arrears, after
proper notice by a holder of Series B Shares, a majority of the holders of such
shares shall be entitled to elect a majority of the Board of Directors until the
default in the dividend payments has been paid in full. Of the total Series B
Shares outstanding, 4,000 shares are convertible after March 1997 and the
remaining 5,000 shares are convertible after September 1997. Total issue fees
and costs have been netted against proceeds from the placement.
F-25
<PAGE> 116
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock
During 1996, the Company reissued 287,923 shares of treasury stock, issued
140,651 shares of common stock and 100,000 warrants to purchase one share of
common stock at $7.00 as a part of the acquisition of Lintel (see Note 2). In
addition, the Company continued to raise money through private placements of its
common stock. In the first quarter of 1996, the Company privately placed 167,482
shares of common stock and 83,741 warrants to purchase one share of common stock
at $6.00, generating $284,720 in net proceeds. The warrants are exercisable at
the option of the holder, however, the Company maintains the right to require
exercise of the warrants 30 days prior to a public offering of the Company's
stock.
During the second quarter of 1996, the Company placed 666,666 shares of
common stock with 137,777 warrants to purchase one share of common stock at
$4.50. Total issue fees and costs of $170,000 have been netted against
$3,000,000 of proceeds from the placement in the Company's financial statements.
In addition, 55,555 shares of common stock and 8,889 warrants to purchase one
share of common stock at $4.50 were issued as commissions related to the
placement.
The Company raised additional funds in a private placement of 237,060
shares of common stock with 35,329 warrants to purchase one share of common
stock at $4.50. Total issue fees and costs of $47,885 have been netted against
the $1,066,770 in total proceeds from the placement in the Company's financial
statements. In addition, 16,489 shares of common stock were issued as
commissions related to the placement.
Additional common stock transactions during 1996 were as follows: 1,333,333
shares of common stock were issued pursuant to the conversion of 200,000 shares
of Series A preferred stock; 22,500 shares of common stock were issued as a
result of the exercise of options under the Company's incentive stock option
plan (see Note 8) for total proceeds of $5,238; and 20,021 shares of common
stock were issued in lieu of an interest payment in the amount of $118,750
related to the private debt placement that occurred during 1996 (see Note 6).
During 1995, the Company reissued from treasury and privately placed
108,676 equity units, each consisting of two shares of common stock with one
warrant to purchase one share of common stock at $6.00. The warrants are
exercisable at the option of the holder, however, the Company maintains the
right to require exercise of the warrants 30 days prior to a public offering of
the Company's stock. Total issue fees and costs have been netted against the
proceeds from the placement in the Company's financial statements. Included in
the 108,676 equity units are 53,000 equity units subject to redemption at a
price of $7.00 per share, or $14.00 per equity unit. In March 1997, 17,664 of
these equity units were redeemed at $14.00 per equity unit, with 70,667 warrants
to purchase one share of common stock at $5.19 being issued to the holders of
the redeemed units.
During 1995, the Company also reissued 250,975 shares of treasury stock and
issued 50,000 shares of common stock to certain key employees, including 43,175
to the principal stockholder. Compensation expense of $75,244 was recorded based
on the fair market value of the shares at the date of issuance. A further 50,000
shares of common stock were issued and 445,000 shares of treasury stock reissued
as a result of the exercise of options under the Company's incentive stock
option plan (see Note 8) for total proceeds of $96,000.
NOTE 8 -- STOCK OPTION PLAN
The Company's 1987 Stock Option Plan, as amended, (Option Plan) is designed
and intended as a performance incentive. The Option Plan is administered by the
Compensation Committee as appointed by the Board of Directors of the Company
(Compensation Committee).
The Option Plan permits the grant of options to employees of the Company to
purchase shares of common stock intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (Code). All
options granted to employees are for a period of ten years, are granted at a
F-26
<PAGE> 117
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price equal to the fair market value of the common stock on the date of the
grant and are vested 25% on the date of grant and an additional 25% on each
subsequent anniversary of the grant.
The Option Plan further permits the grant of options to directors,
consultants and other key persons (non-employees) to purchase shares of common
stock not intended to qualify as incentive stock options under the Code. All
options granted to non-employees are for a period of ten years, are granted at a
price equal to the fair market value of the common stock on the date of the
grant, and may contain vesting requirements and/or restrictions as determined by
the Compensation Committee at the time of grant. These options are vested 50%
six months from the date of grant and the remaining 50% on the first anniversary
of the date of grant.
During 1996, the Compensation Committee increased the shares authorized
under the Option Plan by 500,000 to 3,000,000.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Option Plan. Had compensation cost for the Option Plan been
determined consistent with SFAS No. 123, the Company's net loss available to
common stockholders and net loss per common share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---- ----
<S> <C> <C>
Net loss available to common stockholders
As reported............................................... $(465,293) $(9,348,769)
Pro forma................................................. (472,846) (9,542,493)
Net loss per common share
As reported............................................... $ (0.03) $ (0.53)
Pro forma................................................. (0.03) (0.54)
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1995 and 1996: dividend yield of 0%;
expected volatility of 50%; risk free interest rates ranging from 6.29% to
7.58%; and expected lives of five years.
The following is a summary of activity under the Option Plan:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS AVERAGE OPTIONS AVERAGE
OUTSTANDING PRICE EXERCISABLE PRICE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993..................... 2,138,211 $0.20 2,010,086 $0.20
Granted.............................................. 235,000 0.25
Exercised............................................ (100,000) 0.38
Forfeited............................................ (424,954) 0.19
--------- ----- --------- -----
Outstanding at December 31, 1994..................... 1,848,257 0.20 1,761,382 0.19
Granted.............................................. 411,000 0.20
Exercised............................................ (495,000) 0.18
Forfeited............................................ (338,875) 0.18
--------- ----- --------- -----
Outstanding at December 31, 1995..................... 1,425,382 0.20 1,232,257 0.20
Granted.............................................. 335,000 4.65
Exercised............................................ (22,750) 0.23
Forfeited............................................ (76,000) 2.14
--------- ----- --------- -----
Outstanding at December 31, 1996..................... 1,661,632 $1.01 1,299,757 $0.57
========= ===== ========= =====
</TABLE>
F-27
<PAGE> 118
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF SHARES CONTRACTUAL LIFE PRICE OF SHARES PRICE
------------------------ --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$4.25 - 6.00......................... 301,500 9.35 years $4.65 104,000 $4.84
$.125 - .375......................... 1,360,132 4.38 years $0.20 1,195,757 $0.20
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLAN
The Company maintains a contributory profit sharing plan established
pursuant to the provisions of Section 401(k) of the Internal Revenue Code which
provides benefits for eligible employees of the Company. The Company made no
contributions to the plan during the years ended December 31, 1994, 1995 and
1996.
NOTE 10 -- GEOGRAPHIC AND CUSTOMER INFORMATION
During 1994, 1995 and 1996, sales to one customer (a reseller of the
Company's products) aggregated approximately $1,209,000, $2,259,000 and
$4,475,000, respectively, representing 45%, 61% and 44% of the total revenues,
respectively. Accounts receivable from this customer represented 87% and 31% of
the Company's gross accounts receivable balance at December 31, 1995 and 1996,
respectively. Sales to foreign customers, primarily located in Europe,
aggregated $1,296,000, $2,333,000 and $9,730,000 for the years ended December
31, 1994, 1995 and 1996, respectively.
Information regarding geographic areas for the year ended December 31, 1996
is as follows:
<TABLE>
<CAPTION>
UNITED STATES FOREIGN ELIMINATIONS TOTAL
------------- ------- ------------ -----
<S> <C> <C> <C> <C>
Sales to unaffiliated customers........... $ 462,018 $ 9,730,467 $10,192,485
Operating loss............................ (2,918,615) (5,738,899) $ (440) (8,657,954)
Identifiable assets....................... 12,737,569 8,755,951 (9,125,965) 12,367,555
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under operating lease
agreements expiring at various times through 1998.
Future minimum rental payments required under noncancelable leases are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997........................................................ $182,000
1998........................................................ 61,000
--------
$243,000
========
</TABLE>
Rent expense under operating leases aggregated approximately $54,000,
$60,000 and $158,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of its business and have not been finally adjudicated. These
actions, when ultimately concluded and determined, will not, in the opinion of
management, have a material adverse impact on the financial position of the
company.
F-28
<PAGE> 119
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods. All such adjustments
are of a normal recurring nature. The interim results are not necessarily
indicative of those for the full year.
NOTE 13 -- SUBSEQUENT EVENTS
On March 13, 1997, the Company entered into an original equipment
manufacturer agreement with Netscape to purchase and resell Netscape products.
The term of the agreement is for one year and contains a guaranteed minimum
purchase requirement by the Company in the amount of $840,000, payable in
quarterly installments.
On May 1, 1997, the Company entered into a distributor agreement with
HUCOM, Inc. to provide HUCOM with the exclusive rights to market the Company's
products throughout Japan. The agreement calls for a guaranteed minimum purchase
requirement by HUCOM of $500,000 for 1997 and $1,000,000 for 1998.
On June 5, 1997, the Company entered into a software licensing agreement
with Shiva Corporation. The Company licensed a security server software marketed
as VACMan (VASCO Access Control Manager) from Shiva on a royalty basis. In
addition, the agreement calls for the Company and Shiva to co-develop additional
products which will be sold by both companies.
On June 27, 1997, the Company entered into a new financing agreement with a
European bank. The new agreement provides for $2.5 million in financing, matures
on September 30, 1998, bears interest at a rate of 3.25% annually and is
convertible into common stock of the Company at the option of the bank. The
proceeds of the financing will be used for general corporate purposes.
On August 20, 1997, the Company renegotiated the guarantee related to the
final payment for the 1996 acquisition of Digipass into a term loan in the
amount of $3.4 million. The note matures on September 30, 2002 and bears
interest at a rate of 3.25% annually. In addition, the note is convertible into
common stock of the Company at the option of the bank.
F-29
<PAGE> 120
LINTEL NV
BELGIUM
FINANCIAL STATEMENTS INCLUDING
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1995
F-30
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
February 27, 1997
To the Board of Directors and Shareholders
of Lintel NV
Chaussee de Courcelles 113
6041 Charleroi
Belgium
We have audited the accompanying statement of financial position of Lintel
NV as of December 31, 1995 and the related statements of operations, cash flows
and accumulated deficit, expressed in thousands of Belgian francs, for the years
ended December 31, 1995 and 1994. These financial statements were prepared using
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements expressed in thousands of Belgian
francs present fairly, in all material respects, the financial position of
Lintel NV as of December 31, 1995 and the results of its operations and cash
flows for the years ended December 31, 1995 and 1994 in conformity with
accounting principles generally accepted in the United States of America.
Yours faithfully
Price Waterhouse and Partners
/s/ L. Hellebaut
L. Hellebaut
F-31
<PAGE> 122
LINTEL NV
STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 1995
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
BEF 000
-------
<S> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ 2,890
Accounts receivable -- trade................................ 15,089
Inventories (note 2)........................................ 3,075
Other current assets........................................ 1,515
-------
Total current assets........................................ 22,569
Property, plant and equipment (note 3)...................... 1,296
Other assets................................................ 242
-------
TOTAL ASSETS................................................ 24,107
=======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable............................................ 15,375
Short-term debt (note 4).................................... 785
Income taxes payable (note 12).............................. --
Other accounts payable and accrued expenses (note 5)........ 6,949
-------
Total current liabilities................................... 23,109
Long term debt (note 6)..................................... 4,215
-------
Total liabilities........................................... 27,324
-------
STOCKHOLDER'S DEFICIT
Common stock (note 7)....................................... 7,700
Accumulated deficit (note 8)................................ (10,917)
-------
Total Stockholder's Deficit................................. (3,217)
-------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT................. 24,107
=======
</TABLE>
The accompanying notes 1 to 9 are an integral part of these financial
statements.
F-32
<PAGE> 123
LINTEL NV
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
------- -------
<S> <C> <C>
Net sales -- trade.......................................... 46,134 55,599
------- -------
Cost of goods sold.......................................... (30,341) (28,186)
Selling, general and administrative expenses................ (22,027) (20,778)
Depreciation and amortisation............................... (954) (3,011)
------- -------
Total operating costs..................................... (53,322) (51,975)
------- -------
Income/(loss) from operations............................... (7,188) 3,624
Interest expense............................................ (1,199) (1,355)
Exchange gains.............................................. 385 --
Other losses................................................ (45) (92)
------- -------
Income/(loss) before income taxes........................... (8,047) 2,177
Income taxes (note 9)....................................... 491 (561)
------- -------
Net income/(loss) for the year.............................. (7,556) 1,616
======= =======
</TABLE>
The accompanying notes 1 to 9 are an integral part of these financial
statements.
F-33
<PAGE> 124
LINTEL NV
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss)......................................... (7,556) 1,616
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortisation........................ 954 3,011
(Increase)/decrease in accounts receivable........... 509 (8,578)
Increase in inventories.............................. (1,644) (62)
(Increase)/decrease in other assets.................. (912) 2,663
Increase in accounts payable......................... 9,690 1,212
(Decrease)/increase in other payables and accrued
expenses............................................ (1,800) 1,788
------ ------
Net cash used in operating activities....................... (759) 1,650
------ ------
Cash flows from investing activities:
Capital expenditures...................................... (787) (533)
------ ------
Net cash used in investing activities....................... (787) (533)
------ ------
Cash flows from financing activities:
Principal repayments of long-term debt.................... (645) (836)
Net borrowings under line-of-credit arrangements.......... 566 246
------ ------
Net cash used in financing activities....................... (79) (590)
------ ------
Net increase/(decrease) in cash............................. (1,625) 527
Cash at the beginning of the year........................... 4,515 3,988
------ ------
Cash at the end of the year................................. 2,890 4,515
====== ======
</TABLE>
The accompanying notes 1 to 9 are an integral part of these financial
statements.
F-34
<PAGE> 125
LINTEL NV
STATEMENTS OF THE ACCUMULATED DEFICIT FOR THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
------- -------
<S> <C> <C>
Balance, beginning of year.................................. (3,361) (4,977)
Net income/(loss) of the year............................... (7,556) 1,616
------- ------
Balance, end of the year.................................... (10,917) (3,361)
======= ======
</TABLE>
The accompanying notes 1 to 9 are an integral part of these financial
statements.
F-35
<PAGE> 126
LINTEL NV
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lintel NV, a Belgian limited company incorporated on December 20, 1983,
manufactures and distributes computer security products primarily in Europe. The
entity provides companies with generic, cryptographic products to safeguard the
handling and transfer of electronic data against fraud and intrusion. Their
products consist of public algorithms for data protection in financial and
commercial applications. End-users are software houses, OEM's and others looking
to integrate encryption modules or tools into their products or systems.
49% and 22% of the company's sales for 1995 and 1994 respectively, were to
one customer, a major Dutch financial institution, who represented approximately
80% of trade receivables at December 31, 1995. Management maintains a close
relationship with the customer's management, has never experienced any
collection problems to date and does not anticipate any problems in collecting
currently outstanding receivables.
On March 1, 1996, the assets and liabilities of the company were sold to a
newly incorporated limited company named Lintel Security NV, which was
subsequently acquired by VASCO Data Security International Inc.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from the sale of products are recorded upon shipment of goods,
assuming collectibility is reasonably assured, and are reported net of
value-added taxes, discounts and allowances. The principal elements of cost of
goods sold are components and manufacturing costs.
TRANSLATION OF FOREIGN CURRENCY
Foreign currency transactions are recorded in Belgian francs at the
exchange rates approximating those prevailing at the time of the transactions.
Unsettled transactions are translated into Belgian francs at period-end rates.
Gains and losses resulting from setting and remeasuring foreign currency
transactions are recognized in income currently.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for property, plant and equipment are recorded at cost.
Maintenance, repairs and minor renewals are expensed when incurred.
Depreciation is computed, using the straight-line method, over the
estimated useful lives of the assets, ranging from 3 to 5 years.
F-36
<PAGE> 127
LINTEL NV
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS) -- (CONTINUED)
INVENTORIES
Inventories, consisting principally of chips and cards, are stated at the
lower of cost or market value. Cost is determined using the first-in first-out
(FIFO) method. When required, appropriate provisions are made for obsolete and
slow-moving items.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs incurred prior to establishment of
technological feasibility are charged to operations. Research and development
costs for 1995 and 1994 were BEF 3,650,000, and BEF 2,008,000, respectively.
Software development costs incurred subsequently to establishment of
technological feasibility were not material.
INCOME TAXES
The company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been reported in the
company's financial statements or tax returns. In estimating future tax
consequences, the company considers all expected future events other than
changes in tax law or rates.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Goods for Resale............................................ 3,075
</TABLE>
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Furniture................................................... 3,330
Vehicles.................................................... 948
------
4,278
Less accumulated depreciation............................... (2,982)
------
1,296
======
</TABLE>
NOTE 4 -- SHORT-TERM DEBT
Short-term debt represents short-term borrowings, overdrafts and current
maturities of long-term debt with credit institutions.
NOTE 5 -- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Amounts payable to directors................................ 2,601
Accrued charges............................................. 573
Credit institutions......................................... 3,775
-----
6,949
=====
</TABLE>
F-37
<PAGE> 128
LINTEL NV
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS) -- (CONTINUED)
Credit institutions include accrued interest on the long term debt.
NOTE 6 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
NKBK bank loan.............................................. 3,650
Credit institutions......................................... 565
-----
4,215
=====
</TABLE>
On July 5, 1993, Lintel borrowed BEF 2,500,000 from the "Nationale Kas voor
Beroepskrediet" (NKBK), in the form of an advance under a 10-year credit
facility. The advance is subject to interest at a rate of 9.10 per cent per
annum. This rate is subject to revision after the first five years to the extent
that the market rate at that time for similar instruments is different by more
than 0.50 per cent. No repayments of principal are scheduled for the first five
years, during which period the rate of interest is reduced to 5.00 per cent per
annum. The advance is repayable in equal quarterly instalments over the second
tranche of five years. The nominal rate of interest applicable to this period
may also be subject to reduction at the lender's discretion.
On May 18, 1993, Lintel received a further loan of BEF 3,500,000 from the
"Nationale Kas voor Beroepskrediet" which is repayable within 5 years and bears
interest at the rate of 7.90% per annum.
NOTE 7 -- COMMON STOCK
Total number of authorised and issued shares amounts to 110. All shares are
bearer shares, are fully paid up, have equal voting rights, have no par value
and are privately owned.
NOTE 8 -- ACCUMULATED DEFICIT
Accumulated deficit include reserves amounting to BEF 2,934,000 at December
31, 1994 and BEF 3,350,000 at December 31, 1995.
NOTE 9 -- INCOME TAXES
The actual income tax expense attributable to earnings for the years ended
December 31, 1995 and 1994 differed from the amounts computed by applying the
effective Belgian federal tax rate to pre-tax earnings, as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Computed "expected" tax expense (benefit)................... (3,232) 874
Tax effect of permanent differences......................... 2,741 499
Prior year adjustments to taxable basis..................... -- (812)
------ ----
Provision for income taxes.................................. (491) 561
====== ====
</TABLE>
There are no significant temporary differences between the assets and
liabilities reported for tax purposes and those presented in the combined
financial statements which would give rise to deferred taxes. The company has no
losses available for carry forward under Belgian tax regulations.
F-38
<PAGE> 129
DIGIPASS SA AND DIGILINE SA
BELGIUM
COMBINED FINANCIAL STATEMENTS
INCLUDING REPORT OF
INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1995
F-39
<PAGE> 130
February 27, 1997
To the Board of Directors and Shareholders
of Digipass SA and Digiline SA
Chaussee de Courcelles 113
6041 Charleroi
Belgium
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying combined statement of financial position
of Digipass SA and Digiline SA as of December 31, 1995 and the related combined
statements of operations, cash flows and accumulated deficit, expressed in
thousands of Belgian francs, for the years ended December 31, 1995 and 1994.
These financial statements were prepared using accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements expressed in thousands of Belgian
francs present fairly, in all material respects, the combined financial position
of Digipass SA and Digiline SA as of December 31, 1995 and the combined results
of their operations and cash flows for the years ended December 31, 1995 and
1994 in conformity with accounting principles generally accepted in the United
States of America.
Yours faithfully
Price Waterhouse and Partners
/s/ L. Hellebaut
L. Hellebaut
F-40
<PAGE> 131
DIGIPASS SA AND DIGILINE SA
COMBINED STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 1995
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
BEF 000
-------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ 20,692
Accounts receivable -- trade................................ 32,531
Inventories (note 2)........................................ 35,571
Other current assets (note 3)............................... 27,565
-------
Total current assets........................................ 116,359
Property, plant and equipment (note 4)...................... 39,005
-------
TOTAL ASSETS................................................ 155,364
=======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade................................... 62,797
Income taxes payable........................................ 3,978
Short-term debt (note 5).................................... 2,981
Short-term debt to parent company (note 6).................. 4,500
Other accounts payable and accrued expenses (note 7)........ 29,245
-------
Total current liabilities................................... 103,501
Long-term debt (notes 8 and 9).............................. 41,100
-------
TOTAL LIABILITIES........................................... 144,601
-------
EQUITY:
Common stock (note 10)...................................... 14,000
Accumulated deficit (note 11)............................... (3,237)
-------
Total equity................................................ 10,763
-------
TOTAL LIABILITIES AND EQUITY................................ 155,364
=======
</TABLE>
The accompanying notes 1 to 13 are an integral part of these financial
statements.
F-41
<PAGE> 132
DIGIPASS SA AND DIGILINE SA
COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
------- -------
<S> <C> <C>
Net sales -- Trade.......................................... 191,696 113,756
-------- --------
Cost of goods sold.......................................... (105,688) (51,614)
Selling, general and administrative expenses................ (65,112) (47,909)
Depreciation and amortization............................... (7,848) (12,343)
-------- --------
Total Operating Costs....................................... (178,648) (111,866)
-------- --------
Income from operations...................................... 13,048 1,890
Interest expense............................................ (3,303) (2,889)
Exchange gains/(losses)..................................... 5,843 (332)
Other losses................................................ (707) (15)
-------- --------
Income/(loss) before income taxes........................... 14,881 (1,346)
Income taxes (note 12)...................................... (8,896) (121)
-------- --------
Net income/(loss) for the year.............................. 5,985 (1,467)
======== ========
</TABLE>
The accompanying notes 1 to 13 are an integral part of these financial
statements.
F-42
<PAGE> 133
DIGIPASS SA AND DIGILINE SA
COMBINED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income/(loss)........................................... 5,985 (1,467)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization............................... 7,848 12,344
(Increase) in accounts receivable........................... (12,014) (1,270)
(Increase)/decrease in inventories.......................... (24,651) 1,427
(Increase)/decrease in other current assets................. 8,188 (2,136)
Increase in accounts payable................................ 17,852 11,367
Increase in income tax payable.............................. 2,475 1,502
Increase/(decrease) in other accounts payable and accrued
expenses.................................................. 15,748 (14,103)
-------- --------
Net cash provided by operating activities................. 21,431 7,664
-------- --------
Cash flows from investing activities
Capital expenditures........................................ (1,721) (2,897)
-------- --------
Net cash (used in) investing activities................... (1,721) (2,897)
-------- --------
Cash flows from financing activities
Principal payments under capital lease obligations.......... (3,176) (3,218)
Net borrowings under line of credit arrangements............ 416 (3,815)
-------- --------
Net cash (used in) financing activities................... (2,760) (7,033)
-------- --------
Net increase in cash........................................ 16,951 (2,266)
Cash at the beginning of the period......................... 3,741 6,007
-------- --------
Cash at the end of period................................... 20,692 3,741
======== ========
</TABLE>
The accompanying notes 1 to 13 are an integral part of these financial
statements.
F-43
<PAGE> 134
DIGIPASS SA AND DIGILINE SA
COMBINED STATEMENTS OF ACCUMULATED DEFICIT FOR
THE YEARS ENDED DECEMBER 31
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
<TABLE>
<CAPTION>
1995 1994
BEF 000 BEF 000
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. (9,222) (7,755)
Net income/(loss)........................................... 5,985 (1,467)
------ ------
Balance end of year......................................... (3,237) (9,222)
====== ======
</TABLE>
The accompanying notes 1 to 13 are an integral part of these financial
statements.
F-44
<PAGE> 135
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Digiline SA, a Belgian limited company incorporated on October 27, 1989,
develops telephone terminals, to extend the range of telematic applications
designed for the general public. Digiline also offers a remote control system
for reading water, gas and electricity meters over the public telephone network.
Furthermore, Digiline develops various products to support telephone terminals.
For several years, Digiline has dedicated resources to the design and
manufacture of voice-processing products for the industrial sector. Digiline is
a wholly-owned subsidiary of Digiline International SA, a Luxembourg limited
company.
Digipass SA, a Belgian limited company incorporated on March 19, 1992,
develops devices based on sophisticated encryption techniques, offering a range
of security products to identify correspondents and to authenticate exchanges of
data and improve security for electronic transactions.
The companies' customers are located primarily in Belgium and the
Netherlands and are mainly active in the financial sector. Three customers have
each contributed 10% or more of sales in 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
% %
---- ----
<S> <C> <C>
A........................................................... 23 --
B........................................................... 16 16
C........................................................... 13 --
</TABLE>
At December 31, 1995 only customer A above represented 10% or more of trade
receivables, namely 20%, Management maintains a close relationship with the
customers' management, has never experienced any collection problems to date and
does not anticipate any problems in collecting currently outstanding
receivables.
BASIS FOR PREPARATION OF COMBINED FINANCIAL STATEMENTS
On July 1, 1996 Digipass SA acquired all of the assets and liabilities of
Digiline SA, except for certain real estate assets and related capital lease
obligations. On July 3, 1996, Digiline was acquired by VASCO Data Security
International Inc. (VASCO.) Prior to the acquisition by VASCO, Digiline and
Digipass were under common control and management. Accordingly, the accompanying
combined financial statements include Digipass and Digiline for all periods
presented, after elimination of all transactions between the two companies.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from the sale of products are recorded upon shipment of goods,
assuming collectibility is reasonably assured, and are reported net of
value-added taxes, discounts and allowances. The principal elements of the cost
of goods sold are components and manufacturing costs.
F-45
<PAGE> 136
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
RESEARCH AND DEVELOPMENT COST
Research and development costs incurred prior to establishment of
technological feasibility are charged to operations. Research and development
costs for 1995 and 1994 were BEF 8,960,000 and BEF 6,879,000, respectively.
Software development costs incurred subsequently to establishment of
technological feasibility were not material.
TRANSLATION OF FOREIGN CURRENCY
Foreign currency transactions are recorded in Belgian francs at the
exchange rates approximating those prevailing at the time of the transactions.
Unsettled transactions are translated into Belgian francs at period-end rates.
Gains and losses resulting from the settlement and remeasurement of foreign
currency transaction are recognized in income currently.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for property, plant and equipment are recorded at cost, less
the amount of any capital investment grants received. Maintenance, repairs and
minor renewals are charged to income as incurred.
Depreciation is computed using the straight-line method, in order to spread
the net cost of acquisition over the estimated useful lives of the assets,
ranging from 3 to 5 years.
Upon disposition, the cost and accumulated depreciation of assets sold or
retired are removed from the respective accounts and the resultant gains or
losses, if any, are included in current operations.
INCOME TAXES
The company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been reported in the
company's financial statements or tax returns. In estimating future tax
consequences, the company considers all expected future events other than
changes in tax law or rates.
CASH AND CASH EQUIVALENTS
Cash equivalents include time deposits and highly liquid investments with
original maturities of three months or less.
INVENTORIES
Inventories, consisting principally of chips and cards, are stated at the
lower of cost or market value. Cost is determined using the first-in first-out
(FIFO) method. When necessary, appropriate provisions are made for potential
losses on obsolete and slow-moving items.
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Work-in-progress............................................ 542
Goods for resale............................................ 34,767
Consumables................................................. 262
------
35,571
======
</TABLE>
F-46
<PAGE> 137
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
NOTE 3 -- OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Grants receivable........................................... 2,038
Income taxes receivable..................................... 25
VAT receivable.............................................. 3,405
Prepayments................................................. 22,097
------
27,565
======
</TABLE>
Grants receivable comprise governmental incentives receivable for research
and development. Prepayments consist mainly of advance payments to suppliers for
inventory purchases.
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Land and buildings.......................................... 36,736
Furniture and fixtures...................................... 7,148
Machinery and office equipment.............................. 6,164
-------
50,048
Less accumulated depreciation............................... (11,043)
-------
39,005
=======
</TABLE>
Depreciation expense totaled BEF 4.3 million and BEF 5.5 million in 1995
and 1994, respectively.
Most of the assets were acquired under capital leases (see note 9). In
connection with the acquisition of Digiline by Digipass (see note 1), certain
assets recorded under capital leases with a net book value of BEF 37,230,000
were retained by the owner of Digiline.
NOTE 5 -- SHORT-TERM DEBT
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Current maturities of long-term debt........................ 2,981
-----
</TABLE>
NOTE 6 -- SHORT-TERM DEBT TO PARENT COMPANY
On January 21, 1994, Digiline SA obtained a short-term loan from its
parent, bearing interest at 8% per annum. The interest expense for each of the
years ended December 31, 1995 and 1994 was BEF 360,000.
F-47
<PAGE> 138
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
NOTE 7 -- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Advances received from customers............................ 17,222
Accrued interest on short-term debt to parent company....... 720
Remuneration and social security costs...................... 6,382
VAT payable................................................. 1,269
Other accrued expenses...................................... 3,164
Withholding taxes payable................................... 488
------
29,245
======
</TABLE>
NOTE 8 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Capitalized lease obligations............................... 40,600
Advances received from the state............................ 500
------
41,100
======
</TABLE>
The interest rate related to the capitalized lease obligations amounts to
10% per annum and the obligations are collateralized on the companies' assets.
The advances received from the regional government of Wallonia (Southern
Belgium) were to finance research and development activities sub-contracted to
universities by Digiline SA. Because the research and development projects
proved to be successful under the terms of agreement with the regional
government, the advances became repayable. However, to date, no repayment
schedule has been determined by the regional government.
NOTE 9 -- CAPITAL LEASES
The companies lease most of their property, plant and equipment under
long-term non-cancelable agreements and have the option to purchase the leased
assets for a nominal cost upon termination of the lease agreements.
F-48
<PAGE> 139
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
Future minimum lease payments for assets held under capital leases as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
BEF 000
-------
<S> <C>
1996........................................................ 7,017
1997........................................................ 6,860
1998........................................................ 6,550
1999........................................................ 5,928
2000........................................................ 5,885
Thereafter.................................................. 39,724
-------
Total minimum lease payments................................ 71,964
Less amount representing interest........................... (43,922)
-------
Present value of net minimum lease payments................. 28,042
Less current maturities..................................... (2,426)
-------
Long-term obligations....................................... 25,616
=======
</TABLE>
The companies were not party to any operating leases during the years ended
31 December 1995 and 1994.
NOTE 10 -- COMMON STOCK
<TABLE>
<CAPTION>
31/12/1995
----------
<S> <C>
Digiline SA................................................. 10,000
Digipass SA................................................. 4,000
------
14,000
======
</TABLE>
Total number of shares of Digiline authorized, issued and outstanding
amounts to 1,000. All shares are bearer shares, are fully paid up, have equal
voting rights and no par value.
Total number of shares of Digipass authorized, issued and outstanding
amounts to 4,000. All shares are bearer shares, are fully paid up, have equal
voting rights and no par value.
NOTE 11 -- ACCUMULATED DEFICIT
The accumulated deficit includes a non-distributable legal reserve
amounting to BEF 1,400,000 at December 31, 1995.
F-49
<PAGE> 140
DIGIPASS SA AND DIGILINE SA
NOTES TO THE COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)
(EXPRESSED IN THOUSANDS OF BELGIAN FRANCS)
NOTE 12 -- INCOME TAXES
The actual income tax expense attributable to earnings for the years ended
December 31, 1995 and 1994 differed from the amounts computed by applying the
effective Belgian federal tax rate to pre-tax earnings, as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Computed "expected" tax expense (benefit)................... 5,978 (540)
Tax effect of disallowed expenses........................... 2,578 505
Interest penalty for insufficient prepayments............... 340 156
----- ----
Provision for income taxes.................................. 8,896 121
===== ====
</TABLE>
There are no significant temporary differences between the assets and
liabilities reported for tax purposes and those presented in the combined
financial statements which would give rise to deferred taxes. The companies have
no losses available for carry forward under Belgian tax regulations.
NOTE 13 -- DEFINED CONTRIBUTION PLAN
The companies' personnel are covered by a group insurance policy with Swiss
Life (Belgium), which is a defined contribution plan. Employees pay an annual
contribution of 2% of their annual gross salaries, with a company contribution
of 4%. The amount of the companies' contribution was BEF 622,000 and BEF 523,000
for 1995 and 1994, respectively.
F-50
<PAGE> 141
DIGIPASS SA AND DIGILINE SA
FINANCIAL STATEMENTS AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
F-51
<PAGE> 142
DIGIPASS SA AND DIGILINE SA
STATEMENT OF THE COMBINED FINANCIAL POSITION AS OF JUNE 30, 1996
(EXPRESSED IN BELGIAN FRANCS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ 25,199,658
Accounts receivable -- trade (net of allowance for doubtful
debts of BEF nil)......................................... 41,699,659
Inventories................................................. 54,780,970
Other current assets........................................ 18,379,881
-----------
Total current assets........................................ 140,060,168
Cash guarantees............................................. 559,942
Other assets................................................ 2,000,094
Property, plant and equipment............................... 35,417,124
-----------
TOTAL ASSETS................................................ 178,037,328
===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable -- trade................................... 42,832,317
Income tax payable.......................................... 11,356,285
Short-term debt............................................. 17,145,591
Other accounts payable and accrued expenses................. 42,793,666
-----------
Total current liabilities................................... 114,127,859
Long-term debt.............................................. 41,438,376
-----------
TOTAL LIABILITIES........................................... 155,566,235
-----------
EQUITY
Common stock................................................ 14,000,000
Retained earnings........................................... 8,471,093
-----------
Total equity................................................ 22,471,093
-----------
TOTAL LIABILITIES AND EQUITY................................ 178,037,328
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 143
DIGIPASS SA AND DIGILINE SA
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
(EXPRESSED IN BELGIAN FRANCS)
(UNAUDITED)
<TABLE>
<S> <C>
Net sales -- Trade.......................................... 99,258,399
-----------
Total Operating Revenues.................................... 99,258,399
Cost of goods sold.......................................... (47,517,125)
Selling, general and administrative expenses................ (28,365,575)
Depreciation and amortization............................... (1,979,838)
-----------
Total Operating Costs....................................... (77,862,538)
-----------
Income from operations...................................... 21,395,861
Interest expense............................................ (4,672,408)
Exchange gains.............................................. 4,372,110
Other gains................................................. 3,160
-----------
Income before income taxes.................................. 21,098,723
Income taxes................................................ (8,390,472)
-----------
Net profit.................................................. 12,708,251
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 144
DIGIPASS SA AND DIGILINE SA
STATEMENTS OF THE CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1996
(EXPRESSED IN BELGIAN FRANCS)
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. 12,708,251
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization............................. 1,979,838
Increase in accounts receivable........................... (9,169,134)
Increase in inventories................................... (19,210,468)
Decrease in other current assets.......................... 9,184,999
Increase in accounts payable.............................. (19,963,617)
Increase in income tax payable............................ 7,378,092
Increase in other accounts payable and accrued expenses... 13,548,017
Increase in cash guarantees............................... (438,099)
-----------
Net cash used in operating activities.................. (3,982,121)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure in property and equipment............... (453,885)
Capital expenditure in other assets......................... (60,000)
-----------
Net cash used in investing activities.................. (513,885)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt.............................................. 338,225
Short-term debt............................................. 9,664,544
Dividends paid.............................................. (1,000,000)
-----------
Net cash provided by financing activities.............. 9,002,769
-----------
Net increase in cash........................................ 4,506,763
Cash at the beginning of the period......................... 20,692,895
-----------
Cash at the end of period................................... 25,199,658
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 145
DIGIPASS SA AND DIGILINE SA
STATEMENTS OF THE RETAINED EARNINGS FOR THE
SIX MONTHS ENDED JUNE 30, 1996
(EXPRESSED IN BELGIAN FRANCS)
(UNAUDITED)
<TABLE>
<S> <C>
Balance at the beginning of the period...................... (3,237,158)
Net profit of the period.................................... 12,708,251
Dividends................................................... (1,000,000)
----------
Balance at the end of the period............................ 8,471,093
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 146
DIGIPASS SA AND DIGILINE SA
NOTES TO THE FINANCIAL STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1996
(EXPRESSED IN BELGIAN FRANCS)
(UNAUDITED)
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods. All such adjustments are of
a normal recurring nature. The interim results are not necessarily indicative of
those for the full year.
NOTE 2 -- OTHER CURRENT ASSETS
<TABLE>
<S> <C>
Grants receivable........................................... 3,962,649
Tax receivable.............................................. 24,959
VAT receivable.............................................. 6,873,273
Prepayments and deferred charges............................ 7,519,000
----------
18,379,881
==========
</TABLE>
NOTE 3 -- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<S> <C>
Advances received on contracts in progress.................. 34,539,488
Accrued interests on intercompany loan (8%)................. 900,000
Remuneration and social security costs...................... 2,460,734
Accrued miscellaneous payables.............................. 1,993,188
VAT payable................................................. 2,867,912
Other accrued expenses...................................... 32,344
----------
42,793,666
==========
</TABLE>
F-56
<PAGE> 147
SCHEDULE II
VASCO CORP.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS BEGINNING BAD DEBT ACCOUNTS ENDING
FOR TRADE ACCOUNTS RECEIVABLE BALANCE EXPENSE WRITTEN OFF BALANCE
------------------------------- --------- -------- ----------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996........................ $182,000 $346,000 $(69,000) $459,000
Year ended December 31, 1995........................ 96,000 165,000 (79,000) 182,000
Year ended December 31, 1994........................ -- 96,000 -- 96,000
</TABLE>
<TABLE>
<CAPTION>
BEGINNING INVENTORY ENDING
RESERVE FOR OBSOLETE INVENTORIES BALANCE EXPENSE WRITTEN OFF BALANCE
-------------------------------- --------- ------- ----------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996........................ $114,000 $ 40,000 -- $154,000
Year ended December 31, 1995........................ 15,000 99,000 -- 114,000
Year ended December 31, 1994........................ -- 15,000 -- 15,000
</TABLE>
S-1
<PAGE> 148
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of VASCO CORP.:
The audits referred to in our report dated September 11, 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 consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
September 11, 1997
S-2
<PAGE> 149
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS DATED ,
1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE
PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF NEW VASCO SHARES, OPTIONS AND
WARRANTS IN THE EXCHANGE OFFER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
<PAGE> 150
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify directors, officers, employees and agents against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement in connection with specified actions, suits, or proceedings whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation -- a "derivative action"), if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except that
indemnification is permitted only for expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such action, and the
statute requires court approval before there can be any indemnification for
expenses where the person seeking indemnification has been found liable to the
corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, bylaws,
disinterested director vote, stockholder vote, agreement, or otherwise.
Article V of the Bylaws of Registrant provides that Registrant shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person (an "Indemnitee")
who was or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
Registrant or, while a director or officer of the Registrant, is or was serving
at the written request of the Registrant as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses (including
attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the
preceding sentence, except as otherwise provided in Section 3 of Article V, the
Registrant shall be required to indemnify an Indemnitee in connection with a
proceeding (or part thereof) commenced by such Indemnitee only if the
commencement of such proceeding (or part thereof) by the Indemnitee was
authorized by the Board of Directors.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that 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, provided that such provision may not
eliminate or limit the liability of a director (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 DGCL (relating to
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
Article SIXTH of Registrant's Certificate of Incorporation provides that a
director of Registrant shall not be liable to Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Law. Any amendment, modification or
repeal of Article SIXTH shall not adversely affect any right or protection of a
director of Registrant in respect of any act or omission occurring prior to such
amendment, modification or repeal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <S>
3.1 Certificate of Incorporation of Registrant, as amended.
3.2 Bylaws of Registrant.
4.1 Certificate of Designation, Rights and Preferences of Series
B Preferred Stock of Registrant.
</TABLE>
II-1
<PAGE> 151
<TABLE>
<S> <S>
4.2 Specimen of Registrant's Common Stock Certificate.*
4.3 Specimen of Registrant's Series B Preferred Stock
Certificate.*
4.4 Form of Letter of Transmittal and Release.
4.5 Form of New VASCO Warrant Agreement.
4.6 Form of New VASCO Option Agreement (confirm whether 1 or
more form(s) of option agreement(s) required).
4.7 Form of New VASCO Convertible Note Agreement.
5.1 Opinion of Jenner & Block regarding legality of securities
being registered.*
8.1 Opinion of Jenner & Block as to certain tax matters.*
10.1 Netscape Communications Corporation OEM Software Order Form
dated March 18, 1997 between VASCO Data Security, Inc. and
Netscape Communications Corporation.**
10.2 License Agreement between VASCO Data Security, Inc. and
SHIVA Corporation effective June 5, 1997.**
10.3 Heads of Agreement between VASCO CORP., VASCO Data Security
Europe S.A., Digiline International Luxembourg, Digiline
S.A., Digipass S.A., Dominique Colard and Tops S.A. dated
May 13, 1996.
10.4 Agreement relating to additional terms and conditions to the
Heads of Agreement dated July 9, 1996, among the parties
listed in Exhibit 10.3.
10.5 Agreement between VASCO CORP., VASCO Data Security Europe
SA/NV, Mario Houthooft and Guy Denudt dated March 1, 1996.
10.6 Asset Purchase Agreement dated as of March 1996 by and
between Lintel Security SA/NV and Lintel SA/NV, Mario
Houthooft and Guy Denudt.
10.7 Management Agreement dated January 31, 1997 between LINK
BVBA and VASCO Data Security NV/SA (concerning services of
Mario Houthooft).
10.8 Sublease Agreement by and between VASCO CORP. and APL Land
Transport Services, Inc. dated as of August 29, 1997.
10.9 Office Lease by and between VASCO CORP. and LaSalle National
Bank, not personally, but as Trustee under Trust Agreement
dated September 1, 1997, and known as Trust Number 53107,
dated July 22, 1985.
10.10 Lease Agreement by and between TOPS sa and Digipass sa
effective July 1, 1996.
10.11 Lease Agreement by and between Perkins Commercial Management
Company, Inc. and VASCO Data Security, Inc. dated November
21, 1995.
10.12 Asset Purchase Agreement by and between VASCO CORP. and
Wizdom Systems, Inc. dated August 20, 1996.
10.13 1997 VASCO Data Security International, Inc. Stock Option
Plan, as amended.
10.14 Distributor Agreement between VASCO Data Security, Inc. and
Hucom, Inc. dated June 3, 1997.**
10.15 Non-Exclusive Distributor Agreement by and between VASCO
Data Security, Inc. and Concord-Eracom Nederland BV dated
May 1, 1994.**
10.16 Banque Paribas Belgique S. A. Convertible Loan Agreement for
$3.4 million.
10.17 Pledge Agreement dated July 15, 1997 by and between T.
Kendall Hunt and Banque Paribas Belgique S.A.
10.18 Engagement Letter between Banque Paribas S.A. and VASCO
CORP. dated June 20, 1997, as amended.
10.19 Financing Agreement between Generale Bank and VASCO CORP.
dated as of June 27, 1997.
10.20 Letter Agreement between Generale Bank and VASCO CORP. dated
June 26, 1997.
10.21 Form of Warrant dated June 16, 1997 (with Schedule).
10.22 Form of Warrant dated October 31, 1995 (with Schedule).
10.23 Form of Warrant dated March 7, 1997 (with Schedule).
10.24 Form of Warrant dated August 13, 1996 (with Schedule).
10.25 Form of Warrant dated June 27, 1996 (with Schedule).
10.26 Form of Warrant dated June 27, 1996 (with Schedule).
10.27 Convertible Note in the principal amount of $500,000.00,
payable to Generale de Banque dated July 1, 1997 (with
Schedule).
10.28 Agreement by and between VASCO Data Security NV/SA and S.I.
Electronics Limited effective January 21, 1997.**
10.29 Agreement effective May 1, 1993 by and between Digipass s.a.
and Digiline s.a.r.1.
</TABLE>
II-2
<PAGE> 152
<TABLE>
<C> <S>
10.30 VASCO Data Security, Inc. purchase order issued to National
Electronic & Watch Co. LTD.**
10.31 VASCO Data Security, Inc. purchase order issued to Micronix
Integrated Systems.**
10.32 Agreement between Registrant and VASCO CORP. dated as of
August 25, 1997.
10.33 Convertible Note dated June 1, 1996 made payable to Mario
Houthooft in the principal amount of $373,750.00.
10.34 Convertible Note dated June 1, 1996 made payable to Guy
Denudt in the principal amount of $373.750.00.
10.35 Osprey Partners Warrant (and Statement of Rights to Warrant
and Form of Exercise) issued June 1, 1992.
10.36 Registration Rights Agreement dated as of October 19, 1995
between certain purchasing shareholders and VASCO CORP.
10.37 First Amendment to Registration Rights Agreement dated July
1, 1996.
10.38 Second Amendment to Registration Rights Agreement dated
March 7, 1997.
10.39 Purchase Agreement by and between VASCO CORP. and Kyoto
Securities Ltd.
10.40 Convertible Note dated May 28, 1996 payable to Kyoto
Securities, Ltd. in principal amount of $5 million.
10.41 Amendment to Purchase Agreement and Convertible Note by and
between VASCO CORP. and Kyoto Securities, Ltd.
10.42 Executive Incentive Compensation Plan.
10.43 Letter for Credit granted by Generale de Banque to Digipass
SA dated January 27, 1997.
23.1 Consent of KPMG Peat Marwick LLP re: Registrant.
23.2 Consent of KPMG Peat Marwick LLP re: VASCO CORP.
23.3 Consent of Price Waterhouse and Partners.
23.4 Consent of Jenner & Block (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).*
24.1 Powers of Attorney (included on Signature Pages).
99.1 Form of Letter of Chief Executive Officer of Registrant to
security/stockholders.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees.
99.4 Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
</TABLE>
- -------------------------
* To be filed by amendment.
** Confidential treatment has been requested for the omitted portions of this
document.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts.
Report of KPMG Peat Marwick LLP
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which were registered) and any
deviation from the low
II-3
<PAGE> 153
or high end of the estimated maximum offering range may be reflected in the
form of Prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(3) That, prior to any public reoffering of the securities registered
hereunder through use of a Prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended (the "Act"),
the issuer undertakes that such reoffering Prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(4) That every Prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Act, each such post-effective
amendment 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.
(5) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, 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 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, 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 Act and will be governed by the final adjudication of
such issue.
(6) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the Village of Lombard,
State of Illinois, on September 12, 1997.
VASCO Data Security International,
Inc.
By: /s/ T. KENDALL HUNT
------------------------------------
T. Kendall Hunt
Chairman of the Board, Chief
Executive
Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
POWER OF ATTORNEY
Each of the undersigned, in his capacity as officer or director, or both as
the case may be, of VASCO Data Security International, Inc. does hereby appoint
T. Kendall Hunt, Robert E. Anderson and Gregory T. Apple, and each of them
severally, his true and lawful attorneys or attorney to execute in his name,
place and stead, in his capacity as director or officer, or both as the case may
be, this Registration Statement and any and all amendments and post-effective
amendments thereto, and all instruments necessary or incidental in connection
therewith and to file the same with the Securities and Exchange Commission. Each
of said attorneys shall have power to act hereunder with or without the other
attorney and shall have full power and authority to do and perform in the name
and on behalf of each of said directors or officers, or both as the case may be,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as which each of said officers or directors, or
both as the case may be, might or could do in person, hereby ratifying and
confirming all that said attorneys or attorney may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ T. KENDALL HUNT Chairman of the Board, September 12, 1997
- ----------------------------------------------------- Chief Executive Officer,
T. Kendall Hunt President and Director
/s/ GREGORY T. APPLE Vice President and September 12, 1997
- ----------------------------------------------------- Treasurer
Gregory T. Apple
/s/ FORREST D. LAIDLEY Secretary and Director September 12, 1997
- -----------------------------------------------------
Forrest D. Laidley
/s/ ROBERT E. ANDERSON Director September 12, 1997
- -----------------------------------------------------
Robert E. Anderson
/s/ GERALD GUICE Director September 12, 1997
- -----------------------------------------------------
Gerald Guice
/s/ MICHAEL A. MULSHINE Director September 12, 1997
- -----------------------------------------------------
Michael A. Mulshine
</TABLE>
II-5
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
VASCO DATA SECURITY INTERNATIONAL, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), do execute this Certificate of Incorporation and do
hereby certify as follows:
FIRST. The name of the corporation (hereinafter, the "Corporation") is
VASCO Data Security International, Inc.
SECOND. The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801, and its registered agent at such address is The Corporation Trust
Company.
THIRD. The purpose or purposes of the Corporation shall be to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law.
FOURTH. The total number of shares of stock which the Corporation shall
have the authority to issue is Fifty Million Five Hundred Thousand (50,500,000)
shares, divided into Fifty Million (50,000,000) shares of Common Stock, par
value $.001 per share (hereinafter referred to as "Common Stock") and Five
Hundred Thousand (500,000) shares of Preferred Stock, par value $.01 per share
(hereinafter referred to as "Preferred Stock").
COMMON STOCK
Subject to the rights of any Preferred Stock of any series issued and
outstanding, each issued and outstanding share of Common Stock shall entitle
the holder thereof to receive such dividends as may be declared from time to
time by the Board of Directors of the Corporation (the "Board") out of funds
legally available therefor, each issued and outstanding share of Common Stock
shall entitle the holder thereof to share ratably in all assets available for
distribution to holders of Common Stock in the event of any liquidation,
dissolution or winding up of the Corporation, and, except as otherwise provided
by law, each issued and outstanding share of Common Stock shall entitle the
holder thereof to cast one vote on each matter submitted to a vote of the
stockholders of the Corporation.
PREFERRED STOCK
The Board is authorized, subject to limitations prescribed by law and the
provisions of this Article FOURTH, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of
-1-
<PAGE> 2
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following: (a) The number of shares
constituting that series and the distinctive designation of that series; (b)
The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that series; (c) Whether
that series shall have voting rights, in addition to the voting rights provided
by law, and, if so, the terms of such voting rights; (d) Whether that series
shall have conversion privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate in such
events as the Board shall determine; (e) Whether or not the shares of that
series shall be redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund; (g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, or payment of shares
of that series; (h) Any other relative rights, preferences and limitations of
that series.
If, upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
FIFTH. The Board shall have the power to adopt, amend or repeal the
by-laws.
SIXTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law as the
same exists or may hereafter be amended. Any amendment, modification or repeal
of the foregoing sentence shall not adversely affect any right or protection of
a director of the Corporation hereunder in respect of any act or omission
occurring prior to the time of such amendment, modification or repeal.
SEVENTH. The powers of the incorporator are to terminate upon the filing
of this Certificate of Incorporation with the Secretary of State of the State
of Delaware. The names and mailing addresses of the persons who are to serve
as the
-2-
<PAGE> 3
initial directors of the Corporation until the first annual meeting of
stockholders of the Corporation, or until their successors are duly elected and
qualified, are:
T. Kendall Hunt 1919 S. Highland Ave., Suite 118-C
Lombard, Illinois 60148
Forrest D. Laidley 1919 S. Highland Ave., Suite 118-C
Lombard, Illinois 60148
Robert A. Anderson 1919 S. Highland Ave., Suite 118-C
Lombard, Illinois 60148
Gerald Guice 1919 S. Highland Ave., Suite 118-C
Lombard, Illinois 60148
Michael A. Mulshine 1919 S. Highland Ave., Suite 118-C
Lombard, Illinois 60148
EIGHTH. The incorporator of the Corporation is Gregory T. Apple, whose
mailing address is c/o VASCO CORP., 1919 S. Highland Ave., Suite 118-C,
Lombard, Illinois 60148.
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed on this the 14th day of July,
1997.
/s/ Gregory T. Apple
-------------------------------
Gregory T. Apple
Incorporator
-3-
<PAGE> 4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 01:00 PM 08/12/1997
971268904 - 2773477
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VASCO DATA SECURITY INTERNATIONAL, INC.
----------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------------
VASCO DATA SECURITY INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended as follows:
The first paragraph of Article FOURTH is amended to read in its entirety
as follows:
"FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is 75,500,000 shares,
divided into 75,000,000 shares of common stock, $.001 par value per
share (hereinafter referred to as "Common Stock"), and 500,000 shares of
preferred stock, $.01 par value per share (hereinafter referred to as
"Preferred Stock").
SECOND: The amendment to the Certificate of Incorporation effected
hereby has been proposed by the Board of Directors of the Corporation and duly
adopted by the sole stockholder of the Corporation in accordance with Section
242 of the General Corporation Law of the State of Delaware (the "DGCL") and by
written consent of such sole stockholder pursuant to Section 228 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President as of this 11th day of August, 1997.
VASCO DATA SECURITY
INTERNATIONAL, INC.
By: /s/ T. Kendall Hunt
----------------------------------
T. Kendall Hunt
President
<PAGE> 1
EXHIBIT 3.2
VASCO DATA SECURITY INTERNATIONAL, INC.
BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting
To the extent required by applicable law, 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 2. Special Meetings
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of
Directors or the Chief Executive Officer and shall be held at such place, on
such date, and at such time as they or he shall fix.
Section 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 nor more than sixty 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 General
Corporation Law of the State of Delaware or the Certificate of Incorporation).
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 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 4. Quorum
Except as otherwise provided by law or these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of a majority in
voting power of the outstanding shares of stock entitled to vote at the meeting
shall be necessary and sufficient to constitute a quorum. In the absence of a
quorum, the chairman of the meeting or the stockholders so present (by a
majority in voting power thereof) may adjourn the meeting from time to time in
the manner provided in Section 3 of Article I of these by-laws until a quorum
shall attend. Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or
indirectly, by the corporation,
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shall neither be entitled to vote nor be counted for quorum purposes;
provided, however, that the foregoing shall not limit the right of the
corporation or any subsidiary of the corporation to vote stock, including but
not limited to its own stock, held by it in a fiduciary capacity.
Section 5. Organization
Such person as the Board of Directors may have designated or, in the
absence of such a person, the highest ranking officer of the corporation who is
present shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem, to him, in order.
Section 7. Proxies and Voting
At any meeting of the stockholders, every stockholder entitled to vote may
vote, in person or by proxy.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except on the election of directors and 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 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 8. 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 name, shall be open to the 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.
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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 1. Number and Term of Office
The number of directors who shall constitute the whole board shall be such
number not less than five nor more than twenty as the Board of Directors shall
at the time have designated. Each director shall be elected for a term of one
year and until his successor is elected and qualified, except as otherwise
provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office shall
have the power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
Section 2. Vacancies
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal, or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
Section 3. 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 4. Special Meetings
Special meetings of the Board of Directors may be called by one-third of
the directors then in office or by the Chief Executive Officer and shall be
held at such place, on such date, and at such time as they or he 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 less than
three days before the meeting or by telegraphing the same not less than
eighteen hours before the meeting. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting.
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Section 5. Quorum
At any meeting of the Board of Directors, one-third of the total number of
the whole board, but not less than two, 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 6. 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 that enables all persons
participating in the meeting to hear each other. Such participation shall
constitute presence in person at such meeting.
Section 7. 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 required 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 8. 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, making 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;
(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 and agents;
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(6) To adopt from time to time such stock option, stock purchase, bonus,
or other compensation plans for directors, officers 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 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
by-laws, for the management of the corporation's business and affairs.
Section 9. 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
directors.
ARTICLE III - COMMITTEES
Section 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 alternative 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 or to authorize the issuance of stock 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 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 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 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 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.
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ARTICLE IV - OFFICERS
Section 1. Generally
The officers of the corporation: (i) shall consist of a President, a
Secretary and a Treasurer, and (ii) may also consist of a Chairman of the
Board, a Chief Executive Officer, a Chief Operating Officer, one or more
Executive Vice Presidents and one or more Vice Presidents, 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 his office
until his successor is elected and qualified or until his earlier resignation
or removal. Any number of offices may be held by the same person.
Section 2. Chairman of the Board
The Chairman of the Board must be a member of the Board of Directors. The
Chairman of the Board shall preside over meetings of the Board of Directors and
of the stockholders and perform such other duties as the Board of Directors may
designate.
Section 3. Chief Executive Officer
Subject to the provisions of these by-laws and to the direction of the
Board of Directors, the Chief Executive Officer shall have the responsibility
for the general management and control of the affairs and business 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 by the
Board of Directors. He shall have power to sign all stock certificates,
contracts and other instruments of the corporation which are authorized. He
shall have general supervision and direction of all of the other officers and
agents of the corporation.
Section 4. President
The President shall perform such duties as the Board of Directors or the
Chief Executive Officer shall prescribe. In the absence or disability, or a
vacancy in the office, of the Chief Executive Officer or the Chief Operating
Officer, the President shall perform the duties and exercise the powers of the
Chief Executive Officer or the Chief Operating Officer, as the case may be.
Section 5. Chief Operating Officer
The Chief Operating Officer shall be the chief administrative officer of
the corporation, in charge of the operations of the corporation. The Chief
Operating Officer shall perform such duties as the Board of Directors or the
Chief Executive Officer shall prescribe.
Section 6. Executive Vice Presidents
Each Executive Vice President shall be senior to each Vice President.
Each Executive Vice President shall perform such duties as the Board of
Directors or the Chief Executive Officer shall prescribe. In the absence or
disability, or a vacancy in the office, of the President, the Executive
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Vice President who has served in such capacity for the longest time
shall perform the duties and exercise the powers of the President.
Section 7. Vice Presidents
Each Vice President shall perform such duties as the Board of Directors or
the Chief Executive Officer shall prescribe. In the absence or disability, or
a vacancy in the office, of the President, if there are then no Executive Vice
Presidents, the Vice President who has served in such capacity for the longest
time shall perform the duties and exercise the powers of the President.
Section 8. Treasurer
The Treasurer shall have the custody of all monies and securities of the
corporation and shall keep regular books of account. He shall make such
disbursements of the funds of the corporation as are proper and shall render
from time to time an account of all such transactions and of the financial
condition of the corporation.
Section 9. Secretary
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He
shall have charge of the corporate books.
Section 10. 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 11. Removal
Any officer of the corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 12. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, 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.
ARTICLE V - RIGHT OF INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. Right to Indemnification
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
any person (an "Indemnitee") who was
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or is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
corporation or, while a director or officer of the corporation, is or was
serving at the written request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in Section
3 of this Article V, the corporation shall be required to indemnify an
Indemnitee in connection with a proceeding (or part thereof) commenced by such
Indemnitee only if the commencement of such proceeding (or part thereof) by the
Indemnitee was authorized by the Board of Directors.
Section 2. Prepayment of Expenses
The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that such payment of expenses in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the Indemnitee to repay all amounts advanced if it should be
ultimately determined that the Indemnitee is not entitled to be indemnified
under this Article V or otherwise.
Section 3. Claims
If a claim for indemnification or advancement of expenses under this
Article V is not paid in full within sixty (60) days after a written claim
therefor by the Indemnitee has been received by the corporation, the Indemnitee
may file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the corporation shall have the burden of proving
that the Indemnitee is not entitled to the requested indemnification or
advancement of expenses under applicable law.
Section 4. Nonexclusivity of Rights
The rights conferred on any Indemnitee by this Article V shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the certificate of incorporation, these
by-laws, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 5. Other Sources
The corporation's obligation, if any, to indemnify or to advance expenses
to any Indemnitee who was or is serving at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or non-profit
enterprise.
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Section 6. Amendment or Repeal
Any repeal or modification of the foregoing provisions of this Article V
shall not adversely affect any right or protection hereunder of any Indemnitee
in respect of any act or omission occurring prior to the time of such repeal or
modification.
Section 7. Other Indemnification and Prepayment of Expenses
This Article V shall not limit the right of the corporation, to the extent
and in the manner permitted by law, to indemnify and to advance expenses to
persons other than Indemnitees when and as authorized by appropriate corporate
action.
ARTICLE VI - STOCK
Section 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 any Executive Vice President or
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. Any
of or all the signatures on the certificate may be facsimile.
Section 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 4 of Article VI of these
by-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date
Subject to applicable law, the Board of Directors may fix a record date,
which shall not be more than 60 nor less than 10 days before the date of any
meeting of stockholders, nor more than 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 express consent to corporate action
in writing without a meeting; 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 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.
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Section 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 VII - NOTICES
Section 1. Notices
Whenever notice is required to be given to any stockholder, director,
officer, or agent, such requirement shall not be construed to mean personal
notice. Such notice may in every instance be effectively given by depositing a
writing in a post office or letter box in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder, director,
officer, or agent at his or her address as the same appears on the books of the
corporation. The time when such notice is dispatched shall be the time of the
giving of the notice.
Section 2. Waivers
A written waiver of any notice, signed by a stockholder, director, officer
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 or agent. Neither the business nor the purpose
of any meeting need be specified in such a waiver.
ARTICLE VIII - MISCELLANEOUS
Section 1. Facsimile Signature
In addition to the provisions for the use of facsimile signatures
elsewhere specifically authorized in these by-laws, 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 2. Corporate Seal
The Board of Directors may provide a suitable seal containing the name of
the corporation, which seal shall be in charge of the Secretary. Duplicates of
the seal may be kept and used by the Treasurer or by the assistant secretary or
assistant treasurer.
Section 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.
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Section 4. Fiscal Year
The fiscal year of the corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods
In applying any provision of these by-laws which requires 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 IX - AMENDMENTS
Section 1. Amendments
These by-laws may be amended or repealed by the Board of Directors or by
the stockholders.
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EXHIBIT 4.1
VASCO DATA SECURITY INTERNATIONAL, INC.
Certificate of Designation,
Preferences and Rights of Preferred Stock
by Resolution of the Board of Directors
Providing for an Issue of
Ninety-Five Hundred Shares
of Preferred Stock Designated
"Series B Preferred Stock"
I, T. Kendall Hunt, Chairman of the Board, Chief Executive Officer and
President of VASCO Data Security International, Inc. (hereinafter referred to
as the "Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 151 thereof, DO HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Corporation by the Certificate of Incorporation of said Corporation
(hereinafter referred to as the "Certificate of Incorporation") the Board of
Directors adopted a resolution providing for the issuance of a series of
Preferred Stock, par value $.01 per share, of the Corporation to be designated
"Series B Preferred Stock," which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Corporation by the Certificate of
Incorporation, a series of Preferred Stock, par value $.01 per
share, of the Corporation be, and hereby is, created, to be
designated "Series B Preferred Stock" (hereinafter referred to as
the "Series B Preferred Stock"), consisting of Ninety-Five Hundred
(9,500) shares, and, to the extent that the powers, preferences
and relative and other special rights, and the qualifications,
limitations and restrictions thereof, of the Series B Preferred
Stock are not stated and expressed in the Certificate of
Incorporation, such powers, preferences and relative and other
special rights, and the qualifications, limitations and
restrictions thereof, are hereby fixed and stated to be as follows
(all terms used herein which are defined in the Certificate of
Incorporation shall be deemed to have the meanings provided
therein):
1. Dividends.
(a) Each holder of record of a share of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the Board,
out of funds of the Corporation legally available therefor pursuant
to the General Corporation Law (the "Legally Available Funds"), mandatory
preferential cumulative dividends during each Monthly Dividend Period (as
hereinafter defined) that such share of Series B Preferred Stock is
outstanding at a rate determined by multiplying 1% times the Liquidation
Preference (as hereinafter defined) of the Series B Preferred Stock.
Such dividends shall be payable on the first Business Day (as hereinafter
defined) succeeding the last day of the preceding Monthly Dividend Period
(each, a
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"Dividend Payment Date"). Such dividends shall be fully cumulative
and shall accrue on a monthly basis (whether or not declared) from
the first day of each Monthly Dividend Period as to which such dividend
may be payable as herein provided to the date on which such share of
Series B Preferred Stock ceases to be outstanding.
(b) Dividends accrued on the Series B Preferred Stock shall
be paid in cash on each Dividend Payment Date, subject to the
availability of Legally Available Funds. If at any time the
Corporation distributes less than the total amount of dividends
then accrued with respect to the Series B Preferred Stock, such
payment will be distributed among the holders of shares of Series
B Preferred Stock so that an equal amount will be paid (as nearly
as possible) with respect to each outstanding share of Series B
Preferred Stock. If, for any reason or no reason, for any Monthly
Dividend Period all or a portion of the dividends are not paid in
cash on or before the Dividend Payment Date next succeeding the
Dividend Payment Date on which such dividends were payable, then
the rate at which dividends shall be computed shall immediately be
increased to 1.5% per month until all accrued but unpaid dividends
have been paid in full and such accrued but unpaid dividends shall
be added (solely for the purpose of calculating dividends payable
on the Series B Preferred Stock) to the Liquidation Preference of
the Series B Preferred Stock effective at the beginning of the
Monthly Dividend Period succeeding the Monthly Dividend Period as
to which such dividends were not paid and shall thereafter accrue
additional dividends in respect thereof ("Additional Dividends")
at the rate of 1.5% per month until such unpaid dividends have
been paid in full. At such time as all accrued but unpaid
dividends have been paid in full at the adjusted rate, the
dividend rate for future dividends shall return to the initial
rate of 1% per month, unless and until the occurrence of a
subsequent failure to make in full a monthly dividend payment, at
which time the rate of dividends shall immediately be increased in
accordance with the preceding sentence.
(c) Each such dividend shall be paid to the holders of record
of shares of Series B Preferred Stock as they appear on the stock
register of the Corporation on such record date as shall be fixed
by the Board or a duly authorized committee thereof, which date
shall be not more than 30 days nor less than 10 days preceding the
Dividend Payment Date relating thereto.
(d) If dividends (including Additional Dividends) are not
paid in full or declared in full and sums are not set apart for
the payment thereof upon the Series B Preferred Stock and any
other Preferred Stock ranking on a parity as to dividends with the
Series B Preferred Stock, all dividends declared upon shares of
Series B Preferred Stock and any other Preferred Stock ranking on
a parity as to dividends shall be declared pro rata so that in all
cases the amount of dividends declared per share on the Series B
Preferred Stock and such other Preferred Stock shall bear to each other
the same ratio that accumulated dividends per share, including
Additional Dividends or accrued dividends, as the case may be, on the
shares of Series B Preferred Stock and such other Preferred Stock shall
bear to each other. Except as
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provided in the preceding sentence, unless full cumulative dividends
(including Additional Dividends) on the Series B Preferred Stock have
been paid or declared in full and set aside for payment, no dividends or
other distribution shall be declared or paid upon the Common Stock or any
other capital stock of the Corporation ranking junior to or on parity
with the Series B Preferred Stock as to distribution or liquidation
rights nor shall shares of any such capital stock be redeemed or
purchased by the Corporation or any subsidiary thereof, nor shall any
money be paid to or made available for a sinking fund for redemption or
purchase of any shares of capital stock ranking junior to or on a parity
with the Series B Preferred Stock as to distribution or liquidation
rights until all cumulative dividends (including Additional Dividends) on
the Series B Preferred Stock shall have been paid and the dividend for
the then-current Monthly Dividend Period shall have been paid or declared
and sufficient funds set aside for payment thereof.
(e) Notwithstanding anything to the contrary contained
herein, upon any conversion of shares of Series B Preferred Stock
pursuant to either Section 2 or Section 3, all accrued and unpaid
dividends on the Series B Preferred Stock to and until the date of
such conversion shall be due and payable.
(f) The following terms shall have the meanings as set forth below:
"Business Day" means any day other than a
Saturday, Sunday or any day on which the New York
Stock Exchange is closed.
"Monthly Dividend Period" means the period from
the first day through the last day of each calendar
month, provided that the first Monthly Dividend Period
shall mean the period commencing the day shares of
Series B Preferred Stock are originally issued and
ending on the last day of the month in which shares of
Series B Preferred Stock are originally issued, and
the amount of dividends payable in respect thereof
shall be determined by multiplying (x) 1% times (y)
the Liquidation Preference of the Series B Preferred
Stock times (z) a fraction, the numerator of which is
the number of days that shares of Series B Preferred
Stock are outstanding during such Monthly Dividend
Period (including the date of issuance thereof) and
the denominator of which is 30.
2. Conversion At Option of Corporation.
(a) General. Provided that the conditions set forth in
Section 2(b) shall be satisfied, at the option of the Corporation,
upon giving the notice provided in Section 2(d) below, as of the
Effective Date (as hereinafter defined) the Series B Preferred Stock
shall be converted in whole or in part into fully paid and non-assessable
shares of Common Stock. The number of shares of Common Stock which a
holder of shares of Series B Preferred Stock shall be entitled to receive
upon conversion shall be the product obtained by multiplying (i) the
Applicable
-3-
<PAGE> 4
Conversion Rate (determined as provided in Section 2(c)) times
(ii) the number of shares of Series B Preferred Stock held by such holder
which are being converted.
(b) Conditions. No shares of Series B Preferred Stock shall
be converted into Common Stock pursuant to Section 2(a) unless
each of the following conditions shall be satisfied as of the
Effective Date:
(i) Immediately prior to authorizing any
conversion pursuant to this Section 2, the
Corporation, by resolution of the Board shall, to the
extent of any Legally Available Funds, declare a
dividend on the Series B Preferred Stock payable on
the Effective Date in an amount equal to any accrued
and unpaid dividends (including Additional Dividends)
on the Series B Preferred Stock as of the Effective
Date.
(ii) The issuance to the holders of shares of
Series B Preferred Stock of all shares of Common Stock
upon conversion of the Series B Preferred Stock
pursuant to Section 2(a) shall have been registered
under a currently effective registration statement
under the Securities Act of 1933, as amended, and such
issuance shall either be registered under all
applicable securities or blue sky laws of any state in
which a holder resides or such issuance shall be
exempt from the registration provisions of such
applicable state securities laws.
(iii) The Common Stock shall be listed for
trading on either the American Stock Exchange or the
New York Stock Exchange or quoted on NASDAQ.
(c) Applicable Conversion Rate. The conversion rate in
effect at any time for the conversion of shares of the Series B
Preferred Stock pursuant to this Section 2 (the "Applicable
Conversion Rate") shall be the quotient obtained by dividing (i)
the Liquidation Preference of the Series B Preferred Stock by (ii)
the Applicable Conversion Value (as defined in the next sentence).
The "Applicable Conversion Value" in the case of conversions
pursuant to this Section 2 means the quotient obtained by dividing
(x) the average of the Market Prices (as defined in the next
sentence) of the Common Stock for the period of the 20 consecutive
Business Days on which the Common Stock was traded ending on the
Business Day immediately preceding (but not including) the date
the notice referred to in Section 2(d) is deemed given, by (y) 2. The
"Market Price" of the Common Stock for any day means the last reported
sales price, regular way, or, in case no sale takes place on such day,
the average reported closing bid and asked prices, regular way, in either
case as reported on the principal national securities exchange on which
such security is listed or admitted for trading, or, if such security is
not listed or admitted to trading on any national securities exchange, on
the NASDAQ National Market System or, if such security is not quoted on
such National Market System, the average of the closing bid and asked
prices on each such day in the over-the-counter
-4-
<PAGE> 5
market as reported by NASDAQ, or, if bid and asked prices for such
security on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for each such day as
furnished by any New York Stock Exchange member firm regularly making a
market in such security selected for such purpose by the Board.
(d) Notice of Conversion. At least 30 days but not more than
60 days prior to the date fixed for the conversion of shares of
Series B Preferred Stock pursuant to Section 2(a), written notice
of such conversion shall be mailed to each holder of record of
shares of Series B Preferred Stock to be converted in a postage
prepaid envelope addressed to such holder at such holder's post
office address as shown on the records of the Corporation. Each
such notice shall state: (i) the effective date of such
conversion (the "Effective Date"); (ii) the number of shares of
Series B Preferred Stock to be converted and, if less than all
shares held by such holder are to be converted, the method of
calculating such number; (iii) the Applicable Conversion Rate and
an itemized calculation thereof; (iv) the place or places where
certificates for such shares are to be surrendered in exchange for
a certificate or certificates representing the Common Stock into
which the shares of Series B Preferred Stock are to be converted
(the "Conversion Shares"); and (v) that dividends on the shares to
be converted shall cease to accrue on the Effective Date of the
conversion. On or after the Effective Date each holder of shares
of Series B Preferred Stock to be converted shall present and
surrender such holder's certificate or certificates representing
such shares of Series B Preferred Stock to the Corporation at the
place designated in such notice. As promptly as practicable after
the Effective Date, the Corporation shall issue and deliver to the
holder of the shares of Series B Preferred Stock being converted,
or on its written order, such certificate(s) as it may request for
the number of whole shares of Common Stock issuable upon
conversion of such shares of Series B Preferred Stock in
accordance with the provisions of this Section 2 and cash, as
provided in Section 2(f), in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall
be deemed to have been effected immediately prior to the close of
business on the Effective Date, and at such time the rights of the
holder as holder of the converted shares of Series B Preferred
Stock shall cease and the person(s) in whose name(s) any
certificates(s) for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby. In the event
some but not all of the shares of Series B Preferred Stock represented by
a certificate or certificates being surrendered by a holder are
converted, the Corporation shall execute and deliver to or on the order
of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series B Preferred Stock which are
not converted. From and after the Effective Date, all dividends on the
shares of Series B Preferred Stock designated for conversion in such
notice shall cease to accrue and all rights of the holders thereof,
except the right to receive a certificate or certificates for Conversion
Shares and the right to receive the accrued and unpaid dividends up to
the Effective Date and any cash in payment of fractional shares, without
interest, upon the surrender of certificates in representing the Series
B Preferred
-5-
<PAGE> 6
Stock, shall cease and terminate and such shares shall not be deemed to
be outstanding for any purpose whatsoever. A notice hereunder shall
be deemed to be given on the date it is deposited in first class United
States mail in a sealed envelope, postage prepaid.
(e) Selection of Shares to be Converted. If less than all of
the shares of Series B Preferred Stock are to be converted, the
Board shall allocate the aggregate Liquidation Preference of
shares to be converted pro rata (or as nearly pro rata as
practicable) or by lot at the direction of the Board. Regardless
of the method used, the calculation of the number of shares to be
converted shall be based upon whole shares, such that the
Corporation shall in no event be required to issue fractional
shares of Series B Preferred Stock or cash in lieu thereof.
(f) Cash in Lieu of Fractional Shares. No fractional shares
of Common Stock or scrip representing fractional shares shall be
issued upon the conversion of shares of Series B Preferred Stock
pursuant to this Section 2. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Corporation shall pay to the holder
of the shares of Series B Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Market Price per share of the
Common Stock at the close of business on the Effective Date. The
determination as to whether or not any fractional shares are
issuable shall be based upon the aggregate number of shares of
Series B Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Series B Preferred Stock
being converted.
3. Conversion At the Option of Holder.
(a) General. Subject to and in compliance with the
provisions of this Section 3, shares of Series B Preferred Stock
may, at the option of any holder, be converted at any time and
from time to time into fully paid and nonassessable shares of
Common Stock. The number of shares of Common Stock which a holder
of shares of Series B Preferred Stock shall be entitled to receive
upon conversion pursuant to this Section 3 shall be the product
obtained by multiplying (i) the Applicable Conversion Rate
(determined as provided in Section 3(b)) by the number of shares
of Series B Preferred Stock being converted at any time.
(b) Applicable Conversion Rate. The conversion rate in effect at any
time for the conversion of the Series B Preferred Stock pursuant to
this Section 3 (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing (i) the Liquidation Preference of the Series B
Preferred Stock by (ii) the Applicable Conversion Value (as defined in
the next sentence). The "Applicable Conversion Value" in the case of
conversions pursuant to this Section 3 means the quotient obtained by
dividing (x) the average of the Market Prices of the Common Stock for the
period of the 20 consecutive Business Days on which the Common Stock was
-6-
<PAGE> 7
traded ending on the Business Day immediately preceding (but not
including) the date the notice referred to in Section 3(c) is deemed
given, by (y) 2.
(c) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of shares of Series B Preferred
Stock shall surrender the certificate(s) representing the shares
being converted to the Corporation at its principal office, and
shall give written notice to the Corporation at that office that
such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the
certificate(s) for shares of Common Stock issuable upon such
conversion shall be issued. The certificate(s) for shares of
Series B Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in
blank. A notice hereunder shall be deemed to be given on the date
it is deposited in first class United States mail in a sealed
envelope, postage prepaid. The date when such written notice is
received by the Corporation, together with the certificate(s)
representing the shares of Series B Preferred Stock being
converted, shall be the "Conversion Date." Any voluntary
conversion of shares of Series B Preferred Stock by any holder
shall be for at least 100 shares of Common Stock. As promptly as
practicable after the Conversion Date, the Corporation shall issue
and shall deliver to the holder of the shares of Series B
Preferred Stock being converted, or on its written order, such
certificate(s) as it may request for the number of whole shares of
Common Stock issuable upon the conversion of such shares of Series
B Preferred Stock in accordance with the provisions of this
Section 3, and cash, as provided in Section 3(d), in respect of
any fraction of a share of Common Stock issuable upon such
conversion.
(d) Cash in Lieu of Fractional Shares. No fractional shares
of Common Stock or scrip representing fractional shares shall be
issued upon the conversion of shares of Series B Preferred Stock
pursuant to this Section 3. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of
Series B Preferred Stock, the Corporation shall pay to the holder
of the shares of Series B Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Market Price per share of the
Common Stock at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are
issuable shall be based upon the aggregate number of shares of Series B
Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Series B Preferred Stock being converted.
(e) Partial Conversion. In the event some but not all of the
shares of Series B Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the
Corporation shall execute and deliver to or on the order of the
holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series B Preferred Stock
which were not converted.
(f) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of Common
-7-
<PAGE> 8
Stock, solely for the purpose of effecting the conversion of the shares
of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series B Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares
of the Series B Preferred Stock, the Corporation shall take such action
as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose.
4. Option to Purchase Common Stock in Satisfaction of Accrued But Unpaid
Dividends.
(a) General. Subject to and in compliance with the
provisions of this Section 4, if at any time there are then
accrued but unpaid dividends on shares of Series B Preferred Stock
and a holder thereof gives written notice to the Corporation that
such holder intends to purchase Common Stock in accordance with
the terms of this Section 4 and 30 days after the giving of such
notice there remain accrued but unpaid dividends on the Series B
Preferred Stock, then by further written notice to the Corporation
in accordance with Section 4(b), such holder may purchase from the
Corporation up to such number of shares of Common Stock (rounded
down to eliminate a fractional share) as shall equal the quotient
obtained by dividing (i) the amount of accrued but unpaid
dividends on the Series B Preferred Stock held by such holder by
(ii) the Applicable Exercise Price (as defined in the next
sentence). The "Applicable Exercise Price" means the quotient
obtained by dividing (x) the average of the Market Prices of the
Common Stock for the period of the 20 consecutive Business Days in
which the Common Stock was traded ending on the Business Day
immediately preceding (but not including) the date the notice
referred to in Section 4(b) is deemed given, by, (y) 2. The
purchase price per share at which shares of Common Stock may be
purchased pursuant to this Section 4 shall be the Applicable
Exercise Price. The purchase price shall be paid by the holder's
agreement to the cancellation of an amount of accrued but unpaid
dividends on such holder's shares of Series B Preferred Stock
equal to the aggregate purchase price of the shares of Common Stock
purchased. Notwithstanding anything to the contrary contained herein, no
holder may exercise any option hereunder to the extent that (i) the
aggregate purchase price for shares of Common Stock to be purchased
pursuant thereto exceeds the amount of Legally Available Funds for the
payment of dividends, or (ii) the per share purchase price for shares of
Common Stock to be purchased pursuant thereto is less than the par value
of the Common Stock.
(b) Exercise of Option. To exercise its option under Section
4(a), a holder of shares of Series B Preferred Stock shall give
written notice to the Corporation at the principal office of the
Corporation that such holder elects to exercise its option. A
notice under this Section 4 (including a notice under Section
4(a)) shall be deemed to be given on the date it is deposited in
first class United States mail in a sealed envelope, postage
prepaid.
-8-
<PAGE> 9
(c) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the purchase of shares of Series B Preferred Stock upon
exercise of options pursuant to Section 4(a), such number of its
shares of Common Stock as shall from time to time be sufficient to
issue the maximum number of shares of Common Stock issuable upon
exercise of such options, and if at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient to issue the maximum number of shares of Common Stock
issuable upon exercise of such options, the Corporation shall take
such action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
5. Voting Rights.
(a) Except as otherwise required by law, the holders of the
Series B Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Common Stock of the
Corporation, voting together as a single class with the holders of
Common Stock and the holders of such other classes and series of
stock that vote together with the Common Stock of the Corporation
as a single class. For purposes of this subsection, each share of
Series B Preferred Stock shall entitle the holder thereof to the
right to cast one vote.
(b) So long as any shares of the Series B Preferred Stock are
outstanding and unless the vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of a majority of all of the outstanding
shares of Series B Preferred Stock (given in person or by proxy,
at a special meeting of stockholders called for such purpose or at
any annual meeting of stockholders, with the holders of Series B
Preferred Stock voting as a class and with each share of Series B
Preferred Stock having one vote) shall be necessary for (i)
authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of this Certificate of Designation
or of any amendment thereto, or of any resolution or resolutions
providing for the issue of any stock, that would have an adverse effect
on the designations, rights, preferences or privileges of shares of
Series B Preferred Stock or (ii) the creation of any class or series of
capital stock ranking prior to or on a parity with the Series B Preferred
Stock with respect to rights to receive dividends, redemption payments or
distributions upon liquidation or winding up of the Corporation.
(c) If and when, at any time or times, dividends for any
Monthly Dividend Period on the Series B Preferred Stock have not
been paid in cash on or before the Dividend Payment Date next
succeeding the Dividend Payment Date on which such dividends were
payable, any holder of Series B Preferred Stock may give to the
Corporation a notice of such non-payment. If within 30 days after
the giving of the notice referred to in the preceding sentence,
there remain any accrued but unpaid dividends on the Series B
Preferred Stock, the holders of Series B Preferred Stock, voting
separately as a class, shall be entitled to elect such number of
directors
-9-
<PAGE> 10
of the Corporation as shall be at all times a majority of the number of
directors of the Corporation. The right to elect directors may be
exercised at any annual meeting of the stockholders of the Corporation, at
any special meeting held in place of an annual meeting, or at a special
meeting of the holders of Series B Preferred Stock called to elect
directors. The right to elect directors shall continue until dividends in
default on Series B Preferred Stock are paid in full, and shall cease when
the dividends are so paid, subject to future reactivation in the event of
future defaults.
At any time that special voting power is vested in the holders of
Series B Preferred Stock, the Secretary of the Corporation may, and at the
written request of holders of 25 percent or more of the shares of Series B
Preferred Stock must, call a special meeting of the holders of Series B
Preferred Stock for the election of directors. The meeting must be held
within forty (40) days of the delivery of the request at the time and
place provided by law or in the bylaws of the Corporation for meetings of
stockholders of the Corporation; provided, however, that no meeting need
be called if the request is delivered less than ninety (90) days before
the date fixed for the next annual meeting of the Corporation's
stockholders.
If at any meeting held when special voting power is vested in
the holders of Series B Preferred Stock the holders of at least 50
percent of Series B Preferred Stock then outstanding are present in
person or by proxy, then the number of directors of the Corporation shall
be increased by the number of directors that the holders of Series B
Preferred Stock shall be entitled to elect and the holders of Series B
Preferred Stock present by vote of at least 50 percent shall be entitled
to elect the additional directors of the Corporation. The directors so
elected shall serve until the next annual meeting of the stockholders of
the Corporation and until their respective successors are elected by the
holders of Series B Preferred Stock and have qualified.
When the holders of Series B Preferred Stock are divested of special
voting power, the term of office of the persons elected as directors by
the holders of Series B Preferred Stock shall terminate, and the number of
directors of the Corporation shall be reduced accordingly. If the office
of a director elected by the holders of Series B Preferred Stock is vacant
due to resignation, removal or death during the time that special voting
power is vested in the holders of Series B Preferred Stock, the vacancy
shall be filled by the majority vote of the directors then in office, even
if less than a quorum. If the vacancy is not so filled within forty (40)
days after the creation of the vacancy, a special meeting of the holders
of the Series B Preferred Stock shall be called and the vacancy filled at
that meeting. Any director elected to fill a vacancy by the remaining
directors may be removed by the vote of a majority of the holders of
Series B Preferred Stock.
(d) Nothing herein contained shall be construed so as to require a
class vote or the consent of the holders of the outstanding shares of
Series B Preferred Stock (i) in connection with any increase in the total
number of authorized or issued shares of Common Stock, or (ii) in
connection with the authorization or increase or issuance of any class or
series of capital stock ranking junior to the Series B
-10-
<PAGE> 11
Preferred Stock as to dividends, redemption payments and distributions
upon liquidation, dissolution or winding up of the Corporation. Nothing
herein contained shall in any way limit the right and power of the
Corporation to issue any bonds, notes, mortgages, debentures, and other
obligations, or to incur indebtedness to banks and to other lenders.
6. Priority of Series B Preferred Stock in Event of Liquidation or
Dissolution.
In the event of any liquidation, dissolution, or winding up
of the affairs of the Corporation, whether voluntary or otherwise, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of the Series B Preferred Stock shall be entitled
to receive, out of the remaining net assets of the Corporation, the amount
of One Hundred Dollars ($100.00) in cash for each share of Series B
Preferred Stock (the "Liquidation Preference"), plus an amount equal to
all dividends accrued and unpaid on each such share up to the date fixed
for distribution, before any distribution of any kind shall be made to the
holders of the Common Stock or any other stock ranking (as to any such
distribution) junior to the Series B Preferred Stock. In the event of any
involuntary or voluntary liquidation, dissolution or winding up the
affairs of the Corporation, the Corporation by resolution of its Board
shall, to the extent of any Legally Available Funds, declare a dividend on
shares of Series B Preferred Stock payable on the date of distribution
before any distribution is made to any holder of any series of stock of
the Corporation ranking junior to the Series B Preferred Stock as to
liquidation, dissolution or winding up, in an amount equal to any accrued
and unpaid dividends on the Series B Preferred Stock as of such date. If
the Corporation does not have sufficient Legally Available Funds to
declare and pay all dividends accrued at the time of such liquidation, any
remaining accrued and unpaid dividends shall be added to the payment to be
received by the holders of shares of Series B Preferred Stock for such
shares in such liquidation. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets distributable among the holders
of any series of Preferred Stock ranking (as to any such distribution) on
a parity with the Series B Preferred Stock shall be insufficient to permit
the payment in full to the holders of all such series of Preferred Stock
of all preferential amounts payable to all such holders, then the entire
assets of the Corporation thus distributable shall be distributed ratably
among the holders of shares of Series B Preferred Stock and all series of
Preferred Stock ranking (as to any such distribution) on a parity with the
Series B Preferred Stock in proportion to the respective amounts that
would be payable per share if such assets were sufficient to permit
payment in full. Except as otherwise provided in this Section 6, holders
of Series B Preferred Stock shall not be entitled to any distribution in
the event of liquidation, dissolution or winding up of the affairs of the
Corporation.
For the purposes of this Section 6, neither the voluntary
sale, lease, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially
all the property or assets of the Corporation, nor the
consolidation or merger of the Corporation with one or more other
corporations,
-11-
<PAGE> 12
shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
7. Ranking of Series B Preferred Stock. Except as permitted
in accordance with Section 5(b), with regard to rights to receive
dividends, mandatory redemption payments and distributions upon
liquidation, dissolution or winding up of the Corporation, the
Series B Preferred Stock shall rank prior to any other equity
securities of the Corporation.
-12-
<PAGE> 13
IN WITNESS WHEREOF, said VASCO Data Security International, Inc. has
caused this Certificate to be signed by T. Kendall Hunt its Chairman of the
Board, Chief Executive Officer and President, this 21st day of July, 1997.
VASCO DATA SECURITY
INTERNATIONAL, INC.
By: /s/ T. Kendall Hunt
--------------------------------------
T. Kendall Hunt
Chairman of the Board, Chief Executive
Officer and President
-13-
<PAGE> 1
EXHIBIT 4.4
LETTER OF TRANSMITTAL AND RELEASE
TO TENDER AND GIVE A RELEASE IN RESPECT OF
CURRENT VASCO COMMON STOCK
CURRENT VASCO SERIES B PREFERRED STOCK
OF
VASCO CORP.
PURSUANT TO THE EXCHANGE OFFER
OF
VASCO DATA SECURITY INTERNATIONAL, INC.
DATED __________, 1997
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., CHICAGO TIME, ON __________, 1997,
UNLESS EXTENDED OR EARLIER TERMINATED.
- -------------------------------------------------------------------------------
To: Illinois Stock Transfer Company, Exchange Agent
By Mail, Overnight Delivery or By Hand Facsimile Transmission:
(9:00 a.m. - 5:00 p.m. Chicago Time) (312) 427-2879
223 West Jackson Boulevard
Suite 1210 Confirm by Telephone:
Chicago, Illinois 60606 (312) 427-2953
Any questions concerning tender procedures may be directed to Gregory
T. Apple, Vice President and Treasurer of VASCO Data Security International,
Inc. ("New VASCO"), at (630) 932-8844.
List below the Current VASCO Shares to which this Letter of Transmittal
and Release relates. If the space provided is inadequate, list the class of
Current VASCO Shares, the certificate numbers and the number of Current VASCO
Shares on a separately executed schedule and affix the schedule to this Letter
of Transmittal and Release.
<TABLE>
- ----------------------------------------------------------------------------------------------------------
DESCRIPTION OF CURRENT VASCO SHARES TENDERED
(SEE INSTRUCTION 3)
- ----------------------------------------------------------------------------------------------------------
Current VASCO Shares Tendered
Name(s) and Address(es) of holder(s) Class of Current (Attach additional signed
(please fill in, if blank) VASCO Shares* scheduled if necessary)
- ----------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- ----------------------------------------------------------------------------------------------------------
Total Number
Certificate of Current
Number(s) VASCO Shares
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------
*Indicate class of Current VASCO Shares: Current VASCO Common Stock or
Current VASCO Series B Preferred Stock.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
All capitalized terms used herein and not defined herein have the
meaning ascribed to them in the Prospectus.
DELIVERY OF THIS LETTER OF TRANSMITTAL AND RELEASE (THE "LETTER OF
TRANSMITTAL AND RELEASE") TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL AND RELEASE
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL AND RELEASE IS
COMPLETED.
This Letter of Transmittal and Release must be used to accept the
Exchange Offer (as defined herein to include the terms and conditions set forth
herein and in the Prospectus dated _______________, 1997 (the "Prospectus")), of
New VASCO if certificates representing Current VASCO Shares (as defined in the
Prospectus) are to be physically delivered to Illinois Stock Transfer Company,
as exchange agent (the "Exchange Agent"). This Letter of Transmittal and Release
must also be used if a tender of Current VASCO Shares is to be made according to
the guaranteed delivery procedures described in the Prospectus under the heading
"THE EXCHANGE OFFER - Guaranteed Delivery Procedures for Current VASCO Shares."
HOLDERS WHO TENDER CURRENT VASCO SHARES ARE REQUIRED TO GRANT A RELEASE
OF THE ASSOCIATED CORPORATE MATTER CLAIMS (AS DEFINED IN THE PROSPECTUS). THE
COMPLETION, EXECUTION AND DELIVERY OF THIS LETTER OF TRANSMITTAL AND RELEASE IS
REQUIRED FOR ALL TENDERS AND WILL CONSTITUTE A
<PAGE> 2
RELEASE OF ANY AND ALL ASSOCIATED CORPORATE MATTER CLAIMS (AS DEFINED IN THE
PROSPECTUS) THE EXCHANGING HOLDER MAY HAVE EVEN IF LESS THAN ALL OF THE HOLDER'S
CURRENT VASCO SECURITIES (AS DEFINED IN THE PROSPECTUS) ARE EXCHANGED IN THE
EXCHANGE OFFER.
SUBJECT TO THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER (AS DEFINED
HEREIN), NEW VASCO WILL ACCEPT FOR EXCHANGE ALL CURRENT VASCO SHARES PROPERLY
TENDERED (AND NOT WITHDRAWN) PURSUANT TO THE EXCHANGE OFFER AT OR PRIOR TO THE
EXPIRATION DATE. AS PROMPTLY AS PRACTICABLE AFTER ACCEPTANCE OF THE TENDERED
CURRENT VASCO SHARES AFTER THE EXPIRATION DATE, NEW VASCO WILL ISSUE TO THE
EXCHANGE AGENT NEW VASCO SHARES (AS DEFINED IN THE PROSPECTUS) IN EXCHANGE FOR
THE TENDERED AND ACCEPTED CURRENT VASCO SHARES AND THE EXCHANGE AGENT WILL
TRANSMIT THE NEW VASCO SHARES TO THE EXCHANGING STOCKHOLDERS.
HOLDERS OF CURRENT VASCO SHARES WHOSE CURRENT VASCO SHARES ARE NOT
IMMEDIATELY AVAILABLE OR WHO CANNOT DELIVER THEIR CURRENT VASCO SHARES AND ALL
OTHER DOCUMENTS REQUIRED HEREBY TO THE EXCHANGE AGENT AT OR PRIOR TO THE
EXPIRATION DATE MAY NEVERTHELESS TENDER THEIR CURRENT VASCO SHARES ACCORDING TO
THE GUARANTEED DELIVERY PROCEDURES SET FORTH IN THE PROSPECTUS UNDER THE HEADING
"THE EXCHANGE OFFER - GUARANTEED DELIVERY PROCEDURE FOR CURRENT VASCO SHARES,"
PROVIDED THAT SUCH HOLDERS ALSO EXECUTE AND DELIVER THIS LETTER OF TRANSMITTAL
AND RELEASE PRIOR TO THE EXPIRATION DATE. SEE INSTRUCTION 2.
-2-
<PAGE> 3
- -------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED CURRENT VASCO SHARES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED CURRENT VASCO SHARES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE
EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
[ ] CHECK HERE IF CERTIFICATES REREPRESENTING SHARES HAVE BEEN LOST.
The undersigned has lost the certificates for _______ Current VASCO
Shares and requires assistance with respect to receiving New VASCO
Shares in exchange for the ________ Current VASCO shares owned by the
undersigned, and understands that an appropriate affidavit of loss and
indemnity agreement and that an indemnity and/or surety bond may be
required.
Name(s) of holder(s)___________________________________________________
Date of Execution of Notice of Guaranteed
Delivery____________________________________________
Name of Eligible Institution That Guaranteed
Delivery____________________________________________
- --------------------------------------------------------------------------------
3
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
YOU MAY WISH TO CONSULT WITH COUNSEL OF
YOUR CHOICE REGARDING THIS LETTER OF TRANSMITTAL AND RELEASE.
Ladies and Gentlemen:
The undersigned hereby tenders to New VASCO the Current VASCO Shares indicated
in the table above entitled "Description of Current VASCO Shares Tendered," upon
the terms and subject to the conditions set forth in the Prospectus (receipt of
which is hereby acknowledged) and in this Letter of Transmittal and Release.
Subject to, and effective upon, acceptance for exchange of the
Current VASCO Shares tendered hereby in accordance with the terms and subject to
the conditions of the Exchange Offer, the undersigned hereby sells, assigns and
transfers to, or upon the order of, New VASCO, all right, title and interest in
and to, the Current VASCO Shares. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as the agent of New VASCO) with respect to such Current VASCO Shares,
with full powers of substitution and revocation (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
certificates for such Current VASCO Shares together with all accompanying
evidences of transfer and authenticity, to or upon the order of New VASCO, (ii)
present such Current VASCO Shares for transfer of ownership on the books of
Current VASCO, (iii) deliver to Current VASCO and New VASCO the release
contained herein, (iv) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Current VASCO Shares, all in accordance with the
terms of the Exchange Offer, and (v) accept delivery of the New Current VASCO
Shares on behalf of the undersigned.
The undersigned hereby represents and warrants that: (i) the
undersigned has full power and authority to tender the Current VASCO Shares
tendered hereby and to sell, assign and transfer all right, title and interest
in and to such Current VASCO Shares, (ii) the undersigned either has full power
and authority to deliver the release of all Associated Corporate Matter Claims
or is delivering a duly executed release (which is included in this Letter of
Transmittal and Release) from a person or entity having such power and
authority, and (iii) New VASCO will acquire good, indefeasible and unencumbered
title to such Current VASCO Shares, free and clear of all liens, restrictions,
charges, claims and encumbrances and not subject to any adverse claim, when the
same are acquired by New VASCO. The undersigned, upon request, will execute and
deliver any additional documents deemed by the Exchange Agent or New VASCO to be
necessary or desirable to complete the sale, assignment and transfer of the
Current VASCO Shares tendered hereby or to perfect the undersigned's release of
all Associated Corporate Matter Claims.
The undersigned (the "Releasor") hereby forever releases and
discharges Current VASCO, New VASCO and Current VASCO's predecessor entities,
consisting of VASCO Corp., a corporation incorporated in Delaware on May 22,
1984 ("Old VASCO") and Ridge Point Enterprises, Inc., incorporated in Utah on
January 7, 1985 ("VASCO Utah" and, together with Old VASCO, the "VASCO
Predecessors"), and the respective successors and assigns of each of the
foregoing (collectively, "VASCO"), and each of them, from and against all direct
or indirect demands, claims, payments, obligations, actions or causes of action,
assessments, losses, liabilities, damages (including, without limitation,
special, consequential, exemplary, punitive and similar damages), reasonable
costs and expenses paid or incurred, or diminutions in value of any kind or
character (whether or not known or asserted prior to the date hereof, fixed or
unfixed, conditional or unconditional, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise),
that the Releasor now has or ever had against VASCO or the assets of Current
VASCO or any of the VASCO Predecessors as a result of acts or omissions
occurring on or before the date of the Prospectus, which arise from or are in
connection with:
-4-
<PAGE> 5
(i) any prior authorization, designation or issuance of
stock, any stock split, reclassification, redesignation,
dividend or distribution of or upon stock, any amendment to
the certificate or articles of incorporation or bylaws
including those affecting the amount, rights, powers or
preferences of stock, and any failure to properly authorize,
approve or effect any of the foregoing actions, including
(a) the failure by Old VASCO to document whether an amendment
to its Certificate of Incorporation was duly authorized or to
file a Certificate of Amendment with the Delaware Secretary of
State to amend its Certificate of Incorporation in 1984 to
effect a three-for-one stock split of its common stock and to
provide for 600,000 shares of non-voting common stock prior to
purportedly effecting the stock split and issuing such
non-voting common shares, (b) the failure by Old VASCO to
document whether director and stockholder approval was
obtained for an amendment to its Certificate of Incorporation
increasing the number of authorized shares of common stock in
1986, (c) the purported issuance of Series A preferred stock
in 1989 by VASCO Utah at a time when the issuance of preferred
shares was not authorized by VASCO Utah's charter, and (d) the
purported issuance of preferred stock by Current VASCO in
connection with the 1990 merger, when the rights, powers and
preferences of which such stock were not specified in Current
VASCO's Certificate of Incorporation and when its Certificate
of Incorporation did not provide its Board of Directors the
power to designate such rights, powers and preferences;
(ii) any failure to properly design, approve, adopt,
administer, or authorize the number of shares subject to, any
stock option plan or program, including actions required to
allow for options awarded thereunder to be treated as
incentive stock options under the Internal Revenue Code of
1986, as amended (the "Code"), including the failure by Old
VASCO, VASCO Utah and/or Current VASCO to (a) document
approval by the Board of Directors and stockholders of stock
option plans, (b) specify and authorize the number of shares
of stock to be subject to such plans, (c) reserve the number
of shares subject to such plans, (d) document the
authorization for the grant of options pursuant to such plans
and the issuance of shares upon exercise of such options, and
(e) design such plans in a manner that would ensure options
granted thereunder would be treated as incentive stock
options;
(iii) any organization or any merger, consolidation,
share exchange, reorganization, recapitalization, sale of
assets or like event, or any failure properly to authorize,
approve, effect or consummate same, including (a) the failure
to document the approval by Old VASCO's stockholders of the
1986 reorganization through the share exchange undertaken by
Old VASCO and Ridge Point Enterprises, Inc./VASCO Utah,
(b) the failure to document whether all stockholders of Old
VASCO voluntarily exchanged their shares for shares of Ridge
Point Enterprises, Inc./VASCO Utah, (c) the failure to
document the mechanics of the exchange of Old VASCO shares for
shares of Ridge Point Enterprises, Inc./VASCO Utah, and
(d) the following procedural irregularities which call into
question the validity of the intended 1990 merger of VASCO
Utah and Current VASCO, as well as Current VASCO's title to
the assets of VASCO Utah purportedly succeeded to by Current
VASCO by virtue of the merger: (1) the incorporation of
Current VASCO, after the date of the 1990 merger agreement,
(2) Current VASCO's approval of the plan of merger, including
approval of the plan of merger prior to the incorporation of
Current VASCO, the lack of documented stockholder approval as
called for by the plan of merger and the effectiveness of the
approval by Current VASCO's then Board of Directors, (3) the
authorization and issuance of stock by Current VASCO pursuant
to the merger, (4) the adoption of Current VASCO's initial
bylaws, appointment of Current VASCO's initial directors and
the election of its initial officers, and (5) the
administrative dissolution of VASCO Utah prior to the filing
of a Certificate of Merger with the State of Delaware, (6) the
failure to file Articles of Merger with the State of Utah in
connection with the intended merger of VASCO Utah and Current
VASCO;
-5-
<PAGE> 6
(iv) the dissolution, liquidation or winding up of any
of Current VASCO's predecessors, or any failure properly to
approve or effect said dissolution, liquidation or winding up,
including (a) the failure to properly document any stockholder
approval of the dissolution of Old VASCO and to document
actions taken to dissolve, liquidate and wind-up Old VASCO in
1987, (b) the failure to vest effectively title and ownership
in VASCO Utah of Old VASCO's assets and to document the
assumption by VASCO Utah of Old VASCO's liabilities, and
(c) the administrative dissolution of VASCO Utah in 1990 prior
to the intended merger transaction with Current VASCO and
before the filing of a Certificate of Merger with the State of
Delaware; and
(v) any failure to afford security holders any
appraisal, preemptive or other rights, whether accorded by
statute or by the articles of incorporation, certificate of
incorporation or bylaws of Current VASCO or any of its
predecessors, in connection with any of the matters described
in the foregoing clauses (i), (ii), (iii) or (iv) including
(a) the failure of Old VASCO to document whether it afforded
its stockholders, in connection with issuances of Old VASCO
capital stock, the preemptive rights to purchase, upon the
issuance or sale of Old VASCO stock (or securities convertible
into Old VASCO stock), shares (or securities) in proportion to
the amount of Old VASCO common stock then owned by such
holder, subject to conditions and time limitations prescribed
(and at a price determined as permitted by law), by Old
VASCO's Board of Directors, as provided for in the Old VASCO
Certificate of Incorporation and (b) the failure of VASCO Utah
to document whether it afforded its stockholders the appraisal
rights provided for by Utah law in connection with the
intended 1990 merger of VASCO Utah with Current VASCO.
(The matters listed in the foregoing clauses (i), (ii), (iii),
(iv) and (v) are collectively referred to in this document and the Prospectus as
the "Corporate Matters").
The Releasor hereby irrevocably waives its rights under any
applicable statute, rule, regulation, legal principle, or legal doctrine that
provides that a general release does not extend to claims which a releasing
party does not know or suspect to exist in its favor at the time of executing
such release, which if known by the releasing party would have materially
affected its settlement with the released party.
The Releasor hereby represents, warrants and covenants that
(i) the Releasor has had adequate opportunity to consult legal counsel of
Releasor's choice regarding this Letter of Transmittal and Release, (ii) the
Releasor has executed and delivered this Letter of Transmittal and Release
pursuant to the free will of the Releasor and with the intention that the
release set forth in this Letter of Transmittal and Release be a general release
to the full extent provided herein, and (iii) the Releasor has not sold,
assigned or otherwise transferred any rights or remedies arising from or in
connection with the Corporate Matters. The Releasor acknowledges and agrees that
this Letter of Transmittal and Release (i) will effect a release of any and all
Associated Corporate Matter Claims the Releasor may have even if less than all
of the Releasor's Current VASCO Securities (as defined in the Prospectus) are
exchanged in the Exchange Offer, and (ii) does not affect any rights or claims
the Releasor may have against VASCO arising out of any matter or transaction
arising from and after the date of the Prospectus.
This Letter of Transmittal and Release shall be governed by
and construed in accordance with the internal laws and not the conflicts of law
rules of the State of Illinois, and the invalidity or unenforceability of any
term or provision of this Letter of Transmittal and Release shall not affect the
validity or enforceability of any other term or provision hereof. This Letter of
Transmittal and Release is binding on the Releasor and the Releasor's heirs,
personal representatives, successors and assigns and inures to the benefit of
New VASCO. Current VASCO, the VASCO Predecessors and VASCO.
-6-
<PAGE> 7
The terms and conditions set forth in the Prospectus and this
Letter of Transmittal and Release together constitute New VASCO's offer (the
"Exchange Offer") to exchange the applicable class or series of New Current
VASCO Shares for the applicable class or series of Current VASCO Shares properly
tendered, in respect of which a release is given and accepted for exchange. New
VASCO will acquire such Current VASCO Shares by issuing New VASCO Shares in
exchange therefor. Such New VASCO Shares will be delivered to the Exchange
Agent, which will deliver the New VASCO Shares to the holders of tendered and
accepted Current VASCO Shares in respect of which a release is given, as soon as
practicable following the Expiration Date.
The undersigned understands that the release provided hereby
shall remain in full force and effect unless and until such release is revoked
in accordance with the procedures set forth in the Prospectus and this Letter of
Transmittal and Release for the withdrawal of a tender of Current VASCO Shares.
The undersigned understands that after the acceptance of Current VASCO Shares
pursuant to the Exchange Offer, no releases may be revoked.
The undersigned understands that Current VASCO Shares properly
tendered and not withdrawn prior to the Expiration Date may be exchanged for the
applicable New VASCO Shares, subject to the terms and conditions of the Exchange
Offer. If any amount of tendered Current VASCO Shares is not exchanged for any
reason, they will be returned, without expense, to the undersigned at the
address shown below or at such different address as may be indicated herein
under "Special Delivery Instructions."
The undersigned understands that the procedures described
herein and in the Prospectus under the heading ATHE EXCHANGE OFFERA and in the
instructions hereto will constitute a binding agreement between the undersigned
and New VASCO upon the terms and subject to the conditions described herein and
in the Prospectus. For purposes of the Exchange Offer, the undersigned
understands that validly tendered Current VASCO Shares (or defectively tendered
Current VASCO Shares with respect to which New VASCO has, or has caused to be,
waived such defect) will be deemed to have been accepted by New VASCO if, as and
when New VASCO gives oral or written notice thereof to the Exchange Agent.
TENDERS OF CURRENT VASCO SHARES MADE PURSUANT TO THE EXCHANGE
OFFER MAY BE WITHDRAWN, AND THE RELEASE GRANTED IN THIS LETTER OF TRANSMITTAL
AND RELEASE MAY BE REVOKED, ON OR PRIOR TO THE EXPIRATION DATE BY WRITTEN NOTICE
OF WITHDRAWAL OR REVOCATION IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
PROSPECTUS. A purported notice of withdrawal will be effective only if delivered
to the Exchange Agent in accordance with the specific procedures set forth in
the Prospectus under the heading "THE EXCHANGE OFFER - Withdrawal Rights."
All authority conferred or agreed to be conferred in this
Letter of Transmittal and Release shall not be affected by and shall survive the
death or incapacity of the undersigned and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, trustees
in bankruptcy, personal and legal representatives, successors and assigns of the
undersigned.
Unless otherwise indicated under "Special Issuance
Instructions," please issue the applicable New VASCO Shares in the name(s) of
the undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the applicable New VASCO Shares (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s). In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the applicable New VASCO Shares in the name(s) of, and mail the applicable New
VASCO Shares to, the person(s) so indicated. The undersigned recognizes that New
VASCO has no obligation under the "Special Issuance Instructions" or the
"Special Delivery Instructions" provisions of this Letter of Transmittal and
Release to effect the transfer of any Current VASCO Shares from the name of the
holder(s) thereof if New VASCO does not accept for exchange such Current VASCO
Shares.
-7-
<PAGE> 8
<TABLE>
- ------------------------------------------------------- -------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5 AND 6) (SEE INSTRUCTIONS 1, 4, 5 AND 6)
<S> <C>
To be completed ONLY if any New VASCO Shares are To be completed ONLY if any New VASCO Shares are
to be issued in the name of someone other than the to be sent to someone other than the person or
person or persons whose signature(s) appear(s) on persons whose signature(s) appear(s) on this Letter
this Letter of Transmittal and Release below. If any of Transmittal and Release below, or to the person or
of the New VASCO Shares are to be issued in the name persons at an address other than that shown above in
of someone other than the person or persons whose the box entitled "Description of Current VASCO Shares
signature(s) appear(s) on this Letter of Transmittal Tendered and in Respect of Which Release is Given."
and Release below, the assignment block on the back
of the stock certificate(s) of the tendered Current Send to:
VASCO Shares must be properly completed or an
appropriate instrument of transfer must be provided, Name..................................................
in each case with signature guaranteed. (See (Please Print)
Instruction 1).
Address ..............................................
Issue to: ......................................................
......................................................
Name................................................ (Include Zip Code)
(Please Print)
Address ............................................
....................................................
....................................................
(Include Zip Code)
....................................................
(Taxpayer Identification or Social Security
Number(s)* of Payee)
*PLEASE ALSO COMPLETE THE ENCLOSED SUBSTITUTE FORM W-9.
- ------------------------------------------------------- -------------------------------------------------------
</TABLE>
-8-
<PAGE> 9
- -------------------------------------------------------------------------------
SIGNATURE OF RECORD HOLDER
SEE INSTRUCTION 4
By completing, executing and delivering this Letter of
Transmittal and Release, the undersigned hereby tenders the Current VASCO Shares
and grants the release set forth in the foregoing provisions of this Letter of
Transmittal and Release.
The undersigned hereby represents and warrants that the
undersigned is the record holder and the beneficial owner of the Current VASCO
Shares tendered herewith. (If the undersigned is not the beneficial owner,
strike "and the beneficial owner" in the preceding sentence and have the
beneficial owner sign this Letter of Transmittal and Release on the next page or
on a counterpart and attach the counterpart hereto.)
Dated: , 1997
------------------------------------
Sign Here:
--------------------------------------------------------------------
--------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
(This Letter of Transmittal and Release must be signed by the
registered holder(s) exactly as name(s) appear(s) on certificate(s) for the
Current VASCO Shares, or by person(s) authorized to become registered holder(s)
by endorsements and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, please
set forth full title and see Instruction 4.)
Name(s)
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print)
Capacity
--------------------------------------------------------------------
Address
--------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Tax Identification or
Tel. No. Social Security No.
------------------------------ ---------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
Authorized Signature
-----------------------------------------------------------
Name of Firm
------------------------------------------------------------------
Address
-----------------------------------------------------------------------
Dated: , 1997 Area Code & Tel. No.
--------------------------- ----------------
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
- -------------------------------------------------------------------------------
-9-
<PAGE> 10
- --------------------------------------------------------------------------------
SIGNATURE OF BENEFICIAL OWNER
SEE INSTRUCTION 4
IF THE CURRENT VASCO SHARES ARE REGISTERED IN THE NAME OF A
NOMINEE, THIS LETTER OF TRANSMITTAL AND RELEASE MUST BE SIGNED
BY THE BENEFICIAL OWNER OF THE CURRENT VASCO SHARES TENDERED.
By completing, executing and delivering this Letter of
Transmittal and Release, the undersigned hereby tenders the Current VASCO Shares
and grants the release set forth in the foregoing provisions of this Letter of
Transmittal and Release. The undersigned hereby represents and warrants that the
undersigned is the beneficial owner of the Current VASCO Shares tendered
herewith.
Dated: , 1997
---------------------------
Sign Here:
--------------------------------------------------------------------
--------------------------------------------------------------------
SIGNATURE(S) OF BENEFICIAL OWNER(S) OR AUTHORIZED SIGNATORY
(If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 4.)
Name(s)
------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print)
Capacity
----------------------------------------------------------------------
Address
----------------------------------------------------------------------
----------------------------------------------------------------------
(Include Zip Code)
Area Code and Tax Identification or
Tel. No. Social Security No.
----------------------- ----------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
Authorized Signature
-----------------------------------------------------------
Name of Firm
------------------------------------------------------------------
Address
Dated: , 1997 Area Code & Tel. No.
--------------------------- ---------------
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
- -------------------------------------------------------------------------------
-10-
<PAGE> 11
INSTRUCTIONS FORMING PART
OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. SIGNATURE GUARANTEES. Signatures are not required to be
guaranteed by an Eligible Institution (as defined below) if the Letter of
Transmittal and Release and the Current VASCO Shares tendered hereby are
tendered (a) by a registered physical holder of such Current VASCO Shares who
has not completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions," or (b) for the account of an
Eligible Institution. Signatures on all other Letters of Transmittal and Release
must be guaranteed by an Eligible Institution. If the Current VASCO Shares
tendered hereby are registered in a name other than the signer of this Letter of
Transmittal and Release, see Instruction 4. As used herein, "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, including (as such terms are
defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
dealer, municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association.
2. DELIVERY OF LETTER OF TRANSMITTAL AND RELEASE AND CURRENT
VASCO SHARES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal and
Release is to be used only if Current VASCO Shares tendered hereby are (i) to be
forwarded herewith or (ii) to be made according to the guaranteed delivery
procedures set forth in the Prospectus under "THE EXCHANGE OFFER - Guaranteed
Delivery Procedures for Current VASCO Shares." All physically tendered Current
VASCO Shares, together with a properly completed and duly executed Letter of
Transmittal and Release (or facsimile thereof) and any other documents required
by this Letter of Transmittal and Release, must be mailed or delivered to the
Exchange Agent at its address set forth on the front page hereof and must be
received by the Exchange Agent at or prior to the Expiration Date.
Holders of Current VASCO Shares whose Current VASCO Shares are
not immediately available or who cannot deliver Current VASCO Shares and all
other required documents to the Exchange Agent at or prior to the Expiration
Date may nevertheless effect a tender of the Current VASCO Shares if all of the
following conditions are satisfied:
(a) the tender and delivery are made by or through an
Eligible Institution;
(b) at or prior to the Expiration Date, the Exchange
Agent receives a properly completed and duly executed Letter
of Transmittal and Release and (by mail, overnight delivery,
by hand or facsimile transmission) a properly completed and
duly executed Notice of Guaranteed Delivery substantially in
the form provided by New VASCO; and
(c) the certificate(s) for the tendered Current VASCO
Shares are received by the Exchange Agent within five business
days after the Expiration Date.
THE METHOD OF DELIVERY OF CERTIFICATES FOR CURRENT VASCO
SHARES, THIS LETTER OF TRANSMITTAL AND RELEASE AND ANY OTHER REQUIRED DOCUMENTS
IS AT THE OPTION AND RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE
PROVIDED IN THIS LETTER OF TRANSMITTAL AND RELEASE, DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal and
Release (or a facsimile thereof), waive any right to receive any notice of the
acceptance of their tender.
-11-
<PAGE> 12
3. INADEQUATE SPACE. If the space provided herein is
inadequate, the class of Current VASCO Shares, the certificate numbers of the
Current VASCO Shares and the number of Current VASCO Shares tendered should be
listed on a separate SIGNED schedule and attached hereto.
4. SIGNATURES ON LETTER OF TRANSMITTAL AND RELEASE, AND
ENDORSEMENTS.
IF THE CURRENT VASCO SHARES ARE REGISTERED OF RECORD IN THE
NAME OF A NOMINEE, THE LETTER OF TRANSMITTAL AND RELEASE MUST BE SIGNED BY THE
NOMINEE (ON PAGE 9) AND BY THE BENEFICIAL OWNER (ON PAGE 10).
If this Letter of Transmittal and Release is signed by a
person other than the record holder(s) of Current VASCO Shares tendered hereby,
then, in order to validly tender such Current VASCO Shares pursuant to the
Exchange Offer, such Current VASCO Shares must be endorsed or accompanied by an
appropriate written instrument or instruments of transfer signed exactly as the
name(s) of such record holder(s) appear(s) on the Current VASCO Shares, with the
signature(s) on such Current VASCO Shares or instruments of transfer guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by the record
holder(s) of the Current VASCO Shares tendered hereby, the signature(s) must
correspond with the name(s) as written on the face of the Current VASCO Shares
without any change whatsoever.
If any of the tendered Current VASCO Shares are held of record
by two or more persons, all such persons must sign this Letter of Transmittal
and Release.
If any of the tendered Current VASCO Shares are registered in
different names, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal and Release as there are different
registrations.
If this Letter of Transmittal and Release or any Current VASCO
Shares are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, agent or other person(s) acting in a
fiduciary or representative capacity, such person(s) should so indicate when
signing and must submit proper evidence satisfactory to the Exchange Agent of
their authority so to act.
5. TRANSFER TAXES. Except as set forth in this Instruction 5,
New VASCO will pay or cause to be paid all transfer taxes, if any, with respect
to the sale and transfer to it of any Current VASCO Shares pursuant to the
Exchange Offer. If, however, New VASCO Shares or Current VASCO Shares not
tendered or not exchanged are to be delivered to or are to be registered or
issued in a name other than the name of the registered holder of the Current
VASCO Shares, or if a transfer tax is imposed for any reason other than the
transfer or sale of Current VASCO Shares to New VASCO pursuant to the Exchange
Offer, the amount of any such transfer taxes will be the responsibility of the
tendering stockholder and will be required to be paid by the stockholder before
delivery by the Exchange Agent of the New VASCO Shares, unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New VASCO
Shares (or Current VASCO Shares not tendered or exchanged) are to be issued in
the name of a person other than the signer of this Letter of Transmittal and
Release or if such Current VASCO Shares and/or New VASCO Shares are to be sent
to someone other than the signer of this Letter of Transmittal and Release or to
the signer at a different address, the boxes entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in this Letter of Transmittal
and Release should be completed, as applicable. In such event, the signature of
the registered holder (unless an Eligible Institution) must be guaranteed by an
Eligible Institution.
-12-
<PAGE> 13
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance or additional copies of the Prospectus or this Letter of Transmittal
and Release may be obtained from New VASCO at the address set forth on the last
page of this Letter of Transmittal and Release. Holders of Current VASCO Shares
may also contact such holder's broker, dealer, commercial bank or trust company
or nominee for assistance concerning the Exchange Offer.
8. SUBSTITUTE FORM W-9. A tendering holder (or other payee) is
required to provide the Exchange Agent with a correct taxpayer identification
number ("TIN") on the Substitute Form W-9 that is provided below and to certify
that it is not subject to backup withholding. Failure to provide the information
on the form may subject the tendering holder (or other payee) to a $50 penalty
imposed by the Internal Revenue Service and 31% federal income tax withholding
on the payments made to such person.
IMPORTANT: TO ACCEPT THE EXCHANGE OFFER, THIS LETTER OF
TRANSMITTAL AND RELEASE OR A MANUALLY SIGNED FACSIMILE HEREOF, TOGETHER WITH
CERTIFICATES FOR CURRENT VASCO SHARES OR THE NOTICE OF GUARANTEED DELIVERY MUST
BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
-13-
<PAGE> 14
IMPORTANT TAX INFORMATION
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS
INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER IS URGED TO CONSULT A TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO IT (INCLUDING THE
APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL TAX LAWS) OF THE EXCHANGE
OFFER. CERTAIN HOLDERS (INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS
AND FOREIGN TAXPAYERS) MAY BE SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW. THE
DISCUSSION DOES NOT CONSIDER THE EFFECT OF ANY APPLICABLE FOREIGN, STATE AND
LOCAL TAX LAWS.
SUBSTITUTE FORM W-9
Under the U.S. federal income tax laws, the Exchange Agent may
be required to withhold 31% of the amount of the gross proceeds paid to certain
holders or other payees pursuant to the Exchange Offer. To prevent backup
withholding on any gross proceeds paid to a holder or other payee with respect
to Current VASCO Shares tendered pursuant to the Exchange Offer, the holder is
required to notify the Exchange Agent (as payor) of the holder's current TIN (or
the TIN of any other payee) by completing the form below, certifying that the
TIN provided on Substitute Form W-9 is correct (or that such holder is awaiting
a TIN), and that (i) the holder has not been notified by the Internal Revenue
Service (the "IRS") that the holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) the IRS has notified the
holder that the holder is no longer subject to backup withholding. In general,
if a holder of Current VASCO Shares is an individual, the TIN is the Social
Security number of such individual. In addition, if the Exchange Agent is not
provided with the correct TIN, the holder may be subject to a $50 penalty
imposed by the IRS.
Certain holders of Current VASCO Shares (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and information reporting requirements. In order for a
foreign individual to qualify as an exempt recipient, that holder must submit a
statement signed under penalty of perjury attesting as to that status. Forms for
such statement can be obtained from the Exchange Agent. For further information
regarding backup withholding and instructions for completing Substitute Form W-9
(including how to obtain a TIN if you do not have one and how to complete
Substitute Form W-9 if Current VASCO Shares are held in more than one name),
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9."
CONSEQUENCES OF FAILURE TO COMPLETE SUBSTITUTE FORM W-9
Failure to complete Substitute Form W-9 will not, by itself,
cause the Current VASCO Shares to be deemed invalidly tendered but may require
the Exchange Agent to withhold 31% of the amount of the gross proceeds paid
pursuant to the Exchange Offer. Backup withholding is not an additional U.S.
federal income tax. Rather, the U.S. federal income tax liability of a person
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, the holder may claim a refund
from the IRS.
WHAT NUMBER TO GIVE THE DEPOSITARY
The holder is required to give the Exchange Agent the TIN
(e.g., Social Security number or Employer Identification Number) of the record
owner of the Current VASCO Shares. If the Current VASCO Shares are registered in
more than one name or are not registered in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9," for additional guidance on which number to
report.
-14-
<PAGE> 15
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: THE ILLINOIS STOCK TRANSFER COMPANY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR Social Security Number
TAXPAYER IDENTIFICATION NUMBER IN
FORM W-9 THE BOX AT THE RIGHT AND CERTIFY _________________________
BY SIGNING AND DATING BELOW.
DEPARTMENT OF THE TREASURY OR
INTERNAL REVENUE SERVICE [SEE GUIDELINES]
Employer Identification Number
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER AND _________________________
CERTIFICATION ("TIN")
---------------------------------------------------------------------------
PART II -- For Payees exempt from backup withholding, see "Important Tax
Information" above and Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 enclosed herewith and complete
as instructed therein.
- --------------------------------------------------------------------------------------------------------------------
Certifications -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or a
Taxpayer Identification Number has not been issued to me and either (a) I have mailed or
delivered an application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration office or (b) I intend to
mail or deliver an application in the near future. I understand that if I do not provide a
Taxpayer Identification Number to the payer, 31% of all reportable payments made to me
thereafter will be withheld until I provide a number to the payer and that, if I do not
provide my Taxpayer Identification Number within sixty (60) days, such retained amounts shall
be remitted to the Internal Revenue Service ("IRS") as backup withholding.)
(2) I am not subject to backup withholding either because I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to backup withholding.
Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see the "Important
Tax Information" above).
- --------------------------------------------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------------------------------------------
(Include Zip Code)
Signature Date , 1997
-------------------------------------------------------------------- ---------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY
RESULT IN A $50 PENALTY IMPOSED BY THE IRS AND BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE AGUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9" FOR ADDITIONAL DETAILS.
[ADD CERTIFICATION RE AWAITING TIN, IF NECESSARY.]
-15-
<PAGE> 16
ANY QUESTIONS CONCERNING TENDER PROCEDURES OR
REQUESTS FOR ADDITIONAL COPIES OF THIS LETTER OF TRANSMITTAL AND RELEASE
MAY BE DIRECTED TO:
ILLINOIS STOCK TRANSFER COMPANY
223 WEST JACKSON BOULEVARD
SUITE 1210
CHICAGO, ILLINOIS 60606
(312) 427-2953
-16-
<PAGE> 17
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer. Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by one
hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
GIVE THE SOCIAL IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER OF: FOR THIS TYPE OF ACCOUNT: NUMBER OF
- ------------------------- ------------------- ------------------------- -----------------
<S> <C> <C> <C>
1. An individual's account The individual 8. Sole proprietorship account The Owner(4)
2. Two or more individuals The actual owner of the 9. A valid trust, estate, or Legal entity (Do not
(joint account) account or, if combined pension trust furnish the identifying
funds, any one of the number of the personal
individuals(1) representative or trustee
unless the legal entity itself
is not designated in the
account title.)(5)
3. Husband and wife (joint The actual owner of the 10. Corporate account The Corporation
account account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2) 11. Religious, charitable, or The organization
minor (Uniform Gift to educational organization
Minors Act) account
5. Adult and minor (joint The adult or, if the minor 12. Partnership account held in The partnership
account) is the only contributor, the the name of the business
minor(2)
6. Account in the name of The ward, minor or 13. Association, club, or other The organization
guardian or committee for incompetent person(3) tax-exempt organization
a designated ward, minor,
or incompetent person
7. a. The usual revocable The grantor-trustee(1) 14. A broker or registered The broker or nominee
savings trust account nominee
(grantor is also trustee)
b. So-called trust account The actual owner(1) 15. Account with the The public entity
that is not a legal or Department of Agriculture
valid trust under State in the name of a public
law. entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
</TABLE>
- ------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person a social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
17
<PAGE> 18
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEE EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Certain payments other than interest, dividends, and patronage dividends
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under section 5041, 5041(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 5109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must
generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.
If you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to wilful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments to patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $800 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free convenient bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
18
<PAGE> 1
EXHIBIT 4.5
NEW VASCO WARRANT AGREEMENT
This Agreement is by and among VASCO Data Security
International, Inc., a Delaware corporation ("New VASCO"), VASCO CORP., a
Delaware corporation ("Current VASCO") and the undersigned (the
"Warrantholder"), which is the holder of warrants to acquire shares of common
stock of Current VASCO (the "Current VASCO Warrants"), copies of which are
attached hereto as Schedule(s) ______ and originals of which have been delivered
to New VASCO.
Pursuant to the Prospectus of New VASCO dated _____________,
1997, as supplemented and amended prior to the Expiration Date as defined
therein (the "Prospectus"), New VASCO has offered to the Warrantholder the right
to acquire the same number of shares of common stock of New VASCO on the same
terms and conditions, including the exercise price and the expiration date, as
provided for in the Current VASCO Warrants, in exchange for (i) the cancellation
of the Current VASCO Warrants and (ii) the release set forth in Section 3 below
in favor of Current VASCO or any of its predecessor entities (the "VASCO
Predecessors") consisting of VASCO Corp., a corporation incorporated in Delaware
on May 22, 1984 ("Old VASCO"), and Ridge Point Enterprises, Inc., incorporated
in Utah on January 7, 1985 (and subsequently renamed VASCO Corp. ("VASCO Utah"),
and the respective successors and assigns of each of the foregoing, including
New VASCO (Current VASCO, New VASCO, the VASCO Predecessors and all such
successors and assigns being collectively referred to hereinafter as "VASCO").
NOW, THEREFORE, for good and valuable consideration, the
receipt of which hereby is acknowledged, the parties hereto agree as follows:
1. GRANT OF NEW VASCO WARRANTS. New VASCO hereby grants to the
Warrantholder warrants to purchase shares of common stock of New VASCO in
accordance with the provisions, and on the same terms and conditions, set forth
in the Current VASCO Warrants but modified so that all references in the Current
VASCO Warrants to "VASCO Corp." shall be changed and deemed to refer to "VASCO
Data Security International, Inc." and all references to shares of "Common Stock
of VASCO Corp." or similar terms shall be changed and deemed to refer to shares
of "Common Stock of VASCO Data Security International, Inc." or similar terms.
The purchase price per share of New VASCO common stock and the number of such
shares purchasable pursuant to a New VASCO Warrant shall be adjusted from time
to time as provided in Exhibit A hereto. The Current VASCO Warrants as so
modified by the preceding are incorporated herein as if set forth in full hereto
with such modifications and are herein referred to as the "New VASCO Warrants."
The Warrantholder acknowledges that the grant of New VASCO Warrants and the
cancellation of the Current VASCO Warrants effected by this Agreement may result
in the recognition of gain or loss for tax purposes by the Warrantholder, and
further agrees that such tax consequences are solely his, her or its
responsibility, and not that of Current VASCO or New VASCO. The Warrantholder
shall have no rights as a stockholder with respect to the New VASCO common stock
into which the New VASCO Warrants are exercisable until proper exercise of a New
VASCO Warrant and delivery to the
<PAGE> 2
Warrantholder of such shares as provided in the New VASCO Warrants. All shares
acquired by the Warrantholder pursuant to this Agreement shall be subject to any
restrictions on sale, encumbrance and other disposition under applicable
securities laws.
2. CANCELLATION OF CURRENT VASCO WARRANTS. The Current VASCO
Warrants hereby are canceled and shall be of no further force and effect. The
Warrantholder hereby agrees to the cancellation of the Current VASCO Warrants.
3. RELEASE. The Warrantholder hereby forever releases and
fully discharges VASCO, and each of them, from and against all direct or
indirect demands, claims, payments, obligations, actions or causes of action,
assessments, losses, liabilities, damages (including without limitation special,
consequential, exemplary, punitive and similar damages), reasonable costs and
expenses paid or incurred, or diminutions in value of any kind or character
(whether or not known or asserted prior to the date hereof, fixed or unfixed,
conditional or unconditional, choate or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise), that the
Warrantholder now has or ever had against VASCO or the assets of Current VASCO
or any of the VASCO Predecessors as a result of acts or omissions occurring on
or before the date of the Prospectus which arise from or are in connection with
(i) any prior authorization, designation or issuance of stock,
any stock split, reclassification, redesignation, dividend or
distribution of or upon stock, any amendment to the certificate or
articles of incorporation or bylaws including those affecting the
amount, rights, powers or preferences of stock, and any failure to
properly authorize, approve or effect any of the foregoing actions,
including (a) the failure by Old VASCO to document whether an amendment
to its Certificate of Incorporation was duly authorized or to file a
Certificate of Amendment with the Delaware Secretary of State to amend
its Certificate of Incorporation in 1984 to effect a three-for-one
stock split of its common stock and to provide for 600,000 shares of
non-voting common stock prior to purportedly effecting the stock split
and issuing such non-voting common shares, (b) the failure by Old VASCO
to document whether director and stockholder approval was obtained for
an amendment to its Certificate of Incorporation increasing the number
of authorized shares of common stock in 1986, (c) the purported
issuance of Series A preferred stock in 1989 by VASCO Utah at a time
when the issuance of preferred shares was not authorized by VASCO
Utah's charter, and (d) the purported issuance of preferred stock by
Current VASCO in connection with the 1990 merger, when the rights,
powers and preferences of which such stock were not specified in
Current VASCO's Certificate of Incorporation and when its Certificate
of Incorporation did not provide its Board of Directors the power to
designate such rights, powers and preferences;
(ii) any failure to properly design, approve, adopt,
administer, or authorize the number of shares subject to, any stock
option plan or program, including actions required to allow for options
awarded thereunder to be treated as incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), including the
failure by Old VASCO, VASCO Utah and/or Current VASCO to (a) document
approval by the Board of Directors and stockholders of stock option
plans, (b) specify and authorize the number of shares of stock to be
subject to such plans, (c) reserve the number of shares subject to such
plans, (d) document the authorization for the grant of options pursuant
to such plans and the issuance of shares upon exercise of such options,
and (e) design such plans in a
-2-
<PAGE> 3
manner that would ensure options granted thereunder would be treated as
incentive stock options;
(iii) any organization or any merger, consolidation, share
exchange, reorganization, recapitalization, sale of assets or like
event, or any failure properly to authorize, approve, effect or
consummate same, including (a) the failure to document the approval by
Old VASCO's stockholders of the 1986 reorganization through the share
exchange undertaken by Old VASCO and Ridge Point Enterprises,
Inc./VASCO Utah, (b) the failure to document whether all stockholders
of Old VASCO voluntarily exchanged their shares for shares of Ridge
Point Enterprises, Inc./VASCO Utah, (c) the failure to document the
mechanics of the exchange of Old VASCO shares for shares of Ridge Point
Enterprises, Inc./VASCO Utah, and (d) the following procedural
irregularities which call into question the validity of the intended
1990 merger of VASCO Utah and Current VASCO, as well as Current VASCO's
title to the assets of VASCO Utah purportedly succeeded to by Current
VASCO by virtue of the merger: (1) the incorporation of Current VASCO,
after the date of the 1990 merger agreement, (2) Current VASCO's
approval of the plan of merger, including approval of the plan of
merger prior to the incorporation of Current VASCO, the lack of
documented stockholder approval as called for by the plan of merger and
the effectiveness of the approval by Current VASCO's then Board of
Directors, (3) the authorization and issuance of stock by Current VASCO
pursuant to the merger, (4) the adoption of Current VASCO's initial
bylaws, appointment of Current VASCO's initial directors and the
election of its initial officers, and (5) the administrative
dissolution of VASCO Utah prior to the filing of a Certificate of
Merger with the State of Delaware, (6) the failure to file Articles of
Merger with the State of Utah in connection with the intended merger of
VASCO Utah and Current VASCO;
(iv) the dissolution, liquidation or winding up of any of
Current VASCO's predecessors, or any failure properly to approve or
effect said dissolution, liquidation or winding up, including (a) the
failure to properly document any stockholder approval of the
dissolution of Old VASCO and to document actions taken to dissolve,
liquidate and wind-up Old VASCO in 1987, (b) the failure to vest
effectively title and ownership in VASCO Utah of Old VASCO's assets and
to document the assumption by VASCO Utah of Old VASCO's liabilities,
and (c) the administrative dissolution of VASCO Utah in 1990 prior to
the intended merger transaction with Current VASCO and before the
filing of a Certificate of Merger with the State of Delaware; and
(v) any failure to afford security holders any appraisal,
preemptive or other rights, whether accorded by statute or by the
articles of incorporation, certificate of incorporation or bylaws of
Current VASCO or any of its predecessors, in connection with any of the
matters described in the foregoing clauses (i), (ii), (iii) or (iv)
including (a) the failure of Old VASCO to document whether it afforded
its stockholders, in connection with issuances of Old VASCO capital
stock, the preemptive rights to purchase, upon the issuance or sale of
Old VASCO stock (or securities convertible into Old VASCO stock),
shares (or securities) in proportion to the amount of Old VASCO common
stock then owned by such holder, subject to conditions and time
limitations prescribed (and at a price determined as permitted by law),
by Old VASCO's Board of Directors, as provided for
-3-
<PAGE> 4
in the Old VASCO Certificate of Incorporation and (b) the failure of
VASCO Utah to document whether it afforded its stockholders the
appraisal rights provided for by Utah law in connection with the
intended 1990 merger of VASCO Utah with Current VASCO.
(The matters listed in the foregoing clauses (i), (ii), (iii),
(iv) and (v) are collectively referred to in this document and the Prospectus as
the "Corporate Matters").
The Warrantholder hereby irrevocably waives his rights under
any applicable statute, rule, regulation, legal principle, or legal doctrine
that provides that a general release does not extend to claims which a releasing
party does not know or suspect to exist in its favor at the time of executing
such release, which if known by the releasing party would have materially
affected its settlement with the released party.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF
WARRANTHOLDER. The Warrantholder hereby represents, warrants and covenants that
(i) the Warrantholder has received and adequately studied the Prospectus, (ii)
the Warrantholder has had adequate opportunity to consult legal counsel of
Warrantholder's choice regarding this Agreement, (iii) the Warrantholder has
executed and delivered this Agreement and the release set forth herein pursuant
to the free will of the Warrantholder with the intention that the release be a
general release to the full extent provided herein, (iv) the Warrantholder has
not sold, assigned or otherwise transferred any rights or remedies arising from
or in connection with the Corporate Matters, and (v) the Current VASCO Warrants
are the only warrants held by the Warrantholder to acquire capital stock of
Current VASCO or any of the VASCO Predecessors. Current VASCO and the
Warrantholder each acknowledges and agrees that this Agreement does not affect
any rights or claims the Warrantholder may have against VASCO arising out of any
matter or transaction arising from and after the date of the Prospectus.
Further, it is expressly understood that this Agreement (i) will effect a
release of any and all Associated Corporate Matter Claims (as defined in the
Prospectus) the Warrantholder may have even if less than all of the
Warrantholder's Current VASCO Securities (as defined in the Prospectus) are
exchanged in the Exchange Offer (as defined in the Prospectus), and (ii) does
not release and discharge (a) any rights or remedies Current VASCO in its own
right, or as successor to the rights of the VASCO Predecessors, may have against
any person or entity arising out of the Corporate Matters, or (b) any rights or
remedies unrelated to the Corporate Matters the Warrantholder has as a current
security holder of Current VASCO.
5. EXCHANGE OFFER; EFFECTIVE DATE. This Agreement is subject
to the terms and conditions of the Exchange Offer, as defined in the Prospectus,
and will become effective and binding on the parties hereto upon acceptance by
New VASCO of shares of common stock of Current VASCO tendered pursuant to the
Exchange Offer. Without limiting the foregoing, the Warrantholder has the right
to withdraw this Agreement in accordance with the specific provisions in the
Prospectus under the heading "THE EXCHANGE OFFER - Withdrawal Rights."
6. GENERAL. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous agreements or understandings, oral or written, with respect
to the subject matter hereof. This Agreement shall be governed by and construed
in accordance with the internal laws and not the
-4-
<PAGE> 5
conflicts of law rules of the State of Illinois, and the invalidity or
unenforceability of any term or provision of this Agreement shall not affect the
validity or enforceability of any other term or provision hereof. This Agreement
is binding on and inures to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns and in
addition, the provisions of the release set forth in Section 3 inure to the
benefit of each of the entities included within the above definition of VASCO.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this
Agreement.
New VASCO: VASCO DATA SECURITY INTERNATIONAL, INC.
By
----------------------------------------
Its
---------------------------------------
Current VASCO: VASCO CORP.
By
----------------------------------------
Its
---------------------------------------
Warrantholder: Printed Name
------------------------------
Signature
----------------------------------
Title
--------------------------------------
Address
------------------------------------
Dated , 1997
-------------------------------
-6-
<PAGE> 7
EXHIBIT A
ADJUSTMENT OF EXERCISE PRICE AND
NUMBER OF SHARES PURCHASABLE
1. In case, prior to the expiration of a New VASCO Warrant by
exercise or by its terms, New VASCO shall issue any shares of New VASCO common
stock as a stock dividend or subdivide the number of outstanding shares of New
VASCO common stock into a greater number of shares, then in either of such
cases, the then applicable exercise price per share of the shares of New VASCO
common stock purchasable pursuant to that New VASCO Warrant in effect at the
time of such action shall be proportionately reduced and the number of shares at
that time purchasable pursuant to that New VASCO Warrant shall be
proportionately increased; and conversely, in the event New VASCO shall contract
the number of outstanding shares of New VASCO common stock by combining such
shares into a smaller number of shares, then, in such case, the then applicable
exercise price per share of the shares of New VASCO common stock purchasable
pursuant to that New VASCO Warrant in effect at the time of such action shall be
proportionately increased and the number of shares of NEW VASCO common stock
purchasable pursuant to that New VASCO Warrant shall be proportionately
decreased. If New VASCO shall, at any time during the term of a New VASCO
Warrant, declare a dividend payable in cash on the New VASCO common stock and
shall, at substantially the same time, offer to its stockholders a right to
purchase new shares of New VASCO common stock from the proceeds of such dividend
or for an amount substantially equal to the dividend, all New VASCO common stock
so issued shall, for the purpose of that New VASCO Warrant, be deemed to have
been issued as a stock dividend. Any dividend paid or distributed upon the New
VASCO common stock shall be treated as a dividend paid in New VASCO common stock
to the extent that shares of New VASCO common stock are issuable upon conversion
thereof.
2. In case, prior to the expiration of a New VASCO Warrant by
exercise or by its terms, New VASCO shall be recapitalized by reclassification
of its outstanding New VASCO common stock (other than a change in par value to
no par value), or New VASCO or a successor corporation shall consolidate or
merge with or convey all or substantially all of its or of any successor
corporation's property and assets to any other corporation or corporations (any
such other corporations being included within the meaning of the term "successor
corporation" hereinbefore used in the event of any consolidation or merger of
any such other corporation with, or the sale of all or substantially all of the
property of any such other corporation to, another corporation or corporations),
then, as a condition of such recapitalization, consolidation, merger or
conveyance, lawful and adequate provision shall be made whereby the
Warrantholder shall thereafter have the right to purchase, upon the basis and on
the terms and conditions specified in that New VASCO Warrant, in lieu of the
shares of New VASCO common stock theretofore purchasable upon the exercise of
that New VASCO Warrant, such shares of stock, securities or assets of the other
<PAGE> 8
corporation as to which the Warrantholder would have been entitled had that New
VASCO Warrant been exercised immediately prior to such recapitalization,
consolidation, merger or conveyance; and in any such event, the rights of that
Warrantholder to any adjustment in the number of shares of New VASCO common
stock purchasable upon the exercise of that New VASCO Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrantholder becomes entitled to purchase.
3. In case, prior to the expiration of a New VASCO Warrant by
exercise or by its terms, New VASCO shall sell all or substantially all of its
property or dissolve, liquidate or wind up its affairs, lawful provision shall
be made as part of the terms of any such sale, dissolution, liquidation or
winding up, so that the Warrantholder may thereafter receive upon exercise
hereof in lieu of each share of New VASCO common stock which he would have been
entitled to receive, the same kind and amount of any securities or assets as may
be issuable, distributable or payable upon any such sale, dissolution,
liquidation or winding up with respect to each share of New VASCO common stock;
provided, however, that in any case of any such sale or of dissolution,
liquidation or winding up, the right to exercise that New VASCO Warrant shall
terminate on a date fixed by New VASCO. Such date so fixed shall be no earlier
than 3:00 p.m., New York City time, on the forty-fifth (45th) day next
succeeding the date on which notice of such termination of the right to exercise
that New VASCO Warrant has been given by mail to the Warrantholder at its
address as it appears on the books of New VASCO.
4. Upon any exercise of a New VASCO Warrant by the
Warrantholder, New VASCO shall not be required to deliver fractions of one
share, but may adjust the exercise price payable by that New VASCO Warrant in
respect of any such fraction of one share on the basis of the exercise price per
share then applicable upon exercise of that New VASCO Warrant.
5. In case, prior to the expiration of a New VASCO Warrant by
exercise or by its terms, New VASCO shall determine to take a record of is
stockholders for the purpose of determining stockholders entitled to receive any
dividend, stock dividend, distribution or other right whether or not it may
cause any change or adjustment in the number, amount, price or nature of the
securities or assets deliverable upon the exercise of that New VASCO Warrant
pursuant to the foregoing provisions, New VASCO shall give at least ten (10)
days' prior written notice to the effect that it intends to take such record to
the Warrantholder at its address as it appears on the books of New VASCO, said
notice to specify the date as of which such record is to be taken, the purpose
for which such record is to be taken, and the effect which the action which may
be taken will have upon that New VASCO Warrant.
<PAGE> 9
SCHEDULE ______
ATTACHED HERETO
<PAGE> 1
EXHIBIT 4.6
NEW VASCO OPTION AGREEMENT
This Agreement is by and among VASCO Data Security
International, Inc., a Delaware corporation ("New VASCO"), VASCO CORP., a
Delaware corporation ("Current VASCO") and the undersigned individual (the
"Optionholder"), who is the holder of options to acquire shares of common stock
of Current VASCO as set forth on Schedule I attached hereto (the "Current VASCO
Options").
Pursuant to the Prospectus of New VASCO dated _____________,
1997, as supplemented and amended prior to the Expiration Date as defined
therein (the "Prospectus"), New VASCO has offered to the Optionholder the right
to acquire the same number of shares of common stock of New VASCO, at the same
exercise price and until the same expiration date as the Current VASCO Options,
in exchange for (i) the cancellation of the Current VASCO Options and (ii) the
release set forth in Section 3 below in favor of Current VASCO or any of its
predecessor entities (the "VASCO Predecessors") consisting of VASCO Corp., a
corporation incorporated in Delaware on May 22, 1984 ("Old VASCO"), and Ridge
Point Enterprises, Inc., incorporated in Utah on January 7, 1985 and
subsequently renamed VASCO Corp. ("VASCO Utah"), and the respective successors
and assigns of each of the foregoing, including New VASCO (Current VASCO, New
VASCO, the VASCO Predecessors and all such successors and assigns being
collectively referred to hereinafter as "VASCO").
NOW, THEREFORE, for good and valuable consideration, the
receipt of which hereby is acknowledged, the parties hereto agree as follows:
1. NEW VASCO OPTIONS. Subject to the provisions set forth
herein and the terms and conditions of the 1997 VASCO Data Security
International, Inc. Stock Option Plan, as amended, the terms of which are hereby
incorporated by reference, New VASCO hereby grants to the Optionholder options
to purchase shares of common stock of New VASCO (the "New VASCO Options") in
accordance with the provisions set forth below in Sections 1.1 through 1.6,
inclusive. The Optionholder acknowledges that the New VASCO Options are not
"Incentive Stock Options," or otherwise qualified options for federal tax
purposes, within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended ("ISOs").
1.1 GRANT OF OPTION. New VASCO hereby grants to the
Optionholder the right, privilege, and option to purchase the number of
shares of its common stock at the respective purchase price per share
as set forth on Schedule I hereto and in the manner and subject to the
conditions hereinafter provided. This award is made to the Optionholder
subject to termination as hereinafter specified.
1.2 TIME OF EXERCISE OF OPTION. The New VASCO Options may not
be exercised prior to the expiration of the respective vesting period
("Vesting Period") as set forth on Schedule I. After the expiration of
the respective Vesting Period, the applicable New VASCO Option may be
exercised at any time, and from time to time, in whole or in part,
until the termination thereof as provided in Section 1.4 below.
<PAGE> 2
1.3 METHOD OF EXERCISE. The New VASCO Options shall be
executed by written notice directed to the Committee of New VASCO
established under the 1997 VASCO Data Security International, Inc.
Stock Option Plan, as amended, at New VASCO's principal place of
business, for the number of shares specified. New VASCO shall make
immediate delivery of such shares, provided that if any law or
regulation requires New VASCO to take any action with respect to the
shares specified in such notice before the issuance thereof, then the
date of delivery of such shares shall be extended for the period
necessary to take such action.
1.4 TERMINATION OF OPTION. Except as herein otherwise stated,
the New VASCO Options to the extent vested and exercisable, and
further, to the extent not heretofore exercised, shall terminate upon
the first to occur of the following:
(a) The expiration of that number of months
specified in Schedule I as the Termination Period after the
date on which the Optionholder's employment or other
affiliation with New VASCO, Current VASCO or any subsidiary
of either entity (collectively, the "VASCO Companies"),
including a directorship, is terminated;
(b) In the event of the Optionholder's death while
employed or affiliated with the VASCO Companies, his executors
or administrators may exercise, within 60 days following the
date of his death, the New VASCO Options as to any of the
exercisable and vested shares not theretofore exercised during
his lifetime; or
(c) With respect to a specific New VASCO Option, the
respective option expiration date set forth on Schedule I.
1.5 RIGHTS PRIOR TO EXERCISE OF OPTION. The New VASCO Options
are nontransferable by the Optionholder, except in the event of his
death as provided in Section 1.4(b) above, and during his lifetime are
exercisable only by the Optionholder. The Optionholder shall have no
rights as a stockholder with respect to the option shares until proper
exercise of a New VASCO Option and delivery to the Optionholder of
certificates for such shares as herein provided.
1.6 RESTRICTIONS ON DISPOSITION. All shares acquired by the
Optionholder pursuant to this Agreement shall be subject to any
restrictions on sale, encumbrance and other disposition under
applicable securities laws.
2. CANCELLATION OF CURRENT VASCO OPTIONS. The Current VASCO
Options hereby are canceled and shall be of no further force and effect. The
Optionholder hereby agrees to the cancellation of the Current VASCO Options and
recognizes that the New VASCO Options granted under this Agreement are not,
although the Current VASCO Options may have been, ISOs.
3. RELEASE. The Optionholder hereby forever releases and
fully discharges VASCO, and each of them, from and against all direct or
indirect demands, claims, payments,
-2-
<PAGE> 3
obligations, actions or causes of action, assessments, losses, liabilities,
damages (including without limitation special, consequential, exemplary,
punitive and similar damages), reasonable costs and expenses paid or incurred,
or diminutions in value of any kind or character (whether or not known or
asserted prior to the date hereof, fixed or unfixed, conditional or
unconditional, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise), that the Optionholder
now has or ever had against VASCO or the assets of Current VASCO or any of the
VASCO Predecessors as a result of acts or omissions occurring on or before the
date of the Prospectus which arise from or are in connection with
(i) any prior authorization, designation or issuance of stock,
any stock split, reclassification, redesignation, dividend or
distribution of or upon stock, any amendment to the certificate or
articles of incorporation or bylaws including those affecting the
amount, rights, powers or preferences of stock, and any failure to
properly authorize, approve or effect any of the foregoing actions,
including (a) the failure by Old VASCO to document whether an amendment
to its Certificate of Incorporation was duly authorized or to file a
Certificate of Amendment with the Delaware Secretary of State to amend
its Certificate of Incorporation in 1984 to effect a three-for-one
stock split of its common stock and to provide for 600,000 shares of
non-voting common stock prior to purportedly effecting the stock split
and issuing such non-voting common shares, (b) the failure by Old VASCO
to document whether director and stockholder approval was obtained for
an amendment to its Certificate of Incorporation increasing the number
of authorized shares of common stock in 1986, (c) the purported
issuance of Series A preferred stock in 1989 by VASCO Utah at a time
when the issuance of preferred shares was not authorized by VASCO
Utah's charter, and (d) the purported issuance of preferred stock by
Current VASCO in connection with the 1990 merger, when the rights,
powers and preferences of which such stock were not specified in
Current VASCO's Certificate of Incorporation and when its Certificate
of Incorporation did not provide its Board of Directors the power to
designate such rights, powers and preferences;
(ii) any failure to properly design, approve, adopt,
administer, or authorize the number of shares subject to, any stock
option plan or program, including actions required to allow for options
awarded thereunder to be treated as incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), including the
failure by Old VASCO, VASCO Utah and/or Current VASCO to (a) document
approval by the Board of Directors and stockholders of stock option
plans, (b) specify and authorize the number of shares of stock to be
subject to such plans, (c) reserve the number of shares subject to such
plans, (d) document the authorization for the grant of options pursuant
to such plans and the issuance of shares upon exercise of such options,
and (e) design such plans in a manner that would ensure options granted
thereunder would be treated as incentive stock options;
(iii) any organization or any merger, consolidation, share
exchange, reorganization, recapitalization, sale of assets or like
event, or any failure properly to authorize, approve, effect or
consummate same, including (a) the failure to document the approval by
Old VASCO's stockholders of the 1986 reorganization through the share
exchange undertaken
-3-
<PAGE> 4
by Old VASCO and Ridge Point Enterprises, Inc./VASCO Utah, (b) the
failure to document whether all stockholders of Old VASCO voluntarily
exchanged their shares for shares of Ridge Point Enterprises,
Inc./VASCO Utah, (c) the failure to document the mechanics of the
exchange of Old VASCO shares for shares of Ridge Point Enterprises,
Inc./VASCO Utah, and (d) the following procedural irregularities which
call into question the validity of the intended 1990 merger of VASCO
Utah and Current VASCO, as well as Current VASCO's title to the assets
of VASCO Utah purportedly succeeded to by Current VASCO by virtue of
the merger: (1) the incorporation of Current VASCO, after the date of
the 1990 merger agreement, (2) Current VASCO's approval of the plan of
merger, including approval of the plan of merger prior to the
incorporation of Current VASCO, the lack of documented stockholder
approval as called for by the plan of merger and the effectiveness of
the approval by Current VASCO's then Board of Directors, (3) the
authorization and issuance of stock by Current VASCO pursuant to the
merger, (4) the adoption of Current VASCO's initial bylaws, appointment
of Current VASCO's initial directors and the election of its initial
officers, and (5) the administrative dissolution of VASCO Utah prior to
the filing of a Certificate of Merger with the State of Delaware, (6)
the failure to file Articles of Merger with the State of Utah in
connection with the intended merger of VASCO Utah and Current VASCO;
(iv) the dissolution, liquidation or winding up of any of
Current VASCO's predecessors, or any failure properly to approve or
effect said dissolution, liquidation or winding up, including (a) the
failure to properly document any stockholder approval of the
dissolution of Old VASCO and to document actions taken to dissolve,
liquidate and wind-up Old VASCO in 1987, (b) the failure to vest
effectively title and ownership in VASCO Utah of Old VASCO's assets and
to document the assumption by VASCO Utah of Old VASCO's liabilities,
and (c) the administrative dissolution of VASCO Utah in 1990 prior to
the intended merger transaction with Current VASCO and before the
filing of a Certificate of Merger with the State of Delaware; and
(v) any failure to afford security holders any appraisal,
preemptive or other rights, whether accorded by statute or by the
articles of incorporation, certificate of incorporation or bylaws of
Current VASCO or any of its predecessors, in connection with any of the
matters described in the foregoing clauses (i), (ii), (iii) or (iv)
including (a) the failure of Old VASCO to document whether it afforded
its stockholders, in connection with issuances of Old VASCO capital
stock, the preemptive rights to purchase, upon the issuance or sale of
Old VASCO stock (or securities convertible into Old VASCO stock),
shares (or securities) in proportion to the amount of Old VASCO common
stock then owned by such holder, subject to conditions and time
limitations prescribed (and at a price determined as permitted by law),
by Old VASCO's Board of Directors, as provided for in the Old VASCO
Certificate of Incorporation and (b) the failure of VASCO Utah to
document whether it afforded its stockholders the appraisal rights
provided for by Utah law in connection with the intended 1990 merger of
VASCO Utah with Current VASCO.
(The matters listed in the foregoing clauses (i), (ii), (iii),
(iv) and (v) are collectively referred to in this document and the Prospectus as
the "Corporate Matters").
-4-
<PAGE> 5
The Optionholder hereby irrevocably waives his rights under
any applicable statute, rule, regulation, legal principle, or legal doctrine
that provides that a general release does not extend to claims which a releasing
party does not know or suspect to exist in its favor at the time of executing
such release, which if known by the releasing party would have materially
affected its settlement with the released party.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF
OPTIONHOLDER. The Optionholder hereby represents, warrants and covenants that
(i) the Optionholder has received and adequately studied the Prospectus, (ii)
the Optionholder has had adequate opportunity to consult legal counsel of
Optionholder's choice regarding this Agreement, (iii) the Optionholder has
executed and delivered this Agreement and the release set forth herein pursuant
to the free will of the Optionholder with the intention that the release be a
general release to the full extent provided herein, (iv) the Optionholder has
not sold, assigned or otherwise transferred any rights or remedies arising from
or in connection with the Corporate Matters, and (v) the Current VASCO Options
are the only options held by the Optionholder to acquire capital stock of
Current VASCO or any of the VASCO Predecessors. Current VASCO and the
Optionholder each acknowledges and agrees that this Agreement does not affect
any rights or claims the Optionholder may have against VASCO arising out of any
matter or transaction arising from and after the date of the Prospectus.
Further, it is expressly understood that this Agreement (i) will effect a
release of any and all Associated Corporate Matter Claims (as defined in the
Prospectus) the Optionholder may have even if less than all of the
Optionholder's Current VASCO Securities (as defined in the Prospectus) are
exchanged in the Exchange Offer (as defined in the Prospectus), and (ii) does
not release and discharge (a) any rights or remedies Current VASCO in its own
right, or as successor to the rights of the VASCO Predecessors, may have against
any person or entity arising out of the Corporate Matters, or (b) any rights or
remedies unrelated to the Corporate Matters the Optionholder has as a current
stockholder of Current VASCO.
5. EXCHANGE OFFER; EFFECTIVE DATE. This Agreement is subject
to the terms and conditions of the Exchange Offer, as defined in the Prospectus,
and will become effective and binding on the parties hereto upon acceptance by
New VASCO of shares of common stock of Current VASCO tendered pursuant to the
Exchange Offer. Without limiting the foregoing, the Optionholder has the right
to withdraw this Agreement in accordance with the specific provisions in the
Prospectus under the heading "THE EXCHANGE OFFER - Withdrawal Rights."
6. GENERAL. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous agreements or understandings, oral or written, with respect
to the subject matter hereof. This Agreement shall be governed by and construed
in accordance with the internal laws and not the conflicts of law rules of the
State of Illinois, and the invalidity or unenforceability of any term or
provision of this Agreement shall not affect the validity or enforceability of
any other term or provision hereof. This Agreement is binding on and inures to
the benefit of the parties hereto and their respective successors and assigns
and, in addition, the provisions of the release set forth in Section 3 inure to
the benefit of each of the entities included within the above definition of
VASCO.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this
Agreement.
New VASCO: VASCO DATA SECURITY INTERNATIONAL, INC.
By
----------------------------------------
Its
---------------------------------------
Current VASCO: VASCO CORP.
By
----------------------------------------
Its
---------------------------------------
Optionholder: Printed Name
------------------------------
Signature
----------------------------------
Title
--------------------------------------
Address
------------------------------------
Dated , 1997
-------------------------------
-6-
<PAGE> 7
SCHEDULE I
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PER SHARE OPTION EXERCISE OPTION TERMINATION
SHARES PRICE VESTING PERIOD EXPIRATION DATE PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 4.7
NEW VASCO CONVERTIBLE NOTE AGREEMENT
This Agreement is by and among VASCO Data Security
International, Inc., a Delaware corporation ("New VASCO"), VASCO CORP., a
Delaware corporation ("Current VASCO") and the undersigned (the "Convertible
Noteholder"), which is the holder of the note convertible into shares of common
stock of Current VASCO attached hereto as Schedule _____ (the "Current VASCO
Convertible Note").
Pursuant to the New VASCO Prospectus dated ______, 1997, as
supplemented and amended prior to the Expiration Date as defined therein (the
"Prospectus"), New VASCO has offered to the Convertible Noteholder the
opportunity to amend the terms of the Current VASCO Convertible Note to provide
for conversion into the same number of shares of common stock of New VASCO on
the same terms and conditions provided for in the Current VASCO Convertible
Note, in exchange for the release set forth in Section 2 below in favor of
Current VASCO or any of its predecessor entities (the "VASCO Predecessors")
consisting of VASCO Corp., a corporation incorporated in Delaware on May 22,
1984 ("Old VASCO"), and Ridge Point Enterprises, Inc., incorporated in Utah on
January 7, 1985 and subsequently renamed VASCO Corp. ("VASCO Utah"), and the
respective successors and assigns of each of the foregoing, including New VASCO
(Current VASCO, New VASCO, the VASCO Predecessors and all such successors and
assigns being collectively referred to hereinafter as "VASCO"). Current VASCO
hereby agrees to amend the Current VASCO Convertible Note in accordance with and
subject to the provisions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which hereby is acknowledged, the parties hereto agree as follows:
1. AMENDMENT TO CURRENT VASCO CONVERTIBLE NOTE. New VASCO,
Current VASCO and the Convertible Noteholder hereby agree to amend the terms of
the Current VASCO Convertible Note to provide that each reference in the Current
VASCO Convertible Note to a right or option on the part of Current VASCO or the
Convertible Noteholder to convert the Current VASCO Convertible Note into shares
of Current VASCO common stock shall be replaced by the right or option to
convert the Current VASCO Convertible Note into shares of New VASCO common stock
on the same terms and conditions, including without limitation the conversion
price; provided, that to the extent such conversion price is to be determined by
reference to any market or trading price of Current VASCO common stock, the
Current VASCO Convertible Note is hereby amended to provide that the conversion
price shall be determined by reference to the market or trading price of New
VASCO common stock in accordance with the formula set forth in the Current VASCO
Convertible Note. It is further agreed by the parties that terms of the Current
VASCO Convertible Note shall be amended to provide that the conversion price per
share of New VASCO common stock and the number of such shares convertible
pursuant to a New VASCO Warrant shall be adjusted from time to time
<PAGE> 2
as provided in Exhibit A hereto. It is agreed and understood by the parties that
the Current VASCO Convertible Note shall remain a valid and binding obligation
of Current VASCO and conversion of the Current VASCO Convertible Note into
shares of New VASCO common stock shall constitute payment under the Current
VASCO Convertible Note as if converted into shares of Current VASCO common
stock. The Convertible Noteholder acknowledges that the amendment to the Current
VASCO Convertible Note may result in the recognition of gain or loss for tax
purposes, and further the Convertible Noteholder agrees that such tax
consequences are solely his, her or its responsibility, and not that of Current
VASCO or New VASCO. The Convertible Noteholder shall have no rights as a
stockholder with respect to the New VASCO common stock into which the Current
VASCO Convertible Note is convertible until proper exercise of a conversion
right and delivery to the Convertible Noteholder of certificates for the shares
of New VASCO common stock pursuant to the conversion of the Current VASCO
Convertible Note. All shares acquired by the Convertible Noteholder pursuant to
this Agreement and the Current VASCO Convertible Note shall be subject to any
restrictions on sale, encumbrance and other disposition under applicable
securities laws.
2. RELEASE. The Convertible Noteholder hereby forever releases
and fully discharges VASCO, and each of them, from and against all direct or
indirect demands, claims, payments, obligations, actions or causes of action,
assessments, losses, liabilities, damages (including without limitation special,
consequential, exemplary, punitive and similar damages), reasonable costs and
expenses paid or incurred, or diminutions in value of any kind or character
(whether or not known or asserted prior to the date hereof, fixed or unfixed,
conditional or unconditional, choate or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise), that the
Convertible Noteholder now has or ever had against VASCO or the assets of
Current VASCO or any of the VASCO Predecessors as a result of acts or omissions
occurring on or before the date of the Prospectus which arise from or are in
connection with
(i) any prior authorization, designation or issuance of stock,
any stock split, reclassification, redesignation, dividend or
distribution of or upon stock, any amendment to the certificate or
articles of incorporation or bylaws including those affecting the
amount, rights, powers or preferences of stock, and any failure to
properly authorize, approve or effect any of the foregoing actions,
including (a) the failure by Old VASCO to document whether an amendment
to its Certificate of Incorporation was duly authorized or to file a
Certificate of Amendment with the Delaware Secretary of State to amend
its Certificate of Incorporation in 1984 to effect a three-for-one
stock split of its common stock and to provide for 600,000 shares of
non-voting common stock prior to purportedly effecting the stock split
and issuing such non-voting common shares, (b) the failure by Old VASCO
to document whether director and stockholder approval was obtained for
an amendment to its Certificate of Incorporation increasing the number
of authorized shares of common stock in 1986, (c) the purported
issuance of Series A preferred stock in 1989 by VASCO Utah at a time
when the issuance of preferred shares was not authorized by VASCO
Utah's charter, and (d) the purported issuance of preferred stock by
Current VASCO in connection with the 1990 merger, when the rights,
powers and preferences of which such stock were not specified in
Current VASCO's Certificate of Incorporation and
-2-
<PAGE> 3
when its Certificate of Incorporation did not provide its Board of
Directors the power to designate such rights, powers and preferences;
(ii) any failure to properly design, approve, adopt,
administer, or authorize the number of shares subject to, any stock
option plan or program, including actions required to allow for options
awarded thereunder to be treated as incentive stock options under the
Internal Revenue Code of 1986, as amended (the "Code"), including the
failure by Old VASCO, VASCO Utah and/or Current VASCO to (a) document
approval by the Board of Directors and stockholders of stock option
plans, (b) specify and authorize the number of shares of stock to be
subject to such plans, (c) reserve the number of shares subject to such
plans, (d) document the authorization for the grant of options pursuant
to such plans and the issuance of shares upon exercise of such options,
and (e) design such plans in a manner that would ensure options granted
thereunder would be treated as incentive stock options;
(iii) any organization or any merger, consolidation, share
exchange, reorganization, recapitalization, sale of assets or like
event, or any failure properly to authorize, approve, effect or
consummate same, including (a) the failure to document the approval by
Old VASCO's stockholders of the 1986 reorganization through the share
exchange undertaken by Old VASCO and Ridge Point Enterprises,
Inc./VASCO Utah, (b) the failure to document whether all stockholders
of Old VASCO voluntarily exchanged their shares for shares of Ridge
Point Enterprises, Inc./VASCO Utah, (c) the failure to document the
mechanics of the exchange of Old VASCO shares for shares of Ridge Point
Enterprises, Inc./VASCO Utah, and (d) the following procedural
irregularities which call into question the validity of the intended
1990 merger of VASCO Utah and Current VASCO, as well as Current VASCO's
title to the assets of VASCO Utah purportedly succeeded to by Current
VASCO by virtue of the merger: (1) the incorporation of Current VASCO,
after the date of the 1990 merger agreement, (2) Current VASCO's
approval of the plan of merger, including approval of the plan of
merger prior to the incorporation of Current VASCO, the lack of
documented stockholder approval as called for by the plan of merger and
the effectiveness of the approval by Current VASCO's then Board of
Directors, (3) the authorization and issuance of stock by Current VASCO
pursuant to the merger, (4) the adoption of Current VASCO's initial
bylaws, appointment of Current VASCO's initial directors and the
election of its initial officers, and (5) the administrative
dissolution of VASCO Utah prior to the filing of a Certificate of
Merger with the State of Delaware, (6) the failure to file Articles of
Merger with the State of Utah in connection with the intended merger of
VASCO Utah and Current VASCO;
(iv) the dissolution, liquidation or winding up of any of
Current VASCO's predecessors, or any failure properly to approve or
effect said dissolution, liquidation or winding up, including (a) the
failure to properly document any stockholder approval of the
dissolution of Old VASCO and to document actions taken to dissolve,
liquidate and wind-up Old VASCO in 1987, (b) the failure to vest
effectively title and ownership in VASCO Utah of Old VASCO's assets and
to document the assumption by VASCO Utah of Old VASCO's liabilities,
and (c) the administrative dissolution of VASCO Utah in
-3-
<PAGE> 4
1990 prior to the intended merger transaction with Current VASCO and
before the filing of a Certificate of Merger with the State of
Delaware; and
(v) any failure to afford security holders any appraisal,
preemptive or other rights, whether accorded by statute or by the
articles of incorporation, certificate of incorporation or bylaws of
Current VASCO or any of its predecessors, in connection with any of the
matters described in the foregoing clauses (i), (ii), (iii) or (iv)
including (a) the failure of Old VASCO to document whether it afforded
its stockholders, in connection with issuances of Old VASCO capital
stock, the preemptive rights to purchase, upon the issuance or sale of
Old VASCO stock (or securities convertible into Old VASCO stock),
shares (or securities) in proportion to the amount of Old VASCO common
stock then owned by such holder, subject to conditions and time
limitations prescribed (and at a price determined as permitted by law),
by Old VASCO's Board of Directors, as provided for in the Old VASCO
Certificate of Incorporation and (b) the failure of VASCO Utah to
document whether it afforded its stockholders the appraisal rights
provided for by Utah law in connection with the intended 1990 merger of
VASCO Utah with Current VASCO.
(The matters listed in the foregoing clauses (i), (ii), (iii),
(iv) and (v) are collectively referred to in this document and the Prospectus as
the "Corporate Matters").
The Convertible Noteholder hereby irrevocably waives his
rights under any applicable statute, rule, regulation, legal principle, or legal
doctrine that provides that a general release does not extend to claims which a
releasing party does not know or suspect to exist in its favor at the time of
executing such release, which if known by the releasing party would have
materially affected its settlement with the released party.
3. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS OF
CONVERTIBLE NOTEHOLDER. The Convertible Noteholder hereby represents, warrants
and covenants that (i) the Convertible Noteholder has received and adequately
studied the Prospectus, (ii) the Convertible Noteholder has had adequate
opportunity to consult legal counsel of the Convertible Noteholder's choice
regarding this Agreement, (iii) the Convertible Noteholder has executed and
delivered this Agreement and the release set forth herein pursuant to the free
will of the Convertible Noteholder with the intention that the release be a
general release to the full extent provided herein, (iv) the Convertible
Noteholder has not sold, assigned or otherwise transferred any rights or
remedies arising from or in connection with the Corporate Matters, and (v) the
Current VASCO Convertible Notes are the only convertible notes held by the
Convertible Noteholder to acquire capital stock of Current VASCO or any of the
VASCO Predecessors. Current VASCO and the Convertible Noteholder each
acknowledges and agrees that this Agreement does not affect any rights or claims
the Convertible Noteholder may have against VASCO arising out of any matter or
transaction arising from and after the date of the Prospectus. Further, it is
expressly understood that this Agreement (i) will effect a release of any and
all Associated Corporate Matter Claims (as defined in the Prospectus) the
Convertible Noteholder may have even if less than all of the Convertible
Noteholder's Current VASCO Securities (as defined in the Prospectus) are
exchanged in the Exchange Offer (as defined in the Prospectus), and (ii) does
not release and discharge (a) any rights or remedies Current VASCO in its own
right, or as successor to the
-4-
<PAGE> 5
rights of the VASCO Predecessors, may have against any person or entity arising
out of the Corporate Matters, or (b) any rights or remedies unrelated to the
Corporate Matters the Convertible Noteholder has as a current security holder of
Current VASCO.
4. EXCHANGE OFFER; EFFECTIVE DATE. This Agreement is subject
to the terms and conditions of the Exchange Offer, as defined in the Prospectus,
and will become effective and binding on the parties hereto upon acceptance by
New VASCO of shares of common stock of Current VASCO tendered pursuant to the
Exchange Offer. Without limiting the foregoing, the Convertible Noteholder has
the right to withdraw this Agreement in accordance with the specific provisions
in the Prospectus under the heading "THE EXCHANGE OFFER - Withdrawal Rights."
5. GENERAL. This Agreement shall be governed by and construed
in accordance with the internal laws and not the conflicts of law rules of the
State of Illinois, and the invalidity or unenforceability of any term or
provision of this Agreement shall not affect the validity or enforceability of
any other term or provision hereof. This Agreement is binding on and inures to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns and in addition, the provisions of the
release set forth in Section 2 inure to the benefit of each of the persons and
entities included within the above definition of VASCO.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
New VASCO: VASCO DATA SECURITY INTERNATIONAL, INC.
By
----------------------------------------
Its
---------------------------------------
Current VASCO: VASCO CORP.
By
----------------------------------------
Its
---------------------------------------
Convertible Noteholder: Printed Name
------------------------------
Signature
----------------------------------
Title
--------------------------------------
Address
------------------------------------
Dated , 1997
-------------------------------
-6-
<PAGE> 7
EXHIBIT A
ADJUSTMENT OF CONVERSION PRICE AND
NUMBER OF SHARES CONVERTIBLE
1. In case, prior to the expiration of a Current VASCO
Convertible Note by conversion or by its terms, New VASCO shall issue any shares
of New VASCO common stock as a stock dividend or subdivide the number of
outstanding shares of New VASCO common stock into a greater number of shares,
then in either of such cases, the then applicable conversion price per share of
the shares of New VASCO common stock convertible pursuant to that Current VASCO
Convertible Note in effect at the time of such action shall be proportionately
reduced and the number of shares at that time convertible pursuant to that
Current VASCO Convertible Note shall be proportionately increased; and
conversely, in the event New VASCO shall contract the number of outstanding
shares of New VASCO common stock by combining such shares into a smaller number
of shares, then, in such case, the then applicable conversion price per share of
the shares of New VASCO common stock convertible pursuant to that Current VASCO
Convertible Note in effect at the time of such action shall be proportionately
increased and the number of shares of NEW VASCO common stock convertible
pursuant to that Current VASCO Convertible Note shall be proportionately
decreased. If New VASCO shall, at any time during the term of a Current VASCO
Convertible Note, declare a dividend payable in cash on the New VASCO common
stock and shall, at substantially the same time, offer to its stockholders a
right to purchase new shares of New VASCO common stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all New VASCO
common stock so issued shall, for the purpose of that Current VASCO Convertible
Note, be deemed to have been issued as a stock dividend. Any dividend paid or
distributed upon the New VASCO common stock shall be treated as a dividend paid
in New VASCO common stock to the extent that shares of New VASCO common stock
are issuable upon conversion thereof.
2. In case, prior to the expiration of a Current VASCO
Convertible Note by conversion or by its terms, New VASCO shall be recapitalized
by reclassification of its outstanding New VASCO common stock (other than a
change in par value to no par value), or New VASCO or a successor corporation
shall consolidate or merge with or convey all or substantially all of its or of
any successor corporation's property and assets to any other corporation or
corporations (any such other corporations being included within the meaning of
the term "successor corporation" hereinbefore used in the event of any
consolidation or merger of any such other corporation with, or the sale of all
or substantially all of the property of any such other corporation to, another
corporation or corporations), then, as a condition of such recapitalization,
consolidation, merger or conveyance, lawful and adequate provision shall be made
whereby the Convertible Noteholder shall thereafter have the right to purchase,
upon the basis and on the terms and conditions specified in that Current
-7-
<PAGE> 8
VASCO Convertible Note, in lieu of the shares of New VASCO common stock
theretofore convertible upon the conversion of that Current VASCO Convertible
Note, such shares of stock, securities or assets of the other corporation as to
which the Convertible Noteholder would have been entitled had that Current VASCO
Convertible Note been converted immediately prior to such recapitalization,
consolidation, merger or conveyance; and in any such event, the rights of that
Convertible Noteholder to any adjustment in the number of shares of New VASCO
common stock convertible upon the conversion of that Current VASCO Convertible
Note, as hereinbefore provided, shall continue and be preserved in respect of
any stock which the Convertible Noteholder becomes entitled to purchase.
3. In case, prior to the expiration of a Current VASCO
Convertible Note by conversion or by its terms, New VASCO shall sell all or
substantially all of its property or dissolve, liquidate or wind up its affairs,
lawful provision shall be made as part of the terms of any such sale,
dissolution, liquidation or winding up, so that the Convertible Noteholder may
thereafter receive upon conversion hereof in lieu of each share of New VASCO
common stock which he would have been entitled to receive, the same kind and
amount of any securities or assets as may be issuable, distributable or payable
upon any such sale, dissolution, liquidation or winding up with respect to each
share of New VASCO common stock; provided, however, that in any case of any such
sale or of dissolution, liquidation or winding up, the right to convert that
Current VASCO Convertible Note shall terminate on a date fixed by New VASCO.
Such date so fixed shall be no earlier than 3:00 p.m., New York City time, on
the forty-fifth (45th) day next succeeding the date on which notice of such
termination of the right to convert that Current VASCO Convertible Note has been
given by mail to the Convertible Noteholder.
4. Upon any conversion of a Current VASCO Convertible Note by
the Convertible Noteholder, New VASCO shall not be required to deliver fractions
of one share, but may adjust the conversion price payable by that Current VASCO
Convertible Note in respect of any such fraction of one share on the basis of
the conversion price per share then applicable upon conversion of that Current
VASCO Convertible Note.
5. In case, prior to the expiration of a Current VASCO
Convertible Note by conversion or by its terms, New VASCO shall determine to
take a record of is stockholders for the purpose of determining stockholders
entitled to receive any dividend, stock dividend, distribution or other right
whether or not it may cause any change or adjustment in the number, amount,
price or nature of the securities or assets deliverable upon the conversion of
that Current VASCO Convertible Note pursuant to the foregoing provisions, New
VASCO shall give at least ten (10) days' prior written notice to the effect that
it intends to take such record to the Convertible Noteholder, said notice to
specify the date as of which such record is to be taken, the purpose for which
such record is to be taken, and the effect which the action which may be taken
will have upon that Current VASCO Convertible Note.
-8-
<PAGE> 9
SCHEDULE _____
ATTACHED HERETO
-9-
<PAGE> 1
EXHIBIT 10.1
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST.
OEM Software Order Form
(With Terms and Conditions)
VASCO Data Security, Inc.
- --------------------------------------------------------------------------------
Full legal name of OEM ("Licensee")
<TABLE>
<S><C>
1919 S. Highland Avenue, Suite 118-C, Lombard, Illinois 60148 U.S.A.
- ---------------------------------------------------------------------------------------------
Address of Principal Place of Business City State Zip/Country
Contact Person: John Haggard Telephone: (630) 932-8844 Fax: (630) 495-0279
------------ -------------- --------------
Licensee is incorporated in the state/country of Delaware
-------------------------------------
Territory (Country): Worldwide ("Territory")
-----------------------------------
Licensee Products (Description): Internet, network and authentication hardware and software
------------------------------------------------------------
</TABLE>
IMPORTANT NOTICE: UPON EXECUTION BY THE PARTIES, LICENSEE WILL HAVE THE RIGHT TO
MAKE AND DISTRIBUTE COPIES OF THE NETSCAPE PRODUCTS INDICATED IN ATTACHMENT A,
SOLELY ON A BUNDLED BASIS AND NOT AS A STAND-ALONE PRODUCT, AT THE PRICING SET
FORTH THEREIN AND ON THE TERMS AND CONDITIONS SET FORTH IN ATTACHMENT B, TO END
USERS IN THE TERRITORY. BY SIGNING THIS ORDER FORM, LICENSEE AGREES TO ALL THE
TERMS AND CONDITIONS ATTACHED (COLLECTIVELY THE "AGREEMENT").
<TABLE>
<S><C>
LICENSEE Netscape Communications Corporation
--------------------------------------------------
Full legal name of Netscape entity ("Netscape")
By: /S/ T. Kendall Hunt By: /S/ Noreen G. Bergin
--------------------------------------- --------------------------------------------
Signature Signature
Name: T. Kendall Hunt Name: Noreen G. Bergin
-------------------------------------- -----------------------------------------
Print or Type Print or Type
Vice President, Finance
Title: Chairman & CEO Title: & Corporate Controller
------------------------------------- -----------------------------------------
Date: 3/13/97 Date of Acceptance: March 18, 1997
-------------------------------------- ----------------------------
("Effective Date")
Address: 501 East Middlefield Road
---------------------------------------
Mountain View, CA 94043
-----------------------------------------------
</TABLE>
AGREEMENT CONSISTS OF:
1. OEM Software Order Form
2. Attachment A - Products and Pricing
3. Attachment B - Terms and Conditions
VASCO Data Security, Inc.
OEM 031297ttk
CONFIDENTIAL Rev 022197
1
<PAGE> 2
ATTACHMENT A
PRODUCTS AND PRICING
1. Products: Netscape will provide Licensee exportable versions of the products
listed below in all languages and Windows 16-bit, 32-bit and NT platforms
which are generally commercially available from Netscape as of the Effective
Date.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Description of Products A License Fee Per Copy Subscription Per Copy B Upgrade and Subscription Per Copy C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Navigator 3.x $** $** $**
Navigator Gold 3.x $** $** $**
Certificate Server 1.x $** $** $**
Enterprise Server 2.x $** $** $**
Directory Server 1.x $** $** $**
FastTrack Server 1.x $** $** $**
</TABLE>
A. Licensee will receive then-current versions of the above products for the
Initial Term (as defined in Attachment B).
B. This price applies when Licensee purchases the product(s) and subscription
together.
C. This price applies when Licensee purchases upgrades and subscription within 1
year after Licensee purchased the product(s).
2. Prepayment for Products. Licensee shall pay Netscape a nonrefundable
prepayment against future-owed fees ("Prepayment") for the Products equal to
US $840,000 due and payable in accordance with the schedule set forth below.
Licensee estimates that 0.5% of Prepayment shall be applied towards Products
used by Licensee for internal business purposes. Prepayment shall apply only
to the first year of this Agreement and not to any Subsequent Term (as such
term is defined in Attachment B).
Amount Due Due Date
---------- --------
$210,000 **
$210,000 **
$210,000 **
$210,000 **
In addition to the Prepayment, Licensee shall provide Netscape $45,000 of its
products (including the VACMan/Server with unlimited Client Access Licenses
and 600 Internet access keys) free of charge for Netscape's internal use.
3. Support. In consideration of the Prepayment, Netscape will provide Licensee
support for the above products in accordance with Netscape's then current
terms and conditions for the 12-month period following the Effective Date.
Thereafter, if Licensee desires to receive support as described in this
section, Licensee shall pay Netscape ** annual support fees on each
anniversary of the Effective Date.
4. Deliverables. 2 master reproduction copies of each Product and 2 copies of
the applicable Documentation in any format generally available from Netscape.
All deliveries shall be F.C.A. Netscape origin (INCOTERMS 1990). Netscape
will promptly ship Products to Licensee upon Licensee's timely payment of all
fees due on the Effective Date.
5. Point of Sales Reports. Contact Name: Gregory T. Apple
--------------------------
Telephone: 630-932-8844
----------------------------
Fax: 630-495-0279 Email: [email protected]
------------- ---------------
<TABLE>
<S><C>
6. Ship To Address for Deliverables Bill To Address for Invoice
-------------------------------- ------------------------------
(not P.O. address)
1919 S. Highland Avenue, Suite 118-C 1919 S. Highland Avenue, Suite 118-C
------------------------------------- --------------------------------------------
Lombard, Illinois 60148 Lombard, Illinois 60148
------------------------------------- --------------------------------------------
------------------------------------- --------------------------------------------
Attention: Randy Jamieson Attention: Gregory T. Apple
----------------------------- ----------------------------------
Telephone: 630-932-8844 Telephone: 630-932-8844 Fax: 630-495-0279
------------------------------ -------------- ----------------
Sales Tax Resale / Exemption Certificate No.: 1912-8541 MTV Exp. July 2000
----------------------------------------------
(ORIGINAL CERTIFICATE MUST BE ATTACHED)
VAT Registration No. BE 446822877
-----------------------------------------------------------------------
Netscape Sales Rep: Jeff Shardell Telephone Number: (415) 937-4738
------------------------- --------------------------
</TABLE>
VASCO Data Security, Inc.
OEM 031297ttk
CONFIDENTIAL Rev 022197
2
<PAGE> 3
ATTACHMENT B
OEM Terms and Conditions
1. Definitions. "Licensee Products" means Licensee's computers and
computer-related products with which the Netscape Products are bundled for
distribution hereunder. "Product(s)" means the executable version (but not the
source code version) of the Netscape products listed on Attachment A, including
Updates thereto provided by Netscape hereunder. "Documentation" means the
standard user and reference manuals and installation guides which Netscape
generally distributes to licensees of the Products. "Update" means any
correction, modification, enhancement or improvement to any Product which
Netscape makes generally commercially available to its licensees. Updates do
not include software releases designated by Netscape as new products. "End
User" means any third party licensed by Licensee or Licensee's distributor to
use, but not to further distribute, the Products. If such third party is an
entity, then, for fee accrual purposes, "End User" means each individual within
such entity licensed to use but not to further distribute the Product.
2. Term. Unless sooner terminated, this Agreement shall remain
in effect for 1 year from the Effective Date ("Initial Term"). Thereafter, the
Agreement may be renewed by mutual agreement in writing for an
additional 1 year period ("Subsequent Term").
3. Licenses. (a) Netscape grants to Licensee, subject to these terms
and conditions, a nonexclusive and nontransferable right in the Territory to
(i) reproduce, without change, the Products in executable form only on any
tangible media and (ii) distribute by sublicense such Product copies to End
Users, directly or through distributors, only when bundled with a Licensee
Product. Licensee may grant distributors the right to grant further
sublicenses to distribute copies of the Products to other distributors
regardless of tier; however, Licensee shall not grant to any distributor the
right to reproduce all or any portion of the Products. Netscape also grants
Licensee a nonexclusive and nontransferable license (with no right to
sublicense) to use the Products in the Territory for Licensee's internal
business purposes in accordance with the applicable provisions of
Netscape's end user license agreements provided with the Products.
Licensee and its distributors shall not electronically transmit Products to
distributors or End Users; provided, if Netscape releases a patch to any
Product for general commercial distribution by permitting customers to
download such patch from Netscape's internet home page, then Licensee
shall have the right to distribute such patch (but not the entire Product)
electronically to its distributors and End Users. Netscape also grants
Licensee a nonexclusive and nontransferable license to use and reproduce
without change the Documentation, and to distribute the Documentation
in the Territory by sublicense to End Users, directly or through
distributors, solely in conjunction with the Product. Reproduction of
Products and Documentation shall occur only at Licensee's principal office
unless an alternate location is specified in writing to Netscape.
(b) Except as expressly permitted herein or by applicable law, Licensee
shall not, and shall not permit any distributor or other person to, copy,
modify, translate, decompile, reverse engineer, disassemble, or otherwise
determine or attempt to determine source code from the Products or to
create any derivative works based upon the Products or Documentation.
Neither Licensee nor any distributor shall market or distribute any Product
copy (i) which is not bundled with a Licensee Product or (ii) outside the
Territory. If Licensee or any distributor fails to comply with this Section
3(b), Netscape may immediately (in addition to all other remedies it may
have and except for internal use licenses) revoke all licenses granted
hereunder, subject to Section 13.
(c) Netscape grants Licensee a sublicense to use as permitted in Section
3(a) any third party software which may be contained in the Products.
Netscape reserves the right to substitute any third party software in the
Products so long as the new third party software does not materially
affect the functionality of the Products.
(d) Licensee shall use, and is granted during the term hereof a
nontransferable, nonexclusive and restricted license (with a right to
sublicense to distributors) to use in the Territory the mark "Netscape
Navigator Included" and those Netscape trademarks and trade names
relating to the Products (collectively, the "Marks") in all advertising,
marketing, technical, packaging and other materials related to the
Products. Use of the Marks shall comply with Netscape's then-current
trademark usage guidelines. Licensee need not use the Marks in any
country in which their connotation is offensive and will consult with
Netscape as to the foreign translation of the Marks so that Netscape can
ensure uniformity of use. Licensee shall clearly indicate Netscape's
ownership of the Marks. All use of the Marks shall inure to Netscape's
benefit. Neither Licensee nor its distributors shall register any
Netscape trademarks, or trademarks, trade names or domain names
confusingly similar to Netscape trademarks, trade names or domain
names without Netscape's express prior written consent. Upon
Netscape's request from time to time, Licensee shall provide Netscape
with copies of Licensee Products bearing the Marks, and Licensee and
distributors shall suspend use of the Marks if Netscape reasonably
deems the quality of the use to be inferior until Licensee and any such
distributor have taken such steps as Netscape may reasonably require
to correct the quality deficiencies.
4. Fees; Payments. Licensee shall pay Netscape the Prepayment set forth on
Attachment A in accordance therewith. For each $1.00 of fees due up to the
Prepayment, $1.00 is credited against the Prepayment. Following depletion of
the Prepayment, fees for the Products will be paid quarterly net 15 days after
Licensee's submission of quarterly reports to Netscape pursuant to Section 5.
Upon exhaustion of the Prepayment, Licensee shall pay to Netscape the per
copy fees set forth on Attachment A for each Product or Update license
granted by Licensee or distributors to End Users. License fee will
accrue in the applicable quantity upon: (a) the initial date of Licensee's
internal use of any Product; (b) distribution by Licensee of a copy of a
Product to a distributor or End User; or (c) authorization by Licensee
for an End User to increase the authorized number of copies. Licensee
shall pay Netscape such license fees accrued during each quarter
within 15 days after Licensee's submission of quarterly reports to
Netscape pursuant to Section 5 and each such payment shall reference
such quarterly report. All payments shall be made in U.S. dollars at
Netscape's address as indicated herein or otherwise notified by
Netscape. Past due amounts shall bear interest at the rate of 1% per
month. All fees are exclusive of taxes, withholdings, duties or levies,
however designated or computed and Licensee shall be responsible
therefor except for taxes based on Netscape's net income. In lieu
thereof, Licensee shall provide to Netscape a valid tax or other levy
exemption certificate acceptable to the taxing or other levying
authority. Should Licensee fail to provide Netscape with timely
reports, then, regardless of Licensee's actual rate of depletion of the
Prepayment, one quarter of Licensee's Prepayment shall be deemed
depleted following the passage of one quarter of the Initial Term; 1/2
of Licensee's Prepayment shall be deemed depleted following the
passage of one half of the Initial Term; three quarters of Licensee's
Prepayment shall be deemed depleted following the passage of 3/4 of
the Initial Term; and Licensee's entire Prepayment shall be deemed
depleted following the passage of the Initial Term. All payments after
exhaustion of Prepayment shall accompany the monthly reports.
VASCO Data Security, Inc.
OEM 031297ttk
CONFIDENTIAL Rev 022197
3
<PAGE> 4
5. Reports; Audit. Licensee and its distributors shall maintain
accurate records of End Users, including the name and address of each End
User, the specific platforms distributed to each End User, and any further
information as Netscape may from time to time reasonably request.
Licensee shall report to Netscape within 45 calendar days after the end of
each quarter the part number and quantity of Product licenses granted
during such prior quarter for distribution hereunder and internal use,
including zip/postal code and/or country therefor. In addition, Licensee
and its distributors shall maintain all other data reasonably required for
verification of Licensee's and each distributor's compliance with the terms
hereof, including all information reasonably requested by Netscape, and
Netscape may conduct up to one audit per year to verify compliance with
this Agreement, which shall be conducted at Netscape's expense unless the
results establish that inaccuracies in Licensee's reports have resulted in
underpayment to Netscape of more than 5% of the amount actually due, in
which case Licensee shall pay all amounts due and bear the expense of the
audit.
6. Support. Licensee shall provide all front-line technical support
to End Users in accordance with Netscape's then-current OEM support
terms and conditions. Licensee shall employ at least 2 fully trained full
time support personnel and provide support 5 days a week during local
business hours. Licensee agrees that any documentation or packaging
distributed by Licensee shall conspicuously state that End Users must call
Licensee for technical support for the Products. Netscape will have no
obligation to furnish any assistance, information or Documentation to any
End User, and Licensee will cooperate with Netscape to ensure that End
Users do not contact Netscape directly. Netscape shall provide back-end
telephone assistance to Licensee in accordance with Netscape's then-current
OEM support terms and conditions during the term for which
Netscape has received payment therefor.
7. Distribution. (a) Licensee shall and shall cause its distributors
to comply with all then-current applicable laws, regulations and other
legal requirements in its performance of this Agreement, including without
limitation: (i) all applicable export laws, rules and regulations of any
agency of the U.S. Government or other applicable agencies; (ii) the U.S.
Foreign Corrupt Practices Act; and (ii) all applicable laws, rules and
regulations to preclude the acquisition of unlimited rights in technical data,
software and documentation provided with the Products to a
governmental agency. Licensee shall ensure the inclusion of appropriate
notices required by the U.S. Government agencies or other applicable
agencies.
(b) Prior to the distribution of any Product to a distributor, Licensee or the
distributing distributor shall enter into an enforceable written agreement
with such distributor ("Distributor Agreement") that (i) requires such
distributor to comply with the relevant terms hereof, (ii) expressly names
Netscape as an intended third party beneficiary with the right to rely on
and directly enforce the terms thereof, and (iii) disclaims any warranty
obligations of Netscape and/or liability of Netscape thereunder. Neither
Licensee nor any distributor shall sublicense or otherwise distribute the
Products or Documentation to End Users except pursuant to a written
sublicense agreement ("End User License Agreement") that contains terms
and conditions not inconsistent with and no less restrictive than the terms
and conditions set forth in Netscape's then-current end user license
agreement provided with the applicable Product. Licensee and its
distributors shall use commercially reasonable efforts to enforce each
Distributor Agreement and End User License Agreement with at least the
same degree of diligence used in enforcing similar agreements with others.
Licensee and distributors shall notify Netscape of any breach or suspected
breach of a material obligation under a Distributor Agreement or an End
User License Agreement which comes to their attention. In addition,
Licensee and distributors will cooperate with Netscape in any legal
action to prevent or stop unauthorized use, reproduction or
distribution of Products or Documentation
(c) This is a nonexclusive relationship, and each party agrees that the
other may enter into similar arrangements with third parties. Licensee
shall and shall cause its distributors to treat all Products at least as
favorably as it treats any competitive products it distributes. Neither
Licensee nor distributors shall market or promote any Product or any
other product in a manner that states or implies that the Product is
inferior or secondary to any other product. For example, Licensee and
its distributors shall not market or promote any competitive product as
"preferred," "premier," "primary" or the like as compared to any
Product.
(d) Upon 30 days written notice that Netscape is required by a supplier
to cease and to cause its licensees to cease reproduction and
distribution of a particular revision of any Product, Licensee and
distributors shall cease such activities, provided Netscape replaces
such affected Product with a functionally equivalent Product as soon as
commercially practicable.
(e) Netscape agrees to assist Licensee in establishing relationships with
Netscape's North American value added reseller customers ("VARs")
by (i) providing exposure for Licensee in Netscape's special web site for
VARs and (ii) at Licensee's expense, targeting mailings to vertically
select VARs and including select Licensee's materials (including
AccessKey II demo package) in a future edition of Netscape's Moz Mail
kit for VARs.
8. Proprietary Rights. Title to and ownership of all copies of
the Products and Documentation whether in machine-readable or
printed form, and including without limitation derivative works,
compilations, or collective works thereof and all related technical
know-how and all rights therein are and shall remain the exclusive
property of Netscape or its suppliers. Except for the rights expressly
granted to Licensee hereunder, Netscape reserves for itself all other
rights in and to the Products and Documentation Licensee and
distributor shall not take any action to jeopardize, limit or interfere in
any manner with Netscape's ownership of or rights with respect to the
Products and Documentation. Further, Licensee or its distributors shall
not remove or alter any trademark, copyright or other proprietary
notices, legends, symbols, or labels appearing on the Products and/or
Documentation delivered to Licensee and Licensee shall reproduce
such notices on all copies of the Products and/or Documentation made
hereunder.
9. Confidentiality. "Confidential Information" shall mean this
Agreement and all information a party discloses to the other which has
been either (i) characterized in writing as confidential at the time of its
disclosure or (ii) orally characterized as confidential at the time of
disclosure and reduced to writing and marked "Confidential" within
30 days of disclosure, except for information which the receiving party
can demonstrate: (a) is previously rightfully known to the receiving
party without restriction on disclosure; (b) is or becomes, from no act or
failure to act on the part of the receiving party, generally known in the
relevant industry or public domain; (c) is disclosed to the receiving
party by a third party as a matter of right and without restriction on
disclosure; or (d) is independently developed by the receiving party
without access to the Confidential Information. Each receiving party
shall at all times, both during the term hereof and for a period of at
least 3 years after termination, keep in confidence all the disclosing
party's Confidential Information using a standard of care the receiving
party uses with its own information of this nature, but in no event less
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than reasonable care. The receiving party shall not use the disclosing
party's Confidential Information other than in the course of its duties
hereunder. Without the prior written consent of the disclosing party, the
receiving party shall not disclose the disclosing party's Confidential
Information except on a "need to know" basis to an employee or contractor
under binding obligations of confidentiality substantially similar to those
set forth herein. If a receiving party is legally compelled to disclose any of
the disclosing party's Confidential Information, then, prior to such
disclosure, the receiving party will (x) assert the privileged and
confidential nature of the Confidential Information and (y) cooperate fully
with the disclosing party in protecting against any such disclosure and/or
obtaining a protective order narrowing the scope of such disclosure and/or
use of the Confidential Information. In the event such protection is not
obtained, the receiving party shall disclose the Confidential Information
only to the extent necessary to comply with applicable the legal
requirements.
10. Limited Warranty. Netscape warrants only to Licensee that the Products
when properly installed and used will substantially conform to the functional
specifications set forth in the Documentation in effect when the Products are
delivered to Licensee. Netscape's warranty and obligation shall extend for a
period of 90 days ("Warranty Period") from the date Netscape first delivers the
Products to Licensee. All warranty claims not made in writing or not received
by Netscape within the Warranty Period shall be deemed waived. Netscape's
warranty is solely for the benefit of Licensee, who has no authority to extend
this warranty to any other person or entity. THE EXPRESS WARRANTY SET FORTH IN
THIS SECTION CONSTITUTES THE ONLY WARRANTY MADE BY NETSCAPE. NETSCAPE MAKES NO
OTHER REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED
(EITHER IN FACT OR BY OPERATION OF LAW), WITH RESPECT TO THE PRODUCTS OR
DOCUMENTATION. NETSCAPE EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OR
CONDITIONS INCLUDING THOSE OF TITLE, MERCHANTABILITY, NONINFRINGEMENT AND
FITNESS FOR A PARTICULAR PURPOSE. NETSCAPE DOES NOT WARRANT THAT THE PRODUCTS
OR DOCUMENTATION ARE ERROR-FREE OR THAT OPERATION OF THE PRODUCTS WILL BE
SECURE OR UNINTERRUPTED AND DISCLAIMS ANY AND ALL LIABILITY ON ACCOUNT THEREOF.
THE ABOVE LIMITATION SHALL APPLY TO THE EXTENT ALLOWED BY APPLICABLE LAW.
Netscape shall have no obligation under the foregoing warranty for any
nonconformance caused by: (a) the incorporation, attachment or engagement of
any attachment, feature, program, or device, other than by Netscape, to the
Products or any part thereof; (b) accident, transportation, neglect or misuse;
alteration, modification, or enhancement of the Products other than by
Netscape; (c) failure to provide an installation environment recommended for
the Products; (d) use of supplies or materials not meeting Netscape
specifications; (e) use of the Products for other than the intended purpose;
(f) use of the Products on any systems other than the specified hardware
platform for such Products; (g) Licensee's use of defective media or defective
duplication of the Products; or (h) Licensee's failure to incorporate any
Update previously released by Netscape which corrects such nonconformance. If
Licensee provides Netscape with written notice of a failure under this limited
warranty during the Warranty Period, Netscape will use reasonable efforts to
correct promptly, at no charge to Licensee, any such errors or failures. This
is Licensee's sole and exclusive remedy for breach of warranty hereunder.
11. Indemnity. (a) Netscape shall defend or settle, at its expense and
option, any and all claims, losses, damages, expenses and costs (including
attorneys' fees and costs) relating to any use, reproduction or distribution by
Licensee of the Netscape-owned portion of the Products hereunder directly
infringes any valid copyright or trade secret. Netscape will pay resulting
costs, damages and legal fees finally awarded against Licensee in such action
which are attributable to such claim provided that: (i) Licensee promptly
notifies Netscape in writing of any such claim; (ii) Netscape has sole control
of the defense and all related settlement negotiations, and (iii) Licensee
cooperates with Netscape, at Netscape's expense, in defending or settling such
claim. Should a Product become, or be likely to become in Netscape's opinion,
the subject of an infringement claim described above, Netscape may (I) procure
for Licensee the right to continue using the same or (II) replace or modify it
to make it non-infringing. Netscape shall have no obligation or liability for,
and Licensee shall defend, indemnify and hold Netscape harmless from and
against any claim based upon: (A) use of other than the then current, unaltered
version of the Product, unless the infringing portion is also in the then
current, unaltered release; (B) use, operation or combination of Products with
non-Netscape programs, data, equipment or documentation if such infringement
would have been avoided but for such use, operation or combination; (C)
Licensee's or its agent's continued use or distribution of the Product after
Netscape has notified Licensee that (i) Netscape believes such use or
distribution may result in infringement; and (ii) Netscape is using its
commercially reasonable best efforts to make the Netscape-owned portion of the
Product non-infringing; (D) compliance with Licensee's designs, specifications
or instructions; (E) any modifications or marking of the Products not
specifically authorized in writing by Netscape; (F) any unauthorized use of any
Netscape intellectual property; or (G) third party software incorporated in the
Products. The foregoing states the entire liability of Netscape and the
exclusive remedy of Licensee with respect to infringement of any intellectual
property right, whether under theory of warranty, indemnity or otherwise.
(b) Licensee shall indemnify, hold harmless and, at Netscape's request,
defend Netscape and/or its suppliers from and against any and all claims,
liabilities, losses, damages expenses and costs (including attorneys' fees and
costs) relating to (i) Licensee's failure to include in each Distributor
Agreement or End User License Agreement the contractual terms required to be
included therein hereunder, or (ii) Licensee's use, distribution or
reproduction of the Products including, without limitation, any claims,
liabilities, losses, damages, expenses and costs relating to defective
reproduction of or the use of defective media in the reproduction of Products,
claimed product liability, breach of warranty or support obligations or
infringement or misappropriation of intellectual property rights, except to the
extent such is covered under Section 11(a). Licensee will pay resulting costs,
damages and legal fees finally awarded against Netscape in such action which
are attributable to such claim.
12. Limitation of Liability. (a) TO THE EXTENT ALLOWED BY APPLICABLE LAW, IN
NO EVENT SHALL NETSCAPE OR ITS SUPPLIERS BE LIABLE FOR ANY LOSS OF PROFITS,
LOSS OF BUSINESS, LOSS OF USE OR DATA, INTERRUPTION OF BUSINESS, OR FOR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, EVEN IF
NETSCAPE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. (b)
EXCEPT AS SET FORTH IN THE INDEMNITY SECTION SET FORTH ABOVE, IN NO EVENT WILL
NETSCAPE OR ITS SUPPLIERS BE LIABLE FOR ANY CLAIM AGAINST LICENSEE BY ANY THIRD
PARTY. (c) IN NO EVENT SHALL NETSCAPE OR ITS SUPPLIERS BE LIABLE FOR (I) ANY
REPRESENTATION OR WARRANTY MADE TO ANY THIRD PARTY BY LICENSEE, ANY DISTRIBUTOR
OR THEIR RESPECTIVE AGENTS; (II) FAILURE OF THE PRODUCTS TO PERFORM EXCEPT AS,
AND TO THE EXTENT, OTHERWISE EXPRESSLY PROVIDED HEREIN; (III) FAILURE OF THE
PRODUCTS TO PROVIDE SECURITY; OR (IV) THE
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RESULTS OR INFORMATION OBTAINED OR DECISIONS MADE BY END USERS OF THE PRODUCTS
OR THE DOCUMENTATION. THE REMEDIES PROVIDED HEREIN ARE LICENSEE'S SOLE AND
EXCLUSIVE REMEDIES. (d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY AND EXCEPT FOR DEATH OR PERSONAL INJURY CAUSED BY THE NEGLIGENCE OF
NETSCAPE, NETSCAPE'S ENTIRE LIABILITY TO LICENSEE FOR DAMAGES CONCERNING
PERFORMANCE OR NONPERFORMANCE BY NETSCAPE OR IN ANY WAY RELATED TO THE SUBJECT
MATTER OF THIS AGREEMENT, AND REGARDLESS OF WHETHER THE CLAIM FOR SUCH DAMAGES
IS BASED IN CONTRACT OR IN TORT, SHALL NOT EXCEED THE AMOUNT RECEIVED BY
NETSCAPE FROM LICENSEE DURING THE PREVIOUS 12 MONTHS FOR THE PRODUCT GIVING
RISE TO SUCH CLAIM.
13. Termination. This Agreement may be terminated: (a) by either party upon
30 days written notice if the other party materially defaults in its
obligations hereunder and does not cure such default within the 30 day notice
period; (b) immediately by Netscape in the event Licensee attempts to derive
the source code of the Products or breaches its confidentiality obligations
hereunder; or (c) automatically upon notice from Netscape if Licensee ceases to
do business in the normal course, becomes or is declared insolvent or bankrupt,
is the subject of any proceeding relating to its liquidation or insolvency
which is not dismissed within 90 calendar days, or makes an assignment for the
benefit of its creditors. Immediately upontermination or expiration hereof, all
licenses for the Products and Documentation granted hereunder shall terminate,
and Licensee shall deliver to Netscape or destroy all copies of the Products and
Documentation in its or its distributors' possession or control, and shall
furnish to Netscape an affidavit signed by an officer of Licensee certifying
such delivery or destruction; provided that: (i) all End User License
Agreements which have been properly granted by Licensee or any distributor
hereunder prior to termination shall survive; and (ii) in the event this
Agreement is terminated for any reason other than Licensee's default and
provided Licensee fulfills its obligation specified herein with respect to such
items, Licensee may continue to use and retain copies of the Products and
Documentation to the extent necessary to support Products rightfully
distributed to End Users by Licensee, directly or through distributors, prior
to termination hereof. Termination by either party shall not act as a waiver or
release of any breach hereof or any liability hereunder. Except where specified
otherwise, the rights and remedies granted to a party hereunder are cumulative
and in addition to, and not in lieu of, any other rights or remedies which the
party may possess at law or in equity. Within 30 calendar days after
termination, Licensee shall pay to Netscape all sums then due and owing.
Sections 3(b), 4, 5, 8, 9, 10, 11, 12, 13, 14, 15 and 16 shall survive any
expiration or termination of this Agreement.
14. Notice. Any notice required or permitted hereunder shall be in English,
in writing and shall be deemed to be properly given upon the earlier of (a)
actual receipt by the addressee (including facsimile or e-mail) or (b) 5
business days after deposit in the mail, postage prepaid, when mailed by
registered or certified airmail, return receipt requested, or (c) 2 business
days after being sent via private industry courier to the respective parties at
the addresses set forth in the Order Form or to such other person or address as
the parties may from time to time designate in a writing. Notices to Netscape
shall be to the attention of the Legal Department, Netscape Communications
Corporation, 501 East Middlefield Road, Mountain View, California 94043.
Notices to Licensee shall be to the attention of Legal Department, VASCO Data
Security, Inc., 1919 South Highland Avenue, Suite 118C, Lombard, Illinois
60148.
15. Miscellaneous. (a) Neither party's waiver of a breach or delay or
omission to exercise any right or remedy shall be construed as a waiver of any
subsequent breach or as a waiver of such right or remedy. (b) This Agreement
may be amended only by a writing signed by both parties. (c) Licensee may not
assign this Agreement or any part thereof without the prior written consent of
Netscape, and any attempt to assign (by operation of law or otherwise) this
Agreement or any part thereof without such consent shall be null and void. (d)
This Agreement shall be governed by and construed under the laws of the State
of California, U.S.A., without reference to its conflicts of law provisions.
(e) Any dispute regarding this Agreement shall be subject to the exclusive
jurisdiction of the applicable court in the State of California, and the
parties agree to submit to the personal and exclusive jurisdiction and venue
thereof. Notwithstanding the foregoing, Netscape reserves the right to invoke
the jurisdiction of any competent court to remedy or prevent violation of any
provision under this Agreement relating to payment, Netscape Confidential
Information or Netscape intellectual property. (f) This Agreement will not be
governed by the United Nations Convention of Contracts for the International
Sale of Goods. (g) This Agreement creates no agency, partnership, joint
venture, or employment relationship and neither Licensee nor its agents have
any authority to bind Netscape in any respect whatsoever. (h) The section
headings herein are used for convenience only and shall have no substantive
meaning. (i) If the application of any provision hereof to any particular facts
shall be held to be unenforceable by any competent court, then (x) the
enforceability of such provision as applied to any other facts and the validity
of other provisions hereof shall not be affected and (y) such provision shall
be reformed without further action by the parties hereto only to the extent
necessary to make such provision valid and enforceable when applied to the
particular facts. (j) Each party shall be excused from any delay or failure in
performance hereunder, except the payment of monies by Licensee to Netscape,
caused by reason of any occurrence or contingency beyond its reasonable
control. The obligations and rights of the party so excused shall be extended
on a day-to-day basis for the period of time equal to that of the underlying
cause of the delay. (k) This Agreement constitutes the entire agreement between
the parties concerning the subject matter hereof and supersedes all proposals
or prior agreements whether oral or written, and all communications between the
parties relating to the subject matter of this Agreement and all past courses
of dealing or industry custom. The terms and conditions of this Agreement shall
prevail over any conflicting purchase order or other written instrument
submitted by Licensee. (l) This Agreement is written in the English language
only, which language shall be controlling in all respects. (m) Netscape may use
Licensee's name in a list of customer references and/or provide Licensee's name
and the names of the Products licensed by Licensee to third parties. Licensee
agrees that Netscape may refer to Licensee, its products and the
Netscape-Licensee relationship on the Netscape web site. (n) This Agreement may
be executed in any counterparts or by facsimile, each of which when so executed
shall be deemed an original and all of which taken together shall constitute
one and the same agreement. (o) If any dispute arises under this Agreement, the
prevailing party shall be reimbursed by the other party for any and all legal
fees and costs associated therewith. (p) The parties will issue a joint press
release announcing the relationship created hereunder. The parties shall
mutually agree on any press release issued by either party regarding the
licensing of the Product.
16. Licensee Outside the U.S. In the event Licensee is located outside
the United States, the terms and conditions in this Section 16 apply: (a) If
Licensee is located in a Member State of the European Union, Licensee (i) shall
not actively market or solicit orders outside the Territory, (ii) shall be
entitled to sublicense the Products, subject to the terms and conditions
contained herein, to End Users located outside of the Territory but within the
European Union, which are the result of unsolicited orders and (iii)
acknowledges that its primary
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focus shall be on End Users located in the Territory; (b) If any applicable
law requires Licensee to withhold amounts from any payments to Netscape
hereunder, (i) Licensee shall effect such withholding, remit such amounts to
the appropriate taxing authorities and promptly furnish Netscape with tax
receipts evidencing the payments of such amounts, and (ii) the sum payable by
Licensee upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after such deduction or withholding,
Netscape receives and retains, free from liability for such deduction or
withholding, a net amount equal to the amount Netscape would have received and
retained in the absence of such required deduction or withholding; (c) Les
parties aux presentes confirment leur volonte que cette convention de meme que
tous les documents y compris tout avis qui s'y rattache, soient rediges en
langue anglaise (translation: The parties confirm that this Agreement
and all related documentation will be in the English language").
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EXHIBIT 10.2
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST.
DEVELOPMENT AND LICENSE AGREEMENT
by and between
VASCO Data Security, Inc.
and
SHIVA Corporation
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DEVELOPMENT AND LICENSE AGREEMENT
This Development and License Agreement ("Agreement") is made and entered into
effective June 5, 1997 (the "Effective Date") by and between VASCO Data
Security, Inc., an Illinois corporation with a principal place of business at
Lombard, Illinois ("VASCO") and SHIVA Corporation, a Massachusetts corporation
with a principal place of business at 28 Crosby Drive, Bedford, Massachusetts
("SHIVA").
WHEREAS,
SHIVA has developed and owns certain hardware and software technology
relating to remote access and dial-up networking, and is the licensee of
certain authentication and accounting software related thereto
("AccessManager"); and
VASCO has developed and owns certain hard token security products (the
"Vasco token"); and
VASCO wishes SHIVA to integrate the VASCO token into the
AccessManager, and to develop additional features and functionality for
AccessManager; and
VASCO wishes to sublicense the AccessManager to its customers under
its own trade name; and
The parties have executed a Memorandum of Understanding dated as of
December 17, 1996 ("MOU") with respect to the foregoing and, pursuant to the
MOU, VASCO has paid SHIVA a good faith deposit of ** ;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
below, the parties agree as follows:
1. Definitions. As used in this Agreement, these terms shall have the
following definitions:
1.1 "Affiliate" means, with respect to a company ("Company"), a second
company which controls, is controlled by, or is under common control with such
Company, where "control", means beneficial ownership of a majority of voting
securities.
1.2 "Binary Code" means the form of computer software which is
substantially or entirely in binary form and directly executable by a computer
after suitable processing but without intervening steps of compilation or
assembly of such software prior to execution.
1.3 "Confidential Information" shall mean any of the following disclosed
by either party to the other hereunder: (i) the Specifications and the SHIVA
and VASCO Technologies and any trade secrets related to any of the foregoing,
including but not limited to any information relating to either party's product
plans, designs, costs, prices and names, finances, marketing plans, business
opportunities, personnel, research, development or know-how; and (ii) any
information designated by the disclosing party as confidential in writing or,
if disclosed orally, reduced to writing within thirty (30) days; provided,
however, that Confidential Information" shall not include information that: (i)
is or becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has been
reduced to tangible form by the receiving party at the time of disclosure and
is not subject to restriction; (iii) is independently developed or learned by
the receiving party; (iv) is lawfully obtained from a third party who has the
right to make such disclosure; or (v) is released for publication by the
disclosing party in writing.
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1.4 "Error Correction" means either a modification made or added to the
SHIVA Technology by SHIVA to establish substantial conformity to the applicable
Specifications or, in lieu of such modification, a commercially reasonable
procedure that eliminates the practical adverse effect of such nonconformity.
1.5 "Intellectual Property Rights" means, to the extent owned or
controlled by the granting or transferring Party in any country, all relevant
(i) copyrights, (ii) mask work rights, (iii) rights to exploit trade secret and
other non-public or confidential information, including the right to use and
exploit Confidential Information (subject to applicable obligations to keep
such information in confidence), (iv) rights under Patents, and (v) rights
under any other form of intellectual property necessary to the conduct, product
or result permitted by the express terms of the license granted.
1.6 "SHIVA Software" means any software or other works of authorship
included within the SHIVA Technology, whether created or licensed by SHIVA.
1.7 "SHIVA Technology" means the SHIVA hardware and software technology
relating to digital modems, including software licensed by SHIVA relating to
authentication and accounting.
1.8 "Source Code" means that form of computer software which is typically
created and understood by programmers and which must be translated into so
called "binary" or "object" format to permit direct execution by a computer.
1.9 "Specifications" mean the functional and technical specifications
described in Exhibit B.
1.10 "Updates" means modifications or enhancements to the Technology, other
than Error Corrections.
1.11 "VASCO Technology" means the VASCO hardware and software relating to
computer access security.
2. Product Integration.
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2.1 SHIVA Obligations.
2.1.1 SHIVA shall use commercially reasonable efforts to accomplish its
responsibilities, including, but not limited to, providing the
required personnel to carry out the work to design, develop,
debug, test and maintain the Shiva Technology in accordance with
the applicable Specifications and providing the deliverables for
which it is responsible in accordance with this Agreement.
2.1.2 SHIVA shall provide VASCO with such technical support by qualified
SHIVA personnel as VASCO may reasonably request in connection with
VASCO's efforts to understand the Shiva Technology and to support
such technology on behalf of its customers. The level of support
shall be no less than that provided to other similarly-situated
customers who have contracted for similar levels of support.
2.1.3 SHIVA shall develop the specifications and software code to add
the features designated in Exhibit B for Version 2.0 of
AccessManager, which shall be deemed to be included in the SHIVA
Technology. Version 2.0 of AccessManager shall be deemed accepted
by VASCO as of the date of delivery, unless VASCO provides written
notice to SHIVA within 10 business days after delivery of the
Binary Code version to VASCO that Version 2.0 does not materially
conform to the specifications. Any such notice shall specify the
manner in which the Shiva Technology does not so conform. SHIVA
shall have 15 business days after receipt of notice to make
necessary Error Corrections to cause the Shiva Technology to
conform to the
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specifications. Expiration of the 15-day period
without notice of a nonconformance, or correction of a
nonconformance by Shiva, shall constitute Final Acceptance.
2.1.4 SHIVA shall assist VASCO, during the Term, by providing (a) Error
Corrections for the Technology to the extent SHIVA is aware of any
such error and knows how to correct it and (b) in other cases,
reasonable support of VASCO's Error Correction efforts.
2.1.5 Limited Warranty. THE TECHNOLOGY IS TO BE LICENSED ON AN "AS IS"
BASIS AND SHIVA DISCLAIMS ALL WARRANTIES WITH RESPECT THERETO,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
2.1.6 At least 90 days before any new release, SHIVA shall notify VASCO
of any Enhancements or changes to the Shiva Technology.
2.1.7 When available, SHIVA shall provide to VASCO any API it has
created or had created in order to enable VASCO to interface with
the Shiva Technology.
2.1.8 If SHIVA becomes unwilling or unable to support the Shiva
Technology due to its failure to continue in business as a going
concern, or its failure to continue the product line represented
by the Shiva Technology related to this Agreement, then Universal
Networks Company Limited shall assume SHIVA's support obligations
then in force, in accordance with the agreement attached as
Exhibit C. In the event that Universal Networks Company Limited is
unwilling or unable to fulfill its support obligations, then VASCO
shall be entitled to access to the source code of the Shiva
Software held in escrow in accordance with the escrow agreement
described in Exhibit D. VASCO shall bear all costs associated with
setting up and maintaining this escrow account.
2.2 VASCO Obligations.
2.2.1 VASCO shall, upon request by SHIVA, permit SHIVA to become an
authorized reseller of VASCO token and security products in accordance with a
separate agreement to be negotiated between the parties.
2.2.2 VASCO shall reimburse SHIVA for all reasonable travel expenses (in
accordance with VASCO's standard travel and expense policy) incurred by
SHIVA personnel for training presentations and other sales activities
undertaken by SHIVA at VASCO's request.
2.2.3 VASCO shall ensure that an adequate number of employees are
trained in the Shiva Technology in order to fulfill its obligation to provide
first-level support to its customers. For problems beyond first-level support
requiring technical consultation with SHIVA, VASCO will ensure that its
customers provide sufficiently detailed information to enable SHIVA to identify
and attempt to correct any errors in the SHIVA Technology.
2.2.4 VASCO shall pay royalties to SHIVA in accordance with the
provisions of Exhibit A.
2.2.5 VASCO shall provide to Shiva two Access Keys for each Shiva Access
Manager sold at a cost of **, which shall not exceed ** per Access Key.
2.3 Project Management. SHIVA and VASCO will each designate a project
representative (the "Representatives) to coordinate their business relationship
in accordance with this Agreement. Each Representative will (i) provide access
to appropriately qualified personnel to participate in the planning and
development and to answer questions; (ii) arrange access to the party's
facilities and equipment if required
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for the other party's performance; and (iii) consult by phone or email with the
Representative of the other party to this Agreement as reasonably necessary to
review the activities accomplished to date, the activities planned, and any
problems which have occurred or which are anticipated. A party may change its
Representative by giving written notice to the other party.
3. Proprietary Rights. The SHIVA Technology and Error Corrections to the SHIVA
Technology, and all Intellectual Property Rights therein, are and remain
the property of SHIVA or its licensor, subject to the license rights granted to
VASCO in this Agreement. VASCO shall have no right, title or interest in and to
any improvements, modifications, derivative works or enhancements to the SHIVA
Technology.
4. SHIVA Representations and Warranties. SHIVA represents and warrants that
neither the Shiva Technology nor the exercise by VASCO of its rights with
respect thereto does or will, to the best of SHIVA's knowledge, infringe the
Intellectual Property Rights of any third party in any jurisdiction.
5. SHIVA Licenses to VASCO. Subject to the terms of this Agreement, SHIVA
hereby grants to VASCO a nontransferable, nonexclusive, worldwide license to
(a) sell, sublicense, and distribute present and future VASCO Technology
incorporating the SHIVA Technology in Binary Code, but not Source Code, form in
conjunction with such VASCO Technology. VASCO may exercise such license rights
both directly and through its VARs, distributors, or other third party
sublicensees, subject to the restrictions set forth in Section 10 (Confidential
Information) and provided that such third parties enter into a non-disclosure
agreement with VASCO to the extent required by Section 10. Except to the
extent permitted by this section, VASCO shall not sublicense the SHIVA
Technology.
6. Export Control. Neither party shall export, directly or indirectly, any
products or technical data acquired or to be provided under this Agreement, or
the direct product of any such technical data, to any country for which the
United States export statutes and regulations, at the time of export, require
an export license or other government approval, without first obtaining such
license or approval.
7. Payment. VASCO shall pay SHIVA as consideration for the licenses granted and
the development and delivery of the SHIVA Technology the sums identified in
Exhibit A (the "Fees"). VASCO has previously paid SHIVA the Deposit and shall
pay SHIVA the balance of the total Fees according to Exhibit A. All payments
due hereunder shall be made in United States dollars. Interest at the rate of
1.5% per month (or the greatest amount permitted by law, whichever is less)
shall accrue on all balances unpaid more than 30 days after their due date.
8. Waiver of Consequential Damages: Limitation on Damages. NEITHER PARTY SHALL
BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, SPECIAL, INDIRECT OR INCIDENTAL
DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF ADVISED
OF THE POSSIBILITY THEREOF IN ADVANCE. IN NO EVENT SHALL EITHER PARTY'S
LIABILITY TO THE OTHER HEREUNDER EXCEED THE AGGREGATE FEES PAID OR OWED TO
SHIVA HEREUNDER.
9. Indemnification.
9.1 By SHIVA. SHIVA agrees to indemnify and hold harmless VASCO, its
officers, directors, employees and agents against any claims, actions or
demands alleging either that the SHIVA Technology or the exercise by VASCO of
its rights thereto, in any way infringes the Intellectual Property Rights of
any third parties; provided, that SHIVA shall have no obligation as to claims
of infringement where SHIVA lacked knowledge of such claim or the factual basis
therefore as of the Effective Date. This obligation is contingent upon: (i)
VASCO giving prompt written notice to SHIVA of any such claim, action or
demand, (ii) VASCO allowing SHIVA to control the defense and related
settlement negotiations and (iii) VASCO fully assisting, at SHIVA's expense,
in the defense. SHIVA shall have no obligation hereunder for any infringement
caused solely by VASCO's modification of the SHIVA Technology (unless such
modification
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was made in accordance with SHIVA's instructions) or VASCO's combination
thereof with products or equipment not supplied by SHIVA.
9.2 By VASCO. VASCO agrees to indemnify and hold harmless SHIVA, its
officers, directors, employees and agents against any claims, actions or
demands alleging that VASCO's modification of the SHIVA Technology (unless such
modification was made in accordance with SHIVA's instructions) or VASCO's
combination thereof with products or equipment not supplied by SHIVA in any way
infringes the Intellectual Property Rights of any third parties; provided, that
VASCO shall have no obligation as to claims of infringement where VASCO lacked
knowledge of such claim or the factual basis therefore as of the Effective
Date. This obligation is contingent upon: (i) SHIVA giving prompt written
notice to SHIVA of any such claim, action or demand, (ii) SHIVA allowing VASCO
to control the defense and related settlement negotiations and (iii) SHIVA
fully assisting, at VASCO's expense, in the defense.
9.3 Exchange of Information. If either party hereafter learns of a claim
that the Shiva Technology, or any portion thereof, infringes the Intellectual
Property Rights of any third party in any jurisdiction, or of the factual basis
for such a claim, it shall promptly inform the other party of the relevant
facts and circumstances. SHIVA shall thereupon undertake such commercially
reasonable efforts as are required to (i) obtain a license permitting VASCO's
continued exercise of its rights as set forth herein, (ii) modify the
Technology so as to be noninfringing and deliver such modification to VASCO, or
(iii) develop or obtain for VASCO functionally equivalent, noninfringing,
substitute technology. Immediately following receipt of any such noninfringing
modification or substitute, VASCO shall cease shipment of products based on
infringing Technology. In the event that SHIVA is unable to cure such
infringement as set forth in clauses (i), (ii) or (iii) above, it shall notify
VASCO and pay to VASCO a sum equal to all amounts paid by VASCO to the time of
notification; provided, that SHIVA shall have no payment obligation pursuant to
this clause if three (3) years have elapsed since Final Acceptance.
10. Nondisclosure of Confidential Information.
10.1 General. Each party agrees that it will not make use of, disseminate, or
in any way disclose Confidential Information to any person, firm or business,
except to the extent necessary for negotiations, discussions, and consultations
with personnel or authorized representatives of each party, counsel for
investors, banks, and underwriters, and any purpose either party may hereafter
authorize in writing. Furthermore, the existence of any business negotiations,
discussions, consultations or agreements in progress between the parties shall
not be released to any form of public media without the prior written approval
of both parties. Each party agrees that it shall treat all Confidential
Information of the other party with the same degree of care as it accords to
its own Confidential Information and each party represents that it exercises
reasonable care to protect its own Confidential Information. Each party shall
disclose Confidential Information of the other party only to those of its
employees and subcontractors (and those of such party's Affiliates) who need to
know such information and represents that such employees have previously
agreed, either as a condition of employment or in order to obtain the
Confidential Information, to be bound by terms and conditions substantially
similar to those of this Agreement. Each party will immediately give notice to
the other party of any unauthorized use or disclosure of the Confidential
Information. The party who made the unauthorized use or disclosure agrees to
assist the other party in remedying any such unauthorized use or disclosure of
the Confidential Information.
10.2 Disclosures to Sublicensees. SHIVA recognizes that VASCO may find it
necessary to disclose Confidential Information to VASCO's third party
sublicensees in connection with VASCO's development or sale of VASCO products
embodying the SHIVA Technology; provided, that VASCO shall not make any such
disclosure to a SHIVA Competitor (as defined below). Such disclosures shall be
subject to execution of a commercially reasonable written nondisclosure
agreement which agreement shall identify SHIVA as a third party beneficiary.
VASCO shall promptly inform SHIVA of the identity of any entity to whom SHIVA's
Confidential Information is disclosed pursuant to this provision. For purposes
hereof, "SHIVA Competitor" means an entity primarily engaged in the design and
sale of integrated circuits intended for use in high
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performance voice-band digital modem solutions. By way of illustration, but not
limitation, a company primarily engaged in the manufacture of computer systems,
routers, or board level products shall not be deemed a SHIVA Competitor.
11. Term and Termination.
11.1 Term. The Term of this Agreement shall be 12 months from its Effective
Date Thereafter, it shall be renewed automatically for additional 12-month
terms unless either party provides 90 days' written notice to the other, prior
to the expiration of the then-current Term, that the Agreement be terminated.
Notwithstanding the termination or expiration of this Agreement for any reason,
all rights and obligations of the parties set forth in Sections 3 ("Proprietary
Rights"), 4 ("SHIVA Representations and Warranties"), 5 ("SHIVA License to
VASCO"), 6 (Export Control), 8 ("Waiver of Consequential Damages; Limitation on
Damages"), 9 ("indemnification"), 10 ("Nondisclosure of Confidential
Information"), and 12 ("General Provisions") shall survive.
11.2 Termination For Cause. Subject to cure or remedy of an event of breach
listed below by a party (the "Breaching Party"), as described in Section 11.3
("Right to Cure"), the other party shall have the right to terminate this
Agreement and its further obligations hereunder if the Breaching Party:
(a) is involved in any voluntary or involuntary bankruptcy proceeding or
any other proceeding concerning insolvency, dissolution, cessation of
operations, reorganization or indebtedness or the like and the proceeding is
not dismissed within sixty (60) days;
(b) is unable to pay its debts as they mature in the ordinary course of
business or makes a general assignment for the benefit of its creditors;
(c) is in material breach of any provision of this Agreement; or
(d) fails to provide reasonable adequate assurances of future
performance of its obligations under this Agreement within ten (10) days
following a demand from the other party for such assurances.
11.3 Right to Cure. Upon the occurrence of any event entitling a party to
terminate this Agreement, the terminating party may send notice of termination,
specifying the nature of the breach, to the other party. The breaching party
shall be allowed thirty (30) days following the date of such notice to cure the
problem to the non-breaching party's satisfaction. Failure to cure the problem
shall result in termination without further notice by the non-breaching party,
unless such non-breaching party extends the cure period by written notice or
withdraws the termination notice.
11.4 Return of Certain Technology. Within thirty (30) days of any
termination or expiration of this Agreement, VASCO shall either (i) pay SHIVA
all amounts due SHIVA hereunder or (ii) provide SHIVA with a certification,
signed by an authorized officer of VASCO, stating that VASCO has destroyed, and
retains no copies of, materials incorporating any portion of the SHIVA
Technology.
11.5 Termination by VASCO. VASCO shall have the right to terminate this
Agreement upon 30 days' written notice to Shiva if Shiva enters into an OEM
agreement with a third party which VASCO reasonably believes will be
detrimental to VASCO's business.
12. General Provisions.
12.1 Notice. Any notice provided for or permitted under this Agreement will
be treated as having been given when (i) delivered personally, (ii) sent by
confirmed telex or telecopy, (iii) sent by commercial overnight courier with
written verification of receipt, or (iv) mailed postage prepaid by certified or
registered
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mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this section.
If to VASCO: VASCO Data Security, Inc.
Lombard, Illinois
Attn: John C. Haggard, President
If to SHIVA: Peter Howells
Shiva Corporation
Spider House Peach Street
Wokingham RG11 1XH
United Kingdom
Copy to: General Counsel
Shiva Corporation
28 Crosby Drive
Bedford, MA 01740
USA
Such notice will be treated as having been received upon the earlier
of actual receipt or five (5) days after posting.
12.2 Waiver. No term or provision hereof will be considered waived by
either party, and no breach excused by either party, unless such waiver or
consent is in writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either
party, whether express or implied, will constitute a consent to, waiver of, or
excuse of any other, different, or subsequent breach by either party.
12.3 Severability. If any term of this Agreement is held invalid or
unenforceable for any reason, the remainder of the term shall be amended to
achieve as closely as possible the economic effect of the original term and all
other terms shall continue in full force and effect.
12.4 Governing Law. This Agreement shall be governed by and construed under
the laws of the Commonwealth of Massachusetts as applied to agreements entered
into and to be performed entirely within Massachusetts between Massachusetts
residents. The United Nations Convention on the International Sale of Goods
shall not apply to this Agreement.
12.5 Choice of Forum. The parties hereby submit to the jurisdiction of, and
waive any venue objections against, the United States District Court for the
District of Massachusetts and the Superior and District courts of the
Commonwealth of Massachusetts, in any litigation arising out of the Agreement.
12.6 Force Majeure. Neither party will be liable for any failure or delay
in performance under this Agreement which might be due, in whole or in part,
directly or indirectly, to any contingency, delay, failure, or cause of, any
nature beyond the reasonable control of such party, including, without in any
way limiting the generality of the foregoing, fire, explosion, earthquake,
storm, flood or other weather, unavailability of necessary utilities or raw
materials, strike, lockout, activities of a combination of workmen or other
labor difficulties, war, insurrection, riot, act of God or the public enemy,
law, act, order, export control regulation, proclamation, decree, regulation,
ordinance, instructions of Government or other public authorities, or judgment
or decree of a court of competent jurisdiction (not arising out of breach by
such party of this Agreement). In the event of the happening of such a cause,
the party whose performance is so affected will give prompt, written notice to
the other party, stating the period of time the same is expected to continue,
and shall begin performing its obligations hereunder immediately after the
cause for
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non-performance ceases. Such delay will not be excused under this
Section for more than ninety (90) days.
12.7 Entire Agreement. This Agreement, including all attached exhibits,
constitutes the entire agreement between the parties relating to its subject
matter and supersedes all prior or simultaneous representations, discussions,
negotiations, and agreements, whether written or oral, including the MOU.
12.8 Amendment. This Agreement may be amended or supplemented only by a
writing that is signed by duly authorized representatives of both parties.
12.9 Assignment. Neither party may assign, voluntarily, by operation of law,
or otherwise, any rights or delegate any duties under this Agreement (other
than the right to receive payments) without the other party's prior written
consent. Any attempt to assign in contravention of this provision will be
void. This Agreement will bind and inure to the benefit of the parties and
their respective successors and permitted assigns.
12.10 Relationship of the Parties. The parties to this Agreement are
independent contractors. There is no relationship of agency, partnership, joint
venture, employment, or franchise between the parties. Neither party has the
authority to bind the other or to incur any obligation on its behalf.
12.11 Publicity. Neither party shall publicize or otherwise disclose the
existence or terms of this Agreement without the prior approval of the other
party, which approval shall not be unreasonably withheld. A party may disclose
the terms of this Agreement where required by law, provided that such party
makes every reasonable effort to obtain confidential treatment or similar
protection to the fullest extent available to avoid public disclosure of the
terms of this Agreement. A party required by law to make disclosure of the
terms of this Agreement will promptly notify the other party and permit the
other party to review and participate in the application process seeking
confidential treatment.
12.12 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and its language shall not be
construed for or against any party. The titles and headings are for reference
purposes only and shall not in any manner limit the construction of this
Agreement, which shall be considered as a whole.
12.13 Counterparts. This Development and License Agreement may be executed
in two counterparts, each of which shall be deemed an original, but both of
which together shall constitute one and the same instrument. If this Agreement
is executed in counterparts, no signatory hereto shall be bound until both the
parties named below have duly executed or caused to be duly executed a
counterpart of this Agreement.
12.14 Exhibits. The following Exhibits are attached to and form a part of
this Agreement:
Exhibit A: Fees
Exhibit B: Specifications for Version 2.0 of Access Manager
Exhibit C: Agreement to Provide Support
Exhibit D: DSI Escrow Agreement
IN WITNESS WHEREOF, the parties have executed this Development and License
Agreement as of the Effective Date.
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<PAGE> 11
VASCO Data Security, Inc. SHIVA Corporation
- ------------------------------ ---------------------------
Signature Signature
- ------------------------------ ---------------------------
Printed Name Printed Name
- ------------------------------ ---------------------------
Title Title
- ------------------------------ ---------------------------
Date Date
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EXHIBIT A
Fees
Total initial payments made by VASCO pursuant to this Agreement shall be **. In
addition, VASCO shall pay to Shiva an ongoing royalty of ** on all of VASCO's
sales of the AccessManager product.
The initial payments shall be made as follows:
<TABLE>
<CAPTION>
Amount When Paid
------ ---------
<S> <C> <C>
Payment #1 ** R&D payment due upon signing of the Memorandum of
Understanding
Payment #2 ** R&D payment due upon delivery of Version 2.0 of
AccessManager by Shiva
Balance: ** A marketing incentive payment due upon execution of this
agreement
</TABLE>
Thereafter, for each AccessManager sold by VASCO, VASCO shall pay to Shiva an
amount equal to ** of which is for royalties and ** of which is attributable
to ongoing support obligations. Payments shall be quarterly in arrears, within
10 days after the end of each quarter, and shall be accompanied by a report
showing the quantity sold and the amount due to Shiva.
In order for VASCO to fulfill its license obligations with regard to that
portion of the ** balance of the initial payments based on sales made by
Shiva, Shiva shall provide to VASCO, within 10 days after the end of each
calendar quarter, a report showing the quantity of AccessManager licensed to
customers (including the names and addresses of those customers in order to
facilitate shipment of tokens to the customers by VASCO) by Shiva. VASCO's
royalty payment shall be based on Shiva's list price for AccessManager.
Shiva agrees that for each copy of Version 2.0 (or higher) of AccessManager
sold, it shall bundle two of VASCO's Access Keys, which VASCO shall provide to
Shiva at **. VASCO shall provide instructions enabling customers to install the
Access Keys on their systems.
Audit Rights. Shiva shall have the right, not more than once per year, upon
notice to VASCO, and at reasonable times, to have a major independent
accounting firm audit the books and records of VASCO related to the subject
matter of this Agreement. Should any audit reveal an underpayment of more than
5% by VASCO to Shiva, VASCO shall pay the cost of the audit and shall
immediately remit to Shiva the unpaid fees plus interest, as applicable.
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EXHIBIT B
Specifications
VACMAN VERSION 2.0 FEATURES
The features listed below for version 2.0 consolidate those of version 1.1
which specifically included support for the VASCO family of tokens comprising
the AccessKey II, DigiPass and AuthentiCard.
Programs to be licensed through
program-specific registration codes
Port Codebase from 16bit to 32 bit
TACACS+ only release
Remote management of SAM uUser lists
Primary/Secondary User List Replication
Time-of-day authentication
Time quota support
Make user database portable
Import of Shiva User List
Import of standard RADIUS user list
Audit Reporting Program
Multiple Shared Secret
Password violation control
Journaling user changes
Win 95 style installer
Password expiration control and enforcing password changes
New Password Changing Method
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EXHIBIT C
UNIVERSAL NETWORKS COMPANY LIMITED
AGREEMENT TO PROVIDE SUPPORT
Universal Networks Company, Limited, having a principal place of business at
Room 128, 1/F, 72 Tat Chee Road, Kowloon Tong, Kowloon, Hong Kong ("Universal
Networks") hereby agrees to offer to provide second and third-level technical
support for Shiva's AccessManager product to Vasco Data Security, Inc.
("VASCO") for the consideration that VASCO will purchase all future licenses of
the AcecssManager directly from Universal Networks at the same price that VASCO
is purchasing from Shiva for the term of that contract, in the event that Shiva
Corporation is unwilling to provide such second- and third-level support due
to its failure to continue as a going concern or to its discontinuance of the
AccessManager product line.
In the event that Universal Networks is unwilling or unable to provide such
second- or third-level support, then Universal Networks shall incur no liability
whatsoever to either Shiva Corporation or to VASCO; however, Universal
Networks' inability or unwillingness to provide support due to its failure to
continue as a going concern or to its discontinuance of the AccessManager
product line shall constitute a triggering event such that the source code of
the AccessManager product shall be released from escrow and VASCO shall be
entitled to use the source code solely for the purpose of supporting its
existing AccessManager customers in using the product, in accordance with the
terms of an industry standard Escrow Agreement that will be agreed by all
parties, and which will be attached to the Software License Agreement to which
this Agreement to Provide Support is attached.
UNIVERAL NETWORKS COMPANY LIMITED
- ---------------------------------
By: Peter Mak
Its General Manager
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EXHIBIT D
ESCROW AGREEMENT
[Attached following this page]
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PREFERRED REGISTRATION
TECHNOLOGY ESCROW AGREEMENT
Account Number______________
This Preferred Registration Technology Escrow Agreement including any Exhibits
("Agreement") is effective this day of , 199 _____, by and among Data
Securities International, Inc. ("DSI") a Massachusetts corporation,
________________ ("Depositor") and Shiva Corporation ("Preferred Registrant").
WHEREAS, Depositor has entered or will enter into a contract with the Preferred
Registrant regarding certain proprietary technology and other materials of
Depositor;
WHEREAS, Depositor and Preferred Registrant desire the Agreement to be
supplementary to said contract pursuant to 11 United States Code Section 365
(n);
WHEREAS, availability of or access to certain proprietary data related to
certain proprietary technology and other material is critical to Preferred
Registrant in the conduct of its business;
WHEREAS, Depositor has deposited or will deposit with DSI proprietary data to
provide for retention, administration and controlled access for Preferred
Registrant under the conditions specified herein;
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, and in consideration of the promises, mutual covenants and
conditions contained herein, the parties hereto agree as follows:
1. Deposit Account. Following the delivery of the executed Agreement, DSI shall
open a deposit account ("Deposit Account") for Depositor. The opening of the
Deposit Account means that DSI shall establish an account ledger in the name of
Depositor assign a deposit account number ("Deposit Account Number"), calendar
renewal notices to be sent to Depositor as provided in Section 30, and request
the initial deposit ("Initial Deposit") from Depositor. Depositor has an
obligation to make the Initial Deposit. Unless and until Depositor makes the
Initial Deposit with DSI, DSI shall request the Initial Deposit from Depositor.
2. Preferred Registration Account. Following the execution and delivery of the
Agreement, DSI shall open a registration account ("Registration Account") for
Preferred Registrant. The opening of the Registration Account means that DSI
shall establish under the Deposit Account an account ledger with a unique
registration number ("Registration Number") in the name of Preferred
Registrant, calendar renewal notices to be sent to Preferred Registrant as
provided in Section 30, and request the Initial Deposit from Depositor. DSI
shall notify Preferred Registrant upon receipt of Initial Deposit.
3. Term of Agreement. The Agreement will have an initial term of one (1) year,
commencing on the effective date, and shall continue in full force unless
terminated earlier as provided in the Agreement. The Agreement may be extended
for additional one (1) year terms.
4. Exhibit A, Notices and Communications. Notices and invoices to Depositor,
Preferred Registrant or DSI should be sent to the parties at the addresses
identified in the Exhibit A.
Documents, payment of fees, deposits of material, and any written communication
should be sent to DSI offices as identified in the Exhibit A.
Depositor and Preferred Registrant agree to each name their respective
designated contact ("Designated Contact") to receive notices from DSI and to
act on their behalf in the performance of their obligations as
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set forth in the Agreement. Depositor and Preferred registrant agree to notify
DSI immediately in the event of a change of their Designated Contact in the
manner stipulated in Exhibit A.
5. Exhibit B and Deposit Material. Depositor will submit proprietary data and
related material ("Deposit Material") to DSI for retention and administration
in the Deposit Account.
The Deposit Material will be submitted together with a completed document
called a "Description of Deposit Material", hereinafter referred to as Exhibit
B. Each Exhibit B should be signed by Depositor prior to submission to DSI and
will be signed by DSI upon completion of the Deposit Material inspection.
Depositor represents and warrants that it lawfully possesses all Deposit
Material, can transfer Deposit Material to DSI and has the authority to store
Deposit Material in accordance with the terms of the Agreement.
6. Deposit Material Inspection. Upon receipt of an Exhibit B and Deposit
Material, DSI will be responsible only for reasonably matching the labeling of
the materials to the item descriptions listed on the Exhibit B and validating
the count of the materials to the quantity listed on the Exhibit B. DSI will
not be responsible for any other claims made by the Depositor on the Exhibit B.
Acceptance will occur when DSI concludes that the Deposit Material Inspection
is complete. Upon acceptance DSI will sign the Exhibit B and assign it the
next Exhibit B number. DSI shall issue a copy of the Exhibit B to Depositor
and Preferred Registrant within ten (10) days of acceptance.
7. Initial Deposit. The Initial Deposit will consist of all material initially
supplied by Depositor to DSI.
8. Deposit Changes. Depositor may desire or may be obligated to update the
Deposit Account with supplemental or replacement Deposit Material of technology
releases.
Supplemental Deposit ("Supplemental") is Deposit Material which is to be added
to the Deposit Account.
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Replacement Deposit. ("Replacement") is Deposit Material which will replace
existing Deposit Material as identified by any one or more Exhibit B(s) in the
Deposit Account. Replaced Deposit Material will be destroyed or returned to
Depositor.
9. Deposit. The existing deposit ("Deposit") means all Exhibit B(s) and their
associated Deposit Material currently in DSI's possession. Destroyed or
returned Deposit Material is not part of the Deposit; however, DSI shall keep
records of the destruction or return of Deposit Material.
10. Replacement Option. Within ten (10) days of receipt of Replacement from
Depositor, DSI will send a letter to Preferred Registrant stating that
Depositor requests to replace existing Deposit Material, and DSI will include a
copy of the new Exhibit B(s) listing the new Deposit Material.
Preferred Registrant has twenty (20) days from the mailing of such letter by
DSI to instruct DSI to retain the existing Deposit Material held by DSI, and if
so instructed, DSI will change the Replacement to a Supplemental. Conversion
to Supplemental may cause an additional storage unit fee as specified by DSI's
Fee and Services Schedule.
If Preferred Registrant does not instruct DSI to retain the existing Deposit
Material, DSI shall permit such Deposit Material to be replaced with the
Replacement. Within ten (10) days of acceptance of the Replacement by DSI, DSI
shall issue a copy of the executed Exhibit B(s) to Depositor and Preferred
Registrant. DSI will either destroy or return to Depositor all Deposit
Material replaced by the Replacement.
Shiva Agmt.doc
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<PAGE> 19
11. Storage Unit. DSI will store the Deposit in defined units of space, called
storage units. The cost of the first storage unit will be included in the
annual Deposit Account fee.
12. Deposit Obligations of Confidentiality. DSI agrees to establish a locked
receptacle in which it shall place the Deposit and shall put the receptacle
under the administration of one or more of its officers, selected by DSI, whose
identity shall be available to Depositor at all times. DSI shall exercise a
professional level of care in carrying out the terms of the Agreement.
DSI acknowledges Depositor's assertion that the Deposit shall contain
proprietary data and that DSI has an obligation to preserve and protect the
confidentiality of the Deposit.
Except as provided for in the Agreement, DSI agrees that it shall not divulge,
disclose, make available to third parties, or make any use whatsoever of the
Deposit.
13. Audit Rights. DSI agrees to keep records of the activities undertaken and
materials prepared pursuant to the Agreement. DSI may issue to Depositor and
Preferred Registrant an annual report profiling the Deposit Account. Such
annual report will identify the Depositor, Preferred Registrant, the current
Designated Contacts, selected special services, and the Exhibit B history,
which includes Deposit Material acceptance and destruction or return dates.
Upon reasonable notice, during normal business hours and during the term of the
Agreement, Depositor or Preferred Registrant will be entitled to inspect the
records of DSI pertaining to the Agreement, and accompanied by an employee of
DSI, inspect the physical status and condition of the Deposit. The Deposit may
not be changed during the audit.
14. Renewal Period of Agreement. Upon payment of the initial fee or renewal
fee, the Agreement will be in full force and will have an initial period of at
least one (1) year unless otherwise specified. The Agreement may be renewed
for additional periods upon receipt by DSI of the specified renewal fees prior
to the last day of the period ("Expiration Date"). DSI may extend the period
of the Agreement to cover the processing of any outstanding instruction made
during any period of the Agreement.
Preferred Registrant has the right to pay renewal fees and other related fees.
In the event Preferred Registrant pays the renewal fees and Depositor is of the
opinion that any necessary condition for renewal is not met, Depositor may so
notify DSI and Preferred Registrant in writing. The resulting dispute will be
resolved pursuant to the dispute resolution process defined in Section 25.
15. Expiration. If the Agreement is not renewed, or is otherwise terminated,
all duties and obligations of DSI to Depositor and Preferred Registrant will
terminate. If Depositor requests the return of the Deposit, DSI shall return
the Deposit to Depositor only after any outstanding invoices and the Deposit
return fee are paid. If the fees are not received by the Expiration Date of
the Agreement, DSI, at its option, may destroy the Deposit.
16. Certification by Depositor Depositor represents to Preferred Registrant
that:
a. The Deposit delivered to DSI consists of the following: source
code deposited on computer magnetic media; all necessary and
available information, proprietary information, and technical
documentation which will enable a reasonably skilled programmer
of Preferred Registrant to create, maintain and/or enhance the
proprietary technology without the aid of Depositor or any other
person or reference to any other materials; maintenance tools
(test programs and program specifications); proprietary or third
party system utilities (compiler and assembler descriptions);
description of the system/program generation; descriptions and
locations of programs not owned by Depositor but required for
use and/or support; and names of key developers for the
technology on Depositor's staff.
17
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<PAGE> 20
b. The Deposit will be defined in the Exhibit B(s).
17. Indemnification. Depositor and Preferred Registrant agree to defend and
indemnify DSI and hold DSI harmless from and against any and all claims,
actions and suits, whether in contract or in tort, and from and against any and
all liabilities, losses, damages, costs, charges, penalties, counsel fees, and
other expenses of any nature (including, without limitation, settlement costs)
incurred by DSI as a result of performance of the Agreement except in the event
of a judgment which specifies that DSI acted with gross negligence or willful
misconduct.
18. Filing For Release of Deposit by Preferred Registrant. Upon notice to DSI
by Preferred Registrant of the occurrence of a release condition as defined in
Section 21 and payment of the release request fee, DSI shall notify Depositor
by certified mail or commercial express mail service with a copy of the notice
from Preferred Registrant. If Depositor provides contrary instruction within
ten (10) days of the mailing of the notice to Depositor, DSI shall not deliver
a copy of the Deposit to Preferred Registrant.
19. Contrary Instruction. "Contrary Instruction" is the filing of an
instruction with DSI by Depositor stating that a Contrary Instruction is in
effect. Such Contrary Instruction means an officer of Depositor warrants that
a release condition has not occurred or has been cured. DSI shall send a copy
of the instruction by certified mail or commercial express mail service to
Preferred Registrant. DSI shall notify both Depositor and Preferred Registrant
that there is a dispute to be resolved pursuant to Section 25. Upon receipt of
Contrary Instruction, DSI shall continue to store the Deposit pending Depositor
and Preferred Registrant joint instruction, resolution pursuant to Section 25,
order by a court of competent jurisdiction, or termination by non-renewal of
the Agreement.
20. Release of Deposit to Preferred Registrant. Pursuant to Section 18, if
DSI does not receive Contrary Instruction form Depositor, DSI is authorized to
release the Deposit, or if more than one Preferred Registrant is registered to
the Deposit, a copy of the Deposit, to the Preferred Registrant filing for
release following receipt of any fees due to DSI including Deposit copying and
delivery fees.
21. Release Conditions of Deposit to Preferred Registrant
Release conditions are:
a. Depositor's failure to continue to do business in the ordinary
course.
22. Grant of Use License. Subject to the terms and conditions of the Agreement,
Depositor hereby transfers and upon execution by DSI, DSI hereby accepts a
non-exclusive, irrevocable, perpetual, and royalty-free Use License which DSI
will transfer to Preferred Registrant upon controlled release of the Deposit as
described in the Agreement. The Use License will be for the sole purpose of
continuing the benefits afforded to Preferred Registrant through any existing
license, maintenance, or other agreement with Depositor.
23. Use License Representation. Depositor represents and warrants to Preferred
Registrant and DSI that it has no knowledge of any encumberance or infringement
of the Deposit, or that any claim has been made that the Deposit infringes any
patent, trade secret, copyright or other proprietary right of any third party.
Depositor warrants that it has the full right, power, and ability to enter into
and perform the Agreement, to grant the foregoing Use License, and to permit
the Deposit to be placed with DSI.
24. Conditions Following Release. Following a release and subject to payment
to DSI of all outstanding fees, DSI shall transfer the Use License to Preferred
Registrant. Additionally, Preferred Registrant shall be required to maintain
the confidentiality of the released Deposit.
18
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<PAGE> 21
25. Disputes. In the event of a dispute, DSI shall so notify Depositor and
Preferred Registrant in writing. Such dispute will be settled by arbitration in
accordance with the commercial rules of the American Arbitration Association
("AAA"). Unless otherwise agreed to in writing by Depositor and Preferred
Registrant, arbitration will take place at Bedford, Massachusetts.
26. Verification Rights. Depositor grants to Preferred Registrant the option
to verify the Deposit for accuracy, completeness and sufficiency. Depositor
agrees to permit DSI and at least one employee of Preferred Registrant to be
present at Depositor's facility to verify, audit and inspect the Deposit held
by DSI to confirm the quality and/or content of the Deposit for the benefit of
Preferred Registrant. If DSI is present or is selected to perform the
verification, DSI will be paid according to DSI's then current verification
service hourly rates and any out of pocket expenses.
27. General. DSI may act in reliance upon any instruction, instrument, or
signature believed to be genuine and may assume that any employee giving any
written notice, request, advice or instruction in connection with or relating
to the Agreement has apparent authority and has been duly authorized to do so.
DSI may provide copies of the Agreement or account history information to any
employee of Depositor or Preferred Registrant upon their request. For purposes
of termination or replacement, Deposit Material shall be returned only to
Depositor's Designated Contact, unless otherwise instructed by Depositor's
Designated Contact.
DSI is not responsible for failure to fulfill its obligations under the
Agreement due to causes beyond DSI's control.
This Agreement is to be governed by, and construed in accordance with the laws
of the Commonwealth of Massachusetts, without giving effect to conflict of laws
provisions thereof.
The Agreement constitutes the entire agreement between the parties concerning
the subject matter hereof, and supersedes all previous communications,
representations, understandings, and agreements, either oral or written,
between the parties. The Agreement may be amended only in a writing signed by
the parties.
If any provision of the Agreement is held by any court to be invalid or
unenforceable, that provision will be severed from the Agreement and any
remaining provisions will continue in full force.
28. Title to Media. Subject to the terms of the Agreement, title to the media,
upon which the proprietary data is written or stored, is and shall be
irrevocably vested in DSI. Notwithstanding the foregoing, Depositor will
retain ownership of the proprietary data contained on the media including all
copyright, trade secret, patent or other intellectual property ownership rights
subsisting in such proprietary data.
29. Termination of Rights. The Use License as described above will terminate
in the event that the Agreement is terminated without the Use License
transferring to Preferred Registrant.
30. Fees. Fees are due upon receipt of signed contract, receipt of Deposit
Material, or when service is requested, whichever is earliest. If invoiced
fees are not paid within sixty (60) days of the date of the invoice, DSI may
terminate the Agreement. If the payment is not timely received by DSI, DSI
shall have the right to accrue and collect interest at the rate of one and
one-half percent per month (** per annum) from the date of the invoice for all
late payments.
Renewal fees will be due in full upon the receipt of invoice unless otherwise
specified by the invoice. In the event that renewal fees are not received
thirty (30) days prior to the Expiration Date, DSI shall so notify Depositor
and Preferred Registrant. If the renewal fees are not received by the
Expiration Date, DSI may terminate the Agreement without further notice and
without liability of DSI to Depositor or Preferred Registrant.
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<PAGE> 22
DSI shall not be required to process any request for service unless the payment
for such request shall be made or provided for in a manner satisfactory to DSI.
all service fees and renewal fees will be those specified in DSI's Fee and
Services Schedule in effect at the time of renewal or request for service,
except as otherwise agreed. For any increase in DSI's standard fees, DSI shall
notify Depositor and Preferred Registrant at least ninety (90) days prior to
the renewal of the Agreement. For any service not listed on the Fee and
Services Schedule, DSI shall provide a quote prior to rendering such service.
<TABLE>
<CAPTION>
Data Securities
Depositor Preferred Registrant International, Inc.
<S> <C> <C>
By: By: By:
(Print Name) (Print Name) (Print Name)
Title Title Title
Date: Date: Date:
</TABLE>
20
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<PAGE> 23
EXHIBIT A
DESIGNATED CONTACT
Account Number
Notices, Deposit Material returns
and communication, including
delinquencies to Depositor should be
Invoices should be addressed to:
Company Name: Vasco Data Security, Inc.
Address:
Designated
Company
Telephone:
Facsimile:
State of Incorporation:
Notices and communication,
including delinquencies to
Preferred Registrant should
should be addressed to:
Company Name:
Address:
Designated Contact:
Telephone:
Facsimile:
<TABLE>
<S> <C>
Requests from Depositor or Preferred Registrant to change the Designated Contact should be given in writing by
the Designated Contact or an authorized employee of Depositor or Preferred
Registrant.
Contracts, Deposit Material Invoice inquiries and fee
and notices to DSI should be remittances to DSI should
addressed to be addressed to:
DSI DSI
Attn: Contract Administration Attn: Accounts Receivable
6165 Greenwich Drive 49 Stevenson Street
Suite 220 Suite 550
San Diego, CA 92122 San Francisco, CA 94105
Telephone: (619) 457-5199 (415) 541-9013
Facsimile: (619) 457-4252 (415) 541-9424
Date:
</TABLE>
21
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<PAGE> 24
21
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<PAGE> 25
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIAL
Deposit Account Number________________________
Depositor Company Name: Shiva Corporation
DEPOSIT TYPE:_______Initial________Supplemental________Replacement
If Replacement: _______Destroy Deposit_______Return Deposit
ENVIRONMENT:
Host System CPU/OS________ Version ________ Backup _________
Source System CPU/OS _______ Version _______ Compiler_________
Special instructions:
DEPOSIT MATERIAL:
Exhibit B Name________________________Version____________________________
Item label description Media Quantity
For Depositor, I certify that For DSI, I received the above
the above described Deposit described Deposit Material
Material was sent to DSI subject to the terms on the
reverse side of this Exhibit:
By____________________________ By_____________________________
Print Name____________________ M. Elizabeth Potthoff
Date__________________________ Date of Acceptance_____________
ISE_________EX. B#_____________
22
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LH
<PAGE> 1
EXHIBIT 10.3
HEADS OF AGREEMENT
BETWEEN:
VASCO CORPORATION, represented by Kendall HUNT, Chief Executive Officer
AND:
VASCO DATA SECURITY EUROPE S.A., represented by Kendall HUNT, President and
Director
AND:
DIGILINE INTERNATIONAL LUXEMBOURG, represented by Henri ARONSON and Dominique
FONTAINE, Directors
AND:
DIGILINE S.A., represented by Dominique COLARD, Managing Director
AND:
DIGIPASS S.A., represented by Dominique COLARD and Jan VALCKE, Directors
AND:
Dominique COLARD, residing at rue Gillemont 21, 6120 Ham sur Heure
AND:
TOPS S.A., represented by Dominique COLARD, President
1.- Vasco Corp. (Vasco) has set up a new company, Vasco Data Security Europe
(VDSE) in Brussels. VDSE is a holding company 100% owned by Vasco. VDSE's
mission is to act as the holding company for various business ventures and
activities in Europe, Eastern Bloc, Middle East, and other areas which provide
economic opportunities for Vasco. It will invest in companies which are
involved in computer security products and services, and have a << presence >>
in territories where VDSE would like to establish an on-going business.
2.- Digiline International Luxembourg (DIL), in its capacity as shareholder of
Digipass Belgium (DP), TOPS (TP) and Digiline Belgium (DB), on the one hand,
and VASCO and VDSE, on the other hand, hereby agree to the following structure
for the acquisition by VDSE of DP and of the assets and certain liabilities of
DB:
TP will transfer its DP shares for book value to DP.
1
<PAGE> 2
All of the assets of DB will be transferred to DP at their book value. In
addition, DP will assume for book value all of the current accounts payable and
accrued expenses of DB. The net value of such transfer and assumption will be
invoiced by DB to DP. The transfer will be structured so as to qualify as a
transfer of a branch of business activity in such a way that the employment
contracts of all concerned employees will be automatically transferred to DP.
VDSE will then purchase 100% of the stock of DP from DIL for the price of
$10,000,000.00 (USD) (ten million) less any positive net equity remaining in
the building owned by TOPS and occupied by DP and DB. Positive net equity
shall be defined as the fair market price of the building as determined by an
<< expert immobilier >>, less the remaining balance of the mortgage
indebtedness (plus costs associated with the planned refinancing of the
mortgage) due at the effective date of the final Agreement. Except for the
abovementioned adjustment for the net equity in the building the amount of the
purchase price shall not be subject to adjustment for any reason. In no event
shall DIL be responsible for the financial results of year 1996.
Any costs arising from such transfer of assets and liabilities, shall be for
the account of DP.
At Closing of the sale, the assets of DP will consist of all of the assets
previously owned by DB or DP associated with the operation of the business of
DP and DB including (1) cash, (2) accounts receivable, (3) furniture, fixtures,
machinery and equipment, (4) inventory (raw materials, work-in-process and
finished goods), (5) patents, trademarks and other intellectual property, (6)
contracts to provide tokens or other products to third parties, (7) deposits
and prepaid expenses, (8) product names including Digipass, Digiline, Digidial,
Easy Dial, Intermezzo, and other names being used by DP and DB, and (9) any
other assets owned by DP necessary for the operation of the business except the
following assets: patents, trademarks, other intellectual property and product
names related to Dynapark and Muslimclock.
DIL has agreed to retain the 1995 net after-tax profit and the 1996 net
after-tax profit, up to the Closing of the sale, in DP and DB that VDSE is
acquiring, except for the dividend distribution of BEF 1,000,000 approved by
the shareholders of DB at the general meeting on May 8th, 1996.
DIL represents and warrants to Vasco and VDSE that the financial statements of
DB and DP for the year ended December 31, 1995 have been prepared in good faith
and in accordance with the provisions of the applicable Belgian accounting
rules.
At Closing of the sale, the only liabilities of DP will be current accounts
payable and accrued expenses associated with the operation of business of DP
and DB. All intercompany receivables and payables on the books of DP will be
written off at Closing.
3.- Payment of the purchase price shall be made in cash in immediately
available US Dollars as follows :
2
<PAGE> 3
<TABLE>
<CAPTION>
Payment Number Payment Date Amount
- --------------------------------------------------------------
<S> <C> <C>
No later than December 31, 1996 $ 5000000
1 No later than December 31, 1997 $ 5000000
2 Total Payments $10000000
</TABLE>
Payment 1 above shall be paid in cash at the settlement date of Vasco Corp.'s
public offering but in no event later than December 31, 1996. Such payment
shall be irrevocably and unconditionally guaranteed by means of an Irrevocable
Letter of Credit or Irrevocable Bank Guarantee in favor of DIL issued by a
first-class bank acceptable to DIL.
Payment 2 shall be paid in cash no later than December 31, 1997. Such payment
shall be irrevocably and unconditionally guaranteed by means of an Irrevocable
Letter of Credit or Irrevocable Bank Guarantee in favor of DIL issued by a
first-class bank acceptable to DIL.
Based upon the assumption that DP, DB and DIL are not doing business in the
United States of America the above payments will be made without deduction,
withholding or offset for any US taxes.
Payments 1 and 2 may be delayed by written agreement of VDSE and DIL, provided
that DIL shall under no circumstances be obliged to grant its consent to any
such delay. Any amounts not paid on January the 1st 1997 shall bear interest
at the rate of 8% per annum. Interest due for any portion of a year shall be
prorated based on the actual number of days elapsed divided by 360.
At the sole election of DIL, payment 2 may be in the form of Vasco Common
Stock, priced at Fair Market Value at the time of delivery, in U.S. Dollars.
Fair Market Value (FMV) shall be defined as the average NASDAQ closing price
for the prior 20 trading days from the date of issuance. Under current SEC
regulations, shares are restricted from sale for 24 months from the date of
issuance.
As provided in Clause 13, DIL shall have the right to withdraw from this Heads
of Agreement if VASCO and VDSE have not presented to DIL the abovementioned
bank guarantees in form and substance meeting the requirements set forth above
within 30 business days from the date of signature of this Heads of Agreement.
DIL shall have 5 business days from the date of its receipt of the proposed
guarantees to confirm that the Guarantees are in accordance with the
requirements of this Heads of Agreement. In the case where DIL withdraws from
this Heads of Agreement, DB, DP, TP, and DC will not anymore be bound by this
Heads of Agreement except if otherwise provided in this agreement.
4.- The Parties will mutually agree when to disclose the terms of this
Agreement, until which time all terms will be kept private and confidential.
Under any circumstances, SEC regulations will govern the disclosure timing.
However, the disclosure of the terms of this Agreement will in any event not
occur before DIL will have confirmed that the bank guarantees are in accordance
with the requirements set forth above.
3
<PAGE> 4
5.- Mario Houthooft (MAH) will be the Managing Director of DP, the combined
operations of DP and DB.
6.- DC acting through TP shall be a consultant to the new management of DP for
a period of 6 months, with an option to extend this consulting agreement by
mutual consent of DC and DP. DC's role shall be to advise management during a
suitable transition period from the old management to the new management. DC
shall be considered an independent consultant, and shall spend an average of 4
days per week as a consultant to DP. His involvement shall be progressively
reduced to zero at the end of the period above.
TP will be paid by DP for these consultancy services at a fixed monthly fee of
309,337.00 BEF (plus applicable VAT).
During this consulting period, DC with the agreement of DP, may also be
involved part-time in the areas of innovation and research and development, but
will remain an independent consultant, not an employee.
7.- DC shall sign a non-compete contract for a period of 5 years. During this
period, DC shall be free to conduct other non-competitive business, including
designing, producing and selling devices that do not compete with Vasco's
family of current or future products as defined below.
VDSE's business definition of competing products is as follows : the
undertaking of any possible application of cryptography, any mathematical and
logical system, as well as satellite communication and voice digitalization,
assistance by means of services or consultancy, development, manufacturing and
commercialization of methods, systems, machines and products related to
security of data and programs, their transmission and their modification, as
well as electrical components, computer software and hardware, but only if and
to the extent that any of the foregoing is related to security as indicated
above. DYNAPARK and MUSLIMCLOCK are not considered competing products.
8.- DIL shall undertake to use its best efforts to obtain that any DB
employees whose employment contracts are not automatically transferred to DP
pursuant to the business transfer referred to in Clause 2 above, shall sign new
Employment Agreements with DP, containing terms and conditions consistent with
Belgian law. It is understood that VDSE feels a moral obligation to maintain
its business in Belgium and has no plans to relocate its business outside
Belgium.
9.- Once DP has been acquired by VDSE, key employees of DP will be eligible to
participate in the Vasco Corp. Stock Option Plan. Vasco will work with Price
Waterhouse to assure that such participation is structured in such a way so as
to optimize the tax treatment for such individuals.
10.- DP shall sign a new rental agreement with TP for the current DP and DB
office facilities for a period of 24 months at a competitive fair market price.
By giving at least 6 months written notice
4
<PAGE> 5
prior to the end of such initial term or of any renewal term, DP may extend the
term of this rental agreement for up to 3 additional 12-month periods.
11.- The undersigned parties agree that all information furnished to either of
them or to any affiliate, employee or agent of either of them by DC, DB or DIL
in connection with the acquisition of DP will be treated as strictly
confidential and will not without the prior written consent of DIL, be
disclosed by Vasco or VDSE or by any of their employees, agents or affiliates
to any third parties either (i) prior to the Closing of VDSE's acquisition of
DP, or (ii) if for any reason VDSE does not acquire DP. Following VDSE's
acquisition of DP such obligation of confidentiality and nondisclosure shall
remain applicable to any information furnished by DIL, DC or DB in connection
with DIL's sale of DP which does not relate exclusively to DP.
12.- Vasco shall indemnify DB and DIL (and any of their affiliates, officers or
shareholders) and hold each of them harmless against any liabilities, claims or
expenses related to Vasco's public offering.
13.- The present Heads of Agreement shall be governed by Belgian law. Any
controversies arising hereunder shall be submitted to arbitration in Brussels
in accordance with the CEPANI rules. The acquisition of DP contemplated by the
present Heads of Agreement shall be further implemented by means of
documentation to be negotiated amongst the parties reflecting all of the terms
and conditions set forth herein and other terms and conditions, including
certain representations, warranties and covenants with respect to the business
of DP and DB and, the assets and liabilities of DP, not inconsistent with the
terms hereof. However, DC, DB, DP, TP and DIL reserve the right to withdraw
from this Agreement if within 30 business days from the date of this Heads of
Agreement they shall not have received the guarantees referred to in Clause 3
hereof. If DC, DB, DP, TP and DIL elect not to withdraw, the agreement shall
be modified so that the guaranties referred to in clause 3 need not to be
delivered. In case they elect to withdraw, the only obligation of Vasco and
VDSE under Clause 11 hereof shall survive the termination of this Agreement and
shall remain in effect for a period of 36 (thirty-six) months.
14.- VASCO shall be jointly and severally liable with VDSE for any and all
obligations of VDSE under the present Heads of Agreement and under the
definitive documentation referred to in Clause 13.
5
<PAGE> 6
Done in Brussels, on May, 13th 1996
<TABLE>
<S> <C>
VASCO Corp. DIGILINE INTERNATIONAL LUX.
By /s/ Kendall Hunt By /s/ Dominique Fontaine
-------------------- -------------------------------
Kendall HUNT Dominique FONTAINE
Chairman & CEO Director
VASCO DATA SECURITY
EUROPE S.A.
By /s/ Kendall Hunt By /s/ Henri Aronson
-------------------- -------------------------------
Kendall HUNT Henri ARONSON
President and Director Director
TOPS S.A. DIGILINE BELGIUM S.A.
By /s/ Dominique Colard By /s/ Dominique Colard
-------------------- -------------------------------
Dominique COLARD Dominique COLARD
President Managing Director
DIGIPASS S.A.
By /s/ Dominique Colard
-------------------------------
Dominique COLARD
Director
By /s/ Jan Valcke
-------------------------------
Jan VALCKE
Director
</TABLE>
6
<PAGE> 1
EXHIBIT 10.4
AGREEMENT
Whereas pursuant to Paragraph 13 of the Heads of Agreement between VASCO
CORPORATION (<< Vasco >>), VASCO DATA SECURITY EUROPE S.A. (<< VDSE >> or <<
the Buyer >>), DIGILINE INTERNATIONAL LUXEMBOURG (<< DIL >> or << the Seller
>>), DIGILINE S.A. (<< DB >>), DIGIPASS S.A. (<< DP >>), Dominique COLARD (<<
Colard >>) and TOPS S.A. (<< TP >>), it was contemplated that certain
additional terms and conditions with respect to the matters contemplated by the
Heads of Agreement would be agreed to and executed by the parties;
Whereas below are set forth such additional terms and conditions as have been
agreed to by the parties;
Whereas for purposes hereof (i) these additional terms and conditions together
with the Heads of Agreement are collectively herein referred to as the <<
Agreement >> and (ii) the assets and liabilities heretofore conducted by DB
(which will prior to the Closing Date be transferred to DP) and the business
presently conducted by DP are hereinafter collectively referred to as the <<
Seller's Business >>;
Whereas the Buyer aknowledges that it has performed the necessary amount of due
diligence which it believed to be appropriate for a transaction of the type
contemplated herein, that such due diligence has included, amongst others, the
review of the complete data put at the disposal of the Buyer and its advisors
and accountants at its request and investigations by the Buyer with the
management of the Seller.
Article 1
As is contemplated by the Heads of Agreement, TP has transferred its shares of
the capital stock of DP for book value to DP. As these shares have been
canceled, DIL is currently the sole owner of 100 % of the shares of DP.
As is contemplated by the Heads of Agreement, the capital of DP has been
increased and certain assets and liabilities from DB transferred to DP. VASCO
and VDSE agree on the terms and conditions of the purchase agreement relating
to the transfer of the assets and liabilities from DB to DP.
Vasco and VDSE therefore represent that the conditions set forth in the Bank
Guarantee issued by the Bank Paribas have been fully completed by DIL, DP, DB,
TP and COLARD.
Vasco and VDSE agree that only the transfer of any amount by VDSE to DIL which
specifically relates to the payment of the purchase price of the shares by VDSE
to DL as from the Closing Date will diminish the said Bank Guarantee issued by
the Bank Paribas for the same amount.
Article 2
For purpose of this Agreement, the term << Material >> shall mean:
(a) with respect to any contract, (i) having a remaining duration of at least
12 months and (ii) involving a commitment to expenditure of at least BEF 1 500
000 or involving the generation of income of at least BEF 1 500 000;
(b) with respect to any asset or liability or change in financial condition, an
asset having a book value of at least BEF 1 500 000 or a liability involving an
expenditure of at least BEF 1 500 000.
Article 3
DL hereby represents and warrants to and agrees with Vasco and VDSE as follows:
1. DIL is the lawful owner of record of 42 653 shares of the capital stock of
DP (<< DP Stock >>).
<PAGE> 2
2. There are no shares of the capital stock of DP issued or outstanding other
than those shares held currently by DIL.
3. The shares of DP owned by D1L are free and clear of all liens, charges,
encumbrances and restrictions of any kind and nature whatsoever and none of
such shares is subject to any agreement whatsoever with respect to the voting,
sale or pledge thereof with respect to any such DP Stock.
4. Except as set forth on Schedule 1, none of DIL, TP, DB or Colard has any
interest in any property, real or personal, tangible or intangible, used in the
Seller's Business.
5. Any shares of Vasco Common Stock to be acquired by DIL at the sole election
of DIL pursuant to this Agreement will be acquired by DIL solely for the
purpose of investment and not with a view to, or for sale in connection with,
any distribution thereof DL acknowledges that all such shares of Vasco Common
Stock will not be registered under the Securities Act of 1933, as amended, or
the securities laws of any state or other jurisdiction, and that all such
shares of Vasco Common Stock will bear a legend in substantially the following
form:
<< THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. AS AMENDED, (THE <<SECURITIES ACT>>) AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS A REGISTRATION STATEMENT
WITH RESPECT TO THESE SHARES HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR
THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. >>
6. True, complete and correct copies of (a) the Certificate of
Incorporation as amended to date, of DP and (b) the by-laws, as currently in
effect, of DP are annexed hereto as Schedule 2.
7. DP is a corporation duly organized, validly existing and in good standing
under the laws of Belgium and has full corporate power and authority to conduct
the Seller's Business.
8. This Agreement has been duly and validly executed and delivered by DIL and
constitutes its valid obligation, enforceable against it in accordance with its
terms. Except any notification which might be necessary towards the Region
wallonne and except for any notices and consents required in relation to the
transfer of assets and liabilities of DB to DP, no consent is required to be
obtained in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby.
9. The performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, (i) the articles of
incorporation of by-laws or similar governing documents of DP, or (ii) any law,
order, rule, regulation, writ, injunction or decree applicable to Seller's
Business.
To its knowledge, DP and its conduct of the Seller's Business are in compliance
in all material respects with all, and not in violation in any material respect
of any applicable law or ordinance, or any order, rule or regulation of any
governmental agency or body to which DP or the Seller's Business are subject;
nor to its knowledge has DP failed to obtain or to adhere in all material
respects to the requirements of any government license, permit or authorization
necessary to the ownership of its assets or to the conduct of the Seller's
Business. All material governmental permits, licenses and authorizations
required by DP in the conduct of the Seller's Business are set forth in
Schedule 3.
10. Except as provided in Schedule 4, DP and the Seller's Business have paid
all taxes (payroll, income, franchise, etc.) required to be paid and DP and DB
have no liability whatsoever for any taxes except as may be reflected in the
Financial Statements of DB and DP for the year ended December 31, 1995 and in
<PAGE> 3
the intermediary financial statements of DB ended June 30, 1996 (hereafter <<
the Financial Statements >>) and except for any taxes to be paid by DP and
relating to its business conducted since January 1st, 1996 for the six-month
period ended June 30, 1996.
All Material tangible assets and properties owned by DP or used in the Seller's
Business are as of the date hereof usable.
11. All accounts receivables reflected in the Financial Statements and all
accounts receivables acquired or created by the Seller's Business subsequent to
January 1, 1996, to and including the Closing Date, arose from beneficial
transactions in the ordinary course of business.
12. All inventory reflected on the Financial Statements and all inventory
relating to the Seller's Business acquired subsequent to December 31, 1995 to
and including the Closing Date are of a quality and quantity usable or salable
in the ordinary course of business. The values of the inventory carried on the
Financial Statements represent the acquisition price of such inventory.
13. Except as set forth on Schedule 5, since December 31, 1995, either DP nor
DB (insofar as the assets and liabilities transferred by it to DP are
concerned) has:
(a) sold, assigned or transferred any of its assets or properties necessary for
the operation of the Seller's Business, except in the ordinary course of
business consistent with past practice;
(b) made any amendment or termination of any material contract, commitment or
agreement relating to the Seller's Business to which it is a party or by which
it is bound; or
(c) with respect to the employees of the Sellers' Business, received notice or
had knowledge of any strike or disruption of work of a concerted nature or any
threat thereof;
14. Except for the claim received by the Dutch PTT and Security Dynamics, DP
has not received notice of any claims which have been asserted by any person to
the use of any patents, trademarks, trademark registrations, logos, trade
names, assumed names, copyright and copyright registrations or challenging or
questioning the validity or effectiveness of any such license or agreement.
15. There are no strikes or disruptions of work involving the employees of the
Seller's Business of a concerted nature. DP is not a party to any collective
bargaining agreement with any union or other representative of employees except
for such collective bargaining agreements (<< conventions collectives>>) which
are applicable to all employees in the same business sector.
16. DP represents that he has not hidden any verbal or written notice of any
threatened termination or cancellation of the business relationship of the
Seller's Business since January 1, 1995 with (a) a major customer of the
Seller's Business, or (b) a major supplier of the Seller's Business which
would, either individually or in the aggregate have a material adverse effect
on the Seller's Business.
17. Set forth on Schedule 6 is the name of each employee of DP and each
employee transferred from DB to DP and the gross yearly compensation for each
employee with indication of extra legal advantages such as life-insurance,
rental costs of cars without fuel, repair and maintenance insurance and other
costs related to the use of the cars, luncheon vouchers and medical insurance.
18. The representations and warranties of DL contained in this Agreement shall
be true on and as of the date of the closing of the transactions contemplated
by this Agreement (the << Closing Date >>) with the same force and effect as
through made on and as of such date.
<PAGE> 4
19. Seller represents that he fully complied with the requests for information
contained in the Buyer's due diligence lists submitted by the Buyer and its
auditors. Seller further represents that he did not hide or conceal any
agreement of a Material nature or information of a Material nature which would
have been vital to the due diligence process.
20. Notwithstanding anything to the contrary in this Article 3, Seller's
representations and warranties are expressly qualified by and limited by the
results of the Buyer's due diligence investigation referred to above; all of
Seller's representations and warranties shall be construed to be qualified by
all matters apparent from the due diligence investigation whether or not such
matters are expressly mentioned in this Article 3 or in any of the Schedules
attached to this Agreement.
Article 4
The Buyer and Vasco hereby represents and warrants to the Seller that:
4.1. It is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is established and has full
corporate power and authority to enter into and perform its obligations under
this Agreement.
4.2. This Agreement has been duly and validly executed and delivered by it and
constitutes its valid and binding obligation, enforceable in accordance with
its terms. No consent, authorization or approval of, exemption by, or filing
with, any governmental or administrative authority, or any court, is required
to be obtained or made by it in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
4.3. The performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, (i) the articles of
incorporation or by-laws or similar governing documents of the Buyer or Vasco,
or (ii) any law, order, rule, regulation, writ, injunction or decree applicable
to the Buyer or Vasco.
Article 5
5.1. Closing. The Closing hereunder shall take place at the offices of DP
located in Charleroi, or at such other place as the Buyer and the Seller may
agree upon, on July 12th, 1996.
5.2. At the Closing, the Seller shall transfer to the Buyer the ownership of
the shares.
5.3. At the Closing the Buyer shall deliver to the Seller an original copy of
the Guarantee issued by Banque Paribas covering the balance of the Purchase
Price.
5.4 A shareholders' register shall be issued and signed by the appropriate
shareholders after the Closing.
Article 6
For the period beginning on the date hereof and ending June 30, 2001, Colard
hereby covenants and agrees with VDSE that, unless acting as an officer,
employee or consultant to VDSE or an affiliate of VDSE (which for purposes of
this Section shall include Vasco), or with VDSE's prior written consent, he
will not (i) compete, directly or indirectly, with VDSE, DP or any of their
affiliates in regard to the competing products as defined in Section 7 of the
Heads of Agreement (the << Competing Products >>), (ii) directly or indirectly,
on his own behalf of or as an employee or agent of any other person or entity,
contact or approach any person or business, wherever located, for the purpose
of competing with VDSE or DP in the Competing Products; (iii) participate as a
director, officer, consultant, or partner of, or have any other direct or
indirect financial interest in, any enterprise which engages in the Competing
Products; or (iv) participate as an employee, agent, representative or
consultant in, or render any services to, any enterprise
<PAGE> 5
in which his responsibility competes, directly or indirectly, with the
Competing Products. Dynapark and Muslimclock are not considered competing
products.
Article 7
Colard agrees that he shall keep secret and retain in strictest confidence, and
shall not use for the benefit of himself or others, all confidential matters
relating to the Seller's Business. The Buyer and Vasco agree that they shall
keep secret and retain in strictest confidence and shall not use for the
benefit of themselves or others, all confidential informations relating to the
business of Colard or DB apart from the Seller's Business purchased by the
Buyer hereunder.
Article 8
The Buyer and Vasco undertake jointly and severally (i) to cause a Shareholders
Meeting of DP to be held on the Closing Date to appoint new Directors of DP,
and (ii) to procure that the former Directors who are resigning from their
offices in connection with the sale of the Seller's Business to the Buyer are
granted discharge from all liabilities incurred in their capacity as directors
of DP at the General Shareholders Meeting of DP which is to be convened for the
purpose of approving the 1996 financial statements of DP.
Article 9
9.1. Subject to the limits set forth in this Article 9, the Seller will, on
demand by the Buyer, indemnify the Buyer from and against any and all loss,
Liability, damage or deficiency (including interest, penalties and reasonable
attorneys' fees) that the Buyer may suffer or incur as a result of the
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of the Seller contained in this Agreement (any
such inaccuracies or breaches being hereinafter collectively referred to as <<
Breaches >> and each individually as a << Breach >>). Such an indemnification
will be considered as an adjustment of the purchase price paid by the Buyer.
9.2. Any losses, damages or expenses incurred by the Buyer or DP and any
respective indemnification by the Seller shall be taken into account
after discounting of any tax effect in DP resulting in a reduction of such
losses, damages or expenses incurred or the respective indemnification; for
this purpose, the Buyer shall make or procure to be made available to the
Seller all relevant books of account, records and correspondence of the Buyer,
DP and Vasco relevant to the Breach, subject to the Seller's keeping such
information confidential.
9.3. Notwithstanding any other provision of this Agreement, the Liability of
the Seller in respect of any Breach shall be Limited to claims of not less than
BEF 500 000 (five hundred thousand Belgian Francs) in respect of any single
Breach or any number of Breaches of the same nature arising out of the same
causal event (hereinafter referred to as << Significant Claims >>) and any
references in this Agreement to Seller's liability for breach of warranty shall
be construed to refer only to liability for Significant Claims.
9.4. The Seller shall have no liability whatsoever in respect of any
Significant Claim unless and until the amount recoverable from the Seller in
respect of that Significant Claim, when aggregated with all other amounts so
recoverable in respect of other Significant Claims, exceeds BEF 3 500 000
(three million five hundred thousand Belgian Francs), whereupon the Seller
shall be liable for the whole of all such Significant Claims subject, however,
to all provisions of this Article 9.
9.5. The Seller shall have no liability for any Significant Claim unless
notice in writing of the Significant Claim, stating in reasonable detail the
nature of the claim and the amount of the Significant Claim, shall have been
given to the Seller on or before December 31, 1997 (such notice being
hereinafter referred to as the << Notice >>).
<PAGE> 6
9.6. If a Breach may occur or has occurred, the Buyer shall notify the Seller
in writing without delay, stating in detail the nature of the Breach, and shall
afford the Seller the opportunity, within 120 days, to take reasonable steps to
remedy or avoid such Breach or potential Breach.
9.7. The Buyer shall, and shall procure that DP shall, take at Seller's cost
and expense such actions as Seller may request to avoid, dispute, resist,
appeal, compromise or mitigate any claim by any third party which would give
rise to a Breach or any matter which might give rise to a Breach. For the
purpose of enabling the Seller to remedy or mitigate a Breach or to otherwise
determine the amount of any such claim, the Buyer shall make or procure to be
made available to the Seller all relevant books of account,
records and correspondence of the Buyer or DP relevant to the Breach, subject
to the Seller keeping such information confidential.
9.8. The Seller shall not be liable:
a) in respect of any Breach if, and to the extent that, such Breach occurs as a
result of any legislation or amendment to existing legislation not in force on
the date hereof;
b) in respect of any Breach, if and to the extent that it would not have arisen
but for any voluntary act, omission, transaction or arrangement after the date
hereof by the Buyer, DP or Vasco or any change in the nature or manner of
conduct of the Seller's Business after the Closing;
c) in respect of any Breach, to the extent that any liability arises or is
increased as a result of any statutory change in the basis or method of
calculation of or increase in the rate or rates of taxation;
d) in respect of any Breach, to the extent of the amount of any provisions in
the financial statements of DB or DP as of December 31, 1995 or the intermediary
financial statements as of June 30, 1996, in respect of the liability giving
rise to the Breach in question.
9.9. The Buyer shall or shall cause DP to reimburse to the Seller any amount
paid by the Seller under this Article 9 to the extent that such amount is
subsequently recovered by or paid to the Buyer, to DP or to Vasco by any third
party (including under any policy of insurance) as a result of the same facts
or matters which have given rise to the payment of the sum paid by the Seller
less any costs of recovery of such amount from such third party and after
discounting any overall tax effect, and the Buyer shall and shall procure that
DP or any third party take all reasonable steps to obtain such recoveries and
payments.
Article 10
The representations, warranties and covenants contained in this Agreement shall
survive the execution of this Agreement and the closing of the transactions
contemplated hereby.
Article 11
In addition to the above additional terms and conditions to the Agreement, the
parties agree that the Heads of Agreement shall be modified as follows:
AA. The purchase Price to be paid by VDSE for 100% of the stock of DP shall be
$ 8 200 000 (U.S. Dollars).
BB. The purchase Price of $ 8 200 000 (U.S. Dollars) shall be paid as follows:
1. Payment no. 1 of $ 4 800 000 (U.S. Dollars) in cash shall be paid at the
Closing.
2. Payment no. 2 of $ 3 400 000 (U.S. Dollars) shall be due and payable on
December 31, 1997, and
<PAGE> 7
3. As provided in the Heads of Agreement, Payment no. 2 shall be irrevocably
and unconditionally guaranteed by means of an Irrevocable Letter of Credit or
Irrevocable Bank Guarantee in favor of DL issued by a first-class bank
acceptable to DIL.
Article 12
12.1. The validity, interpretation and performance of this Agreement shall be
governed by the laws of the Kingdom of Belgium.
12.2. Any dispute concerning the validity, the interpretation or the
performance of this Agreement shall be finally settled by arbitration under the
rules of the CEPANI, by three arbitrators appointed in accordance with said
Rules, one to be appointed by the Seller, one to be appointed by the Buyer and
the third to be appointed by the first two or otherwise in accordance with such
Rules. The place of arbitration shall be Brussels, Belgium. The proceedings
shall be conducted in the French language. Any dispute arising between the
contracting parties shall be subject to prior conciliation.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement in six
original copies as of the 9th day of July 1996.
VASCO Corp.
By: /s/ Kendall Hunt
VASCO DATA SECURITY EUROPE S.A.
By: /s/ Kendall Hunt
DIGILINE S.A.
By: /s/ Dominique COLARD
DIGIPASS S.A.
By: /s/ Jean Louis DALCQ
By: /s/ Jean DEMEUR
/s/ Dominique COLARD
<PAGE> 8
SCHEDULE 1
DC has a consultancy contract with TP
TP has a consultancy contract with DP
DP rents the office building from TP
DP rents 4 cars from DB
DC owns patents rights in relation to security tokens
DB has an outstanding debt towards DIL of 4.500.000 BEF plus interests (900.000
BEF at June30, 1996)
SCHEDULE 2
Certificate of Incorporation as amended to date and by laws of DP.
SCHEDULE 3
Not applicable
SCHEDULE 4
Any taxes to be paid pursuant to an examination by the tax authorities of the
accounts of DP and DB for any period before June 30th, 1996.
SCHEDULE 5
Not applicable
<PAGE> 9
SCHEDULE 6
<TABLE>
<CAPTION>
Annual employees charges
Annual Holiday 13th Meal Medical
Date in Monthly Cost Cost Cost Month Check Insur. Cost Car Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Valke 2/11/88 242000 2904000 69928 406404 3380332
M. Lebrun 200000 2400000 2400000
L. Duray 23/09/91 86700 1040400 73695 117088 39600 41616 1920 1314319
N. Buseyne 2/9/91 86853 1042236 73825 117295 39600 41689 1920 1316565
C. Skworcz 29/6/92 45902 550824 39017 61991 39600 1920 693351
A. Avi 16/10/92 93244 1118928 79257 125926 39600 44757 1920 1410389
P. Detry 2/8/93 73834 886008 62759 99713 39600 35440 1920 1125440
Ph. Back 22/10/93 84897 1018764 72162 114653 39600 40751 1920 1287850
JP. Lafot 2/5/96 119231 1430772 101346 161021 39600 57231 1920 1791891
</TABLE>
<PAGE> 1
EXHIBIT 10.5
AGREEMENT
The effective date of this AGREEMENT is March 1, 1996 by and between VASCO
CORP., a corporation existing under the laws of the State of Delaware
("Vasco"), VASCO DATA SECURITY EUROPE SA/NV, a corporation existing under the
laws of Belgium ("Vasco Europe"), MARIO HOUTHOOFT ("Mario") and GUY DENUDT
("Guy").
W I T N E S S E T H:
WHEREAS, Vasco Europe is a wholly owned subsidiary of Vasco; and
WHEREAS, Vasco Europe owns 30 shares of the capital stock of LINTEL
SECURITY, SA/NV, a corporation existing under the laws of Belgium ("New
Lintel"), which represents 15% of the outstanding equity of New Lintel; and
WHEREAS, Mario owns 85 shares of the capital stock of New Lintel, which
represents 42.5% of the outstanding equity of New Lintel; and
WHEREAS, Guy owns 85 shares of the capital stock of New Lintel, which
represents 42.5% of the outstanding equity of New Lintel; and
WHEREAS, simultaneously with the execution hereof, New Lintel will acquire
certain assets associated with the computer security business of LINTEL, SA/NV
("Old Lintel"), a corporation all of the equity interests of which are owned by
Mario and Guy.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
ACQUISITION OF SHARES IN NEW LINTEL
1.01 Acquisition of Shares. Vasco Europe shall acquire all of the shares
of Mario and Guy in New Lintel at a total price of $1,000,000, and the
equivalent of $3,000,000 in shares of Vasco, both to be equally shared by Mario
and Guy.
1.02 Said amount of $1,000,000 shall be paid as follows:
* $42,500 ($21,250 each) no later than April 30, 1996;
* $100,000 ($50,000 each) no later than May 31, 1996;
* $110,000 ($55,000 each) no later than June 30, 1996;
* no later than June 1, 1996 issue of two promissory notes of $373,750 each
producing interest at a rate of 8% a year, convertible at any time between June
1, 1996 and May 30, 1998 into shares of Vasco Common Stock at a rate of $7.00
per share.
<PAGE> 2
1.03 On June 1, 1996, provided payments under 1.02 were duly executed:
(i) Mario shall sell, assign and transfer to Vasco Europe eighty-five
(85) shares of the capital stock of New Lintel in exchange for the delivery by
Vasco Europe to Mario of 214,287 shares of the common stock, par value $.001 per
share, of Vasco ("Vasco Common Stock"); and
(ii) Guy shall sell, assign and transfer to Vasco Europe eighty-five
(85) shares of the capital stock of New Lintel in exchange for the delivery by
Vasco Europe to Guy of 214,287 shares of Vasco Common Stock.
1.04 On June 1, 1996 Vasco shall issue and deliver to Mario and Guy each
50,000 purchase warrants on Vasco Common Stock at an exercise price of $7.00
per share, to be exercised at any time through Dec. 31, 2001 (exercise price to
be automatically split in case of splitting of the present shares).
1.05 Escrow of Shares. In order to secure the obligations of Mario and Guy
to sell their shares of New Lintel to Vasco Europe as provided in Section 2.02
hereof, such shares shall be held in escrow in order to secure such
obligations.
ARTICLE II
INVESTMENT REPRESENTATION
2.01 Investment Representation. With respect to any shares of Vasco
Common Stock to be acquired by Mario and Guy, all as contemplated by Article II
hereof, each of Mario and Guy hereby represent to Vasco and Vasco Europe that:
(a) he is acquiring such shares of Vasco Common Stock for his own account
for the purpose of investment, and not with a view to, or for sale in
connection with, any distribution thereof;
(b) he has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of his acquisition of
such shares of Vasco Common Stock;
(c) he acknowledges that he has had, prior to his execution of this
Agreement, the opportunity to ask questions of, and to receive answers from
Vasco concerning Vasco, its affiliates and their business and financial
condition; and
(d) he acknowledges that such shares of Vasco Common Stock have not been,
and will not be, registered under the Securities Act of 1933 as amended (the
"Securities Act") and, therefore, that such shares of Vasco Common Stock may
not be sold, assigned or transferred by him except pursuant to an effective
registration statement with respect thereto or in a transaction where such
registration is not required (it being understood that under current Securities
and Exchange Commission rules and regulations such shares could not be resold
for two years without benefit of an effective registration statement); and
<PAGE> 3
(e) he understands that such shares of Vasco Common Stock will bear a
legend in substantially the following form: The shares evidenced by this
certificate have not been registered under the securities act of 1933, as
amended (the "securities act") and may not be offered, sold, pledged or
otherwise transferred unless a registration statement with respect to these
shares has become effective under the securities act, or the corporation has
been furnished with an opinion of counsel reasonably satisfactory to the
corporation that such registration is not required.
ARTICLE III
REPRESENTATIONS; REGISTRATION RIGHTS
3.01 Vasco Common Stock. All shares of Vasco Common Stock to be issued
pursuant to this Agreement will, upon delivery to Mario and/or Guy, as the case
may be, be duly authorized, validly issued, and fully paid and non-assessable.
3.02 Registration Rights.
Vasco agrees to provide each of Mario and Guy, respectively, with the
opportunity to include in a registration statement up to 27,143 shares of Vasco
Common Stock delivered to them pursuant to Section 2.01 hereof, in the event
that Vasco decides, in its sole discretion, to file a registration statement
under the Securities Act in respect of Vasco Common Stock on its own behalf,
other than a registration statement on Form S-4 (or any replacement form used
for the registration of shares offered to security holders of any other entity
in exchange for their interests in such entity) or Form S-8 (or any replacement
form used for the registration of shares offered to employees, consultants,
etc. under a stock option or similar type plan), provided that Vasco's managing
underwriter determines that inclusion of such shares will not interfere with
the successful marketing of the shares of Vasco Common Stock which Vasco
intends to register and sell, and further provided, that, Mario and/or Guy, as
the case may be, agree(s) to the terms of the underwriting agreement to be
executed by Vasco with respect to such registration statement, such agreement
to be evidenced by their execution of such underwriting agreement.
ARTICLE IV
COVENANTS, UNDERSTANDINGS
4.01 Covenant Not to Compete. Through the period ending on
December 31, 2001 each of Mario and Guy for himself only hereby covenants and
agrees with Vasco and New Lintel that, unless acting as an officer, employee or
consultant to Vasco or New Lintel or an affiliate of Vasco or New Lintel, or
with Vasco's prior written consent, he will not:
(i) compete, directly or indirectly, with Vasco or New Lintel or any of its
affiliates in the manufacture and sale of computer
<PAGE> 4
security products and other security type products (the "Business");
(ii) directly or indirectly, on his own behalf or in behalf of or as an
employee or agent of any other person or entity, contact or approach any person
or business, wherever located, for the purpose of competing with Vasco or New
Lintel in the Business;
(iii) participate as a director, officer, consultant, or partner of, or have
any other direct or indirect financial interest in, any enterprise which
engages in the Business; or
(iv) participate as an employee, agent, representative or consultant in, or
render any services to, any enterprise in which his responsibility competes,
directly or indirectly, with the Business.
4.02 Understandings. Mario and Guy each understand that in entering into
this Agreement Vasco and Vasco Europe are relying on the representations and
warranties made by Mario and Guy with respect to Old Lintel in Article V of an
asset purchase agreement by and between New Lintel, Old Lintel, Mario and Guy
dated as of March 1, 1996 and, Mario and Guy each repeat and remake such
representations and warranties to Vasco and Vasco Europe as if fully set forth
herein.
4.03 Vasco Stock Option Plan. On and after June 1, 1996 (the time at
which Vasco will own in excess of 51% of the outstanding shares of the capital
stock of New Lintel), the directors and employees of New Lintel shall be
eligible to participate in any stock option or other stock benefit plans
adopted by Vasco, all in accordance with the terms of such plans.
4.04 Executive Bonus Plan. The parties understand and acknowledge that
it is the intention of New Lintel to establish an annual executive bonus plan
which plan shall provide that (i) 5% of the operating income of New Lintel for
the previous year shall be distributed to executives of New Lintel and (ii) up
to an additional 5% of the operating income of New Lintel for the previous year
may be awarded to the executives of New Lintel solely at the discretion of the
Board of Directors of New Lintel. Mario will be recommended to be included in
the VASCO Corp. Executive Bonus Plan in an appropriate way.
ARTICLE V
BOARD OF DIRECTORS; OFFICERS
5.01 Board of Directors. Until Dec. 31, 2006, each of Vasco Europe,
Mario and Guy agree to vote all of the equity interests
of New Lintel held by them to elect a Board of Directors to be comprised of
five (5) persons as follows: Mario, Guy, T. Kendall Hunt ("Ken") and two
persons who shall be selected by Vasco Europe.
5.02 Officers. Until Dec. 31, 2001, each of Vasco Europe, Mario and Guy
agree to use its best efforts to cause the Board of Directors to elect Mario as
Managing Director of New Lintel and Ken as Chairman of the Board of Directors
of New Lintel.
<PAGE> 5
ARTICLE VI
GENERAL PROVISIONS
6.01 Disclosure. None of the parties hereto shall disclose the terms of
this Agreement without the prior consent of all other parties except that Vasco
may disclosure the terms of this Agreement as may be required by law.
6.02 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to any of the other parties shall be in writing
and shall be deemed to have been duly given when delivered personally or seven
(7) days after dispatch by an overnight delivery service, such as Federal
Express, DHL, etc. to the party to whom the same is so given or made:
If to Vasco or Vasco Europe: VASCO Corp
1919 S. Highland Avenue Suite 118-C
Lombard, Illinois 60148
Attn: Mr. T. Kendall Hunt, CEO
If to Mario or Guy: Gerard MARTIN
ROBERTI & Associes
Boulevard Saint Michel 79
B-1040 Brussels, Belgium
The above mentioned addresses may be modified by providing written notice to
the other parties.
6.03 Assignability and Amendments. This Agreement shall not be assignable
by any of the parties. This Agreement cannot be altered or otherwise amended
except pursuant to an instrument in writing signed by each of the parties.
6.04 Entire Agreement. This Agreement and the Exhibits and Schedules
which are a part hereof and the other writings and agreements specifically
identified herein contain the entire agreement between the parties with respect
to the transactions contemplated herein and supersede all previous written or
oral negotiations, commitments and understandings.
6.05 Waivers, Remedies. Any waiver hereunder must be in writing and
signed by the party to be bound thereby. A waiver of any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights under any other term or condition of this Agreement. All
remedies under this Agreement shall be cumulative and not alternative.
6.06 Counterparts and Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
<PAGE> 6
6.07 Severability. If and to the extent that any court of competent
jurisdiction holds any provision (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
6.08 Binding Effects. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors, legal representatives and
assigns.
6.09 U.S. Dollars. Wherever "$" appears in this agreement it refers to
United States Dollars.
6.10 Governing Law This Agreement shall be governed by the laws of
Belgium. The sole jurisdiction of any claims made under this Agreement shall
be set in the Commercial Court of Brussels, Belgium and as between French and
Dutch the parties hereby elect that any disputes be heard solely in French.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the day and year first above written.
VASCO CORP. VASCO DATA SECURITY EUROPE, SA/NV
/s/ T. Kendall Hunt /s/ T. Kendall Hunt
................... ...................
By: T. Kendall HUNT By: T. Kendall HUNT
/s/ Mario Houthooft /s/ Guy Denudt
............... ................
MARIO HOUTHOOFT GUY DENUDT
<PAGE> 1
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of March ______, 1996 by and between
LINTEL SECURITY SA/NV, a corporation existing under the laws of Belgium on one
hand ("Buyer") and LINTEL SA/NV, a corporation existing under the laws of
Belgium ("Seller"), MARIO HOUTHOOFT ("Mario") and GUY DENUDT ("Guy" and Mario
being hereinafter collectively referred to as the "Shareholders"), on the other
hand.
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged under the name of Lintel
Security in the business of the manufacture and sale of computer security
products and other security type products (the "Business"); and
WHEREAS, Mario and Guy own all of the equity interests in Seller; and
WHEREAS, Buyer wishes to purchase from Seller and Seller wishes to sell to
Buyer substantially all of the assets (both tangible and intangible) of Seller
used in connection with the Business.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Purchase of Assets. On the terms and subject to the conditions set
forth herein, at the "Closing" (as defined in Section 2.01) Buyer shall
purchase from Seller, and Seller shall sell, assign, transfer, convey and
deliver to Buyer, all of Seller's right, title and interest in and to all of
the assets and properties owned or used by Seller in the Business including
those assets described in Section 1.02 hereof, except for the Excluded Assets
(as defined below); all of such assets and properties being hereinafter
collectively referred to as the "Purchased Assets."
1.02 Purchased Assets. The Purchased Assets shall include, without
limitation, all of Seller's right, title and interest in and to all of the
following assets whether tangible or intangible:
(a) inventory;
(b) furniture, fixtures and equipment;
(c) Rights (as defined in Section 5.10 hereof);
(d) contracts to supply products to unaffiliated third parties; and
(e) goodwill.
<PAGE> 2
1.03 Excluded Assets. The Purchased Assets shall not include:
(a) the minute books of Seller;
(b) the tax returns of Seller; and
(c) accounts receivable.
The foregoing are collectively referred to herein as the "Excluded Assets."
1.04 Seller's Accounting Records. At all times after the Closing Date,
Seller shall retain and make available to Buyer the original accounting and tax
records and tax returns pertaining to Seller, and, to the extent necessary to
enable Buyer to carry on the Business, shall permit Buyer to make copies
thereof.
1.05 Instruments of Transfer. Seller shall deliver to Buyer at Closing
such bills of sale, title documents and assignments and consents (where
required) in form and substance satisfactory to Buyer and its counsel
sufficient to vest in Buyer good and valid title to all of Seller's right,
title and interest in and to the Purchased Assets free and clear of all
mortgages, claims, liens, charges or encumbrances of any kind or nature
whatsoever.
ARTICLE II
CLOSING
2.01 Closing. The Closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Roberti, Martin, Weinberger,
Cools, Migeal & Hubert, no later than five (5) business days after the
incorporation of New Lintel, or at such other place or time as shall be
mutually agreed on by the parties hereto (such time on such date or such other
agreed upon time and date is called the "Closing Date").
ARTICLE III
CONSIDERATION
3.01 Purchase Price. The purchase price to be paid by Buyer for and in
consideration of the sale, assignment, transfer, conveyance and delivery of the
Purchased Assets and shall be equal to (I) the fair value of the Purchased
Assets, other than the inventory, which shall be determined in good faith (the
"Transferred Consideration"), plus (ii) the value of the inventory included in
the Purchased Assets (the "Inventory") which value shall be equal to the
Seller's cost of such Inventory (the "Inventory Consideration"), plus (iii) the
liabilities assumed by Buyer, as determined in accordance with Section 4.01
hereof (the "Purchase Price").
3.02 Payment of Purchase Price. In consideration of, and as full payment
for the sale, assignment, transfer, conveyance and delivery of the Purchased
Assets and for the Covenants Not to Compete, at the Closing, Buyer shall (a)
pay the Transferred
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Consideration to Seller by delivery to Seller of (i) a check, (b) agree to pay
the Inventory Consideration in accordance with the commercial terms upon which
Seller purchased the Inventory, and (c) assume and agree to pay, perform and
discharge the Assumed Obligations (as defined below).
ARTICLE IV
ASSUMED OBLIGATIONS
4.01 Assumption. At the Closing, Buyer shall assume and agree to pay,
perform and discharge the obligations of Seller (the "Assumed Obligations")
arising from and after the Closing Date pursuant to those contracts of Seller
being transferred to Buyer and specifically identified as an "Assumed Contract"
on Schedule 5.14 hereof (the "Assumed Contracts"). Any other provision of this
Agreement to the contrary notwithstanding, Buyer shall not and does not assume
any liability or obligation of Seller whether or not disclosed in this
Agreement other than as is set forth in this Section 4.01.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
The Shareholders and the Seller hereby jointly and severally represent and
warrant to and agree with Buyer as follows:
5.01 Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Belgium.
Seller has full corporate power and authority to conduct the Business.
5.02 Authority and Compliance. Seller has full corporate power and
authority to execute and deliver this Agreement and any and all documents in
connection herewith. The consummation and performance by Seller of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate and other proceedings. This Agreement
has been duly and validly executed and delivered by the Seller and the
Shareholders and constitutes a valid obligation of each of them, enforceable
against each of them in accordance with its terms. No consent, authorization
or approval of, exemption by, or filing with, any domestic governmental or
administrative authority, or any court, or any third party is required to be
obtained or made by Seller or the Shareholders in connection with the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby.
5.03 No Conflict. The performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
(i) the articles of incorporation or by-laws or similar governing documents of
Seller, (ii) any contract or other agreement or instrument to which Seller
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<PAGE> 4
is a party or by which it is bound, or (iii) any law, order, rule, regulation,
writ, injunction or decree applicable to Seller.
5.04 Compliance with Law. Seller and its use of the Purchased Assets and
its conduct of the Business are in compliance in all material respects with
all, and not in violation in any material respect of any applicable law or
ordinance, or any order, rule or regulation of any governmental agency or body
to which Seller or the Purchased Assets are subject; nor has Seller failed to
obtain or to adhere in all material respects to the requirements of any
government license, permit or authorization necessary to the ownership of the
Purchased Assets or to the conduct of the Business. All governmental permits,
licenses and authorizations required by Seller in the conduct of the Business
are set forth in Schedule 5.04.
5.05 Financial Statements.
Schedule 5.05 contains copies of the financial statements of the Business
for the year ended December 31, 1995 (the "Financial Statements"). The
Financial Statements are true and correct and present fairly, in all material
respects, the financial position of the Business as of December 31, 1995 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles, consistently applied.
5.06 Title to Assets. At the Closing, Seller will convey to Buyer good
and valid marketable title to all of the Purchased Assets, free and clear of
all liens, pledges, mortgages, security interests, licenses, and other
encumbrances of any kind or nature whatsoever.
5.07 Condition of Assets. All tangible assets and properties included in
the Purchased Assets are as of the date hereof and on the Closing Date will be
in good operating condition and repair in all material respects (normal wear
and tear excepted) and are usable in the ordinary course of the Business as
previously conducted.
5.08 Inventory; Products. All inventory reflected on the Financial
Statements and all inventory relating to the Business acquired by the Seller
subsequent to December 31, 1995 to and including the Closing Date was and will
be of a quality and quantity usable or salable in the ordinary course of
business. The values of the inventory carried on the Financial Statements are
at the lower of cost or market of such inventory in accordance with generally
accepted accounting principles.
5.09 Absence of Certain Events. Except as set forth on Schedule 5.09,
since December 31, 1995 Seller has not:
(a) sold, assigned or transferred any of its assets or properties
necessary for the operation of the Business, except in the ordinary course of
business consistent with past practice;
(b) made any amendment or termination of any material contract,
commitment or agreement relating to the Business to which it is a party or by
which it is bound;
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<PAGE> 5
(c) suffered any material adverse change or received verbal or written
notice of a material adverse change in their business relations with any of the
major suppliers or customers of the Business which would, individually or in
the aggregate, have a material adverse effect on the conduct of the Business;
(d) with respect to the employees of the Business, received notice
or had knowledge of any strike or disruption of work of a concerted nature or
any threat thereof; or
(e) lost the services of any key employee of the Business or received
notification of the threatened or imminent loss of any such employee.
5.10 Patents, Trademarks, Copyrights, etc. Except as set forth on
Schedule 5.10, there are no patents, patent rights, patent applications,
licenses, shop rights, trademarks, trademark applications, trade names,
copyrights, computer software and similar rights (collectively "Rights")
currently owned or used in the conduct of the Business. The Purchased Assets
include all Rights and other proprietary information necessary to the conduct
of the Business as currently being conducted. No patents, formulae, know-how,
secrets, trademarks, trademark registrations, logos, trade names, assumed
names, copyrights or computer software used in the Business infringe on any
patents, trademarks, or copyrights, or any other rights of any person. Seller
has taken all reasonable measures to maintain and protect, the patents,
trademarks, trademark registrations, logos, trade names, assumed names,
copyrights and copyright registrations listed on Schedule 5.10. Seller has not
received notice of any claims which have been asserted by any person to the use
of any such patents, trademarks, trademark registrations, logos, trade names,
assumed names, copyrights and copyright registrations or challenging or
questioning the validity or effectiveness of any such license or agreement.
5.11 Legal Proceedings, Etc. There are no claims, actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial,
pending or, to the best knowledge of Seller, threatened by, or against Seller,
which could harm the Buyer.
5.12 Labor Disputes. There are no strikes or disruptions of work
involving the employees of the Business of a concerted nature. Seller is not a
party to any collective bargaining agreement with any union or other
representative of employees.
5.13 Customers; Suppliers; Adverse Conditions. Since January 1, 1995,
there has not been any termination or cancellation, nor has Seller received
verbal or written notice of any threatened termination or cancellation of the
business relationship of the Seller with (a) any of the customers of the
Business, or (b) any of the major suppliers (with the exception of CSP) of the
Business which would, either individually or in the aggregate have a material
adverse effect on the Business.
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<PAGE> 6
5.14 Contracts and Commitments.
Except as listed and described on Schedule 5.14, Seller is not a party to
any:
(i) Contract (as defined below) with any present or former
shareholder, director, officer, employee or consultant (including, without
limitation, any employment agreement);
(ii) Contract for the future purchase of, or payment for, supplies or
products involving payment of in excess of $50,000 or for the performance of
services by a third party involving payment in excess of $25,000;
(iii) Contract to sell or supply products or to perform services
involving receipt by the Seller of in excess of $50,000;
(iv) Representative, sales agency or distribution agreement, contract
or commitment;
(v) Contract or Contracts for the borrowing of money for a line of
credit, or for a guarantee, pledge or undertaking of the indebtedness of any
other person;
(vi) Contract with respect to any Rights;
(vii) Contract limiting or restraining in any respect Seller from
engaging or competing in any lines of business or with any person; or
(xiii) any other Contract material to the operation of the Business.
As used in the Agreement, the term "Contract" includes any mortgage, indenture,
agreement, contract, commitment or lease,
5.15 Employee Benefit Plans.
(a) Set forth on Schedule 5.15 is a summary of any bonus, incentive,
deferred compensation, profit sharing, pension, retirement, disability,
hospitalization, life insurance, health benefit, medical reimbursement,
vacation, sick pay, severance pay or other plan or agreement or consideration
above legal requirements, providing benefits to any of the employees of Seller
("Employee Plans").
(b) Set forth on Schedule 5.15 is the total amount of cumulative fringe
benefits to which employees have accrued entitlement as of December 31, 1995.
All amounts required by the provisions of any Employee Plan and applicable law
to be contributed to any Employee Plan have been, or will be, contributed to
such Employee Plan through the Closing Date.
(c) The Seller has provided Buyer with true and correct copies of all
Employee Plans.
5.16 Employees. Schedule 5.16 hereof sets forth the name of each employee
of Seller who performs services related to the Business and the job description
and rate of compensation of each such employee as of the date hereof.
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ARTICLE VI
COVENANTS
6.01 Confidential Information. Each of Mario and Guy agrees with Buyer
for himself only that he shall keep secret and retain in strictest confidence,
and shall not use for the benefit of himself or others, all confidential
matters relating to the Business.
6.02 Post Closing Employment. Subject to the Closing having occurred,
Buyer shall offer employment to only those employees of Seller listed on
Schedule 6.02 (the "Acquired Employees") and shall make available to each
Acquired Employee such salary and benefits as are currently provided to such
Acquired Employee by Seller.
6.03 Purchase Contract. Annexed hereto as Schedule 6.03 is a true and
correct copy of an agreement between Seller and ActivCard with respect to the
obligation of ActivCard to supply Seller with AuthentiCard tokens (the "AC
Tokens"). Seller agrees for a period of two years from and after the Closing
Date to purchase such number of AC Tokens from ActivCard and to resell such AC
Tokens to Buyer as may be necessary for Buyer to supply AC Tokens to Buyer's
customers. Seller shall sell such AC Tokens to Buyer at Seller's cost therefor
plus 5%.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer pursuant to this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any one or
more of which may be waived by Buyer.
7.01 Accuracy of Representation and Warranties. The representations and
warranties of Seller and the Shareholders contained in this Agreement shall be
true on and as of the Closing Date with the same force and effect as through
made on and as of the Closing Date, except as effected by transactions
contemplated hereby.
7.02 Performance of Agreement. Seller and the Shareholders shall have
performed and complied with all covenants, obligations and agreements to be
performed or complied with by them on or before the Closing Date pursuant to
this Agreement.
7.03 Officer's Certificate. Buyer shall have received a certificate of
the chief executive officer of Seller, dated the Closing Date, certifying as to
the fulfillment of the conditions set forth in Sections 7.01 and 7.02 hereof.
7.04 Actions, Proceedings, etc. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by this
Agreement and all other related legal matters shall be reasonably satisfactory
to Buyer and its counsel; and Buyer shall have been furnished with such other
instruments and documents as it shall have reasonably requested.
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<PAGE> 8
7.05 Consent to Assignment. Seller shall have obtained and delivered to
Buyer the Assumed Contract Consents.
7.06 Employment Agreement. Mario shall execute and deliver to Buyer an
agreement relating to his providing services to Buyer during the Time Period as
managing Director of Buyer in the form annexed hereto as Exhibit A (the
"Employment Agreement").
7.07 Concurrent Agreement. Each of Vasco Corp., Vasco Europe, Mario and
Guy shall have executed and delivered an agreement of even date herewith which
agreement provides for, among other things, the purchase by Vasco Europe of the
equity interests of Buyer owned by Mario and Guy.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any one or
more of which may be waived by Seller.
8.01 Accuracy of Representation and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true on and as of the
Closing Date with the same force and effect as through made on and as of the
Closing Date, except as effected by transactions contemplated hereby.
8.02 Performance of Agreement. Buyer shall have performed and complied
with all covenants, obligations and agreements to be performed or complied with
by them on or before the Closing Date pursuant to this Agreement.
8.03 Employment Agreement. The Buyer shall have executed and delivered to
Mario the Employment Agreement.
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification by the Shareholders and Seller.
The Shareholders and Seller hereby jointly and severally covenant and
agree with Buyer that they shall reimburse and indemnify Buyer and its
successors and assigns and hold them harmless from, against and in respect of
any and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses, including interest which may be imposed in connection therewith and
court costs and reasonable fees and disbursements of counsel (collectively
"Claims") incurred by them due to, arising out of, or in connection with, (i) a
breach of any of the representations, warranties, covenants or agreements made
by the Shareholders and/or Seller in Article V and Section 6.04 of this
Agreement, or (ii) any liability or obligation of Seller to any person or
entity, except for any of the Assumed Obligations.
9.02 Indemnification by Buyer. Buyer hereby covenants and agrees with
Seller that it shall reimburse and indemnify Seller and its successors and
assigns and hold them harmless from, against and
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<PAGE> 9
in respect of any and all Claims incurred by Seller due to, arising out of, or
in connection with (a) a breach of any of the representations, warranties,
covenants or agreements made by Buyer in this Agreement, (b) any Assumed
Obligation, or (c) liabilities relating to the operation of the Business from
and after the Closing Date.
9.03 Indemnification by each of Mario and Guy. Each of Mario and Guy for
himself only hereby covenants and agrees with Seller that he shall reimburse
and indemnify Seller and its successors and assigns and hold them harmless
from, against and in respect of any and all Claims incurred by Seller due to,
arising out of, or in connection with (a) a breach of the covenants set forth
in Section 6.01 and 6.02 of this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.01 Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties and covenants contained in Articles V and VI of
this Agreement shall survive the execution of this Agreement and the closing of
the transactions contemplated hereby.
10.02 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
10.03 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to any of the other parties shall be in writing
and shall be deemed to have been duly given when delivered personally or seven
(7) days after dispatch by an overnight delivery service, such as Federal
Express, DHL, etc. to the party to whom the same is so given or made:
If to Buyer: c/o Vasco Corp.
1919 S. Highland Avenue, Suite 118-C
Lombard, Illinois 60148
Attn: Mr. T. Kendall Hunt, CFO
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: George Lander, Esq.
If to Seller, Mario or Guy: c/o Gerard Martin, Esq.
Roberti & Associes
Boulevard St. Michel 79
B-1040 Brussels, Belgium
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with a copy to: Gerard Martin
Roberti & Associes
Boulevard St. Michel 79
B-1040 Brussels, Belgium
The above addresses may be modified by providing written notice to the other
parties.
10.04 Assignability and Amendments. This Agreement shall not be
assignable by any of the parties. This Agreement cannot be altered or otherwise
amended except pursuant to an instrument in writing signed by each of the
parties.
10.05 Entire Agreement. This Agreement and the Exhibits and Schedules
which are a part hereof and the other writings and agreements specifically
identified herein contain the entire agreement between the parties with respect
to the transactions contemplated herein and supersede all previous written or
oral negotiations, commitments and understandings.
10.06 Waivers, Remedies. Any waiver hereunder must be in writing and
signed by the party to be bound thereby. A waiver of any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights under any other term or condition of this Agreement. All
remedies under this Agreement shall be cumulative and not alternative.
10.07 Counterparts and Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
10.08 Severability. If and to the extent that any court of competent
jurisdiction holds any provision (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
10.09 Binding Effects. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors, legal representatives and
assigns.
10.10 Governing Law. This Agreement shall be governed by the laws of
Belgium. The sole jurisdiction of any claims made under this Agreement shall
be set in the Commercial Court of Brussels, Belgium and as between French and
Dutch the parties hereby elect that any disputes be heard solely in French.
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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the day and year first above written,
LINTEL SECURITY SA/NV
By : /s/ T. Kendall Hunt
------------------------
LINTEL SA/NV
By: /s/ Mario Houthooft
------------------------
/s/ Mario Houthooft
------------------------------
MARIO HOUTHOOFT
/s/ Guy Denudt
------------------------------
GUY DENUDT
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EXHIBIT 10.7
MANAGEMENT AGREEMENT
BETWEEN
The company under Belgian law, VASCO DATA SECURITY NV/SA having its registered
office at 1081 Brussels (Belgium), Avenue de Jette 32, HRC 173.472, herewith
represented by Mr. Guy Denudt and Mr. Thomas Kendall Hunt, mandated according
to Article 3 from the bylaws published in the Official Journal dd. 11 February
1997, under number 970211-490, hereafter called (( the mandator )) ;
AND
The company under Belgian law, LIN.K BVBA, having its registered office at
9090 Melle (Belgium), HRG 164.163, herewith represented by Mrs. Linda Waeytens,
mandated according to Article 12 of the bylaws published in the Official
Journal dd. 14 February 1992, under number 920214-320, hereafter called (( the
manager )) ;
IT HAS BEEN AGREED AS FOLLOWS :
OBJECT
The manager agrees to be at the disposal of the mandator in order to fulfill
the following tasks :
- -development of new applications and techniques in the field of mandator's
activities ;
- -training and management of employees, especially on technological level ;
- -perform the necessary market research ;
- -take care of the business relationships of the company ;
- -negotiate, but not conclude purchase and sales contracts ;
- -prospecting of new markets.
Commitments
It is not allowed to the manger to take commitments in the name and on behalf
of the mandator.
Liberty of action
The manager is entitled to execute his job according to his personal view and
opinion. He will report his points of view and decisions to the board of
directors.
TERM
Present agreement is concluded for an undefined period of time retroactively
as of 1st of January 1997.
Each party can terminate the agreement at any time a six months notice.
Additionally each party will be entitled to terminate present agreement without
notice under the condition of payment of an indemnification of 2.250.000,-BEF.
ALLOWANCE
Allowance
The mandator will pay to the manager a yearly fee of 4.500.000,- BEF.
Expenses
The expenses for travel and accommodation will be reimbursed by the mandator to
the manager.
<PAGE> 2
Invoicing
The manager will establish a monthly invoice regarding :
- -1/12th of the fixed yearly fee
- -the expenses.
Payment terms
The invoices of the manager will be settled at the latest on the last working
day of the current month by wire transfer to account nr. 290-0164745-60.
Time and place
For the execution of his mission the manager will at least be at the disposal
of the mandator 45 hours a week.
The manager is free to decide when and how he will put himself at the disposal
of the company. However he will take care to be reachable by phone for the
management of the company and will go to the premises of the company every time
his presence is needed.
Logistics
Office
Besides his own office at his registered office the mandator will make
available office space for the manager at his premises.
Car
The manager will use his own car for travel related to his function.
6. CONFIDENTIALITY AND NON-SOLICITATION OF EMPLOYEES
Confidentiality
The manager agrees not to disclose any information regarding the company of the
mandator to third parties which could endanger the competitiveness of the
mandator.
Non-solicitation of employees.
During the term of this Agreement and for a period of one month thereafter, the
manager shall not solicit or not knowingly hire any personnel for himself or
any third party. During the same period he will not hire any personnel of the
mandator even upon solicitation of the employee himself, unless this employee's
contract has been terminated by the mandator.
NON-EXCLUSIVITY CLAUSE
Exclusivity
During the term of present agreement, the manager will not put his services at
the disposal of competing companies, nor will he start competitive business or
participate in it in any way.
<PAGE> 3
During the term of one month after the termination of present agreement, the
manager will not put his services at the disposal of competing companies, nor
will he start competitive business in one of the Benelux countries.
Other activities
During the term of present agreement, the manager may however put his services
at the disposal of another company under the condition that this company does
not exercise activities in competition with the mandator.
IMMEDIATE TERMINATION DUE TO FRAUDE OR GROSS NEGLIGENCE
The mandator will be entitled to immediately terminate this agreement without
any indemnification, in case of fraud or gross professional negligence from the
manager towards the mandator, which will make any further cooperation
impossible.
BANKRUPTCY
Present agreement will legally be terminated in case of the manager going
bankrupt.
The manager is entitled to ask for immediate termination in case of bankruptcy
of the mandator.
TERMINATION
Restitution
Upon termination of present agreement, the manager will return all keys,
documents, software, databases and any material whatsoever to the mandator,
including all notes, reports and minutes which he received from the mandator or
which he made himself regarding the company of the mandator.
Expenses
At termination of the agreement the manager will introduce a detailed expense
note related to all costs to be reimbursed at that time by the mandator.
VAT
All amounts mentioned in this agreement are without VAT.
APPLICABLE LAW AND JURISDICTION
Applicable law
This agreement shall be governed by the laws of Belgium.
Jurisdiction
Any dispute relating to this agreement shall be submitted to the exclusive
jurisdiction of the CEPINA, by one or more arbitrators designated accordingly
to this jurisdiction.
The arbitration court will be constituted by one arbiter only.
<PAGE> 4
The place of jurisdiction is Brussels.
The procedural language being Dutch.
ELECTION OF DOMICILE AND NOTIFICATION
Domicile
For the execution of present agreement each party has elected their respective
above mentioned domicile.
Notification
Notification of all communications regarding termination of present agreement
has to be done by registered mail or by bailiff summons.
Established in two originals in Brussels, on 31st of January 1997.
Each party declares having received one original.
The mandator, The manager
/s/ Guy Denudt /s/ Linda Waeytens
Director, Manager
/s/ T. Kendall Hunt
Director
<PAGE> 1
EXHIBIT 10.8
SUBLEASE AGREEMENT
This Sublease Agreement ("SUBLEASE") is executed as of August 29, 1997, by
and between APL Land Transport Services, Inc. ("SUBLANDLORD") and VASCO Corp.
(the "SUBTENANT").
WITNESSETH:
WHEREAS, Sublandlord is the tenant of the premises herein demised and
other premises under a certain Office Lease dated March 29, 1993 by and between
Sublandlord, as tenant, and LaSalle National Trust, N.A., not personally, but
as Trustee under Trust Agreement dated July 15, 1984 and known as Trust No.
108702, as landlord, which lease, as amended and supplemented to date, is
hereinafter referred to as the "BASE LEASE." The term "LANDLORD" as used herein
shall mean the successors and assigns of the original landlord under the Base
Lease.
WHEREAS, Sublandlord has agreed with Subtenant to sublease to Subtenant
certain of the premises leased by Sublandlord under the terms of the Base
Lease, upon the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. Premises. Sublandlord hereby leases to Subtenant a portion of those
certain premises leased to Sublandlord under the Base Lease (the "SUBLEASED
PREMISES") consisting of approximately Nine Thousand Five Hundred Twenty-Seven
(9,527) rentable square feet, as described and shown on Exhibit A attached
hereto, which Subleased Premises are located on the second (2nd) floor of the
building commonly known as 1901 South Meyers Road, Oakbrook Terrace, Illinois
(the "BUILDING"). Said designation of the size of the Subleased Premises shall
be determinative between the parties.
2. Term of Sublease. The term of the Sublease shall commence on September
15, 1997 (the "COMMENCEMENT DATE") and shall terminate on November 15, 1999,
unless sooner terminated as provided herein.
3. Rental. (a) As rental for the use of the Subleased Premises, Subtenant
shall pay Monthly Gross Rent to Sublandlord as follows:
<TABLE>
<CAPTION>
Effective Period Monthly Gross Rent
---------------- ------------------
<S> <C>
September 15, 1997 - November 30, 1997 $ 7,366.67
December 1, 1997 - November 14, 1998 $12,702.67
November 15, 1998 - November 15, 1999 $13,179.02
</TABLE>
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Rent shall be prorated for partial months within the lease term and for partial
months in the rent schedule set forth in this Paragraph 3. Such rental shall be
payable in advance on the first day of each month during the term hereof.
Monthly Gross Rent for the first month of the sublease term shall be paid upon
Sublessee's execution of this Sublease.
(b) All rentals shall be payable to Sublandlord and shall be delivered to
Sublandlord at such location as Sublandlord may from time to time designate in
writing.
(c) All charges, costs and sums required to be paid by Subtenant hereunder
shall be deemed to be rent. Subtenant's covenant to pay rent shall be
independent of any other covenant in this Sublease. Rent shall be paid without
any set-off or deduction whatsoever.
(d) As security for the performance of its obligations under this
Sublease, Subtenant, upon its execution of this Sublease has paid to
Sublandlord a security deposit (the "SECURITY DEPOSIT") in the amount of
Twenty-Six Thousand Three Hundred Fifty-Eight and 04/100 Dollars ($26,358.04).
The Security Deposit may be applied by Sublandlord to cure any default of
Subtenant and upon notice by Sublandlord of such application, Subtenant shall
replenish the Security Deposit in full by promptly paying to Sublandlord the
amount so applied. Within forty five (45) days after the Expiration Date,
Sublandlord shall return to Subtenant the balance, if any, of the Security
Deposit, along with an itemized accounting of any reductions from the Security
Deposit. The Security Deposit shall not be deemed an advance payment of Rent or
measure of damages for any default by Subtenant under this Sublease, except as
provided herein, nor shall it be a bar or defense to any action that
Sublandlord may at any time commence against Subtenant. Sublandlord shall not
be required to segregate the Security Deposit from its general funds. Subtenant
shall not be entitled to any interest payment on the Security Deposit.
Subtenant shall, upon written request from Sublandlord, deposit additional
monies with Sublandlord as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same
proportion to the then current Monthly Gross Rent as the Security Deposit bears
to the Monthly Gross Rent set forth in Paragraph 3(a) hereinabove.
Notwithstanding anything contained herein to the contrary, in the event
Subtenant does not breach any of its obligations hereunder during the term
hereof, Subtenant may apply Thirteen Thousand One Hundred Seventy-Nine and
02/100 Dollars ($13,179.02) of the Security Deposit to rent owed for the final
month of the sublease term.
4. Use of Subleased Premises. (a) Subtenant shall use the Subleased
Premises for general office purposes or as otherwise permitted by the Base
Lease.
(b) Subtenant shall be conclusively deemed to have accepted the Subleased
Premises in the condition existing on the date Subtenant first takes possession
thereof and to have waived all claims relating to the condition of the
Subleased Premises, except as provided herein. No agreement of Sublandlord to
alter, remodel, decorate, clean or improve the Subleased Premises or the
Building and no representation regarding the condition of the Subleased
Premises has been made by or on
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behalf of Sublandlord to Subtenant, except as specifically stated in this
Sublease. Notwithstanding anything contained herein to the contrary, within ten
(10) days following the Commencement Date, Sublandlord shall clean the
Subleased Premises, shampoo the carpeting and repair any damage resulting from
its removal of furniture and equipment. Additionally, Sublandlord shall repair
the leaks in the phone room and the sink in the front kitchen area of the
Subleased Premises.
(c) Subtenant shall make arrangements directly with the telephone company
for telephone service to the Subleased Premises. Subtenant shall promptly pay
and be solely responsible for the entire cost of all such service. Subtenant
shall also pay upon Sublandlord's demand the cost of removing any special
equipment installed in the Subleased Premises by Subtenant or installed by
Sublandlord at Subtenant's request, upon expiration of the term of the Sublease
or the termination of this Sublease. Sublandlord agrees that Subtenant shall
have the non-exclusive use of the racking and wiring in the phone room in the
Subleased Premises. Subtenant shall permit other occupants of the Premises
leased by Sublandlord in the Building to access and use said racking and
wiring, as required for said occupants' use.
Subtenant shall make all necessary arrangements with the utility company
serving the Building for electricity to be used in the Subleased Premises, and
Subtenant shall pay all charges with respect thereto before the same shall be
due. Subtenant acknowledges that Subtenant shall cause the electrical service
to the Subleased Premises to be transferred into Subtenant's name as of the
Commencement Date. Subtenant shall make no alterations or additions to the
wiring installation, electric equipment or appliances without the prior written
consent of Sublandlord in each instance. Subtenant acknowledges that the
electrical feeder or riser capacity serving the Subleased Premises on the
Commencement Date is adequate to serve its use of the same. Subtenant covenants
and agrees that at all times its use of electric current shall never exceed the
capacity of the feeders to the Building or the risers or wiring installation.
To the extent permitted by the Base Lease, Subtenant may install wiring within
the Leased Premises for its business use, provided that said wiring does not
affect any mechanical systems of the Building and Subtenant removes said wiring
upon termination of the Sublease.
(d) Subtenant shall be entitled to possession of the Subleased Premises
upon the Commencement Date. Subtenant shall not occupy or use the Subleased
Premises (or permit the use or occupancy of the Subleased Premises) for any
purpose or in any manner which: (a) is unlawful or in violation of any
applicable legal, governmental or quasi-governmental requirement, ordinance or
rule (including the Board of Fire Underwriters); (b) may be dangerous to
persons or property; (c) may invalidate or increase the amount of premiums for
any policy of insurance affecting the Building; or (d) creates a nuisance,
disturbs any other tenant of the Building or the occupants of neighboring
property or injures the reputation of the Building.
5. Maintenance and Repairs. (a) Unless provided otherwise herein,
Subtenant shall, at Subtenant's sole cost and expense and to the extent
required of the tenant under the Base Lease, keep the Subleased Premises in
good repair and condition, and shall perform all obligations of
Sublandlord under the Base Lease with respect thereto. Said obligation shall
include, without limitation, repairs
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to and maintenance of the separate air conditioning unit that cools the
telephone equipment room in the Subleased Premises.
(b) Upon the termination of this Sublease, Subtenant shall deliver
possession of the Subleased Premises to Sublandlord in good order, condition
and repair, and otherwise as required by, and subject to, the provisions of the
Base Lease.
(c) Subtenant shall not, without the prior written consent of Sublandlord,
make or cause to be made any alterations, improvements, additions or
installations in or to the Subleased Premises. Notwithstanding anything herein
to the contrary, Subtenant may adorn and/or decorate the Subleased Premises
(excluding wall coverings) without Sublandlord's prior consent, to the extent
Sublandlord may do so under the Base Lease; provided, however, Subtenant shall
repair all damage caused thereto prior to the termination of the term hereof.
Sublandlord may require as a condition of granting such consent that, before
commencement of any such work or delivery of any materials into the Subleased
Premises or the Building, Subtenant shall furnish to Sublandlord and Landlord
for approval architectural plans and specifications, names and addresses of all
contractors, contracts, necessary permits and licenses, certificates of
insurance and instruments of indemnification against any and all claims, costs,
expenses, damages and liabilities which may arise in connection with such work,
all in such form and amount as may be satisfactory to Sublandlord and Landlord.
In addition, prior to commencement of any such work or delivery of any
materials into the Subleased Premises, Subtenant shall provide Sublandlord with
appropriate evidence of Subtenant's ability to pay for such work and materials
in full, and, if requested by Sublandlord or Landlord, shall deposit with
Sublandlord at such time such security for the payment of said work and
materials as Sublandlord may require. Whether or not Subtenant furnishes the
foregoing, Subtenant agrees to hold Sublandlord, Landlord and their respective
agents and employees forever harmless against all claims and liabilities of
every kind, nature and description which may arise out of or in any way be
connected with such work. All such work shall be done only by contractors or
mechanics approved by Sublandlord and Tenant (which approval may be withheld in
Sublandlord's and Landlord's sole discretion) and at such time and in such
manner as Sublandlord and Landlord may from time to time designate. Subtenant
shall pay the cost of all such work and the cost of decorating the Subleased
Premises and the Building occasioned thereby. Upon completion of such work,
Subtenant shall furnish Sublandlord with contractor's affidavits and full and
final waivers of lien and receipted bills covering all labor and materials
expended and used in connection therewith. All such work shall be in accordance
with the Base Lease, applicable legal, governmental and quasi-governmental
requirements, ordinances and rules (including the Board of Fire Underwriters),
and all requirements of applicable insurance companies. All such work shall be
done in a good and workmanlike manner, with the use of good grades of materials
and in conformity with so-called building standards. Except for trade fixtures,
all alterations, improvements, additions and installations to or on the
Subleased Premises shall become part of the Subleased Premises at the time of
their installation and, at the election of Sublandlord or Landlord, shall
remain in the Subleased Premises at the expiration or termination of this
Sublease, or termination of Subtenant's right of possession of the Subleased
Premises, without compensation or credit to Subtenant. Subtenant shall not
pledge, mortgage, hypothecate or in any way create a security interest in and
to any of the alterations and improvements provided for herein to any creditor
or third party
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without the prior written consent of Sublandlord and Landlord, which shall not
be unreasonably withheld or delayed.
6. Assignment. Subtenant shall not sublease, assign, mortgage, pledge,
hypothecate or otherwise transfer or permit the transfer of this Sublease or
the interest of Subtenant in this Sublease, in whole or in part, by operation
of law or otherwise. If Subtenant or the beneficiary of Subtenant is a
partnership, a withdrawal or change, voluntary, involuntary or by operation of
law, of any partner or partners owning fifty-one percent (51%), whether by a
single transaction or event or by cumulative transactions or events, or more of
the partnership interest, or the dissolution of the partnership shall be deemed
an assignment of this Sublease. If Subtenant is an Illinois land trust or other
trust, a change in the beneficial ownership shall be deemed an assignment of
this Sublease. If Subtenant, or the beneficiary of Subtenant is a corporation,
any dissolution, merger, consolidation, or reorganization of the Subtenant or
the sale or transfer of a controlling percentage of the capital stock of the
Subtenant, whether by a single transaction or event or by cumulative
transactions or events, shall be deemed an assignment of this Sublease. If the
Subtenant consists of more than one person, a purported assignment, voluntary,
involuntary, or by operation of law, from a majority of such persons to any or
all of the others shall be deemed an assignment of this Sublease.
7. Concerning the Base Lease. (a) It is understood and agreed that the
interest of Sublandlord hereunder and in the Subleased Premises hereby demised
is solely as tenant under the Base Lease, and that this Sublease and
Subtenant's rights and Sublandlord's obligations hereunder are subject to and
subordinate to the Base Lease. Notwithstanding anything contained herein to the
contrary, in the event Subtenant shall be in default of the provisions of this
Sublease Agreement, Sublandlord shall have the right to exercise its early
termination option under the Base Lease.
Provided Subtenant shall not be in default hereunder, Sublandlord shall
comply with its obligations under the Base Lease, except to the extent said
obligations are to be performed by Subtenant hereunder.
(b) There are hereby reserved unto Sublandlord all rights reserved to the
Landlord under the Base Lease. Sublandlord shall promptly deliver to Subtenant
copies of all notices received by Sublandlord from Landlord with reference to
the Subleased Premises or otherwise.
(c) Sublandlord shall have the benefit of all covenants and undertakings
of the Landlord under the Base Lease insofar as they apply to the Subleased
Premises, including the right to enforce such covenants and undertakings, by
litigation or otherwise. Except as otherwise provided herein, the sole
obligation of Sublandlord hereunder with respect thereto shall be to give
notice to the Landlord under the Base Lease of any non-performance thereof when
Sublandlord hereunder shall receive written notice thereof from Subtenant
hereunder, and to demand performance of same. Subtenant shall promptly deliver
to Sublandlord copies of all notices received by Subtenant from Landlord with
reference to the Subleased Premises or otherwise.
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(d) As to the Subleased Premises, Subtenant hereby covenants and agrees to
be bound by and to perform every term, provision, covenant and condition,
expressed or implied, imposed upon Sublandlord by the Base Lease, except as
otherwise expressly provided herein with reference to rentals which are to be
paid directly by Subtenant to Sublandlord, and except as otherwise expressly
provided pursuant to the other provisions of this Sublease, provided the same
are more restrictive than the applicable provisions in the Base Lease. All such
obligations so assumed by Subtenant hereunder shall be for the benefit of, and
shall be enforceable by, Sublandlord or Landlord or both. Subtenant agrees not
to take or omit (or to permit to be taken or omitted) any action in violation
of the terms and conditions of the Base Lease, and Subtenant hereby agrees to
indemnify, defend and hold Sublandlord harmless from and against any and all
claims, expenses, damages and liabilities (including attorneys' fees and costs)
to which Sublandlord may be subject by reason of Subtenant's failure to comply
with any of the terms and conditions of the Base Lease, as to the Subleased
Premises. Further, Sublandlord hereby agrees to indemnify, defend and hold
Subtenant harmless from and against any and all claims, expenses, damages and
liabilities (including attorneys' fees and costs) to which Subtenant may be
subject by reason of Sublandlord's failure to comply with any of the terms and
conditions of the Base Lease after cure periods, including, without limitation,
any default or breach by Sublandlord or any other subtenant of Sublandlord in
the Building.
(e) Notwithstanding anything to the contrary in this Sublease, all of the
Subtenant's rights hereunder shall be subject to prior or subsequent
termination of the Base Lease, pursuant to any provisions thereof, or
otherwise.
8. Indemnity, Exoneration. (a) Subtenant shall defend, hold harmless and
indemnify Sublandlord at all times against any loss, damage, costs or expenses
by reason of any accident, injury (including death), loss or damage occurring
on or about the Subleased Premises or resulting from any act or thing done or
omitted to be done on or about the Subleased Premises by Subtenant or
Subtenant's agents, employees, invitees and/or contractors.
(b) Neither Sublandlord, nor its agents, partners, employees or
contractors shall be liable for any accident, injury (including death), loss or
damage resulting to any person or property sustained by Subtenant or
Subtenant's agents, employees, contractors or invitees, or any occupant of the
Building or anyone claiming by or through them and resulting from any defect in
the Building or the Subleased Premises, or in any equipment or appurtenance in
the same, or resulting from any accident or occurrence in or about the Building
or the Subleased Premises, or resulting directly or indirectly from any acts of
negligence of any tenant or other occupant of Building, or of any person or
entity whatsoever. All property of Subtenant or Subtenant's agents, employees,
contractors and invitees, or of any occupant or user of the Subleased Premises
shall be at the risk of Subtenant or such other person or entity only, and
Sublandlord shall not be liable for any damage thereto.
9. Default by Subtenant. In the event of the breach by Subtenant of any of
the terms, provisions, covenants, conditions or agreements of this Sublease
Agreement, or of the Base Lease, Sublandlord shall have all the rights of the
Landlord under the Base Lease and Subtenant shall be subject to all provisions
thereof respecting the Subtenant under the Base Lease.
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10. Notices. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed given and delivered, whether or not received,
when personally delivered by the other party or its designated agent or courier
service, or, if sent by mail, when deposited in the United States Mail, postage
prepaid and properly addressed, certified mail, return receipt requested, at
the following addresses: (i) To Sublandlord: American President Lines, 2021
Spring Road, Suite 300, Oak Brook, Illinois 60523, Attention: Mr. Neal West,
and to Paul R. Diamond, Holleb & Coff, 55 East Monroe Street, Suite 3900,
Chicago, Illinois 60603 or such other addresses as Sublandlord shall designate
by written notice to Subtenant; and (ii) To Sub-tenant: Mr. Greg Apple at the
address of the Subleased Premises after the Commencement Date and at 1917 South
Highland, Lombard, Illinois 60148 prior to the Commencement Date, or such other
address as Subtenant shall designate by written notice to Sublandlord.
11. Condition Precedent. This Sublease, and the rights and obligations of
all parties hereto, are subject to the condition precedent of the consent of
such Landlord to the making of this Sublease Agreement.
12. Holding Over. Notwithstanding anything contained in the Base Lease to
the contrary, for each month or portion thereof Subtenant retains possession of
the Subleased Premises, or any portion thereof, after the expiration or
termination of this Sublease, Subtenant shall pay Sublandlord one hundred fifty
percent (150%) of the most recent Monthly Gross Rent, and Subtenant shall also
pay all damages sustained by Sublandlord by reason of such retention of
possession. The provisions of this Paragraph shall not constitute a waiver by
Sublandlord of any re-entry rights of Sublandlord herein or by law provided.
13. Real Estate Brokers. Subtenant represents that Subtenant has not dealt
with any real estate brokers, sales persons, or finders in connection with this
Sublease other than Trammell Crow Company and BKB Commercial and no other
persons initiated or participated in the negotiation of this Sublease, or
showed the Subleased Premises to Subtenant. Subtenant hereby agrees to
indemnify, defend and hold harmless Sublandlord from and against any and all
liabilities and claims for commissions and fees arising out of a breach of the
foregoing representation.
14. Late Charges. Notwithstanding anything contained in the Base Lease to
the contrary, all payments due from Subtenant to Sublandlord that are
delinquent by five (5) days or more (i) shall bear interest at twelve percent
(12%) per annum or the maximum rate permitted by law, and (ii) Subtenant shall
pay a flat late charge of five percent (5%) of the delinquent rent.
15. Sublandlord's Right to Perform Subtenant's Duties. Notwithstanding
anything contained in the Base Lease, if Subtenant fails to timely perform any
of its duties under this Sublease, Sublandlord shall have the right (but not
the obligation), to perform such duty on behalf and at the expense of Subtenant
without further prior notice to Subtenant, and all sums expended or expenses
incurred by Sublandlord in performing such duty shall be deemed to be rent
under this Sublease and shall be due and payable upon demand by Sublandlord,
together with an administration charge of fifteen percent (15%) of the amounts
so expended.
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16. Cross-Default. Any default by Subtenant under this Sublease shall
constitute a default by Subtenant under any other lease, sublease or other
rental arrangement with Sublandlord for space in the Building. Any default by
Subtenant under any other lease, sublease or rental arrangement with
Sublandlord for space in the Building shall constitute a default by Subtenant
under this Sublease.
17. Furniture. Sublandlord and Subtenant agree that Sublandlord shall
leave all of the furniture presently located in the Subleased Premises.
Sublandlord and Subtenant have entered into that certain Furniture Sale and
Purchase Agreement dated of even date herewith with respect to the purchase and
sale of said furniture, the form of which Agreement is attached hereto as
Exhibit B.
18. Recording. Neither Sublandlord nor Subtenant shall record this
Sublease; provided, however if Sublandlord requests, the parties shall execute
and acknowledge a short form of sublease for recording purposes which shall be
recorded at Sublandlord's expense.
19. Joint Effort. The preparation of this Sublease has been a joint effort
of the parties hereto and the resulting document shall not, solely as a matter
of judicial construction, be construed more severely against one of the parties
than the other.
20. Calculation of Time. Unless specifically stated otherwise, any
reference herein to a specific period of days shall be interpreted as a
reference to calendar days; provided, however, that if such period would
otherwise end on a Saturday, Sunday or generally recognized holiday, then the
period shall be deemed to end on the following day.
21. Partial Invalidity. If any term, covenant or condition of this
Sublease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Sublease or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable shall not be
affected thereby and each term, covenant or condition of this Sublease shall be
valid and be enforced to the fullest extent permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Sublease
Agreement the day and year first above written.
Sublandlord: Subtenant:
APL LAND TRANSPORT SERVICES, INC. VASCO Corp.
By: ________________________ By: ____________________
Its: ________________________ Its: ____________________
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EXHIBIT A
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EXHIBIT B
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FURNITURE SALE AND PURCHASE AGREEMENT
THIS FURNITURE SALE AND PURCHASE AGREEMENT (this "Agreement") is dated as
of the 9th day of July, 1997, by and between APL LAND TRANSPORT SERVICES, INC.
("Seller"), and VASCO CORP. ("Purchaser").
R E C I T A L S:
WHEREAS, Seller and Purchaser are entering into that certain Sublease
Agreement dated as of even date herewith (the "Sublease"), pursuant to which
Purchaser is subleasing from Seller a certain portion of Seller's office space
in Oakbrook Terrace, Illinois (the "Subleased Premises"); and
WHEREAS, As part of the Sublease, Seller desires to sell, transfer and
assign to Purchaser, and Purchaser wishes to purchase from Seller, all of the
furniture listed on Schedule 1 attached hereto and made a part hereof
(collectively, the "Purchased Assets"), upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants, warranties, representations and conditions contained in this
Agreement, the parties hereto hereby agree as follows:
1. Sale and Purchase of Purchased Assets.
(a) Purchased Assets. On the terms and subject to the conditions contained
herein, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase
from Seller, as of the date hereof, all of Seller's right, title and interest
in and to all of the Purchased Assets.
(b) Transfer of Title to Purchased Assets; Possession of Purchased Assets
Prior to Final Payment. Title to the Purchased Assets shall pass from Seller to
Purchaser as of the Commencement Date under the Sublease. At such time (the
"Purchase Date"), Seller shall sell, assign, transfer, convey and deliver to
Purchaser all of the Purchased Assets by bills of sale, assignments,
endorsements and other good and sufficient instruments of transfer necessary to
vest in Purchaser good, complete and indefeasible title to the Purchased
Assets.
2. Purchase Price for Purchased Assets.
(a) Purchase Price. The total purchase price for the Purchased Assets
shall be an amount equal to Fifteen Thousand Dollars ($15,000.00) (the
"Purchase Price").
(b) Payment of Purchase Price. Purchaser shall pay the Purchase Price to
Seller upon Purchaser's execution of this Agreement.
(c) Allocation of Purchase Price. Purchaser and Seller agree that the
Purchase Price shall be allocated among the Purchased Assets for all purposes,
including the filing of all tax returns and
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Internal Revenue Service Form 8594, in the manner determined by Seller.
Each party will promptly notify the other if the Internal Revenue Service or
any other taxing authority proposes to reallocate the Purchase Price other than
as determined by Seller.
3. Seller's Representation as to Title. Seller has, on the date hereof,
good and marketable title to all of the Purchased Assets, free and clear of any
security interest, mortgage, lien, charge, restriction, encumbrance,
conditional sale agreement, claim, pledge or right of any party (collectively,
"Liens"). THE PURCHASED ASSETS TO BE CONVEYED HEREUNDER SHALL BE SOLD BY SELLER
AND ACCEPTED BY PURCHASER ON AN "AS IS, WHERE IS" BASIS, AND, EXCEPT AS
OTHERWISE SPECIFICALLY SET FORTH HEREIN, SELLER MAKES NO REPRESENTATION OR
WARRANTY WITH RESPECT TO THE PURCHASED ASSETS, INCLUDING, WITHOUT LIMITATION,
WITH RESPECT TO THE QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF ANY SUCH ITEMS.
4. Miscellaneous.
(a) Entire Agreement; Amendment. This Agreement and any others referred to
herein constitute the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof and thereof, and supersede all prior
and contemporaneous negotiations, undertakings and agreements, written or oral,
between the parties. No representation, inducement, agreement, promise,
understanding or waiver altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validly executed by both parties hereto.
(b) Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns. This Agreement shall not be
assignable by Purchaser without the prior written consent of Seller.
(c) Notices. Any notice, request, instruction or other communication to be
given hereunder by any party hereto shall be in writing and shall be deemed to
have been duly given on the date of delivery, provided delivery is actually
tendered at the appropriate address, addressed to the persons identified below
(i) in person, or (ii) by courier service, or (iii) by facsimile copy (with
original copy mailed the same day), or (iv) three (3) calendar days after
deposit in the mail by first class certified mail, postage prepaid, return
receipt requested, all addressed as set forth below:
If to Seller, to: American President Lines
2021 Spring Road
Suite 300
Oak Brook, Illinois 60523
Attention: Mr. Neal West
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with copies to: Paul R. Diamond, Esq.
Holleb & Coff
55 East Monroe Street, Suite 3900
Chicago, Illinois 60603
If to Purchaser, to: VASCO Corp.
1917 South Highland
Lombard, Illinois 60148
Attention: Mr. Greg Apple
with a copy to: Dennis V. Composto, Esq.
Laidley Sutter & Porter
339 North Milwaukee Avenue
Libertyville, Illinois 60048-2249
or to such other person or persons at such address or addresses as may be
designated by written notice to the other party pursuant to this Section 4(c).
(d) Waivers. No delay on the part of any party in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any waiver of
any right, power or privilege operate as a waiver of any other right, power or
privilege, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof or of any other right,
power or privilege. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies which the parties otherwise may
have at law or in equity.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Furniture
Sale and Purchase Agreement to be executed on its behalf by its duly authorized
representative as of the date first written above.
PURCHASER:
VASCO CORP.
By: _________________________________
Its: ________________________________
SELLER:
AMERICAN LAND TRANSPORT SERVICES, INC.
By: _________________________________
Its: ________________________________
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<PAGE> 15
SCHEDULE 1
Purchased Assets
<PAGE> 1
EXHIBIT 10.9
OFFICE LEASE
BASIC LEASE PROVISIONS
BUILDING AND ADDRESS:
St. Regis Office Center
1919 South Highland Avenue
Lombard, Illinois 60148
LANDLORD AND ADDRESS:
LaSalle National Bank, not personally, but as Trustee under Trust Agreement
dated September 1, 1977 and known as Trust member 53107
c/o Anvan Realty & Management Company
Managing Agent for Beneficiary of LaSalle Trust 53107
1919 South Highland Avenue, Suite 230-A
Lombard, Illinois 60148
TENANT AND ADDRESS:
VASCO - Value Added Systems Corp., an Illinois corporation
240 East Lake Street, Suite 200
Addison, Illinois 60101
Attention: Mr. Kendall Hunt, President
DEMISED PREMISES AND BUILDING NO. : 118-C (Per Exhibit A)
DATE OF LEASE: 7/22/85
LEASE TERM:
Five years; provided, however, that Tenant shall have the option to terminate
the Lease Term effective as of any date after July 31, 1988 (the effective date
of termination is hereinafter referred to as the :Effective Date"), which
option shall be exercisable by Tenant by delivering to Landlord, not less than
six months prior to the Effective Date:
(1) a written notice of Tenant's election to terminate specifying the
Effective Date of termination; and
(2) (a) the payment of $30,232.50 if the Effective Date is on or prior to
July 31, 1989, or
(b) the payment of $20,155.00 if the Effective Date is on or after
August 1, 1989.
COMMENCEMENT DATE OF LEASE TERM: August 1, 1985
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EXPIRATION DATE OF LEASE TERM: July 31, 1990
BASE RENT: (Subject to Adjustments as hereinafter provided) :
$60,465 for each of the first five (5) years of the Lease Term, ($15.00 per
square foot per annum) payable in installments of $5,038.75 each calendar month
thereof starting on the Commencement Date. Base Rent for the first twelve
calendar months of the Lease Term (August, 1985 through July, 1986) shall be
abated by Landlord; provided, however, that, except for aid twelve month Base
Rent abatement, Tenant shall be required to pay to Landlord any and all other
amounts which Tenant is obligated to pay to Landlord under the terms of this
Lease including amounts accrued and/or due and owing during the first twelve
months of the Lease Term.
ELECTRICITY ALLOCATION: In addition to the Base Rent, is the amount of $1.28
per square foot per annum ($429.97 per month), which Landlord has allocated for
furnishing lighting and incidental electricity to the Demised Premises pursuant
to the provisions of Section 3(b) hereof.
TENANT'S PROPORTION (for purposes of Section 2): 2.815% (it being understood
that the Rentable Area of the Building is 143,197 square feet and the Rentable
Area of the Demised Premises is 4031 square feet.
SECURITY DEPOSIT: See paragraph 23
BROKER(S) & ADDRESS(ES):
Frain, Camins & Swartchild
179 West Washington
Suite 505
Chicago, Illinois 60602
Each reference in this Lease to any of the Basic Lease Provisions set forth
above shall be deemed and construed to incorporate all of the terms provided
under such Basic Lease Provision.
The following exhibits attached to this Lease are incorporated in this Lease by
this reference and are to be construed as a part of this Lease to the same
extent as if set out in full herein:
EXHIBIT A - Plan of Demised Premises
EXHIBIT B - Legal Description of Real Property
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1. LEASE OF PREMISES: BASE RENT. Landlord hereby leases to Tenant, and
Tenant accepts the Demised Premises for the Lease Term, unless sooner
general offices and no other purpose, subject to the agreements herein
contained. Tenant shall pay the Base Rent to Landlord at its address set
forth above, in equal monthly installments in advance on or before the
first day of each month of the Lease Term, except as hereinabove provided.
All such Rent shall be paid without any set off, counterclaim or
deduction whatsoever. Unpaid Rent shall bear interest at the rate set
forth in Section 24(f) from the date due until paid. Time is of the
essence of this Lease. Tenant agrees to do and perform each and every
covenant, agreement and obligation to be performed by Tenant hereunder.
If the Lease Term terminates other than on the last day of any calendar
month, the Base Rent for such month shall be appropriately prorated on a
per diem bases.
2. BASE RENT ADJUSTMENT. The Base Rent shall be adjusted "Rent
Adjustment") in accordance with the provisions of this Section 2.
A. "Rentable Area of the Demised Premises", as used herein, shall be
computed by measuring from the inside edge of the exterior glass walls
to the office side of corridors and/or other permanent partitions, and
to the center of partitions that separate the Demised Premises from
adjoining rentable areas and shall include a proportionate share of
lobby, public corridors, public toilets, vending areas, air
conditioning rooms, fan rooms, janitors' closets, electrical closets
and telephone closets on each floor, but shall not include stairs,
elevator shafts, flues, stacks, pipe shafts and vertical ducts with
their enclosing walls. "Rentable Area of the Building", as used
herein, shall be the sum of rentable areas on all office floors. The
rentable area of each floor shall be computed by measuring to the
inside finish of exterior glass walls, and shall include all the area
within the exterior glass walls, but not including stairs (except for
stairs specially designed for the use of a particular tenant), elevator
shafts, flues, stacks, pipe shafts and vertical ducts with their
enclosing walls. In computing rentable area, no deduction shall be
made for columns and projections necessary to the Building.
B. "Base Year", as used herein, shall be the twelve-month period
commencing January 1st, 1985 and ending on December 31st, 1985, and
"Comparison Year", as used herein, shall be those respective
twelve-month periods commencing January 1st, 1986, and each successive
corresponding twelve-month period thereafter which commences during the
term of this Lease.
C. (1) In the event that the amount of taxes, as defined in this
Section 2.C. ("Taxes"), attributable to any year of the Lease Term,
shall be greater than the amount of Taxes attributable to the Base
Year, then Tenant shall pay to Landlord, as additional Rent, an amount
equal to Tenant's proportion of such increase. The amount of Taxes
attributable to the Base Year and to subsequent years shall be the
amount payable during any such year, even though the assessment for
such Taxes may be for a different year.
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(2) The term "Taxes" shall mean real estate taxes, assessments, sewer
rents, rates and charges, transit taxes, taxes based upon the receipt of
rent, any other federal, state or local governmental charge, general,
special, ordinary or extraordinary (but not including income or franchise
taxes or any other taxes imposed upon or measured by the Landlord's
income or profits, unless the same shall be imposed in lieu of real
estate taxes), which may now or hereafter be levied or assessed against
the land owned by Landlord upon which the Building stands and upon the
Building, and related parking and other areas, hereinafter collectively
known as "Real Property" and legally described on Exhibit "B". In case
of special Taxes or assessments which may be payable in installments,
only the amount of each installment paid during a year shall be included
in Taxes for that year. Taxes shall also include any personal property
taxes (attributable to the year in which paid) imposed upon the
furniture, fixtures, machinery, equipment, apparatus, systems and
appurtenances used in connection with the Real Property for the operation
thereof. In the event that the Real Property is not assessed as fully
improved for the Base Year or for any subsequent year, then for the
purposes of this Section 2, the Taxes payable in each such year shall be
adjusted to the Taxes for which would have been payable in each such year
if the assessment of the Real Property had been made on a fully improved
basis.
(3) If the tax year for real estate taxes shall be changed by the
applicable governmental authority resulting in the payment by the
Landlord in one year of Taxes which relate to more than one year, then
notwithstanding anything to the contrary contained in this Lease, for
purposes determining the Base Year Taxes for such year, such amount of
Taxes paid shall be adjusted to an amount which is equivalent to a
one-year payment of Taxes.
D. (1) In the event that the amount of Expenses, as defined in
Section 2.D.(2), the attributable to any year of the Lease Term shall
be greater than the amount of Expenses attributable to the Base Year,
Tenant shall pay to the Landlord as additional rent an amount equal to
Tenant's proportion ("Tenant's Proportion") of such increase.
(2) For the purpose of this Section 2.D., the term "Expenses" shall mean
and include those expenses paid or incurred by the Landlord for
maintaining, operating and repairing the Real Property and the personal
property used in conjunction herewith (hereinafter collectively known as
"Project"), the cost of electricity, steam, water, fuel, heating,
lighting, snow removal, striping and maintenance of the parking lot,
landscaping, air-conditioning, window cleaning, janitorial service,
insurance, including, but not limited to, fire, extended coverage, in
workmen's compensation, elevator, or any other insurance carried in good
faith by the Landlord and applicable to the Project, painting, uniforms,
customary management fees, supplies, sundries, sales or use taxes on
supplies or services, costs of wages and salaries of all persons engaged
in the operation, maintenance and repair of the Project, and so-called
fringe benefits, including social security
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taxes, unemployment insurance taxes, costs for providing coverage for
disability benefits, costs of any pensions, hospitalization, welfare or
retirement plans, or any other similar or like expenses incurred under
the provisions of any collective bargaining agreement, or any other costs
or expenses which the Landlord pays or incurs to provide benefits for
employees so engaged in the operation, maintenance and repair of the
Project, the charges for any independent contractor who, under the
contract with the Landlord or its representatives, does any of the work
of operating, maintaining or repairing of the Project, current
amortization of capital improvements made after completion of
construction of the Building which are reasonably necessary for the
operation and maintenance of the Building, legal and accounting expenses,
including but not limited to, such expenses as relate to seeking or
obtaining reductions in and refunds of real estate taxes, or any other
expense or charge, whether or not hereinbefore mentioned, which are in
accordance with generally accepted accounting and management principles,
would be considered as an expense of maintaining, operating or repairing
the Project. If the Building is not fully rented during all or portion
of the year, Base or subsequent, then Landlord shall elect to make an
appropriate adjustment of the Expenses for such year employing sound
accounting and management principles, to determine the amount of expenses
that would have been paid or incurred by the Landlord had the Building
been fully rented, and the amount so determined shall be deemed to have
been the amount of Expenses for such year. If any Project expense,
though paid in one year, relates to more than one year, such expenses
shall be proportionately allocated among such related years. The term
"Expenses" shall not include (x) the cost of alterations to the Demised
Premises; and (y) depreciation, interest and principal payments on
mortgages and other debt costs, if any, real estate broker's leasing
commissions or compensation, and any cost or expenditure or portion
thereof for which Landlord has been reimbursed, whether by insurance
proceeds or otherwise.
E. (1) In the event that the Consumer Price Index, as defined in
Section 2.E.(2), for January 1st of the Base Year, shall be less than
the Consumer Price Index for January 1st of any succeeding Comparison
Year during the Lease Term, then Tenant shall pay to Landlord, as
additional rent, Thirty-Five (35%) Percent of the annual Base Rent due
during the Lease Term multiplied by the percentage of increase by which
the Consumer Price Index in such succeeding Comparison Year(s) exceeds
the Consumer Price Index for the Base Year (not in excess of 2-1/2% of
the Base Rate per annum of the Demised Premises in any one year).
(2) For the purpose of this Section 2.E., the term "Consumer Price Index"
means the Consumer Price Index for City of Chicago, All Items (Base Year
1967) - Urban Wage Earners & Clerical Workers, of the United States
Bureau of Labor Statistics.
(3) If the manner in which such Consumer Price Index is determined by the
Bureau of Labor Statistics shall be substantially revised, an adjustment
shall be
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made in such revised index, which would produce results
equivalent, as nearly as possible, to those which would have been
obtained if the Consumer Price Index had not been so revised.
(4) If the Consumer Price Index shall become unavailable to the public
because publication is discontinued or otherwise, Landlord will
substitute therefor, a comparable index based upon changes in the cost of
living or purchasing power of the consumer dollar published by any other
governmental agency or, if no such index shall be available, then a
comparable index published by a major bank or other financial institution
or by a university or a recognized financial publication.
F. Prior to effecting any Rent Adjustments, Landlord will furnish to
Tenant, a statement showing the following:
(1) The Expenses, Taxes and Consumer Price Index for the immediately
preceding Comparison Year and Landlord's reasonable estimates, forecasts
or projections (the "Projections") of the Expenses, Taxes and Consumer
Price Index for the then current Comparison Year;
(2) The Expenses, Taxes and Consumer Price Index for the Base Year;
(3) (a) the amount of Rent Adjustment paid to the Landlord
during the immediately preceding Comparison Year;
(b) to the extent that the Landlord has actual knowledge at the time
that it prepares the statement, the amount of the Rent Adjustment
that should have been paid to the Landlord during the immediately
preceding Comparison Year based upon the actual amounts of Expenses;
Taxes and Consumer Price Index for said Comparison Year; and
(c) the amount set forth in paragraph (b) above minus the amount set
forth in paragraph (a) above (the "Correction Amount").
(4) The amount of Rent Adjustment to be paid during the then
current year based upon the Projections and the Correction Amount.
Said amount of Rent Adjustment to be paid during said year shall be stated to
show:
(5) The Correction Amount, which if a positive number, shall be
paid by Tenant to Landlord in a lump sum within thirty (30) days
after the Landlord shall have submitted the statement, and, if a
negative number, shall be credited to Tenant's account and reduce
the amount of rent subsequently due and owing from Tenant to
Landlord under this Lease; and
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(6) the amount for the then current Comparison Year (based upon
the Projections) to be paid in equal monthly installments on the
first day of each month during said Comparison Year in the same
manner as provided for the Base Rent.
G. The Tenant or its representative shall have the right to examine
the Landlord's books and records with respect to the items in the
foregoing statement of Expenses and Taxes during normal business hours
at any time within ten (10) days following the furnishing by the
Landlord to the Tenant of such statement. Unless the Tenant shall take
written exception to any item within thirty (30) days after the
furnishing of the foregoing statement, such statement shall be
considered as final and accepted by the Tenant.
H. If the first year of the Lease Term commences on any day other than
the first day of January, or if the last year of the term of this Lease
ends on any day other than the last day of December, any payment due to
the Landlord by reason of any increase in Taxes, Expenses or Consumer
Price Index shall be prorated, and the Tenant shall pay any amount due
to the Landlord within thirty (30) days after being billed therefor.
This covenant shall survive the expiration or termination of this
Lease.
3. SERVICES. The Landlord, as long as the Tenant is not in default under
any of the covenants of this Lease, shall furnish:
A. Heating and air-conditioning when necessary for normal comfort, as
per Section 12 of Building Standards, in the Demised Premises from
8:00 A.M. to 6:00 P.M., Monday through Friday of each week, and from
8:00 A.M. to 1:00 P.M. on Saturdays (exclusive of national holidays)
except as may be otherwise required by governmental authority. Tenant
will be charged for all heating and air-conditioning requested and
furnished prior to or following these hours at reasonable rates to be
established by the Landlord.
B. Electric wiring system in Premises connected with the source of
alternating current. Tenant shall pay the Landlord for the electricity
used by Tenant, including electricity used during janitor service,
alteration or repairs in and to the Premises in accordance with the
Electricity Allocation set forth in the Basic Lease Provisions on page
3 of this Lease. The Electricity Allocation is based on a five (5) day
week electrical lighting use; any additional use of lighting,
appliances and/or office equipment will be billed at a rate to be
determined by the Commonwealth Edison Company. If in the judgment of
Landlord, the requirement for electrical services for the Premises
necessitates modification of the electric service supply system in and
to Premises or Building, Landlord reserves the right to perform such
modification and the cost thereof shall be paid by Tenant to Landlord
at the time of completion of such modification. Any increased expense
in maintaining the system resulting, in Landlord's opinion, from such
modification and any increased expense in operating the system
resulting
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from such modification shall be paid for by Tenant. Tenant
shall be responsible for performing all such maintenance unless, in the
exercise of its right thereby expressly reserved, Landlord elects to
perform part or all of such maintenance. Landlord shall not be liable
for the stoppage or interruption of any services or utilities caused by
riots, civil commotion, necessary repairs, strikes, lockouts, labor
controversies, accidents, inability to obtain fuel or supplies or other
causes or conditions beyond Landlord's control.
C. Cold water in common with other tenants from Village of Lombard
mains for drinking, lavatory and toilet purposes drawn through fixtures
installed with Landlord's prior written consent, and hot water in
common with other tenants for lavatory purposes from regular Building
supply. Tenant shall pay Landlord as additional rent at rates fixed by
Landlord (not to exceed rates for like uses charged by the Village of
Lombard) for water furnished for any other purpose. Tenant shall not
waste or permit the waste of water. If Tenant fails to pay within five
(5) days after request by Landlord, Landlord's charges for water, then
Landlord, upon not less than ten (10) days' notice, may, in addition to
any other remedy provided in this Lease, discontinue furnishing that
service and no discontinuance shall be deemed an eviction or
disturbance of Tenant's use of the Demised Premises or render Landlord
liable for damages or relieve Tenant from any obligation.
D. Janitor service and customary cleaning in and about the Demised
Premises, Saturdays, Sundays and holidays excepted. Tenant shall not
provide any janitor services or cleaning without the Landlord's written
consent and then only subject to supervision by Landlord and at
Tenant's sole responsibility, and by janitor or cleaning contractor or
employees at all times satisfactory to Landlord.
E. Passenger elevator service in common with Landlord and other
tenants, Monday through Friday from 8:00 A.M. to 6:00 P.M., Saturdays
to 1:00 P.M., holidays excepted. Such normal elevator service, if
furnished at other times shall be optional with Landlord and shall
never be deemed a continuing obligation. Landlord, however, shall
provide limited passenger elevator service daily at all times such
normal passenger service is not furnished. Operatorless automatic
elevator service shall be deemed "elevator service" within the meaning
of this paragraph.
F. Tenant shall make no alteration or addition to the electric
equipment and/or appliances without the prior written consent of the
Landlord in each instance. Landlord will supply and install, at
Tenant's expense and upon Tenant's request, all lamps, bulbs, ballast
and starters used in the Demised Premises after initial installation
thereof. Tenant covenants and agrees that at all times its use of
electric current shall never exceed the capacity of the feeders to the
Building or the risers or wiring installation.
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G. Window washing of all windows in the Demised Premised, both inside
and out, at such times as shall be required in the Landlord's
reasonable judgment.
H. The Landlord does not warrant that any of the services
above-mentioned or the performance of any other duty or obligation by
Landlord under this Lease will be free from interruptions caused by
war, insurrection, civil commotion, riots, acts of God or the enemy
governmental action, repairs, renewals, improvements, alterations,
strikes, lockouts, picketing, whether legal or illegal, accidents,
inability of the Landlord to obtain fuel or supplies or any other cause
or causes beyond the reasonable control of the Landlord. Any such
interruption of service shall never be deemed an eviction or
disturbance of the Tenant's use and possession of the Demised Premises
or any part thereof, or render the Landlord, liable to the Tenant for
damages, or relieve the Tenant from performance of the Tenant's
obligations under this Lease.
4. CONDITIONS OF PREMISES. The Tenant's execution of this Lease shall be
conclusive evidence as against the Tenant that the Tenant has inspected
the Demised Premises and found that the Demised Premises are in good order
and satisfactory condition and that the Tenant will accept the Premises
"as is" except for Landlord's obligation to paint and clean carpet set
forth below. No promise of the Landlord to alter, remodel, decorate, clean
or improve the Demised Premises or the Building and no representation
respecting the condition of the Demised Premises or the Building have been
made by the Landlord to the Tenant, unless the same is contained herein,
or made a part hereof, or in a written document signed by the Landlord or
its property. Landlord shall paint the Demised Premises and clean the
carpet in the Demised Premises prior to Tenant taking possession thereof.
5. FAILURE TO GIVE POSSESSION. If the Landlord shall be unable to give
possession of the Demised Premises on the Commencement Date of the Lease
Term by reason of any of the following: (i) the Building has not been
sufficiently completed to make the Demised Premises ready for occupancy,
(ii) the Landlord has not cleaned the carpet in or painted the Demised
Premises, (iii) the Landlord is unable to give possession of the Demised
Premises by reason of the holding over or retention of possession of any
tenant, tenants or occupants, or (iv) for any other reason, Landlord shall
not be subject to any liability for the failure to give possession on said
date. Under such circumstances, the rent reserved and covenanted to be
paid herein shall be extended until the date the Demised Premises are
available for occupancy by Tenant, and no such failure to give possession
on the Commencement Date shall affect the validity of this Lease or the
obligation of the Tenant hereunder; provided, however, that the Expiration
Date of the Lease Term shall be extended for the same number of days. If
the Demised Premises are ready for occupancy prior to the Commencement
Date and Tenant occupies the Demised Premises prior to said date, Tenant
shall pay rent for the period of occupancy prior to the Commencement Date
at the proportionate rental to be Rent reserved herein. The Demised
Premises shall not be deemed to be unready for Tenant's occupancy or
incomplete if only
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minor or insubstantial details of construction, decoration or mechanical
adjustments remain to be done in the Demised Premises or any part
thereof, or if the delay in the availability of the Demised Premises for
occupancy shall be due to special work, changes, alterations or additions
required or made by the Tenant in the layout or finish of the Demised
Premises or any part thereof or shall be caused in whole or in part by
Tenant through the day of Tenant in submitting plans, supplying
information, approving plans, specifications or estimates, giving
authorizations or otherwise or shall be caused in whole or in part by
delay and/or default on the part of the Tenant and/or its subtenant or
subtenants. In the event of any dispute as to whether the Demised
Premises are ready for Tenant's occupancy, the decision of the Landlord's
architect shall be final and binding on the parties.
6. USE OF PREMISES. The Tenant shall occupy and use the Demised Premises
during the Lease Term for the purpose above specified and none other and:
A. the Tenant will not make or permit to be made any use of the
Demised Premises which, directly or indirectly, is forbidden by public
law, ordinance or governmental regulation or which may be dangerous to
persons or property or which may invalidate or increase the premium
cost of any policy of insurance carried on the Building or covering its
operations; the Tenant shall no do, or permit to be done, any act of
thing upon the Demised Premises which will conflict with fire insurance
policies covering the Building. The Tenant, at its sole expense, shall
comply with all rules, regulations or requirements of the Illinois
Inspection and Rating Bureau, or any other similar body, and shall not
do, or permit anything to be done, upon said Demised Premises, or bring
or keep anything thereof in violation of rules, regulations or
requirements of the Fire Department, Illinois Inspection and Rating
Bureau, Fire Insurance Rating Organization or other authority having
jurisdiction and then only in such quantity and manner of storage as
not to increase the rate of fire insurance applicable to the Building;
B. any sign installed in the Demised Premises shall be installed by
Landlord at Tenant's cost and in such manner, character and style as
Landlord may approve in writing;
C. the Tenant shall not advertise the business, profession or
activities of the Tenant conducted in the Building in any manner which
violates the letter of spirit of any code of ethics adopted by any
recognized association or organization pertaining to such business,
profession or activities, and shall not use the name of the Building
for any purpose other than that of business address of the Tenant, and
shall never use any pictures or likeness of the Building in any
circulars, notices, advertisements or correspondence without the
Landlord's express consent in writing;
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D. the Tenant shall not obstruct, or use for storage, or for any
purpose other than ingress and egress, the sidewalks, entrances,
passages, courts, corridors, vestibules, halls, elevators and stairways
of the Building;
E. no bicycle or other vehicle and no dog or other animal or bird
shall be brought or permitted to be in the Building or any part
thereof;
F. the Tenant shall not make or permit any noise or odor that is
objectionable to other occupants of the Building to emanate from the
Demised Premises, and shall not crate or maintain a nuisance thereon,
and shall not disturb, solicit or canvass any occupant of the Building,
and shall not do any act tending to injure the reputation of the
Building;
G. the Tenant shall not install any musical instrument or equipment in
the Building, or any antennae, aerial wires or other equipment inside
or outside the Building, without in each and every instance, prior
approval in writing by the Landlord. The use thereof, if permitted,
shall be subject to control by the Landlord to the end that others
shall not be disturbed or annoyed;
H. the Tenant shall not waste water by tying, wedging, or otherwise
fastening open any faucet;
I. no additional locks or similar devices shall be attached to any
door. No keys for any door other than those provided by the Landlord
shall be made. If more than two keys for one lock are desired by the
Tenant, the Landlord may provide the same upon payment by the Tenant.
Upon termination of this Lease, or of the Tenant's possession, the
Tenant shall surrender all keys of the Demised Premises and shall make
known to the Landlord the explanation of all combination locks on
safes, cabinets and vaults;
J. the Tenant shall be responsible for the locking of doors in and to
the Demised Premises. Any damage resulting from neglect of this clause
shall be paid for by the Tenant;
K. if the Tenant desires telegraphic, telephonic, burglar alarm or
signal service, the Landlord will, upon request, direct where and how
connections and all wiring for such service shall be introduced and
run. Without such direction, no boring, cutting or installation of
wires or cables is permitted;
L. shades, draperies and other forms of inside window coverings must
be of such shape, color and material as approved by the Landlord;
M. the Tenant shall not overload any floor. Safes, furniture and all
large articles shall be brought through the Building and into the
Demised Premises at such times and in such times and manner as the
Landlord shall direct and at the Tenant's sole risk
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and responsibility. The Tenant shall list all furniture, equipment and
similar articles to be removed from the Building, and the list must be
approved at the Office of the Building or by a designated person before
building employees will permit any articles to be removed;
N. unless the Landlord gives advance written consent in each and every
instance, the Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigeration or heating device
or air-conditioning apparatus in or about the Demised Premises, or
carry on any mechanical business therein, or use the Demised Premises
for housing accommodations or lodging or sleeping purposes, or do any
cooking therein or install or permit the installation of any vending
machines, or use any illumination other than electric light, or use or
permit to be brought into the Building any inflammable oils or fluids,
such as gasoline, kerosene, naptha and benzine, or any explosive or
other articles hazardous to persons or property;
O. the Tenant shall not place or allow anything to be placed against
or near the glass partitions or doors of the Demised Premises which may
diminish the light in , or be unsightly from, public halls or
corridors;
P. the Tenant shall not install in the Demised Premises any equipment
which uses a substantial amount of electricity without advance written
consent of the Landlord. The Tenant shall be ascertain from the
Landlord, the maximum amount of electrical current which can safely be
used in the Demised Premises, taking into account the capacity of the
electric wiring in the Building and the Demised Premises and the needs
of other tenants in the Building and shall not use more than such safe
capacity. The Landlord's consent to the installation of the electric
equipment shall not relieve the Tenant from the obligation not to use
more electricity than such safe capacity; and
Q. in addition to all other liabilities for breach of any covenant of
this Section, the Tenant shall pay to the Landlord all damages caused
by such breach and shall also pay to the Landlord, as additional rent,
any amount equal to any increase in insurance premium or premiums
caused by such breach. Any violation of this Section 6 may be
restrained by injunction. The Tenant shall be liable to the Landlord
for all damages resulting from violation of any of the provisions of
this Section 6. The Landlord shall have the right to make such
reasonable rules and regulations as the Landlord or its agent may from
time to time to adopt on such reasonable notice to be given as the
Landlord may elect. Nothing in this Lease shall be construed to impose
upon the Landlord any duty or obligation to enforce provisions of this
Section 6 or any rules and regulations hereafter adopted, or the terms,
covenants or conditions of any other lease as against any other tenant,
and the Landlord shall not be liable to the Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
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7. CARE AND MAINTENANCE. Subject to the provisions of Section 10, the
Tenant shall, at the Tenant's own expense, keep the Demised Premises in
good order, condition and repair during the Lease Term. If the Tenant
does not make repairs promptly and adequately, the Landlord may, but need
not, make repairs, and the Tenant shall promptly pay the cost thereof.
The Tenant shall pay the Landlord for overtime and for any other expense
incurred in the event repairs, alterations, decorating or other work in
the Demised Premises are not made during ordinary business hours at the
Tenant's request.
8. ALTERATIONS. The Tenant shall not do any painting or decorating, or
erect any partitions, make any alterations in or additions to the Demised
Premises or do any nailing, boring or screwing into the ceilings, walls or
floors, without the Landlord's prior written consent in each and every
instance. Unless otherwise agreed by the Landlord and Tenant in writing,
all such work shall be performed either by or under the direction of the
Landlord, but at the cost of Tenant. The Landlord's decision to refuse
such consent shall be conclusive. If the Landlord consents to such
alterations or additions, before commencement of the work or delivery of
any materials onto the Demised Premises or into the Building, the Tenant
shall furnish the Landlord for approval:
A. plans and specifications;
B. names and addresses of contractors;
C. copies of contracts;
D. necessary permits; and
E. indemnification in form and amount satisfactory to Landlord and
certificate of insurance from all contractors performing labor or
furnishing materials, insuring against any and all claims, costs,
damages, liabilities and expenses which may arise in connection with
the alterations or additions.
Whether the Tenant furnishes the Landlord the foregoing or not, the Tenant
hereby agrees to hold the Landlord, and its beneficiaries, and their
respective agents and employees harmless from any and all liabilities of
every kind and description which may arise out of or be connected in any
way with said alterations or additions. With respect to any mechanic's
lien filed against the Demised Premises, or the Building, for work claimed
to have been furnished to the Tenant, Tenant shall either discharge such
lien record within ten (10) days thereafter, at the Tenant's expense, or
shall post a surety bond or other security with Landlord in form and
amount reasonably satisfactory to Landlord. Upon completing any
alterations or additions, the Tenant shall furnish the Landlord with
contractor's affidavits and full and final waivers of lien and receipted
bills covering all labor and materials expended and used. All alterations
and additions shall comply with all insurance requirements and with all
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ordinances and regulations of The Village of Lombard or any department or
agency thereof. All alterations and additions shall be constructed in a
good and workmanlike manner and good grades of materials shall be used.
All additions, decorations, fixtures, hardware, non-trade fixtures and all
improvements, temporary or permanent, in or upon the Demised Premises,
whether placed there by the Tenant or by the Landlord shall, unless the
Landlord request their removal, become the Landlord's property and shall
remain upon the Demised Premises at the termination of this Lease by lapse
of time or otherwise without compensation or allowance or credit to the
Tenant. If, upon the Landlord's request, the Tenant does not remove said
additions, decorations, fixtures, hardware, non-trade fixtures and
improvement, the Landlord may remove the same and the Tenant shall pay the
cost of such removal to the Landlord upon demand.
9. ACCESS TO PREMISES. The Tenant shall permit the landlord to erect, use
and maintain pipes, ducts, wiring and conduits in and through the Demised
Premises. The Landlord or Landlord's agents shall have the right to enter
upon the Demised Premises, to inspect the same, to perform janitorial and
cleaning services and to make such decorations, repairs, alterations,
improvements or additions to the Demised Premises or the Building as the
Landlord may deem necessary or desirable, and the Landlord shall be
allowed to take all material into and upon said Demised Premises that may
be required therefor without the same constituting an eviction of the
Tenant in whole or in part and the rent reserved shall in no wise abate
(except as provided in Section 10) while said decorations, repairs,
alterations, improvements or additions are being made, by reason of loss
or interruption of business of the Tenant, or otherwise. If Tenant shall
not be personally present to open and permit an entry into said Demised
Premises, at any time, when for any reason any entry therein shall be
necessary or permissible, the Landlord or Landlord's agents may enter the
same by master key, or may forcibly enter the same, without rendering the
Landlord or such agents liable therefor (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's property), and
without in any manner affecting the obligations and covenants of this
Lease. Nothing herein contained, however, shall be deemed or construed to
impose upon the Landlord any obligations, responsibility or liability
whatsoever, for the care, supervision or repair of the Building or any
part thereof, other than as herein provided. The Landlord shall also have
the right at any time, without the same constituting any actual or
constructive eviction and without incurring any liability to the Tenant
therefor, to change the arrangement and/or location of entrances or
passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building, and to close entrances,
doors, corridors, elevators or other facilities. The Landlord shall not
be liable to the Tenant for any expense, injury, loss or damage resulting
from work done in or upon, or the use of, any adjacent or nearby building,
land, street or alley.
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10. UNTENANTABILITY. If the Demised Premises or the Building are made
untenantable by fire or other casualty, Landlord may elect:
A. to terminate this Lease as of the date of the fire or casualty by
notice to the Tenant within sixty (60) days after that date, or
B. to proceed with all due diligence to repair, restore, or
rehabilitate the Building or the Demised Premises at Landlord's
expense, in which latter event this Lease shall not terminate.
In the event this Lease is not terminated pursuant to this provision, rent
shall abate on a per diem basis during the period of untenantability in
the event of the termination of this Lease pursuant to this Section, rent
shall be apportioned on a per diem basis and paid to the date of the fire
or other casualty. In the event the Demised Premises are partially
damaged by fire, or other casualty, but are not made untenantable, then
Landlord shall, accept during the last year of the Lease Term hereof,
proceed with all due diligence to repair and restore the Demised Premises
and the rent shall abate in proportion to the non-usability of the Demised
Premises during the period of untenantability. If a portion of the
Demised Premises are made untenantable as aforesaid during the last year
of the term hereof, Landlord shall have the right to terminate this Lease
as of the date of the fire or other casualty by giving written notice
thereof to Tenant within thirty (30) days after the fire or other
casualty, in which event the Rent shall be apportioned on a per diem basis
and paid to the date of such fire or other casualty.
11. EMINENT DOMAIN. If the Building, or a substantial part of the Demised
Premises, shall be lawfully taken or condemned for any public or
quasi-public use or purpose, the term of this Lease shall end upon, and
not before, the date of the taking of possession by the condemning
authority, and without apportionment of the award. Tenant hereby assigns
to the Landlord Tenant's interest in such award, if any. Current Rent
shall be apportioned as of the date of such termination. If any part of
the Building, other than the Demised Premises or not constituting a
substantial part of the Demised Premises, shall be so taken or condemned
the Landlord shall have the right to cancel this Lease upon not less than
ninety (90) days' notice prior to the date of cancellation designated in
the notice. No money or other consideration shall be payable by the
Landlord to the Tenant for the right of cancellation, and the Tenant shall
have no right to share in the condemnation award or in any judgment for
damages caused by the change of grade.
12. SUBROGATION. The parties hereto agree to use good faith efforts to have
any and all fire, extended coverage or any and all material damage
insurance which may carried endorsed with the following subrogation
clause: "This insurance shall not be invalidated should the insured waive
in writing prior to a loss any or all right of recovery against any party
for loss occurring to the property described herein.", and each party
hereto hereby waives all claims for recovery from the other party for any
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loss or damage to any of its property insured under valid and collectible
insurance policies to the extent of any recovery collectible under any
insurance, subject to the limitation that this waiver shall apply only
when it is either permitted or, by the use of such good faith efforts,
could have been so permitted by the applicable policy of insurance.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written
consent of Landlord, (i) assign this Lease or any interest hereunder; (ii)
permit any assignment of this Lease by operation of law; (iii) sublet the
Demised Premises or any part thereof; (iv) permit the use of the Demised
Premises by any parties other than Tenant, its agents and employees.
Tenant shall give Landlord written notice of any proposed assignment of
subleasing, which notice shall contain the proposed principal terms
thereof, and upon receipt of such notice, Landlord shall have the option
to cancel this Lease in the case of a proposed subleasing of all of the
Demised Premises, or if Tenant proposes to sublease less than all of the
so subleased, in which latter event, the Base Rent and Rent Adjustments
shall be adjusted on a pro-rata square foot of rentable area basis. If
Landlord wishes to exercise such option to cancel, Landlord shall, within
fifteen (15) days after Landlord's receipt of such notice from Tenant,
send to Tenant a notice so stating and, in such notice, Landlord shall
specify the date as of which such cancellation is effective, which date
shall be not less than thirty (30) and not more than ninety (90) days
after the date on which Landlord sends such notice. If Landlord does not
elect to cancel, as aforesaid, Landlord agrees not to withhold
unreasonably its consent to any proposed assignment or subletting if the
proposed assignee or sublessee (in Landlord's judgment) has a financial
condition comparable to or better than that of Tenant, has a good
reputation in the business community and agrees to use the Demised
Premises for purposes satisfactory to Landlord. No assignment of this
Lease or subletting of the Demised Premises shall be effective unless the
assignee or subtenant shall execute an appropriate instrument assuming all
of the obligations of Tenant hereunder and unless Tenant acknowledges
therein its continued liability under this Lease. Any approved sublease
shall be expressly subject to the terms and conditions of this Lease, and
Tenant shall pay Landlord on the first day of each month during the term
of the sublease, the excess of all rent and other consideration due from
the subtenant for such month over that portion of the Adjusted Monthly
Base Rent due under this Lease for said month, which is allocable on a
square footage basis to the space sublet. In the event of any approved
sublease or assignment, Tenant shall not be released or discharged from
any liability, whether past, present or future, under this Lease,
including any renewal term of this Lease.
14. WAIVER OF CLAIMS - INDEMNIFICATION. Tenant agrees that, to the extent not
prohibited by law, Landlord and its beneficiaries, officers, agents,
servants and employees shall not be liable for any damage either to person
or property or resulting from the loss of use thereof sustained by Tenant
or by other persons due to the Building or any part thereof or any
appurtenances thereof becoming out of repair, or due to the happening of
appurtenances thereof becoming out of repair, or due to the
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happening of any accident or event in or about the Building, or due to
any act or neglect of any tenant or occupant of the Building or of any
other person. This provision shall apply particularly (but not
exclusively) to damage caused by gas, electricity, snow, frost, steam,
sewage, sewer gas or odors, fire, water or by the bursting or leaking of
pipes, faucets, sprinklers and plumbing fixtures, and shall apply without
distinction as to the person whose act or neglect was responsible for the
damage and whether the damage was due to any of the causes specifically
enumerated above or to some other cause of an entirely different kind.
Tenant further agrees that all personal property upon the Demised Premises
or upon loading docks, receiving and holding areas, or freight elevators
of the Building shall be at the risk of Tenant only, and that Landlord
shall not be liable for any loss or damage thereto or theft thereof.
Without limitation of any other provisions hereof, Tenant agrees to
defend, protect, indemnify and save harmless Landlord, its beneficiaries,
officers, agents, servants and employees of and from all liability to
third parties arising out of the acts of Tenant and its servants, agents,
employees, contractors, suppliers, workmen or invitees.
Tenant agrees to indemnify and save the Landlord, its beneficiaries and
their respective agents and employees harmless against any and all
claims, demands, costs and expenses, including reasonable attorneys' fees
for the defense thereof arising from Tenant's occupancy of the Demised
Premises or from any breach or default on the part of the Tenant in the
performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to the terms of this Lease, or from any act or
negligence of Tenant, its agents, servants, employees or invitees, in or
about the Demised Premises. In case of any action or proceedings brought
against the Landlord, its beneficiaries or their respective agents or
employees by reason of any such claim, upon notice from Landlord, Tenant
covenants to defend such action of proceeding by counsel reasonably
satisfactory to Landlord.
15. MORTGAGE-GROUND LEASE. Landlord may execute and deliver a first mortgage
or first trust deed in the nature of a mortgage, both sometimes
hereinafter referred to as "Mortgage", against the Building, the Real
Property or any interest therein, and may sell and lease-back the
underlying land on which the Building is situated. If requested by the
first mortgagee or trustee or by the lessor of any ground or underlying
lease (ground lessor), Tenant will either subordinate its interest in this
Lease to said Mortgage, or ground or underlying lease or make such
interest superior and will execute such agreement or agreements as may be
reasonably required by such mortgagee, trustee or ground lessor.
IT IS FURTHER AGREED:
A. Should any Mortgage affecting the Building of the Real Property be
foreclosed or if any ground or underlying lease be terminated:
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(1) The liability of the mortgagee, trustee or purchaser at such
foreclosure sale or the liability of a subsequent owner designated as
landlord under this Lease shall exist only so long as such trustee,
mortgagee, purchaser or owner is the owner of the Building or Real
Property and such liability shall not continue or survive after
further transfer of ownership;
(2) Upon request of the mortgagee or trustee, Tenant will attorn, as
Tenant under this Lease, to the purchaser at any foreclosure sale
thereunder, or if any ground or underlying lease be terminated for any
reason, Tenant will attorn as Tenant under this Lease to the ground
lessor under the ground lease and will execute such instruments as may
be necessary or appropriate to evidence such attornment; and
(3) Tenant's right to possession of the Demised Premises shall not be
disturbed provided that Tenant is not in default in its duties and
obligations under this Lease.
B. This Lease may not be modified or amended so as to reduce the rent or
shorten the Lease Term, or so as to adversely affect in any other respect
to any material extent the rights of the Landlord, nor shall this Lease be
canceled or surrendered, without the prior written consent, in each
instance, of the ground lessor or mortgagee.
16. CERTAIN RIGHTS RESERVED TO THE LANDLORD. The Landlord reserves and may
exercise the following rights without affecting Tenant's obligations
hereunder:
A. to change the name or street address of the Building;
B. to install and maintain a sign or signs on the exterior of the
Building;
C. to have access for the Landlord and the other tenants of the
Building to any mail chutes located on the Demised Premises according
to the rules of the United States Post Office;
D. to designate all sources furnishing sign painting and lettering,
ice, drinking water, towels, coffee cart service and toilet supplies,
lamps and bulbs used on the Demised Premises;
E. during the last six (6) months of the Lease Term or any part
thereof, if during or prior to that time, the Tenant vacates the
Demised Premises, to decorate, remodel, repair, alter or
otherwise/prepare the Demised Premises for reoccupancy;
F. to retain at all times pass keys to the Demised Premises;
G. to grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building;
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H. to exhibit the Demised Premises to others and to display "For Rent"
signs on the Demised Premises;
I. to close the Building after regular working hours and on the legal
holidays subject, however, to Tenant's right to admittance, under such
reasonable regulations as Landlord may prescribe from time to time,
which may include by way of example, but not of limitation, that
persons entering or leaving the Building identify themselves to a
watchman by registration or otherwise and that said persons establish
their right to enter or leave the Building;
J. to approve the weight, size and location of safes or other heavy
equipment or articles, which articles may be moved in, about, or out of
the Building or Demised Premises only at such times and in such manner
as Landlord shall direct and in all events, however, at Tenant's sole
risk and responsibility;
K. to take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Demised
Premises or the Building, as may be necessary or desirable for the
safety, protection or preservation of the Demised Premises or the
Building or the Landlord's interests, or as may be necessary or
desirable in the operation of the Building.
The Landlord may enter upon the Demised Premises and may exercise any or all
of the foregoing rights hereby reserved without being deemed guilty of an
eviction or disturbance to the Tenant's use or possession and without being
liable in any manner to the Tenant and without abatement of rent or
affecting any of the Tenant's obligations hereunder.
17.HOLDING OVER. If the Tenant retains possession of the Demised Premises
or any part thereof after the termination of the Lease Term or any
extension thereof, by lapse of time or otherwise, the Tenant shall pay the
Landlord the monthly rent at double the rate payable for the month
immediately preceding said holding over (including increases for Expenses
and Taxes which Landlord may reasonably estimate) computed on a per-month
basis, for each month or part thereof (without reduction for any such
partial month) that the Tenant thus remains in possession, and in addition
thereto, Tenant shall pay the Landlord all damages, consequential as well
as directly sustained by reason of the Tenant's retention of possession.
Alternatively, at the election of Landlord expressed in a written notice
to the Tenant and not otherwise, such retention of possession shall
constitute a renewal of this Lease for one (1) year. The provisions of
this paragraph do not exclude the Landlord's rights of re-entry or any
other right hereunder.
18.LANDLORD'S REMEDIES. All rights and remedies of the Landlord herein
enumerated shall be cumulative, and none shall exclude any other right or
remedy allowed by law.
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A. If any involuntary action or proceedings under any section or
sections of any bankruptcy or debtor relief act in any court or
tribunal shall adjudge or declare Tenant insolvent or unable to pay
Tenant's debts, or if any voluntary petition or similar proceedings
under any section or sections of any bankruptcy or debtor relief act
shall be filed by Tenant in any court or tribunal to declare Tenant
insolvent or unable to pay Tenant's debts, then any such event shall be
deemed to constitute and shall be construed as a repudiation by Tenant
of Tenant's obligations hereunder and shall cause this Lease ipso facto
to be canceled and terminated, without thereby releasing Tenant; and
upon such termination, Landlord shall have the immediate right to
re-enter the Demised Premises and to remove all persons and property
therefrom and this Lease shall not be treated as an asset of the
Tenant's estate and neither the Tenant nor anyone claiming by, through
or under Tenant by virtue of any law or any order of any court shall be
entitled to the possession of the Demised Premises or to remain in the
possession thereof. Upon such termination of this Lease, and
notwithstanding any other provisions of this Lease, Landlord shall
forthwith be entitled to recover damages in the maximum amount provided
by law.
B. If the Tenant defaults in the payment of Rent, and the Tenant does
not cure the default within five (5) days after demand for payment for
such rent or if the Tenant defaults in the prompt and full performance
of any other provisions of this Lease or of Exhibit C hereto and the
Tenant does not cure the default within twenty (20) days after written
demand by the Landlord that the default be cured (unless the default
involves a hazardous condition, which shall be cured forthwith) or if
the leasehold interest of the Tenant be levied upon under execution or
be attached by process of law, or if the Tenant makes an assignment for
the benefit of creditors or admits its inability to pay its debts, or
if a receiver be appointed for any property of the Tenant, or if the
Tenant abandons the premises, then and in any such event, the Landlord
may, if the Landlord so elects but not otherwise, and with or without
notice of such election, and with or without demand whatsoever, either
forthwith terminate this Lease and the Tenant's right to possession of
the Demised Premises or, without terminating this Lease, forthwith
terminate the Tenant's right to possession of the Demised Premises.
C. Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of the Tenant's right to possession
without termination of this Lease, the Tenant shall surrender
possession and vacate the premises immediately, and deliver full and
free license to enter into and upon the Demised Premises in such event
with or without process of law and to repossess the Landlord of the
premises as of the Landlord's former estate and to expel or remove the
Tenant.
D. If the Tenant abandons the Demised Premises or otherwise entitles
the Landlord so to elect, and the Landlord elects to terminate the
Tenant's right to possession
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only without termination this Lease, the Landlord may, at the landlord's
option, enter into the Demised Premises, remove the Tenant's signs and
other evidences of tenancy, and take and hold possession thereof as in
Paragraph C. of this Section 18 provided, without such entry and
possession terminating this Lease or releasing the Tenant, in whole or
in part from the Tenant's obligation to pay the rent hereunder for the
full Lease Term. Upon and after entry into possession without
termination of this Lease, the Landlord may, but need not, relet the
Demised Premises or any part thereof for the account of the Tenant to
any person, firm or corporation other than the Tenant for such rent, for
such time and upon such terms as the Landlord in the Landlord's sole
discretion shall determine, and the Landlord shall not be required to
accept any tenant offered by the Tenant or to observe any instructions
given by the Tenant about such reletting. In any such case, the
Landlord may make repairs, alterations and additions in or to the
Demised Premises, and redecorate the same to the extent deemed by the
Landlord necessary or desirable, and the Tenant shall, upon demand, pay
the cost thereof, together with the Landlord's expenses of the
reletting. If the consideration, if any, collected by the Landlord upon
such reletting for the Tenant's account is not sufficient to pay monthly
the full amount of the rent reserved in this Lease, together with the
costs of repairs, alterations, additions, redecorating and the
Landlord's expenses, the Tenant shall pay to the Landlord the amount of
each monthly deficiency upon demand.
E. If, upon Tenant's default, Landlord elects to terminate this Lease
and Tenant's right to possession of the Demised Premises, Landlord
shall be entitled to recover all damages provided at law.
F. Any and all property which may be removed from the Demised Premises
by the Landlord pursuant to the authority of the Lease of law, to which
the Tenant is or may be entitled, may be handled, removed or stored by
the Landlord at the risk, cost and expense of the Tenant, and the
Landlord shall in no event be responsible for the value, preservation
or safekeeping thereof. The Tenant shall pay to the Landlord, upon
demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in the
Landlord's possession or under the Landlord's control. Any such
property of the Tenant not retaken from storage by the Tenant within
thirty (30) days after the end of the Lease Term, however terminated,
shall be conclusively presumed to have been conveyed by the Tenant to
the Landlord under this Lease as a bill of sale without further payment
or credited by the Landlord to the Tenant.
G. The Tenant shall pay upon demand all the Landlord's costs, charges,
and expenses, including the fees of counsel, agents and others
retained by the Landlord, incurred in enforcing the Tenant's
obligation hereunder or incurred by the Landlord in any litigation,
negotiation or transaction in which the Tenant causes the Landlord,
without the Landlord's fault, to become involved or concerned.
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19. DEFAULT UNDER OTHER LEASE. If the term of any lease other than this
Lease, made by the Tenant for any demised premises in this Building shall
be terminated or terminable after the making of this Lease because of any
default by the Tenant under such other lease, such fact shall constitute a
default under this Lease.
20. SURRENDER OF POSSESSION. Upon the expiration or other termination of the
Lease Term, Tenant shall quit and surrender to Landlord the Demised
Premises, broom clean, in good order and condition, ordinary wear
excepted, and Tenant shall remove all of its property. If the Tenant does
not remove its property of every kind and description from the Demised
Premises prior to the end of the Lease Term, however ended, the Tenant
shall be conclusively presumed to have conveyed the same to the Landlord
under this Lease as a bill of sale without further payment or credit by
the Landlord to the Tenant and the Landlord may remove the same and the
Tenant shall pay the cost of such removal to the Landlord upon demand.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease.
21. NOTICES. Notices shall be in writing. They shall be effectively served
by Landlord upon Tenant: (a) by hand delivery to Tenant, or a
representative of Tenant at the Demised Premises, or (b) by forwarding
through certified or registered mail, postage prepaid, to Tenant at the
Demised Premises, in which case the time of mailing shall be the time of
notice.
Notices shall be effectively served by Tenant upon Landlord when addressed
to Landlord and served by forwarding through certified or registered mail,
postage prepaid, to Landlord at the Building or, if notified of another
address by Landlord, at such latter address.
22. RELOCATION OF TENANT. Landlord shall have the right, upon thirty (30)
days' written notice, to relocate Tenant to another location in the
Building at no cost or expense to Tenant and upon the condition that the
new premises designated by Landlord shall be substantially as desirable as
the Demised Premises with respect to layout and location in the Building
and shall not be similar in area than the Demised Premises.
23. SECURITY DEPOSIT. Tenant shall not be required to provide a Security
Deposit to Landlord upon the execution of this Lease; provided, however,
that if Tenant defaults in respect to any of the terms, provisions,
covenants or conditions of this Lease including, but not limited to,
payment of the Base Rent and Rent Adjustments, one-half (1/2) of the
abated rent in the amount of $30,232.50 shall become immediately due and
payable to Landlord upon demand, such amount to be considered the Security
Deposit, and Landlord may use, apply or retain the whole or any part of
the security so deposited for the payment of any such rent in default, or
for any other sum which the Landlord may expend or be required to expend
by reason of Tenant's default
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including, without limitation, any damages or deficiency in the reletting
of the Demised Premises, whether such damages or deficiency shall have
accrued before or after any re-entry by Landlord. If Tenant shall fully
and faithfully comply with all the terms, provisions, covenants and
conditions of this Lease, the Security Deposit, or any balance thereof,
shall be returned to Tenant after the following:
A. the time fixed as the expiration of the Lease Term;
B. the removal of Tenant from the Demised Premises;
C. the surrender of the Demised Premises by Tenant to Landlord in
accordance with this Lease; and
D. the time required for the Rent Adjustment due pursuant to this
Lease to have been computed by Landlord and paid by Tenant.
Except as otherwise required by law, Tenant shall not be entitled to
any interest on the aforesaid security. In the absence of
evidence satisfactory to Landlord of an assignment of the right to
receive the Security or the remaining balance thereof, Landlord may
return the Security to the original Tenant, regardless of one or more
assignments of this Lease. Upon a bona fide sale by Landlord of the
Building to a purchaser who assumes all obligations of Landlord under
tenant leases for space in the Building, including this Lease,
Landlord shall be relieved from all obligation to return the Security
Deposit to Tenant.
24. MISCELLANEOUS.
A. No receipt of money by the Landlord from the Tenant after the
termination of this Lease or after the service of any notice after the
commencement of any suit, or after final judgment for possession of the
Demised Premises shall reinstate, continue or extend the Lease Term or
affect any such notice, demand or suit.
B. No waiver of any default of the Tenant hereunder shall be implied
from any omission by the Landlord to take any action on account of such
default if such default persists or be repeated, and no express waiver
shall affect any default other than the default specified in the
express waiver and that only from the time and to the extent therein
stated.
C The words "Landlord" and "Tenant" wherever used in this Lease shall
be construed to mean plural where necessary, and the necessary
grammatical changes required to make the provisions hereof apply either
to corporations or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed.
23
<PAGE> 24
D. Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of the Landlord and the Tenant
and their respective heirs, legal representatives, successors and
assigns in the event this Lease has been assigned with the express
written consent of the Landlord.
E. Submission of this instrument for examination does not constitute a
reservation of the option for the Demised Premises. The instrument
does not become effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant; provided, however, the execution
and delivery by Tenant of this Lease to Landlord shall constitute an
irrevocable offer by Tenant to lease the Demised Premises on the terms
and conditions herein contained, which offer may not be withdrawn or
revoked for thirty (30) days after such execution and delivery.
F. All amounts (unless otherwise provided herein, and other than the
Base Rent and Rent Adjustments, which shall be due as hereinbefore
provided) owed by the Tenant to the Landlord hereunder shall be deemed
additional rent and be paid within ten (10) days from the date the
Landlord renders statements of account therefor. All such amounts
(including the Base Rent and Rent Adjustments) shall bear interest from
the date due until the date paid at the rate of two (2%) percent above
the corporate base rate of interest announced from time to time at the
First National Bank of Chicago, or at the maximum legal rate of
interest, whichever is lower.
G. All riders attached to this Lease and initialed by the Landlord and
the Tenant are hereby made a part of this Lease though inserted in this
Lease.
H. The headings of sections are for convenience only and do not limit
or construe the contents of the sections.
I. If the Tenant shall occupy the Demised Premises prior to the
Commencement Date with the Landlord's consent, all the provisions of
this Lease shall be in full force and effect as soon as the Tenant
occupies the premises.
J. Should any mortgage, leasehold or otherwise, require a modification
or modifications of this Lease, which modification or modifications
will not bring about an increased cost or expense to Tenant or in any
other way substantially change the rights and obligations of Tenant
hereunder, then and in such event, Tenant agrees that this Lease may be
so modified.
K. The Tenant represents that the Tenant has dealt directly with and
only with the Broker(s) identified in the Basic Lease Provisions in
connection with this Lease and Landlord shall pay all commissions and
fees owing to said Broker(s). Insofar as the Tenant knows, no other
broker negotiated this Lease or is entitled to any commission in
connection therewith. Tenant indemnifies and holds Landlord, its
beneficiaries, Owner and Owner's partners and their respective agents
and
24
<PAGE> 25
employees harmless from all claims of any other broker or brokers
in connection with this Lease.
L. The Tenant agrees that from time to time upon not less than ten
(10) days' prior request by the Landlord, the Tenant will deliver to
the Landlord a statement in writing certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified
and identifying the modifications), (b) the dates to which the rent and
other charges have been paid, and (c) that so far as the person making
the certificate knows, the Landlord is not in default under any
provisions of this Lease.
M. This Lease and the Exhibits and Riders attached hereto contain the
entire agreement between Landlord and Tenant concerning the Demised
Premises and there are no other agreements; either oral or written.
N. If Tenant fails timely to perform any of its duties under this
Lease or Exhibit G, Landlord shall have the right (but not the
obligation), after the expiration of any grace period elsewhere under
this Lease or the Work Letter expressly granted to Tenant for the
performance of such duty, to perform such duty on behalf and at the
expense of Tenant without further prior notice to Tenant, and all sums
expended or expenses incurred by Landlord in performing such duty shall
be deemed to be additional Rent under this Lease and shall be due and
payable upon demand by Landlord.
O. The Landlord's or Owner's title is and always shall be paramount to
the title of the Tenant, and nothing herein contained shall empower the
Tenant to do any act which can, shall or may encumber such title.
P. The laws of the State of Illinois shall govern the validity
performance and enforcement of this Lease.
Q. If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid
or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Lease
shall be valid and be enforced to the fullest extent permitted by law.
R. This lease is executed by the undersigned Trustee, not personally,
but solely as Trustee, and it is expressly understood and agreed by the
parties hereto anything herein to the contrary notwithstanding, that
each and all of the covenants, undertakings, representations and
agreements herein made are made and intended, not as personal
covenants, undertakings, representations and agreements of the Trustee
individually, or for the purpose of binding it personally, but this
Lease is
25
<PAGE> 26
executed and delivered by the Trustee, solely in the exercise
of the powers conferred upon it as such Trustee under said Trust
Agreement and no personal liability or personal responsibility is
assumed by, nor shall at any time be asserted or enforced against said
bank or the beneficiaries of said Trustee on account hereof, or on
account of any covenant, undertaking, representation, warranty or
agreement herein contained, either expressed or implied, all such
personal liability, if any, being hereby expressly waived and released
by the parties hereto or holder hereof and by all persons claiming by
or through or under said parties or holder hereof. It is further
understood and agreed that the Trustee is not entitled to receive any
of the rents, issues or profits of or from the trust property, and this
instrument shall not be construed as an admission to the contrary. It
is expressly understood and agreed that any claims by the Tenant
against the Landlord in case of default by Landlord in the performance
of its obligations under this Lease shall be payable out of (and only
out of) the Landlord's interest in the Building.
S. Tenant hereby agrees not to look to the mortgagee, as mortgagee in
possession, or successor in title to the property, for accountability
for the Security Deposit, unless the Security Deposit has actually been
received by said mortgagee as security for the Tenant's performance of
this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease on the date first
above written.
LANDLORD:
LASALLE NATIONAL BANK, not personally, but
solely as Trustee under Trust Agreement
dated September 1, 1977 and known as Trust
Number 53107
By:
---------------------------------------
Its:
--------------------------------------
TENANT:
Attest: By:
---------------------------------------
Its:
--------------------------------------
By:
--------------------------------
Its:
-------------------------------
26
<PAGE> 27
ADDENDUM TO OFFICE LEASE
THIS ADDENDUM to Office Lease is made this 1st day of August, 1985 by and
between LaSalle National Bank, not personally, but as Trustee under Trust
Agreement dated September 1, 1977 and known as Trust No. 53107 ("Landlord") and
VASCO-Value Added Systems Corp. ("Tenant").
WHEREAS, Landlord and Tenant executed and delivered a certain Office Lease (the
"Lease") dated July 22, 1985 pursuant to which Landlord leased to Tenant the
Demised Premises commonly known as Suite 118-C in the St. Regis Office Center;
WHEREAS, Landlord and Tenant had agreed to include in the Lease (as Exhibit A
thereto) a plan of the Demised Premises (the "Plan") depicting the size, shape
and location of the Demised Premises relative to the building in which it is
contained;
WHEREAS, the Plan was inadvertently omitted from the Lease; and
WHEREAS, both Landlord and Tenant are desirous of reforming the Lease to
include the Plan therein.
NOW, THEREFORE, in consideration of the mutual agreements and covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties here to hereby agree
and covenant as follows:
1. The foregoing recitals are hereby integrated herein. The words, terms and
definitions, which are defined in the Lease, when used herein, shall have
the same meaning as in the Lease.
2. The Plan which is attached hereto as Exhibit #1 is hereby incorporated
into the Lease as Exhibit A thereto as if it had been included therein
upon execution thereof.
3. Except as herein modified, the Lease shall, in all other respects, remain
the same and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum To Office
Lease as of the day and year first above written.
LANDLORD: ANVAN/MIDWEST REALTY MANAGEMENT CO.,
as agent for the sole beneficiary of
LaSalle National Bank Trust No. 53107
By:
------------------------------------
Thomas Sloan, Vice President
TENANT: VASCO-VALUE ADDED SYSTEMS CORP.
By:
------------------------------------
Its:
-----------------------------------
<PAGE> 28
SECOND ADDENDUM TO OFFICE LEASE
THIS SECOND ADDENDUM to Office Lease is made this 1st day of October, 1988 by
and between LaSalle National Bank, not personally, but as Trustee under Trust
Agreement dated September 1, 1977 and know as Trust No. 53107 ("Landlord") and
VASCO-Value Added Systems Corp. ("Tenant").
WHEREAS, Landlord and Tenant executed and delivered a certain Office Lease (the
"Lease") dated July 22, 1985 pursuant to which Landlord leased to Tenant the
Demised Premises commonly known as Suite 118-C in the St. Regis Office Center;
WHEREAS, Landlord and Tenant executed and delivered a certain Addendum to
Office Lease dated August 1, 1985.
WHEREAS, landlord and Tenant desire to amend the Lease and Addendum to Office
Lease.
NOW, THEREFORE, in consideration of the mutual agreements and covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
and covenant as follows:
1. The foregoing recital are hereby integrated herein. The words, terms and
definitions, which are defined in the Lease, when used herein, shall have
the same meaning as in the Lease.
2. The lease term shall be five years.
3. The commencement date of "August 1, 1985" is deleted and "October 1, 1988"
is added.
4. The expiration dated of "July 31, 1990" is deleted and "September 30,
1993" is added
5. The Base Rent of "$60,465 per annum" and "$5,038.75 per month" is deleted
and "$33,130.20 per annum" and "$2,760.85 per month" is added.
6. Base Rent will commence on October 1, 1988.
7. In addition to Base Rent, Tenant payment for electricity in the amount of
"$429.97 per month" is deleted and "$239.15 per month" is added.
8. Tenant's Proportion for purposes of Section 2 of "2.815%" is deleted and
"1.566%" is added.
9. The rentable area of the Demised Premises of "4031 square feet" is deleted
and "2242 square feet" is added.
10. Paragraph 23 is deleted.
11. Tenant agrees to pay to Landlord $36,409.52 as past due rent for the
period June 1, 1987 thru September 30, 1988. Monthly payments of $758.53
will commence on October 1, 1989 for a period of 48 months. The remaining
unpaid past due rent for said period in the amount of $60,650.72 will be
abated.
12. The Tenant will have the option at anytime after April 1, 1991 to cancel
this lease upon 6 months prior written notice to the Landlord. In the
event of a notice of
<PAGE> 29
cancellation by Tenant, the remaining unpaid balance of the past due rent
as described in Paragraph 11 above, will be due and payable at the time of
cancellation notice.
13. Landlord will permit the Tenant to use at no expense to Tenant the areas
indicated at Area B and Area C in the attached floor plan ("Exhibit D").
In the event that Landlord leases either Area B or Area C to any other
Tenant, Tenant will surrender and vacate said space upon 30 days prior
notice to Tenant. Landlord will construct at its expense a new demising
wall and paint that portion of the demising wall located in the Tenant's
demised area.
14. Except as herein amended and modified, the Lease shall in all other
respects remain the same and in full force and effect including without
limitation the application of all rental adjustment provisions of the
Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Second Addendum to
Office Lease as of the day and year first above written.
LANDLORD: DRILLS PROPERTIES, INC. as Agent for SOGA, INC., the sole
Beneficiary under a certain Trust Agreement dated September 1, 1977 with
LASALLE NATIONAL BANK, as Trustee and known as Trust Number 53107
By: /s/ H.E. Abrahamson
H.E. Abrahamson, President
Attest: /s/ David S. Lewis
David S. Lewis, Asst. Secretary
TENANT: VASCO-VALUE ADDED SYSTEMS CORPORATION, an Illinois corporation
By: /s/ T. Kendall Hunt
T. Kendall Hunt, President
Attest: /s/ Robert Anderson
Robert Anderson, Executive Vice President
<PAGE> 30
THIRD AMENDMENT TO OFFICE LEASE
THIS THIRD AMENDMENET OF OFFICE LEASE is made as of the 1st day of November,
1992, by and between:
LASALLE NATIONAL BANK N.A., an Illinois corporation, not personally but solely
as Trustee under Trust Agreement dated September 1, 1977, and known as Trust
Number 53107 ("Landlord"), and,
VASCO Corp., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant executed and delivered an Office Lease, dated July
22, 1985, for certain Demised Premises, consisting of 4,031+ square feet of
gross rentable area identified as Suite 118-C in Building C, St. Regis Office
Center, 1919 South Highland Avenue, Lombard, Illinois, for a Lease Term
expiring September 30, 1993; and,
WHEREAS, Landlord and Tenant executed an Addendum to Office Lease, dated August
1, 1985, to include a plan of the Demised Premises in the Office Lease; and,
WHEREAS, Landlord and Tenant executed a Second Addendum to Office Lease, dated
October 1, 1988 (the Office Lease, as amended, is hereinafter referred to as the
"Lease"), by which (a) the Commencement and Expiration Dates of the Office Lease
were changed; and, (b) Tenant's Demised Premises were reduced from 4,031+
rentable square feet to 2.242+ rentable square feet; and, (c) Tenant's Base
Rent was reduced from $60,465 per annum to $33,130.20 per annum; and, (d)
Tenant's electricity payment was reduced from $429.97 per month to $239.15 per
month; and, (e) Tenant agreed to pay Landlord forty-eight (48) monthly
installments of $758.53 each for a portion of Tenant's past due rent; and, (f)
Landlord abated the remaining portion of Tenant's past due rent in the amount of
$60,650.72; and,
WHEREAS, Landlord has permitted Tenant to continue to occupy 4,031+ rentable
square feet on the Demised Premises in the period between the dated on which
the Second Addendum was executed and the date of this Third Amendment to Office
Lease; and,
WHEREAS, Landlord and Tenant executed and delivered an Agreement ("Storage
Agreement") dated June 19, 1990, by which Landlord leased to Tenant a 232+
rentable square foot portion of Suite 120-C ("Storage Space") consisting of a
total 1,000+ rentable square feet; and,
WHEREAS, Landlord and Tenant desire to amend the Lease to
(a) relocate Tenant's Demised Premises from Suite 118-C to Suite 119-C; and,
<PAGE> 31
(b) expand Tenant's Demised Premises to 5,100+ rentable square feet; and,
(c) change Tenant's Base Rent; and,
(d) change Tenant's Electricity Allocation; and,
(e) change Tenant's Lease Term; and,
(f) in certain other respects.
NOW THEREFORE, in consideration of the mutual agreements and covenants herein
contained, the parties hereto agree as follows:
(1) The foregoing recitals are hereby incorporated herein and the words,
terms and definitions, which are contained in the Lease, when used in this
Amendment, shall have the same meaning as in the Lease, unless otherwise
defined herein.
(2) Tenant's new lease term ("Lease Term") shall commence January 15, 1993
("Commencement Date"), and expire January 14, 1998 ("Expiration Date").
(3) At the Commencement Date, Suite 119-C shall become Tenant's new Demised
Premises ("Demised Premises"), consisting of 5,100+ rentable square feet,
and Tenant's Proportion of the total area of the Buildings shall at that
date become 3.56%.
(4) Tenant shall completely vacate Suite 118-C no later than seven (7) days
after the Commencement Date. If, by seven days after the Commencement
Date, Tenant fails to vacate Suite 118-C (and leave Suite 118-C in the
condition required by Section 20 of the Lease), the retention of
possession of Suite 118-C shall be deemed to be an unpermitted holdover
and shall be governed by the provisions of Section 17 of the Lease.
(5) At the Commencement Date, Tenant's new Suite 119-C shall be renamed Suite
118-C ("New Suite 118-C") by Landlord.
(6) Base Rent for the New Suite 118-C on the Commencement Date shall be as
follows:
Year 1: $10.15/SF = $51,765/Yr. = $4,314/Mo.
Year 2: $10.35/SF = $52,800/Yr. = $4,400/Mo.
Year 3: $10.56/SF = $53,856/Yr. = $4,488/Mo.
Year 4: $10.77/SF = $54,933/Yr. = $4,578/Mo.
Year 5: $10.99/SF = $56,032/Yr. = $4,669/Mo.
(7) Tenant's electricity charge shall be $1.57 per gross rentable square foot
for normal operating hours in Year 1:
Year 1: $1.57/SF = $8,007/Yr. = $667/Mo.
Tenants electricity rate per gross rentable square foot in Years 2 through 10
shall be equal to the sum of Building's Commonwealth Edison bills for the 12
months preceding Tenant's lease year, divided by Building's gross rentable
area.
(8) Tenant shall have the options ("Renewal Option") to extend the Lease Term
by five (5) years, from January 15, 1998, to and including January 14,
2003 (hereinafter referred to as the "Option Term") upon the following
terms and conditions:
<PAGE> 32
(a) Tenant shall provide Landlord written notice exercising the
Renewal Option at least six (6) months prior to the commencement of
the Option Term; and,
(b) Tenant is not in default under the Lease on the date that
Tenant exercises the Renewal Option or on the Commencement Date of
the Options Term; and,
(c) Tenant has not assigned or subleased any part of the Demised
Premises.
(9) If the Renewal Option is exercised, Base Rent for the New Suite 118-C
commencing January 15, 1998, shall be as follows:
Year 6:$11.21/SF = $57,171/Yr. = $4,764/Mo.
Year 7:$11.43/SF = $58,293/Yr. = $4,858/Mo.
Year 8:$11.66/SF = $59,459/Yr. = $4,952/Mo.
Year 9:$11.89/SF = $60,648/Yr. = $5,054/Mo.
Year 10: $12.13/SF = $61,861/Yr. = $5,155/Mo.
(10) Beginning in the thirty-seventh (37th) month after the Commencement Date,
Tenant and Landlord shall each have the option to terminate the Lease
effective at any time during the remaining Lease Term ("Termination
Option"). Should either party desire to exercise the Termination Option,
they shall provide the other party with written notice thereof. The
written notice shall include a stated termination date ("Termination
Date") at least six (6) months after the date of the notice. Should
Tenant exercise the Termination Option, Tenant shall pay Landlord, on or
before the Termination Date, Landlord's unamortized costs for the New
Suite 118-C. Tenant's payment to the Landlord for unamortized costs shall
be equal to the product of the number of whole months remaining between
the Termination Date and the Lease Expiration Date, multiplied by $780.00.
(11) During the five-year Lease Term, Tenant shall have a right of first offer
(the "First Offer Option") to lease space contiguous to the Demised
Premises (herein called "Expansion Space") located on the first floor of
Building C at St. Regis Office Center, on the following terms and
conditions:
(a) At such time as Landlord desires to offer for lease to a
third party (other than a current tenant of such space or any other
tenant that might have an expansion option, right of first offer
superior to Tenant's First Offer Option) any Expansion Space,
Landlord shall first give Tenant written notice of the location and
size of the Expansion Space and the date on which the Expansion
Space will be available for leasing to Tenant; and,
(b) Tenant shall have the right, within fifteen (15) working days
after Landlord gives such notice to tenant, to notify Landlord in
writing that Tenant desires to lease (or does not desire to lease)
the Expansion Space. A failure by Tenant to so respond within such
15-day period shall constitute a waiver by Tenant of such First
Offer Option; and,
(c) Base Rent for the Expansion Space shall be payable at the
applicable rate provided for in Paragraph 6 above.
<PAGE> 33
(12) If Tenant exercises the First Offer Option and satisfies the other terms
and conditions set forth in Paragraph 11 above, Landlord agrees to pay
Tenant, within ten (10) days after Tenant takes possession of the
Expansion Space, an amount equal to the product of the number of rentable
square feet of space in the Expansion Space, multiplied by Nine Dollars
($9.00).
(13) Should Tenant exercise the First Offer Option, Landlord shall change
Tenant's Base Rent and Electricity Rate for the duration of the Lease Term
and the Option Term in accordance with the rates outlined herein.
(14) Within one month after the Commencement Date, Tenant shall vacate the
Storage Space. The Storage Agreement shall expire one month after the
Commencement Date. If Tenant fails to vacate said Storage Space by the
end of one month, it shall be deemed an unpermitted holdover and Tenant
will pay a rental rate of $37.55 per day for each additional day the space
is retained by Tenant.
(15) Should Tenant require storage space, Tenant shall notify Landlord in
writing, which notice shall include an estimated useable square foot
requirement, a description of the items intended for storage, and an
estimated storage term. Landlord shall answer Tenant's written notice
within ten (10) working days and include in such notice the storage rental
rate and location of the storage space.
(16) Within ten (10) days of the Commencement Date, Landlord shall pay Tenant
a cash allowance of $1,300.00, provided Tenant has vacated Suite 118-C and
is not in default of the Lease.
(17) Landlord shall release Tenant from its obligation to pay past due rent
payments in an amount equal to the product of $758.53 multiplied by the
number of full months remaining between the Commencement Date and
September 30, 1993.
(18) Landlord shall cause Tenant's New Suite 118-C to be built-out and
remodeled at Landlord's sole expense in accordance with drawing attached
hereto and made part hereof. Specifically, Landlord shall cause the
following work to be performed at Landlord's sole expense:
(a) demolish approximately 30 lineal feet of existing wall; and
(b) construct approximately 70 lineal feet of new wall; tape,
sand and ready for paint; and,
(c) install one (1) stainless steel kitchen sink, plus counter
and cabinets, in conformity with the drawing attached hereto; and,
(d) install three (3) new frames and doors; supply locks and keys
in accordance with Tenant's requirements and Landlord's key
specifications; and,
(e) install fifty-five (55) duplex outlets, two (2) quadraplex
outlets, thirty-six (36) telephone outlet locations and three (3)
switches, all in accordance with drawing attached hereto; and,
(f) paint the New Suite 118-C with Tenant's choice of building
standard paid; and,
(g) re-carpet entire the New Suite 118-C, with the exception of
636+ square feet designated as a work area, with Tenant's
choice of building standard carpeting, and install new base board.
<PAGE> 34
Tenant agrees that any changes to the remodeling specifications desired by
Tenant after execution of this Third Amendment shall be subject to Landlord's
written approval and costs for remodeling Suite 119-C outside the parameters
agreed to herein shall be borne solely by Tenant.
(19) Landlord and Tenant acknowledge that Tenant engaged the following broker
("Broker") for this transaction:
John J. Pikarski
WALSH DUNSMORE
9501 Devon
Suite 701
Rosemont, Illinois 60018
Landlord shall pay Broker a commission of $4,641 within ten (10) days of the
date of full execution of this Third Amendment, and $4,642 within ten (10) days
of the Commencement Date, provided Tenant is not in default under the Lease.
(20) Except as herein amended and modified, the Lease shall continue in full
force and effect, subject to the terms and provisions hereof. This
Amendment shall be binding upon and inure to the benefit of the Landlord,
Tenant and their respective successors and permitted assigns. The persons
purporting to execute this Amendment on behalf of Tenant warrant to
Landlord that they have authority to do so, and that by their signature
Tenant has duly executed and entered into this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to
Office Lease as of the day and year first above written.
LANDLORD: SOGA, INC. an Illinois corporation, the sole Beneficiary under a
certain Trust Agreement dated September 1, 1977, with LASALLE NATIONAL TRUST
N.A., as Trustee and known as Trust Number 53107.
By: /s/ Philippe A. Hans
Philippe A. Hans, its Vice President
TENANT: VASCO Corp., a Delaware corporation.
By: /s/ T. Kendall Hunt
T. Kendall Hunt, its President
Attest: /s/ Forrest D. Laidley
its Secretary
<PAGE> 1
Exhibit 10.10
[DIGIPASS]
LEASE AGREEMENT
BETWEEN:
TOPS sa, rue Gillemont 1 B- 6120 Ham-Sur-Heure, represented by Mr Dominique
COLARD, Managing Director.
Hereafter referred to as (( the lessor )).
AND:
DIGIPASS sa, Chaussee de Courcelles, 113 B- 6041 Gosselies, represented by Mr
Mario HOUTHOOFT, Managing Director.
Hereafter referred to as (( the lessee )).
ARTICLE 1 - SUBJECT
The lessor let to the lessee a site for commercial use located in 6041
Gosselies, chaussee de Courcelles 113.
The premises include offices and caretaker accommodation with an approximate
total surface of 900m2, as well as adjacent parking space. This surface is
only given for information, whereas the lessee waives and claim as to the real
surface of the building.
The site has a surface of 54A.
Please note that the access way from Chaussee de Courcelles is a public way.
ARTICLE 2 - TERM AND TERMINATION
This agreement will be in force for a period of 5 (five) years as from the date
of taking the offices into use by the lessee. This one will have the
opportunity to cancel this agreement at the expiry of the two first years by
means of a 6 months prior written notice.
The date of taking the offices into use fixed by both parties is July 1st,
1996.
The first payment will take place at the day of signature of this agreement and
the amount to be paid will be 300.000 Belgian Francs (rent for 1 month).
<PAGE> 2
ARTICLE 3 - PURPOSE
The building is exclusively leased for commercial use.
Except for the caretaker accommodation, the offices will not be used for any
personal accommodation or other purpose than the above mentioned. The lessee
won't have the opportunity to change the purpose of the lease above mentioned
without the prior written agreement of the lessor.
Both parties agree that each lessee's activity expansion beyond to the purpose
above mentioned will be considered as a major negligence and will result in the
immediate termination of the agreement, without damage for the different
parties in the cessation.
ARTICLE 4 - RENT
The rent is fixed at the monthly amount of 300.000 BF VAT excluded (three
hundred thousand) and is to be paid in advance, by transfer to the account nr
260-0616855-04 from TOPS sa.
This rent has been determined in accordance with the consumer price index of
the month before the signature of this agreement.
It is said that every change in this index will generate a modification of the
rent according to the following formula :
BASIC RENT X NEW INDEX
--------------------------------
BASIC INDEX
If the increase is limited by the Belgian law, the maximum increase will be
implemented and later on, the lessor will have the opportunity to recover the
difference.
All taxes and expenses are due by the lessee, including the tax on income from
real estate.
In the event that this arrangement would not be applicable, because of a change
in the law or tax regulations, the lessee would have to pay in compensation to
the lessor the same amount as the one generated by this arrangement.
The amounts due by the lessee are subject to an annual interest rate of 12%.
<PAGE> 3
The parties agree that in case of non-payment within 10 days and after a
written reminder by post resulting in non-payment, the agreement will be
cancelled at the discredit of the lessee.
ARTICLE 5 - REPAIRS AND MAINTENANCE
The normal repair and maintenance costs are due by the lessee.
The more substantive repairs remain at the expense of the lessor, except for
those caused by the lessee.
Concerning the heating systems, the lessee will have the exclusive
responsibility for any repairs and maintenance costs.
At the termination of the agreement, the lessee will have to leave the site in
good order of maintenance, but he will not have to restore the deterioration
caused by the use or the time.
The lessee commits himself to take care of the site during the whole term of
the agreement.
ARTICLE 6 - ELECTRICITY - WATER - GAS
The special attention of the lessee is requested according to the maintenance
of the electric heating systems, water conveyance, gas installations, etc....
individually put at his disposal.
He will have to take care of the maintenance of the different mesurement,
control and capacity devices under his responsibility.
In case of damages to the building or to its installations, the lessee will
have to inform the lessor or his representative as soon as possible.
The lessee will have to pay and support, from the date of taking the site into
use and during the period of this agreement, electricity, gas, water, calorific
costs ...resulting from the use, as well as the rent of the meters put at his
disposal or placed in the rented building.
The lessee will have to fill out counter statements at arrival and at
departure, otherwise, he will be indebted of the amounts due from the previous
statements.
In case the lessee doesn't execute the works mentioned in article 6 and 7, the
lessor will have the right to let them execute at the expense of the lessee.
ARTICLE 7 - RESTRICTIONS OF THE LESSOR'S RESPONSIBILITIES
<PAGE> 4
No appeal against the owner of the building can take place in case of
non-distribution of water, electricity or gas, nor at the failure of public
services.
ARTICLE 8 - ACCESS / WORKS / CHANGES
The access to the rented building is authorized to the owner or his
representative, as well as to workers and contractors necessary for
maintenance, by means of a prior 24 hours notice.
The lessee is not allowed to make any change to the installations in the rented
building without prior written consent from the lessor.
At the termination of the agreement, the changes made by the lessee remain in
possession of the lessor, without compensation. However, the lessor can require
from the lessee to return the site in its initial condition.
ARTICLE 9 - INSURANCES
The lessee will have to subscribe to a sufficient fire and theft insurance.
The lessee himself and his claimants renounce to any appeal against persons or
societies engaged by the lessor concerning works, assets or installations in
the building.
The lessee will comply with measures of precaution requested by his insurance
company or the lessor's one.
ARTICLE 10 - DEFAULTING TERMINATION OF THE AGREEMENT
In case the agreement would be terminated at the discredit of the lessee, this
would owe an amount equal to the quarter's rent during which the termination
was declared as well as a compensation equal to 6 month rent and expenses,
without predjudice for the repair or maintenance costs.
ARTICLE 11 - NON DIVISION OF THE DUTIES
<PAGE> 5
The responsibilities resulting from this agreement will have to be executed
jointly by the lessee and his claimants.
ARTICLE 12 - REGISTRATION
The registration, announcement and stamp costs and possible penalties are at
the exclusive expense of the lessee.
ARTICLE 13 - RENTAL GUARANTEE
The lessee, as a guarantee of his engagements has to pay to the lessor prior to
the date of taking into use a rental deposit of 900.000 BF(nine hundred
thousand) equal to a quarter's rent. This deposit will be restituted at the
termination of the agreement, and after the lessor has checked the execution of
the lessee's obligations.
This deposit can be used to pay repair costs at the expense of the lessee at
the termination of the agreement.
ARTICLE 14 - INVENTORY OF THE PREMISES
An inventory of the premises will be made prior to the date of taking into use
by the lessee.
The expenses they generate are assigned as follows : 1/2 at the expense of the
lessee, 1/2 at the expense of the lessor. A second inventory of the premises
will be made the last day of the agreement, at the expense of the lessee.
ARTICLE 15 - SUBLETTING / TERMINATION OF LEASE
The lessee is not allowed to sublet or terminate his agreement without prior
written notice by the lessor.
ARTICLE 16 - JURISDICTION
In case of contention, the Court of Charleroi will have exclusive
jurisdiction.
TOPS SA DIGIPASS SA
By: /s/ Mario Colard By: /s/ Mario Houthooft
<PAGE> 1
EXHIBIT 10.11
THE OFFICE SUITES OF CENTERPARK
SERVICE/LEASE AGREEMENT
THIS LEASE AGREEMENT entered into this 21st day of November __, 1995,
("Lease Agreement") by and between PERKINS COMMERCIAL MANAGEMENT COMPANY, INC.,
agent for an entity to be named later, a Maryland general partnership
(hereinafter referred to as "Landlord") and Vasco Data Security, Inc.
(hereinafter referred to as "Tenant").
Landlord and Tenant agree as follows:
1. Premises - See Appendix A attached hereto and made a part hereof.
2. General Service - In consideration of the rents and fees to be paid by
Tenant as described in Appendix A of this Lease Agreement and the covenant
herein, Landlord shall provide Tenant during the term of this Lease Agreement
with the following general services:
(a) Receptionist service from 8:30 A.M. until 5:00
P.M. during all weekdays except for national holidays.
(b) Telephone answering service, as described in
Paragraph 6 of this Lease Agreement, from 8:30 A.M. until 5:00
P.M. during all weekdays except for national holidays.
(c) Light, electricity, heat and air-conditioning,
elevator service, and toilet facilities.
(d) Janitorial service as described in Paragraph 7 of
this Lease Agreement.
(e) Use of the conference rooms as described in
Section 4 of Appendix A of this Lease Agreement.
(f) Twenty-four (24) hour access to offices.
(g) Coffee and tea from 8:30 a.m. until 4:30 p.m.
during all weekdays except for national holidays.
(h) Listing in building lobby directory.
(i) Access to facsimile machine at rates set forth in
Appendix B, which is attached hereto and made a part hereof.
(j) Furnishings as per Appendix D, which is attached
hereto and made a part hereof.
<PAGE> 2
(k) Enforcement of the Rules and Regulations
enumerated in Appendix C, which is attached hereto and made a
part hereof.
3. Typing Services - Upon the request of Tenant, Landlord shall provide
Tenant during the term of this Lease Agreement with typing services at the
guideline rates set forth in Appendix B attached hereto and made a part hereof.
Landlord may amend those guidelines rated on a reasonable basis during the term
of this Lease Agreement if there is any change in the costs or expenses
incurred by Landlord in providing such typing services.
4. Photocopy Services - Upon the request of Tenant, Landlord shall provide
Tenant with paper and use of a photocopying machine at the rates set forth in
Appendix B attached hereto and made a part hereof. Landlord may change the
above rated on a reasonable basis during the term of this Lease Agreement if
there is any change in the costs or expenses incurred by Landlord in providing
such photocopying services.
5. Mailing Services - Upon the request of Tenant, Landlord shall, during
the term of this Lease Agreement, mail, on a daily basis, Tenant's
mailbox-sized correspondence and provide Tenant with postage stamps and
associated delivery services at the actual cost plus a 25% handling fee for
postage or such other delivery services.
6. Telephone Answering Service - Landlord shall provide telephone
answering service for a normal and reasonable number of calls on any telephone
line Tenant has installed at Tenant's expense in the Premises. Tenant shall
reimburse Landlord for any expenses that may be charged to the Landlord for the
installation or removal of any extension of Tenant's telephone in Landlord's
telephone system.
7. Janitorial Services - Landlord Shall provide Tenant with janitorial
services for the Premises so as to maintain the Premises in good order and a
reasonably clean condition.
8. Conference Room - See Appendix A attached hereto and made a part
hereof.
9. Keys - Landlord shall provide Tenant with one (1) set of keys to the
Premises and to the individual office upon the commencement of the Lease
Agreement. Tenant shall not duplicate or cause to be duplicated any key
furnished by Landlord without prior consent of Landlord to Tenant or duplicated
by Tenant upon termination of the Lease Agreement. Tenant shall forfeit the
entire security deposit upon failing to return keys to Landlord within three
(3) business days after termination of the tenancy.
10. Possession and Delivery - Landlord shall deliver to Tenant physical
possession of the Premises upon the commencement of the term of this Lease
Agreement in a good and safe condition. At the end of the term of this Lease
Agreement, Tenant shall
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<PAGE> 3
deliver to Landlord physical possession of the Premises in the like good and
safe condition (damage by fire or other casualty not the fault of Tenant
excepted) and shall remove, at Tenant's own expense, all property on the
Premises not the property of Landlord.
11. Use of Premises - Tenant shall use the Premises only for business
purposes in accordance with the terms of this Lease Agreement and for no other
purposes unless Landlord consents to such use in writing. Tenant shall not
damage or deface the Premises, conference rooms, reception area, hallways,
stairways, or other approaches thereto, the building of which the Premises
forms a part, or any fixtures therein or used therewith, nor suffer or permit
any trade or occupation to be carried on or use made of the Premises or permit
anything to be done in the Premises or the building of which it forms a part,
or bring or keep anything therein which shall be disorderly, unlawful, noisy,
or extra hazardous, or offensive or injurious to, or obstruct or interfere with
the rights of other Tenants, or in any way injure or annoy them, or those
having business with them, or conflict with them or conflict with any fire laws
or regulations or with any insurance policy upon said building or any part
thereof or increase the danger of fire, or affect or made void or voidable any
insurance on said building, or which may render any increased or extra premium
payable for such insurance, or which shall be contrary to any law or ordinance,
rule or regulation from time to time established by any public authority.
12. Fixtures - Tenant may, with the prior written consent of Landlord,
install in the Premises additional furniture and fixtures and other normal
small office equipment such as typewriters, adding machines, portable copying
machines and dictating machines necessary in the conduct of its business, and
the same shall remain the property of Tenant, provided they be removed by
Tenant before the expiration of this Lease Agreement or any renewal or
extension thereof and provided further that Landlord may condition its consent
to such installation upon Tenant's agreement to pay any incurred electricity
charges by the proposed use of such equipment.
13. Landlord's Right to Entry - Landlord and the agents thereof shall have
access to the Premises at all reasonable hours in order to inspect the same or
adjacent premises, to submit such to any prospective tenant or to correct any
Tenant's default hereunder and to prevent or repair damage or injury to the
Premises, its occupants or the interests of other tenants and, further, insure
that the Premises are maintained, cared for, protected, managed and/or improved
in such manner as Landlord shall deem necessary and proper.
14. Security System - Tenant shall close and lock any doors and take any
precautions or measures as may be required by any security system installed in
the building in which the Premises forms a part.
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<PAGE> 4
15. Signs - Tenant shall not erect nor place any signs or objects upon the
windows, doors, or outside walls of the Premises.
16. Deliveries - Tenant shall accept and make deliveries at such normal
times and places as Landlord shall designate, provided that nothing shall
prohibit Tenant from accepting and/or making deliveries during normal business
hours.
17. Tenant Improvements - Tenant shall not make any improvements or
alterations to the Premises or any fixtures, improvements, or furnishings
therein provided by the Landlord without the prior written consent of Landlord.
18. Employees of Landlord - No person furnishing services to Tenant
pursuant to this Lease Agreement shall be deemed to be an employee of Tenant
and Tenant shall have no liability for the wages or salary thereof, or for
taxes and other charges incident thereto, or for the cost of workmen's
compensation or unemployment compensation or any other costs or expenses in
respect at such persons, other than as may be expressly stated herein and
Landlord shall indemnify and hold Tenant harmless against any claims and
demands or costs and expenses in connection therewith.
Tenant shall not offer or cause to be offered employment to any employee
of landlord during the term of this Lease Agreement or for a period of one year
after expiration of this Lease Agreement. Upon breach of the foregoing by
Tenant, there shall be payable to Landlord the sum of Ten Thousand dollars
($10,000.00) liquidation damages for each breach.
19. Liability - Landlord shall not be responsible or liable, unless
- -otherwise specifically herein permitted. Because of any liability claim,
expense, penalty, loss, inconvenience, or damage (hereinafter in this paragraph
referred to as liability) suffered by Tenant or any other person for any reason
or cause whatsoever over which Landlord has no control or from any act,
omission, or neglect of Tenant, or by the inference, interruption, failure,
delay or suspension of any of Tenant's rights under this Lease Agreement.
Tenant agrees to keep, save and hold Landlord forever harmless from any
responsibility or liability as comprehended in this paragraph occasioned by any
act or omission of Tenant. Tenant shall make no claim against Landlord for
constructive eviction hereunder as to any matter or condition for which
Landlord has no liability or responsibility under this paragraph.
20. FIRE AND CASUALTY. In the event of destruction or any part thereof,
or any elevators, hallways, stairways or other approaches thereto, or the
building of which the Premises are a part or any portion thereof, or any
appurtenant facilities, by fire, other casualty or for any other reason
whatsoever, which damage or destruction, in the opinion of Landlord, is such
that it cannot be repaired or restored within a reasonable time,
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<PAGE> 5
Landlord, at its sole option, may declare this Lease Agreement terminated. If
such damage or destruction is such that, in the opinion of Landlord, it may be
restored within a reasonable time, Landlord shall undertake the restoration
involved and, if the damage or destruction involved was without the fault or
neglect of Tenant, then Tenant's rent shall abate in an equitable and fair
manner or in the same proportion as the business operates of Tenant have
abated. In no event need Landlord expend a sum of money in completing any
repair or restoration hereunder which shall exceed net available insurance
proceeds nor need Landlord restore or replace any fixtures, equipment,
personally, or other property located or stores in or about the Premises and
owned, leased, or otherwise in the possession of or under the dominion or
control of Tenant, and it shall be the sole responsibility of Tenant to
adequately insure himself against loss thereof occasioned by damage or
destruction thereto. In the event that the Premises, or the building of which
the premises are a part, or any portion thereof or any property thereon or
thereabout be damaged or destroyed by fire or other cause as a result of any
act omission or neglect of Tenant, Tenant shall be solely responsible to
reimburse Landlord to the extent at any loss suffered by Landlord. Tenant
shall give Landlord prompt notice of early accident, damage to or defect in, or
about the Premises. No compensation, or claim, or diminution of rent will be
allowed, or paid, by Landlord, by reason of inconvenience, annoyance, or injury
to business, arising from the necessity of repairing the Premises or any
portion of the building of which it is a part, however the necessity may occur.
21. Notice of Termination and Holdover - If either Tenant or Landlord does
not wish or renew this Lease Agreement, either shall give notice of termination
in writing to the other at least sixty (60) days before the end of the term of
Agreement, in which case the Lease Agreement shall terminate on the date
specified in Appendix A attached hereto and hereof. If both Tenant and Landlord
fail to give such termination such failure shall be construed as an extension of
the term of this Lease Agreement for sixty (60) days for each such failure to
give notice. Provided. that the rent and fees for each additional one month
period shall be payable in advance at the rate currently being charged by
Landlord for month-to-month Lease Agreements. In every case, Tenant must give
at least sixty (60) days written notice of termination.
22. Tenant's Indemnification - Tenant covenants and agrees to indemnify
and save harmless Landlord from any and all liabilities, damages, costs,
claims, expense, suits or actions arising out of any breach, violation or
nonperformance of any covenant, condition or agreement in this Lease Agreement
set forth and contained, on the part of Tenant to be kept, observed and
performed or Tenant's neglect or use of the Premises or building of which it is
a part or of anything therein or any nuisances caused or suffered by Tenant in
the Premises or in the building of which it is a part.
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<PAGE> 6
23. Defaults and Remedies - If Tenant fails to keep and perform each
and every covenant, condition and agreement herein to be kept and performed by
Tenant, or if Tenant abandons or evidences any intention to abandon the
Premises, or if the Premises become vacant or deserted without intent to return
by tenant, or if the estate hereby created is taken on execution or other
process of law, or if Tenant petitions to be declared or is declared bankrupt
or insolvent according to law, or if a receiver or other similar officer is
appointed to take charge of any part of the property of, or to wind up the
affairs of Tenant and it is not discharged within thirty (30) days, or if any
assignment is made of Tenant in property for the benefits of creditors, then in
each and every case, for henceforth and at all times thereafter, at the sole
option of Landlord Tenant's right of possession shall thereupon cease and
terminate and Landlord shall be entitled to the possession of the Premises, to
remove all persons and property therefrom, and to re-enter the same without
further demand of rent or demand of possession or the Premises, either with or
without process of law and without becoming liable to prosecution therefor. Any
notice to quit, or of intention to re-enter the Premises is hereby waived by
Tenant. In the event of any such re-entry or retaking herein, Tenant shall
nevertheless remain in all events liable and answerable for the full rental and
fees to the date of retaking or re-entry, for any and all loss or damage and
for any deficiency or loss of rent or fees which Landlord may hereby sustain in
respect of the balance of the therein. Landlord reserves full power, which is
hereby acceded to by Tenant to let the Premises, in the event of any such
re-entry or retaking herein for the benefit of Tenant in liquidation and
discharge, in whole or in part, as the case may be, of the liability of Tenant
under the terms and provisions of this Lease Agreement and such damages, at the
option of Landlord be deferred until the expiration of the term, in which
latter event the cause of action shall not be deemed to have accrued until
the date of the termination of said terms. All rents and fees received by
Landlord in any such reletting shall be applied; first, to the payment of such
expenses as Landlord may have incurred in recovering possession of the Premises
and in reletting the same; second, to the payment of any costs and expenses
incurred by Landlord a either for making necessary repairs to the Premises or
incurring any default on the part of Tenant in any covenant or condition herein
made binding upon Tenant; and, last, any remaining rent and fees shall be
applied toward tho payment of rent and fees due from Tenant under the terms of
this Lease Agreement, with interest at the (15%) per annum, and Tenant
expressly agrees to pay any deficiency then remaining Landlord may, however, at
Landlord's options enforce the provisions of the Lease Agreement in full
against Tenant for the full term hereof. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly installments of rent and fees
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent and fees nor, shall any endorsement or statement on any check
or any letter accompanying any check or payment or rent or fees be deemed an
accord and satisfaction, and Landlord may accept such check or payment
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<PAGE> 7
without prejudice to Landlord's right to recover the balance of such rent or
fees, or pursue any other remedy provided in this Lease Agreement.
Upon the occurrence and continuance of an event of default by Tenant,
Landlord, without notice to Tenant, may do any one or more of the following:
(a) Landlord may elect to terminate this Lease and the tenancy created
hereby by giving notice of such election to Tenant, may reenter the Premises by
summary proceedings or otherwise, change the lock(s) thereto and, at the
expense of Tenant, remove Tenant and all other persons and property from the
Premises, and may store such property in a public warehouse or elsewhere at the
cost of and for the account of Tenant without resort to legal process and
without Landlord being deemed guilty of trespass or becoming liable for any
loss or damage occasioned thereby.
(b) Landlord may exercise any other legal or equitable right to remedy
which it may have.
Notwithstanding the provisions of clause (b) above and regardless of
whether an event of default shall have occurred, Landlord may exercise the
remedy described in clause (a) without any notice to Tenant, in its good faith
judgement, believes it would be materially injured by failure to take rapid
action or if the unperformed obligation of Tenant constitutes an emergency.
24. SUBORDINATION CLAUSE - This Lease Agreement is subject and subordinate
at all times to all ground or underlying leases, including any ground lease or
rental agreements entered into by Landlord as lessee, and to all mortgages
and/or property of which the Premises form a part, and to all renewals,
modifications, consolidation, replacements and extensions thereof. This clause
shall be self-operative and no further instrument of subordination shall be
required by any ground or underlying lease, lessor, or mortgage or trustee. In
confirmation of such subordination, Tenant shall execute promptly any
certificate that Landlord may request. Tenant hereby constitutes and appoints
Landlord the Tenant's attorney-in-fact, irrevocably, to execute and deliver
such certificate or certificates for and on behalf of Tenant. Provided,
however, that notwithstanding the foregoing any such lessor aforesaid or the
party secured by any such mortgage or deed of trust shall have the right to
recognize this Lease Agreement and, in the event of re-entry by any such lessor
aforesaid or of any foreclosure sale under such deed of trust, this Lease
Agreement shall continue in full force and effect at the option of such
re-entering lessor aforesaid or of the party secured by such mortgage or deed
of trust or the purchaser under any such foreclosure sale; and Tenant covenants
and agrees that Tenant will, at the written request of any such party, execute,
acknowledge, and deliver any such instrument that has for its purpose and
effect or the subordination of this Lease Agreement
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<PAGE> 8
to the lien or rights of all ground or underlying leases and to all mortgages
and/or deeds of trust.
25. Expenses Incurred - Tenant covenants and agrees to pay and discharge
all reasonable costs, expense, and attorney's fees incurred by Landlord in
enforcing any or all of Tenants covenants, conditions and agreements contained,
herein whether by the institution of litigation, seeking advise of counsel, or
otherwise.
26. Applicable Law - This Lease Agreement shall be construed and enforced
under and in accordance with the laws of the State of Maryland.
27. Negligence - Each party to this Lease Agreement shall be solely
responsible for their independent acts of negligence. Tenant shall maintain
appropriate liability insurance to protect Tenant's interests against any and
all claims arising out of the negligence of Tenant.
28. Severability - In the event any part of this Lease Agreement is held
to be unenforceable or invalid for any reason, the balance of this Lease
Agreement shall not be affected and shall remain in full force and effect
during the term of this Lease Agreement.
29. Waiver - The failure of Landlord to insist upon strict performance of
any of the terms or conditions of this Lease Agreement, or to exercise any
option herein conferred, or the taking of any action by Landlord which under
the terms or conditions of this Lease Agreement should have been taken by
Tenant, in any one or more instances, or the compromise or settlement by
Landlord or any proceeding instituted to recover rent or possession of the
premises from Tenant, shall not be construed as a waiver or relinquishment for
the future of any such terms or conditions, but the same shall be and remain in
full force and effect. The acceptance by Landlord of less than all the rent
and fees that may be owing Landlord with the knowledge of the existence of a
default in this Lease Agreement by Tenant, or the acceptance of all or any part
of the rent or fees due by Tenant, from any other person or entity shall not
be considered a waiver by Landlord of the right of Landlord to insist upon the
full performance by Tenant of all rental or fee payment obligations in the
future.
30. Subletting - Tenant shall have no right to sublet, assign or otherwise
transfer any right of Tenant under this Lease Agreement without the prior
written consent of Landlord. which consent will not be unreasonably withheld.
31. Covenants in Force - All of the foregoing covenants of Tenant shall be
in force without demand or notice during said term and for such further time as
Tenant, or any person or persons claiming under Tenant, shall hold the
Premises.
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<PAGE> 9
32. Rules and Regulations - Tenant agrees to abide by such rules and
regulations (the "Rules and Regulations") as Landlord may set or amend from
time to time governing the operations of The Office Suites of Centerpark.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals
this _____ day of _________________, 199__.
WITNESS: PERKINS COMMERCIAL MANAGEMENT COMPANY, INC.
By
- ------------------------- -----------------------------------------------
Authorized Agent
Vasco Data Security, Inc.
ATTEST/WITNESS:
--------------------------------------------------
By
- ------------------------- -----------------------------------------------
Tenant
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<PAGE> 10
APPENDIX A
THIS APPENDIX, made this ___ day of ______________, 19 ___, by and between
PERKINS COMMERCIAL MANAGEMENT COMPANY, INC. ("Landlord"), and Vasco Data
Security, Inc. ("Tenant") to the Lease Agreement dated the ___ day of
______________, 19 __.
The Lease Agreement is hereby modified and supplemented as follows.
Wherever there is any conflict between this Appendix, and the Lease Agreement,
the provisions of this Appendix are paramount and the Lease Agreement shall be
construed accordingly.
Section 1. Premises - Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, office number(s)14, 15, 16 in Suite 300, 4041
Powder Mill Road, Calverton, Maryland 20705 (hereinafter referred to as
"Premises"). Said office is leased as a sales office, accommodating no more
than one (1) person(s) each. Additional users of office space will incur
additional charges as set forth in Appendix B attached hereto and made a part
hereof.
Section 2. Terms. The term of this Lease Agreement shall be one (1)
month and shall begin on _______________, 19 __, at 8:30 A.M. and end at 5:00
P.M. (local time) on _________________, 1995, unless extended in accordance
with the provisions of the Lease Agreement.
Section 3. Rents, Fees and Late Charges. The Tenant shall pay the
Landlord the sum of ______________________________ Dollars ($___________) as
rent and fees for general services, payable at the office of the Landlord at
4041 Powder Mill Road, Claverton, Maryland 20705 in advance, on or before the
fifth day of each month in installments of ______________________________
Dollars ($___________), per month without deduction, abatement, or set off of
Tenant's Security Deposit or other such escrowed monies. A security deposit of
_____________________________ Dollars ($___________) one month's rent, shall be
payable on the date of execution of this Lease Agreement. All Security
Deposits will be returned ninety (90) days upon termination of this Lease.
Rent checks will not be exchanged for Security Deposit Checks. It is
understood that if the Premises is not returned in like condition when the
lease commenced, the cost of any repairs will be deducted from the security
deposit.
The Landlord shall provide the Tenant on or about the first day of each
month during the term of this Lease Agreement a statement of fees for any
typing, mailing, photocopying, and other services rendered to the Tenant under
this Lease Agreement during the previous month. Such fees shall be payable in
full at the Landlord's office immediately on or before the fifth day of each
month, together with rent.
Landlord shall have the right to increase the base rent if the rent of the
building is increased by the building owner,
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provided that the increase not exceed seven percent(7%) for the period of the
initial term of this Agreement.
In addition to seeking any other remedy or penalty under this Lease
Agreement, the Landlord may impose a late charge in the amount of ten percent
(10%) of any rent or fee payable under this Lease Agreement, or $10 per day,
whichever is greater, if full payment for such rent or fees is not received by
Landlord before the fifth business day after it becomes payable. Such charge
shall be payable in full at the Landlord's office immediately upon its
imposition as provided herein. Landlord must give written notice of
non-payment/late rent payments. It is further understood that if Tenant
submits a check that cannot be processed through the bank because of lack of
sufficient funds, there will be a 10% surcharge charged to the Tenant for each
occasion.
Section 4. Conference Room. Tenant shall have the right to use the
conference rooms and projection equipment during all weekdays except for
national holidays in Suite 300 for business meetings during such times and in
such manner as Landlord determines to be reasonable, taking into account the
rights of other Tenants who use the conference rooms.
Section 5. Notice. Any notice to be furnished to the Landlord or Tenant
under the terms of this Lease Agreement shall be sent to the following
addresses.
As to Landlord:
PERKINS COMMERCIAL MANAGEMENT COMPANY, INC., An agent for an entity to be
named later.
As to Tenant:
Vasco Data Security, Inc.
1919 South Highland Avenue
Lombard, Illinois 60148
(708) 932-8844
IN WITNESS WHEREOF the parties have hereunto set their hands
and seals this ________ day of _________________, 19 ___.
PERKINS COMMERCIAL MANAGEMENT TENANT
COMPANY, INC. Vasco Data Security, Inc.
-----
By: By:
-------------------------- --------------------------
Authorized Agent
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<PAGE> 12
APPENDIX B
SCHEDULE OF FEES FOR SPECIAL SERVICES
<TABLE>
<CAPTION>
<S> <C> <C>
Secretarial Service ..... $21.00 per hour billed in 1/6
increments ($3.50)
Photocopying ..... -1 to 1000/18c/copy
-over 1000/11c/copy
Postage or Other Delivery ..... at cost + 25% handling fee
Facsimile ..... $2.00 per page outgoing
$2.00 per page incoming
Telephone ..... $30.00 per month (per-line)
Word Processing ..... $24.00 per hour billed in 1/6
increments ($4.00)
Covered Parking ..... $60.00 per month
Security Card ..... $15.00/card after initial card
Surcharge for Additional Users ..... $150.00 per month/person
</TABLE>
PRICES SUBJECT TO CHANGE
ADDITIONAL CHARGES:
-12-
<PAGE> 13
RULES AND REGULATIONS
(1) Lessees will conduct themselves in a businesslike manner:
proper attire will be worn at all times; and any noise will be kept
to a level so as not to interfere with or annoy other tenants.
(2) Lessee will not affix anything to the walls of the office
premises without the prior written consent of the Lessor.
(3) Lessee will not prop open any corridor doors, exit doors or
door connecting corridors during or after business hours.
(4) Lessee using public areas can only do so with consent of the
Lessor, and those areas must be kept neat and attractive at all
times.
(5) All corridors, halls, elevators and stairways shall not be
obstructed by Lessee or used for any purpose other than egress and
ingress.
(6) No advertisement or identifying signs or other notions shall
be inscribed, painted or affixed on any part of the corridors, doors
or public area.
(7) The Lessee shall not, without the Lessor's written consent,
store or operate any large business machine, reproduction equipment,
heating equipment, stoves, speaker phone, radio, stereo equipment or
other mechanical amplification equipment, refrigerator or coffee
equipment or conduct a mechanical business
-13-
<PAGE> 14
thereon, do any cooking thereon, or use or allow to be used on
the premises oil, burning fluids, gasoline or kerosene, for heating,
warming or lighting. No article deemed extra hazardous on account
of fire, or any explosives, shall be brought onto said premises.
No offensive gases, odors of liquids will be permitted.
(8) If the Lessee requires any special wiring for business
machines or otherwise, such wiring shall be done by electrician
designated by the Lessor. The electrical current shall be used for
ordinary lighting purposes only unless written permission to do
otherwise shall first have been obtained by the Lessor at an agreed
cost to Lessee.
(9) If Lessee requires any special wiring for telephone equipment
or otherwise, such wiring shall be done by the personnel designated
by the Lessor. Lessee is limited to two lines for its benefit
through the central telephone system which a monthly connect charge
will be levied per line/extension.
(10) The Lessor and its agents shall have the right to enter the
premises at all reasonable hours for the purpose of making any
repairs, alterations or additions which it shall have deemed
necessary for the preservation, safety or improvement of said
offices without in any way being deemed or held to have committed an
eviction of the Lessee therein.
(11) The Lessee shall give the Lessor immediate access to the
premises if Lessee has given notice of intent to
-14-
<PAGE> 15
vacate in accordance with the provisions of the Lease Agreement.
the Lessee shall in no way hinder the Lessor from showing said
promises.
(12) Lessee may not conduct business in hallways or corridors or
any other areas except in its designated offices without written
consent of the Lessor.
(13) Lessee will bring no animals on the premises.
(14) Lessee shall not remove furniture, fixtures or decorative
material from offices without the prior written consent of the
Lessor.
(15) The Lessor reserves the right to make such other reasonable
rules and regulations as in its' judgment may from time to time be
needed for the safety, care and cleanliness of the offices.
(16) There shall be no smoking within the Office Suites at any
time. Furthermore, there is no smoking in any common area of the
building (i.e. hallways and bathrooms).
reasonable rules and regulations as in its' judgment may from time to time be
needed for the safety, care and cleanliness of the offices.
PERKINS COMMERCIAL MANAGEMENT VASCO DATA SECURITY, INC.
CO. INC.
By: By:
-------------------------- ----------------------------
initial initial
-15-
<PAGE> 16
APPENDIX D
FURNISHINGS
Landlord shall provide Tenant with the following furnishings
during the term of the tenancy;
3 Desks
3 Desk Chairs
3 Side Chairs
2 Credenza
3 Lamps
3 Pictures
3 Phones
-16-
<PAGE> 17
APPENDIX E
(1) Quiet Possession - So long as Lessee performs its obligations Lessor
covenants to Lessee its quiet and peaceful possession of the leased space, and
the right to use the same free of interference from noise, noxious or
unpleasant fumes or odors or other disturbance from other tenants in the same
building or center.
(2) Parking Facilities - Lessee, its employees, customers, and visitors
shall have the right to use such parking facilities as may adjoin or be
available to the building.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals
this ____ day of ____________________, 199 __.
PERKINS COMMERCIAL MANAGEMENT CO., INC.
By:
------------------------------------
Authorized Agent
---------------------------------------
By:
------------------------------------
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<PAGE> 18
EMERGENCY PHONE LIST
This list is just to keep in our records in case we need to get in touch with
you at a time when you cannot be reached in the office, and it is important
that we reach you. Please include any car phone, home phone, other office
phone, etc.
PLEASE PRINT
OFFICE PHONE #
-------------------------------------------------------
HOME ADDRESS
-------------------------------------------------------
-------------------------------------------------------
HOME PHONE
-------------------------------------------------------
NAME OF CONTACT #1
-------------------------------------------------------
PHONE #
-------------------------------------------------------
PHONE #
-------------------------------------------------------
NAME OF CONTACT #2
-------------------------------------------------------
PHONE #
-------------------------------------------------------
PHONE #
-------------------------------------------------------
NAME OF CONTACT #3
-------------------------------------------------------
PHONE #
-------------------------------------------------------
PHONE #
-------------------------------------------------------
-18-
<PAGE> 1
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of August 20, 1996 by and between
Wizdom Systems, Inc., a corporation duly organized under the laws of the State
of Illinois ("Buyer"), and VASCO Corporation, a corporation duly organized
under the laws of the State of Delaware ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged under the name of VASCO
Performance Systems ("VPS") in the business of improving the productivity and
profitability of its clients through consulting, training and intelligent
application of technology (the "Business"); and
WHEREAS, Buyer wishes to purchase from Seller and Seller wishes to sell to
Buyer substantially all of the assets (both tangible and intangible) of Seller
used in connection with the Business.
NOW, THEREFORE, in consideration of one (1) copy of the WizdomWorks for Windows
Enterprise Edition software, including upgrades and a reasonable amount of
training for the term of this Agreement, and the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01 Purchase of Assets. On the terms and subject to the conditions set
forth herein, at the "Closing" (as defined in Section 2.01) Buyer shall
purchase from Seller, and Seller shall sell, assign, transfer, convey and
deliver to Buyer, all of Seller's right, title and interest in and to all of
the assets and properties owned or used by Seller in the Business including
those assets described in Section 1.02 hereof, except for the Excluded Assets
(as defined below); all of such assets and properties being hereinafter
collectively referred to as the "Purchased Assets."
1.02 Purchased Assets. The Purchased Assets shall include, without
limitation, all of Seller's right, title and interest in and to all of the
following assets whether tangible or intangible:
(a) Accounts receivable;
(b) Name (VASCO Performance Systems) for a two year period;
(Name will revert to Seller at end of two year period. Buyer
agrees to include a disclaimer on all materials where VASCO
Performance Systems is used (i.e. "not affiliated with VASCO
Corp.))
(c) Rights (as defined in Section 5.09 hereof);
(d) Contracts to supply services to unaffiliated third parties;
(e) Methodologies related to training services of VPS;
(f) All client/project files of VPS;
(g) Any marketing materials on hand for VPS; and
(h) Goodwill.
<PAGE> 2
1.03 Excluded Assets. The Purchased Assets shall not include:
(a) Any and all assets of Seller not associated with the
Business;
(b) The minute books of the Seller;
(c) Telephone number of the Seller; and
(d) The tax returns of the Seller.
The foregoing are collectively referred to herein as the "Excluded Assets."
1.04 Instruments of Transfer. Seller shall deliver to Buyer at Closing
such bills of sale, title documents and assignments and consents (where
required) in form and substance satisfactory to Buyer and its counsel
sufficient to vest in Buyer good and valid title to all of Seller's right,
title and interest in and to the Purchased Assets free and clear of all
mortgages, claims, liens, charges or encumbrances of any kind or nature
whatsoever.
ARTICLE II
CLOSING
2.01 Closing. The Closing of the transactions contemplated hereby (the
"Closing") shall take place at Wizdom Systems, Inc. 1300 Iroquois Road,
Naperville, IL or at such other place or time as shall be mutually agreed on by
the parties hereto (such time on such date or such other agreed upon time and
date is called the "Closing Date").
ARTICLE III
CONSIDERATION
3.01 Purchase Price. The purchase price to be paid by Buyer for and in
consideration of the sale, assignment, transfer, conveyance and delivery of the
Purchased Assets shall be in the form of a royalty ("Royalty") and shall be
equal to five percent (5%) of gross training revenues in excess of $350,000 on
an annual basis for a period of five (5) years from the date of this Agreement,
as reported to Seller on a quarterly basis. Seller reserves the right to
inspect the books and records of Buyer relating to the Business during this
five year period, upon at least forty-eight (48) hours written notice to Buyer
and during normal business hours. Any such inspection shall be conducted so as
not to disrupt Buyer's operations.
3.02 Payment of Purchase Price. Payment of the Royalty will be made in
accordance with Schedule 3.02. The $350,000 amount shall be prorated to
reflect periods of more and less than one year, respectively.
ARTICLE IV
ASSUMED OBLIGATIONS
4.01 Assumption. At the Closing, Buyer shall assume and agree to pay,
perform and discharge the obligations of Seller (the "Assumed Obligations")
arising from and after the Closing Date pursuant to those contracts of Seller
being transferred to Buyer and specifically identified as an "Assumed Contract"
on Schedule 4.01 hereof (the "Assumed Contracts"); provided however Assumed
Obligations do not include any liability arising out of or from the Assumed
Contracts for acts or omissions with respect to the Assumed Contracts prior to
the Closing Date. Any other provision of this Agreement to the contrary
notwithstanding, Buyer shall not and does not assume any liability or
obligation of Seller whether or not disclosed in this Agreement other than as
is set forth in this Section 4.01 or Schedule 4.01 subject to the foregoing
limitation.
<PAGE> 3
4.02 Representations and Warranties with Respect to the Assumed Customer
Contracts. With respect to the Assumed Contracts with Andrew Corporation,
Pitney Bowes, Safety Kleen Corporation, Waste Management, Inc. and United
Airlines (Linda Porter Consulting) (the "Assumed Customer Contracts"), Seller
represents and Warrants that as of the date hereof and as of the Closing Date:
(a) on Schedule 4.02 is set forth a true and complete statement of the
amounts paid to Seller by the other parties to the Assumed Customer Contracts
(the "Customer") and the amount yet to be received under the Assumed Customer
Contracts if Buyer performs the remaining work to be performed under such
Assumed Customer Contracts;
(b) on Schedule 4.02 is set forth a true and complete statement of the
amount of work that remains to be performed with respect to each of the Assumed
Customer Contracts;
(c) none of the Assumed Customer Contracts is in default by either party
and Seller has no knowledge of an event or omission which with notice or the
lapse of time or both would become a default under any Assumed Customer
Contract by any party thereto;
(d) none of the Customers have requested that Seller indemnify it as
provided in the Assumed Customer Contracts; Seller has no information that
would lead it to believe that a claim for indemnification under the Assumed
Customer Contracts was likely; and Seller has received no information from any
Customer indicating that it is considering requesting such indemnification;
(e) to the best of Seller's knowledge, none of the Customer is
considering canceling, modifying or otherwise amending its Assumed Customer
Contract;
(f) Seller believes its relationships with the Customers are satisfactory
and the Customers are satisfied with the services that they have received from
Seller under the Assumed Customer Contracts; and
(g) the Assumed Customer Contracts are all the uncompleted contracts for
services to be performed by Seller relating to the Business to which Seller is
a party.
4.03 Representations and Warranties with Respect to the Assumed
Subcontractor Contracts. With respect to the Assumed Contracts with Howard D.
Blazek, Mary Ann Winchester and Jack Root (the "Assumed Subcontractor
Contracts"), Seller represents and warrants that as of the date hereof and as
of the Closing Date:
(a) none of the Assumed Subcontractor Contracts is in default by either
party thereto and Seller has no knowledge of an event or omission which with
notice or the lapse of time or both would become a default under any Assumed
Subcontractor Contract by any party thereto;
(b) to the best of Seller's knowledge, none of the other parties to the
Assumed Subcontractor Contracts (the "Subcontractors") is considering
canceling, modifying or otherwise amending its Assumed Subcontractor Contract;
(c) Seller believes its relationships with the Subcontractors are
satisfactory and it has received no substantive complaints by the
Subcontractors;
(d) to the best of Seller's knowledge, Seller's Customers under the
Assumed Customer Contracts are satisfied with the services that they have
received from the Subcontractors; and
(e) no amounts not disclosed herein are owed to the Subcontractors under
the Assumed Subcontractor Contracts.
<PAGE> 4
4.04 Consents. At the Closing, Seller shall deliver to the Buyer signed
written consents of each of the other parties to the Assumed Contracts (the
"Assumed Contract Consents") stating that: (i) such party consents to the
assignment to Buyer of the Assumed Contract to which it is a party; (ii) to
the best of such party's knowledge, there is no default or event which with the
giving of notice or the lapse of time or both which would become a default
under such contract; (iii) in the case of the Assumed Subcontractor Contracts,
there are no amounts owed the Subcontractor under such contract or the amount
owed, if any; and (iv) in the case of the Assumed Customer Contract, the amount
that the Customer has paid to the Seller under such Assumed Customer Contract
and the work that remained to be performed under such contract as of a date
within three days of the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to and agree with Buyer as
follows:
5.01 Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has full corporate power and authority to conduct the
Business.
5.02 Authority and Compliance. Seller has full corporate power and
authority to execute and deliver this Agreement and any and all documents in
connection herewith and the transactions contemplated hereby. The consummation
and performance by Seller of the transactions contemplated by this Agreement
have been duly and validly authorized by all necessary corporate and other
proceedings. This Agreement has been duly and validly executed and delivered
by the Seller and constitutes a valid obligation of the Seller, enforceable
against the Seller in accordance with its terms. No consent, authorization or
approval of, exemption by, or filing with, any domestic governmental or
administrative authority, or any court, or any third party is required to be
obtained or made by Seller in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
5.03 No Conflict. The performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
(i) the articles of incorporation or by-laws or similar governing documents of
Seller, (ii) any contract or other agreement or instrument to which Seller is a
party or by which it is bound, or (iii) any law, order, rule, regulation, writ,
injunction or decree applicable to Seller.
5.04 Compliance with Law. Seller and its use of the Purchased Assets and
its conduct of the Business are in compliance in all material respects of any
applicable law or ordinance, or any order, rule or regulation of any
governmental agency or body to which Seller or the Purchased Assets are
subject; nor has Seller failed to obtain or to adhere in all material respects
to the requirements of any government license, permit or authorization
necessary to the ownership of the Purchased Assets or to the conduct of the
Business.
5.05 Financial Statements. Seller has provided Buyer with a 90-day
pro-forma income statement of the Business (the "Financial Statement"). The
Financial Statement is true and correct and presents fairly, in all material
respects, the projected results of its operations for said 90-day period in
conformity with generally accepted accounting principles, consistently applied.
The Financial Statement is attached hereto as Exhibit 5.05 and made a part
hereof.
5.06 Title to Assets. At the Closing, Seller will convey to Buyer good
and valid marketable title to all of the Purchased Assets, free and clear of
all liens, pledges, mortgages, security interests, licenses, and other
encumbrances of any kind or nature whatsoever.
<PAGE> 5
5.07 Condition of Assets. All tangible assets and properties included in
the Purchased Assets are as of the date hereof and on the Closing Date will be
in good operating condition and repair in all material respects (normal wear
and tear excepted) and are usable in the ordinary course of the Business as
previously conducted.
5.08 Absence of Certain Events. Since December 31, 1995 Seller has not:
(a) sold, assigned or transferred any of its assets or properties
necessary for the operation of the Business, except in the ordinary course of
business consistent with past practice;
(b) made any amendment or termination of any material contract, commitment
or agreement relating to the Business to which it is a party or by which it is
bound;
(c) suffered any material adverse change or received verbal or written
notice of a material adverse change in their business relations with any of the
major suppliers or customers of the Business which would, individually or in
the aggregate, have a material adverse effect on the conduct of the Business;
(d) with respect to the employees of the Business, received notice or had
knowledge of any strike or disruption or lost the services of any key employee
of the Business or received notification of the threatened or imminent loss of
any such employee.
5.09 Patents, Trademarks, Copyrights, etc. Except for as set forth in
Section 1.02, there are no patents, patent rights, patent applications,
licenses, shop rights, trademarks, trademark or any other intellectual property
applications, trade names, copyrights, computer software and similar rights
(collectively "Rights") currently owned or used in the conduct of the Business.
The Purchased Assets include Rights and other proprietary information
necessary to the conduct of the Business as currently being conducted. No
patents, formulae, know-how, secrets, trademarks, trademark registrations,
logos, trade names, assumed names, copyrights or computer software used in the
Business including the Purchased Assets infringe on any patents, trademarks, or
copyrights, or any other rights of any person. Seller has taken all reasonable
measures to maintain and protect the patents, trademarks, trademark
registrations, logos, trade names, assumed names, copyrights and copyright
registrations and trade secrets listed in Section 1.02. Seller has not
received notice of any claims which have been asserted by any person to the use
of any such patents, trademarks, trademark registrations, logos, trade names,
assumed names, copyrights and copyright registrations or trade secrets or
challenging or questioning the validity or effectiveness of any such license or
agreement.
5.10 Legal Proceedings, Etc. There are no claims, actions, suits,
proceedings, arbitrations or investigations, either administrative or judicial,
pending or, to the best knowledge of Seller, threatened by, or against Seller,
which could harm or restrict the Buyer, the Business or the Assumed Contracts.
5.11 Disputes. There are no strikes or disruptions of work involving the
employees of the Business of a concerted nature. Seller is not a party to any
collective bargaining agreement with any union or other representative of
employees.
5.12 Customers; Suppliers; Adverse Conditions. Since December 31, 1995
there has not been any termination or cancellation, nor has Seller received
verbal or written notice of any threatened termination or cancellation of the
business relationship of the Seller with (a) any of the customers of the
Business, or (b) any of the major suppliers of the Business which would, either
individually or in the aggregate have a material adverse effect on the
Business.
5.13 Contracts and Commitments. Seller is not a party to any:
(i) Contract (as defined below) with any present or former
shareholder, director, officer, employee or consultant(including,
without limitation, any employment agreement);
<PAGE> 6
(ii) Contract for the future purchase of, or payment for, supplies
or products involving payment of in excess of $50,000 or for the
performance of services by a third party involving payment in
excess of $25,000;
(iii) Contract to sell or supply products or to perform services
involving receipt by the Seller in excess of $50,000 other than the
Assumed Contracts;
(iv) Representative, sales agency or distribution agreement,
contract or commitment;
(v) Contract or Contracts for the borrowing of money for a line
of credit, or for a guarantee, pledge or undertaking of the
indebtedness of any other person;
(vi) Contract with respect to any Rights;
(vii) Contract limiting or restraining in any respect Seller from
engaging or competing in any lines of business or with any person;
or
(viii) any other Contract material to the operation of the Business.
As used in the Agreement, the term "Contract" includes any mortgage, indenture,
agreement, contract, commitment or lease.
5.14 Employees. Schedule 5.14 hereof sets forth the name of each employee
of Seller who performs services related to the Business and the job description
and rate of compensation of each such employee as of the date hereof. Seller
has no knowledge of any dispute between Seller and any such employee, any
customer or other substantive complaints against any such employee, or any
activities by such employee disruptive of the workplace.
ARTICLE VI
COVENANTS
6.01 Confidential Information. Seller agrees with Buyer for itself only
that it shall keep secret and retain in strictest confidence, and shall not use
for the benefit of itself or others, all confidential matters relating to the
Business.
6.02 August Billings. Buyer shall be entitled to receive all proceeds to
which Seller would otherwise be entitled to receive for work performed by
Seller under the Assumed Customer Contracts on or after August 1, 1996. All
billings for such period shall be sent directly to Buyer; however, in the event
that Customer remits payment to Seller, Seller agrees to submit payment to
Buyer within three (3) business days. To the best of Seller's knowledge, such
billings will be fully collectable by Buyer in the ordinary course of business,
and will not be subject to any defense or setoff.
6.03 Outstanding Accounts Receivable. Buyer shall be entitled to receive
all proceeds to which Seller would otherwise be entitled to received for work
performed by Seller under the Assumed Customer Contracts or otherwise and
which had not been received by Seller on or prior to August 19, 1996 (the
"Outstanding Accounts Receivable"). Seller represents that as of the close of
business on August 19, 1996 Seller had Outstanding Accounts Receivable with a
face amount of $20,768.28 outstanding and, to the best of the Seller's
knowledge, such accounts receivable are collectable by Buyer in the ordinary
course of business and within 60 days of the date hereof, and are not subject
to any defense or setoff. At the Closing, Seller shall pay Buyer the amount of
all Outstanding Accounts Receivable collected by Seller after August 19, 1996
and shall immediately forward to Buyer all amounts received with respect to
such accounts receivable on or after the Closing Date. Seller shall provide
<PAGE> 7
Buyer with such assistance as Buyer may reasonably request with respect to the
Outstanding Accounts Receivable or the billings issued with respect to work
performed under the Assumed Customer Contracts during the month of August,
1996.
6.04 Assumed Subcontractor Contracts. VASCO shall be solely responsible
for paying the Subcontractors for all amounts owed the Subcontractors for
services provided under the Assumed Subcontractor Contracts on or prior to
August 20, 1996. VASCO shall pay all such amounts in a timely fashion.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer pursuant to this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any one or
more of which may be waived by Buyer.
7.01 Accuracy of Representation and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true on and as of the
Closing Date with the same force and effect as through made on and as of the
Closing Date, except as effected by transactions contemplated hereby.
7.02 Performance of Agreement. Seller shall have performed and complied
with all covenants, obligations and agreements to be performed or complied with
by them on or before the Closing Date pursuant to this Agreement.
7.03 Officer's Certificate. Buyer shall have received a certificate of
the Chief Executive Officer of Seller, dated the Closing Date, certifying as to
the fulfillment of the conditions set forth in Sections 7.01 and 7.02 hereof.
7.04 Actions, Proceedings, etc. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by this Agreement
and all other related legal maters shall be reasonably satisfactory to Buyer
and its counsel; and Buyer shall have been furnished with such other
instruments and documents as it shall have reasonably requested.
7.05 Post Closing Employment. Effective as of the Closing, Buyer shall
have entered into employment agreements in the form customarily used by Buyer
with those employees of Seller listed on Schedule 5.14 (the "Acquired
Employees"). Such agreements that shall make available to each Acquired
Employee such salary as are currently provided to such Acquired Employee by
Seller and the benefits Buyer customarily makes available to its own employees.
Each such employee shall be credited with the seniority and accrued vacation
pay such employees had with the Seller as of the Closing.
7.06 Payment. At the Closing, Seller shall pay Buyer the amount provided
in Section 6.03, if any.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction at the Closing of each of the following conditions, any one or
more of which may be waived by Seller.
8.01 Accuracy of Representation and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true on and as of the
Closing Date with the same force and effect as though made on and of the
Closing Date, except as effected by transactions contemplated hereby.
<PAGE> 8
8.02 Performance of Agreement. Buyer shall have performed and complied
with all covenants, obligations and agreements to be performed or complied with
by them on or before the Closing Date pursuant to this Agreement.
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification by the Seller. The Seller hereby covenants and
agrees with Buyer that Seller shall reimburse and indemnify Buyer and its
successors and assigns and hold them harmless from, against and in respect of
any and all costs, losses, claims, liabilities, fines, penalties, damages and
expenses, including interest which may be imposed in connection therewith and
court costs and reasonable fees and disbursements of counsel (collectively
"Claims") incurred by Buyer due to, arising out of, or in connection with, (i)
a breach of any of the representations, warranties, covenants or agreements
made by the Seller in Article V of this Agreement, or (ii) any liability or
obligation of Seller to any person or entity, except for any obligations under
the Assumed Obligations on or after the date of Closing.
9.02 Indemnification by the Buyer. Buyer hereby covenants and agrees with
Seller that it shall reimburse and indemnify Seller and its successors and
assigns and hold them harmless from, against and in respect of any and all
Claims incurred by Seller due to, arising out of, or in connection with (i) a
breach of any of the representations, warranties, covenants or agreements made
by Buyer in this Agreement, (ii) any breach of an Assumed Obligation occurring
after the date of Closing, or (iii) liabilities relating to the operation of
the Business prior to the Closing Date, and (iv) liabilities relating to the
operation of the Business from and after the Closing Date.
ARTICLE X
GENERAL PROVISIONS
10.01 Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties and covenants contained in Articles IV, V, VI
and IX of this Agreement shall survive the execution of this Agreement and the
closing of the transactions contemplated hereby.
10.02 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
the negotiation, drafting, execution and performance of this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
10.03 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to any of the other parties shall be in writing
and shall be deemed to have been duly given when delivered personally or three
(3) days after dispatch by an overnight delivery service, such as Federal
Express, DHL, etc. to the party to whom the same is so given or made:
If to Buyer: Wizdom Systems, Inc.
1300 Iroquois Road
Naperville, IL 60563
Attn: Mr. Tony Salvati
with a copy to: Sugar, Friedberg & Felsenthal
30 North LaSalle Street
Suite 2600
Chicago, IL 60602
Attn: Mr. Etahn M. Cohen
<PAGE> 9
If to Seller: VASCO Corp.
1919 S. Highland Avenue, Suite 118-C
Lombard, IL 60148
Attn: Mr. Ken Hunt
with a copy to: Laidley, Sutter & Porter
339 North Milwaukee Avenue
Libertyville, IL 60048-2249
Attn: Mr. Forrest D. Laidley
The above addresses may be modified by providing written notice as provided
above to the other parties.
10.04 Assignability and Amendments. Seller may assign the right to
receive the royalties payable under Article III without the consent of the
Buyer. Except as provided above, this Agreement shall not be assignable by
either party without the express written consent of the other party hereto.
This Agreement cannot be altered or otherwise amended except pursuant to an
instrument in writing signed by each of the parties.
10.05 Entire Agreement. This Agreement and the Exhibits and Schedules
which are a part hereof and the other writings and agreements specifically
identified herein contain the entire agreement between the parties with respect
to the transactions contemplated herein and supersede all previous written or
oral negotiations, commitments and understandings.
10.06 Waivers, Remedies. Any waiver hereunder must be in writing and
signed by the party to be bound thereby. A waiver of any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights under any other term or condition of this Agreement. All
remedies under this Agreement shall be cumulative and not alternative.
10.07 Counterparts and Headings. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
10.08 Severability. If and to the extent that any court of competent
jurisdiction holds any provision (or any part thereof) of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
10.09 Binding Effects. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors, legal representatives and
assigns.
10.10 Governing Law. This Agreement shall be governed by the laws of
Illinois.
VASCO CORPORATION WIZDOM SYSTEMS, INC.
Signed: /s/ T. Kendall Hunt Signed: /s/
-------------------------------- --------------------------------
Name: Name:
---------------------------------- ----------------------------------
Title: President Title: CFO
--------------------------------- ---------------------------------
<PAGE> 10
SCHEDULE 3.02
PAYMENT OF PURCHASE PRICE
Payment of the Royalty will be made on an annual basis in accordance with the
following schedule:
PERIOD COVERED DATE DUE
-------------- --------
Initial payment Inception through 12/31/97 February 15, 1998
Annual payment 01/01/98 through 12/31/98 February 15, 1999
Annual payment 01/01/99 through 12/31/99 February 15, 2000
Annual payment 01/01/2000 through 12/31/2000 February 15, 2001
Final payment 01/01/2001 through 08/16/2001 October 01, 2001
<PAGE> 11
SCHEDULE 4.01
ASSUMED OBLIGATIONS/ASSUMED CONTRACTS
Assumed Obligations
- -------------------
Subcontract for WMI - Howard D. Blazek
Subcontract for WMI - Mary Ann Winchester
Subcontract for Safety-Kleen - Jack Root
Assumed Contracts
- -----------------
Services Agreement - Andrew Corp.
Services Agreement - Pitney Bowes
Services Agreement - Safety-Kleen Corporation
Services Agreement - Waste Management, Inc.
Services Agreement - United Airlines (Linda Porter Consulting)
<PAGE> 12
SCHEDULE 4.02
ASSUMED CONTRACTS - WORK REMAINING
<TABLE>
<CAPTION>
Hours Remaining
Customer September October
- -------- --------- --------
<S> <C> <C>
Pitney Bowes 76 -
Waste Management, Inc. 215 -
Andrew Corp. 115 115
United Airlines (Linda Porter Consulting) 56 56
Safety Kleen 70 30
</TABLE>
With regard to the amounts paid to VPS for services already rendered, all
contracts are billed based upon time and materials (with the exception of
Safety Kleen which is a fixed bid). Therefore, the amount already paid is not
applicable for determining the balance of the contracts. Expected remaining
revenue on the above contracts is outlined on Exhibit 5.05.
<PAGE> 13
SCHEDULE 5.14
ACQUIRED EMPLOYEES
The following represents a listing of the employees to be transferred as part
of this Agreement:
<TABLE>
<CAPTION>
Name Title Salary (annual)
- ---- ----- ---------------
<S> <C> <C>
Chris Bryant Project Manager $55,000
Mike Tillmans Director Consulting & Development $65,000
Phil Vitkus Account Executive $60,000
</TABLE>
<PAGE> 1
EXHIBIT 10.13
1997 VASCO DATA SECURITY INTERNATIONAL, INC. STOCK OPTION PLAN
AS AMENDED
1. PURPOSE
The purpose of the Plan is to promote the long-term success of the
Company for the benefit of the stockholders by encouraging officers and
employees of VASCO to have meaningful investments in the Company so that, as
stockholders themselves, those individuals will be more likely to represent the
views and interests of other stockholders and by providing incentives to such
officers and employees for continued service. The Company believes that the
possibility of participation under the Plan will provide this group of officers
and employees an incentive to perform more effectively and will assist VASCO in
attracting and retaining people of outstanding training, experience and
ability.
2. DEFINITIONS
2.1 "Authorized Plan Shares" shall have the meaning set forth in
Section 6.1.
2.2 "Award" shall mean an award or grant made to a Participant
under Section 8.
2.3 "Award Agreement" shall mean the agreement provided in
connection with an Award under Section 10.
2.4 "Award Date" shall mean the date that an Award is made, as
specified in an Award Agreement.
2.5 "Board of Directors" shall mean the Board of Directors of the
Company.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor legislation.
2.7 "Company" shall mean VASCO Data Security International, Inc.
2.8 "Common Stock" shall mean the Company's common stock, $.001
par value per share.
2.9 "Dividend Equivalent" shall mean an amount equal to the amount
of the cash dividends that are declared and become payable
after the Award Date for the Award to which it relates and on
or before the Settlement Date for such Award.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
2.11 "Fair Market Value" on any date shall mean the average of the
high and low closing bid quotations on the Over-the-Counter
Bulletin Board ("OTC BB") of a share of Common Stock for such
date, or if the Common Stock is quoted as listed
<PAGE> 2
on the Nasdaq Stock Market or a different national securities
exchange (a "National Exchange"), the average of the highest
and the lowest sales prices on the applicable National
Exchange for such date, provided that if (i) no sales of
Common Stock are included on the OTC BB or the National
Exchange, as applicable, for such date, or (ii) in the opinion
of the Committee the sales of Common Stock on such date on the
OTC BB or the National Exchange, as applicable, are
insufficient to constitute a representative market, then the
Fair Market Value of a share of Common Stock on such date
shall be deemed to be the average of the high and low closing
bid quotations on the OTC BB, or the average of the highest
and lowest sales prices on the applicable National Exchange,
of a share of Common Stock for the next preceding day on which
(x) sales of Common Stock are included and (y) sales on such
day are sufficient in the opinion of the Committee to
constitute a representative market.
2.12 "ISO" shall mean any Stock Option (included any Reload Stock
Option) designated in an Award Agreement as an "Incentive
Stock Option" within the meaning of Section 422 of the Code.
2.13 "Non-Qualified Stock Option" shall mean any Stock Option that
is not an ISO.
2.14 "Option Price" shall mean the purchase price of one share of
Common Stock under a Stock Option.
2.15 "Participant" shall mean a person who has been selected by the
Committee to receive an Award under the Plan.
2.16 "Plan" shall mean this 1997 VASCO Data Security International,
Inc. Stock Option Plan, as amended from time to time.
2.17 "Reload Stock Option" shall mean a Stock Option (i) that is
awarded, either automatically in accordance with the terms of
an Award Agreement in which one or more other Awards are made
or by separate Award, upon the exercise of a stock option
granted under this Plan or otherwise where the option price is
paid by the option holder by delivery of shares of Common
Stock on the Settlement Date for such exercise and (ii) that
entitles such holder to purchase the number of shares so
delivered for an Option Price equal to the Fair Market Value
of a share of Common Stock on such Settlement Date.
2.18 "Rule 16b-3" shall mean Regulation Section 240.16b-3 of the
rules and regulations of the Securities Exchange Commission
promulgated under the Exchange Act.
2.19 "Settlement Date" shall mean (i) with respect to any Stock
Option that has been exercised in whole or in part, the date
or dates upon which shares of Common Stock are to be delivered
to the Participant and the Option Price therefor paid and
-2-
<PAGE> 3
(ii) with respect to Dividend Equivalents, the date upon which
payment thereof is to be made, in each case, determined in
accordance with the terms of the Award Agreement under which
any such Award was made.
2.20 "Stock Option" or "Option" shall mean any right to purchase
shares of Common Stock (including Reload Stock Option) awarded
pursuant to Section 8.1.
2.21 "VASCO" shall mean the Company, any stock corporation of which
a majority of the capital stock generally entitled to vote for
directors is owned directly or indirectly by the Company, and
any other company designated as such by the Committee, but
only during the period of such ownership or designation.
3 TERM
The Plan shall be effective as of July 21, 1997 and shall remain in
effect until terminated by the Board of Directors or the Committee. After
termination of the Plan, no further Awards may be granted other than Reload
Stock Options granted in accordance with the Award Agreements existing as of
the date the Plan is terminated, but outstanding Awards shall remain effective
in accordance with their terms and the terms of the Plan.
4 PLAN ADMINISTRATION
4.1 The Committee shall be responsible for administering the Plan.
4.1.1 Composition of the Committee. The Committee shall be
comprised of two or more members of the Board of
Directors, all of whom shall be "non-employee
directors" as defined in Rule 16b-3.
4.1.2 Powers. The Committee shall have full and exclusive
discretionary power to interpret the Plan and to
determine eligibility for benefits and to adopt such
rules, regulations and guidelines for administering
the Plan as the Committee may deem necessary or
proper. Such power shall include, but not be limited
to, selecting Award recipients, establishing all
Award terms and conditions and, subject to Section
11, adopting modifications and amendments to the Plan
or any Award Agreement, including without limitation,
any that are necessary to comply with the laws of the
countries in which the Company or its affiliates
operate.
4.1.3 Delegation. The Committee may delegate to one or
more of its members or to one or more agents or
advisers such non-discretionary administrative duties
as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid
may employ one or more persons to render advice with
respect to any responsibility the Committee or such
person may have under the Plan.
-3-
<PAGE> 4
4.2 The Committee may employ attorneys, consultants, accountants
and other persons, and the Committee, the Company and its
officers and directors shall be entitled to rely upon the
advice, opinions or valuations of any such person. All
actions taken and all interpretations and determinations made
by the Committee in good faith shall be final and binding upon
the Participants, the Company and all other interested
persons. No member of the Committee shall be personally
liable for any action, determination, or interpretation made
in good faith with respect to the Plan or Awards, and all
members of the Committee shall be fully protected by the
Company, to the fullest extent permitted by applicable law, in
respect of any such action, determination or interpretation.
5 ELIGIBILITY
Awards will be limited to persons who are officers, employees,
directors, consultants or advisers of VASCO, provided that bona fide services
shall be rendered by consultants or advisers and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. In determining the persons to whom Awards shall be made, the
Committee shall, in its discretion, take into account the nature of the
person's duties, past and potential contributions to the success of the Company
and such other factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan. A person who has received an Award or
Awards may receive additional Award or Awards. For Purposes of this Section 5,
the terms "employee" and "officer" shall also include any former employee or
former officer of VASCO eligible to receive a replacement award.
6 AUTHORIZED AWARDS AND LIMITATIONS
6.1 Except for adjustments pursuant to Section 7, the maximum
number of shares of Common Stock that shall be available for
issuance under the Plan (the "Authorized Plan Shares") shall
be 5,000,000.
6.2 If an Award expires unexercised or is forfeited, surrendered,
canceled, terminated or settled in cash in lieu of Common
Stock, the shares of Common Stock that were theretofore
subject (or potentially subject) to such Award may again be
made subject to an Award Agreement.
6.3 Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have
been reacquired by the Company and that are being held as
treasury shares. No fractional shares of Common Stock shall
be issued under the Plan; provided, however, that cash, in an
amount equal to the Fair Market Value of a fractional share of
Common Stock as of the Settlement Date of the Award, shall be
paid in lieu of any fractional shares in the settlement of
Awards payable in shares of Common Stock.
-4-
<PAGE> 5
7 ADJUSTMENTS AND REORGANIZATIONS
The Committee may make such adjustments to Awards granted under the
Plan (including the terms, exercise price and otherwise) as it deems
appropriate in the event of changes that impact the Company, the Company's
share price or share status.
In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, extraordinary
dividend, spin-off, split-up, rights offering, share combination, or other
change in the corporate structure of the Company affecting the Common Stock,
the number and kind of shares that may be delivered under the Plan and the
number, kind and price of shares subject to outstanding Awards and any other
terms of outstanding Awards shall be subject to such equitable adjustments as
the Committee, in its sole discretion, may deem appropriate.
8 AWARDS
The Committee shall determine the type and amount of any Award to be
made to any Participant. Awards may be granted singly, in combination, or in
tandem. Awards may also be made in combination or in tandem with, in
replacement of , as alternatives to, or as the payment form for, grants under
any other employee benefit or compensation plan of the Company, including any
such employee benefit or compensation plan of any acquired entity.
8.1 Stock Options
8.1.1 Grants. Stock Options (including Reload Stock
Options) granted under this Plan may be either of the following:
8.1.1.1 an ISO or
8.1.1.2 a Non-Qualified Stock Option
The Committee may grant any Participant one or more ISOs,
Non-Qualified Stock Options, or both types of Stock Options, in each
case with or without Reload Stock Options. Stock Options granted
pursuant to this Plan shall be subject to such additional terms,
conditions, or restrictions as may be provided in the Award Agreement
relating to such Stock Option.
8.1.2 ISOs. Anything in this Plan to the contrary
notwithstanding, no term of this Plan relating to
ISOs shall be interpreted, amended or altered, nor
shall any discretion or authority awarded under the
Plan be exercised, as to disqualify this Plan under
Section 422 of the Code, or, without the consent of
the Participants affected, to disqualify any ISO
under Section 422 of the Code.
-5-
<PAGE> 6
8.1.2.1 The Option Price of an ISO shall not be less
than 100% of the Fair Market Value of a share
of Common Stock on the Award Date.
8.1.2.2 An ISO shall not be granted to an individual
who, on the date of grant, owns stock
possessing more than 10% of the total
combined voting power of all classes of stock
of the Company. However, this rule shall not
apply if at the time the ISO is granted the
Option Price is at least 110% of the Fair
Market Value of the Common Stock subject to
the ISO and the ISO by its terms is not
exercisable after the expiration of five
years from the date the ISO is granted.
8.1.2.3 The aggregate Fair Market Value, determined
on the Award Date, of the shares of Common
Stock or other stock with respect to which
one or more ISOs that are exercisable for the
first time by the Participant during any
particular calendar year shall not exceed the
$100,000 limitation imposed by Section 422(d)
of the Code.
8.1.2.4 An ISO shall be granted within ten years from
the date the Plan is adopted, or the date the
Plan is approved by the stockholders,
whichever is earlier. An ISO by its terms
shall not be exercisable after the expiration
of ten years from the date the ISO was
granted.
8.1.3 Manner of Payment of Option Price. The Option Price
shall be paid in full at the time of the exercise of
the Stock Option and may be paid in any of the
following methods or combinations thereof:
8.1.3.1 In United States dollars in cash, check,
bank draft or money order payable to the
order of the Company;
8.1.3.2 By delivery of shares of Common Stock having
an aggregate Fair Market Value on the date of
such exercise equal to the Option Price;
8.1.3.3 Participants may simultaneously exercise
Stock Options and sell their shares of Common
Stock acquired thereby and apply the proceeds
to the payment of the Option Price pursuant
to the procedures established by the
Committee;
8.1.3.4 In any other manner that the Committee shall
approve; and
8.1.3.5 Any shares of Common Stock required or
permitted to be sold by an executive officer
in connection with the payment of the Option
Price shall be transferred to the Company.
-6-
<PAGE> 7
8.1.4 Reload Stock Options. The Committee may
award Reload Stock Options to any
Participant either in combination with
other Awards or in separate Award Agreements
that grant Reload Stock Options upon
exercise of outstanding stock options
granted under this Plan or otherwise.
8.2 Dividend Equivalents
The Committee may provide in any Award Agreement in which Stock
Options are awarded that such Stock Options may accrue Dividend
Equivalents.
9 TRANSFERABILITY AND BENEFICIARIES
No Awards under the Plan shall be assignable, alienable, saleable or
otherwise transferable other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order (as defined
by the Code) or Title I of the Employee Retirement Income Security Act, or the
rules thereunder unless otherwise determined by the Committee.
10 AWARD AGREEMENTS
Awards under the Plan shall be evidenced by Award Agreements that set
forth the details, conditions and limitations for each Award, which may include
the term of an Award, the provisions applicable in the event the Participant's
employment terminates, and the Company's authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind any Award.
11 AMENDMENTS AND COMPLIANCE WITH RULE 16B-3
The Committee may suspend, terminate, or amend the Plan as it deems
necessary or appropriate, except that, without the approval of the Company's
shareholders, no such amendment shall be made for which shareholder approval is
necessary to comply with any applicable tax or regulatory requirement,
including for these purposes any approval requirement which is a prerequisite
for exemptive relief under Section 16b of the Exchange Act.
12 TAX WITHHOLDING
The Company shall have the right to (i) make deductions from any
settlement of an Award made under the Plan, including the delivery or vesting
of shares, or require shares or cash or both be withheld from any Award, in
each case in an amount sufficient to satisfy withholding of any federal, state
or local taxes required by law, or (ii) take such other action as may be
necessary or appropriate to satisfy any such withholding obligations. The
Committee may determine the manner in which such withholding may be satisfied,
and may permit shares of Common Stock (rounded up to the next whole number) to
be used to satisfy required tax withholding based on the Fair Market Value of
any such shares of Common Stock, as of the Settlement Date of the applicable
Award.
-7-
<PAGE> 8
13 OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements
of Awards received by a Participant under the Plan shall not be deemed a part
of the Participant's regular, recurring compensation for purposes of
calculating payments or benefits from any benefit plan, severance program or
severance pay law of any country. Further, VASCO may adopt other compensation
programs, plans or arrangements as it deems appropriate or necessary.
14 UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The Plan shall not establish any fiduciary relationship between
the Company and any Participant or other person. To the extent any person
holds any rights by virtue of a grant awarded under the Plan, such right
(unless otherwise determined by the Committee) shall be no greater than the
right of an unsecured general creditor of the Company.
15 FUTURE RIGHTS
No person shall have any claim or right to be granted an Award under
the Plan, and no Participant shall have any right under the Plan to be retained
in the employment of VASCO.
16 GOVERNING LAW
The validity, construction and effect of the Plan, and any actions
taken or relating to the Plan, shall be determined in accordance with the laws
of the State of Delaware and applicable federal law.
17 SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a
Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
18 RIGHTS AS A SHAREHOLDER
Except as otherwise provided in any Award Agreement, a Participant
shall have no rights as a shareholder of the Company until he or she becomes
the holder of record of Common Stock.
-8-
<PAGE> 9
19 LIABILITY
No award or other transaction shall be permitted under this Plan which
would have the effect of imposing liability for a Participant under Section 16
of the Exchange Act. Irrespective of any other provision of this Plan or Award
Agreement, any such Award or other transaction purportedly made under or
pursuant to this Plan shall be void, ab initio.
<PAGE> 1
EXHIBIT 10.14
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED WITH AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST.
Agreement #970422-02
DISTRIBUTOR AGREEMENT
BETWEEN VASCO DATA SECURITY, INC., 1919 SOUTH HIGHLAND AVE., SUITE 118-C,
LOMBARD, IL 60148, USA,
FAX: 1-630-495-0279 ("VASCO")
and
HUCOM, INC., 1-7-7 UMESATO, SUGINAMI-kU, TOKYO, JAPAN 166, FAX: 81-3-5306-7334
("DISTRIBUTOR")
Distributor agrees to purchase the "Product or "Products" described in the
attached exhibits subject to the terms and conditions stated in:
(a) the VASCO Standard Terms and Conditions of Sale except where
specifically amended in a writing signed by a VASCO officer;
(b) the DISTRIBUTOR Discount Schedule
(c) the DISTRIBUTOR Agreement; and
(d) any other exhibits attached to and made a part of this DISTRIBUTOR
Agreement.
(e) Confidential Information Disclosure Agreement
1. DISTRIBUTOR APPOINTMENT AND CERTAIN COVENANTS
VASCO hereby appoints the Distributor, effective May 1, 1997, as its
Exclusive Distributor, in the territory specified in the attached Exhibit A
("Territory"), subject to the terms and conditions set forth in this Agreement,
and is authorized to purchase, sell and service in the Territory the Products,
consisting of authentication devices, software, and manuals as more fully
described in Exhibit B ("Products"). Distributor represents, warrants and
covenants that it will:
a. Maintain adequate sales facilities and trained personnel to
aggressively promote Product sales in the Territory.
b. Be responsible for promotion, advertising and technical support of
the Products it sells to its customers. Upon VASCO's request,
Distributor shall furnish to VASCO evidence of compliance with this
Agreement.
c. Acknowledge and agree that its initial and continuing qualification
under this Agreement is within VASCO's sole discretion.
d. will not remove from Products or alter in any way any nameplates,
trade marks or patent information affixed by VASCO and may not
without written consent of VASCO use any additional marks on or in
relation to the Products nor will the Distributor acquire any right
in respect of the names or marks of VASCO. The use of the names and
marks of VASCO and the goodwill associated therewith shall inure to
the benefit of VASCO. Distributor may however print its own logo or
the customer logo on the front side of the VASCO tokens, subject to
VASCO's approval. The VASCO names and marks are listed in Exhibit?
appended hereto and as amended from time to time by VASCO.
e. will have the right to resell the Products as such to
sub-distributors, value-added resellers ("VAR"), Original Equipment
Manufacturers ("OEM") and end-user customers.
f. will have the right to translate the documentation related to the
Products from English to the Japanese language. Distributor shall
reproduce all of VASCO's copyright notices on all translated
documents as such notices originally appear.
g. acknowledge and accept that this Agreement shall not prevent OEMs
and VARs to sell their products, systems or applications
incorporating the VASCO Products to customers in the Territory.
Distributor shall be notified if VASCO has knowledge of the OEMs' or
VARs' intention to sell in the Territory.
h. will comply with all provisions of this Agreement (including the
exhibits hereto).
i. will not devise, retrofit, reverse engineer or alter the Products.
2. ORDERING PROCEDURE
(a) Distributor initially may place an order orally or by fax provided
that it submits a confirming written purchase order within ten (10)
days of the date of such oral or fax order. No order shall be binding
on VASCO until VASCO has accepted it in writing, and VASCO shall have
no liability for any purchase order which it does not accept. Partial
shipment of an order shall not constitute acceptance of the entire
order absent written acceptance of the entire order.
(b) To facilitate VASCO's production scheduling Distributor agrees to
use its best efforts to submit its purchase order at least
ninety (90) days before the requested delivery date.
<PAGE> 2
(c) "VASCO" specifically disclaims any terms and conditions which might
appear on Distributor's written purchase order which are inconsistent
with terms and conditions contained in this agreement and the
attached exhibits unless specifically accepted by VASCO in writing.
(d) All orders are subject to the additional provisions of this
Agreement, including, without limitation, the Terms and Conditions of
Sale (Distributor) and Exhibit C: Minimum Order, Yearly Commitment
and Delivery Terms.
3. CANCELLATION AFTER ACCEPTANCE
If Distributor (a) cancels all or any part of any order, (b) fails to meet
any obligation resulting in cancellation or rescheduling of any order or
portion thereof; (c) requests a rescheduling of scheduled Product shipments
which VASCO has previously accepted; or (d) requests a configuration change
which VASCO has previously accepted, Distributor agrees to pay VASCO the
following cancellation/rescheduling charges if both parties agree to a
non-cancelable order at the time the order is placed:
CANCELLATION OR
RESCHEDULE CHARGE AS A % OF
NOTICE IS RECEIVED: PRODUCT LIST PRICE:
------------------- -------------------
61-90 days before the scheduled 5%
delivery date
31-60 days before the scheduled 10%
delivery date
0-30 days before the scheduled 15%
delivery date
4. RETURNS
(a) Distributor shall have the right to inspect the Products upon receipt.
Products shall be deemed accepted if they are not rejected within thirty (30)
days after shipment or have been used or disposed of.
(b) If a Product is defective, Distributor shall have the right to return
it for credit against future purchases provided that it is on the current VASCO
Price List and has not been used, abused or damaged.
(c) If a Product is not defective, Distributor shall have no right to
return it; however, VASCO, in its sole discretion, may consent to accept its
return for credit against future purchases provided that it has not been used,
abused or damaged and provided further that Distributor pays a restocking fee
equal to fifteen percent (15%) of Distributor's net purchase price for that
Product.
(d) To return or reject a Product, Distributor shall request a Return
Material Authorization ("RMA") number from VASCO. VASCO shall provide the RMA
number in writing or by fax within fifteen (15) days of receipt of the request.
Within ten (10) days of receipt of the RMA number Distributor shall return the
Product, freight prepaid, to VASCO in the original shipping carton with the RMA
number displayed on the outside of the carton. VASCO shall have the right to
refuse or accept any Products that do not bear an RMA number on the outside of
the carton and to return them to Distributor freight collect.
5. WARRANTY DISCLAIMER
(a) VASCO makes no warranty of any kind to Distributor, whose only
remedies shall be to reject the Products and return them to VASCO as provided
in paragraph 4 above.
(b) VASCO grants Distributor the right to pass along to Distributor's
customers VASCO's standard End User's Limited Warranty for the Products set
forth in Paragraph 7 of the Standard Terms and Conditions of Sale (Distributor)
attached hereto, subject to all the limitations set forth therein.
(c) NO OTHER WARRANTY IS EXPRESSED OR IMPLIED. VASCO SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE REMEDIES PROVIDED IN THIS AGREEMENT, INCLUDING THE
REMEDIES FOR RETURN OF DEFECTIVE GOODS, ARE DISTRIBUTOR'S SOLE REMEDIES. VASCO
WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER BASED IN CONTRACT, TORT OR OTHER LEGAL THEORY.
6. TERM AND TERMINATION
(a) Term. This Agreement shall continue in force until December 31 of the
year in which the Agreement is fully executed by both parties ("Annual
Expiration Date"). This Agreement shall continue in force for a term of one (1)
year from the date thereof
<PAGE> 3
unless terminated earlier under the provisions of this Section 6. This
Agreement shall renew automatically at the annual expiration date for an
additional twelve (12) month period unless either party provides sixty (60) day
written notice as specified below. The terms and conditions of the Exhibits of
this Agreement do not renew automatically and are subject to change at the time
of the annual expiration date of the Agreement.
(b) Termination. Either party may cancel this Agreement in their sole
discretion, whether or not it has been extended beyond the initial term, by
giving the other party written notice sixty (60) days in advance.
(c) Limitation on Liability. If either party terminates this Agreement in
accordance with any of its provisions, neither party shall be liable to the
other as a result of such termination for compensation, reimbursement or
damages on account of the loss of prospective profits or anticipated sales or
on account of expenditures, inventory, investments, leases or commitments in
connection with the business or goodwill of VASCO or Distributor pursuant to
this Agreement. Termination shall not, however, relieve either party of
obligations incurred before the termination. In the event of a breach of this
Agreement, the nonbreaching party shall have such rights and remedies as
provided under the laws of the State of Illinois, subject to the limitations on
the liability of VASCO provided in this Agreement (including any exhibit
hereto).
7. SOFTWARE SUBJECT OF RESTRICTIONS
VASCO grants Distributor the limited right to distribute the software
materials in accordance with the license terms supplied with a Product. Where
the software is designed as confidential or a trade secret in its license
terms, Distributor agrees to ensure that its customers safeguard the software
in accordance with the highest industry standards and applicable law, using its
best efforts to prevent unauthorized disclosure. Distributor shall maintain all
of VASCO's copyright notices on all software materials as such notices
originally appear.
8. CERTAIN RESPONSIBILITIES OF DISTRIBUTOR
Distributor shall:
(a) shall use its best efforts and diligence in promoting and initiating
effectively the sales of the Products in the Territory;
(b) maintain in each country of the Territory, adequate facilities and
sufficient qualified staff for the promotion, demonstration,
installation, maintenance, replacement and First Level Technical
Support of the Products. First Level Technical Support means
that the provision of field personnel responsible for direct
contact with the customers and capable of handling the
customer's inquiries regarding normal usage of the Products;
(c) be responsible for promotion and advertising of the Products it sells
to its customers and provide VASCO evidence of such efforts.
(d) maintain sufficient and representative stocks of the Products
(e) provide a Sales and Marketing Plan prior to the signature of this
Agreement for discussion with VASCO, which will be attached
under Exhibit F. Thereafter updated Sales and Marketing Plans
will be provided every six months (including but not limited to
a forecast of sales to prospects and customers in the Territory)
to VASCO to evidence its compliance with this obligations
mentioned in article 8(a), 8(b), 8(c), and 8(d).
(f) will not without written authorization from VASCO participate
directly or indirectly, in the development, manufacturing or
distribution of any product which is similar to the Products
listed in Exhibit B. Violation against this article will cause
an immediate termination of this Agreement and the Distributor
will be liable to compensate all the costs and the losses of
VASCO caused by this violation.
(g) provide VASCO with a quarterly report, to be delivered to VASCO by
the 20th working day of each new quarter, listing the number of
tokens and software licenses sold to the respective customers in
the Territory during the previous quarter.
(h) obtain the necessary government approvals, if so required, to
distribute the Products in the Territory;
(i) make no representations, oral or written, in connection with the
Products which are not in conformity with the commercial and
technical documentation.
<PAGE> 4
(j) not solicit orders from customers outside the territories without
prior written consent or instruction from VASCO. However the
Distributor will be allowed to execute orders from customers in
the Territory for VASCO Products which are destined for the
customers' location and subsidiaries outside the Territory.
(k) shall not apply for a patent covering any of the Products listed
in Exhibit B, directly or indirectly, without the prior written
consent of VASCO.
9. CERTAIN RESPONSIBILITIES OF VASCO
VASCO warrants and represents that it will:
(a) provide Second Level Technical Support to Distributor for the
Products still under warranty or supported by a valid
Maintenance Agreement provided by VASCO. This Support means the
provision of personnel which are technically knowledgeable with
respect to the Products and which shall be available by fax or
telephone during normal business hours to handle customer
inquiries or problems which have not been resolved by First
Level Technical Support, provided the Distributor's personnel
have supplied VASCO's personnel with the appropriate
documentation concerning the inquiry or the problem. Typical
response time for telephone assistance will be within 24 hours,
or the next business day after notification by Distributor;
(b) provide Distributor copies of available commercial and technical
documentation in English. New documentation is to be released
when the new Products or the new versions of the Products are
released.
(c) notify Distributor of any new Products which VASCO intends to market
and will give Distributor a reasonable opportunity of entering
into a similar distribution agreement for said additional
Products.
(d) use its best efforts to supply the Products within the terms
indicated in its order acknowledgment or within terms indicated
in the public price lists.
(e) send leads generated through promotional and advertisement activities
of VASCO.
(f) will actively support the Distributor according to the Sales and
Marketing Plan agreed upon, especially in connection with the
introduction of the Products in the Territory. At times mutually
agreeable to VASCO and Distributor VASCO will visit the
Distributor to support Promotional Campaigns, Sales and
Presentations of new Products.
(g) will not distribute information on Distributor's customers to any
third party without written permission from Distributor to
VASCO.
10. NOTICES
Any notice required or permitted by this Agreement shall be in writing and
shall be given (and will be deemed to have been given upon receipt) by delivery
in person, by electronic facsimile transmission, cable, telegram, telex or
other standard forms of written communication, by overnight mail or by
certified or registered mail, postage prepaid, return receipt requested,
addressed to the other party at the address shown at the beginning of this
Agreement or to such other address for which such party gives notice hereunder.
11. AMENDMENTS, MODIFICATIONS, WAIVERS, ETC.
Any alterations to, additions to, amendments, deletions, modifications or
waivers of any terms and conditions contained herein and in the attached
exhibits shall not be binding on the parties hereto unless agreed to in writing
by the parties hereto, except for prices or other changes contemplated by this
Agreement.
12. TRAINING
Training for VASCO Products for up to ten (10) employees of Distributor
shall be provided by VASCO, at a VASCO facility, at no charge by VASCO to the
Distributor for the first training session. Subsequent training sessions, if
required by DISTRIBUTOR, shall be provided at a charge by VASCO to Distributor.
In all cases, any travel and living expenses incurred as a result of requested
training shall be the responsibility of Distributor.
<PAGE> 5
13. PROMOTIONAL MATERIALS
VASCO shall provide a minimal number (50 each) of product brochures to
Distributor. Additional product brochures may be purchased by Distributor, from
VASCO, at the current production cost. Other promotional items (i.e. evaluation
units, promotional products, etc.) may be purchased from VASCO at the then
current DISTRIBUTOR Discount price.
14. EXHIBITS
The exhibits initialed below are attached to and incorporated herein and
made a part of this Agreement:
_____ Terms and Conditions of Sale - Distributors
_____ Proprietary Information Agreement
_____ Exhibit A: Territory
_____ Exhibit B: Products
_____ Exhibit C: Minimum Order, Yearly Commitment and Delivery Terms
_____ Exhibit D: Distributor Price List
_____ Exhibit E: Marketing Plan and Marketing and Promotion Budget
1. ARBITRATION
Any controversy or claim arising out of or relating to this agreement or
breach thereof, shall be settled by binding arbitration in Lombard, IL as
administered by the American Arbitration Association under its commercial
arbitration rules. The arbitration shall be conducted before a panel of three
arbitrators. At least one of the arbitrators shall be knowledgeable about
hardware and software distribution agreements. Judgment on the award rendered
by the arbitrators may be entered in any court in Illinois having jurisdiction
thereof. Provided however, any party may seek injunctive relief in competent
court for violation of the attached Confidential Information Disclosure
Agreement.
IN WITNESS WHEREOF, each of VASCO and Distributor has duly executed this
Agreement as of the 3rd day of June, 1997.
VASCO DATA SECURITY, INC. HUCOM, INC.
BY: /s/ T. Kendall Hunt BY: /s/ Hideaki Sato
--------------------------------- ------------------------------
NAME: T. Kendall Hunt NAME: Hideaki Sato
TITLE: Chief Executive Officer TITLE: CEO & President
ADDRESS: 1919 South Highland Avenue ADDRESS: 1-7-7 SKT Bld.
Suite 118-C Umesato Suginami-ku
Lombard, IL 60148 Tokyo, Japan
U. S. A.
<PAGE> 6
EXHIBIT A
TERRITORY
The Distributor agrees to represent, on an exclusive basis, VASCO products
listed in Exhibit B in Japan.
<PAGE> 7
EXHIBIT B
PRODUCTS
The Distributor is authorized to sell the following VASCO products:
1. AccessKey II
2. Digipass V5
3. VACMan/Server Product Suite
4. Digilink
5. Initialization Software for Digipass V5
6 Robot for initialization of Digipass V5
7. VDSI/AMS (Initialization software and hardware for AccessKey II)
8. AccessKey Version 3 (when available)
9. Authenticard II (when available)
10. Other VASCO products that may become available during the term of this
agreement.
11. Netscape products available through VASCO's OEM Agreement, but on a
non-exclusive basis.
<PAGE> 8
EXHIBIT C
MINIMUM ORDER, YEARLY COMMITMENT & DELIVERY TERMS
Minimum Order Quantities
The minimum order quantities for the following Products, will be as follows:
Digipass V5: 100 units
AuthentiCard: 50 units at 1st order, 100 at 2nd order and 500 as from 3rd
order
Yearly Commitment
In exchange for this exclusive Distributor Agreement, Distributor commits to
purchase Products as listed in Exhibit B for a value of minimum $500,000.00 US
Dollars during the first term of the Agreement (calendar year 1997) and
$1,000,000.00 US Dollars for the second term (calendar year 1998). If, during
either term of the Agreement, Distributor fails to place orders equaling or
greater than the minimum order commitment for a specific term, Distributor
agrees to pay VASCO any remaining amount, prior to the end of that term.
Three months prior to the end of the second term, the parties to this Agreement
will agree upon the Yearly commitment for the third term of this Agreement.
If Distributor fails to meet the minimum purchase commitment for the first two
terms of the agreement or a minimum of 80 percent of the Yearly Quota for
subsequent terms of the Agreement, then VASCO has the right to terminate the
exclusive appointment of Distributor, to terminate the Agreement or both upon 30
days written notice to Distributor.
All minimum price commitments and yearly quotas are based upon the then current
Distributor Price Schedule.
Delivery term
The delivery term for the Digipass V5 and the AuthentiCard is standard
approximately 16 weeks for quantities in excess of 500 units, unless a forecast
mechanism is in place. Quantities below 500 units are normally available within
2 weeks upon confirmation of order.
<PAGE> 9
EXHIBIT D
DISTRIBUTOR PRICE LIST
The enclosed Distributor Price Lists defines transfer prices from VASCO to
Distributor for orders received after the signature of this Agreement and such
prices are subject to change as provided in the Standard Terms and Conditions of
Sale (Distributor) attached to this Agreement. All prices are FOB Lombard, IL
excluding shipping charges and taxes.
<PAGE> 10
EXHIBIT D
DIRECT
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
<TABLE>
<CAPTION>
1 to 100 to 500 to 1,000 to 5,000 to 10,000 to
Part # Description List Price 99 499 999 4,999 9,999 49,999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100-12000-0000 AccessKey II $ ** ** ** ** ** ** **
100-01200-1000 AKII Provisioning $ ** ** ** ** ** ** **
300-05000-0000 Digipass V5 $ ** ** ** ** ** ** **
300-05000-1000 Digipass Provisioning $ ** ** ** ** ** ** **
100-07000-0000 CryptaPakb $ ** **
300-05100-0000 Digilink $ ** ** ** ** ** ** **
<CAPTION>
50,000 to 100,000 to 250,000 to
Part # Description 99,999 249,999 499,999 500,000+
<S> <C> <C> <C> <C> <C>
100-12000-0000 AccessKey II ** ** ** **
100-01200-1000 AKII Provisioning ** ** ** **
300-05000-0000 Digipass V5 ** ** ** **
300-05000-1000 Digipass Provisioning ** ** ** **
100-07000-0000 CryptaPakb
300-05100-0000 Digilink ** ** ** **
<CAPTION>
OPTIONS - ACCESSKEY II
<S> <C> <C>
100-01200-0500 PIN Protection (per unit) $ **
100-04100-0000 AMS Keycutter System $ **
100-41200-0000 Evaluation Kit #1 $ ** Includes 4 AKII's, AccessKey API software and documentation
100-41201-0000 Evaluation Kit #2 $ ** Includes 4 AKII's, AccessKey API software, LOAN of a single key cutter
and documentation
<CAPTION>
OPTIONS - DIGIPASS V5
<S> <C> <C>
300-05100-1000 PC Software for initial $ **
Digipass w/ Digilink
300-05100-2000 Initialization Robot $ ** PC not included
for Digipass V5
300-05100-0500 Leather Case for DP V5 $ **
</TABLE>
Notes:
a Additional years beyond year 1.
b Includes SmartCard, SmartCard Reader and software.
Shipping charges, handling, customs and duties will be the responsibility of the
Customer and will vary based upon the size and destination of the order.
<PAGE> 11
DIRECT
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
<TABLE>
<CAPTION>
VACMAN PRODUCTS NUMBER OF USERS
-------------------------------------------------------------------------
Up to Up to Up to Up to Up to Up to
Part # Description 100 500 2,500 5,000 7,500 10,000 Unlimited
----- ----- ----- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
see note c
n/a Primary VACMan/Server ** ** ** ** ** ** **
(including one (1) copy of 200-10001 200-10005 200-10025 200-10050 200-10075 200-10100 200-19999
Netscape's Directory Part Numbers
Server and VACMan/LDAP)
n/a Backup VACMan/Server n/a ** ** ** ** ** **
200-20005 200-20025 200-20050 200-20075 200-20100 200-29999
Part Numbers
<CAPTION>
Part # Description List Price
- --------------------------------------------------------------
<S> <C> <C>
200-15001-0200 VACMan/TACACS for Primary Server $ **
200-25001-0200 VACMan/TACACS for Backup Server $ **
200-15002-0200 VACMan/Accountant for Primary Serve $ **
200-25002-0200 VACMan/Accountant for Backup Server $ **
200-15003-0200 VACMan/LDAPa $ **
200-15004-0200 VACMan/Client NT $ **
200-15005-0200 VACMan/Client RAS $ **
200-15006-0200 VACMan/Client Solaris $ **
200-15007-0200 VACMan/Client Enterprise $ **
200-15008-0200 Win95 Dialer $ ** ---------------------------------------------------------------------
200-90001-0200 RADIUS SDK - NTb $ ** For single customer transactions only; Prices are for license only
200-90002-0200 RADIUS SDK - Solarisb $ ** plus one set of media per transaction.
- -----------------------------------------------------------------------------------------------------------------------------------
1 to 10 to 250 to 500 to 5,000 to 10,000 to
Part # Description 9 249 499 4,999 9,999 19,999 20,000+
- -----------------------------------------------------------------------------------------------------------------------------------
200-30001-0200 VACMan/Personal NT (price per user) $ ** ** ** ** ** ** **
200-30002-0200 Point 'n Crypt $ ** ** ** ** ** ** **
<CAPTION>
Netscape Software For single customer transaction only.
----------------------------------------------
1 to 5 to 15 to 50 to
Part # Description 4 14 49 99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
500-00000-0100 SuiteSpot $ ** ** ** **
500-01000-0100 Certificate Server $ ** ** ** **
500-02000-0100 Enterprise Server $ ** ** ** **
500-03000-0100 Directory Server $ ** ** ** **
500-04000-0100 FastTrack Server $ ** ** ** **
<CAPTION>
For single customer transactions only; Prices are for license only
plus one set of media per transaction.
-----------------------------------------------------------------------------
1 to 10 to 250 to 500 to 5,000 to 10,000 to
Part # Description 9 249 499 4,999 9,999 19,999 20,000+
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
500-50000-0100 Netscape Navigator Personal Edition $ ** ** ** ** ** ** **
500-51000-0100 Netscape Navigator Gold Personal
Edition $ ** ** ** ** ** ** **
</TABLE>
Notes:
Not yet available.
Non-Disclosure Agreement required.
Requires additional purchase of 25 tokens (either AccessKey or Digipass).
Shipping charges, handling, customs and duties will be the responsibility
of the Customer and will vary based upon the size and destination of the order.
<PAGE> 12
VASCO Data Security, Inc. DIRECT
Price Listing as of May 28, 1997
Additional Services Available:
<TABLE>
<CAPTION>
Description List Price
<S> <C>
Customized Platform Integration **
(pricing per Operating System)
Customized Application Integration **
(pricing per Operating System)
Software Protection Plan (SPP)a **
TELEPHONE SUPPORT:
5 Incidents $ **
10 Incidents $ **
20 Incidents $ **
a Customers covered by SPP will receive all bug fixes and functional enhancements made to the software by VASCO.
</TABLE>
VACMAN UPGRADE CALCULATION:
Upgrades are to be calculated as the difference in the list prices of the
products being upgraded ** Therefore, if a customer was upgrading the Primary
VACMan/Server from 2,500 users to 5,000 users, the upgrade charge would be as
follows:
**
When calculating the upgrade, all user-based products should be considered.
EVALUATION PRODUCTS AND KITS:
600-10000-0200 VACMan Evaluation Software w/ 30 day license
600-01200-0000 AccessKey Demo Kit
600-05000-0000 Digipass Demo Token
<PAGE> 13
VAR
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
<TABLE>
<CAPTION>
1 to 100 to 500 to 1,000 to 5,000 to 10,000 to
Part # Description List Price 99 499 999 4,999 9,999 49,999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100-01200-0000 AccessKey II $ ** ** ** ** ** ** **
100-01200-1000 AKII Provisioning $ ** ** ** ** ** ** **
300-05000-0000 Digipass V5 $ ** ** ** ** ** ** **
300-05000-1000 Digipass Provisioning $ ** ** ** ** ** ** **
100-07000-0000 CryptaPakb $ ** **
300-05100-0000 Digilink $ ** ** ** ** ** ** **
<CAPTION>
50,000 to 100,000 to 250,000 to
Part # Description 99,999 249,999 499,999 500,000+
<S> <C> <C> <C> <C> <C>
100-01200-0000 AccessKey II ** ** ** **
100-01200-1000 AKII Provisioning ** ** ** **
300-05000-0000 Digipass V5 ** ** ** **
300-05000-1000 Digipass Provisioning ** ** ** **
100-07000-0000 CryptaPakb
300-05100-0000 Digilink ** ** ** **
OPTIONS - ACCESSKEY II
100-01200-0500 PIN Protection (per unit) $ **
100-04100-0000 AMS Keycutter System $ **
100-41200-0000 Evaluation Kit #1 $ ** Includes 4 AKII's, AccessKey API software and documentation
100-41201-0000 Evaluation Kit #2 $ ** Includes 4 AKII's, AccessKey API software, LOAN of a single key cutter
and documentation
OPTIONS - DIGIPASS V5
300-05100-1000 PC Software for initializing $ **
Digipass w/ Digilink
300-05100-2000 Initialization Robot $ ** PC not included
for Digipass V5
300-05100-0500 Leather Case for DP V5 $ **
</TABLE>
Notes:
a Additional years beyond year 1.
b Includes SmartCard, SmartCard Reader and software.
Shipping charges, handling, customs and duties will be the responsibility of the
Customer and will vary based upon the size and destination of the order.
<PAGE> 14
VAR
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
<TABLE>
<CAPTION>
VACMAN PRODUCTS NUMBER OF USERS
--------------------------------------------------------------------------------
Up to Up to Up to Up to Up to Up to
Part # Description 100 500 2,500 5,000 7,500 10,000 Unlimited
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
see note(c)
n/a Primary VACMan/Server $ ** ** ** ** ** ** **
(including one (1) copy of 200-10001 200-10005 200-10025 200-10050 200-10075 200-10100 200-19999
Netscape's Directory Part Numbers
Server and VACMan/LDAP)
- ------------------------------------------------------------------------------------------------------------------------------------
n/a Backup VACMan/Server n/a ** ** ** ** ** **
200-20005 200-20025 200-20050 200-20075 200-20100 200-29999
Part Numbers
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Part # Description List Price
- --------------------------------------------------------------
<S> <C> <C>
200-15001-0200 VACMan/TACACS for Primary Server $ **
200-25001-0200 VACMan/TACACS for Backup Server $ **
200-15002-0200 VACMan/Accountant for Primary Serve $ **
200-25002-0200 VACMan/Accountant for Backup Server $ **
200-15003-0200 VACMan/LDAP(a) $ **
200-15004-0200 VACMan/Client NT $ **
200-15005-0200 VACMan/Client RAS $ **
200-15006-0200 VACMan/Client Solaris $ **
200-15007-0200 VACMan/Client Enterprise $ **
200-15008-0200 Win95 Dialer $ **
--------------------------------------------------------------
200-90001-0200 RADIUS SDK - NT(b) $ ** For single customer transactions only; Prices are for
200-90002-0200 RADIUS SDK - Solaris(b) $ ** license only plus one set of media per transaction.
- -----------------------------------------------------------------------------------------------------------------------------------
1 to 10 to 250 to 500 to 5,000 to 10,000 to
Part # Description 9 249 499 4,999 9,999 19,999 20,000+
- -----------------------------------------------------------------------------------------------------------------------------------
200-30001-0200 VACMan/Personal NT (price per user) $ ** ** ** ** ** ** **
200-30002-0200 Point 'n Crypt $ ** ** ** ** ** ** **
<CAPTION>
Netscape Software For single customer transaction only.
--------------------------------------------------------------
1 to 5 to 15 to 50 to
Part # Description 4 14 49 99
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
500-00000-0100 SuiteSpot $ ** ** ** **
500-01000-0100 Certificate Server $ ** ** ** **
500-02000-0100 Enterprise Server $ ** ** ** **
500-03000-0100 Directory Server $ ** ** ** **
500-04000-0100 FastTrack Server $ ** ** ** **
<CAPTION>
For single customer transactions only; Prices are for license only
plus one set of media per transaction.
----------------------------------------------------------------------------------
1 to 10 to 250 to 500 to 5,000 to 10,000 to
Part # Description 9 249 499 4,999 9,999 19,999 20,000+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
500-50000-0100 Netscape Navigator Personal Edition $ ** ** ** ** ** ** **
500-51000-0100 Netscape Navigator Gold Personal
Edition $ ** ** ** ** ** ** **
</TABLE>
Notes:
(a) Not yet available.
(b) Non-Disclosure Agreement required.
(c) Requires additional purchase of 25 tokens (either AccessKey or Digipass).
Shipping charges, handling, customs and duties will be the responsibility
of the Customer and will vary based upon the size and destination of the order.
<PAGE> 15
VAR
VASCO DATA SECURITY, INC.
PRICE LISTING AS OF MAY 28, 1997
VACMAN UPGRADE CALCULATION:
Upgrades are to be calculated as the difference in the list prices of the
products being upgraded **. Therefore, if a customer was upgrading the
Primary VACMan/Server from 2,500 users to 5,000 users, the upgrade charge would
be as follows:
**
When calculating the upgrade, all user-based products should be considered.
<PAGE> 16
DISTRIBUTOR
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
<TABLE>
<CAPTION>
1 to 100 to 500 to 1,000 to 5,000 to 10,000 to
Part # Description List Price 99 499 999 4,999 9,999 49,999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100-12000-0000 AccessKey II $ ** ** ** ** ** ** **
300-05000-0000 Digipass V5 $ ** ** ** ** ** ** **
100-07000-0000 CryptaPakb $ ** **
300-05100-0000 Digilink $ ** ** ** ** ** ** **
</TABLE>
<TABLE>
<CAPTION>
50,000 to 100,000 to 250,000 to
Part # Description 99,999 249,999 499,999 500,000+
<S> <C> <C> <C> <C> <C>
100-12000-0000 AccessKey II ** ** ** **
300-05000-0000 Digipass V5 ** ** ** **
100-07000-0000 CryptaPakb
300-05100-0000 Digilink ** ** ** **
OPTIONS - ACCESSKEY II
100-01200-0500 PIN Protection (per unit) $ **
100-04100-0000 AMS Keycutter System $ **
100-41200-0000 Evaluation Kit #1 $ ** Includes 4 AKII's, AccessKey API software and documentation
100-41201-0000 Evaluation Kit #2 $ ** Includes 4 AKII's, AccessKey API software, LOAN of a single key cutter
and documentation
OPTIONS - DIGIPASS V5
300-05100-1000 PC Software for initializing $ **
Digipass w/Digilink
300-05100-2000 Initialization Robot $ ** PC not included
for Digipass V5
300-05100-0500 Leather Case for DP V5 $ **
</TABLE>
Notes:
- ------
a Additional years beyond year 1.
- ----------------------------------
b Includes SmartCard, SmartCard Reader and software.
- -----------------------------------------------------
Shipping charges, handling, customs and duties will be the responsibility of the
Customer and will vary based upon the size and destination of the order.
- -------------------------------------------------------------------------------
<PAGE> 17
VASCO Data Security, Inc.
Price Listing as of May 28, 1997
DISTRIBUTOR
<TABLE>
<CAPTION>
NETSCAPE SOFTWARE For single customer transaction only.
----------------------------------------------
1 to 5 to 15 to 50 to
Part # Description 4 14 49 99
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
500-00000-0100 SuiteSpot $ ** ** ** **
500-01000-0100 Certificate Server $ ** ** ** **
500-02000-0100 Enterprise Server $ ** ** ** **
500-03000-0100 Directory Server $ ** ** ** **
500-04000-0100 FastTrack Server $ ** ** ** **
<CAPTION>
For single customer transactions only; Prices are for license only
plus one set of media per transaction.
-----------------------------------------------------------------------------
1 to 10 to 250 to 500 to 5,000 to 10,000 to
Part # Description 9 249 499 4,999 9,999 19,999 20,000+
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
500-50000-0100 Netscape Navigator Personal Edition $ ** ** ** ** ** ** **
500-51000-0100 Netscape Navigator Gold Personal
Edition $ ** ** ** ** ** ** **
</TABLE>
Shipping charges, handling, customs and duties will be the responsibility
of the Customer and will vary based upon the size and destination of the order.
<PAGE> 18
EXHIBIT E
MARKETING PLAN & MARKETING AND PROMOTION BUDGET
(To be added by Distributor)
<PAGE> 19
STANDARD TERMS AND CONDITIONS OF SALE
(DISTRIBUTORS)
1. PAYMENT
VASCO may require cash in advance of delivery. If Distributor maintains
credit arrangements satisfactory to VASCO, terms of payment are net thirty (30)
days from date of invoice. Overdue amounts shall bear interest at the lesser of
one and one-half percent (1.5%) per month or the highest legal rate. On
international orders, payment shall be in U.S. dollars and effected by wire
transfer.
2. PRICES AND TAXES
(a) All prices are stated in U.S. dollars, FOB origin. VASCO may revise
prices at any time. VASCO shall use its best efforts to give Distributor at
least thirty (30) days notice before it increases prices. Such increases shall
apply to all purchase orders which VASCO receives or accepts after the effective
date of the increase. Price decreases may occur without notice. Such decreases
shall apply to all unfilled orders which VASCO has accepted before the effective
date of the decrease.
(b) Prices are exclusive of, and Distributor is responsible for, all
excise, sales, use, or like taxes or duties. Distributor shall pay any such tax,
fee, or charge in addition to the prices quoted or invoiced unless Distributor
supplies VASCO with satisfactory tax exemption certificates.
3. SHIPMENT AND DELIVERY
VASCO will normally ship freight collect FOB Lombard, Illinois via United
Parcel Service, unless Distributor requests otherwise. International orders will
be shipped via VASCO's selected air carrier unless Distributor requests
otherwise, and Distributor is responsible for all customs, excise and duty
related fees and expenses. If VASCO pays any shipping charges, they will be
listed as a separate invoice item. VASCO will use reasonable efforts to deliver
the Products within the times Distributor requests, but VASCO shall not be
liable for any failure to do so.
4. TITLE AND RISK OF LOSS
Risk of loss and damage to the Products shall pass to Distributor upon
their delivery to a carrier (FOB) 1919 South Highland Avenue, Suite 118-C,
Lombard, Illinois). VASCO shall retain a purchase money security interest in and
title to the Products until payment in full. Distributor agrees to execute any
documents necessary to perfect such security interest. In no event shall title
to any Software pass to Distributor.
5. PROPRIETARY INFORMATION
The Products contain valuable proprietary programs and data. VASCO retains
for itself or its suppliers all title and proprietary rights in and to all
designs, engineering details, software residents in Read-Only Memories (ROMS),
and other program data contained in any Product.
Distributor shall treat any information disclosed to it hereunder which is
identified as confidential or proprietary in strict confidence and shall not
disclose such information to third parties or use it for any purpose other than
the purpose for which it was disclosed to Distributor.
6. PATENT AND COPYRIGHT INDEMNITY
VASCO, except as otherwise provided below, shall defend or settle any
claim, suite or proceeding against Distributor or Distributor's customer so far
as it is based on an allegation that any Product of VASCO's standard
manufacture, design and composition infringes a United States patent or
registered copyright when used as VASCO contemplated and provided that VASCO
shall have sole control of any such action or settlement negotiations.
Distributor agrees that VASCO at its sole option shall have no obligations under
this paragraph unless Distributor or its customer notifies VASCO promptly in
writing of such claim, suit or proceeding and gives VASCO authority to proceed
as contemplated herein, and, gives VASCO proper and full information and
assistance to settle and/or defend any such claim, suit or proceeding. If a
Product, or any part thereof, is held to infringe and its use is enjoined, VASCO
will, at its option either:
(a) Procure for Distributor, at VASCO's expense, the right to continue
using the Product;
(b) replace or modify the Product so it shall be non-infringing; or
(c) direct Distributor to return such Product to VASCO and refund to
Distributor or Distributor's customer the purchase price originally paid less a
use credit equal to the applicable VASCO lease charges for the period of use.
VASCO shall only resort to option (c) after having exerted reasonable effort to
remedy the situation by first utilizing option (a) or (b). VASCO has no
liability for any claim, suit or action pursuant to this Paragraph based upon or
arising out of compliance with Distributor's designs, specifications or
instructions; modification of the Product; or the combination operation or use
of the Product with products or items not furnished by VASCO. THE FOREGOING
STATES VASCO'S ENTIRE LIABILITY AND OBLIGATIONS AND DISTRIBUTOR'S EXCLUSIVE
REMEDY WITH RESPECT TO ANY CLAIM, SUIT OR ACTION ALLEGING INFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHTS.
7. LIMITED PRODUCT WARRANTY
Distributor may pass on to its customer the following standard limited
warranty for the Products, including the limitations set forth therein. The
hardware Products and all components thereof are warranted against defects in
materials and/or workmanship for one (1) year from purchase by Distributor's
customer or fifteen (15) months from VASCO's initial shipment to Distributor,
whichever is less. The software and firmware Products which VASCO has designated
for use with a hardware Product, when properly installed on that hardware
Product, are warranted not to fail to execute their programming instructions due
to defects in materials and workmanship. This warranty is contingent upon proper
use of the Product in the
<PAGE> 20
application for which it is intended and is voided if the Products are
modified without VASCO's approval or are subjected to unusual physical or
electrical stress. When a Product is returned validly to VASCO under this
warranty, VASCO at its option shall repair or replace the defective Product or
components at no charge. VASCO will furnish repair parts and replacement
Products on an exchange basis. Such parts and replacement Products may be
either reconditioned or new. VASCO will return the Products promptly at its
expense by a carrier or method of delivery of its choosing after their repair
or replacement.
VASCO does not warrant that the software, firmware or hardware shall
operate uninterrupted or without error. The Warranty will be void on Products
which have been subjected to abuse, misuse, accident, alteration, neglect,
unauthorized repair or installation. VASCO shall make the final determination as
to the existence and cause of any alleged defect. Custom products and products
produced to Distributor's specifications are not warranted except as VASCO
specifically agrees to in writing in a custom product agreement.
This warranty is the only warranty VASCO makes with respect to the goods
delivered hereunder. It may be modified or amended only by a written instrument
signed by a duly authorized officer of VASCO and accepted by Distributor.
THE WARRANTY AND LIMITATION IS IN LIEU OF ALL WARRANTIES WITH RESPECT TO
THE PRODUCT WHETHER EXPRESS, IMPLED OR STATUTORY INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL VASCO BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES.
8. LIMITATION OF LIABILITY
VASCO shall not be liable for any loss, damages or penalty resulting from
delay in delivery when such delay is due to causes beyond VASCO's reasonable
control, including but not limited to supplier delay, force majeure, act of God,
labor unrest, fire, explosion or earthquake. In any such event the delivery date
shall be deemed extended for a period equal to the delay.
VASCO'S LIABILITY UNDER, FOR BREACH OF, OR ARISING OUT OF THIS AGREEMENT
AND/OR SALE SHALL BE LIMITED TO REFUND OF THE PURCHASE PRICE. IN NO EVENT SHALL
VASCO BE LIABLE FOR DISTRIBUTOR'S COST OF PROCURING SUBSTITUTE GOODS. IN NO
EVENT SHALL VASCO BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR OTHER
DAMAGES WHETHER OR NOT VASCO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS,
HOWEVER CAUSED, WHETHER FOR BREACH OR REPUDIATION OF AGREEMENT, BREACH OF
WARRANTY, NEGLIGENCE OR OTHERWISE. THIS EXCLUSION ALSO INCLUDES ANY LIABILITY
WHICH MAY ARISE OUT OF THIRD PARTY CLAIMS AGAINST DISTRIBUTOR. THE ESSENTIAL
PURPOSE OF THIS PROVISION IS TO LIMIT VASCO'S POTENTIAL LIABILITY ARISING OUT OF
THIS AGREEMENT AND/OR SALE.
9. PROPERTY RIGHTS
(a) Property Rights. Distributor agrees that VASCO or its suppliers own
all right, title and interest in the product lines that include the Products now
or hereafter subject to this Agreement and in all of VASCO's or its suppliers'
patents, trademarks, service marks, trade names, inventions, copyrights,
know-how and trade secrets relating to the design, manufacture, operation or
service of the Products.
(b)Sale Conveys no Right to Manufacture or Copy. VASCO offers the Products
for sale and sells them subject in every case to the condition that such sale
does not convey any license, expressly or by implication, to manufacture,
duplicate or otherwise copy or reproduce any of them. Distributor shall take
appropriate steps as VASCO may request to inform its customers of and assure
their compliance with the restrictions contained in this Subparagraph 9(b).
10. SOFTWARE LICENSE
Programs provided hereunder are licensed to Distributor pursuant to the
terms and conditions of VASCO's Program License Agreement, including but not
limited to ownership by VASCO or VASCO's suppliers, restriction to use by
Distributor on a single system, restrictions or transfer and copying, and
limitations of liability. Distributor acknowledges receipt and review of such
license, which is included in the Product package, and agrees to be bound by its
terms.
11. TRADEMARKS AND TRADENAMES
(a) Use. During the term of this Agreement Distributor shall have the
right to indicate to the public that it offers for purchase VASCO's Products.
Distributor may not use the trademarks, service marks and trade names that VASCO
or its supplier may adopt from time to time [the "Trademark(s)"] without VASCO's
prior written consent, which consent will be granted in VASCO's sole discretion.
Distributor shall not alter or remove any Trademark applied to the Products at
the factory. Nothing herein shall grant to Distributor any right, title or
interest in the Trademarks. At no time during or after the term of this
Agreement shall Distributor challenge or assist others to challenge the
Trademarks or the registration thereof or attempt to register any trademarks,
service marks or trade names confusingly similar to those of VASCO or its
suppliers.
(b)Approval of Representations. Distributor shall submit the design, color
and other details of all representations of the Trademarks to VASCO for approval
prior to their permitted use unless they are exact copies of those which VASCO
uses.
12. SUBSTITUTIONS AND MODIFICATION
VASCO shall have the right to make substitutions and modifications in the
specifications of the Products it sells provided that such substitutions or
modifications will not affect materially overall Product performance.
13. ASSIGNMENT
Distributor may assign this contract upon written approval of VASCO, which
shall not be unreasonably withheld
<PAGE> 21
14. BANKRUPTCY
If Distributor shall become bankrupt, insolvent, compromises with its
creditors, commences to be wound up or suffers a receiver to be appointed, VASCO
shall have the right to cancel this Agreement without judicial intervention or
declaration of Distributor's default and without prejudice to any right or
remedy which shall have accrued or shall accrue thereafter to VASCO.
15. DISTRIBUTOR'S ACCEPTANCE--ENTIRE AGREEMENT
The terms and conditions set forth herein and in any applicable
Distributor Agreement (such as DISTRIBUTOR, Distributor, OEM or Manufacturer's
Representative) shall constitute this entire DISTRIBUTOR agreement between VASCO
and the Distributor. VASCO shall not be bound by any terms of Distributor's
order which add to, modify or are inconsistent with the terms set forth in the
Distributor Agreement and this document. Distributor's acceptance of these terms
will be made by written acceptance of this Agreement.
No trade usage or prior course of dealing shall modify, supplement,
qualify or be used to interpret this Agreement unless such usage or dealing
expressly has been made a part hereof.
16. MISCELLANEOUS
Paragraph headings are provided for convenience of reference only and
shall not limit or modify any term hereof. Stenographic and clerical errors are
subject to correction.
The agreement between the parties is made, governed by, and shall be
construed in accordance with the law of the State of Illinois.
<PAGE> 22
CONFIDENTIAL INFORMATION DISCLOSURE AGREEMENT
It is understood and agreed that the following shall govern the oral
and/or written disclosure of CONFIDENTIAL INFORMATION by VASCO DATA SECURITY,
INC. ("VASCO") to HUCOM, INC. ("HUCOM") concerning the VASCO SmartCard Reader,
AccessKey, Digipass and software products.
The CONFIDENTIAL INFORMATION is disclosed in confidence so that HUCOM may
evaluate and use CONFIDENTIAL INFORMATION for the purpose of assisting VASCO in
the commercial exploitation thereof. In consideration of the disclosure, HUCOM
agrees to treat, and will treat, the CONFIDENTIAL INFORMATION disclosed to it as
confidential until such time as the CONFIDENTIAL INFORMATION becomes publicly
available through no act or failure to act on the part of HUCOM as evidenced by
written documentation.
HUCOM further agrees not to make any use of the CONFIDENTIAL INFORMATION
other than for the above-mentioned purpose(s) and will not disclose CONFIDENTIAL
INFORMATION to any other person without the prior written consent of VASCO,
except that if HUCOM is a corporation, CONFIDENTIAL INFORMATION may be disclosed
to a person within the company on a need-to-know basis. If no satisfactory
arrangement is concluded between the parties, or if otherwise requested by
VASCO, HUCOM agrees to return to VASCO any written disclosure of CONFIDENTIAL
INFORMATION provided by VASCO plus any copies, notes, summaries or other
materials derived from the CONFIDENTIAL INFORMATION.
With respect to the subject matter set forth above, this Agreement
constitutes the entire agreement between the parties and supersedes any previous
oral or written representations, understandings or agreements as to the above
subject matter.
VASCO DATA SECURITY, INC. HUCOM, INC.
T. Kendall Hunt Hideaki Sato
- ------------------------------ ------------------------------
NAME NAME
Chief Executive Officer CEO & President
- ------------------------------ ------------------------------
TITLE TITLE
/s/ T. Kendall Hunt /s/ Hideaki Sato
- ------------------------------ ------------------------------
SIGNATURE SIGNATURE
6/3/97 6/3/97
- ------------------------------ ------------------------------
DATE DATE
<PAGE> 23
EXHIBIT F
VASCO TRADEMARKS
Following is a list of the trademarks for VASCO Corporation and its
subsidiaries:
1. VASCO
2. ACCESSKEY
3. AUTHENTICARD
4. DIGIPASS
5. VACMAN
6. CRYPTAPAK
<PAGE> 24
Further to the Distributor Agreement dated 3rd of June, 1997.
VASCO Data Security Inc. hereby agreed to integrate the CyberGuard
Firewall into its VACMan product within 3 months of period from this date.
VASCO Data Security, Inc. HUCOM, Inc.
By: By:
Name: T. Kendall Hunt Name: Hideaki Sato
---------------------------- ------------------------------
Title: Chairman & CEO Title: CEO & President
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.15
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST
NON-EXCLUSIVE DISTRIBUTOR AGREEMENT
AGREEMENT effective the 1st day of May 1994
BETWEEN:
VASCO Data Security, Inc.
1919 S. Highland Avenue, Suite 118-C
Lombard, Illinois 60148 U.S.A.
Phone 630-932-8844
Fax 630-495-0279
(hereinafter called "Producer")
AND:
Concord-Eracom Nederland BV
Hoekenrode 8
NL-1102 BR Amsterdam
Phone 31-20-6913781
Fax 31-20-6971073
EURO VAT No. NL-9238657B01
(hereinafter called "Distributor")
NOW THEREFORE IT IS AGREED AS FOLLOWS:
<PAGE> 2
Article 1. - Definition
The following words shall have the indicated meaning when used herein:
i) "Product" - those Products which the Producer has manufactured for
re-sale or purchased for re-sale, which are in Schedule 1 of this
Agreement and which are designated therein by the Producer's trade mark or
trade name to be used under this Agreement and by the use which the Product
shall be sold under this Agreement.
ii) "Territory" - the Territory outline or defined in Schedule 2 of this
Agreement.
iii) "Annual Period" - successive one (1) year periods the first of which
commences on the effective date of this Agreement.
iv) "Price" - that amount of money designated as set out in Schedule 3 of this
Agreement or as may be otherwise designated by the Producer from time to
time which is to be paid to the Producer for the Product, not including
any charges for taxes, duties or other Government fees. The price as at
the date of commencement of this Agreement shall be as designated in
Schedule 1.
Article 2. - Agency & Distributorship
The Producer grants to the Distributor the non-exclusive right to distribute
and sell the Product in the named Territory.
Article 3. - Future Changes
The Producer reserves the right to modify Schedule 1 of this Agreement by
adding thereto or deleting therefrom any items at any time upon thirty (30)
days advance written notice to the Distributor.
Article 4. - New Products
The Producer shall inform the Distributor of improvements in the Product or new
goods acquired or produced by the Producer for resale. Such goods or improved
Products may be added to Schedule 1 in accordance with Article 3.
Article 5. - Price and Delivery
a. The price for the Product shall be denominated in U.S. Dollars and as
designated in Schedule 3 hereof or otherwise as the Producer shall
designate in writing. The
<PAGE> 3
Producer reserves the right to modify such price at its sole discretion.
However the Producer must give the Distributor three months' notice before
any such price modification becomes effective. During any such three month
period prior to modification of price, the Distributor may not order the
Product from the Producer at a greater volume than that being ordered
during the previous three month period, unless the Producer should consent
to orders in excess of such volumes.
b. Payments shall be made as follows:
a)
i) by Letter of Credit or Telegraphic Transfer (terms net 30 days) of
cleared funds to Producer where product is to be delivered outside the
United States.
c. The Distributor shall accept delivery of the Product when the carrying
vessel reaches the Territory and shall then be responsible for
transporting the Product at the Distributor's risk and peril. The
Distributor shall assume responsibility for all customs clearance charges.
All freight and shipping insurance shall be "F.O.B.".
d. The Producer undertakes to execute orders from the Distributor with
reasonable care but is not responsible to the Distributor for any delay in
delivery, whatever the reason for such delay shall be, except as agreed by
way of a separate letter of understanding.
Article 6. - Obligation of the Distributor
Throughout the duration of this Agreement, the Distributor shall:
a. Sell: Use its maximum efforts to sell, use and promote the use of the
Product through Territory.
b. Sales Network: Develop a sales network for the Product.
c. Not sell outside Territory: Not sell the Product directly or indirectly
outside the Territory or for use outside the Territory without having
previously obtained in each case the written authorization of the
Producer. To this end, the Distributor undertakes to ensure that its
buyers do not sell outside the Territory nor export the Product either
directly or indirectly.
d. Maintain Office: Maintain and operate at the Distributor's expense an
Office in the Territory in a business like matter.
e. Maintain Stocks: Maintain stocks of a sufficient quantity for supplying
so as not to delay customer ordering the product in the ordinary course
of business.
f. Inform of Competitors: Inform the Producer of any goods and the sellers
thereof, which compete with the Producer.
<PAGE> 4
g. Not Compete: Not sell materials or goods which compete or are likely to
compete with the Product unless the written Agreement of the Producer is
obtained prior to each such sale. Distributor shall be required to provide
specifications and pricing of competitive products to Producer; Producer
shall have the Right of First Refusal to provide Producer's similar
product(s) at competitive prices.
h. Not Tamper with Labels: Not change, modify, obliterate or remove the
Producer's labels, marks or trademarks on the Product and on its
packaging; if it is necessary to repack the Product, the Distributor shall
ensure that the original trademarks appear on the packaging. The
Distributor may attach a label recording that the Product is supplied by
the Distributor, the exception being if Distributor advises the Producer
to produce under brand name and/or private label.
i. Fully informed Producer: Fully inform the Producer at all times and in
any case upon request from the Producer of the Price charged by the
Distributor for the Product, who the customers are, to whom the
Distributor sells the Product and the quantity of the Product sold to each
customer.
j. Export Licensing and Security: Fully comply with Producer's reasonable
instructions concerning export licensing and security from time to time
for products.
k. Maintain Repair Personnel: The Distributor will provide and maintain
competent personnel and reasonable and necessary test demonstration
equipment and repair facilities to repair and maintain the Product in good
working order and condition, the cost of which shall be borne by the
customer after the expiration of the warranty period.
l. Advertising and Technical Documentation: Communicate to the Producer
for approval by the Producer before printing, distribution or use, the
advertising and technical documentation the Distributor shall supply and
use concerning the Product including all labeling used with the Product;
and once such approval has been obtained, not to change such documents and
labeling without the prior written consent of the Producer.
m. Not Legal Representative: Be in no way the legal representative of
the Producer and have no right or authority to assume any obligations or
make any representation of any kind which are or might be binding upon
the Producer, except in the express terms of this Agreement and this
Agreement shall not permit or empower the Distributor to undertake
financial or other responsibility or to contract or incur liabilities of
any kind in the name of or as representative for or on behalf of the
Producer or to pledge the credit of the Producer in any way.
<PAGE> 5
n. Not Assign: Not to assign, to transfer or in any manner make over this
Agreement or any right or obligation hereunder to any person or persons
or organization whatsoever without the consent in writing of the Producer.
o. Sale/Market Plan: To furnish to the Producer within one (1) month of the
date of the expiration of each year of the term of this Agreement the
following:
i. A sale/market plan or strategy for the subsequent yearly period.
ii. A report on the success or failure of the preceding twelve
(12) month period sale/market plan or strategy with comments
reasonably to the best of the Distributor's ability on the
reasons for such success of failure.
Article 7. - Promotions and Advertising Materials
The Producer in its discretion may elect to provide the Distributor with
promotion and advertising materials including trade literature free on the
effective date hereof. The Producer may agree to be responsible for the cost of
the lodgement of advertisements as may be mutually agreed upon in an
international computer publication circulating in the Territory and may
schedule access as may be mutually agreed upon in advance to demonstrate
equipment. The Producer may contribute part of all of the expenses as may be
from time to time mutually agreed upon incurred in trade exhibitions and
advertisements in trade journals during the currency of this Agreement.
Article 8. - Software Tools
The Producer may from time to time to provide software tools to aid Distributor
in integrating Producer's products into Distributor's products. These software
tools will be consigned on the following basis:
i. Ownership of a copyright thereto shall be retained in all times by the
Producer.
ii. The Distributor may not sell, lease or part with possession of the
software tools.
iii. The Distributor shall maintain the software tools in good order and
condition.
iv. The Distributor shall return the software tools to the Producer upon
termination of this Agreement.
Article 9. - Trade Mark
<PAGE> 6
If at some time in order to sell the Product it should be necessary to register
a Trade Mark in the Distributor's name, the Distributor shall undertake to
co-operate in the transfer of this Trade Mark to the Producer or any persons or
companies designated by the Producer immediately upon termination of this
Agreement for one or more of these items in Schedule 1. Producer and
Distributor undertake to take immediate steps under the direction of the
Producer to effectively oppose any infringements of Trade Marks. The
Distributor hereby renounces forever any claim to any right, title, or interest
to any Trade Mark registered in the Producer's name or transferred to the
Producer now or in the future.
Article 10. - Arbitration
Any dispute about the interpretation or the execution of this Agreement,
whatever its nature or importance, shall be submitted to three arbitrators and
resolved finally by them in accordance with the rules for cancellation and
arbitration of the International Chamber of Commerce. The place of arbitration
shall be nominated by the Producer.
Article 11. - Termination
a. Either party may terminate this Agreement upon the expiration of any
Annual Period with at least thirty (30) days prior written notice. Such
termination shall impose no obligation or liability on either party except
as provided in this Article 9.
b. The Producer may terminate this Agreement at any time upon the
occurrence of any of the following, each of which shall constitute an
event of default:
i. Failure to Observe Agreement - the Distributor's failure to
observe any of the terms or conditions of this Agreement,
ii. Distributors Insolvent - the Distributor becomes insolvent,
bankrupt, or upon any proceedings being commenced by or against
the Distributor under any laws having to do with the relief of
debtors,
iii. Change of Ownership - change in ownership or control of the
Distributor's business, whether voluntary or by operation of
law,
iv. Transfer - transfer or assignment or attempted transfer or any or
all the rights herein granted the Distributor. The waiver of any default
in any instance shall be deemed a waiver for said instance only,
v. Failure to Maintain Security & Licenses - the Distributor's
failure to maintain the level of security reasonably required by
the Producer from time to time concerning products the subject of
security/export license controls.
<PAGE> 7
c. If this Agreement should be terminated by the Distributor:
i. Undertakes to resell and return to the Producer the Product and
its inventories which are still in good condition, at the Price at which
it bought it from the Producer. The Product which has deteriorated or is
more than three months old shall be resold at a reduces price reflecting
fair market value. No custom product may be returned to Producer.
ii. Shall pay the Producer, within a period of thirty (30) days, all
sums due. If any goods are returned pursuant to Clause 11 c. above, the
Producer will pay the Distributor as provided in Clause 11 c. within
thirty (30) days after the Producer's receipt of such return Product.
iii. Upon demand of the Producer shall make available to the Producer a
list of his customers in the six months preceding the termination and
shall deliver to the Producer copies of all unfilled orders (whether or
not such orders have been partly filled or remain totally unfilled). In
the event that the proceeds received by the Producer from completing such
orders (should the Producer elect without any legal obligation so to do
to complete such orders) then in so far as any damages accruing to the
Producer for breach by the Distributor of this Contract do not exceed the
profits so made such excess profits shall be returned to the Distributor.
iv. Undertakes to transmit any orders it receives thereafter to the
Producer who shall wherever practicable, but without obligation to do so,
honor such orders.
Article 12. - Support and Service Training by Producer
Customer engineering and service training will be supplied by the Producer as
mutually agreed upon. All travel and living expenses of customers or their
employees or distributors undergoing such training will be the responsibility
of the customer or distributor. If training by the Producer is given away from
the Producer's premises, the Producer will be reimbursed for the actual and
reasonable travel and living expenses its employees incur in getting to,
remaining at and returning from the training site.
Article 13. - Representations and Warranties
In soliciting orders for the Producer, the Distributor shall not make
representations or offer warranties other than those contained in sale
literature supplied by the Producer to the Distributor. Contracts prepared by
the Distributor for signature by customers shall contain a similar disclaimer
respecting representations or warranties binding upon the Producer. The
Distributor agrees to indemnify and hold harmless the Producer from any
<PAGE> 8
representations or warranties binding upon the Producer made by the Distributor
in excess of those contained in the Producer's sales literature. In all cases,
the Distributor will make it clear to customers that the Producer's warranty in
respect of deficiencies in materials and workmanship shall not exceed 3 months
from the delivery of the Product to the customer.
Article 14. - Assignment
This Agreement shall ensure to and be binding upon the parties hereto, their
successors and assigns providing that the Producer's consent shall be required
to an Assignment of the Distributor's interest in the Agreement.
Article 15. - Trade Secrets
The Distributor understands that all trade secrets and confidential information
which are divulged to the Distributor by the Producer are the property of the
Producer. The Distributor agrees to keep all such information confidential and
shall not make disclosures to anyone of such information except as authorized
by the Producer.
DISTRIBUTOR: PRODUCER:
By /s/ John K. Knorr By: /s/ T. Kendall Hunt
-------------------------- ------------------------------
Name: Name:
----------------------- ------------------------
Position: Managing Director Position: President
------------------- --------------------
Witness: Witness:
-------------------- ---------------------
<PAGE> 9
SCHEDULE I
PRODUCTS
The Distributor is authorized to sell the following Products:
1. ACCESS KEY I
1. ACCESS KEY II
1. ACCESS KEY III (In development)
1. KEYPAD (Discontinued, phaseout anticipated June 1, 1994)
1. KEYCUTTER SYSTEM
1. RELATED ACCESSORIES
1. INTERNATIONAL SMART CARD READER
NOTE:
Unite pricing for the above products will be negotiated based on,
combined, firm Open Purchase Order commitments by both Concord-Eracom
and Eracom Pty.
-9-
<PAGE> 10
SCHEDULE II
TERRITORY
The Distributor agrees to represent, on a non-exclusive basis, Products listed
in Schedule I primarily in Europe, the Middle East, and South America.
<PAGE> 11
SCHEDULE III
PRICING
<TABLE>
<CAPTION>
Description Open P.O. Quantity # Months From Price Per Unit
- ----------- ------------------ ------------- --------------
Order
-----
<S> <C> <C> <C>
1. Access Key II 1 or > 12 **
- Standard Keys 20,000 or > 12 **
and/or 40,000 or > 12 **
- ABN-AMRO Keys 50,000 or > 12 **
2. International Smart Card Reader 1 or > 18 **
Model #301 10,000 or > 18 **
- 200,000 - 500,000 insertions 20,000 or > 18 **
- Landed contacts design 30,000 or > 18 **
20,000 - 40,000 insertions 40,000 or > 18 **
per card 50,000 or > 18 **
</TABLE>
NOTE:
Concord-Eracom will place firm Open Purchase Orders for Access Key II and for
the International Smart Card Reader at quantity levels it can sell over the
time periods above. The quantity levels can be combined with orders from both
Eracom Pty. and Concord-Eracom. Each order shall specify the total unit
commitment and shall be accompanied by a shipping schedule over the term of the
Open Purchase Order.
<PAGE> 1
EXHIBIT 10.16
CONVERTIBLE
LOAN AGREEMENT
This Convertible Loan Agreement is made on August 4, 1997
BETWEEN: VASCO DATA SECURITY EUROPE S.A., a
societe anonyme existing under the laws of the Kingdom of
Belgium having its registered office at 32 Jettelaan, 1081
Brussels and registered with the Register of Commerce of
Brussels under number 614.370,
hereinafter referred to as "VDSE";
AND: BANQUE PARIBAS BELGIQUE S.A., a societe
anonyme existing under the laws of Belgium, having its
registered office at 162 Emile Jacqmainlaan, 1000 Brussels,
hereinafter referred to as "Paribas";
AND: Mr. T. Kendall Hunt, domiciled at 11735 Briarwood Court,
Burr Ridge, Illinois 60525, United States of America,
hereinafter referred to as Pledgor;
AND VASCO Corp., a Delaware Corporation having its executive
office at 1919 S. Highland Avenue, Suite 118-C, Lombard,
Illinois 60148, United States of America,
hereinafter referred to as "Corporation";
<PAGE> 2
WHEREAS VDSE pursuant to a resolution of its Board of Directors has
decided to issue a convertible loan due September 30, 2002 having a
principal amount of USD 3,400,000 (three million four hundred
thousand US Dollars) (hereinafter referred to as the "Loan", or the
"Convertible Loan").
WHEREAS VDSE has outstanding an obligation to Digiline International S.A.
in the principal amount of USD 3,400,000 (three million four
hundred thousand US dollars) pursuant to the agreement called "Heads
of Agreement" dated as of May 13, 1996 (the "Digiline Debt") which amount
is guaranteed by Paribas (the "Bank Guarantee").
WHEREAS Paribas in lieu of the Bank Guarantee is willing to provide for the
payment of the Digiline Debt pursuant to the Convertible Loan and to
substitute the Convertible Loan for the Bank Guarantee.
WHEREAS subject to the terms and conditions of the present agreement,
Paribas is willing to subscribe to the Convertible Loan.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS:
1. ISSUE AND SUBSCRIPTION
VDSE agrees to issue the Convertible Loan on a date between August 20 and
September 30, 1997 ("the Subscription date") at a price equal to 100 per cent
of its principal amount. On the terms and conditions set forth in this
Agreement, Paribas hereby agrees to subscribe to the Convertible Loan having
terms and conditions as set forth in this Agreement.
2. REPRESENTATIONS AND WARRANTIES
VDSE represents and warrants to Paribas that to the best of its knowledge:
(1) it is duly incorporated and validly existing under the laws of the
Kingdom of Belgium and that it has full corporate power to conduct its
business and to execute, deliver and comply with the provisions of this
Agreement;
(2) all necessary consents, authorizations, notifications, registrations and
filings required in connection with the obligations and liabilities of
the company under the terms and conditions of the Loan and the present
Agreement have been obtained or made and are in full force and effect;
<PAGE> 3
(3) the execution and delivery of and compliance with the terms and
conditions of the Loan have been duly authorized by VDSE and will not
conflict with or constitute a breach of or a default under any
indenture, agreement or other instrument to which VDSE is a party
or by which it is bound, its Articles of Association or any law,
administrative regulation or court decree applicable to VDSE;
(4) no events exist which, had the Loan been issued, would (or with the
giving of notice or lapse of time or both, could) constitute an event
of default under the Loan;
(5) no litigation, arbitration or administrative proceedings are presently
current or pending or threatened, to the knowledge of VDSE, which
would or might have a material adverse effect on VDSE or on the
ability of VDSE to perform its obligations under this Agreement;
(6) it has not taken any corporate action nor have any other steps been
taken or legal proceedings been started or threatened against VDSE to
obtain relief from its creditors under any applicable bankruptcy,
insolvency or other law now or hereafter in effect or for ordering its
winding-up, liquidation, dissolution or reorganization or for the
appointment of a receiver, liquidator, sequestrator (or other similar
officer) of it or of any or all of its assets or revenues;
(7) it is not in breach of or in default under any agreement to which it is
a party or which is binding on it or any of its assets to an extent or
in a manner which might have a material adverse effect on its ability to
perform its obligations under this Agreement.
3. TERMS AND CONDITIONS OF THE LOAN
3.1. Principal Amount and Maturity
The principal amount of the Loan is 3,400,000 USD (three million four
hundred thousand US Dollars).
The Loan is issued for a period of 5 years commencing on the
Subscription date and ending on September 30, 2002.
Paribas subscribes to the Loan by issuing bank cheques at the
request of VDSE to the order of Digiline International S.A. for a
total amount of 3,400,000 USD (three million four hundred thousand US
Dollars).
<PAGE> 4
3.2. Interest
3.2.1 The Loan will bear interest at the rate of 3.25 % (three and a
quarter percentage points) per annum from and including the Subscription
date. Accrued Interest shall be payable annually on September 30 in
each year, for the first time on September 30, 1998, and/or on the
Conversion Date as provided for in Article 8 hereafter. When interest
is required to be calculated for a period other than one year, it shall
be calculated on the basis of a 360 days year, consisting of 12 months
of 30 days each, and in case of an incomplete month, the number of days
elapsed in such incomplete month.
3.2.2 In the event of the completion of the Offering (as defined in
Section 8) and if pursuant to Section 3.3 the Loan is repaid within
seven days of receipt by VDSE of the Payment Notice (as defined in
Section 3.3), VDSE shall pay additional interest in cash at the time
of the repayment of the Loan as follows:
(I) If the Loan is repaid before or on June 30, 1998, the sum of USD
340,000 (three hundred forty thousand US Dollars);
(II) If the Loan is repaid between July 1, 1998 and December 31,
1998, both dates inclusive, the sum of USD 510,000 (five hundred
ten thousand US Dollars); or
(III) If the Loan is repaid on January 1, 1999 or later, the sum of
USD 680,000 (six hundred eighty thousand US Dollars)
3.3. Repayment
Unless previously repaid (upon occurrence of an event of default as
described under Article 7 or upon conversion of the Loan at the option of
PARIBAS as provided for in Article 8), VDSE shall repay the Loan at par
on September 30, 2002; provided, however, that in the event of the
completion of the Offering (as defined in Section 8) PARIBAS may at
its option, by written notice ("Payment Notice") delivered to VDSE
within seven days after the receipt of proceeds by the
Corporation at the closing of the Offering, require VDSE to repay in
cash the Loan at par from the proceeds of the Offering within seven
days of the receipt of the Payment Notice. At the time of the
repayment of the Loan at par, VDSE shall also pay pursuant to
subsection 3.2.1 any accrued and unpaid interest at the rate of 3,25%
for the period ending on the repayment date of the principal and, if
applicable, shall also pay the additional interest under subsection
3.2.2.
<PAGE> 5
3.4. Payments
Each payment by VDSE under this Agreement shall be made in US Dollars
on the date that payment is due, to Paribas by deposit to the account
no 10921348 maintained at Citibank N.A. New York or to such other
account as Paribas may have last designated by written notice to the
VDSE.
3.5. Register
VDSE shall hold a register of bondholders at its offices. It will
provide Paribas with a certificate of inscription in this register.
VDSE will issue on first demand of Paribas nominative securities
evidencing the Loan and mandates Paribas to ensure the materiality of
these securities.
4. USE OF PROCEEDS
VDSE shall use the proceeds of the Loan to pay all amounts it is due
to pay to DIGILINE INTERNATIONAL S.A. - with registered office at Luxembourg,
rue Aldringen 14 - pursuant to the agreement called "Heads of Agreement"
entered into between VDSE and Digiline International S.A. dated as of May 13,
1996. This "Heads of Agreement" sets forth the terms and conditions of the
acquisition by VDSE of 100 % of the shares of S.A. Digipass, a company with
registered office at 32 Jettelaan, 1081 Brussels, presently called
VASCO DATA SECURITY N.V./S.A..
It is understood that upon receipt by Digiline International S.A.
of such payment Paribas will be automatically liberated of all its
obligations and liabilities under the USD 3,400,000 (three million four
hundred thousand US Dollars) Bank Guarantee, related to the above mentioned
Heads of Agreement, delivered to Digiline International S.A. by Paribas on
behalf and for the account of VDSE on June 27, 1996. The bank
guarantee and all rights and obligations in connection therewith (including
all ancillary agreements) shall be cancelled and of no further force and
effect.
5. CONDITIONS PRECEDENT
5.1. The obligation of Paribas to subscribe to the Loan is subject
to the condition that Paribas receives on or before the fifth banking
day before the subscription date an irrevocable written acceptance
by DIGILINE INTERNATIONAL S.A., confirming that:
<PAGE> 6
(i) upon receipt by DIGILINE INTERNATIONAL S.A. of USD 3,400,000
(three million four hundred thousand US Dollars) from VDSE,
Paribas will automatically be liberated of all its obligations
and liabilities under the USD 3,400,000 (three million four
hundred thousand US Dollars) Bank Guarantee related to the above
mentioned Heads of Agreement delivered to Digiline International
S.A. by Paribas on behalf and for the account of VDSE on June
27, 1996.
(ii) therefore Digiline International S.A. agrees that the
amount of USD 3,400,000 (three million four hundred thousand US
Dollars) it is due to receive from VDSE will only be used to
satisfy all amounts VDSE is due to pay to Digiline
International S.A. pursuant to the above mentioned Heads of
Agreement.
5.2. The obligation of Paribas to subscribe the Loan is subject to the
further conditions that:
(i) Banque Paribas S.A., London Branch, is designated as global
co-ordinator, lead-manager and bookrunner of the stock offering
and listing on EASDAQ and/or NASDAQ of VDSE's parent company
VASCO CORP. which is expected to take place by the end of the
fourth quarter of 1997.
(ii) Paribas shall have received a legal opinion on the validity and
enforceability of the collateral arrangements, in form and
substance satisfactory to it.
6. COLLATERAL
As security for the prompt and complete payment when due of all amounts
payable by VDSE under the Loan, Mr. T. Kendall Hunt, domiciled at 11735
Briarwood Court, Burr Ridge, Illinois 60525, United States of America, shall
pledge in favour of Paribas 1,416,666 (one million four hundred sixteen
thousand six hundred sixty-six) shares of VASCO CORP., a company existing
under the laws of the State of Delaware with executive office at 1919, S.
Highland Avenue Suite 118-C, Lombard, Illinois 60148, United States of
America.
Throughout the duration of the Loan the market value of the pledged shares
must at least be equal to 125 % of USD 3,400,000 (three million four
hundred thousand US Dollars).
<PAGE> 7
If at any time the average market value of the pledged shares over 5
continuous trading days, calculated in good faith by Paribas, is less than
125 % of USD 3,400,000 (three million four hundred thousand US Dollars), Mr.
T. Kendall Hunt shall within one calendar week on simple demand by
PARIBAS evidenced by written request by Paribas, pledge additional
Vasco Corp. shares in aggregate countervalue (or amount) so as to ensure
that the above ratio is respected.
If the average market value of the pledged shares over 5 (five) continuous
trading days is in excess of 150% of USD 3,400,000 PARIBAS will waive
its pledge on all securities in excess of 150% of USD 3,400,000 upon simple
and first written demand by the Pledgor.
Pursuant to the pledge agreement Mr. T. Kendall Hunt grants to Paribas a
first lien on and a first and prior security interest in and right of set
off against the collateralized assets.
If at any time the Company has fully satisfied all its obligations under
the Loan, Paribas shall return all the collateralized assets.
Unless an event of default has occurred, the Pledgor shall be entitled to
receive (and to the extent the same come into possession of Paribas or its
agents, Paribas shall remit to the order of the Pledgor) any dividends or
interest paid in cash in respect of collateralized assets. Paribas
shall have no liability, however, for any failure by it to collect such
payments not forwarded to it by the payor thereof.
7. EVENTS OF DEFAULT
7.1 Events of Default
If one or more of the following events of default (each an "Event of
Default") shall occur and be continuing, Paribas shall be entitled
to the remedies set forth in subsection 7.2.:
(i) VDSE fails to pay any amount payable hereunder as and when such
amount becomes payable pursuant to this Agreement and such unpaid
amounts remain unpaid for 10 days after the respective due date; or
(ii) VDSE commits any breach of or default in the due performance
or observance of any of its obligations or undertakings
contained in this Agreement other than those referred to in
subsection 7.1. (i), if that breach or default is not remedied on
or before the tenth day after it occurs (or before any later date
determined in good faith by PARIBAS which reasonably allows VDSE to
remedy the default); or
(iii) any representation, warranty or statement made or deemed made by
VDSE in this Agreement or any other document delivered in connection
with this Agreement proves to have been incorrect, incomplete or
misleading in any material respect as of the date on which it was
made; or
<PAGE> 8
(iv) any other indebtedness of the VDSE in respect of a sum in excess
of BEF 10,000,000 (ten million Belgian Francs) or the equivalent in
any other currency is not paid when due for payment, after
application of the applicable grace periods, except for nonpayments
as to which its creditor has consented or has waived the payment; or
(v) any mortgage, charge, pledge, lien, hypothecation, title retention,
right in rem or any other security interest of VDSE (being material
to the undertaking or assets of VDSE) becomes enforceable in respect
of a sum in excess of BEF 10,000,000 (ten million Belgian Francs) or
the equivalent in any other currency and the person or persons
entitled to benefit thereof shall initiate legal collection to
enforce the same; or
(vi) all or any substantial part of the property of VDSE shall be
condemned, seized or otherwise appropriated in a manner which
Paribas reasonably considers may have a material adverse effect on the
business of VDSE or VDSE shall be prevented from exercising normal
managerial control over any substantial part of its property by any
person acting under the authority of any government, in a manner
which Paribas considers may have a material adverse effect on the
business of VDSE; or
(vii) there shall have occurred the liquidation or bankruptcy of VDSE
or any order is made or resolution, tax or regulation
passed or other action taken for or with a view to the dissolution,
termination, liquidation or bankruptcy of VDSE (other than for
the purposes of and followed by an amalgamation or reconstruction
the terms of which have been approved in writing by Paribas); or
<PAGE> 9
(viii) any court, tribunal or other authority makes an order for the
appointment of any administrator, receiver, liquidator,
curator, sequestrator, trustee or other similar officer of VDSE or
of all or any material part of the assets of VDSE; or
(ix) VDSE stops payment generally or ceases or threatens to cease
to carry on its business or admits in writing its inability to
pay its debts as they fall due or makes a general assignment for the
benefit of creditors or enters into a general arrangement or
composition with or for the benefit of creditors or a general
moratorium (however declared or promulgated) is imposed or
threatened on the payment of indebtedness of VDSE; or
(x) all or any material part of the assets of VDSE are attached,
levied or distrained upon or become subject to any order of court
or other process and such attachment, levy, distraint, order or
process remains in effect and not discharged for 60 days; or
(xi) this Agreement or any of the provisions hereof, with material
effect to the liabilities of both parties, shall at any time for
any reason cease to be in full force and effect, be declared to be
void or shall be repudiated or the validity or
enforceability hereof or thereof shall at any time be contested by
VDSE or VDSE shall deny that it has any or any further liability
or obligation under this Agreement; or
(xii) the Pledgor does not fulfill his obligations under the pledge
agreement, drawn up in Brussels on July 15, 1997.
7.2. Default Remedies
Paribas may at any time after the occurrence of an Event of Default
that is not remedied under Art. 7.1 and so long as the same is
continuing, by notice in writing to VDSE declare that the Loan and all
interest accrued and all other sums payable pursuant to this
Agreement have become immediately due and payable whereupon the same
shall become immediately due and payable.
If the principal is not paid at the agreed due date, additional
interest shall automatically be due to Paribas on the sums not paid
in time, as from the due date in question and up to the actual date of
payment, calculated at the interest rate of the Loan plus 0,50% per
annum.
8. CONVERSION RIGHT
Paribas has the optional right to convert the Loan into shares (hereinafter
called the "Shares" or "Share") of VDSE's parent company VASCO CORP
(hereinafter called the "Corporation"), a company existing under the laws of
the State of Delaware with executive office at 1919 S. Highland
Avenue Suite 118-C, Lombard, Illinois 60148, United States of America.
If Paribas decides to exercise its right of conversion, VDSE will be obliged
to repay the Loan to Paribas not by way of cash reimbursement but by
transfer and delivery to Paribas of a number of Shares of the Corporation
that is sufficient to reimburse completely Paribas claim out of the Loan.
After transfer and delivery of these Shares in accordance with this clause
VDSE will be liberated of its obligations under this Convertible Loan
Agreement.
The Corporation undertakes to provide VDSE with a sufficient number of
Shares in order for VDSE to be able fulfill its obligation to transfer
and deliver these Shares.
<PAGE> 10
Paribas can exercise its right of conversion on any day falling in the
period commencing with and including the earlier of the date of the
Share Offering of the Corporation on EASDAQ and/or NASDAQ (the "Offering")
so as to allow Paribas to include the Shares it converts the Loan into, in
the Offering, and January 1, 1999, and terminating with and including
August 31, 2002, i.e. one month before the maturity date of the Loan.
Subject to the structuring of the Offering, VDSE accepts that the Shares
Paribas has converted the Loan into, can be included in the Offering.
If the conversion takes place after the Offering, the Loan will be
converted in Shares listed on NASDAQ and/or EASDAQ.
Paribas will give notice of exercise of its right of conversion by
sending registered letters to that effect to the Corporation and to VDSE.
In these registered letters the number of Shares to be transferred and
delivered will be calculated at the applicable conversion rate as determined
below, varying according to the time and circumstances (whether the
Offering has taken place or not) of Paribas exercise of its right of
conversion.
The conversion rate will be at a price per Share equal to the Offering Price.
If the Offering does not occur before January 1, 1999, Paribas has the
right to convert the Loan into Shares of the Corporation at the average
closing market price of the Corporation s Shares traded 'over the counter'
during the 20 trading days prior to the date of the notice of exercise of
the right of conversion, less a discount of 10 %.
If the number of Shares calculated at the conversion rate, is not a
whole number, the number will be rounded up to the next higher whole number.
<PAGE> 11
The date of acknowledgement by the Corporation of the receipt of the
notice of exercise is the conversion date, i.e. date on which property of the
Shares is transferred to Paribas.
The Corporation undertakes to fulfil within the shortest possible delays the
formalities completing the transfer of title of the Shares. The transfer
of title of the Shares must give Paribas full, free and clear property on the
Shares. The Shares will therefor be free of any charge, lien, security
interest, attachment or any other such encumbrance.
In the event the public offering referred to in this section is a public
offering by a new company ( Newco ) specifically set up by VASCO CORP.
for the purpose of this public offering, references herein to the Offering
shall mean the "Offering" by Newco and references to the "Shares" will mean
the shares of Newco.
9. ASSIGNMENT
This agreement shall be binding upon and inure to the benefit of all
parties and their respective successors and assigns; provided however that
VDSE may not assign or transfer any of its obligations or rights
hereunder without the prior written consent of Paribas.
Paribas may at any time assign or transfer to any third party all or any of
its rights or obligations hereunder, but if in part for a minimum
principal amount of the countervalue in USD of BEF 10,000,000 (ten
million Belgian Francs).
Paribas will however never directly or indirectly assign its right to
convert the Loan, or after conversion transfer the Shares, to any person
or company outside of its group without written notice to VDSE stating
its intention to assign or transfer, the identity of the potential
beneficiary (which can be a broker or a market maker) and the conditions of
assignment or transfer.
In the event that the transfer of Shares (or the assignment of the
right to convert the Loan) by Paribas is for a number of Shares (or for a
right to convert the Loan into a number of Shares) in excess of 1% (one
percentage point) of the total number of shares of the Corporation at the
moment of the above mentioned written notice, VDSE or any company or person
of its group will have two weeks to exercise a right of first refusal of
the assignment or transfer on the conditions specified in the notice mentioned
in this section. This right of first refusal is not applicable when the
Shares that Paribas converts the Loan into, are included in the Offering.
10. NOTICES AND COMMUNICATIONS
Each notice and communication to be made under this Agreement shall be
made by registered letter.
Any notice or communication to be made by one person to another person
pursuant to this Agreement shall (unless that other person has by 10 days
prior written notice specified another address) be made to that other
person at the address identified above in the preamble to this Agreement and
shall be deemed to have been made when left at that address.
<PAGE> 12
11. GOVERNING LAW AND JURISDICTION
This Agreement is governed by and construed in all respects in
accordance with the law of the Kingdom of Belgium.
The parties hereto irrevocably agree that the courts of Brussels shall have
exclusive jurisdiction to hear and determine any suit, action or
proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and for such purposes irrevocably submit to
the jurisdiction of such courts.
The submission to the said jurisdiction shall not (and shall not be
construed so as to) limit the right of Paribas to take proceedings to
obtain protective or conservatory relief for the protection of assets or
for the enforcement of any judgement obtained by Paribas in any other court
of competent jurisdiction nor shall the taking of such proceedings in
any one or more jurisdictions, preclude the taking of such proceedings in
any one or other jurisdiction, whether concurrently or not.
<PAGE> 13
IN WITNESS whereof the parties have executed this Agreement on August
4, 1997 in four originals, each party recognizing to have received its
original.
VASCO DATA SECURITY EUROPE BANQUE PARIBAS BELGIQUE S.A.
S.A.
By : /s/ Forrest D. Laidley By : /s/ Jacques Janssens
name : Forrest D. Laidley name : Jacques Janssens
title : Director title : Director
By : By : /s/ G. Milants
name : Robert E. Anderson name : G. Milants
title : Director title : Senior Investment Banker
VASCO Corp. The Pledgor
By : /s/ Mario Houthooft /s/ T. Kendall Hunt
---
name : Houthooft, Mario
title : Agent and Officer
<PAGE> 1
EXHIBIT 10.17
[BANQUE PARIBAS BELGIQUE LETTERHEAD]
PLEDGE AGREEMENT
Agreement dated as of July 15, 1997 by and between:
BANQUE PARIBAS BELGIQUE S.A., having its registered office at 1000 Brussels,
boulevard Emile Jacqmain 162, box 2, hereinafter referred to as "PARIBAS",
and T. Kendall HUNT, domiciled at 11735 Brearwood Court, Burr Ridge, Illinois
60525, United States of America, hereinafter referred to as the "Pledgor":
Witnesseth:
Whereas PARIBAS has subscribed to a Convertible Loan due 30th September 2002
having a principal amount of USD 3,400,000 (three million four hundred
thousand US Dollars) issued by VASCO DATA SECURITY EUROPE S.A., a societe'
anonyme existing under the laws of the Kingdom of Belgium, having its
registered office at 1081 Brussels, Jettelaan 32, and registered with the
Register of Commerce of Brussels under number 614.370.
Whereas therefore the Pledgor agrees to pledge to PARIBAS the securities
described below to ensure for the latter the due completion and
reimbursement of the above mentioned Convertible Loan.
Now, therefore, in consideration of the mutual promises and undertakings
hereinafter set forth. PARIBAS and the Pledgor hereby agree as follows:
1. As security for payment to PARIBAS of all sums in general of whatsoever
nature which VASCO DATA SECURITY EUROPE S.A. owes or could owe at
present or in the future to PARIBAS with regard to the abovementioned
Convertible Loan, the Pledgor pledges to PARIBAS, who accepts, the
securities described in the attachment hereto, which PARIBAS declares
having received. The Pledgor hereby grants to Paribas a first lien on and
a first and prior security interest in and right of set off against the
collateralized assets.
The Pledgor will fulfill all formalities under the legal system applicable
to the securities to ensure this Pledge Agreement has full force and
effect.
Throughout the duration of the Convertible Loan the market value of the
pledged shares must at least be equal to 125 % of USD 3,400,000 (USD three
million four hundred thousand). If at any time the average market value of
the pledged shares over 5 (five) continuous trading days, calculated in
good faith by PARIBAS, is less than 125 % of USD 3,400,000, Mr. T. Kendall
Hunt shall within one calendar week on simple and first written demand by
PARIBAS pledge additional Vasco Corp. shares in aggregate countervalue (or
amount) so as to ensure that the above ratio is respected.
<PAGE> 2
[BANQUE PARIBAS BELGIQUE LETTERHEAD]
If the average market value of the pledged shares over 5 (five) continuous
trading days is in excess of 150% of USD 3,400,000, PARIBAS will waive its
pledge on all securities in excess of 150% of USD 3,400,000 upon simple and
first written demand by the Pledgor.
The recourse by PARIBAS against the Pledgor under this Agreement is limited to
the securities pledged or to be pledged to PARIBAS under this Agreement.
The Pledgor affirms that he is (and will be for the additional collateral) the
sole owner of the pledged securities (or the securities to be pledged) and
states that they are (and will be for the additional collateral) fully paid up
and free of any commitments, encumbrances, liens, pledges, seizure and/or
charges.
The numbers of the non-fungible securities are indicated in the PARIBAS books
to which the Pledgor declares that he submits entirely.
The fungible securities may remain deposited at the Caisse Interprofessionnelle
de Depots et de virements de Titres (C.I.K.) S.A. in accordance with Decree no
62 of 10th November 1967.
2. PARIBAS shall detach and/or collect on the due date under the
conditions provided for in its Regulations governing Operations, the
coupons of the securities handed over as a pledge and shall credit
the proceeds, after collection, to the current account of the Pledgor,
or offset these proceeds against the claims covered by this pledge.
3. PARIBAS shall be entitled to replace by securities of the same type,
those of the securities included in the pledge which become due
for payment or which give rise to an exchange or conversion
transaction, the Pledgor giving all the necessary authorizations now
for these operations to be carried out on his behalf and at his cost.
4. The Pledgor may at any time have all or part of the securities forming
part of the pledge realised, without substitution of debt, through
PARIBAS, to use the proceeds thereof to buy other securities
approved by PARIBAS. The securities thus acquired being automatically
allocated to securing the commitments of the Pledgor, shall
automatically take the place of the pledged securities thus realised
and shall consequently be subject to the same clauses and stipulations
as those they replace. The selling and buying transactions for
reinvestment shall be adequately evidenced by the PARIBAS statements,
by its correspondence or even simply by its book-keeping.
5. All the securities which come to form part of the pledge, pursuant to
clauses 1, second paragraph, or 4 above, shall be the subject of a
supplementary pledge agreement which the Pledgor shall undertake
to return signed to PARIBAS, at the latter's first request, and which
shall be appended to this agreement.
<PAGE> 3
[BANQUE PARIBAS BELGIQUE LETTERHEAD]
6. If the Pledgor does not settle the balance due at the first request
addressed to him by registered letter and/or should PARIBAS call
on the pledge formed by the present, PARIBAS shall be entitled to
have the securities handed over as a pledge, sold in accordance with
the law and shall apply the proceeds, in preference to any other use, to
the full or partial repayment of all the sums due.
Upon selling said securities, PARIBAS would act in good faith and
with respect of the interests of the Pledgor, a.o. by reasonably
trying to sell at a good price, and by not selling more securities than
needed to pay the outstanding amounts as defined sub 1.
7. For as long as the securities remain pledged in favour of PARIBAS, the
latter may not be called on to release them for whatsoever reason, in
particular by general meetings of shareholders or bond holders.
However, it may, if the Pledgor so requests, deliver to him a
declaration stating that it holds the securities in question as a
pledge.
8. All unavoidable costs to which this deed, its execution or lack of
execution, its production for legal proceedings or before any other
authority gives rise, are payable by the Pledgor.
9. For the execution of this agreement and all its consequences, the
parties elect domicile as follows, i.e.: PARIBAS at its present or
future registered office and the Pledgor at his domicile mentioned
below, unless the Pledgor previously notified in writing a new
domicile to Paribas:
11735 Briarwood Court, Burr Ridge, Illinois 60525, United States
of America,
where all notifications, summons, formal notice and all acts of
whatsoever nature in general may be validly served upon them.
10. Belgian legislation alone shall be applicable for the application,
interpretation and execution of this deed and the Brussels courts alone
shall be competent, unless PARIBAS wishes, if it prefers, to bring
proceedings before the courts of the legal or elected domicile of the
undersigned of the second party.
Drawn up in Brussels on July 15, 1997, in 2 copies, with each party recognising
having received its copy.
/s/ T. Kendall Hunt /s/
The Pledgor T. KENDALL HUNT BANQUE PARIBAS BELGIQUE S.A.
<PAGE> 4
[BANQUE PARIBAS BELGIQUE LETTERHEAD]
STATEMENT OF SECURITIES DEPOSITED AS PLEDGE
<TABLE>
<CAPTION>
Number Specification and numbers of non-fungible securities Coupons attached
<S> <C> <C>
1,416,666 Shares of VASCO Corp., a Delaware Corporation having its
one million executive office at 1919 S. Highland Avenue, Suite 118-C,
four hundred Lombard, Illinois, 60148, United States of America
sixteen thousand
six hundred and
sixty-six
</TABLE>
<PAGE> 1
EXHIBIT 10.18
June 20, 1997
PRIVATE AND CONFIDENTIAL
VASCO CORP.
1919 S. Highland Avenue
USA - Lombard, Il. 60148
Attn: Mr. T. Kendall Hunt, Chairman & CEO
Dear Sir,
LETTER OF ENGAGEMENT
We are writing this letter to confirm the basis upon which Banque Paribas S.A.,
London branch (or "Paribas") is willing to advise and, subject to market
conditions, satisfactory due diligence and documentation and no material
adverse change in financial position, to act as Global Co-ordinator, Lead
Manager, Bookrunner and Underwriter for an international offering of equity
shares (the "Offering") for VASCO CORP. or of a new corporation ("NewCo") to
be organised by VASCO CORP. (VASCO CORP. and NewCo are referred to herein as
the "Company") on the terms (the "Term Sheet") attached hereto. The final terms
of the Offering will be agreed between the parties in the light of prevailing
market conditions at the relevant time.
1. ACCESS: It is a condition of our engagement that the Company will
provide Banque Paribas S.A. with all such information as Banque Paribas
S.A. may reasonably require or as any competent regulatory authority may
require and that the Company provides such information in good faith
believing it to be true, accurate and complete in all material respects.
The Company authorises Banque Paribas S.A. to utilize such information in
connection with the provision of the services envisaged herein. The
Company agrees that Banque Paribas S.A. shall have such access to the
directors and other staff of the companies comprising the Company, its
subsidiaries and affiliates (the "Group") as Banque Paribas S.A. deems
appropriate and, with prior approval, the external advisors of the
Company, its subsidiaries and affiliates as Banque Paribas S.A. may deem
appropriate.
In addition, the Company agrees (subject to any legal or regulatory
requirements) to keep Banque Paribas S.A. informed of any material
developments or proposals in relation to the business or operations of the
Group, in particular where these may have any effect on the Offering, for
the period up to and including the closing of the Offering and thereafter
for a period of six months following the closing of the Offering.
2. CONFIDENTIALITY AND CONFLICTS: Banque Paribas S.A. recognises that
information received by it during the course of its engagement is of a
confidential nature and unless otherwise agreed by the Company neither
Paribas nor any Connected Person
<PAGE> 2
(as defined in paragraph 4) of Paribas shall disclose any such information
to any third party, provided always that in addition to any other right or
obligation by virtue of which Paribas or any Connected Person may be
entitled or bound by law to disclose information, Paribas will be
entitled, at its discretion, if requested or required to do so, to
disclose any information known to it or any Connected Person and/or to
produce any documents relating to the Group's business or affairs to any
government or regulatory agency or authority. Paribas may also disclose
any such information for the purposes of defending any claim or action
against it in respect of the Offering. Paribas will promptly notify the
Company of any such disclosure of information or production of documents
and make available to the Company copies of any such documents. Paribas
will, where reasonably practicable, seek to impose a confidentiality
requirement on the recipient in any case where the information is not
subject to statutory restrictions on disclosure.
Neither Banque Paribas S.A. nor any Connected Person will have any duty to
disclose to the Company any information which comes to their notice (or
the notice of any Connected Person) in the course of carrying on any other
business or as a result of or in connection with the provision of services
to other persons.
Banque Paribas S.A. is part of a wide-ranging financial services group
(involved in, inter alia, commercial banking, portfolio investment,
capital markets activities, trading and research) in which different parts
of the group act independently of each other. Accordingly, while Paribas
shall, pursuant to this letter, act on behalf of the Company and in its
best interest as a client, another part of Paribas' business or a
Connected Person may be acting on behalf of other clients in ways which
conflict with the interests of the Company.
As a result of the potential conflicts of interest and in order to
preserve the confidentiality of client information, Banque Paribas S.A.
operates comprehensive sets of rules and procedures to ensure respect for
confidential information.
3. DOCUMENTS AND ANNOUNCEMENTS: Banque Paribas S.A. may ask the Company for
certain confirmations relating to information contained in a document,
prospectus, information memorandum, offering circular or announcement if
the Company asks Paribas to issue or approve it, whether or not it is an
investment advertisement, and Paribas may require further information from
the Company in order to issue or approve any such document or
announcement. Paribas will require the Company and/or the directors of
the Company to accept full responsibility for any such information in any
such document or announcement relating to the Company or any of its
subsidiaries or affiliates.
Banque Paribas S.A. retains the right to refuse to issue or approve a
particular document or announcement and to require the Company to cease to
distribute a document or announcement which, in Paribas' opinion, has any
connection with or potential effect on the proposed Offering if at any
time Paribas becomes aware of information which, in its opinion, renders
the document or announcement untrue or misleading in a material respect.
Please note that any written or oral opinion, report or advice provided by
Banque Paribas S.A. or any Connected Person in connection with its
engagement is exclusively for the information of the Board of Directors
and senior management of the
<PAGE> 3
Company and may not be disclosed to any third party or circulated or
referred to publicly without our prior consent other than such disclosure
as may be required by governmental and regulatory bodies in Belgium
Paribas shall be named as Global Co-ordinator and Lead Manager to the
Offering in any announcements, circulars or communications regarding the
Offering in the manner and place in which it is normal or a requirement
for Global Co-ordinators or Lead Managers to an offering to be so named.
The Company agrees that it will not publish, or arrange for the
publication of, any documents or announcements in relation to the Offering
which refers, either expressly or by implication, to Banque Paribas S.A.
without the prior approval of the entitled entity of Banque Paribas S.A.
Banque Paribas S.A. reserves the right to place advertisements in
financial and other newspapers and journals at its own expense describing
Paribas' services pursuant to this letter once the Offering has been
completed and announced. All other public announcements or disclosures
will be issued only after approval by the Company.
4. INDEMNITY: It is a further condition of our engagement that neither
Banque Paribas S.A. nor any Connected Person of Banque Paribas S.A. shall
be liable for any losses, claims, damages, liabilities, expenses, actions,
demands, proceedings, enquiries, investigations, judgements, decisions or
reports ("Liabilities") incurred, brought or threatened to be brought or
entered or enforced or conducted against the Company or any Connected
Person thereof by reason of, or arising, directly or indirectly out of,
the carrying out by Paribas of services pursuant to this letter provided
the same do not arise from Paribas' or, as the case may be, any Paribas
Connected Person's gross negligence or wilful default.
The Company will indemnify and hold Banque Paribas S.A. and each of its
Connected Persons harmless from and against any and all Liabilities
incurred, brought or threatened to be brought or entered or enforced or
conducted against Banque Paribas S.A. or any of its Connected Persons
which arise out of matters or transactions contemplated by or consequent
upon Paribas' or its engagement under the terms of this letter except to
the extent that those Liabilities arise out of the wilful default or gross
negligence of Banque Paribas S.A. or, as the case may be, such Connected
Person.
In the event of any claim being made or threatened, Paribas will keep the
Company informed as to the progress of such claim and will consult with
the Company or its advisors in relation to the handling of such claim
including any proposed settlement or compromise thereof, provided that
Banque Paribas S.A. will at all times have full discretion in respect of
any such claim.
In this letter "Connected Person" of a party means each of the following
of such party: any holding company of such party, subsidiaries and
subsidiary undertakings of such party or any holding company together with
the respective associates, affiliates, directors, officers, employees and
agents of each of them.
5. EXPENSES AND FEES: It is agreed that the Company shall, subject to any
required regulatory approvals for such reimbursement but without regard to
the consummation of any transaction, be responsible for and, to the extent
payments are made by
<PAGE> 4
Banque Paribas S.A., reimburse Banque Paribas S.A. at such times as Banque
Paribas S.A. shall request, for the costs and expenses, together with any
applicable value added tax or like charge ("VAT") specified in the Term
Sheet. The expenses, if not paid or reimbursed earlier, shall be paid or
reimbursed in cash upon demand.
All payments or reimbursements by the Company hereunder shall be made
without the withholding or deduction of any tax or like charge; and if the
Company shall be required to deduct or withhold such a tax or like charge
or if such tax or like charge is imposed on Banque Paribas S.A. solely on
account of services performed hereunder, the Company shall pay the net
amount to Banque Paribas S.A. after such deduction, withholding or
imposition.
6. TERMINATION: The Company may terminate the services of Banque Paribas
S.A. or Banque Paribas S.A. may terminate its services, at any time with
or without cause, effective upon receipt of written notice to the other
party to that effect, it being understood that paragraphs 4, 5 and 7 will
survive any such termination. Subject to the agreed limit on the
reimbursement of expenses and fees specified in the Term Sheet, Banque
Paribas S.A. shall be entitled in the event of termination to immediate
payment in full of all reasonable expenses and fees incurred or accrued as
at the time of termination. If Banque Paribas S.A. terminates this
Agreement without cause Banque Paribas S.A. shall pay its own expenses and
shall not be entitled to reimbursement.
7. EXCLUSIVITY: It is a further condition that the Company will not appoint
any other Global Co-ordinator, Global Bookrunner and Financial Advisor in
relation to the engagement hereunder or, prior to completion of the
engagement or six months following the earlier termination thereof, in
respect of any international offering of equity shares (with or without
warrants) convertible bonds or any other instrument convertible or
exercisable into equity shares without the prior written agreement of
Banque Paribas S.A.
8. GOVERNING LAW: The terms of this letter shall be governed by and
construed in accordance with the laws of the United States, State of New
York. In signing the enclosed copy of this letter you will be irrevocably
and unconditionally submitting to the jurisdiction of the New York courts
in relation to any matters arising in connection with the Offering and
this letter.
Please indicate your confirmation of the exclusive appointment on the terms set
out herein of Paribas as Global Co-ordinator, Lead Manager, Bookrunner and
Underwriter for an international offering of equity shares on your behalf by
signing and returning the attached copy letter.
We are delighted to accept such appointment and look forward to working with
you on this assignment.
Yours faithfully
BANQUE PARIBAS S.A.
By: /s/ Mr. Bijan-Daniel KHEZRI
<PAGE> 5
I hereby confirm your appointment on the terms set out above.
VASCO CORP.
By: /s/ Mr. T. Kendall HUNT
<PAGE> 6
THE LETTER OF ENGAGEMENT (THE "LETTER") DATED JUNE 20, 1997 BETWEEN BANQUE
PARIBAS S.A. AND VASCO CORP. SHALL BE AMENDED BY DELETING IN ITS ENTIRETY THE
TERM SHEET ATTACHED THERETO AND REPLACING SUCH WITH THE TERM SHEET SET FORTH
BELOW. EXCEPT AS HEREIN PROVIDED, THE LETTER SHALL REMAIN UNCHANGED AND IN
FULL FORCE AND EFFECT.
TERM SHEET
INDICATIVE TERMS AND CONDITIONS
FOR AN INITIAL PUBLIC OFFERING ON EASDAQ AND NASDAQ
OF EQUITY SHARES OF
VASCO CORP.
These indicative terms are subject to market conditions, satisfactory due
diligence and documentation and no material adverse change in the financial
condition of the Issuer.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Issuer VASCO Corp. or "NewCo"
- ----------------------------------------------------------------------------------------------------
<S> <C>
Offering : newly issued shares (capital increase): <...>
sale of existing shares by shareholders: <...>
private placement in Europe/Rest of the World and private
offering in the US
- ----------------------------------------------------------------------------------------------------
Size : USD 60,000,000
- ----------------------------------------------------------------------------------------------------
Greenshoe Option : 15%, i.e. USD 9,000,000, over-allotments to allow Paribas
to stabilise the market after allocation, in accordance
with the EASDAQ and NASDAQ Stabilisation Rules,
exercisable within 30 days from the date of admission to
trading on EASDAQ and NASDAQ. 7% fees will be paid on
the greenshoe to the extent exercised. Paribas alone
will be in charge of all stabilisation policy.
- ----------------------------------------------------------------------------------------------------
Offering Price : Determined in light of bookbuilding
- ----------------------------------------------------------------------------------------------------
Governing Law United States, State of New York
- ----------------------------------------------------------------------------------------------------
Listing : EASDAQ and NASDAQ
- ----------------------------------------------------------------------------------------------------
Total Commissions 7.00 %
- ----------------- 1.50 % (50% of the management fee for
A. Management Fee : Paribas as praecipium; the other
half will be allocated to Paribas, the US Co-Lead Manager,
Generale de Banque and the US Co-Manager pro rata their
participation in the underwriting)
B. Underwriting Fee 1.50 %
C. Selling Fee 4.00 %
- ----------------------------------------------------------------------------------------------------
Offering Expenses for
the account of the
Issuer
- --------------------
A. Administrative : including, but not limited to:
Expenses - fees and expenses related to the Belgian Banking and
Finance Commission and the EASDAQ listing
- fees and expenses related to the Securities and
Exchange Commission and the NASDAQ listing
- costs related to Issuer's legal counsel, notary,
accounting and other advisory, principally but not
exclusively for the offering prospectus (which will only
be published in English) and comfort
</TABLE>
1
<PAGE> 7
<TABLE>
<S> <C>
letters/legal opinions
B. P.R., Roadshow and : including, but not limited to:
Other Publicity Expenses costs and expenses related to press advertisements and
tombstones, printing, public meetings, road shows, press
meetings and other P.R. activities,...
C. Underwriters' expenses including, but not limited to: legal and other advisory
expenses; out-of-pocket expenses (e.g. travel expenses)
D. Syndicate Expenses B and C in excess of US$500,000 will be for the
account of the syndicate.
- ----------------------------------------------------------------------------------------------------
Retainer Fee Paribas will be paid a non-refundable retainer fee of US
$50,000 by the time this term-sheet is signed. This
retainer fee will be deducted from the success fees of the
offering if and when the offering takes place.
- ----------------------------------------------------------------------------------------------------
Financial Advisor Paribas is acting as Senior Financial Advisor. Paribas
will be solely in charge of structuring the offering.
- ----------------------------------------------------------------------------------------------------
Syndication : -Global Co-ordinator/Global Bookrunner/Lead Manager: Paribas
-US Co-Lead (US International): US House
-Co-Lead Manager (Europe): Generale de Banque,
-US Co-Manager (US): US House
- ----------------------------------------------------------------------------------------------------
Underwriting The underwriting percentages will be split as follows:
(US$ amounts if total deal pre-greenshoe is US$60m)
o Paribas (40.00%) USD 24,000,000
o US Co-Lead (35.00%) USD 21,000,000
o Generale de Banque (20.00%) USD 12,000,000
o US Co-Manager (5.00%) USD 3,000,000
The greenshoe, to the extent exercised, would be
underwritten only by Paribas and the commissions on the
greenshoe paid to Paribas
- ----------------------------------------------------------------------------------------------------
Selling and Underwriting : Upon agreement on the offering price, the offering of
the shares shall, subject to market conditions,
satisfactory due diligence and documentation and no
material adverse change in the financial condition of
the Issuer, be underwritten by Paribas and the other
underwriters pursuant to a Subscription Agreement
between the Issuer and the Underwriters.
- ----------------------------------------------------------------------------------------------------
Bookbuilding : The shares will be offered by method of bookbuilding.
The Global Book will be run by Paribas alone.
The Issuer will have access to the book at all times.
- ----------------------------------------------------------------------------------------------------
Lock-ups : No further offering or sale of shares in the Issuer for
a period of 1 year following the transaction without the
prior consent of Paribas except pursuant to warrants,
options and convertible debt in existence at the closing
date of the Offering.
- ----------------------------------------------------------------------------------------------------
Timing : The transaction is expected to take place in the fourth
quarter of 1997 (closing beginning of December).
- ----------------------------------------------------------------------------------------------------
Obligations of Paribas : The obligations of Paribas will consist in assisting
VASCO CORP. in, among others:
- ASSISTING with the review of the international
</TABLE>
2
<PAGE> 8
<TABLE>
<S> <C>
offering prospectus
- DETERMINING, in consultation with the Issuer, the
appropriate price range for the offering
- STRUCTURING the Offering (including size, timing and
syndicate structure)
- INVITING THE SYNDICATE
- DRAFTING of the subscription agreement,
- ADVISING VASCO Corp. to its obligations under the
NASDAQ and EASDAQ regulations;
- SPONSORING the EASDAQ listing
- CO-ORDINATING the EASDAQ and NASDAQ listing processes
- ASSISTING VASCO Corp. in the preparation of the
required documentation for the EASDAQ listing
(comprising application and the offering prospectus) in
accordance with the applicable regulations
- CONTACTING, with the assistance of outside counsel
where necessary, the relevant authorities with respect
to the EASDAQ-listing (EASDAQ and Commissie voor het
Bank- en Financiewezen) and assisting VASCO Corp. in
obtaining any necessary approvals, rulings, or relief
with respect to the EASDAQ-listing;
- ASSISTING VASCO Corp. in the preparation of the
required documentation for the NASADQ listing
(comprising application and the offering prospectus) in
accordance with the applicable regulations
- CONTACTING, with the assistance of outside counsel
where necessary, the relevant authorities with respect
to the NASDAQ-listing (NASDAQ and the Securities and
Exchange Commission) and assisting VASCO Corp. in
obtaining any necessary approvals, rulings, or relief
with respect to the NASDAQ-listing;
- PREPARING and undertaking the appropriate filings with
the above-mentioned authorities;
- MANAGING THE SYNDICATE of underwriters;
- ORGANISING, in Europe, after a preliminary prospectus
has been prepared and prior to the roadshow (see below),
a set of WARM-UP MEETINGS with targeted institutional
investors,
</TABLE>
3
<PAGE> 9
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
- ORGANISING the marketing and sales efforts for the the
Offering, in particular the Europe/Rest of the World (ex
US) tranche, including roadshows and
one-on-ones (schedule and venues to be determined) and preparation
of marketing documents;
- DETERMINING THE OFFERING PRICE after discussions with
the Issuer and the US Lead Manager
- after fixing the price, UNDERWRITING the offering
and/or sale of the shares together with the syndicate of
underwriters;
- acting as MARKET MAKER; Paribas will invite the other
underwriters to take up the engagement to act as Market
Maker.
- STABILISING THE SHARE PRICE in the after-market within
a period of 30 days after allocation;
- UNDERTAKING TO PUBLISH research reports on VASCO
Corp. at the time of the offering and on a regular basis
thereafter. Paribas will require research reports from
all syndicate members.
- ----------------------------------------------------------------------------------------------------
Obligations of parties All obligations of the parties are subject to, and are
to be performed in compliance with, applicable laws,
rules and regulations.
- ----------------------------------------------------------------------------------------------------
THIS TERM SHEET MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS,
ALL OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND THE SAME
INSTRUMENT AND ANY OF THE PARTIES HERETO MAY EXECUTE THIS TERM
SHEET BY SIGNING ANY SUCH COUNTERPART
BANQUE PARIBAS S.A.
By: Bijan - Daniel Khezri
VASCO CORP.
By T. Kendall Hunt
August 29,1997
</TABLE>
4
<PAGE> 1
EXHIBIT 10.19
FINANCING AGREEMENT
This Financing Agreement is made as of June 27, 1997
between
generale bank
Montagne du Parc, 3
1000 Brussels
hereafter referred to as the "Bank"
and
vasco corp,
1919 South Highland Avenue, Suite 118-C,
Lombard, Illinois 60148
hereinafter referred to as the "Company"
whereas the Company envisages to increase its equity by an amount of USD
60,000,000 by a Secondary Public Offering ("SPO") in the fourth quarter of 1997
on Easdaq and/or Nasdaq of new Common Shares of the Company or of a new
Delaware corporation to be formed by the Company to effect a reorganization of
the Company through a stock exchange of at least 80% of the Company's
outstanding common stock ("Newco"), whereupon these Common Shares will be
admitted for trading and traded on Easdaq and/or Nasdaq;
whereas the Board of Directors of the Company in view of the above approved on
May 19th, 1997 a resolution on the negotiating on finalizing of a bridge credit
facility in the form of convertible notes and stock warrants which are
convertible into Common Shares of the Company or will be convertible in shares
of common stock of Newco.
THEREFORE it is agreed as follows :
article 1. - definitions
Terms defined in this Agreement.
"Agreement" means this Financing Agreement between the Bank and the Company.
"Annex" means an annex to this Agreement which forms an integral part of this
Agreement.
"Bank" means Generale Bank, Montagne du Parc 3, 1000 Brussels.
<PAGE> 2
"Common Shares" means the common stock shares of the Company as outstanding on
the date of signature of this Agreement (or Common Shares of Newco) as
described on page 60 of the Form S-4 registration statement for the Securities
and Exchange Commission (draft dated 3/31/97)).
"Company" means vasco corp. 1919 South Highland Avenue, Suite 118-C, Lombard,
Illinois 60148 or any successor company which has assumed all rights and
obligations of vasco corp. including the rights and obligations under or in
connection with this Agreement, the Convertible Notes, and the Stock Warrants;
reference to any knowledge of the Company refers equally to knowledge of the
officers of the Company
"Convertible Notes" means the amended and restated notes convertible in common
stock of the Company issued by the Company, dated July 1, 1997, numbered from 1
to 5 and whereof an unsigned example is annexed to this Financing Agreement,
Annex 1.
"Easdaq" means the European Association of Securities Dealers Automated
Quotation recognized by the Belgian royal decree of June 30, 1996 (Official
Gazette of July 7, 1996).
"Financing Agreement" means this amended and restated agreement between the
Company and the Bank.
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation operated by Nasdaq Stock Market, Inc., a subsidiary of the National
Association of Securities Dealers, Inc.
"Stock Warrants" means the common stock purchase warrants represented by
certificates numbered W9706001, W9706002, W9706003 and W9706004 signed by the
Company's Secretary and President on June 16, 1997 (a copy of which is annexed
to this Agreement, Annex II), certifying that the Bank is holder of a total of
40.000 common stock purchase warrants each of which giving the right to the
Bank to purchase one share of Common Stock of the Company.
"Taxes" has the meaning assigned to it in article 4.5 of this agreement.
article 2. - subscription of convertible Notes and the stock warrants
2.1. The Company agreed to issue the Convertible Notes, one unsigned copy of
which is annexed to this Agreement (Annex I), and the Stock Warrants, a copy of
all four certificates is annexed to this Agreement (Annex II).
The Convertible Notes are in the original aggregate principal amount of USD
2,500,000.
2.2. The certificates representing the Stock Warrants are in the possession of
the Bank. The Convertible Notes shall be delivered to the Bank on the date of
signature of this Agreement and Generale Bank hereby acknowledges receipt of
the Convertible Notes and Stock Warrants.
2.3. In consideration of the deliverance of the Convertible Notes and the Stock
Warrants the Bank shall pay at the latest three business days after the date of
signature of this Agreement the Company USD 2.500.000 less the out-of-pocket
expenses as referred to in article 5.5. by crediting by wire transfer its
account no. 41500 124 2445 with First National Bank of Chicago.
article 3. - conditions precedent
This Agreement is subject to the delivery to the Bank of a legal opinion
by the Company's external legal counsel, which Generale Bank hereby
acknowledges have been satisfied will be satisfied upon receipt of a legal
opinion in the form of Annex III.
<PAGE> 3
article 4 - representations and warranties
4.1. Corporate status.
The Company is duly organized, validly existing and in good standing under the
laws of Delaware and has full corporate power to carry on its business as it
is now conducted.
The statutory books and records of the Company have been kept substantially in
accordance to all legal requirements, are intact and in the possession or
control of the Company which has substantially complied with all statutory
procedures in connection with the management of the Company and the holding of
general shareholders meetings and Board meetings except where failure to
maintain would not have a material adverse effect on the financial conditions
of the Company ("Material Adverse Effect").
4.2. Financial Statements.
The balance sheet of the Company as of December 31, 1996 and the related
statements of income for the fiscal year then ended, with the related notes, a
copy of which is annexed to this Agreement (Annex IV), have been delivered to
the Bank on June 18, 1997, and
(i) were prepared in accordance with US GAAP accounting rules and applied in
all material respects on a consistent basis throughout the said period, and
(ii) fairly present the financial position and results of the Company as at the
balance sheet date and for the period thereby covered, as confirmed in the fax
received from KPMG dated June 17, 1997, a copy of which is annexed to this
Agreement (Annex V).
The financial statements for the year ending 1996 make adequate provision for
all material liabilities of the Company as of that date in accordance with US
GAAP accounting rules consistently applied.
The financial statements of the Company have been prepared in conformity with
the US GAAP accounting rules on a consistent basis throughout the period
covered and fairly present the financial position of the Company as of such
date.
Assuming the payment to the Company of the USD 2.500.000 pursuant to this
Agreement, since December 31, 1996, there have not been any material adverse
change in the business, prospects and financial condition or results of
operations, of the Company and the Company is not aware of any circumstance
which could give rise to such.
4.3. Absence of Undisclosed Liabilities.
The Company has no material debts, liabilities or obligations, whether accrued,
absolute, contingent, unrecorded or undisclosed, whether due or to become due,
except for debts, liabilities or obligations, (i) specifically reflected in,
reserved against or accrued in the audited financial statements and (ii) those
incurred in the ordinary course of business since December 31, 1996.
4.4. Absence of Certain Changes.
Except as set forth in article 4.4. hereunder, as well as the Netscape OEM
agreement and the Hucom agreement, since December 31, 1996 the Company has not
<PAGE> 4
(a) given any material discharge or release of any material obligations of
third parties to it, for which no substantially equal benefit was received by
it;
(b) mortgaged, pledged or subjected to any encumbrance any of its material
assets;
(c) waived or released any material right other than in the ordinary course of
business;
(d) sold, assigned, transferred, conveyed, licensed, sub-licensed, leased or
agreed to acquire any material asset other than in the ordinary course of
business;
(e) made any material capital expenditures or entered into any commitment
therefore, except in the ordinary course of business;
(f) incurred any material debt, liability or obligation other than normal trade
debts or obligations incurred in the ordinary course of business other than
with respect to the potential SPO and the renegotiation of the USD 3.4 million
bank guarantee with Paribas Belgique;
(g) incurred or inflicted any damage, destruction or loss to any physical
property owned or used in and material to its business and not fully adequately
covered by insurance.
4.5. Tax Matters.
"Taxes" as referred to in this Agreement shall mean all forms of taxation by
any taxing authorities, whether national or local including, without limiting
the generality of the foregoing, corporate income tax, real and personal
property tax, registration tax, value added tax, customs duties and parafiscal,
social security payments and similar charges. With respect to any period on or
before the signature date of this Agreement, the Company has :
(i) filed all returns, reports and declarations required to be filed with
respect to Taxes;
(ii) paid all such Taxes due to all taxing and social security authorities, and
there is no further liability for any such Taxes and no interest or penalties
accrued or accruing with respect thereto;
(iii) made adequate provisions for Taxes not yet due and attributable to all
periods ended on or before the date of this Agreement in accordance with
applicable accounting law and rules, except to the extent the amount thereof
will not have a Material Adverse Effect.
4.6. Litigation.
There are
(a) no material litigation or other material proceedings pending against the
Company;
(b) to the best of the knowledge of the Company no material threatened
litigation or administrative action and material claims asserted or threatened
against the Company;
(c) no litigation or other proceedings or administrative actions or claims
pending, or, to the best of the knowledge of the Company, threatened against
the Company before any court or governmental entity, which would materially
adversely affect the ability of the Company to consummate the transaction
contemplated by this Agreement;
(d) to the best of the knowledge of the Company no consumer complaints have
been lodged or threatened against the Company which could result in a Material
Adverse Effect.
<PAGE> 5
In each of the subparagraphs (a) through (d), there exists, to the best of the
knowledge of the Company, no circumstances (other then those described in the
March 31, 1997 draft of the Form S-4) which it is aware of which might give
rise to material litigation or other material proceedings against the Company.
4.7. No obligations of the Company conflicting with this Agreement.
Neither the issue of the Convertible Notes and the Stock Warrants, nor the
execution and delivery of this Agreement, nor the consummation of the
transaction contemplated hereby, will
(a) violate any provision of the organizational documents of the Company or any
statute, ordinance, regulation, order, judgment, directive or decree of any
court or governmental authority applicable to the Company;
(b) to the best of the knowledge of the Company, violate any provision of law
applicable to the Company;
(c) to the best of the knowledge of the Company, result in a breach of or the
termination of or constitute a default under any material agreement to which
the Company is a party.
4.8. Trademarks and other Intangibles.
The Company is the sole owner of or has right to use all trade names,
trademarks, service marks, corporate names and logos, patents, copyrights or
designs that are used in and are material to its business.
The Company is not aware of any litigation, proceeding or claim whatsoever,
pending or threatened, which is likely to jeopardize the registration or
validity of the above trade names, trademarks, service marks, corporate names
and logos, patents, copyrights or designs it uses, except to the extent the
lack of registration or validity would not have a Material Adverse Effect.
4.9. No further Consents.
Assuming the Bank is acquiring the Convertible Notes and Stock Warrants for
their own account and shall not distribute them unless such distribution is
registered under applicable law or exception from registration is available, no
consent, approval or authorization of, or registration, qualification,
designation or filing with, any governmental authority on the part of the
Company is required in connection with:
(i) the issue of the Convertible Notes and Stock Warrants;
(ii) the execution and delivery of this Agreement;
(iii) the conversion of the Convertible Notes in Common Stock Shares;
(iv) the issue of Common Shares in consideration of the exercise of the
Stock Warrants;
4.10. Disclosure.
Neither this Agreement nor any document certificate or statement furnished to
the Bank by or on behalf of the Company in connection with this Agreement or
transaction contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
<PAGE> 6
There is no fact known to the Company which constitutes a Material Adverse
Effect or in the future may cause a Material Adverse Effect which has not been
disclosed to the Bank.
The Company has not knowingly withheld from the Bank any information or data
which would in the reasonable opinion of the Bank materially affect the Bank's
decision to enter into this Agreement or any of its terms.
4.11. Contracts.
There are no
(a) contracts (other than contracts that are not material to the Company's
financial position or results) signed by the Company which are immediately
subject to termination as a result of an introduction of the shares of the
Company on a stock exchange or a change of ownership of part or all of the
shares of the Company;
(b) agreements under which the Company has transferred the security ownership
of or granted a pledge or other security interest in any of the assets which
would be material to the business of the Company, other than in the ordinary
course of business.
4.12. Compliance with laws.
The Company has substantially complied with all laws and regulations and
enforceable judgments of courts or arbitration tribunals with competent
jurisdiction applicable to the Company or its business and assets, the
violation of which, or the remedy of a violation of which, individually or in
the aggregate have a material adverse effect on the business, or financial
condition of the Company.
4.13. Indemnification.
The Company hereby agrees to hold the Bank harmless against any and all claims,
actions, suits, proceedings, demands, assessments, judgments and indemnify the
Bank for all damages and costs, including but not limited to interest,
penalties and reasonable auditors' and attorney's fees, incurred by the Bank
and caused by the incorrectness when made of any of the representations and
warranties of the Company as set forth above.
article 5. - undertakings
5.1. The Company undertakes to take all corporate actions necessary or useful
to authorize the SPO and listing of its Common Shares on Easdaq and/or Nasdaq.
5.2. The Company will use its best efforts to take all other actions, including
but not limited to consents of authorities and shareholders, necessary or
useful to authorize the SPO and listing of its Common Shares on Easdaq and/or
Nasdaq.
5.3. The Company undertakes to co-operate fully with the Bank and disclose all
relevant information and the Bank undertakes to co-operate with the Company in
order to facilitate the preparatory work for the admission to trading of the
Company's Common Shares on Easdaq and/or Nasdaq in the fourth quarter of 1997.
5.4. The Company and its officers undertakes that the rights and obligations of
VASCO CORP. under or in connection with this Financing Agreement and the
issuance of shares under the Convertible Notes and Stock Warrants shall be
assumed in their entirety by Newco. The Company and its officers undertakes
that Newco shall deliver an express written undertaking in this regard.
Furthermore, following
<PAGE> 7
such undertaking, Newco will deliver a legal opinion from Newco's
external legal counsel to the effect that all of the Company's rights and
obligations under the Financing Agreement and with respect to issuance of
Newco shares of Common Stock pursuant to the Convertible Notes and the Stock
Warrants have been assumed by Newco. The Company further undertakes to cause
the officers of Newco, who the Company anticipates will be the same people who
are officers of the Company, to cause Newco to assume all of the obligations
set forth in this Article 5.4.
5.5. The Company undertakes to pay up to the sum of USD 10.000 (ten thousand)
all reasonable out-of-pocket expenses, including legal fees of the Bank, in
connection with the preparation and execution of this Financing Agreement.
article 6. - further assurances
Each of the parties hereto shall take such further actions as may be reasonably
requested by the other party hereto to carry out and consummate the
transactions contemplated in this Agreement.
article 7. - assignment
With the exception of an assignment in accordance with article 5.4. of this
Agreement, no parties may assign any of its rights under and/or in connection
with this Agreement without the prior written consent of the other party.
article 8. - severability and waiver
8.1. No implied waivers - Remedies cumulative.
No failure to exercise and no delay in exercising any right, power or privilege
hereunder shall operate as a waiver thereof or exclude a further exercise of
these same rights, power or privilege. Nor shall any single or partial exercise
of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No waiver
shall be effective unless it is in writing.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
8.2. Amendments and waivers.
Any provision of this Agreement may be amended only if the parties so agree in
writing.
Any waiver under any provision of this Agreement must be in writing.
8.3. Partial invalidity.
The illegality or unenforceability of any provision of this Agreement under the
law of any jurisdiction shall not affect its legality, validity or
enforceability under the law of any other jurisdiction nor the legality,
validity or enforceability of any other provision.
Article 9. - Governing law and jurisdiction
9.1. This Agreement is governed by, and shall be construed in accordance with,
the laws of Belgium.
<PAGE> 8
9.2. The Courts of Brussels shall have the non-exclusive jurisdiction to settle
any dispute which may arise out of or in connection with this Agreement.
This Agreement has been executed in two originals as of the day and year first
before written and each party acknowledges receipt of one signed original.
<TABLE>
<S><C>
generale bank vasco corp.
By: /s/ F. Vanderhoydonck By: /s/ T. Kendall Hunt
--------------------------- -----------------------
name: Francis VANDERHOYDONCK name: T.Kendall HUNT
title: Director Corporate Investment title: Chairman & CEO
Banking
I.O. O. Van Marke
By: /s/ O. Van Marke
---------------------------
name: Marc Antoine de SCHOUTHEETE
title: Head of Corporate Finance
</TABLE>
<PAGE> 9
Annex I. - Unsigned copy of Convertible Note
<PAGE> 10
Annex II. - Copy of the Stock Warrants
<PAGE> 11
Annex III. - form of legal opinion
<PAGE> 12
Annex IV. - Financial statements
<PAGE> 13
Annex V. - Fax of KPMG
<PAGE> 1
EXHIBIT 10.20
Corporate & Investment Banking
Mr. T. Ken Hunt
Chairman & CEO
VASCO CORP.
1919 South Highland Avenue, Suite 118-C
Lombard, IL 60148
USA
Brussels, 26 June, 1997.
Dear Sir,
Further to our recent telephone conversations and referring to your fax dated
9, 12 and 13 June 1997, we are glad to send you a new proposal of mandate
describing the role of Generale Bank as co-lead manager for the Secondary
Public Offering as more fully described herein ("SPO") of Vasco Corp. or of a
new Delaware corporation to be formed by Vasco Corp. (the "Issuer") on Easdaq
and Nasdaq.
As described in your fax dated 9 June, the underwriting team (the "Syndicate")
would consist of three members : 1) a Principal Lead Manager (the "Principal"),
being Banque Paribas, London Branch; 2) a Co-Principal Lead Manager (the
"Co-Principal") being an international, US-based investment banker, and 3) a
Co-Lead Manager (the "Co-Lead"), being Generale Bank. This team would
cooperate in a simultaneous offering on the Easdaq and Nasdaq exchanges,
raising up to USD 60 million.
In this context and assuming that the Principal will act as sponsor in the
meaning described in the Easdaq Rule Book on chapter V, we propose the
following framework for the role of Generale Bank, the timing of the
introduction and the costs involved.
<PAGE> 2
2
1. ROLE OF GENERALE BANK AS CO-LEAD MANAGER
1.1 PREPARATION OF THE OPERATION
Generale Bank will assist the Issuer, the Principal and the Co-Principal in all
aspects of the operation related to the Belgian market, such as contacts with
the Banking and Financing Commission, marketing (see below), ....
1.2 MARKET MAKER
Generale Bank will operate as market maker, which includes :
1. Research : after the SPO, Generale Bank will publish regularly
research reports on the company.
2. Active market making in stocks during Easdaq market hours
(09:30-16:30).
3. Displaying bid/ask prices reasonably related to the market conditions.
1.3 SELLING AND UNDERWRITING
Generale Bank wishes to actively participate in the Syndicate that will
organize the underwriting and the selling of this operation.
As offered in your fax dated 12 June, Generale Bank intends to underwrite 20 %
of the underwriting responsibility, or USD 12 million of a USD 60 million
offering, after a bookbuilding process.
The Issuer will guarantee to Generale Bank it will receive at least 20 % of the
offered shares for the final allotment to the investors, whatever the result of
the bookbuilding may be.
The Issuer will recommend that the offered shares are evenly distributed in
Europe and the US, in order to promote good investors' bases on the Easdaq and
Nasdaq exchanges.
1.4 MARKETING
In co-ordination with the Issuer, the Principal and the Co-Principal, Generale
Bank will act as lead-manager and will take all necessary actions relating to
the marketing of the operation in Belgium:
* organization of road shows in Belgium to ensure a suitable presentation
of the activities of the company to the financial community;
* the communication with the press, ....;
* the publication of tombstones in the financial press;
* the mailing of the prospectus to selected investors;
* the organization of meetings with a limited number of financial analysts;
* etc...
<PAGE> 3
3
2. TIMING OF THE INTRODUCTION
The objective is to organize the SPO in the fourth quarter of 1997, provided no
major event imposes a delay or makes the SPO impracticable to complete (major
crash on the main stock markets, unexpected incident in the activities of the
Issuer which has a material adverse effect on the Issuer's financial position,
failure to consummate the exchange offer as foreseen in the S4 registration
document to be filed with the Securities and Exchange Commission, ...) or
anything which, in the reasonable opinion of the underwriters, is likely to
jeopardize a successful SPO.
3. COSTS AND COMMISSIONS INVOLVED
Subject to any limitations that may be imposed by Nasdaq, Easdaq, the National
Association of Securities Dealers, any state securities laws or any other laws,
rules or regulations, the following commissions will apply:
1. The Issuer will pay to Generale Bank a management commission of 0.7 % of
the total amount raised by the Syndicate for the Issuer.
2. The commissions due to the Bank regarding the underwriting and selling
will be split as follows :
* 1.5 % underwriting commission based on the amount
underwritten by the Bank for the Issuer;
* 4.0 % selling commission based on the placed amount by the
Bank for the Issuer and taking into consideration point 1.3.
hereabove.
These commissions are normally paid by the Principal, unless otherwise
specified in its mandate. In that last case they would be paid directly
by the Issuer to the Bank.
The above mentioned commissions do not include the following expenses :
* the remuneration of the Market Authority;
* the remuneration of the Belgian Banking and Finance Commission;
* the remuneration of the legal advisers of the Issuer;
* the remuneration of the auditors of the Issuer;
* the costs incurred by the Issuer for the exchange offer;
* the cost of establishing and printing the prospectus;
* the marketing expenses of the Issuer;
* the costs of the Issuer related to road shows approved
by the Issuer taking place out of the buildings of Generale Bank;
* the cost of the publication of tombstones approved by
the Issuer announcing the SPO in the newspapers;
<PAGE> 4
4
* Generale Bank shall be responsible for all its expenses
(whatever internal or out-of-pocket) unless prior written
approval for payment is obtained from the Issuer.
The Issuer and the Principal have agreed that the budget for the
Syndicate concerning the items mentioned above will not exceed USD
500,000.
In case the SPO is cancelled on the sole decision of the Issuer, a fee will be
calculated in relation to the time spent by the Bank at that time and on the
basis of BEF 50,000 per man and per working day, but in no event shall the fee
exceed BEF 2 million.
If you agree on this mandate, may we ask you to return us a copy of this
document duly signed.
We are at your disposal for any further information you might need.
Looking forward to hearing from you very soon, we remain,
Sincerely yours,
/s/ Marc Antoine de SCHOUTHEETE /s/ Francis VANDERHOYDONCK
Head of Corporate Finance Director Corporate & Investment Banking
The foregoing mandate is acceptable to Vasco Corp. and is consistent with the
arrangements made with Banque Paribas, London Branch, concerning the SPO.
Date : June , 1997 VASCO Corp.
---------------
/s/ Mario HOUTHOOFT
Agent & Officer
<PAGE> 5
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIAL
Deposit Account Number
Depositor Company Name: Shiva Corporation
DEPOSIT TYPE: Initial Supplemental Replacement
If Replacement: Destroy Deposit Return Deposit
ENVIRONMENT:
Host System CPU/OS Version Backup
Source System CPU/OS Version Compiler
Special Instructions:
DEPOSIT MATERIAL:
Exhibit B Name Version
Item label description Media Quantity
27
September 9, 1997
LH
<PAGE> 6
For Depositor, I certify that For DSI, I received the above
the above described Deposit described Deposit Material
Material was sent to DSI subject to the terms on the
reverse side of this Exhibit:
By By
Print Name M. Elizabeth Potthoff
Date Date of Acceptance
ISE EX. B#
28
September 9, 1997
<PAGE> 7
29
September 9, 1997
<PAGE> 1
EXHIBIT 10.21
NUMBER: W9706001 **10,000** SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that GENERALE BANK, MONTAGNE DU PARC, 3 1000 BRUSSELS (the
"holder") is the owner of 10,000 Common Stock Purchase Warrants (the
"Warrants"), each Warrant giving the holder the right to purchase one (1) fully
paid and non-assessable share of Common Stock, $.001 par value, of VASCO CORP.
(the "Company") at any time through JUNE 30, 2000, (the "exercise date") at an
exercise price of $4.00 per Warrant and subject to the terms, conditions and
limitations set forth herein. These Warrants are exerciseable at the option of
the holder.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Company at its
principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
THESE WARRANTS AND THE UNDERLYING SHARES OF VASCO CORP. COMMON STOCK HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED WITHOUT SUCH REGISTRATION OR A SPECIFIC EXEMPTION FROM
REGISTRATION AS REFLECTED IN A WRITTEN OPINION FROM LEGAL COUNSEL ACCEPTABLE TO
THE COMPANY AS TO THE APPLICABILITY OF SUCH EXEMPTION.
In the event that prior to the exercise date, at least 80% of the Company's
outstanding common stock is exchanged (the "Stock Exchange") for shares of
Common Stock of a new Delaware corporation ("Newco") formed by the Company,
these Warrants shall be for shares of Newco Common Stock and all references
herein to the Company or VASCO Corp. shall refer to Newco and all references
herein to Common Stock of the Company shall refer to Common Stock of Newco of
the same class as the shares of Common Stock of Newco issued in the Stock
Exchange.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this JUNE 16, 1997.
------------------------- -------------------------
Secretary President
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
to Exhibit 10.21
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Generale Bank 06/16/97 06/30/2000 4.00 10,000
Generale Bank 06/16/97 06/30/2000 6.00 10,000
Generale Bank 06/16/97 06/30/2000 8.00 10,000
Generale Bank 06/16/97 06/30/2000 10.00 10,000
</TABLE>
<PAGE> 1
EXHIBIT 10.22
NUMBER: WC1021 **5,883 SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that FORREST D. LAIDLEY, 339 N. Milwaukee Avenue, Libertyville,
IL 60048-2249 (the "holder") is the owner of 5,883 Common Stock Purchase
Warrants (the "Warrants"), each Warrant giving the holder the right to purchase
one (1) fully paid and non-assessable share of Common Stock, $.001 par value,
of VASCO CORP. (the "Company") at any time through OCTOBER 31, 2000, (the
"exercise date") at an exercise price of $6.00 per Warrant and subject to the
terms, conditions and limitations set forth herein. These Warrants are
exerciseable at the option of the holder. In the event of a Secondary Public
Offering (the "Offering"), the Company has the right to call these Warrants at
the exercise price 30 days prior to the Offering. Surrender of the Warrants
and $6.00 per Warrant prior to or simultaneous to but no later than the closing
of the Offering will entitle the holder to one (1) share of free tradeable,
registered, non-restricted share of Common Stock of the Company. The Company
will permit "cashless exercise" (credit of the intrinsic value of the herein
Warrants against the Offering price) of the Warrants upon request of the holder
immediately prior to the Offering, based on the Offering price, with adjustment
for commissions and expenses.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 31st day of October, 1995.
_________________________________________________
SecretaryPresident
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
to Exhibit 10.22
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Richard M. Vaden, Jr. 10/31/95 10/31/2000 6.00 638
Stephen D. Clark 10/31/95 10/31/2000 6.00 5,844
Jeffrey A. Krogh 10/31/95 10/31/2000 6.00 2,942
Calvin C. Remmers & Nancy A. Remmers 10/31/95 10/31/2000 6.00 4,157
Linda Bilut 10/31/95 10/31/2000 6.00 300
Bernhardt Braa Wiggen, TTEE, FBO Bernhardt
Braa Wiggen U/A 12/27/94 10/31/95 10/31/2000 6.00 4,724
Kevin P. Wiggen 10/31/95 10/31/2000 6.00 1,200
Bernhardt B. Wiggen 10/31/95 10/31/2000 6.00 7,568
David W. Sutter 10/31/95 10/31/2000 6.00 5,883
Forrest D. Laidley 10/31/95 10/31/2000 6.00 5,883
Sally J. Krogh 10/31/95 10/31/2000 6.00 2,941
B.B. Wiggen and B.A. Wiggen 10/31/95 10/31/2000 6.00 75,000
Bonnie D. Wiggen 10/31/95 10/31/2000 6.00 7,219
Merrill Lynch IRA #208-84178 10/31/95 10/31/2000 6.00 5,800
Smith Barney Shearson IRA# 576-61214-1-596 10/31/95 10/31/2000 6.00 7,568
Carol E. Dill, Trustee U/A 7/14/89 10/31/95 10/31/2000 6.00 1,750
</TABLE>
<PAGE> 1
EXHIBIT 10.23
NUMBER: W9705009 **16,000**
SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that EUGENE WONG, 460 CHERRY LANE ROAD 1, MENDHAM, NJ 07945-2712
(the "holder") is the owner of 16,000 Common Stock Purchase Warrants (the
"Warrants"), each Warrant giving the holder the right to purchase one (1) fully
paid and non-assessable share of Common Stock, $.001 par value, of VASCO CORP.
(the "Company") at any time through MARCH 31, 2000, (the "exercise date") at an
exercise price of $5.19 per Warrant and subject to the terms, conditions and
limitations set forth herein. These Warrants are exerciseable at the option of
the holder. In the event of a Secondary Public Offering (the "Offering"), the
Company has the right to call these Warrants at the exercise price upon notice
given 30 days prior to the Offering. Surrender of the Warrants and payment of
$5.19 per Warrant prior to or simultaneous to but no later than the closing of
the Offering will entitle the holder to one (1) share of freely tradable,
registered, non-restricted Common Stock of the Company. The Company will allow
a "cashless exercise" as permitted under Section 9 of the Second Amendment to
the Registration Rights Agreement dated March 7, 1997, which amended the
Registration Rights Agreement dated as of October 19, 1995, as amended on July
1, 1996 (the "Registration Rights Agreement"). These Warrants have been issued
in consideration of the holder having executed the said Second Amendment to the
Registration Rights Agreement dated March 7, 1997.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Company at its
principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for your own
account and not with a view to the resale or distribution thereof and (ii) that
any subsequent resale or distribution of any such underlying shares shall be
made either pursuant to (x) a Registration Statement on an appropriate Form
under the Act, which Registration Statement shall have become effective and
shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
THESE WARRANTS AND THE UNDERLYING SHARES OF VASCO CORP. COMMON STOCK HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED WITHOUT SUCH REGISTRATION OR A SPECIFIC EXEMPTION FROM
REGISTRATION AS REFLECTED IN A WRITTEN OPINION FROM LEGAL COUNSEL ACCEPTABLE TO
THE COMPANY AS TO THE APPLICABILITY OF SUCH EXEMPTION. THESE WARRANTS HAVE
BEEN ISSUED PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT AND ARE SUBJECT TO
ALL PROVISIONS THEREOF.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 7th day of March, 1997.
_________________________________________________
Secretary President
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
to Exhibit 10.23
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Frank Brenner 03/07/97 03/31/2000 5.19 5,336
Gita Brenner 03/07/97 03/31/2000 5.19 5,336
Monte Engler 03/07/97 03/31/2000 5.19 17,336
Richard Groberg 03/07/97 03/31/2000 5.19 800
Irwin Schlass Enterprises, Inc. 03/07/97 03/31/2000 5.19 16,000
Bear Stearns, Custodian
FBO Stephen Raphael IRA 03/07/97 03/31/2000 5.19 39,216
Jack P. Schleifer 03/07/97 03/31/2000 5.19 33,320
Myron Weinblatt 03/07/97 03/31/2000 5.19 8,000
Eugene Wong 03/07/97 03/31/2000 5.19 16,000
</TABLE>
<PAGE> 1
EXHIBIT 10.24
NUMBER: WC4006 **833** SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that JAMES P. ROACHE, 730 N. Wabash, Chicago, Illinois 60611
(the "holder") is the owner of 833 Common Stock Purchase Warrants (the
"Warrants"), each Warrant giving the holder the right to purchase one (1) fully
paid and non-assessable share of Common Stock, $.001 par value, of VASCO CORP.
(the "Company") at any time through JUNE 1, 2001, (the "exercise date") at an
exercise price of $4.50 per Warrant and subject to the terms, conditions and
limitations set forth herein. The shares of Common Stock underlying these
Warrants shall have "piggy back registration rights" and will therefore be
included in the next registration statement to be filed with the SEC. The
effective date of these warrants is August 13, 1996.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 13th day of August, 1996.
__________________________________________________
SecretaryPresident
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
TO EXHIBIT 10.24
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Hutson, Richard W. 08/13/96 09/28/2001 4.50 2,499
Mini-Flix, Inc. 08/13/96 09/28/2001 4.50 833
Parrish, Charles E. 08/13/96 09/28/2001 4.50 833
Wright, Jeffrey A. 08/13/96 09/28/2001 4.50 833
Graham, William M. 08/13/96 09/28/2001 4.50 833
Roache, James P. 08/13/96 09/28/2001 4.50 833
Flynn, John F. & Stephanie B. 08/13/96 09/28/2001 4.50 1,666
Parrish, Charles D. 08/13/96 09/28/2001 4.50 833
Clark, Stephen D. 08/13/96 09/28/2001 4.50 1,666
Anderson, John B. 08/13/96 09/28/2001 4.50 833
Remmers, Calvin C. & Nancy A. 08/13/96 09/28/2001 4.50 600
Seibert, Mary Jo 08/13/96 09/28/2001 4.50 833
McMurrough, Marilyn & Mark 08/13/96 09/28/2001 4.50 4,165
Graham, Michael R. TTEE 08/13/96 09/28/2001 4.50 833
FBO Michael R. Graham
Wiggen, Ralph E. 08/13/96 09/28/2001 4.50 833
Wiggen, Patricia A. TTEE FBO 08/13/96 09/28/2001 4.50 563
Patricia A. Wiggen U/T/A/D
Wiggen, Bernhardt Braa TTEE FBO
Bernhardt Braa Wiggen U/T/A/D 08/13/96 09/28/2001 4.50 840
Wiggen, Bonnie D. 08/13/96 09/28/2001 4.50 11,250
Wiggen, Michael B. 08/13/96 09/28/2001 4.50 3,750
</TABLE>
<PAGE> 1
EXHIBIT 10.25
NUMBER: WC3001 **25,000** SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that GUY DENUDT, Bd. De Smet de Naeyer, 555, B-1020 Bruxelles,
BELGIUM (the "holder") is the owner of 25,000 Common Stock Purchase Warrants
(the , "Warrants"), each Warrant giving the holder the right to purchase one
(1) fully paid and non-assessable share of Common Stock, $.001 par value, of
VASCO CORP. (the "Company") at any time through DECEMBER 31, 2001, (the
"exercise date") at an exercise price of $7.00 per Warrant and subject to the
terms, conditions and limitations set forth herein. The shares of Common Stock
underlying these Warrants shall have "piggy back registration rights" and will
therefore be included in the next registration statement to be filed with the
SEC. The effective date of these warrants is June 27, 1996.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 27th day of June, 1996.
____________________________________________________
SecretaryPresident
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
TO EXHIBIT 10.25
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Denudt, Guy 06/27/96 12/31/01 7.00 162,500
Houthooft, Mario A. 06/27/96 12/31/01 7.00 162,500
</TABLE>
<PAGE> 1
EXHIBIT 10.26
NUMBER: WC2018 **4,445** SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that FIRST ANALYSIS SECURITIES CORPORATION (FEIN: 36-3158137),
233 South Wacker Drive, Suite 9500, Chicago, IL 60606 (the "holder") is the
owner of 4,445 Common Stock Purchase Warrants (the "Warrants"), each Warrant
giving the holder the right to purchase one (1) fully paid and non-assessable
share of Common Stock, $.001 par value, of VASCO CORP. (the "Company") at any
time through JUNE 1, 2001, (the "exercise date") at an exercise price of $4.50
per Warrant and subject to the terms, conditions and limitations set forth
herein. The shares of Common Stock underlying these Warrants shall have "piggy
back registration rights" as set forth in a Registration Rights Agreement dated
May 28, 1996 by and between Company and Holder. The effective date of these
warrants is June 27, 1996.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 27th day of June, 1996.
__________________________________________________
SecretaryPresident
(Apply Corporate Seal)
<PAGE> 2
SCHEDULE I
to Exhibit 10.26
<TABLE>
<CAPTION>
Issue Expiration Warrant Warrants
Name Date Date Price Issued
<S> <C> <C> <C> <C>
Kyoto Securities, Ltd. 06/27/96 06/30/01 4.50 166,943
First Analysis Securities Corp. 06/27/96 06/30/01 4.50 4,445
Steven Bouck 06/27/96 06/30/01 4.50 3,555
Michael Simplenski 06/27/96 06/30/01 4.50 889
</TABLE>
Page 5
<PAGE> 1
EXHIBIT 10.27
CONVERTIBLE NOTE 1
$500,000 July 1, 1997
VASCO Corp., a Delaware corporation ("VASCO" or "Maker") promises to
pay to Generale de Banque ("Generale Bank" or "Holder"), the principal sum of
USD Five Hundred Thousand Dollars (USD 500,000) (the "Principal Amount"). This
Convertible Note shall mature and is payable in full on September 30, 1998 (the
"Maturity Date"), subject to the terms and conditions of this Convertible Note.
This Convertible Note is one of five Convertible Notes dated the date hereof
and each in the principal amount of USD Five Hundred Thousand Dollars (USD
500,000) together with the interest on such principal sum, at the fixed
interest rate described below, payable as more fully set forth below.
1. Interest.
1.1 Interest shall be calculated on the unpaid principal
balance of this Convertible Note, at an interest rate of three and one-quarter
percent (3.25%) per annum. VASCO may withhold from such payments amounts which
may be required by the tax laws of the United States as in effect from time
to-time.
1.2 In the event of the completion of an SPO (as defined
in Section 3) and pursuant to Section 2 the Principal Amount of this
Convertible Note is repaid, either in cash or by conversion into shares,
within seven days of the closing of the SPO, VASCO shall pay additional
interest in cash at the time of the repayment of this Convertible Note as
follows:
(i) If this Convertible Note is repaid (in cash or by
conversion) on or before December 31, 1997, the sum
of USD 55.556 (USD Fifty-Five Thousand Five Hundred
Fifty-Six);
(ii) If this Convertible Note is repaid (in cash or by
conversion) between January 1, 1998 and March 31,
1998, both dates inclusive, the sum of USD 88.235
(USD Eighty-Eight Thousand Two Hundred Thirty-Five);
or
(iii) If this Convertible Note is repaid (in cash or by
conversion) between April 1, 1998 and September 30,
1998, both dates inclusive, the sum of USD 125.000
(USD One Hundred Twenty-Five Thousand).
1
<PAGE> 2
2. Payment.
If this Convertible Note has not been previously converted, this
Convertible Note shall be payable in full on the Maturity Date in an amount
equal to One Hundred Sixteen percent (116%) of the Principal Amount hereof (the
"Maturity Amount"); provided, however, that in the event of the completion of
an SPO (as defined in Section 3), Generale Bank may at its option, by written
notice ("Payment Notice") delivered to VASCO within seven days after the
receipt of proceeds by VASCO at the closing of the SPO, require VASCO to repay,
within seven days after receipt by VASCO of the Payment Notice, the Principal
Amount of this Convertible Note either (A) in cash or (B) in that number of
Common Shares of VASCO determined by dividing the Principal Amount by the per
share offering price of the SPO, and in the event either option (A) or option
(B) is exercised VASCO shall pay in cash plus (i) any accrued but unpaid
interest pursuant to Subsection 1.1 and (ii) the additional interest under
Subsection 1.2. Interest only payments in arrears shall be made every three
(3) months beginning on September 30, 1997. Except for the limited right set
out in Section 3 (d)(ii), Maker shall not have the right to make prepayment in
whole or in part.
3. Conversion.
(a) Subject to and upon compliance with the provisions of this
Convertible Note, at the option of the Holder, or any subsequent holders in due
course of this Convertible Note, the Principal Amount of this Convertible Note
in whole and not in part may at any time as from the date a Secondary Public
Offering ("SPO") occurs (including such date) until the close of business on
the Maturity Date of this Convertible Note be converted into that number of
Common Shares of VASCO, which shall have all of the rights and preferences as
attached to the Common Shares of VASCO under the Delaware General Corporation
Law at the time of conversion, by dividing the Principal Amount of this
Convertible Note by the Conversion Price which shall be the price of the SPO as
determined by the underwriters of the SPO on Easdaq and/or Nasdaq.
(b) In order to exercise the conversion privilege set out above, the
Holder shall surrender this Convertible Note to VASCO at any time during usual
business hours at the address set out below along with written notice to VASCO
at such office that the Holder elects to convert this Convertible Note and
stating the name or names in which the certificate or certificates for shares
of Common Shares which shall be issuable upon such conversion shall be issued
and, if applicable, the Conversion Price elected. As promptly as practicable
after the date of such notice and the surrender of this Convertible Note as
provided above, VASCO shall issue and deliver at its office or pursuant to its
written order, a certificate or certificates with the number of full shares of
common stock issuable upon such conversion in accordance with this Section 3,
VASCO shall not be required to issue fractions of a share or script
representing fractional shares upon conversion. If any fraction of a share
would, except for provisions of this sentence, be issuable upon the conversion
of this Convertible Note, VASCO shall pay a cash adjustment in respect to such
fraction equal to the value of such fraction based upon the then Conversion
Price. Such conversion shall be deemed to have been effective at the close of
business on the date of conversion and the person or persons in whose name or
names and each certificate or certificates
2
<PAGE> 3
for shares of common stock shall have been issuable upon such conversion shall
be deemed to have become the holder or holders of record of the shares
represented thereby on such date; provided, however, that any such surrender on
any date when the stock transfer books of VASCO shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for such shares are to be issued as the record holder or holders
thereof for all purposes at the close of business on the next succeeding day on
which such stock transfer books are open and the Convertible Note surrendered
shall not be deemed to have been converted until such time for all purposes,
but such conversion shall be at the Conversion Price in effect at the close of
business on the date of such surrender.
(c) If this Convertible Note has not been converted prior to or paid
in full on September 30, 1998 and Maker fails to pay this Convertible Note
prior to November 1, 1998, then after October 31, 1998 and before payment of
the Maturity Amount, if an SPO has not been completed the Holder shall have the
right to convert this Convertible Note into Common Shares of VASCO by dividing
the Principal Amount by the Conversion Price as follows:
(i) If Maker has listed its Common Shares on the NASDAQ
and/or EASDAQ and/or other U.S. national stock exchange, then Holder may
convert this Convertible Note at a Conversion Price corresponding to the Market
Price of VASCO Common Shares traded in the United States, where the "Market
Price" represents the average market price of VASCO's Common Shares traded in
the United States during the twenty (20) trading days immediately prior to the
Conversion Date; in addition, if this Convertible Note is so converted, VASCO
shall pay to the Holder, upon the surrender of this Convertible Note for
conversion, the sum of USD 250,000 (USD Two Hundred Fifty Thousand) as special
interest, or at the Holder's option the Holder may receive the special interest
in that number of VASCO Common Shares determined by dividing USD 250,000 (USD
Two Hundred Fifty Thousand) by the Market Price (as defined above).
(ii) If Maker has not listed its Common Shares on the NASDAQ
and/or EASDAQ and/or other U.S. national stock exchange, then Holder may
convert this Convertible Note at a Conversion Price of USD One Dollar (USD
$1.00).
(d) The Conversion Price shall be subject to adjustment from time to
time as follows.
(i) In case at any time VASCO shall subdivide its outstanding
shares of common stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately reduced
and conversely, in case the outstanding share of common stock shall be combined
into a small number of shares, the Conversion Price in effect immediately prior
to such combination shall be proportionately increased.
(ii) If VASCO proposes any capital reorganization or
reclassification of the capital stock of VASCO or consolidation or merger of
VASCO with another corporation or the sale of all or substantially all of its
assets to another corporation (a "Transaction") then as a condition to the
Transaction, VASCO shall, no later than thirty (30) days prior to the closing
date of the
3
<PAGE> 4
Transaction, provide notice to Holder of all terms of conversion of this
Convertible Note pursuant to the Transaction; and VASCO shall, not later than
forty-eight (48) hours prior to closing of the Transaction, notify Holder of
the date and time of closing. Prior to closing of the Transaction, Holder shall
have the right to convert all amounts owed pursuant to this Convertible Note
into shares pursuant to other provisions of this Convertible Note. If Holder,
after receiving the notices required by this Section, as of closing of the
Transaction has not elected to convert amounts owed pursuant to this
Convertible Note into shares, VASCO may, at its election, tender to Holder the
Maturity Amount plus all accrued but unpaid interest pursuant to this
Convertible Note, and then this Convertible Note shall be deemed assigned by
Holder to VASCO. If the Transaction does not close, VASCO shall not have the
right to so purchase this Note. If the Transaction does close and within one
hundred twenty (120) days after the closing VASCO shall not have acquired this
Convertible Note pursuant to the terms herein, VASCO, or its successor shall
have no right to so acquire this Convertible Note.
(iii) Upon any adjustment of the Conversion Price. then and
in each such case, VASCO shall give written notice thereof, to the Holder,
which notice shall state the Conversion Price resulting from such adjustment
and the increase or decrease, if any, and the number of shares purchasable at
such price upon the exercise of this Convertible Note setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(iv) In case at any time:
(a) there should be any capital reorganization, or
reclassification of the capital stock of VASCO or
consolidation or merger of VASCO or sale of all or
substantially all the assets to another corporation; or
(b) there should be a voluntary/involuntary
dissolution, liquidation or winding up of VASCO;
Then in any one or more of said cases, VASCO shall give with notice to the
Holder of the date on which the books of VASCO shall close or a record shall be
taken for such reorganization, classification. consolidation, merger, sale.
dissolution, liquidation or winding up shall take place.
(v) The issue of certificates on conversions of this
Convertible Note shall be made without charge to the converting Holder for any
U.S. transfer tax in respect of the issue thereof. Notwithstanding the above,
to the extent that any federal withholding tax is required by the tax laws of
the United States to be paid by VASCO, VASCO may withhold such amounts from
obligations paid pursuant to this Convertible Note.
(vi) VASCO shall at all times reserve and keep available out
of its authorized but unissued stock, for the purpose of affecting the
conversion of this Convertible Note, such number of its duly authorized shares
of its common stock as shall from time to time be sufficient to affect
4
<PAGE> 5
the conversion of this entire Convertible Note. Notwithstanding anything
herein to the contrary, in no event shall the number of shares of common stock
issuable on conversion of this Convertible Note exceed Five Hundred Thousand
(500,000) Common Shares, subject to adjustment pursuant to Section 3 (d)(i).
(e) In the event that prior to the conversion of this Convertible
Note, at least 80% of VASCO's outstanding Common Shares is exchanged (the
"Stock Exchange") for shares of common stock of a new Delaware corporation
("Newco") formed by VASCO, this Convertible Note shall be convertible into
Common Shares of Newco and all references herein to VASCO, VASCO Corp. or the
Maker shall refer to Newco and all references herein to Common Shares of VASCO
Corp. or of VASCO shall refer to Common Shares of Newco of the same class as
the shares of common stock of Newco issued in the Stock Exchange.
4. Manner of Payments.
All payments by Maker under this Convertible Note shall be (a) made in
lawful money of the United States of America, (b) credited first to any accrued
interest under this Convertible Note and second to the principal balance under
this Convertible Note, and (c) deemed paid by Maker upon delivery as provided
herein. Payments under this Convertible Note shall be made by swift transfer to
the account specified by the Holder.
5. Expenses, Notices and Attorney's Fees.
In the event that Holder shall bring an action to enforce any rights
hereunder, VASCO shall pay all of Holder's expenses incurred in connection with
such action including, but not limited to, reasonable attorney's fees and
expenses and costs of appeal. Should VASCO fail to timely pay any amount due
hereunder, Holder shall deliver to VASCO at 1919 South Highland Avenue, Suite
118-C, Lombard, Illinois, 60148, notice of such failure to pay. If within
fifteen (15) days following receipt of such notice, VASCO shall fail to timely
perform any obligation pursuant hereto, VASCO shall be deemed in default of its
obligations pursuant to this Convertible Note. Notice to Holder shall be sent
to:
Generale Bank
Corporate Investment Banking
att. of Mr. F. Vanderhoydonck
Montagne du Parc, 3
B-1000 Brussels
6. Headings.
The headings of the paragraphs of this Convertible Note have been
included only for convenience and shall not be deemed in any manner to modify
or limit any of the provisions of this Convertible Note. or be used in any
manner in the interpretation of this Convertible Note.
5
<PAGE> 6
7. Interpretation.
Whenever the context so required in this Convertible Note, all words
used in the singular shall be construed to have been used in the plural (and
vice versa), each gender shall be construed to include any other gender, and
the word "person" shall be construed to include a natural person, a
corporation, a firm, a partnership, a joint venture, a trust, an estate or any
other entity.
8. Partial Invalidity.
Each provision of this Convertible Note shall be governed by the laws
of the State of Illinois, and is valid and enforceable to the fullest extent
permitted by law. If any provision of this Convertible Note or the application
of such provision to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Convertible Note, or the
application of such provision to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected by such
invalidity or unenforceability, unless such provision or such application of
such provision is essential to this Convertible Note.
DATED AND EFFECTIVE as of the day and year above written.
VASCO CORP., a Delaware corporation,
By: /s/ T. Kendall Hunt
---------------------------------
name: T Kendall HUNT
--------------
title: Chairman & CEO
--------------
6
<PAGE> 7
STATEMENTS OF RIGHTS TO WARRANTS
AND
FORM OF EXERCISE
(a) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Corporation shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of its Common Stock into
a greater number of shares, then in either of such cases, the then applicable
purchase price per share of the shares of Common Stock purchasable pursuant to
this Warrant in effect at the time of such action shall be proportionately
reduced and the number of shares at that time purchasable pursuant to this
Warrant shall be proportionately increased; and conversely, in the event the
Corporation shall contract the number of outstanding shares of Common Stock by
combining such shares into a smaller number of shares, then, in such case, the
then applicable purchase price per share of the shares of Common Stock
purchasable pursuant to this Warrant in effect at the time of such action shall
be proportionately increased and the number or shares of Common Stock
purchasable pursuant to this Warrant shall be proportionately decreased. If
the Corporation shall, at any time during the term of this Warrant, declare a
dividend payable in cash on its Common Stock and shall, at substantially equal
to the dividend, all Common Stock so issued shall, for the purpose of this
Warrant, be deemed to have been issued as a stock dividend. Any dividend paid
or distributed upon the Common Stock shall be treated as a dividend pain in
Common Stock to the extent that shares of Common Stock are issuable upon
conversion thereof.
(b) In case, prior to the expiration of this Warrant by exercise or by its
terms, the Corporation shall be recapitalized by reclassifying its outstanding
Common Stock, (other than a change in par value to no par value), or the
Corporation or a successor corporation shall consolidate or merge with or
convey all or substantially all of its or of any successor corporation's
property and assets to any other corporation or corporations (any such other
corporations being included within the meaning of the term "successor
corporation" herein before used in the event of any consolidation or merger of
any such other corporation with, or the sale of all or substantially all of the
property of any such other corporation to, another corporation or
corporations), then, as a condition of such recapitalization, consolidation,
merger or conveyance, lawful and adequate provisions shall be made whereby the
holder of this Warrant shall thereafter have the right to purchase, upon the
basis and on the terms and conditions specified in this Warrant, in lieu of the
shares of Common Stock of the Corporation theretofore purchasable upon the
exercise of this Warrant, such shares of stock, securities or assets of the
other corporation as to which the holder of this Warrant would have been
entitled had this Warrant been exercised immediately prior to such
recapitalization, consolidation, merger or conveyance; and in any such event,
the rights of the Warrant holder to any adjustment in the number of shares of
Common Stock purchasable upon the exercise of this Warrant, as hereinbefore
provided, shall continue and be preserved in respect of any stock which the
Warrant holder becomes entitled to purchase.
(c) In case the Corporation at any time while this Warrant shall remain
unexpired and unexercised shall sell all or substantially all of its property
or dissolve, liquidate or wind up its affairs, lawful provision shall be made
as part of the terms of any such sale, dissolution, liquidation or winding up,
so that the holder of this Warrant may thereafter receive upon exercise hereof
in lieu of each share of Common Stock of the Corporation which he would have
been entitled to receive, the same kind and amount of any securities or assets
as may be issuable,
<PAGE> 8
distributable or payable upon such sale, dissolution, liquidation or winding up
with respect to each share of Common Stock of the Corporation; provided,
however, that in any case of any such sale or of dissolution, liquidation or
winding up, the right to exercise this Warrant shall terminate on a date fixed
by the Corporation. Such date so fixed shall be no earlier than 3 P.M. New
York City Time, on the forty-fifth (45th) day next succeeding the date on which
notice of such termination of the right to exercise this Warrant has been given
by mail to the registered holder of this Warrant at its address as it appears
on the books of the Corporation.
(d) Upon any exercise of this Warrant by the Warrant holder, the
Corporation shall not be required to deliver fractions of one share, but
adjustment in the purchase price payable by the Warrant holder shall be made in
respect of any such fraction of one share on the basis of the purchase price
per share then applicable upon exercise of this Warrant.
(e) In the event that, prior to the expiration of this Warrant by exercise
or by its terms, the Corporation shall determine to take a record of its
stockholders for the purpose of determining stockholders entitled to receive
any dividend, stock dividend, distribution or other right whether or not it may
cause any change or adjustment in the number, amount, price or nature of the
securities or assets deliverable upon the exercise of this Warrant pursuant to
the foregoing provisions, the Corporation shall give at least ten (10) days'
prior written notice to the effect that it intends to take such record to the
registered holder of this Warrant at its address as it appears on the books of
the Corporation, said notice to specify the date as of which such record is to
be taken, the purpose for which such record is to be taken, and the effect
which the action which may be taken will have upon this Warrant.
(f) The Corporation may deem and treat the registered holder of the
Warrant at any time as the absolute owner hereof for all purposes, and shall
not be affected by any notice to the contrary.
(g) This Warrant shall not entitle any holder thereof to any of the rights
of a stockholder, and shall not entitle any holder thereof to any dividend
declared upon the Common Stock unless the holder shall have exercised the
within Warrant and purchased the shares of Common Stock prior to the record
date fixed by the Board of Directors for the determination of holders of Common
Stock entitled to exercise any such rights or receive said dividend.
<PAGE> 9
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing of the shares of Common Stock of said
Corporation called for thereby and makes payment of $ in payment
of the purchase price thereof. Please issue the shares of stock so purchased
in accordance with the instructions given below.
Signature:
--------------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
ON THE BOOKS OF THE COMPANY
(Please Print in Block Letters)
Name
--------------------------------------------------------------------------
Address
----------------------------------------------------------------------
Social Security
or Employer I. D. Number
---------------------------------------------------
<PAGE> 10
ASSIGNMENT
(To Be Executed By the Registered Holder
to Effect a Transfer of the Within Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
- -----------------------------------------------
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
the right to purchase Common Stock evidenced by the within Warrant, to the
extent of shares of Common Stock, and does hereby irrevocably
constitute and appoint
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
to transfer the said right on the books of the Corporation, with full power of
substitution.
Dated: , 19 .
------------------------------- ----
-----------------------------
(Signature)
- -------------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement, or any change whatsoever and must be
guaranteed by a bank, other than a savings bank or trust company,
having an office or correspondent in New York, or by a firm having
membership on a registered national securities exchange and an
office in New York, New York.
<PAGE> 1
EXHIBIT 10.28
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST.
AGREEMENT BETWEEN
VASCO DATA SECURITY AND S.I. ELECTRONICS
FOR THE PRODUCTION, PACKAGING, TESTING AND DELIVERY
OF THE DIGIPASS V5.1 TOKEN
<TABLE>
<S> <C>
Article 1 - Definitions -4-
Article 2 - Scope -4-
Article 3 - Order and Delivery Mechanism -4-
Article 4 - Delivery Conditions -4-
Article 5 - Prices and Payment -5-
Article 6 - Housing Colour/Logo/Packaging -6-
Article 7 - Digipass V5.1 delivery batch acceptance test -7-
Article 8 - Warranty and epidemics -7-
Article 9 - Liability and insurance -8-
Article 10 - Cancellation/Late Delivery and Penalties -9-
Article 11 - Confidentiality -10-
Article 12 - Property of intellectual rights -10-
Article 13 - Effective date and termination -11-
</TABLE>
<PAGE> 2
This agreement is made by and between
- - VASCO DATA SECURITY NV/SA, 113 Chaussee de Courcelles, B-6041 Charleroi,
Belgium, hereinafter referred to as VASCO
and
- - S.I. ELECTRONICS LIMITED, Unit 5, 12th Floor, Nanyang Plaza, 57 Hung To
Road, Kwun Tong, Kowloon, Hong Kong, hereinafter referred to as "SIE"
whereas
1. VASCO desires SIE to produce, package, test and ship tokens such as the
DIGIPASS V5.1.
2. SIE is willing and able to produce, package, test and ship tokens such as
the Digipass V5.1 for VASCO.
THEREFORE, NOW, THE PARTIES HEREBY DECLARE AND AGREE AS FOLLOWS
ARTICLE 1 - DEFINITIONS
The following singular terms are used in this AGREEMENT in either singular or
plural with capital letters. In this AGREEMENT, these terms are understood to
have the following meanings:
1.1 Agreement means the agreement embodied in this document
together with its Attachments thereto, which form an integral part of
the AGREEMENT and any further agreement made subsequently between the
parties in connection therewith or in pursuance thereof.
1.2 Third party means any party other than VASCO or SIE.
1.3 The Digipass V5.1 token means the object as described in Attachment
___, hereinafter referred to as Digipass V5.1
ARTICLE 2 - SCOPE
2.1 The AGREEMENT contains the general terms and conditions upon which
SIE is prepared to guarantee the production, packaging, testing and
delivery of the Digipass V5.1 and other tokens for VASCO.
2.2 SIE accepts that it will not produce the Digipass V5.1, or similar
products for other
-2-
<PAGE> 3
customers without the written consent of VASCO.
ARTICLE 3 - ORDER AND DELIVERY MECHANISM
3.1 VASCO will pass order(s) for the production and delivery of Digipass V5.1
tokens. Each order will contain a SHIPMENT SCHEDULE stipulating:
a. one or more production and delivery batches
of 10,000 units;
b. specific reference for each delivery batch
(e.g. lot and serial number assignment mechanism as proposed
in our fax on January 19, 1997);
c. shipment dates of the respective delivery
batches from Hong Kong;
d. transportation method (by sea or by air) for
each delivery batch;
e. delivery condition for each delivery batch
(DDP or DDUP Brussels Brucargo);
f. packaging methods;
g. serial numbers of the Digipass V5.1 to be
delivered in a specific delivery batch.
3.2 Order or order amendments issued by VASCO will be confirmed
within seven (7) calendar days by SIE. The shipment schedule as
described in the order can only be amended in conformity with
article 3.4 below.
3.3 SIE will keep VASCO informed on its stock of EPSON processors on a
monthly basis, so that VASCO can provide sufficient epson
processors in time.
3.4 Order amendments/increase or delay of production quantity.
At the occasion of each increase or delay of the production
quantity VASCO will send the Order and Delivery Schedule for
confirmation to SIE.
* Production Increase or advancing production SIE will be
able to increase the production capacity with respectively
** tokens if Vasco informs hereto respectively 14 days, 21
days, 28 days, or 35 days before the actual shipment date,
provided sufficient EPSON processors are in stock.
Note that:
- VASCO is not allowed to increase production
beyond ** tokens per month.
- a new order will be issued in case total
order and production quantity is increased.
* Delaying production (maximum 3 months from
the scheduled shipment date)
within 30 days : No rescheduling possible
Within 30 to 60 days : 50% of original PO quantity
Over 60 days : 100% of original PO
quantity
Note that VASCO has to amend the Last Shipment Date and
Expiry Date of the Letter of Credit prior to delaying
production, if due to such delay the delivery would no
longer be covered by the standby L/C.
3.5 VASCO has to inform SIE latest 2 calendar weeks before shipment date
about
-3-
<PAGE> 4
(a) shipment method (by sea or by air) and (b) delivery condition
(duty unpaid or duty paid), if this is not yet stipulated in the order or
if VASCO desires to change the shipment method and/or delivery condition
as stipulated in the shipment schedule.
ARTICLE 4 - DELIVERY CONDITIONS
4.1 SIE will ship the Digipass V5.1 DDP or DDU Brussels Brucargo, depending
on the instructions given by VASCO in the shipment schedule or later on by
fax.
4.2 SIE will inform VASCO upon date of shipment in Hong Kong and estimated
date of delivery in Brussels Brucargo, latest two days prior to shipment.
4.3 SIE will ship the Digipass V5.1 tokens with the following documents:
a. Original Invoice in 3 copies
b. Packing list stipulating
- number of master cartons
- individual number of each master carton
- serial number range of the tokens in each master carton
c. adequate insurance
d. Clean on board marine bill of lading issued by the carrier to order,
marked freight collect, showing
notify VASCO DATA SECURITY
OR
Airwaybill, copy no. 3, issued and signed by the carrier
marked freight collect, showing notify VASCO DATA SECURITY.
e. Copy of SGS certificate of inspection certifying quantity, quality
and serial number range of the Digipass V5.1 tokens.
f. Original GSP Form A document
4.4 SIE will ship the Digipass V5.1 tokens in the packaging as stipulated in
the order.
ARTICLE 5 - PRICES AND PAYMENT
5.1 SIE guarantees the prices for the Digipass V5.1 as stipulated in
Attachment 1 for a period for 36 months following the signature of the
Agreement.
5.2 In order to cover the payment of the orders, VASCO will establish a
standby Letter of Credit with the condition of L/C payment at sight
against remittance of following documents:
1. Beneficiary's signed statement that applicant has failed to make
payment within 14 days upon the actual shipment date mentioned in
the AWB OR B/L.
2. Photocopy certified conform of original B/L
OR AWB made out to the order of VASCO.
3. Original and copy OF COMMERCIAL INVOICE
UNPAID.
4. Original and copy of PACKING LIST.
-4-
<PAGE> 5
5. Copy of certificate of inspection issued by
SGS.
6. Copy of the GSP Form A certificate of ______
origin issued by the competent authority and bearing the
reference number.
5.3 100% of cash payment by T/T remittance against full set of original
documents including invoice, packing list, B/L or AWB, SGS certificate and
copy of GSP FormEA document sent by Federal Express. VASCO will pay for
the goods within latest 14 days upon actual shipment dated mentioned in
B/L or AWB.
5.4 Standby L/C payment negotiation will only be proceeded if VASCO failed to
pay within 14 days upon the actual shipment date.
5.5 Prices mentioned in original invoice will be DDP Brussels Brucargo by
air. If a specific delivery is executed DDU and/or by sea in accordance
with the VASCO instructions, then SIE will provide a credit note for the
difference between the price DDP Brussels Brucargo by air and the price
DDU and/or by sea as stipulated in Attachment 1.
ARTICLE 6 - HOUSING COLOUR/LOGO/PACKAGING
6.1 The Packaging conditions for the Digipass V5.1 are described in the
attachment 2 Packaging
6.2 The colour of the Digipass V5.1 housing can be customised without extra
charge in case or orders of minimum ** units.
6.3 SIE can print a customised logo on the Digipass V5.1 without extra charge
provided VASCO informs SIE latest one month prior to shipment date
stipulated in the order unless otherwise specified.
ARTICLE 7 - DIGIPASS V5.1 TOKEN DELIVERY ACCEPTANCE TEST
7.1 Under the responsibility of SGS, a THIRD PARTY neutral organisation, an
acceptance test, as described in Attachment 3, shall be carried out before
shipment. SGS will issue a SGS Certificate if the test results for the
inspected TOKEN batch meet the AQL of the SGS Acceptance Protocol as
defined in Attachment 3.
7.2 A TOKEN batch delivered in packaging as described in Attachment 2, with
all documents mentioned in article 4, including the SGS Certificate of
Inspection will be accepted by VASCO.
7.3 If the packaging/cartons are damaged, VASCO will make a claim for the
insurance, refuse to accept the goods and verify within a reasonable time
whether
-5-
<PAGE> 6
the Digipass V5.1 in the damaged packaging/cartons are defective.
If the Digipass V5.1 tokens are defective, warranty as specified in
Article 8, is applicable.
7.4 If VASCO accepts the goods as such, only claims related to the contents
of the cartons remain possible. Missing Digipass V5.1 tokens have to be
notified in writing to SIE within two months upon the receipt of the
Digipass V5.1 For claims related to visual conformity and functionality,
warranty is applicable.
ARTICLE 8 - WARRANTY AND EPIDEMICS
8.1 Warranty of the Digipass V5.1 token batch covers only defects resulting
from manufacturing or development inadequacies or transportation to the
delivery address or the use of unsuitable materials by SIE. The warranty
period is 14 months upon physical delivery in Brussels Brucargo of the
Digipass V5.1.
8.2 The Digipass V5.1 are tested and guaranteed on the aspects as described
in Attachment 3. For each of these aspects, possible defects are
classified in three categories, see Attachment 4: critical defects, major
defects and minor defects. Critical defects will always result in
replacement of the defective TOKENS. Major defects noticed during first
personalisation will be replaced, provided this notification reaches SIE
not later than 3 months after physical delivery of the tokens to VASCO.
In other situations major and minor defects will only result in
replacement in case these defects are of epidemic nature.
8.3 VASCO shall notify the defect to SIE in writing, including a complete
description of the defect within the warranty period. Defective Digipass
V5.1 will only be returned fright collect for evaluation purposes. Both
parties will decide upon return and/or replacement of the defective
products within three weeks after receipt by SIE of the notification from
VASCO. VASCO certifies to undertake all possible effort to prevent the
use of the Digipass V5.1 outside their specifications.
8.4 SIE will undertake all possible efforts to replace defective TOKENS as
soon as possible. The replacement Digipass V5.1 tokens will be delivered
duty paid Brussels Brucargo within latest 45 calendar days upon the
VASCO's written notification including problem description to SIE. Should
problems arise with above mentioned replacement of defective Digipass
V5.1, both parties will in this case review the situation by mutual
consulting, and work out a solution.
-6-
<PAGE> 7
8.5 An epidemic covers only those defects resulting from manufacturing or
development or the use of unsuitable materials by SIE. An epidemic occurs
for any of the Digipass V5.1, when a failure level, during personalisation
and in the field cumulatively exceeds over the period of one year, on a
specific parameter of failure mode the levels indicated in Attachment 4 on
any single delivery batch and this within maximum twenty four months upon
physical delivery to VASCO of these Digipass V5.1 tokens.
8.6 In the event that in the tokens supplied by SIE based on the conditions
of Agreement and the purchase orders thereof, there should develop an
epidemic, SIE shall take appropriate actions to remedy such defects in
agreement with VASCO and in accordance with reasonable standards
applicable to the individual circumstances.
8.7 In such event, shipment of undelivered tokens related to purchase orders
will be postponed at VASCO's request (provided these TOKENS have not yet
passed SGS test procedures), until the cause of the epidemic has been
corrected. If within sixty calendar days after VASCO's notice regarding
the epidemic, SIE has not proposed a solution, VASCO will be entitled to
cancel pending purchase orders without any liabilities for such
cancellation.
8.8 VASCO shall notify the epidemic to SIE in writing including a complete
description of the defect within the epidemic period.
ARTICLE 9 - LIABILITY AND INSURANCE
9.1 SIE shall ensure that if the delivery term(s) cannot be achieved in
accordance with the delivery term(s) stipulated in the order(s) issued by
VASCO and agreed upon by SIE, this will be reported forthwith to VASCO.
9.2 SIE warrants that the Digipass V5.1 is in conformity with agreed
specifications and free from faults in manufacture and materials.
ARTICLE 10 - CANCELLATION/LATE DELIVERY AND PENALTIES
10.1 Cancelling an order by VASCO for reasons not related to a serious default
made by SIE in its obligations, will entitle SIE to the following
payments:
Cancellation from scheduled shipment date
- 0 - 30 days : 100% of FOB unit price
- 31 - 50 days : 70% of FOB unit price
- 51 - 75 days : 50% of FOB unit price
- over 75 days : no charge
-7-
<PAGE> 8
10.2 Late delivery by SIE
The terms and conditions related to late delivery of order(s) for
Digipass V5.1 tokens are the following:
a. SIE has a grace period of 20 business days following the delivery
date as defined by VASCO and confirmed by SIE.
b. VASCO may claim penalties for late delivery up to 0.5 percent per
full business week of delay beyond the grace period. This penalty
may only be calculated on Digipass V5.1 tokens which are delayed
beyond the grace period.
c. Penalties for late delivery may not exceed 12% of the FOB value
of the Digipass V5.1 delayed beyond the grace period. If no
Digipass V5.1 tokens have been supplied within 3 months following
the expiry of the period for a specific delivery, then VASCO has the
right to cancel the order for this delivery.
ARTICLE 11 - CONFIDENTIALITY
11.1 SIE undertakes to take adequate precautions to ensure
confidentiality in relation to all data which may come to the
knowledge of SIE or persons contracted by SIE in connection with
the execution of this AGREEMENT while carrying on activities on
behalf of VASCO.
ARTICLE 12 - PROPERTY ON INTELLECTUAL RIGHTS
12.1 SIE agrees that Vasco owns all right, title and interest in
the product lines that include the Products now or hereafter
subject to this Agreement and in all of Vasco's patents,
trademarks, service marks, tradenames, inventions, copyrights,
know-how and trade secrets relating to the design, manufacture,
operation or service of the Products.
This Agreement is subject in every case to the condition that it
does not convey any license, expressly or by implication, to
manufacture, reverse assemble, reverse compile, duplicate, or
otherwise copy or reproduce any of the Vasco Products for Third
Parties directly or indirectly, in the absence of express written
agreement of the contrary. H.I.W. Associates shall take
appropriate steps as Vasco may request to inform its customers of
and assure their compliance with the restrictions contained in
this Subparagraph of article 12.
12.2 SIE is will supply to VASCO all drawings, specifications
and other documents, production files and materials necessary to
start up a second source for the production of the Digipass V5.1,
and this within three months upon signature of the Agreement.
-8-
<PAGE> 9
12.3 Patent and copyright indemnity Vasco, except as otherwise
provided below, shall defend or settle any claim or proceeding
against SIE so far as it is based on an allegation that any
Product of Vasco's standard manufacture, design and
composition infringes patents or registered copyright when used
as Vasco contemplated and provided that Vasco shall have sole
control of any such action or settlement negotiations. SIE
agrees that VASCO at its sole option shall have no obligations
under this paragraph unless SIE notifies VASCO promptly in
writing of such claim, suit or proceeding and gives VASCO
authority to proceed as contemplated herein, and, gives VASCO
proper and full information and assistance to settle and/or
defend any such claim, suit or proceeding. The foregoing states
VASCO's entire liability and obligations and Purchaser's
exclusive remedy with respect to any claim or action alleging
infringement of any intellectual property rights.
12.4 Trademarks and Tradenames Nothing in this Agreement shall
grant SIE any right, title or interest in the Trademarks. At no
time during or after the term of this Agreement shall SIE
challenge or assist others to challenge the Trademarks or the
registration thereof or attempt to register any trademarks,
service marks or tradenames confusingly similar to those of Vasco.
ARTICLE 13 - EFFECTIVE DATE AND TERMINATION
13.1 The effective date of the AGREEMENT shall be January 21,
1997. The AGREEMENT shall initially continue in force until
January 21, 1999 and shall, subject to Article 13.2, thereafter be
extended for periods of one calendar year each.
13.2 Each party may terminate the AGREEMENT with effect from
January 21, 1997 or from each subsequent anniversary of the
AGREEMENT by giving the other party six months notice by
registered mail to that effect, provided, however, that the terms
and conditions of the AGREEMENT shall continue to govern any
delivery of TOKENS.
ARTICLE 14 - MISCELLANEOUS
14.1 This Agreement consisting of fourteen articles and the
Attachments listed and checked below constitutes the entire
understanding between the parties and supersedes any prior
proposal, representation or written agreement.
14.2 This Agreement and any alterations to, additions to, amendments,
deletions, modifications or waivers of any terms and conditions
contained herein and in the attached exhibits shall be binding
only if the Managing Directors of both parties have agreed to
them in writing.
-9-
<PAGE> 10
14.3 Both VASCO and SIE are not entitled to assign or transfer to a third
party without written consent of each other, the rights and benefits as
well as the duties and obligations under this Agreement.
14.4 If any provision of this Agreement shall be unlawful, void, or for any
reason unenforceable, it shall be deemed severable from, and shall in no
way affect the validity or enforceability of the remaining provisions of
the Agreement.
14.5 Any notice required or permitted by this Agreement shall be in writing
and shall be sent by certified or registered mail, postage prepaid, return
receipt requested, addressed to the other party at the address shown at
the end of this Agreement or to such other address for which such party
gives notice hereunder. Such notice shall be deemed to have been given
three (3) days after deposit in the mail.
14.6 In case of a conflict between any of the Articles of this Agreement and
the Attachments to this Agreement, the Agreement will prevail.
14.7 SIE is not liable for any delay in effecting deliveries due to force
majeure. A force majeure impediment is taken to mean an unforeseen event
which occurs after acceptance of orders, and which is beyond the
reasonable control of Vasco such as strike, blockade, war, mobilization,
riot, war, natural disaster, refusal of license by government or other
stipulations or restrictions by the authorities.
14.8 This agreement shall be governed and is construed according to the laws
of the Kingdom of Belgium. Only the Court of Brussels shall have
jurisdiction over all litigations which may arise under this Agreement.
14.9 Each of the parties hereto hereby agree to hold all confidential
information and trade secrets of the other party in confidence during and
after the term of this Agreement. The Distributor agrees to use
confidential information provided by Vasco solely for the performance of
this Agreement, and to take all necessary measures to prevent inadvertent
or unauthorized disclosure to third parties by its own authorized
personnel.
Vasco agrees to use all information received by the Distributor's
customers in confidence during and after the term of this Agreement. No
customer name or information shall be distributed to any third party
without written permission from the Distributor to Vasco.
-10-
<PAGE> 11
Attachments
The attachments checked below are attached to and made part of this Agreement.
Non disclosure Agreement
Attachment 1 - Prices Digipass V5.1
Attachment 2 - Logistics & Packaging
Attachment 3 - SGS Acceptance test
Attachment 4 - Classification of defects during warranty and epidemics
Attachment 5 - DRAFT
Made in two originals of which each party holds one.
For and on behalf of SIE For and on behalf of VASCO
date: date: 23/07/97
name: name: Houthooft Mario
signed: signed: /s/ Mario Houthooft
<PAGE> 12
NON DISCLOSURE AGREEMENT
BETWEEN
S.I. ELECTRONICS LIMITED, Unit 5, 12th Floor, Nanyang Plaza, 57 Hung To Road,
Kwun Tong, Kowloon, Hong Kong, Simon Yeung, hereinafter called "SIE"
AND
VASCO DATA SECURITY NV/SA., 113 Chaussee de Courcelles, B-6041 Charleroi,
Belgium, represented by Mario Houthooft, hereinafter called "VASCO".
Whereas, VASCO wishes to transmit and/or has transmitted to SIE proprietary
information (hereinafter referred to as INFORMATION) relating to VASCO's plans
to produce the Digipass V5.1. and similar products
Whereas, SIE wishes to evaluate whether it is (a) in the possibility to and (b)
interested to manufacture the product described in the INFORMATION in respect
of VASCO's technical and cost requirements.
Now, therefore, the parties hereto agree as follows:
1. The receiving party agrees that for a period of five (5) years from the
date of the Agreement, it shall take reasonable steps to prevent
disclosure of such INFORMATION it receives from the disclosing party,
provided that:
a) INFORMATION is supplied in tangible form and clearly marked
by the disclosing party as being confidential or proprietary.
b) INFORMATION otherwise disclosed, is identified in writing by
the disclosing party to the recipient within 14 days (fourteen)
after the date of disclosure as being confidential or proprietary.
Information thus disclosed shall in any case be treated as
confidential by the recipient for such period of 14 (fourteen) days.
c) any such writing disclosed to SIE are first provided to Mr.
Simon Yeung or any other person approved by SIE and VASCO.
1
<PAGE> 13
2. The receiving party shall use at least the same degree of care to avoid
disclosure of the INFORMATION as it employs with respect to its own
confidential proprietary information.
3. The disclosing party agrees that the receiving party shall have no
obligation with respect to any such INFORMATION which:
a) is or becomes available to the public otherwise than by
breach of this Agreement by the receiving party, or
b) is proved to be made known to the receiving party
independently of the disclosing party without obligations of
confidentiality or non-use, or
c) can be proved to have been in the possession of the receiving
party prior to execution of this Agreement or to have been developed
subsequently independently by the receiving party, or
d) is explicitly approved for release by the disclosing party.
4. All tangible forms of the INFORMATION such as written documentation,
delivered pursuant to this Agreement shall be and remain the property of
the disclosing party and all such tangible INFORMATION shall be promptly
returned upon written request, or destroyed at the disclosing party's
option.
5. This Agreement and any discussions thereunder shall not limit either
party's development and marketing of products or systems involving
technology or ideas of similar nature to that disclosed, nor will this
Agreement prevent either party from undertaking similar efforts or
discussions with third parties including competitors of the disclosing
party, provided that the obligations thereunder are not violated.
6. It is understood by both parties that such INFORMATION may relate to
products that are under development or planned for development. The
disclosing party makes no warranties regarding the accuracy of this
INFORMATION. The disclosing party accepts no responsibility for any
expenses, losses, or action incurred or undertaken by the receiving party
as a result of the receipt of the INFORMATION. It is further understood
by the receiving party that the disclosing party does not warrant or
represent that it will introduce any product to which the INFORMATION
disclosed here is related.
7. Nothing contained in this Agreement shall be construed as granting or
conferring any rights by license or otherwise, expressly, impliedly, or
otherwise for any invention, discovery or improvement made, conceived or
acquired prior to or after the date of this Agreement.
-2-
<PAGE> 14
8. This Agreement shall come into effect upon the last signature hereto and
shall remain in force indefinitely unless one of the two parties considers
that the purpose of the Agreement cannot be achieved. In this case, the
Agreement can be terminated by a ninety (90) days written notice.
9. MISCELLANEOUS
9.1 Amendments to this Agreement shall be valid only if agreed upon by an
instrument in writing duly signed by both parties and expressly called
amendment.
9.2 In the event that any provision of this Agreement should be held to be
invalid or unenforceable, the remaining provisions shall not be affected
hereby. Should an individual provision of this Agreement be held invalid
or unenforceable, the parties hereto shall agree on a new provision
corresponding to the ineffective provision which it is replacing.
9.3 This Agreement shall be governed by the laws of Belgium.
9.4 In the event of differences between the parties in connection with the
Agreement or any agreement or arrangement incidental thereto, the parties
agree that the place of jurisdiction shall be at the registered place of
business of the defendant party.
For S.I. ELECTRONICS LTD. For VASCO DATA SECURITY NV/SA
Signed: For and on behalf of Signed: /s/ Mario Houthooft
S.I. Electronics Limited
Name: /s/ Simon Yeung Name: Houthooft Mario
Title: Simon Yeung Title: Managing Director
Managing Director
Date: 23 Jan., 97 Date 23/01/97
-3-
<PAGE> 15
Production and Delivery Agreement between VASCO Data Security and S.I.
Electronics 17/01/97 R11
or Charleroi or Charleroi
transport by air **,- TBA **,-
transport by sea **,- TBA **,-
If due to optimisations proposed by VASCO in production, packaging or shipment,
the costs are reviewed, then the unit price will be adapted accordingly.
The CPU or processor used in the Digipass V5.1 is to be consigned to SIE by
VASCO.
The "TBA" prices for DDU in the above table will be defined in common agreement
between VASCO and SIE based on the actual costs incurred at the occasion of DDU
deliveries in the future.
4
<PAGE> 16
ATTACHMENT 2. LOGISTICS & PACKAGING
1. Serial Numbers
The serial number range of the Digipass V5.1 tokens delivered to VASCO
will be mentioned on the packing list.
The first serial number of a Digipass V5.1 in each external box will be
composed as follows: xxxxxx00.
The Digipass V5.1 tokens will be sorted in ascending (serial number)
order in the packaging as mentioned in Packaging/Option 2 below.
2. Packaging
For the start VASCO will have the possibility to opt for two different
packaging methods. VASCO has to inform SIE about the choice for one
the two packaging options.
Option 1 (packaging in use today)
- 100 per master carton
Option 2
All tokens are supplied in bulk format to Vasco, as follows:
- 200 per master carton
- in complete series of 10,000 ranging from xxxx0000 to
xxxx0000 +9999 (for this purpose SIE will need to print the labels
instead of receiving labels from Europe, because today a bad label
means a missing number).
- sorted
- in bubble bag
- without cardbox or wallet
- Cartons with cardboxes or wallets are sent separately (if so required)
in quantity requested by Vasco.
For both option 1 and 2, SIE will
- print the barcode labels
- provide packing list as stipulated in the agreement
- put labels on the carton mentioning CARTON NUMBER, NUMBER OF TOKEN
INSIDE and RANGE OF SERIAL NUMBERS and VASCO DATA SECURITY.
Second phase
Once VASCO will have developed a standard master carton for all VASCO
tokens, including the Digipass V5.1, the option 2 will be replaced by
the newly defined packaging.
<PAGE> 17
ATTACHMENT 3. SGS ACCEPTANCE TEST
1. AQL (Acceptance Quality Level)/Classification of defects
The AQL for a delivery batch or lot inspected in accordance with the
MIL-STD-105E GENERAL INSPECTION Level II shall be classified as:
1. Critical defects (CF) 0,4%
2. Major defects (M) 1%
3. Minor defects (m) 2,5%
2. Procedure if defects are detected during inspection by SGS
1. If number of defects exceeds AQL, the complete batch is
rejected and has to be reworked by SIE, and submitted for
inspection at a later time.
2. If the number of defects is below the AQL, the defective
tokens are reported (serial number and nature of defect) and
replaced. The replacement tokens have the highest serial number
and are packed in a separate box. However, in case under or over
shipments within specified tolerance are allowed, defective tokens
will not be replaced.
3. DESCRIPTION OF PRODUCT AND PACKAGING
Description of packaging (Option 1)
Inside the 100-pieces external box, two internal boxes with 50 pieces
each are found. Inside each 50-pieces internal box, 50 white carton
boxes are found.
Inside each white carton box, one finds a plastic bubble bag containing
a Digipass V5.1 token (=unit) combined with a black plastic wallet.
The serial number on the back of the unit has to be within the range
indicated on the 100-pieces external box.
Description of packaging (Option 2)
Inside the 200-pieces external box, two internal boxes with 100 pieces
each are found. Inside each 100-pieces internal box, 100 one finds a
plastic bubble bag containing a Digipass V5.1 token (=unit).
The serial number on the back of the unit has to be within the range
indicated on the 200-pieces external box.
<PAGE> 18
Description of boxing
Tokens are packaged in 100-pieces (Option 1) or a 200-pieces (Option 2)
boxes. Outside the 100-pieces or 200-pieces boxes, following
indications are present:
On both LONG side of the box
- Indication "FRAGILE" or "HANDLE WITH CARE" or equivalent
international symbol.
- Indication of "DIGIPASS" or "VASCO DATA SECURITY"
- Indication of "BRUSSELS" or "BELGIUM"
- N of the box in the shipment.
On both SHORT sides of the box
- Indication "FRAGILE" or "HANDLE WITH CARE" or equivalent
international symbol.
- Indication of "MODEL NO. V5-1"
- Range of Serial numbers as present inside the box. This
range should be within the range of serial numbers mentioned in
the up to date SHIPMENT SCHEDULE which forms an integral part of
the VASCO order.
Each external carton is closed with plastic tape and secured in both
directions with an additional plastic cord.
A pallet has a maximum height of _____ boxes.
Around and on top of the pallet is a plastic film in order to protect
against humidity during the transport or storage.
Description of unit (see reference unit)
Black plastic unit, similar to a pocket calculator, equipped with a
rubber keyboard and a LCD display. Another colour for the unit (e.g.
blue) is only allowed if specified explicitly on the documents.
On the back, two battery doors can be seen together with the following
labels or printing:
- plastic glued label with bar code and printed serial
number.
- printed CE logo.
- printed dp logo on the small battery door.
<PAGE> 19
4. FRI (Final Random Inspection)
The following elements are to be reviewed while carrying out an
operational test and appearance and conformity check. The SGS
certificate will indicate which units are not conform to the AQL in
regards to one or more of the elements.
Testing of package
1. clean appearance M
2. presence of unit CF
3. quality m
Testing of boxing
1. Sturdiness of box M
2. Conformity of pallet m
3. Protection with plastic film M
Appearance and conformity of unit
1. Presence of logo and labels CF
2. Appearance of unit M
3. Appearance of keyboard M
4. Presence printing on the buttons CF
5. Serial number corresponds
with indication on the box M
6. Appearance of _____ top and
bottom part of the plastic M
Operational test
1. Take a unit out of the enclosure
Without activating the unit, one has to see on the LCD 12 grey
rectangles, each existing out of 7 by 5 dots. If some lines of
dots are missing, the token is rejected.
2. Press the ON/OFF button.
The unit displays "V5.1" on the last 4 position of the LCD. The
displayed text is black while the background rectangles remain
grey.
3. Press the T button.
All dots on the display should be black, giving 12 black
rectangles, each existing out of 7 by 5 dots. If some lines of
dots are missing, the token is rejected.
4. Press the ON/OFF button.
On should see again on the LCD 12 grey rectangles.
5. SGS Instructions
Hereby enclosed is the Agreement between SIE and SOCIETE GENERALE
DE SURVEILLANCE S.A.
For each shipment, SIE will send SGS an inspection order
containing:
- the AQL as mentioned in section 1;
- the replacement procedure as described in
section 2;
- the FRI as described in section 3;
- the FRI as described in section 4;
- the then valid SHIPMENT SCHEDULE applicable
for the delivery batch to be investigated by SGS.
<PAGE> 20
ATTACHMENT 4. CLASSIFICATION OF DEFECTS USED DURING WARRANTY & EPIDEMICS PERIOD
1. Classification of Defects during warranty & epidemics period
1. The tokens are warranted on two aspects (see Table Warranty &
Epidemics Defects):
- visual conformity
- functional conformity
2. For each of these aspects, possible defects are classified in three
categories (see Table Warranty and Epidemics Defects):
- Type A defects: critical defects
- Type B defects: major defects
- Type C defects: minor defects
3. Depending on the category, different tolerance levels
(see Table Warranty & Epidemics Defects) are used during warranty
and epidemic period.
<PAGE> 21
TABLE WARRANTY AND EPIDEMICS DEFECTS
<TABLE>
<CAPTION>
Classification TYPE A DEFECTS TYPE B DEFECTS TYPE C DEFECTS
- -------------- -------------- -------------- --------------
Defects which results Defects which seriously Defects which to a minor
in impossibility to affect the possibility to extent affect the
use the token use the token possibility to use the
token
Warranty Epidemic Warranty Epidemic Warranty Epidemic
(1 year) (2 years) (1 year) (2 years) (1 year) (2 years)
<S> <C> <C> <C> <C> <C> <C>
Visual Conformity
during first
personalisation (1)
- - presence logo (2) replace >3%
- - presence label replace >3%
- - appearance unit
major replace >15%
discrepancies
minor no replacement >25%
discrepancies
- - traces of glue replace >15%
- - scratches on replace >15%
LCD
Visual Conformity
after personalisation
- - presence logo (2) no replacement >15%
- - presence label no replacement >15%
- - appearance unit
major no replacement >15%
discrepancies
minor no replacement >25%
discrepancies
- - traces of glue no replacement >25%
- - scratches on LCD no replacement >25%
Functionality
- - buttons blocked replace >10%
- - LCD broken replace >10%
- - enclosure replace >10%
breakdown
- - battery problem replace >10%
- - functional replace >10%
failures
</TABLE>
(1) notification not later than 3 months upon physical delivery
(2) Only if SIE was instructed to print a logo
<PAGE> 22
ATTACHMENT 5
STAND-BY LETTER OF CREDIT:
This draft is based on a L/C that covers deliveries over a period of 6 months.
BY ORDER OF VASCO DATA SECURITY, WE HEREBY ISSUE OUR IRREVOCABLE STAND-BY
LETTER OF CREDIT NR._____________________ IN FAVOUR OF SIE
DATE OF ISSUE: ASAP
DATE AND PLACE OF EXPIRY
21 DAYS AFTER LATEST DATE OF SHIPMENT
LATEST DATE OF SHIPMENT:
2 WEEKS AFTER LATEST DATE FORESEEN IN CONTRACT FOR SHIPMENT
(E.G. 2 WEEKS AFTER END OF FIRST SIX MONTH PERIOD)
CURRENCY US DOLLAR
UNIT PRICE **
MAX. AMOUNT: **
PAYMENT AT SIGHT AGAINST REMITTANCE OF FOLLOWING DOCUMENTS:
1/ BENIFICIARY'S SIGNED STATEMENT THAT VASCO HAD FAILED TO MAKE PAYMENT
WITHIN 15 DAYS UPON THE ACTUAL SHIPMENT DATE MENTIONED IN AIRWAYBILL (in
case of shipment by air) OR BILL OF LADING (in case of shipment by sea).
2/ PHOTOCOPY CERTIFIED CONFORM OF ORIGINAL BILL OF LADING OR AIRWAYBILL MADE
OUT TO ORDER OF VASCO
3/ ORIGINAL COMMERCIAL INVOICE UNPAID
4/ ORIGINAL PACKING LIST INDICATING NUMBER OF CARTONS, SERIAL NUMBER RANGE
OF THE DIGIPASS V5.1 TOKENS PER CARTON AND LOT ASSIGNMENT NUMBER
5/ COPY OF CERTIFICATE OF INSPECTION ISSUED BY SGS
6/ COPY OF GSP FORM A DOCUMENT STATING ORIGIN OF GOODS
DOCUMENTS TO BE PRESENTED TO _______________
PARTIAL SHIPMENTS ALLOWED
TRANSSHIPMENTS ALLOWED
DISPATCH FROM HONG KONG
SHIPMENT OF ** DIGIPASS V5 TOKENS DDP BRUSSELS BRUCARGO BELGIUM
<PAGE> 1
EXHIBIT 10.29
AGREEMENT
DIGILINE S.A.R.L. - FRANCE
BP103 Quartier Ranjarde
F - 13210 - SAINT REMY DEPROVENCE
hereinafter reffered as to "distributor"
and
DIGIPASS S.A., Belgium
hereinafter reffered to as "DIGIPASS"
Whereas DIGIPASS makes token security products, security Software and
initialisation robot, and whereas Distributor desires to sell such products in
France (The Territory), and wheras the Parties are in the option that it is in
the interest of both Parties that those products will be marketed in the
Territory by Distributor, the parties hereto agree as follows:
Article 1
Appointment as distributor
1. DIGIPASS appoints Distributor as its exclusive right for the duration of
this agreement in the territory for its DIGIPASS token security products
as described in Annex 1, hereinafter to be refered to as "the Products".
Distributor shall refrain outside the Territory from seeking customers
for the Products, establishing any branch and from maintaining any
distribution department except for what is authorised according to.
The Parties may later agree on the inclusion of other products herein.
In such case, possibily Articles shall be subject to renegociation
2. Distributor shall use its best efforts and diligence in promoting and
initiating effectively the sales of the Products to all potential
customers in the Territory.
3. Distributor shall, during the term of this agreement, refrain from
participating, directly or indirectly, in the manufacture, distribution,
representation, or promotion of any product wich is competitive with, or
intended to serve the qame purpose as, any of the Products.
Violation against this Article 1.3 will cause an immediate termination of
this agreement and the Distributor will be liable to compensate all the
costs and losses of DIGIPASS caused by this violation.
4. Parties will give each other all information at ther disposal wich may be
of interest for the development of the market of the Products.
<PAGE> 2
5. Distributor agrees to establish and maintain a sufficient and
representative stock of the Products to provide adequate facilities and
qualified personnel in sufficient number for the demonstration,
installation, replacement and service, of the Products.
6. The Distributor will not without DIGIPASS consent in writing assign or
transfer in any manner the benefits of this agreement.
7. The distributor will not remove from the products or alter in any way any
nameplates or trade marks affixed by DIGIPASS and may not without previous
written consent of DIGIPASS use any additional marks on or in relation to
the Products nor will the Distributor acquire any right in respect of the
DIGIPASS's names or marks. After the termination of this agreement the
Distributor will not use names or marks used by DIGIPASS or any word so
nearly resembling such names or marks as to be likely to cause confusion
or deception and will take all reasonable steps to ensure that its
servants agents or officers will also not use any such name mark or word.
8. The Distributor shall not (unless otherwise and in writing agreed by
DIGIPASS) advertise the Products outside the Territory or establish any
branch or depot for distribution of the Products outside the Territory.
9. The Distributor shall not without DIGIPASS's prior written consent in
each case sell the Products or offer the Products for sale outside the
Territory and the Distributor shall refer to DIGIPASS all and any
enquiries for such sales outside the Territory.
10. The Distributor will prepare and submit a Sales and Marketing Plan within
two (2) months of the date of this agreement for discussion with DIGIPASS
and thereafter at six monthly intervals to submit the the current Sales
Forecasts.
Article 2
Orders and delivery times
1. Distributor will order the Products in accordance with DIGIPASS's
production capacity and lead times. DIGIPASS will acknowledge orders
within 7 working days from receipt, indicating delivery time and other
pertinent data, DIGIPASS will deliver all orders within four months after
order date.
Article 3
Prices and payment
1. The prices of the Products ex works DIGIPASS are given in Annex 2.
2. These prices are based on cost of labourand materials at the time of
signature of this agreement and may be adjusted twice each year on April
1st and October 1st. In case of
2
<PAGE> 3
changes of no less than five (5) % in DIGIPASS production costs,
adjustements may be made at other points in time by mutual agreement. If
no agreement is reached, DIGIPASS shall have the right to terminate the
agreement forthwith, but shall be obliged to deliver all acknowledged
orders.
3. Payment of all invoices will be made by Distributor within eight (8) days
from their date. 50% will be invoiced at the order, 50% will be invoiced
at the date of shipment. DIGIPASS is entitled to ask for payment against
a letter of credit.
Article 4
Quality and warranty
1. DIGIPASS will make adjustements at Distributor's cost in the Products
which are or may become necessary to satisfy mandatory Territory
regulations other than those defined on the day of the agreement. If such
adjustments will bring major changes to the Products or specifications
given in Annex 1, DIGIPASS has the right to adjust the prices given in
Annex 2 and lead times (art 2.1.) of the first delivery of Products
including such adjustment.
2. Head end
DIGIPASS guarantees that all Products are in conformity with the agreed
specifications and with the approved samples and that they are free from
faults in manufacture and materials. If any defect might appear due to
faulty manufacture or material within 12 months from the date of
delivery from DIGIPASS - DIGIPASS will repair or replace the defective
Product or part thereof at its cost.
Distributor will send the defective Product or part of its cost to
DIGIPASS, and DIGIPASS will return the repaired or replacing Product or
part at its cost to Distributor.
Remarks or claims concerning any shipment of Products shall be made to
DIGIPASS no later than 45 days from date of shipment or 30 days from date
of delivery at Distributor, whichever date appears last, and before any
such Products have been further delivered by Distributor to its
customers.
DIGIPASS will not be liable for defects which have been apparently caused
by accident or negligence in transportation, storage or handling after
the Products have been delivered ex-works.
3. The warranty and quality provisions of other than DIGIPASS made equipment
and of software shall be separately agreed on after vspecification of such
equipment or software in each case.
4. DIGIPASS hereby disclaims all other warranties, either express or
implied, as to materials and workmanship of the Products. DIGIPASS shall
not be liable to Distributor for special, indirect, incidental or
consequential damages which may arise in connection with this agreement.
3
<PAGE> 4
Article 5
Service and spare parts
1. Distributor will establish the necessary facilities for prompt and
qualified service of the Products.
2. DIGIPASS will provide Distributor with complete service documentation in
5 copies. Each party will name one representative who will be responsible
for communication on technical matters.
All documentation and communication will be in English.
Article 6
Industrial property rights
1. DIGIPASS shall defend on the cost of Distributor any suit brought by and
any third party patentee against Distributor as far as such suit is based
on a claim that a Product delivered by DIGIPASS as such infringes patents
owned by such third party, on the condition that Distributor gives
DIGIPASS prompt notice in writing of any such suit for infringement, full
authority at DIGIPASS's option to settle or conduct the defense thereof
and full assistance and cooperation in said defense. No costs or expense
shall be incurred for the account of DIGIPASS without its prior written
consent. In the event that Products delivered by DIGIPASS are as such
held to constitute infringement of third party patent rights, DIGIPASS
shall, by its own election and at its own expense, arrange for a licence
under such third party patent rights, replace the infringing products by
non-infringing products, or shall against return of such products grant
Distributor a credit for the price actually paid thereof, less reasonable
depreciation.
DIGIPASS shall not be liable for any infringement which is the result of
adaptations made by Distributor, or by DIGIPASS to comply with specific
requirements of Distributor. DIGIPASS may prematurely with instant
effect terminate this agreement in event of a suit above-mentioned and
shall not be liable towards the Distributor for any other damages occured
to Distributor for such termination.
2. The application of DIGIPASS's trademarks to the Products shall not give
Distributor in any way by implication or otherwise any title to such
trademarks or to related trademarks. Distributor shall apply DIGIPASS's
trademarks only to goods that will be sold and delivered by Distributor
under the terms of this Agreements.
4
<PAGE> 5
Article 7
Duration
1. This agreement shall be in force for an initial period until 1st of May
1993 and shall thereafter be in force for consequentive three (3) years
period if not terminated by notice given by either of the Parties three
(3) months before the end of the initial or any consequentive period.
2. Neither Party will be due any compensation to the other one, when
terminating the Agreement in accordance with subclause 1 of this Article,
or with Article 1.2 or 3.2
The termination of this Agreement in accordance with the Article 1.3
makes the Distributor liable to compensate all the costs and losses
caused by this termination.
7.3 Default
If either Party hereto is in breach of this agreement, the Party
aggrieved by such default may give the other Party written notice on such
default. If the defaulting Party fails or refuses to remedy such default
within thirty (30) days from this date of said notice, this agreement may
be terminated by a second written notice and said termination shall be
effected as of the date of the second notice of default. Defaults under
this agreement shall be deemed to include, but shall not be limited to
the occurrence of the following events
(a) non-compliance by Distributor with the stipulated payment
terms, or
(b) either party assigns or purports to assign, transfer of
hypothecate this agreement, or
(c) if either Party fails to fulfil any its obligations under
this agreement,
(d) if terminated for default pursuant to this paragraph, the
termination date shall be the date of the second notice of default,
Termination for changes in circumstances.
Either Party is entitled to terminate this agreement with immediate
effect
(a) if ownership or control of other Party is transferred to a
third party, or
(b) if the other Party is adjudged bankrupt, files or has filed
against any petition under any bankruptcy or insolvency law, has a
receiver appointed for its business or property or makes a general
assignment for the benefit of its creditors.
5
<PAGE> 6
Article 8
General
1. Each of the parties hereto hereby agrees to hold all confidential
information and trade secret of the other party in confidence during and
after the term of this agreement. Distributor agrees to use the
confidential information provided by DIGIPASS solely for the performance
of this agreement, and to take all the necessary measures to prevent
inadvertent or unauthorized disclosure to third parties by its own or
authorized personnel.
2. DIGIPASS shall not be liable for any delay in effecting deliveries due to
force majeure. A force majeure impediment is taken to mean an unforseen
event wich occurs after the signing of the agreement and wich is beyond
the reasonable control of DIGIPASS such as strike, blockade, war,
mobilization or riot, natural disaster, refusal of licence by Government
or other governmental agency or other stipulation or restriction by the
authorities.
Article 9
Law and jurisdiction
This agreement shall be read and construed and have effect according to the
laws of Belgium and as a contract in Belgium.
In witness whereof the parties have caused this agreement to be duly signed on
their behalf.
Signed by /s/
-------------------------------
For and on behalf of Digiline France
--------------------
- -----------------------------------------
Signed by /s/ Dominique Colard
-------------------------------
For and on behalf of Digiline Digipass
--------------------
- -----------------------------------------
6
<PAGE> 7
ANNEXE 1
LIST OF PRODUCTS
1.0. DIGIPASS token security products
2.0. INITIALISATION OF THE DIGIPASS DONE BY DIGIPASS S.A.
3.0 INITIALISATION ROBOT
4.0. PC DIGIPASS SOFTWARE
7
<PAGE> 8
ANNEXE 2
PRICES
1.0. DIGIPASS TOKEN SECURITY PRODUCTS
100 pces to 999 pces : 884 BFr/pce
1000 pces to 4999 pces : 677 BFr/pce
5000 pces to 10000 pces : 631 BFr/pce
10000 pces and more : 583 BFr/pce
2.0. INITIALISATION OF THE DIGIPASS DONE BY DIGIPASS S.A.
30 BFr/pce
3.0 INITIALISATION ROBOT
490 000 BFr
4.0. PC DIGIPASS SOFTWARE
100 000 BFr per client licence
8
<PAGE> 1
EXHIBIT 10.30
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST
[VASCO LOGO]
Advanced
Authentication
Technologies(TM)
PURCHASE ORDER
VASCO DATA SECURITY, INC.
<TABLE>
<S> <C> <C>
SHIP TO VASCO Data Security, Inc.
and Bill To: 1919 South Highland Avenue PURCHASE ORDER: V6G2201
Suite 118-C DATE: July 22, 1996
Lombard, IL 60148
X CONFIRMING
TEL: (708) 932-8844 TAXABLE
FAX: (708) 495-0279 X RESALE (#1912-8541)
VENDOR: National Electronic & Watch Co. LTD. VENDOR PO #:
15/F Shing Dao IND. BLDG.
232 Aberdeen Main Road
Aberdeen, Hong Kong
TEL: 852-2554-1151
FAX: 852-2873-1737
UNIT PRICE TOTAL
ITEM QTY PART NUMBER/DESCRIPTION (usd) (usd)
- ------------------------------------------------------------------------------------------------------------------------------------
S15 TBD Access Key II in Black Gray Color **
Consigned Materials:
1 - CMOS DIE Micronix MX921
1 - DL4148
1 - Filter (same as S2)
4 - Photo diode (same as s2)
1 - Serial NBR Label
11 - FS-30-7.7-30 Dome Switch or 1-Modified Keypad if available
- ------------------------------------------------------------------------------------------------------------------------------------
S15 TBD Access Key II in Green Color **
Consigned Materials:
1 - CMOS DIE Micronix MX921
1 - DL4148
1 - Filter (same as S2)
4 - Photo diode (same as s2)
1 - Serial NBR Label
09 - FS-30-7.7-30 Dome Switch or 1-Modified Keypad if available
- ------------------------------------------------------------------------------------------------------------------------------------
** <-----------TOTAL-------------------------------------------------> $1,390,000.00
====================================================================================================================================
</TABLE>
<PAGE> 2
INSTRUCTIONS/COMMENTS:
A modified keypad design currently under investigation may be implemented
during the course of production against this PO Once the modification is
accepted, a running change should take place. Since materials used in the
production of these two units is identical, specific quantities of each unit
required do not need to be stated. A total of ** units (S15GRN and
S15BLK) will be manufactured against this PO
Delivery Schedule: ** S15 GRN per week beginning the week of 10 August. The
delivery schedule can be modified by VDSI with a 30 day
notice and is subject to availability of VDSI supplied
consigned materials. NEWCO will give VDSI 60 days notice
of projected inventory shortages of consigned materials
with the exception of the CMOS DIE which requires
14 week notification.
Payment: 20% value of one month's production as deposit. Each
shipment to be paid by T/T 1 week prior to shipment.
Failure of NEWCO to ship units within that one week time
frame will change payment terms to payment upon receipt of
units by VDSI.
Packing: 5 pcs. packed in one bar, 25 pcs. per one polyfoam box,
100 pcs. per outer carton.
Costs of unit: VDSI reserves the right to amend this PO in 50K increments
within 12 months in order to receive the lower unit cost
for all remaining undelivered units.
Req. Pass Rate: The fallout rates for consigned materials provided to NEWCO
by VDSI shall be:
MX921 - 3%
CD1705 - 2%
Filters - 2%
Domes - 2%
DL4148 - 2%
S/N Labels - 2%
VDSI will accept a 2.0% yield loss not including yield
loss due to defective consigned materials. VDSI requires
all defective consigned materials to be returned to VDSI for
inspection within 30 days of detection. NEWCO will credit
VDSI for all returned product for repair or replacement
under the following schedule:
o VDSI will ship all returned keys to NEWCO for repair
or replacement.
o NEWCO will credit VDSI for the cost of NEWCO labor.
o NEWCO will purchase from VDSI any consigned materials
necessary to repair or replace the units.
<PAGE> 3
o Upon completion of the repair or replacement of the
units, NEWCO will ship the units and invoice VDSI for the
cost of NEWCO labor.
THE CURRENT PO WILL NOT BE FINALIZED UNTIL PAST DEFECTIVE
MATERIAL ISSUES HAVE BEEN RESOLVED WITH APPROPRIATE CREDITS
GIVEN.
<TABLE>
APPROVED:/s/ Signed APPROVED:___________________
(Buyer) ----------------------- (Seller)
<S> <C> <C>
VASCO Data Security, Inc. National Electronics & Watch Co., LTD.
John C. Haggard Ricky Wai
President Managing Director
DATE: 7-22-96 DATE: _______________
</TABLE>
<PAGE> 4
NATIONAL ELECTRONICS & WATCH CO., LTD.
EXPORTERS, IMPORTERS AND MANUFACTURERS
<TABLE>
<S> <C> <C>
15/F SHING DAO IND. BLDG. TEL: 2554 1151 BANKERS
232 ABERDEEN MAIN ROAD FAX: 2873 1737 BANK OF AMERICA N.T & S.A
ABERDEEN, HONG KONG TELEX: 83212 TARLY HX SANWA BANK
- --------------------------------------------------------------------------------
</TABLE>
ORDER CONFIRMATION NO. ( 13771 )
-----------------------------------------
<TABLE>
<S> <C> <C> <C>
To: VASCO DATA SECURITY, INC. Date : 06/AUGUST/96
1919 S HIGHLAND AVENUE,
SUITE 118-C LOMBARD, Your Order : V6G2201
IL 60148,
U.S.A.
</TABLE>
This document is an Order Confirmation for the following merchandise(s).
Please confirm and accept it by signing the duplicate copy and returning to us.
<TABLE>
<CAPTION>
======================================================================================================
Model Quantity Unit Amount
Number (PCS.) Description Price FOB H.K.
======================================================================================================
<S> <C> <C> <C> <C>
815 ** ACCESS KEY 11 IN GREEN AND BLACK CASE. USD USD
815 CONSIGNED MATERIALS: ** 1390,000.00
CMOS DIE-MICRONIX MX921 X1
IN4148 DIODE X1
FILTERS X1
PHOTODIODE X1
SERIAL NBR LABEL X1
FS-30-7.7-30 DOME SWITCH X9
** OR MODIFIED KEYPAD IF AVAILABLE
REMARK: N.E.W. REQUIRED SPARE FOR YIELD LOSS OF CONSIGNED MATERIALS :-
CMOS MX921 3%
FILTER 2%
DIODE IN4148 2%
PHOTODIODE 2%
SERIAL NBR LABEL 2%
DOME SWITCH 2%
** PCS. TOTAL->1,390,000.00
== ===== ============
======================================================================================================
</TABLE>
Packing : 5 PCS. PACKED IN ONE BAR, 25 PCS. PER ONE POLYFOAM BOX, 100
PCS. PER INNER & 200 PCS. PER OUTER CTN.
Spare Parts/Unit : NIL
Delivery Schedule : ** PCS. Delivery Schedule to be determined by
availability of batteries. All other mat'ls should
be immediately obtained for production.
Payment : 20% VALUE OF MONTHLY ORDER AS DEPOSIT. BALANCE VALUE
SHOULD BE PAID BY T/T UPON 2 WEEKS NOTIFICATION OF
SHIPMENT.
Documentation : NIL
Others :
REMARKS : THE ABOVE DELIVERY SCHEDULE IS SUBJECT TO YOUR CONSIGNED
MATERIALS TO BE DELIVERED TO N.E.W. 2 WEEKS PRIOR TO EACH
CONFIRMED SHIPMENT. CUSTOMER WILL ADV THE ACTUAL QTY
REQUESTED FOR GREEN AND BLACK CASE
Seller: Buyer:
National Electronics & Watch Co., Ltd.
Signed Signed
------------------------------- ------------------------------
Authorized Signature & chop
Date :
<PAGE> 1
EXHIBIT 10.31
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS, MARKED BY AN **, HAVE BEEN
SUBMITTED TO THE COMMISSION WITH THE CONFIDENTIAL TREATMENT REQUEST.
PURCHASE ORDER PAGE: 1
VASCO DATA SECURITY, INC. P.O. NUMBER: V970107
1919 S. Highland Avenue ORDER DATE: 02/28/97
Suite 118-C
Lombard, IL 60148
(630) 932-8844 VENDOR NO: MIC4622
VENDOR: SHIP TO:
Micronix Integrated Systems VASCO DATA SECURITY, INC.
145 Columbia, Suite 200
Aliso Viego CA 92656-1490
COMFIRM TO:
Mike Crossley
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
REQUIRED DATE SHIP VIA F.O.B TERMS
02/28/97 California NO TERMS
- -------------------------------------------------------------------------------
ITEMS NO. UNIT ORDERED RECEIVED BACK ORD UNIT COST AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7500-0000 EACH ** 0 0 ** 106,500.00
MX921 CUSTOM CHIP WHSE: 000
50% prepayment due immediately, balance payment
due 45 days after order placement. VDSI retains
the right to issue an additional order for a
minimum of ** MX921 within 150 days of
current order placement and reduce the unit cost
to ** each for all MX921 not yet received.
----------------
NET ORDER: 106,500.00
SALES TAX: .00
FRIEGHT: .00
----------------
ORDER TOTAL: 106,500.00
</TABLE>
<PAGE> 1
EXHIBIT 10.32
AGREEMENT
This Agreement dated as of August 25, 1997 is by and between
VASCO Data Security International, Inc., a Delaware corporation
("International") and VASCO CORP., a Delaware corporation ("VASCO").
WHEREAS, in connection with a proposed reorganization of
VASCO, International is undertaking an offer to exchange International shares,
warrants and options for VASCO shares, warrants and options (the "Exchange
Offer") pursuant to a registration statement to be filed under the Securities
Act of 1933, as amended (the "Registration Statement"); and
WHEREAS, VASCO and International desire that upon consummation
of the Exchange Offer certain obligations of VASCO be assumed by International.
NOW, THEREFORE, the parties agree as follows:
1. Substitution of Shares. Effective upon the
consummation of the Exchange Offer, shares of Common Stock of International
shall be substituted for shares of VASCO Common Stock which may be acquired
pursuant to the Exchange Offer. Upon consummation of the Exchange Offer VASCO
and International shall enter into such agreements as may be necessary or
appropriate to effect the substitution of rights to acquire shares of
International Common Stock for rights to acquire shares of VASCO Common Stock,
including without limitation, the following agreements (as defined in the
Registration Statement): New VASCO Option Agreements, New VASCO Convertible
Note Agreements and New VASCO Warrant Agreements. Further, upon consummation
of the Exchange Offer VASCO and International shall enter into such amendments
to VASCO registration rights agreements, including without limitation, the
Registration Rights Agreement dated October 7, 1995, as amended, with Irwin
Schloss Enterprises Inc. and eight other investors, and VASCO agreements with
Generale Bank, Banque Paribas Belgique, S.A., Banque Paribas S.A.,
<PAGE> 2
Osprey Partners, Kyoto Securities, Ltd., Mario Houthooft, Guy Denudt and others
to substitute International shares of Common Stock for shares of VASCO Common
Stock and make other changes in the agreements, all as approved by T. Kendall
Hunt.
2. Assumption of Obligations. Effective upon
consummation of the Exchange Offer, all rights and obligations of VASCO under
the Financing Agreement dated as of June 27, 1997 between Generale Bank and
VASCO (the "Financing Agreement") and the issuance of shares under the related
Convertible Notes and Stock Warrants shall, without further action, be assumed
in their entirety by International. This Agreement shall constitute
International's express written undertaking of such rights and obligations and,
following consummation of the Exchange Offer, International shall deliver to
Generale Bank a copy of this Agreement, or such other written undertaking as
International deems appropriate, as evidence of International's assumption
pursuant to Article 5.4 of the Financing Agreement.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement.
VASCO CORP.
By: /s/ T. Kendall Hunt
-------------------------
Its: President
VASCO Data Security International, Inc.
By: /s/ T. Kendall Hunt
-------------------------
Its: President
-2-
<PAGE> 1
EXHIBIT 10.33
CONVERTIBLE NOTE
$373,750 June 1, 1996
VASCO Corp., a Delaware corporation ("VASCO" or "Maker") promises to pay
to Mario Houthooft, an individual ("Holder"), the principal sum of Three
Hundred Seventy-three Thousand, Seven Hundred and Fifty Dollars ($373,750.00),
together with the interest on such principal sum at the fixed interest rate
described below, payable as more fully set forth below:
1. Interest. Interest shall be calculated on the unpaid principal balance
at an interest rate of eight percent (8%) percent per annum. VASCO may withhold
from such payments amounts which may be required by the tax laws of the United
States as in effect from timeto-time. At Holder's option, Holder may elect to
receive, in lieu of cash, interest payments payable in shares of VASCO's common
stock by notifying VASCO in writing prior to any interest payment date. Should
Holder elects to receive interest payments payable in VASCO's common stock, and
should VASCO be obligated to withhold from such interest payments amounts under
the tax laws of the United States, Holder agrees that it shall notify VASCO in
writing of its election (i) to make payment of such amounts required to be
withheld, in which case, it shall, as a condition to delivery of shares payable
for interest pay to VASCO an amount necessary to pay such withholding or (ii)
to receive a lesser number of shares valued in the same manner as set out below
in this paragraph in which case VASCO shall be obligated to make such
withholding payments as required by the tax laws of the United States. In the
event that, and from time to time. Holder shall elect to receive interest
payments in the form of shares, such interest payments shall be calculated
based upon a conversion price equal to the average closing price of VASCO
common shares as reported on the National Association of Security Dealers
Electronic Bulletin Board or NASDAQ during the previous twenty (20) trading
days.
2. Payment. Subject to the conversion provisions herein, this Convertible
Note shall be payable in full including principal, accrued interest, fees,
charges and other accrued amounts on May 30, 1998. Interest only payments in
arrears shall be made every three (3) months beginning on September 30, 1996.
In addition to the limited right set out in Section 3(d)(B), Maker shall have
the right to make prepayment in whole or in part.
3. Conversion.
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this Agreement. at the option of the Holder, any portion of the
principal, accrued interest and other amounts due and payable hereunder, may at
any time and
1
<PAGE> 2
from time-to-time at or before the close of business on the maturity date of
this Convertible Note be converted at the conversion price, as hereinafter
provided, in effect at the date of the conversion. During the period beginning
upon the date of this Convertible Note, and continuing until the final maturity
date of this Agreement, May 30, 1998, the conversion price shall be Seven
Dollars ($7.00) per share.
(b) Conversion Procedure In order to exercise the conversion privilege
set out above, the Holder shall surrender this Convertible Note to VASCO at any
time during usual business hours a: the address set out below along with
written notice to VASCO at such office the: the Holder elects to convert this
Convertible Note or a specified portion thereof, and stating the name or names
in which the certificate or certificates for shares of common stock which shall
be issuable upon such conversion shall be issued. Should Holder elect to
convert a portion of amounts due and payable pursuant to this Convertible Note,
the interest converted into shares of VASCO's common stock shall only be such
interest calculated upon the portion of the principal so converted. As promptly
as practicable after the date of such notice and the surrender of this
Convertible Note as provided above, VASCO shall issue and deliver at its office
or pursuant to written order, a certificate or certificates with the number of
full shares of common stock issuable upon such conversion in accordance with
this provision, VASCO shall not be required to issue fractions of a share or
script representing fractional shares upon conversion. If any fraction of a
share would, except for provisions of this sentence, be issuable upon the
conversion of any this Convertible Note, VASCO shall pay a cash adjustment in
respect to such fraction equal to the value of such fraction based upon the
then conversion price. Such conversion shall be deemed to have been effective
at the close of business on the date of conversion and the person or persons in
whose name or names and each certificate or certificates for shares of common
stock shall have been issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby on
such date; provided, however, that any such surrender on any date when the
stock transfer books of VASCO shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at
the close of business on the next succeeding day on which such stock transfer
books are open and the Convertible Note surrendered shall not be deemed to have
been converted until such time for all purposes, but such conversion shall be
at the conversion price in effect at the close of business on the date of such
surrender.
In case this Convertible Note shall be surrendered for conversion of only
a portion of the principal and other accrued amounts thereof, VASCO shall
execute and deliver to the Holder, at the expense of VASCO, a new Convertible
Note in the denomination equal to the unconverted portion of the Convertible
Note so surrendered.
(c) Adjustments. Upon each adjustment of the conversion price, the
2
<PAGE> 3
Holder shall thereafter be entitled to purchase at the conversion price
resulting from such adjustment, the number of shares obtained by multiplying
the conversion price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the conversion price resulting,
from such adjustment. The conversion price shall be subject to adjustment from
time to time as follows.
A. In case at any time VASCO shall subdivide its outstanding shares of
common stock into a greater number of shares, the conversion price in effect
immediately prior to such subdivision shall be proportionately reduced and
conversely, in case the outstanding share of common stock shall be combined
into a small number of shares, the conversion price in effect immediately prior
to such combination shall be proportionately increased.
B. If VASCO proposes any capital reorganization or reclassification of the
capital stock of VASCO or consolidation or merger of VASCO with another
corporation or the sale of all or substantially all of its assets to another
corporation (a "Transaction") then as a condition to the Transaction, VASCO
shall, no later than ninety (90) days prior to the closing date of the
Transaction, provide notice to Holder of all material terms of the Transaction;
and VASCO shall, no more than forty-eight (48) hours prior to closing of the
Transaction, notify Holder of the date and time of closing. Prior to closing of
the Transaction, Holder shall have the right to convert all amounts owed
pursuant to this Convertible Note into shares pursuant to other provisions of
this Convertible Note. If Holder, after receiving the notices required by this
Section, as of closing of the Transaction has not elected to convert amounts
owed pursuant to this Convertible Note into shares, VASCO may, at its election,
tender to Holder all amounts of principal plus all accrued interest and other
amounts owed pursuant to this Convertible Note, and then this Convertible Note
shall be deemed assigned by Holder to VASCO. If the Transaction does not close,
VASCO shall not have the right to so purchase this Note, If the Transaction
does close and VASCO shall not have acquired this Convertible Note pursuant to
the terms herein, VASCO, or its successor shall have no right to so acquire
this Convertible Note.
C. Upon any adjustment of the conversion price. then and in each such
case, VASCO shall give written notice thereof, to the Holder, which notice
shall state the conversion price resulting from such adjustment and the
increase or decrease, if any, and the number of shares purchasable at such
price upon the exercise of this Convertible Note setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
D. In case at any time:
(1) there should be any capital reorganization, or
3
<PAGE> 4
reclassification of the capital stock of VASCO or
consolidation or merger of VASCO or sale of all or
substantially all the assets to another corporation;
or
(2) there should be a voluntary/involuntary
dissolution, liquidation or winding up of VASCO;
THEN in any one or more of said cases, VASCO shall give with notice to the
Holder of the date on which (a) the books of VASCO shall close or a record
shall be taken for such dividend, distribution or subscription rights, or (b)
such reorganization, classification. consolidation, merger, sale. dissolution,
liquidation or winding up shall take place as the case may be
E. The issue of certificates on conversions of this Convertible Note shall
be made without charge to the converting Holder for any tax in respect of the
issue thereof. Notwithstanding the above, to the extent that any federal
withholding tax is required by the tax laws of the United States to be paid by
VASCO, VASCO may withhold such amounts from obligations paid pursuant tn this
Convertible Note.
F. VASCO shall at all times reserve and keep available out of its
authorized but unissued stock, for the purpose of affecting the conversion of
this Convertible Note, such number of its duly authorized shares of its common
stock: as shall from time to time be sufficient to affect the conversion of
this entire Convertible Note.
G. All shares of VASCO common stock issued to Holder as a consequence of
the conversion rights set out herein shall benefit from and shall be subject to
the registration rights granted to Holder in a separate written document
entitled "Agreement," dated March 1, 1996, by and among VASCO, Holder, VASCO
DATA SECURITY EUROPE SA/NV, and MARIO HOUTHOOFT.
4. Manner of Payments. All payments by Maker under this Convertible Note
shall be, unless Holder shall have elected to receive interest in the form of
shares of common stock pursuant to the provisions of Section 1 above, (a) made
in lawful money of the United States of America, (b) credited first to any
accrued interest under this Convertible Note and second to the principal
balance under this Convertible Note, and (c) deemed paid by Maker upon delivery
as provided herein. Payments under this Convertible Note shall be made by check
drawn to "Mario Houthooft," Checks shall be mailed or delivered to Holder's
address set out below until further written notice of a substituted address.
5. Expenses, Notices and Attorney's Fees. In the event that Holder shall
bring an action to enforce any rights hereunder, VASCO shall pay all of
Holder's expenses incurred in connection with such action including, but not
limited to, reasonable
4
<PAGE> 5
attorney's fees and expenses and costs of appeal. Should VASCO fail to timely
pay any amount due hereunder, Holder shall deliver to VASCO at 1919 South
Highland Avenue, Suite 118-C, Lombard, Illinois, 60148, notice of such failure
to pay. If within fifteen (15 days following receipt of such notice, VASCO
shall fail to timely perform any obligation pursuant hereto, VASCO shall be
deemed in default of its obligations pursuant to this Convertible Note. Notice
to Holder shall be sent to:
Mario Houthooft
Klein Begijnhofstraat 5
B-9020 Melle, BELGIUM
6. Headings. The headings of the paragraphs of this Convertible Note have
been included only for convenience and shall not be deemed in any manner to
modify or limit any of the provisions of this Convertible Note. or be used in
any manner in the interpretation of this Convertible Note.
7. Interpretation. Whenever the context so required in this Convertible
Note, all words used in the singular shall be construed to have been used in
the plural (and vice versa), each gender shall be construed to include any
other gender, and the word "person" shall be construed to include a natural
person, a corporation, a firm, a partnership, a joint venture, a trust, an
estate or any other entity.
8. Partial Invalidity. Each provision of this Convertible Note shall be
valid and enforceable to the fullest extent permitted by law. If any provision
of this Convertible Note or the application of such provision to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder
of this Convertible Note, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected by such invalidity or unenforceability, unless such
provision or such application of such provision is essential to this
Convertible Note.
DATED AND EFFECTIVE the day and year above written.
VASCO CORP., a Delaware corporation,
By: /s/ T. Kendall Hunt
-----------------------------
Its: President
-----------------------------
5
<PAGE> 1
EXHIBIT 10.34
CONVERTIBLE NOTE
$373,750 June 1, 1996
VASCO Corp., a Delaware corporation ("VASCO" or "Maker") promises to pay
to Guy Denudt, an individual ("Holder"), the principal sum of Three Hundred
Seventy-three Thousand, Seven Hundred and Fifty Dollars ($373,750.00), together
with the interest on such principal sum at the fixed interest rate described
below, payable as more fully set forth below:
1. Interest. Interest shall be calculated on the unpaid principal balance
at an interest rate of eight percent (8%) percent per annum. VASCO may withhold
from such payments amounts which may be required by the tax laws of the United
States as in effect from timeto-time. At Holder's option, Holder may elect to
receive, in lieu of cash, interest payments payable in shares of VASCO's common
stock by notifying VASCO in writing prior to any interest payment date. Should
Holder elects to receive interest payments payable in VASCO's common stock, and
should VASCO be obligated to withhold from such interest payments amounts under
the tax laws of the United States, Holder agrees that it shall notify VASCO in
writing of its election (i) to make payment of such amounts required to be
withheld, in which case, it shall, as a condition to delivery of shares payable
for interest pay to VASCO an amount necessary to pay such withholding or (ii)
to receive a lesser number of shares valued ln the same manner as set out below
in this paragraph in which case VASCO shall be obligated to make such
withholding payments as required by the tax laws of the United States. In the
event that, and from time to time. Holder shall elect to receive interest
payments in the form of shares, such interest payments shall be calculated
based upon a conversion price equal to the average closing price of VASCO
common shares as reported on the National Association of Security Dealers
Electronic Bulletin Board or NASDAQ during the previous twenty (20) trading
days.
2. Payment. Subject to the conversion provisions herein, this Convertible
Note shall be payable in full including principal, accrued interest, fees,
charges and other accrued amounts on May 30, 1998. Interest only payments in
arrears shall be made every three (3) months beginning on September 30, 1996.
In addition to the limited right set out in Section 3(d)(B), Maker shall have
the right to make prepayment in whole or in part.
3. Conversion.
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this Agreement. at the option of the Holder, any portion of the
principal, accrued interest and other amounts due and payable hereunder, may at
any time and
1
<PAGE> 2
from time-to-time at or before the close of business on the maturity date of
this Convertible Note be converted at the conversion price, as hereinafter
provided, in effect at the date of the conversion. During the period beginning
upon the date of this Convertible Note, and continuing until the final maturity
date of this Agreement, May 30, 1998, the conversion price shall be Seven
Dollars ($7.00) per share.
(b) Conversion Procedure In order to exercise the conversion privilege
set out above, the Holder shall surrender this Convertible Note to VASCO at any
time during usual business hours a: the address set out below along with
written notice to VASCO at such office the: the Holder elects to convert this
Convertible Note or a specified portion thereof, and stating the name or names
in which the certificate or certificates for shares of common stock which shall
be issuable upon such conversion shall be issued. Should Holder elect to
convert a portion of amounts due and payable pursuant to this Convertible Note,
the interest converted into shares of VASCO's common stock shall only be such
interest calculated upon the portion of the principal so converted. As promptly
as practicable after the date of such notice and the surrender of this
Convertible Note as provided above, VASCO shall issue and deliver at its office
or pursuant to written order, a certificate or certificates with the number of
full shares of common stock issuable upon such conversion in accordance with
this provision, VASCO shall not be required to issue fractions of a share or
script representing fractional shares upon conversion. If any fraction of a
share would, except for provisions of this sentence, be issuable upon the
conversion of any this Convertible Note, VASCO shall pay a cash adjustment in
respect to such fraction equal to the value of such fraction based upon the
then conversion price. Such conversion shall be deemed to have been effective
at the close of business on the date of conversion and the person or persons in
whose name or names and each certificate or certificates for shares of common
stock shall have been issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby on
such date; provided, however, that any such surrender on any date when the
stock transfer books of VASCO shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at
the close of business on the next succeeding day on which such stock transfer
books are open and the Convertible Note surrendered shall not be deemed to have
been converted until such time for all purposes, but such conversion shall be
at the conversion price in effect at the close of business on the date of such
surrender.
In case this Convertible Note shall be surrendered for conversion of only
a portion of the principal and other accrued amounts thereof, VASCO shall
execute and deliver to the Holder, at the expense of VASCO, a new Convertible
Note in the denomination equal to the unconverted portion of the Convertible
Note so surrendered.
(c) Adjustments. Upon each adjustment of the conversion price, the
2
<PAGE> 3
Holder shall thereafter be entitled to purchase at the conversion price
resulting from such adjustment, the number of shares obtained by multiplying
the conversion price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the conversion price resulting,
from such adjustment. The conversion price shall be subject to adjustment from
time to time as follows.
A. In case at any time VASCO shall subdivide its outstanding
shares of common stock into a greater number of shares, the conversion price in
effect immediately prior to such subdivision shall be proportionately reduced
and conversely, in case the outstanding share of common stock shall be combined
into a small number of shares, the conversion price in effect immediately prior
to such combination shall be proportionately increased.
B. If VASCO proposes any capital reorganization or
reclassification of the capital stock of VASCO or consolidation or merger of
VASCO with another corporation or the sale of all or substantially all of its
assets to another corporation (a "Transaction") then as a condition to the
Transaction, VASCO shall, no later than ninety (90) days prior to the closing
date of the Transaction, provide notice to Holder of all material terms of the
Transaction; and VASCO shall, no more than forty-eight (48) hours prior to
closing of the Transaction, notify Holder of the date and time of closing.
Prior to closing of the Transaction, Holder shall have the right to convert all
amounts owed pursuant to this Convertible Note into shares pursuant to other
provisions of this Convertible Note. If Holder, after receiving the notices
required by this Section, as of closing of the Transaction has not elected to
convert amounts owed pursuant to this Convertible Note into shares, VASCO may,
at its election, tender to Holder all amounts of principal plus all accrued
interest and other amounts owed pursuant to this Convertible Note, and then
this Convertible Note shall be deemed assigned by Holder to VASCO. If the
Transaction does not close, VASCO shall not have the right to so purchase this
Note, If the Transaction does close and VASCO shall not have acquired this
Convertible Note pursuant to the terms herein, VASCO, or its successor shall
have no right to so acquire this Convertible Note.
C. Upon any adjustment of the conversion price. then and in
each such case, VASCO shall give written notice thereof, to the Holder, which
notice shall state the conversion price resulting from such adjustment and the
increase or decrease, if any, and the number of shares purchasable at such
price upon the exercise of this Convertible Note setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
D. In case at any time:
(1) there should be any capital reorganization,
or
3
<PAGE> 4
reclassification of the capital stock of VASCO or
consolidation or merger of VASCO or sale of all or
substantially all the assets to another corporation;
or
(2) there should be a voluntary/involuntary
dissolution, liquidation or winding up of VASCO;
THEN in any one or more of said cases, VASCO shall give with notice to the
Holder of the date on which (a) the books of VASCO shall close or a record
shall be taken for such dividend, distribution or subscription rights, or (b)
such reorganization, classification. consolidation, merger, sale. dissolution,
liquidation or winding up shall take place as the case may be
E. The issue of certificates on conversions of this Convertible
Note shall be made without charge to the converting Holder for any tax in
respect of the issue thereof. Notwithstanding the above, to the extent that
any federal withholding tax is required by the tax laws of the United States
to be paid by VASCO, VASCO may withhold such amounts from obligations paid
pursuant tn this Convertible Note.
F. VASCO shall at all times reserve and keep available out of
its authorized but unissued stock, for the purpose of affecting the conversion
of this Convertible Note, such number of its duly authorized shares of its
common stock: as shall from time to time be sufficient to affect the conversion
of this entire Convertible Note.
G. All shares of VASCO common stock issued to Holder as a
consequence of the conversion rights set out herein shall benefit from and
shall be subject to the registration rights granted to Holder in a separate
written document entitled "Agreement," dated March 1, 1996, by and among VASCO,
Holder, VASCO DATA SECURITY EUROPE SA/NV, and GUY DENUDT.
4. Manner of Payments. All payments by Maker under this Convertible Note
shall be, unless Holder shall have elected to receive interest in the form of
shares of common stock pursuant to the provisions of Section 1 above, (a) made
in lawful money of the United States of America, (b) credited first to any
accrued interest under this Convertible Note and second to the principal
balance under this Convertible Note, and (c) deemed paid by Maker upon delivery
as provided herein. Payments under this Convertible Note shall be made by check
drawn to "Guy Denudt," Checks shall be mailed or delivered to Holder's address
set out below until further written notice of a substituted address.
5. Expenses, Notices and Attorney's Fees. In the event that Holder shall
bring an action to enforce any rights hereunder, VASCO shall pay all of
Holder's expenses incurred in connection with such action including, but not
limited to, reasonable
4
<PAGE> 5
attorney's fees and expenses and costs of appeal. Should VASCO fail to timely
pay any amount due hereunder, Holder shall deliver to VASCO at 1919 South
Highland Avenue, Suite 118-C, Lombard, Illinois, 60148, notice of such failure
to pay. If within fifteen (15 days following receipt of such notice, VASCO
shall fail to timely perform any obligation pursuant hereto, VASCO shall be
deemed in default of its obligations pursuant to this Convertible Note. Notice
to Holder shall be sent to:
Guy Denudt
Bd. De Smet de Naeyer 555
B-1020 Bruxelles, BELGIUM
6. Headings. The headings of the paragraphs of this Convertible Note have
been included only for convenience and shall not be deemed in any manner to
modify or limit any of the provisions of this Convertible Note. or be used in
any manner in the interpretation of this Convertible Note.
7. Interpretation. Whenever the context so required in this Convertible
Note, all words used in the singular shall be construed to have been used in
the plural (and vice versa), each gender shall be construed to include any
other gender, and the word "person" shall be construed to include a natural
person, a corporation, a firm, a partnership, a joint venture, a trust, an
estate or any other entity.
8. Partial Invalidity. Each provision of this Convertible Note shall be
valid and enforceable to the fullest extent permitted by law. If any provision
of this Convertible Note or the application of such provision to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder
of this Convertible Note, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected by such invalidity or unenforceability, unless such
provision or such application of such provision is essential to this
Convertible Note.
DATED AND EFFECTIVE the day and year above written.
VASCO CORP., a Delaware corporation,
By: /s/ T. Kendall Hunt
--------------------------------
Its: President
--------------------------------
5
<PAGE> 1
EXHIBIT 10.35
WARRANT
NO SALE, OFFER TO SELL OR TRANSFER OF THE SECURITIES
REPPRESENTED BY THIS WARRANT OR THE SHARES ISSUABLE UPON
EXERCISE THEREOF SHALL BE MADE UNLESS A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO
SUCH SECURITIES IS THEN IN EFFECT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENT OF SUCH ACT IS THEN APPLICABLE TO
SUCH SALE, OFFER TO SELL OR TRANSFER.
VOID AFTER 3 P.M., NEW YORK CITY TIME, MAY 31, 1999
*****************************************
No. WC002
Warrant to purchase 200,000 shares of Common Stock of
VASCO CORP.
1919 SOUTH HIGHLAND AVENUE, SUITE 118-C
LOMBARD, IL 60148-4855
This certifies that for value received OSPREY PARTNERS (hereinafter call
the "holder") as registered owner of this Warrant, is entitled at any time or
from time to time on or before 3 P.M. New York City Time, May 31, 1999, but not
thereafter, to subscribe for, purchase and receive, 200,000 fully paid and
non-assessable shares of the Common Stock of VASCO CORP. (hereinafter called
the "Corporation" or "Company"), at the price of $0.25 per share, upon
presentation and surrender of this instrument and upon payment of the purchase
price of said shares of said Common Stock, to the Corporation, at the principal
office of the Corporation, provided that upon the occurrence of any of the
events specified in the Statement of Rights to Warrants and From of Exercise
annexed hereto and hereby made a part hereof as fully as if set forth at length
herein, the rights granted hereby shall be adjusted as therein specified. Upon
the exercise of this Warrant, the Form of Exercise annexed hereto must be duly
executed and the accompanying instructions for registration of stock must be
filled in. If the subscription rights represented hereby shall not be
exercised on or before 3:00 PM, New York City Time, May 31, 1999, this Warrant
shall become and be void and all rights represented hereby shall cease.
<PAGE> 2
Subject to the provisions of the Securities Act of 1933, as amended, and
the rules and regulations thereunder, this Warrant may be assigned in whole or
in part by the execution by the holder of the form of Assignment attached
hereto. In the event of any assignment made as aforesaid, the Corporation,
upon request and upon surrender of this instrument at the office of the
Corporation, accompanied by payment of all transfer taxes payable in connection
therewith, will transfer this Warrant on the books of the Corporation and
execute and deliver a new Warrant of Warrants of like tenor to said assignee or
assignees, expressly evidencing the right to purchase the aggregate number of
shares of the Common Stock purchasable hereunder.
This Warrant may be exercised in whole or in part. In case of the
exercise hereof in part only, the Corporation, upon surrender of this
instrument at the Office of the Corporation, together with all other documents
required hereunder with respect to such exercise, will casue to be delivered to
the holder a new Warrant of like tenor in the name of the holder evidencing the
right of the holder to purchase the number of shares of Common Stock
purchasable hereunder as to which the Warrant has not been exercised.
This Warrant is subject to "piggyback" rights of registration, and shall
be included in any future Registration Statement that may be filed with the
SEC.
WITNESS the signature of the duly authorized officers of the Corporation.
VASCO CORP.
By: /s/ T. Kendall Hunt
----------------------
President
By: /s/ Forrest D. Laidley
----------------------
Secretary
Date of Original Issuance: June 1, 1992
------------
NOTE: (4/15/96)
On January 19, 1996 VASCO CORP. and OSPREY PARTNERS agreed that 200,000 shares
of the original Warrant WC001 for 400,000 shares are considered vested in
OSPREY PARTNERS, and such Warrant to purchase up to 200,000 shares is hereby
extended two (2) years to May 31, 1999. The remaining 200,000 shares of
original Warrant WC001 are hereby considered canceled.
<PAGE> 1
EXHIBIT 10.36
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT ("Agreement") is dated as of October
19, 1995, between the undersigned purchasing shareholders (the "Investor(s)"),
and VASCO Corp., a corporation incorporated under the Laws of the State of
Delaware (the "Company"). Capitalized terms not otherwise defined herein have
the meanings set forth in Section 9.
W I T N E S S E T H:
WHEREAS, the Investors have on the date hereof agreed to purchase from the
Company units ("Units") in the amounts as set forth in Schedule A hereof, with
such agreement to purchase being represented by a subscription offer letter
from the Company to each Investor dated October 18, 1995 and the execution and
the return of said letters to the Company by the Investors on October 19, 1995.
WHEREAS, each Unit consists of two (2) shares of Common Stock, par value
$.001 of the Company ("The Shares") and one (1) warrant to purchase Common
Stock with each warrant giving the holder the right to purchase one (1) fully
paid and nonassessable Share of Common Stock, $.001 par value, of the Company
at any time through October 31, 2000 (the "exercise date") at an exercise price
of $6.00 per warrant ("The Warrants").
WHEREAS, in order to induce the Investors to purchase the Units, the
Company has agreed to deliver to the Investors as stated in the October 18,
1995 offer letter from the Company to the Investors, "freely tradable,
registered, non-restricted VASCO Common Stock."
WHEREAS, the Company cannot meet its obligation at this time to deliver
freely tradable, registered, non-restricted VASCO Common Stock, the Company has
agreed to furnish this Registration Rights Agreement as a means of fulfilling
its obligations to the Investors.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
1. Additional Shares. The Company agrees that if on the valuation date as
defined below the Company stock price as determined on the valuation date
according to the valuation method set forth below is less than $3.50 per share,
the Company will agree to deliver to each Investor an additional number of
shares ("The Additional Shares"), as determined below, to the Investors
promptly following the valuation date. The valuation date shall be the 16th
business day following the day on which the registration statement and
prospectus provided for in Section 2 hereof are declared effective by the
Securities and Exchange Commission, for this purpose counting the day that the
registration statement is declared effective as day number one (1). The
valuation method for determining the number of Additional Shares, if any, which
should be issued to the Investors shall be determined by taking the last
reported closing price on the National Association of Securities Dealers (NASD)
Automated Quotation System for each of the fifteen (15) business days prior to
the valuation date and dividing by fifteen (15). This fifteen day average for
purposes of the formula set forth below is "The Valuation Price". If The
Valuation Price is less than $3.50 per share, then the Company shall issue The
Additional number of Shares to the Investors based on the following formula:
the difference between $3.50 and The Valuation Price multiplied by the number
of Shares underlying the Units on Schedule A subscribed for by each Investor
divided by The Valuation Price. The Shares which may be issued pursuant to
this Paragraph shall be included as part of the Registrable Securities (the
"Registrable Securities") under this Agreement. If the Company Shares at the
time it is necessary to apply this Section do not trade on the National
Association of Securities Dealers Automated Quotation System, the parties will
mutually agree on the appropriate daily market pricing determination method.
2. Registration.
(a) Primary Registration. If at any time prior to July 1, 1996 the
Company proposes to file a registration statement (the "Registration
Statement") under the Securities Act with respect to its Common Stock or
securities convertible or exchangeable into its Common Stock (other than a
registration statement (i) on Form S-4 or Form S-8 or any successor forms to
such Forms, (ii) filed in connection with an exchange offer or an offering of
its common stock or of securities convertible or exchangeable into its common
stock made solely to its existing stockholders in connection with a rights
offering or solely to employees of the Company, or (iii) filed in connection
with an offering for any consideration other than cash), whether or not
for its own Account, then the Company shall give written notice of such
proposed filing to the Investors at least 10 days before the anticipated filing
date. The Company shall include in such registration all Registrable
Securities which consists of all The Shares represented by the Units listed on
Schedule A hereof and all The Additional Shares but not The Shares underlying
The Warrants unless the Investors make such an election to register
2
<PAGE> 3
The Warrant Shares. If the Company undertakes the registration of the
Shares to accommodate an underwritten offering then the Investors agree to be
bound by the terms of the underwriting agreement negotiated in good faith by
the Company and the underwriters; and if the Investors choose not to be
included in such underwritten offering then the Investors agree not to sell any
of their Shares for a period of 90 days from the date of such underwritten
offering.
(b) Registration of The Additional Shares. The Company agrees to register
The Additional Shares contemporaneously with The Shares as required by this
Section 2 by mutually agreeing with the Investors at the time the Registration
Statement is filed as to the number of shares to be covered by the Registration
Statement taking into account the market price of the Company's stock at the
time the Registration Statement is filed and an estimate of what the stock
price might be at the time the Registration Statement is declared effective.
Notwithstanding the foregoing sentence, in no event shall the Company register
any amount less than 200% of The Shares underlying the Units on Schedule A even
though it may not be necessary for the Company to issue any of The Additional
Shares pursuant to this Agreement. In the event that the Securities and
Exchange Commission does not permit the registration of The Additional Shares
and The Additional Shares are owing to the Investors pursuant to this
Agreement, the Company will pay to each Investor in cash the difference between
$3.50 and The Valuation Price as determined in Paragraph 1 (provided The
Valuation Price is less than $3.50) multiplied by the number of Shares
underlying The Units indicated for each Investor on Schedule A. The cash
payment required in the previous sentence shall be made and determined on the
same time schedule that The Additional Shares would have been issued to the
Investors pursuant to Paragraph 1.
(c) Registration Expenses. The Company will pay all Registration Expenses
incurred in connection with any registration.
3. Failure to Register. In the event that a Registration Statement
covering The Shares is not declared effective by the Securities and Exchange
Commission by July 1, 1996, or if on July 1, 1996 the shareholders cannot sell
their Shares due to the 90-day lock-up provision of Section 2(a), then the
Company shall be required to either (i) at each Investor's option promptly
repurchase the Units listed on Schedule A hereof from the Investor for a price
of $7.00 per Unit, or (ii) if all Investors demand that all The Shares
underlying the Units listed on Schedule A be registered, promptly undertake to
register The Shares and The Additional Shares in accordance with Section 4 of
this Agreement assuming the Shares are not already registered at that time.
4. Registration Procedures. The Company will, as expeditiously as
possible:
3
<PAGE> 4
(a) prepare and file with the Commission the requisite Registration
Statement to effect the registration of the Registrable Securities and
use its best efforts to cause such Registration Statement to become
effective, provided that as far in advance as practicable before filing
such Registration Statement or any amendment thereto, the Company will
furnish to each Investor copies of reasonably complete drafts of all such
documents proposed to be filed (including exhibits), and any such
Investor shall have the opportunity to object to any information
pertaining solely to such Investor that is contained therein and the
Company will make the corrections reasonably requested by such Investor
with respect to such information prior to filing any such Registration
Statement or amendment. The Company shall use its best efforts to keep
the Registration Statement continuously effective under the Securities
Act, until (A) all Registrable Securities are salable pursuant to Rule
144 as promulgated by the Securities and Exchange Commission pursuant to
the Securities Act of 1933 or (B) if sooner, the date immediately
following the date that all Registrable Securities covered by the
Registration have been sold pursuant thereto (the "Effectiveness
Period"); provided that the Effectiveness Period shall be extended to the
extent required to permit dealers to comply with the applicable
prospectus delivery requirements of Rule 174 and as otherwise provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such Registration Statement and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such Registration Statement, in accordance with the
intended methods of disposition thereof, until the earlier of (i) such
time as all of such securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set
forth in such Registration Statement or (ii) such time as the Company
is no longer required to keep the Registration Statement effective;
(c) promptly notify the Investor and the underwriter or
underwriters, if any:
(i) when such Registration Statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has
been filed and, with respect to such Registration Statement or any
post effective amendment thereto, when the same has become
effective;
(ii) of any written request by the Commission or any other
federal or state governmental authority
4
<PAGE> 5
for amendments or supplements to such Registration Statement or
prospectus;
(iii) of the notification to the Company by the Commission of
its initiation of any proceeding with respect to the issuance by
the Commission of, or of the issuance by the Commission of, any
stop order suspending the effectiveness of such Registration
Statement;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky
laws of any jurisdiction;
(v) of the issuance by the Commission, any state securities
commission, any other governmental agency or any court of any stop
order, order or injunction suspending or enjoining the use or the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose;
(vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding
for such purpose; and
(d) If a registration is filed pursuant to Section 2 hereof, enter
into such agreements and take all such other reasonable actions in connection
therewith (including those reasonably requested by the managing underwriters, if
any, or the holders of a majority in aggregate principal amount of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and in such connection, whether or
not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration, (i) make such representations and
warranties to the holders of such Registrable Securities and the underwriters,
if any, with respect to the business of the Company and its subsidiaries
(including with respect to businesses or assets acquired or to be acquired by
any of them), and the Registration Statement, prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, in
form, substance and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested; (ii) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling holders and the
underwriters, if any, than those set forth in Section 6 hereof (or such other
5
<PAGE> 6
provisions and procedures acceptable to holders of a majority in aggregate
principal amount of Registrable Securities covered by such Registration
Statement and the managing underwriters, if any); and (iii) deliver such
documents and certificates as may be reasonably requested by the holders
of a majority in aggregate principal amount of the Registrable Securities
being sold, their holders Counsel and the managing underwriters, if any,
to evidence the continued validity of the representations and warranties
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company;
(e) furnish to each seller of Registrable Securities covered by such
Registration Statement such number of conformed copies of such
Registration Statement and of each amendment and supplement thereto (in
each case including all exhibits and documents incorporated by
reference), such number of copies of the prospectus contained in such
Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed pursuant to the
Securities Act relating to such Investor's Registrable Securities, and
such other documents, as such seller may reasonably request to facilitate
the disposition of its Registrable Securities;
(f) use its best efforts to register or qualify all Registrable
Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each Investor thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such Registration Statement remains in effect, and
take any other action which may be reasonably necessary or advisable to
enable such Investor to consummate the disposition in such jurisdictions
of the Registrable Securities owned by such Investor, except that the
Company shall not for any such purpose be required (i) to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this paragraph (g) be
obligated to be so qualified, (ii) to subject itself to taxation in any
such jurisdiction or (iii) to consent to general service of process in any
jurisdiction;
(g) use its best efforts to cause all Registrable Securities covered
by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
each Investor thereof to consummate the disposition of such Registrable
Securities;
(h) furnish to the Investor a signed counterpart, addressed to such
Investor (and the underwriters, if any), of
6
<PAGE> 7
(I) an opinion of counsel for the Company, dated the effective
date of such Registration Statement (or, if such registration
includes an underwritten Public Offering, dated the date of any
closing under the underwriting agreement), reasonably satisfactory
in form and substance to such Investor, and
(ii) a "comfort" letter, dated the effective date of such
Registration Statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under
the underwriting agreement) and updates thereof, signed by the
independent public accountants who have certified the Company's
financial statements included in such Registration Statement,
in each case covering substantially the same matters with respect to such
Registration Statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten Public Offerings of securities and, in the
case of the accountants' letter, such other financial matters, as such
Investor (or the underwriters, if any) may reasonably request;
(i) notify each holder of Registrable Securities covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of
any event as a result of which any prospectus included in such
Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and at
the request of any such Investor promptly prepare and furnish to such
Investor a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first full calendar
month after the effective date of such Registration Statement, which
7
<PAGE> 8
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(k) make available for inspection by the Investor to any underwriter
participating in any disposition pursuant to such Registration Statement
and any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors, employees and accountants to supply all
information reasonably requested by any such Inspector in connection with
such Registration Statement. Records which the Company determines, in
good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or administrative agency or is necessary to respond
to inquiries of regulatory authorities, (iii) disclosure of such
information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of any
Registration Statement or the use of any prospectus referred to in this
Agreement), (iv) the information in such Records has been made generally
available to the public, or (v) such information becomes available from a
source other than the Company and such source is not bound by a
confidentiality agreement. The seller of Registrable Securities agrees by
acquisition of such Registrable Securities that it will, upon learning
that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure
of the Records deemed confidential;
(l) provide a transfer agent and registrar for all Registrable
Securities covered by such Registration Statement not later than the
effective date of such Registration Statement; and
(m) use its best efforts to cause all Registrable Securities covered
by such Registration Statement to be listed, upon official notice of
issuance, on any securities exchange on which any of the securities of
the same class as the Registrable Securities are then listed.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to, and each such Investor, as a
condition to including Registrable
8
<PAGE> 9
Securities in such registration, shall, furnish the Company with such
information and affidavits regarding such Investor and the distribution of such
securities as the Company may from time to time reasonably request in writing in
connection with such registration.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in Paragraph (i), such Investor
will forthwith discontinue such Investor's disposition of Registrable Securities
pursuant to the Registration Statement relating to such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Paragraph (i) and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Investor's possession of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
referred to in paragraph (b) shall be extended by a number of days equal to the
number of days during the period from and including the giving of notice
pursuant to Paragraph (i) and to and including the date when each holder of any
Registrable Securities covered by such Registration Statement shall receive the
copies of the supplemented or amended prospectus contemplated by Paragraph (i).
5. Indemnification.
(a) Indemnification by the Company. The Company shall, to the full
extent permitted by law, indemnify and hold harmless each seller of Registrable
Securities included in any Registration Statement filed pursuant to this
Agreement, its directors and officers, and each other Person, if any, who
controls any such seller within the meaning of the Securities Act, against any
losses, claims, damages, expenses or liabilities, joint or several (together,
"Losses"), to which such seller or any such director or officer or controlling
Person may become subject under the Securities Act or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any state (or "blue sky")
securities filing, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, and the Company will reimburse such seller
and each such director, officer and controlling Person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such Loss (or action or proceeding in respect thereof); provided
that the
9
<PAGE> 10
Company shall not be liable in any such case to the extent that any such Loss
(or action or proceeding in respect thereof) arises out of or is based upon (x)
an untrue statement or alleged untrue statement or omission or alleged omission
made in any such Registration Statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement or state securities
filing in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by such seller specifically
stating that it is for use in the preparation thereof or (y) such seller's
failure to send or give a copy of the final prospectus to the Persons asserting
an untrue statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of Registrable Securities to
such Person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such seller or any such director,
officer or controlling Person, and shall survive the transfer of such securities
by such seller. The Company shall also indemnify each other Person who
participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors and each other Person, if
any, who controls any such participating Person within the meaning of the
Securities Act to the same extent as provided above with respect to holders of
Registrable Securities.
(b) Indemnification by the Sellers. Each holder of Registrable
Securities which are included or are to be included in any Registration
Statement filed pursuant to this Agreement, as a condition to including
Registrable Securities in such Registration Statement, shall, to the full extent
permitted by law, indemnify and hold harmless the Company, its directors and
officers, and each other Person, if any, who controls the Company within the
meaning of the Securities Act, against any Losses to which the Company or any
such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any such Registration Statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any state (or "blue sky") securities filing, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, if such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation of such
Registration Statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement or state securities filing; (provided that
the maximum aggregate amount which may be
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<PAGE> 11
recovered from any holder of Registrable Securities pursuant to the
indemnification provided for in this Section 6(b) in connection with any
registration and sale of Registrable Securities shall be limited to the total
proceeds received by such Investor from the sale of such Registrable
Securities), or (ii) the seller's failure to send or give a copy of the final
prospectus to the Persons asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in the final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any such director, officer or participating or
controlling Person and shall survive the transfer of such securities by such
seller. Such Investors shall also indemnify each other Person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors and each other Person, if any, who controls any
such participating Person within the meaning of the Securities Act to the same
extent as provided above with respect to the Company. The Investor shall not be
required to indemnify any underwriter who participates in the offering or sale
of Registrable Securities.
(c) Notices of Claims, etc. Promptly after receipt by an Indemnified
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraph (a) or (b) of this Section 5, such
Indemnified Party will, if a claim in respect thereof is to be made against an
Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 5, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
Indemnifying Party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party may participate in such
defense at the Indemnified Party's expense; and provided, further that the
Indemnified Party or Indemnified Parties shall have the right to employ one
counsel to represent it or them if, in the reasonable judgment of the
Indemnified Party or Indemnified Parties, it is advisable for it or them to be
represented by separate counsel by reason of having legal defenses which are
different from or in addition to those available to the
11
<PAGE> 12
Indemnifying Party, and in that event the reasonable fees and expenses of such
one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party
is not entitled to, or elects not to, assume the defense of a claim, it will not
be obligated to pay the fees and expenses of more than one counsel for the
Indemnified Parties with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other Indemnified Parties with respect to such claim,
in which event the Indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel for the Indemnified Parties. No
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party 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. No Indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
(d) Contribution. If the indemnity and reimbursement obligation
provided for in any paragraph of this Section 6 is unavailable or insufficient
to hold harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then (unless, and except to
the extent that, such unavailability or insufficiency results from defenses or
limitations provided by this Section 5) the Indemnifying Party shall contribute
to the amount paid or payable by the Indemnified Party as a result of such
Losses (or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and the Indemnified Party on the other hand in connection with statements
or omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph were to be determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph. The amount
paid by an Indemnified Party as a result of the Losses referred to in the first
sentence of this paragraph shall be deemed to include any legal and other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any Loss which is the subject of this paragraph.
(e) Fraudulent Misrepresentation. No Indemnified Party guilty of
fraudulent misrepresentation (within the meaning
12
<PAGE> 13
of Section 11(f) of the Securities Act) shall be entitled to indemnification or
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
(f) Other Indemnification. Indemnification similar to that specified
in the preceding paragraphs of this Section 5 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act. The provisions of this Section 6 shall be in addition to
any other rights to indemnification, contribution or other remedies which an
Indemnified Party may have pursuant to law, equity, contract or otherwise.
(g) Indemnification Payments. The indemnification required by this
Section 5 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or Losses
are incurred.
6. Covenants Relating to Rule 144. The Company will file reports in
compliance with the Exchange Act, and will, at its expense, forthwith upon the
request of any holder of Registrable Securities, deliver to such Investor a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company' s Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of Shares of each class of Stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.
7. Piggyback Registration of The Warrant Shares. If at any time the
Company proposes to file a registration statement under the Securities Act with
respect to its Common Stock or securities convertible or exchangeable into its
Common Stock (other than a registration statement (i) on Form S-4 or Form S-8 or
any successor forms to such Forms, (ii) filed in connection with an exchange
offer or an offering of its common stock or of securities convertible or
exchangeable into its common stock made solely to its existing stockholders in
connection with a rights offering or solely to employees of the Company, or
(iii) filed in connection with an offering for any consideration other than
cash), whether or not for its own account, then the Company shall, at such time,
promptly give each Investor written notice of such registration which shall
describe (including those jurisdictions where registration or qualification
under the securities or blue sky laws is intended) and, upon the written request
of any Investor given within 10 days after the date of any such notice, proceed
to include in such registration The Shares underlying The
13
<PAGE> 14
Warrants as have been requested by any such Investor to be included in such
registration. Any Investor shall in its request describe briefly the proposed
disposition of such Shares underlying The Warrants. The Company shall in each
instance use its best efforts to cause any shares of Registrable Securities (for
which any Investor has requested registration thereof pursuant to this Section)
to be registered under the Act and qualified under the securities or blue sky
laws of any jurisdiction requested by a prospective seller, all to the extent
necessary to permit the sale or other disposition thereof (in the manner stated
in such request) by a prospective seller of the securities so registered. There
shall be no limit to the number or duration of times the shareholder may
request, and have, registration of The Warrant Shares pursuant to this Section
so long as The Warrants or The Shares underlying The Warrants are owned by any
of the Investors and such Investor cannot rely on Rule 144 for the disposition
of The Warrant Shares.
8. Other Registration Rights.
No Existing Agreements. The Company represents and warrants to the
Investor that there is not in effect on the date hereof any agreement by the
Company pursuant to which any holders of securities of the Company have a right
to cause the Company to register or qualify such securities under the Securities
Act or any securities or blue sky laws of any jurisdiction that would conflict
or be inconsistent with any provision of this Agreement.
9. Definitions.
(a) Except as otherwise specifically indicated, the following terms
will have the following meanings for all purposes of this Agreement:
"Agreement" means this Registration Rights Agreement, as the same
shall be amended from time to time.
"Business Day" means a day other than Saturday, Sunday or any other
day on which banks located in the State of New York are authorized or obligated
to close.
"Commission" means the United States Securities and Exchange
Commission, or any successor governmental agency or authority.
"Company" has the meaning specified in the preamble hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Indemnified Party" means a party entitled to indemnity in accordance
with Section 5.
14
<PAGE> 15
"Indemnifying Party" means a party obligated to provide indemnity in
accordance with Section 5.
"Inspectors" has the meaning ascribed to it in Section 5(k).
"Losses" has the meaning ascribed to it in Section 6(a).
"Managing Underwriter" means, with respect to any underwritten Public
Offering, the underwriter or underwriters managing such Public Offering.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union
or association.
"Public Offering" means any offering of common stock of the Company
("Common Stock"), Preferred Stock or warrants to purchase Common Stock or
Preferred Stock to the public, either on behalf of the Company or any of its
security holders, pursuant to an effective registration statement under the
Securities Act.
"Records" has the meaning ascribed to it in Section 5(i).
"Registrable Securities" means (i) The Shares and The Additional
Shares, (ii) any additional shares of Common Stock or preferred stock of the
Company issued or distributed to the Investor by way of a dividend, stock split
or other distribution in respect of The Shares, (iii) any additional shares of
Common Stock or preferred stock of the Company acquired by the Investor by way
of any rights offering or similar offering made in respect of The Shares and
(iv) any additional shares of Common Stock issued or issuable to the Investor
upon conversion, exercise or exchange of any capital stock, right, option,
warrant, evidence of indebtedness or other security of any type whatsoever that
shall have been issued pursuant to or with respect to the Subscription Agreement
or The Shares. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144, or (iii) they shall have ceased
to be outstanding.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its obligations under this Agreement to effect
the registration of Registrable
15
<PAGE> 16
Securities in a Requested Registration, including, without limitation, all
registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, premiums and other costs of policies of
insurance against liabilities arising out of the Public Offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, in respect of
Registrable Securities, which shall be payable by each holder thereof, pro rata
on the basis of the number of Registrable Securities of each such holder that
are included in a registration under this Agreement.
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act, and any successor provision thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Executive Officer" means, as to the Company, its Chairman,
President, Chief Financial Officer, Treasurer or Controller or any person
performing any of such functions, whether or not holding such title.
"Shares" has the meaning specified in the preamble hereto.
(b) Unless the context of this Agreement otherwise requires, (i) words
of any gender include each other gender; (ii) words using the singular or plural
number also include the plural or singular number, respectively; (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement; and (iv) the term "Section" refers to the specified Section of
this Agreement. Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless Business Days are specified.
16
<PAGE> 17
10. Miscellaneous.
(a) Notices. All written communications provided for hereunder shall be
sent by registered or certified mail or nationwide overnight delivery service
(with charges prepaid) or delivered by hand to the following addresses or such
other address as the appropriate party may specify to each other party hereto
in writing:
If to Investor(s), to:
Investor's address of record with the
transfer agent or any address which may
be specified by the Investor in the future.
If to the Company, to:
VASCO Corp.
1919 S. Highland Ave.
Suite 118-C
Lombard, IL 60148
Attention: Mr. Michael B. Wiggen
Chief Financial Officer
Telephone: 708-495-0755
Telecopy: 708-495-0279
provided, however, that any such communication to the Company shall be in
writing and may also, at the option of the Investor, be delivered by any other
means to the Company at the address specified above in this Section or to any
Senior Executive Officer of the Company. Any notice or other communication
given under this Section will be deemed effective two days after deposit in the
United States Mail if mailed as aforesaid and otherwise upon receipt. With
respect to any other holder of Registrable Securities, such notices, requests
and other communications shall be sent to the addresses set forth in the stock
transfer records regularly maintained by the Company.
(b) Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof.
(c) Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument (which may be executed in any number of
counterparts which may include a facsimile transmission) duly executed by or on
behalf of each of the Company and Persons owning sixty-six and two-thirds
percent (66 2/3%) or more of the Registrable Securities.
(d) Waiver. Subject to paragraph (e) of this Section, any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or
17
<PAGE> 18
condition. No waiver by any party of any term or condition of this Agreement,
in any one or more instances, shall be deemed to be or construed as a waiver of
the same term or condition of this Agreement on any future occasion.
(e) Consents and Waivers by Holders of Registrable Securities. Any
consent of Investors holding Registrable Securities pursuant to this Agreement,
and any waiver by such Investors of any provision of this Agreement, shall be in
writing (which may be executed in any number of counterparts) and may be given
or taken by Persons owning sixty-six and two-thirds percent (66 2/3%) or more of
the Registrable Securities, and any such consent or waiver so given or taken
will be binding on all Investors holding Registrable Securities.
(f) No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto, their
respective successors or permitted assigns and any other holder of Registrable
Securities, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Indemnified Person.
(g) Successors and Assigns. This Agreement is binding upon, inures to
the benefit of and is enforceable by the parties hereto and their respective
successors and assigns. The registration rights of the Investor as set forth
herein are assignable, in whole or in part, by the Investor to one or more
transferees of Registrable Securities, provided that written notice of such
assignment is furnished to the Company; provided, however, that the Investor
will not assign any rights under this Agreement to any Person that competes
directly or indirectly with the Company without the prior written consent of the
Company.
(h) Headings. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
(i) Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
18
<PAGE> 19
(j) Remedies. Except as otherwise expressly provided for herein, no
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not constitute a
waiver by any such party of the right to pursue any other available remedies.
Damages in the event of breach of this Agreement by a party hereto or
any other holder of Registrable Securities would be difficult, if not
impossible, to ascertain, and it is therefore agreed that each such Person, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof and the Company and each holder of Registrable
Securities, by its acquisition of such Registrable Securities, hereby waives any
and all defenses it may have on the ground of lack of jurisdiction or competence
of the court to grant such an injunction or other equitable relief. The
existence of this right will not preclude any such Person from pursuing any
other rights and remedies at law or in equity which such Person may have.
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to conflict of laws
principles.
(l) Counterparts. This Agreement may be executed in any number of
counterparts, which may be in the form of a facsimile transmission, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
COMPANY:
VASCO CORP.
By:
----------------------------
Michael B. Wiggen
Chief Financial Officer
19
<PAGE> 20
INVESTORS:
IRWIN SCHLASS ENTERPRISES, INC.
By: /s/ Irwin Schlass
--------------------------------------
Irwin Schlass
President
MONTE ENGLER
By: /s/ Monte Engler
--------------------------------------
Monte Engler
20
<PAGE> 21
EUGENE WONG
By: /s/ Eugene Wong
------------------------------
Eugene Wong
STEPHEN RAPHAEL
By: /s/ Stephen Raphael
------------------------------
Stephen Raphael
RICHARD GROBERG
By: /s/ Richard Groberg
------------------------------
Richard Groberg
GITA BRENNER
By: /s/ Gita Brenner
------------------------------
Gita Brenner
FRANK BRENNER
By: /s/ Frank Brenner
------------------------------
Frank Brenner
MIKE WEINBLATT
By: /s/ Mike Weinblatt
------------------------------
Mike Weinblatt
JACK SCHLEIFER
By: /s/ Jack Schleifer
------------------------------
Jack Schleifer
21
<PAGE> 22
Schedule A
SUBSCRIPTION ALLOCATION SCHEDULE
<TABLE>
<CAPTION>
SUBSCRIBER UNITS AMOUNT
---------- ------ ------
<S> <C> <C>
Irwin Schlass Enterprises, Inc. 6,000 $20,400.00
Monte Engler 6,500 $22,100.00
Eugene Wong 6,000 $20,400.00
Stephen Raphael 14,705 $49,997.00
Richard Groberg 300 $ 1,020.00
Gita Brenner 2,000 $ 6,800.00
Frank Brenner 2,000 $ 6,800.00
Mike Weinblatt 3,000 $10,200.00
Jack Schleifer 12,495 $42,483.00
------ ----------
TOTAL 53,000 $180,200.00
</TABLE>
22
<PAGE> 1
EXHIBIT 10.37
FIRST AMENDMENT
TO THE REGISTRATION RIGHTS AGREEMENT
WHEREAS, Irwin Schlass Enterprises, Inc., Monte Engler, Eugene Wong,
Stephen Raphael, Richard Groberg, Gita Brenner, Frank Brenner, Mike Weinblatt
and Jack Schleifer (collectively the "Investors") entered into a certain
Registration Rights Agreement dated as of October 19, 1995 with Vasco Corp.
relating to the registration of shares of Vasco Corp. pursuant to the
Securities Act of 1933; and
WHEREAS, Vasco Corp. has not registered the shares which are the subject
of the Registration Rights Agreement as of the date of this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Registration Rights Agreement dated as of October 199, 1995
as follows:
1. The Investors, at this time, will forego any right to demand
registration pursuant to Paragraph 3 of the Registration Rights
Agreement until March 31, 1997.
2. Wherever in the Registration Rights Agreement the date July
1, 1996 appears, the date March 31, 1997 shall be substituted in its
place.
3. Wherever in the Registration Rights Agreement the dollar
amount/price $3.50 appears, the dollar amount/price $7.00 shall be
substituted in its place. And wherever in the Registration Rights
Agreement the dollar amount/price $7.00 appears, the dollar
amount/price $14.00 shall be substituted in its place.
4. For clarification purposes, wherever the words "Shares
underlying the Units" appear, the words "Shares comprising the
Units" shall be substituted in their place.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
by the duly authorized officer of each party hereto as of this 1st day of
July, 1996.
COMPANY:
VASCO CORP.
By: /s/ Michael B. Wiggen
----------------------
Name: Michael B. Wiggen
Title: VP Operations
<PAGE> 1
EXHIBIT 10.38
SECOND AMENDMENT
TO THE REGISTRATION RIGHTS AGREEMENT
WHEREAS, Irwin Schlass Enterprises, Inc., Monte Engler, Eugene Wong,
Stephen Raphael, Richard Groberg, Gita Brenner, Frank Brenner, Mike Weinblatt
and Jack Schleifer (the "Investor(s)") entered into a certain Registration
Rights Agreement dated as of October 19, 1995 (the "Registration Rights
Agreement") and a First Amendment to the Registration Rights Agreement dated as
of July 1, 1996 (the "First Amendment") with VASCO Corp. (the "Company")
relating to the registration of shares of VASCO Corp. pursuant to the
Securities Act of 1933; and
WHEREAS, the Company has not registered The Shares which are the subject
of the Registration Rights Agreement as of the date of this Second Amendment to
the Registration Rights Agreement (the "Second Amendment").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Second Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree to amend the Registration Rights Agreement and the
First Amendment as follows:
1. The First Amendment to the Registration Rights Agreement shall be null
and void in its entirety except for any provisions which may be restated
in this Second Amendment.
2. All capitalized terms in this Second Amendment, unless otherwise
indicated, shall have the same meaning as set forth in the Registration
Rights Agreement.
3. Wherever in the Registration Rights Agreement the dollar amount/price
$3.50 appears, the dollar amount/price $7.00 shall be substituted in its
place. And wherever in the Registration Rights Agreement the dollar
amount/price $7.00 appears, the dollar amount/price $14.00 shall be
substituted in its place.
4. For clarification purposes, wherever the words "Shares underlying the
Units" appear in the Registration Rights Agreement, the words "Shares
comprising the Units" shall be substituted in their place.
5. Wherever the word "Warrant(s)" appears in the Registration Rights
Agreement, the words "New Warrant(s)" as defined herein, shall be
substituted in its place so that the New Warrants and the shares
underlying the New Warrants shall have the same rights under the
Registration Rights Agreement which the original Warrants and the
shares underlying the original Warrants had in the Registration Rights
Agreement.
<PAGE> 2
6. The Investors, at this time, will forego any right to demand registration
pursuant to paragraph 3 of the Registration Rights Agreement and the First
Amendment thereto until March 31, 1998.
7. Wherever in the Registration Rights Agreement the date July 1, 1996
appears, the date March 31, 1998 shall be substituted in its place.
8. At each Investors election, the Company shall repurchase 1/3 of the Units
held by each Investor (which shall consist of two shares and one warrant),
rounding down to the nearest whole Unit, at a price of $14.00 per Unit.
Each Investor shall make such election by March 31, 1997, and the Company
shall remit said payments for the redemption to each Investor promptly
after the Units have been delivered to the Company. No Investor shall be
obligated to have his Units redeemed.
9. Each Investor shall deliver all warrants associated with any Units which
have not been redeemed by the Company pursuant to the previous paragraph,
and in return each Investor shall receive four (4) warrants to purchase
shares of VASCO common stock at any time after March 31, 1997 and no later
than March 31, 2000, for a purchase price of $5.19 per share. Each
warrant shall provide for the exercise of a warrant by a cash payment and
shall also contain a provision providing for the cashless purchase of the
warrants on a formula as set forth below, provided that in the event of a
cashless exercise, all warrants held by the Investor are exercised. The
cashless option provision shall be as follows:
X = Y (A - B)
--------
A
Where X = the number of shares of common stock to be issued to
Investor.
Where Y = the number of shares of common stock purchasable under
the warrant(s) (at the date of such calculation).
Where A = the fair market value of one share of the Company's
common stock as determined by the last traded price prior to
the date of such calculation.
Where B = the exercise price (as adjusted to the date of such
calculation).
Notwithstanding the value for X which is reached after
applying the above formula, in no event shall X equal
more than 25% of Y.
10. Notwithstanding whether or not the Investors made the election as set
forth in paragraph 8, each Investor shall have the right to cause the
Company to repurchase any of The
2
<PAGE> 3
Shares which they may hold after March 31, 1997 if any time after the date
hereof the Company raises financing equal to or greater than $5,000,000 in
a debt or equity private placement or public offering. Notwithstanding any
election which the Investors may make pursuant to this paragraph to have
the Company repurchase the remaining Shares, the Investors will be entitled
to retain the New Warrant(s).
11. Nothing herein shall restrict the right of any Investor to sell any of
The Shares comprising the Units or any shares underlying the New Warrants
in any transaction permitted by law or regulation. However, once any of
The Shares have been sold, any rights associated with The Shares
comprising the Units created by the Registration Rights Agreement or this
Second Amendment thereto, shall be extinguished.
12. This Second Amendment shall be binding on the successors and assigns of
the parties hereto.
IN WITNESS WHEREOF, this Second Amendment has been duly executed and
delivered by the duly authorized officer of each party hereto as of this 7th
day of March, 1997.
COMPANY:
VASCO CORP.
By: /s/ T. Kendall Hunt
-------------------------
Name:
Title:
INVESTORS:
/s/ Irwin Schlass /s/ Irwin Schlass
- ------------------------------ ----------------------------
IRWIN SCHLASS ENTERPRISES, INC. MONTE ENGLER
By Irwin Schlass, President By his Attorney in fact, Irwin Schlass
/s/ Irwin Schlass /s/ Irwin Schlass
- ------------------------------ ----------------------------
EUGENE WONG STEPHEN RAPHAEL
By his Attorney in fact, Irwin Schlass By his Attorney in fact, Irwin Schlass
3
<PAGE> 4
/s/ Irwin Schlass /s/ Irwin Schlass
- -------------------------- -----------------------------
RICHARD GROBERG GITA BRENNER
By his Attorney in fact, Irwin Schlass By her Attorney in fact, Irwin Schlass
/s/ Irwin Schlass /s/ Irwin Schlass
- -------------------------- -----------------------------
FRANK BRENNER MIKE WEINBLATT
By his Attorney in fact, Irwin Schlass By his Attorney in fact, Irwin Schlass
/s/ Irwin Schlass
- --------------------------
JACK SCHLEIFER
By his Attorney in fact, Irwin Schlass
4
<PAGE> 5
CORRECTION RIDER TO THE SECOND AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT
On this 19th day of March, 1997, the parties hereto agree to correct the
Second Amendment to the Registration Rights Agreement dated March 7, 1997. For
clarification, consistent with the parties intent, the words "for each such
warrant" and "the New Warrants" shall be inserted into the first sentence of
Paragraph 9 so the sentence reads: "Each Investor shall deliver all warrants
associated with any Units which have not been redeemed by the Company pursuant
to the previous paragraph, and in return for each such warrant, each Investor
shall receive four (4) warrants, the New Warrants, to purchase shares of VASCO
common stock at any time after March 31, 1997 and no later than March 31, 2000,
for a purchase price of $5.19 per share."
Acknowledged and Agreed:
COMPANY: VASCO CORP.
By: /s/ T. Kendall Hunt
--------------------------------------
Name:
Title:
INVESTORS:
/s/ Irwin Schlass /s/ Irwin Schlass
-------------------------------------- --------------------------------------
IRWIN SCHLASS ENTERPRISES, INC. MONTE ENGLER
By Irwin Schlass, President By his Attorney in fact, Irwin Schlass
/s/ Irwin Schlass /s/ Irwin Schlass
-------------------------------------- --------------------------------------
EUGENE WONG STEPHEN RAPHAEL
By his Attorney in fact, Irwin Schlass By his Attorney in fact, Irwin Schlass
/s/ Irwin Schlass /s/ Irwin Schlass
-------------------------------------- --------------------------------------
RICHARD GROBERG GITA BRENNER
By his Attorney in fact, Irwin Schlass By her Attorney in fact, Irwin Schlass
/s/ Irwin Schlass /s/ Irwin Schlass
-------------------------------------- --------------------------------------
FRANK BRENNER MIKE WEINBLATT
By his Attorney in fact, Irwin Schlass By his Attorney in fact, Irwin Schlass
/s/ Irwin Schlass
--------------------------------------
JACK SCHLEIFER
By his Attorney in fact, Irwin Schlass
<PAGE> 6
NUMBER: ##### **####** SHARES
VASCO CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK PURCHASE WARRANTS
This Certifies that _______________________ (the "holder") is the owner of ####
Common Stock Purchase Warrants (the "Warrants"), each Warrant giving the holder
the right to purchase one (1) fully paid and non-assessable share of Common
Stock, $.001 par value, of VASCO CORP. (the "Company") at any time through
OCTOBER 31, 2000, (the "exercise date") at an exercise price of $6.00 per
Warrant and subject to the terms, conditions and limitations set forth herein.
These Warrants are exerciseable at the option of the holder. In the event of a
Secondary Public Offering (the "Offering"), the Company has the right to call
these Warrants at the exercise price 30 days prior to the Offering. Surrender
of the Warrants and $6.00 per Warrant prior to or simultaneous to but no later
than the closing of the Offering will entitle the holder to one (1) share of
free tradeable, registered, non-restricted share of Common Stock of the
Company. The Company will permit "cashless exercise" (credit of the intrinsic
value of the herein Warrants against the Offering price) of the Warrants upon
request of the holder immediately prior to the Offering, based on the Offering
price, with adjustment for commissions and expenses.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as to the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this 31st day of October, 1995.
----------------------------- ---------------------------
Secretary President
(Apply Corporate Seal)
<PAGE> 1
EXHIBIT 10.39
PURCHASE AGREEMENT
This Purchase Agreement and its Exhibit A ("Form of Warrant"), Exhibit B
("Registration Rights Agreement"), Exhibit C ("Convertible Note"), and Exhibit
D ("Legal Opinion of Company Counsel") are made as of May 28, 1996, by and
between VASCO CORP., a Delaware corporation ("Company") with its principal
office at 1919 South Highland, Lombard, Illinois 60148 ("Company") and KYOTO
SECURITIES, LTD., a Bahamian corporation ("Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:
SECTION 1.
Authorization and Sale of Shares of Common Stock, and Warrants
1.1 Authorization of Sale of Shares of Common Stock and Warrants. Subject
to the terms and conditions of this Purchase Agreement, the Company has
authorized the private placement sale to the Purchaser of up $3,000,000 worth
of the Company's common stock, par value $0.001 per share (the "Shares of
Common Stock"), consisting of up to 666,666 Shares of Common Stock, at a price
per share of $4.50 per share, and a total of 100,000 Common Stock warrants
("Warrants").
(a) Each Common Stock Warrant authorizes the purchase of one (1) Share of
Common Stock of the Company at an exercise price of $4.50 per share for up to
five (5) years after closing of this Offering ( "Closing").
(b) The Company's Shares of Common Stock; the Shares of Common Stock to be
issued upon exercise of the Warrants ("Warrant Shares"); the shares of Company
Common Stock to be issued upon the conversion of all or a portion of the
Convertible Note issued to Purchaser pursuant to the terms of this Purchase
Agreement ("Note Conversion Shares"); and the shares of Company Common Stock
received by Purchaser in lieu of cash interest payments as identified in
Section 2.1 (a) herein ("Note Interest Shares") are restricted from sale,
through any transaction on any exchange or market where the Company's Shares of
Common Stock are listed or traded, until June 7, 1998, except in a private
transaction, or in accordance with the Registration Rights Agreement referred
to in Section 1.2 below, and will bear the following legend:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as Amended, or the securities law of any state and thus
may not be offered for sale, sold, transferred or otherwise disposed of through
any transaction on any exchange or market where the Company's Shares of Common
Stock are listed or traded, until June 7, 1998, unless registered under the
Securities Act of 1933, as Amended, and the securities laws of the applicable
State, or in accordance with a Registration Rights Agreement, dated May 28,
1996, on file with the Company, or unless exemptions from such registration are
available."
(c) The certificates representing the Warrants (the "Warrant
Certificates") shall be in substantially the form attached hereto as Exhibit A.
The Warrants are exercisable immediately into the restricted Shares of the
Common Stock of the Company.
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1.2 Sale of Shares of Common Stock and Warrants. The Company agrees to
sell to the Purchaser, and Purchaser agrees to buy from the Company, upon the
terms and conditions hereinafter set forth, 666,666 Shares of Common Stock at a
price of $4.50 per Share of Common Stock, including 100,000 Warrants for a
total purchase price for both Shares and Warrants of three million dollars
($3,000,000.00). The Company will grant to Purchaser certain registration
rights ("Registration Rights") for all Shares of Common Stock and Warrants
issued pursuant to this Purchase Agreement as set forth in Exhibit B hereto.
1.3 Payment Schedule. The Purchaser agrees to make the following
Non-refundable Deposit and Purchase Payments, in accordance with the following
payment schedule:
(a) At the time of the execution of this Purchase Agreement, Purchaser
will make a non-refundable cash deposit, by wire transfer, to the Company in
the amount of $250,000 ("Non-refundable Deposit") to an account designated by
the Company in consideration of Purchaser's agreement to the terms and
conditions of this Purchase Agreement, and Purchaser's undertaking to provide
all of the funds identified herein on or before the dates specified for the
purchase of the Shares of Common Stock, Warrants, and the Note, defined in
Section 2 below.
(i) This deposit is irrevocable by the Purchaser and is solely in
consideration of the parties hereto executing this Purchase Agreement, and it
shall immediately become the property of the Company. After the execution and
receipt of the Non-refundable Deposit by the Company, Purchaser will have no
further claim of any kind on Non-refundable Deposit funds, except as set forth
below.
(ii) However, in the event that Purchaser makes all of the Purchase
Payments specified in Section 1 herein required by this Purchase Agreement and
fulfills all of the terms and conditions set forth in Section 2 below regarding
the purchase of the Note, as defined therein, the Non-refundable Deposit shall
be applied against the Purchase Payment for the last 55,555 Shares of Common
Stock purchased pursuant to this Purchase Agreement.
(b) On or before June 7, 1996, Purchaser will make a cash deposit, by wire
transfer, to an account designated by the Company, in the amount of no less
than $1,000,000 to be applied against the purchase of the Company's Shares of
Common Stock ("First Purchase Payment"). The Company agrees to deliver to
Purchaser within 10 business days of receipt of the First Purchase Payment,
certificates, representing the exact number of 222,222 Shares and 33,333
Warrants purchased by Purchaser, registered in the Purchaser's name, or its
nominee.
(c) On or before June 30, 1996, Purchaser will make a cash deposit, by
wire transfer, to an account designated by the Company, in an amount equal to
$1,750,000 ("Second Purchase Payment"). This Second Purchase Payment will be
applied against the purchase of the remaining 444,444 Shares of Common Stock
and remaining 66,667 Warrants covered by this Purchase Agreement. The Company
agrees to deliver to Purchaser within 10 business days of receipt of the First
Purchase Payment, certificates, representing the exact number of Shares and
Warrants purchased by Purchaser, registered in the Purchaser's name, or its
nominee.
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<PAGE> 3
SECTION 2.
Authorization and Sale of 9%, Convertible Note
2.1 Authorization of Sale of 9% Convertible Note. Subject to the terms and
conditions of this Purchase Agreement, the Company has authorized the private
placement sale to the Purchaser of a $5,000,000 Convertible Note, attached
hereto as Exhibit C, which will pay interest at the rate of 9% per year,
payable quarterly with a term of 5 years and one (1) day ("Note"). To the
extent that any of the terms and conditions of this Purchase Agreement are in
conflict with any of the terms and conditions of the Note, the terms and
conditions of the Note shall control.
(a) The Purchaser will have the ongoing option to elect at each interest
payment due date to pay the interest payment due in either cash or stock. If
the payment is in Note Interest Shares, they will be restricted in accordance
Section 1.1(b) above, and the value of said Note Interest Shares will be
determined as set forth in paragraph 2.1(d ) below.
(b) The conversion price for the Common Shares underlying the Note during
the first twelve (12) months from date of issuance ("First Year") will be
$15.00.
(i) The Company may force conversion of the Note during the First Year
if, during any 20 day trading period, the average closing price of the Company's
Common Stock as reported on the National Association of Securities Dealer's
NASDAQ market ("NASDAQ") is at or above $22.50 per share.
(ii) At any time during the First Year, Purchaser may elect to convert
the Note at a price of $15.00 per Common Share underlying the Note.
(iii) At the end of the First Year, the conversion price will be
$12.00 per Common Share underlying the Note for the remaining term of the Note.
(c) If at any time during the term of the Note, Company shall propose to
publicly offer shares of its common stock at a gross price of $22.50 per share,
or less ("Low Offering Price"), Purchaser shall have the following redemption
rights ("Purchaser Redemption Rights"): (i) at such time as the Company
proposes to make a Low Price Offering, Company shall notify Purchaser of such
proposal: (ii) at any time up to and including the completion and closing of
the Low Price Offering, including the receipt of proceeds from such offering,
Purchaser shall have the right to send notice to the Company of its election to
have the Note and all amounts payable thereunder paid to Purchaser ("Redemption
Notice"): and (iii) within five (5) business days of the Redemption Notice, the
Company shall pay to Purchaser all amounts due and owing pursuant to the Note.
(d) If Purchaser shall have had a Purchase Redemption Right pursuant to
Subsection C above, and if Purchaser shall not have exercised such right and
the time for exercise of such right shall have elapsed, then the Company shall
have the following rights: at any time during the term of the Note, the Company
may force an automatic conversion of the Note at a price of $15.00 per Common
Share underlying the Note, if the Company files a registration statement that:
(a) becomes
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<PAGE> 4
effective with the Securities Exchange Commission allowing a public offering
of the Common Stock of the Company at an effective offering price of $15.00, or
above; and (b) generates proceeds to the Company in excess of $5,000,000.
Nothing contained in this Section 2.1 (d) shall limit or terminate any right of
Purchaser to convert the Note at any time into shares of the Company's common
stock pursuant to the other provisions of this Purchase Agreement or the
provisions of the Note.
(e) The determination of the average trading price of the Shares of Common
Stock of the Company shall be defined as the average NASDAQ, or NASDAQ
"Bulletin Board" closing price for the prior 20 trading days from the date of
such determination.
2.2 Sale of Convertible Note. The Company agrees to sell to the
Purchaser, and Purchaser agrees to buy from the Company, the Note attached
hereto as Exhibit C.
2.3 Payment Schedule. The Purchaser agrees to purchase the Note for the
following ("Note Payments") in accordance with the following note schedule.
(a) On or before June 7, 1996, Purchaser, at its own cost, will provide
the Company with a $5,000,000 (U.S. Funds) letter of credit ("Letter of
Credit") or guarantee of equal credit worthiness, satisfactory to the Company,
in order for the Company to comply with the terms and conditions of the Heads
of Agreement, as identified in Section 4 herein. However, the Letter of Credit
may not be drawn upon before July 24, 1996.
(b) On or before July 24, 1996 ("Final Funding Date"), Purchaser will
purchase the Note for $5,000,000 and Company will release the Letter of Credit
to Purchaser.
(c) If the Letter of Credit is drawn upon, such draw shall constitute full
and final payment by Purchaser for the Note.
SECTION 3.
Sale of Additional Shares of Common Stock
3.1 Subsequent Sales of Shares of Common Stock At any time on or after
the date hereof, the Company may sell additional Shares of Common Stock with
15% Warrant Coverage, as defined herein, to such persons and upon such terms as
may be approved by the Board of Directors of the Company.
SECTION 4.
Representations and Warranties of the Company
The Company represents and warrants to the Purchaser as follows:
(a) The Company has provided Purchaser with documents, records and books
pertaining to this investment, including the Company's December 31, 1995
year-end Consolidated Financial
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<PAGE> 5
Statements as set forth in Form 10-SB, ("December 31, 1995 Audited
Financials"), First Quarter unaudited summary financials ("First Quarter
Results"), the Company's Form 10-SB, filed with the Securities and Exchange
Commission on May 10, 1996 ("Registration Statement"); and the Company's
confidential 1996-7 projected income statements ("Confidential Company
Projections").
(b) The "December 31, 1995 Audited Financial Statements and the related
statement of income, accumulated deficit and cash flow for the year then ended
(together with the notes thereto, if any): (A) are in accordance with the books
and records of the Company; (B) are complete and correct. (C) present fairly
the financial position and results of operations of the Company as of the date
and for the period indicated; and (D) have been prepared in accordance with
generally accepted accounting principles consistently applied. Also, as of the
date of this Subscription Agreement, the Company has released its First Quarter
unaudited summary financials.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Company's Registration Statement; the
Company is duly qualified to do business as a foreign corporation in good
standing in each jurisdiction where the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the Company.
(d) The Company has full power and authority (corporate and otherwise) to
enter into this Purchase Agreement and to perform the transactions contemplated
hereby. Each of this Purchase Agreement, Registration Rights Agreement, and
the Warrant Certificates has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement on the part of the Company,
enforceable against the Company in accordance with its terms, except as rights
may be limited or by equitable principles and except as enforcement hereof may
be limited to applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the execution and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, (i) any lease, contract or
other agreement or instrument to which the Company is a party or by which its
properties are bound, or (ii) the Certificate of Incorporation or By-Laws of
the Company or (iii) any, law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body binding on the company; and
the Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or filing by or with any court or
regulatory, administrative or other governmental agency or body is required for
the consummation by the Company of the transactions herein contemplated, except
such as may be required under the Securities Act of 1933, as amended (the
"Act") and state securities laws. The Company has reserved, from its
authorized but unissued Common Stock, a sufficient number of shares of Common
Stock to provide for the exercise of the Warrants in accordance with the terms
of the Warrant Certificates.
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<PAGE> 6
(e) The authorized capital stock of the Company is as stated in the
Registration Statement under the caption "Capitalization," and, as of the date
hereof, the Company has outstanding 15,793,575 shares of Common Stock, all of
which are validly issued, fully paid and non-assessable and which represent all
of the outstanding shares of capital stock of the Company.
(f) The shares of Common Stock to be purchased from the Company hereunder,
and the shares of Common Stock issuable upon the exercise of the Warrants, have
been duly authorized for issuance and, when issued and delivered to the
Purchaser by the Company against payment therefor in accordance with the terms
of this Agreement will be duly and validly issued and fully paid and
nonassessable.
(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and which information supplied to the Purchaser
under subparagraph 4(a) above, there has not been (i) any material adverse
change, or any development which, in the Company's reasonable judgment, is
likely to cause a material adverse change, in the business, properties or
assets described or referred to in the Registration Statement, or the results
of operations, condition (financial or otherwise), business or operations of
the Company or its future prospects, (ii) any transaction which is material to
the Company, except transactions in the ordinary course of business, (iii) any
obligation, direct or contingent, which is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or (v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company.
(h) The Company presently has two wholly owned subsidiaries: VASCO Data
Security, Inc. ( "VDSI") and VASCO Data Security Europe ("VDSE"). In addition,
the Company owns a 15% interest in Lintel Security SA/NV ("Lintel"). The
Company has agreed to acquire another 36% interest on or before July 1, 1996,
resulting in a 51% ownership. The Company is required to acquire the remaining
49% of Lintel subject to the occurrence of certain events and criteria,
including profitability and certain product sales volumes achieved through
December 31, 2001. Except for these holdings, the Company does not presently
have any other subsidiaries, nor does it presently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity. The
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of the applicable jurisdiction of their incorporation
and have all requisite corporate power and authority to own and lease their
properties, and to carry on their business as presently conducted and as
proposed to be conducted.
(i) The Company covenants that the specific use of the proceeds of the
Note is to secure a $5,000,000 (U.S. Funds) guaranteed payment No. 1 as set
forth in, and in accordance with the terms and conditions of a certain Heads of
Agreement, dated May 13, 1996, by and among, VASCO CORP., VASCO DATA SECURITY
EUROPE S.A. and DIGILINE INTERNATIONAL LUXEMBOURG, DIGILINE S.A., DIGIPASS
S.A., and DOMINIQUE COLARD and TOPS S.A.
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("Heads of Agreement"). If the Company fails to apply the note proceeds in
accordance with Payment No. 1 of the Heads of Agreement, the Company shall
redeem the Note by January 10, 1996.
SECTION 5.
Representations and Warranties of the Purchaser
The Purchaser, its agents, nominees, successors, and assigns hereby
represent and warrant to the Company as follows:
(a) The Purchaser hereby acknowledges: (a) that it, and all of the
investors are "accredited investors;" as that term is defined in the 1933 Act;
(b) that now or hereafter all investors in the Purchaser are non-United States
citizens; (c) that a portion of the Note interest payments it receives from the
Company may be subject to tax withholding under United States Income Tax laws.
Purchaser further acknowledges that this transaction has not been scrutinized
by the Commission or any officer of any jurisdiction.
(b) The Purchaser acknowledges that all documents, records and books
pertaining to this investment, including the Company's December 31, 1995
Audited Financials, First Quarter Results, the Company's Form 10-SB, filed with
the Securities and Exchange Commission on May 10, 1996 ("Form 10-SB"); and the
Company's confidential 1996-7 projected income statements ("Confidential
Company Projections") have been made available to the Purchaser and the
Purchaser understands that the books and records of the Company will be
available prior to its execution hereof, upon reasonable notice, for its
inspection during reasonable business hours at the Company's principal office.
The Purchaser further acknowledges that it has signed a confidentiality
agreement ("Confidentiality Agreement") with the Company as it pertains to
certain information deemed to be confidential by the Company, including, but
not limited to, the Confidential Company Projections.
(c) The Purchaser further acknowledges, represents and warrants that it
understands that neither the Shares of Common Stock, nor the Common Stock
underlying the Warrants have been registered under the Securities Act of 1933,
as amended (the "Act"), or any state securities, laws, and such securities are
being offered and sold under the exemption from registration provided by Rules
505 and 506 promulgated by the Commission under the Act. The Purchaser is aware
of the risks associated with an investment in the unregistered securities of
the Company; and confirms it has read and understands The Registration Rights
Agreement, identified as Exhibit B hereto.
(d) This Agreement has been duly authorized, executed and delivered by the
Purchaser and constitutes a valid and legally binding obligation of the
Purchaser, individually, and as agent for a yet to be formed investment fund,
enforceable personally, and in accordance with its terms, except as may be
limited by applicable laws or equitable principles and except as enforcement
hereof may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Purchaser is an accredited investor as such term
is defined in Regulation D.
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<PAGE> 8
SECTION 6.
Commission Schedule
6.1 The Commission Schedule for Shares of Common Stock and Warrants. The
Company agrees to pay to the parties identified below in this Section 6,
commissions for the purchase of the Shares of Common Stock with 15% Warrant
Coverage as follows:
(a) For the first $2,000,000, the Company will pay a total of 7% in cash
and 7% in Warrants, for a total of $140,000 in cash and 31,111 Warrants, as
follows:
(i) To Purchaser, 5% cash, or $100,000 and 5% Warrants, or 22,222
Warrants;
(ii) To Company's investment banker, First Analysis Securities
Corporation ("First Analysis"), 2% cash, or $40,000, and 2% Warrants, or 8,889
Warrants.
(b) For the next $1,000,000, the Company will pay to Purchaser only, a
total of 7% in cash and 7% in Warrants, for a total of $70,000 in cash and
15,555 Warrants.
(c) Purchaser shall have no obligation for the above representative's
commissions.
6.2 Commission for the Purchase of the Note. For the purchase of the Note,
as defined below, the Company agrees to pay to Purchaser only, a 7% commission,
payable in the amount of 55,555 Shares of Common Stock, and 7% Warrants. The
exact number of Warrants issued will be based upon the actual conversion price,
as determined in Section 2 to this Purchase Agreement, and as set forth
immediately below:
(i) If the conversion price is at $15.00, the number of Warrants will
be 23,333;
(ii) If the conversion price is at $12.00, the number of Warrants will
be 29,166.
(c) Purchaser shall have no obligation for the above representative's
commissions.
SECTION 7.
Conditions to Closing of Purchaser
The Purchaser's obligation to purchase the Shares of Common Stock with
Warrants, and the Note in the stated amounts and on or before the dates
specified herein is subject to fulfillment or waiver, as of the Purchase
Payment Dates or Final Funding Date specified herein, of the following
conditions:
(a) The representations and warranties made by the Company herein shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the date of each payment with the same
force and effect as if they had been made on and as of said date.
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<PAGE> 9
(b) All covenants, agreements and conditions contained in this Purchase
Agreement to be performed by the Company on or prior to the Final Funding Date
shall have been performed or complied with in all respects.
(c) The Purchaser shall have received a legal opinion of Laidley, Sutter &
Porter, counsel to the Company, insubstantially the form of Exhibit D.
SECTION 8.
Conditions to Closing of Company
The Company's obligation to sell and issue the Shares of Common Stock,
Warrants, and the Note is subject to the fulfillment or waiver, as of the
Purchase Payment dates or Final Funding date specified herein, of the following
conditions:
(a) The representation made by each Purchaser in Section 4 hereof shall be
true and correct when made, and shall be true and correct on the Closing Date.
(b) All covenants, agreements and conditions contained in the Agreement to
be performed by the Purchaser on or prior to the Closing Date shall have been
performed or complied with in all material respects.
SECTION 9.
Miscellaneous
7.1. Waivers and Amendments. The terms of this Agreement (including,
without limitation, the Warrant Certificates) may be waived or amended only
with the written consent of the Company and Purchaser. The failure by any party
at any time to enforce or to require the performance of any provision of this
Purchase Agreement shall in no way be construed to be a waiver of any such
provision and shall not affect the rights of such party hereunder thereafter to
enforce or require the performance of such provision in accordance with the
terms of this Agreement.
7.2 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Illinois, without regard to the conflict of laws rules
thereof.
7.3. Successors and Assigns. This Agreement may not be assigned by a
Purchaser without the written consent of the Company.
7.4. Entire Agreement. This Agreement, which includes Exhibits A, B, C, &
D attached hereto, constitutes the full and entire understanding and agreement
between the parties with regard to the subjects thereof.
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<PAGE> 10
7.5 Notices, etc. All notices and other communications required or
permitted under this Agreement shall be in writing and may be sent by personal
delivery, by telecopy, overnight delivery service or U.S. Mail, in which event
it shall be mailed first-class, certified or registered, postage prepaid. All
such notices and communications must be addressed to the Company or the
Purchaser, as the case may be, at their respective addresses and telecopy
number set forth herein, or at such other address or telecopy number as the
Company or the Purchaser shall have furnished to the other party in writing.
All notices and other communications shall be effective upon the earlier of
actual receipt thereof and (A) in the case of notices and communications sent
by personal delivery or telecopy, three hours after such notice or
communication arrives at the applicable addresses or was successfully sent to
the applicable telecopy number (B) in the case of notices and communications
sent by overnight delivery service, at noon (local time) on the first business
day following the day such notice or communication was sent, and (C) in the
case of notices and communications sent by U.S. mail, five days after such
notice or communication shall have been deposited in the U.S. mail.
7.6 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.7. 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.
7.8 Further Assurances. Each party to this Agreement shall do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as the other party hereto may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the Transactions contemplated hereby.
7.9. Expenses. The Company and each Purchaser shall bear its own expense
incurred on its behalf with respect to this Purchase Agreement and the
transactions contemplated hereby, including fees of legal counsel.
7.10. Survivability. The respective representations and covenants of the
parties hereto shall survive the Closing of the transactions contemplated
hereby, including issuance of the Shares of Common Stock and the Common Stock
underlying the Warrants.
7.11. Information. The Company shall furnish to each Purchaser, upon the
request of such Purchaser, any publicly-available filing made by the Company
with the Securities and Exchange Commission and such other publicly-available
information as may be reasonably requested by the Purchaser for so long as the
Purchaser is the holder of any Warrant purchased hereunder.
10
<PAGE> 11
The foregoing agreement is hereby executed as of the date first above
written.
COMPANY:
VASCO CORP.
a Delaware Corporation.
By: /s/ T. Kendall Hunt
-------------------------------
Title: President
PURCHASER:
KYOTO SECURITIES, LTD.
a Bahamian corporation
By: /s/ Charles P. Villeneuve
-------------------------------
Title: President
By: /s/ Charles P. Villeneuve
-------------------------------
Charles P. Villeneuve
11
<PAGE> 12
EXHIBIT A
Number: **_______** Shares
VASCO
Incorporated under the laws of the State of Delaware
COMMON STOCK PURCHASE WARRANTS
------------------------------
This certifies that _______________ (the "holder") is the owner of _________
Common Stock Purchase Warrants (the "warrants"), each Warrant giving the holder
the right to purchase one (1) fully paid and non-assessable share of Common
Stock, $.001 par value, of VASCO (the "Company") at any time through June 1,
2001, (the "exercise date") at an exercise price of $4.50 per Warrant and
subject to the terms, conditions and limitations set forth herein. The shares
of Common Stock underlying these Warrants shall have 'piggy back registration
rights" as set forth in a Registration Rights Agreement dated May 28, 1996 by
and between Company and Holder The effective date of these Warrants is May 28,
1996.
As of Midnight of the exercise date, any unexercised Warrants issued herein
will automatically and without notice terminate and become null and void,
unless extended by action of the Board of Directors. Any exercise of these
Warrants shall be in writing, addressed to the Secretary of the Corporation at
its principal place of business, using the form attached hereto, and shall be
accompanied by payment in full by check.
In the event, at the time of exercise of the Warrants, there does not exist a
Registration Statement on an appropriate Form under the Securities Act of 1933,
as amended (the "Act"), which Registration Statement shall have become
effective and shall be current with respect to the underlying shares being
purchased, and in the opinion of counsel to the Company such underlying shares
will upon issuance be "restricted" securities within the meaning of Rule 144
under the Act, you will represent and warrant to the Company (i) that, upon
exercise of the Warrants, you are purchasing the underlying shares for
investment only and not with a view to the resale or distribution thereof and
(ii) that any subsequent resale or distribution of any such underlying shares
shall be made either pursuant to (x) a Registration Statement on an appropriate
Form under the Act, which Registration Statement shall have become effective
and shall be current with respect to the underlying shares being sold, or (y) a
specific exemption from the registration requirements of the Act, but in
claiming such exemption, you shall, prior to any offer for sale or sales of
such underlying shares, obtain a favorable written opinion from counsel for, or
approved by the Company, as the applicability of such exemption.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its authorized officers, and its Corporate Seal, to be hereunto
affixed this ____ day of _________, 1996.
______________________ ____________________________________
Secretary President
(Apply Corporate Seal)
12
<PAGE> 13
EXHIBIT B
Registration Right Agreement
This Agreement by and between VASCO CORP. ("Company") and KYOTO SECURITIES,
LTD., a Bahamian corporation ("Purchaser") is made as of May 28, 1996.
Definitions: As used in this Registration Rights Agreement, the following
defined terms shall have the following meanings:
"Purchase Agreement" shall mean that certain Purchase Agreement by and
between VASCO CORP. and Kyoto Securities, Ltd., dated May 28, 1996.
"Shares" shall mean 666,666 shares of VASCO Common Stock issued to
Purchaser pursuant to the Purchase Agreement.
"Warrants" shall mean 100,000 Warrants to purchase VASCO Common Stock
pursuant to the terms of the Purchase Agreement
"Warrant Shares" shall mean 100,000 shares of VASCO Common Stock to be
issued upon exercise of the Warrants.
"Note Conversion Shares" shall mean shares of VASCO Common Stock to be
issued upon conversion of all or a portion of the principal and interest
of the Convertible Note issued to Purchaser pursuant to the terms of the
Purchase Agreement.
"Convertible Note" to be issued to Purchaser pursuant to the terms of the
Purchase Agreement.
The Company agrees to register all Shares, Warrants, Warrant Shares, and Note
Conversion Shares (collectively "Payment Shares") under the following terms:
A. If, at any time commencing from the date of this Agreement
until June 1, 2001, the Company proposes to file a registration
statement for the public sale of Shares of its Common Stock, written
notice of such proposal, will be given to Purchaser at least 60 days
prior to the filing of such registration statement. The term
"Registration Statement" as used in this Section shall be deemed to
include any form which may be used to register a distribution of
securities to the public. Company agrees that on written notice
received from Purchaser, within 20 days after Purchaser's receipt of
the notice to file a registration statement, Company shall afford the
holders of Payment Shares the opportunity to have the Payment Shares
included in such Registration Statement. The registration rights set
out in this Paragraph A shall apply each and every time the Company
proposes to file a registration statement for the public sale of
shares of its Common Stock, until June 1, 2001.
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<PAGE> 14
B. Notwithstanding the provisions of this Agreement, Company shall
have the right, at any time after it shall have given written notice
to Purchaser pursuant to this Agreement, to elect to offer none, or
only a portion of the Payment Shares in such Registration Statement,
if, in the good faith and reasonable opinion of the Company's
managing underwriter to the offering, the sale of the Payment Shares
to be included would be materially detrimental to the success of the
offering. The Purchaser shall be entitled to receive a written
explanation from the Company's Managing Underwriter of such
determination.
C. Notwithstanding any provision to the contrary contained herein,
Company shall not be required to include any of the Payment Shares in
any Registration Statement with respect to shares offered in any
underwriting, unless Purchaser agrees to offer such shares, on the
same terms and conditions as Company shares are being offered, and to
sign an underwriting agreement in the form to be signed by the other
offerors, if any.
D. The shareholders desiring to sell shares of common stock
pursuant to the registration rights granted herein shall provide
Company with all reasonable information relating to such sale and on
which Company shall be entitled to rely and to include such
information in any such Registration Statement.
E. All sales pursuant to any such Registration Statement shall be
made in accordance with the provision of the Securities Act of 1933,
as amended (the "Securities Act") and the Securities Exchange Act of
1934 as amended, (the "Exchange Act") and Company shall not be
required to include any such Payment Shares in any registration until
is has received written assurances reasonably satisfactory in form
and substance to Company from the shareholders offering such Payment
Shares that such sales shall be so conducted.
F. All expenses incurred by Company in complying with the
registration requirements hereof shall be borne by Company. On notice
to any shareholder offering Payment Shares covered by a Registration
Statement that such Registration Statement or prospectus relating
thereto requires revision, such holder will immediately cease to make
offers or sale pursuant to such Registration Statement and return all
such Registration Statements and prospectuses to Company. All
registration rights granted herein may apply only to shares of common
stock issued by Company. Company is under no obligation to maintain
the effectiveness of any Registration Statement for more than an
aggregate of 90 days.
G. In connection with the filing of any Registration Statement or
offering statement under this Agreement, Company covenants and agrees
that it will take all necessary action which may be required in
qualifying or registering the Payment Shares included in a
Registration Statement or offering statement for the offer and sale
under the securities or blue sky laws of such states as may be
reasonably requested
14
<PAGE> 15
by the holders of the Payment Shares; provided, that Company shall
not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
H. In the event that the payment Shares are the subject of or are
included in any Registration Statement or offering statement which is
filed and becomes effective, Company agrees to utilize its best
efforts to keep the same, including blue sky filings, for an
effective period of not less than 90 days. The holders of the
Payment Shares shall cooperate with Company and shall furnish such
information as Company may reasonably request in connection with any
such registration or offering statement hereunder, on which Company
shall be entitled to rely.
I. Company further agrees that in the event that the Payment
Shares are transferred, sold or otherwise disposed of in compliance
with the Purchase Agreement, the new owner of the transferred Payment
Shares will be entitled to the registration rights set forth herein
until June 1, 2001. Company will fully cooperate in connection with
such transfer and/or sale at Company's sole expense.
J. Company further agrees and represents that while any of the
Payment Shares are outstanding and held by Purchaser or Purchaser's
affiliates, Company will timely file or cause to be filed all reports
and documents required under the Act as well as such additional
information as if necessary in order to allow the holder of the
Payment Shares to rely upon the provisions of Rule 144 promulgated
under the Act with respect to the current public information
requirements contained in Rule 144.
K. In the event of any registration of any Company common stock
under the Securities Act pursuant to this section, Company shall
indemnify and hold Purchaser or any subsequent transferee of the
Payment Shares harmless against any losses, claims, damages or
liabilities, joint or several, to which such holder may become
subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any
alleged untrue statement of any material fact contained, on the
effective date thereof, in any Registration Statement under which
such securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained herein, or any
amendment required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such holder
for any legal or any other expenses reasonably incurred by such
holder in connection with investigating or defending any such loss,
claims, damage, liability or action; provided, however, that Company
shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such
Registration Statement, preliminary prospectus, prospectus or
amendment or supplement in reliance upon and in conformity with
written information furnished to Company by such holder specifically
for use therein. Such indemnity shall remain in full force and
effect
15
<PAGE> 16
regardless of any investigation made by or on behalf of such holder
and shall survive the transfer of such securities by such holder and
consummation of the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto, as of the date first above
written.
COMPANY:
VASCO CORP.
BY:
--------------------------
T. Kendall Hunt, President
PURCHASER:
KYOTO SECURITIES, LTD.,
a Bahamian corporation
BY:
------------------------------
Its President
BY:
------------------------------
Charles P. Villeneuve
16
<PAGE> 17
EXHIBIT C
[LAIDLEY, SUTTER, & PORTER LETTERHEAD]
May 28, 1996
To Purchaser,
as specifically identified
in a certain Purchase Agreement,
dated May 28, 1996
Dear Sir:
We have acted as counsel for VASCO CORP., a Delaware corporation ( the
"Company"), in connection with a certain Purchase Agreement, by and between the
Company and Kyoto Securities, Ltd., dated May 28, 1996 ("Purchase Agreement"),
and its attached exhibits: Exhibit A ("Form of Warrant"), Exhibit B
("Registration Rights Agreement"), Exhibit C ("Convertible Note"), and Exhibit
D ("Legal Opinion of Company Counsel"), authorizing the issuance and private
placement sale by the Company of: (a) 666,666 Shares of the Company's common
stock, par value $0.001 per share at a price per share of $4.50 per share
("Shares of Common Stock"); (b) 100,000 Common Stock warrants ("Warrants"); (c)
100,000 shares of Company Common Stock to be issued upon exercise of the
Warrants ("Warrant Shares"); (d) the Convertible Note ("Note"); and (e) shares
of the Company's Common Stock to be issued upon conversion of all or a portion
of the Note issued pursuant to the Purchase Agreement ("Note Conversion
Shares"). This opinion in furnished to you pursuant to Section 4 of the
Purchase Agreement.
We have assisted in the preparation of the Purchase Agreement and the
Exhibits thereto. We have examined signed copies of the registration statement
of the Company of Form 10-SB, together with all exhibits thereto ("Registration
Statement"), all as filed with Securities and Exchange Commission
("Commission") under the Securities Act of 1934, as amended ("Act of 1934"); an
executed copy of the Purchase Agreement, executed copies of the certificates
evidencing the Warrants ("Warrant Certificate"), and such other documents as we
have deemed necessary as a basis for the opinions expressed herein.
17
<PAGE> 18
We express no opinion as to the laws of any jurisdiction other than those
of the State of Illinois, the General Corporation Law of the State of Delaware
and the federal laws of the United Sates of America. For purposes of our
opinion expressed in the last sentence of paragraph 2, we have relied solely on
a certificate of the chief financial officer of the Company as to locations
where the Company owns or leases real property and on certificates of public
officials as to the qualification of the Company as a foreign corporation in
each foreign jurisdiction.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the company, we have made inquiries to
the extent we believe reasonable with respect to such matters and have relied
upon representations made by the Company in the Purchase Agreement and
representations made to us by one or more officers of the Company. Although we
have not independently verified the accuracy of such representations, we do not
know of he existence or absence of any fact contradicting such representations.
Any reference herein to "our knowledge," "known to us" or any variation
thereof shall mean the actual knowledge of lawyers in this firm who have
participated in our representation of the Company in connection with the
preparation of the Registration Statement.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing with the Secretary of State under the laws of
the State of Delaware.
2. The Company has the corporate power and authority to own, lease
and operate its properties and conduct its business as described in
the Form 10-SB. The Company is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which it
owns or leases real property.
3. The Shares of Common Stock, the Warrants, the Warrant Shares,
the Note, and the Note Conversion Shares have been duly authorized
and will be validly issued, fully paid and non-assessable when issued
and paid for as contemplated by the Purchase Agreement.
4. The Purchase Agreement, the Warrant Certificates, and the Note
have been duly authorized, executed and when delivered by the
Company, subject to the qualifications stated in the last paragraph
of this opinion, constitute legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their
terms. When issued, the Shares of Common Stock, the Warrant Shares
and the Note Conversion Shares will be duly authorized, executed and
delivered by the Company and, subject to the qualifications stated in
the last paragraph of this opinion, constitute legal, valid and
binding obligations of the Company, enforceable against the Company
in accordance with their terms.
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<PAGE> 19
5. The execution and delivery by the Company of the Purchase
Agreement, the Warrant Certificate, and the Note, and the issuance by
the Company of the Shares of Common Stock, the Warrants, the Warrant
Shares, the Note and the Note Conversion Shares will not (i) violate
the Certificate of Incorporation or By-Laws of the Company, (ii)
breach or result in a default under any agreement or instrument
listed as an Exhibit to the Registration Statement or (iii) violate
any applicable law or regulation or, to our knowledge, any order,
writ, injunction or decree, of any jurisdiction, court or
governmental instrumentally binding upon the Company or any of its
properties, except that we express no opinion as to state securities
or blue sky laws or the antifraud provisions of federal securities
laws.
6. No approval, authorizations or consents of any governmental
entity are required for the execution and delivery of the Purchase
Agreement, the Warrant Certificates, or the Note, to permit the
Company to sell the Shares of Common Stock, the Warrants, and the
Note, and to issue and sell the Shares of Common Stock, the Warrant
Shares, or the Note Conversion Shares, except such as may be required
under state securities or blue sky laws, as to which we express no
opinion.
7. The Company has reserved the number of shares of its duly
authorized, but unissued, Common Stock as is necessary to provide for
the exercise of the Warrants and conversion of the Convertible Note,
except to the extent that the number of shares of Common Stock
potentially issuable on exercise of the Warrants pursuant to the Note
conversion price provisions thereof may currently be indeterminate.
8. The Shares of Common Stock, the Warrants, and the Note conform
as to mattes of law with the description thereof contained in the
Purchase Agreement.
9. The Form 10-SB filed by the Company, to the best of the
undersigned's knowledge, accurately describes the Company and
contains no untrue or inaccurate statements.
Our opinion that the Purchase Agreement, the Warrant Certificates, and the
Note are enforceable against the Company in accordance with its terms, is
subject to (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting the rights and remedies of creditors and
(ii) general principles of equity, regardless of whether enforcement is sought
in proceedings in equity or at law.
Sincerely,
Forrest D. Laidley
Laidley, Sutter & Porter
19
<PAGE> 20
EXHIBIT D
CONVERTIBLE NOTE
(TO FOLLOW ON NEXT 7 PAGES)
20
<PAGE> 1
EXHIBIT 10.40
CONVERTIBLE NOTE
$5,000,000 May 28, 1996
VASCO Corp., a Delaware corporation ("VASCO" or "Maker"), promises to pay
to Kyoto Securities, Ltd., a Bahamian corporation ("Holder"), the principal sum
of Five Million Dollars ($5,000,000.00), together with the interest on such
principal sum at the fixed interest rate described below, payable as more fully
set forth below:
1. Interest. Interest shall be calculated on the unpaid principal
balance at an interest rate of nine percent (9%) percent per annum. VASCO may
withhold from such payments amounts which may be required by the tax laws of
the United States as in effect from time-to-time. At Holder's option, Holder
may elect to receive, in lieu of cash, interest payments payable in
shares of VASCO's common stock by notifying VASCO in writing prior to any
interest payment date. Should Holder elect to receive interest payments
payable in VASCO's common stock, and should VASCO be obligated to withhold from
such interest payments amounts under the tax laws of the United States, Holder
agrees that it shall notify VASCO in writing of its election (i) to make
payment of such amounts required to be withheld, in which case, it shall, as a
condition to delivery of shares payable for interest pay to VASCO an amount
necessary to pay such withholding or (ii) to receive a lesser number of shares
valued in the same manner as set out below in this paragraph in which case
VASCO shall be obligated to make such withholding payments as required by the
tax laws of the United States. In the event that, and from time to time,
Holder shall elect to receive interest payments in the form of shares, such
interest payments shall be calculated based upon a conversion price equal to
the average closing price of VASCO common shares as reported on the National
Association of Security Dealers Electronic Bulletin Board or NASDAQ during the
previous twenty (20) trading days.
2. Payment. Subject to the conversion provisions herein, this
Convertible Note shall be payable in full including principal, accrued
interest, fees, charges and other accrued amounts on May 29, 2001. Interest
only payments in arrears shall be made every three (3) months beginning on
September 30, 1996. Except for the limited right set out in Section 3(d)(B),
Maker shall not have the right to make prepayment in whole or in part.
3. Conversion.
(a) Triggering Event. The "Triggering Event" as that term is used
in this Agreement, shall be deemed to have occurred if during any
successive twenty (20) trading days during which the NASD Electronic
Bulletin Board and the NASDAQ system shall have been open and operating
the average of last actual trades of VASCO common stock, par value $.001,
shall have been at or above Twenty-Two Dollars and Fifty Cents ($22.50)
per share.
<PAGE> 2
(b) Optional Conversion. Subject to and upon compliance with the
provisions of this Agreement, at the option of the Holder or any
subsequent holders of this Convertible Note, or any portion of the
principal, accrued interest and other amounts due and payable hereunder,
may at any time and from time-to-time at or before the close of business
on the maturity date of this Convertible Note be converted at the
conversion price, as hereinafter provided, in effect at the date of the
conversion. During the period beginning upon the date of this Convertible
Note, and continuing for a period of twelve (12) months thereafter, the
conversion price shall be Fifteen Dollars ($15.00) per share. At any time
beginning upon the expiration of twelve (12) months following the date of
this Convertible Note, and continuing until the final maturity date of
this Agreement, the conversion price shall be Twelve Dollars ($12.00) per
share.
(c) Conversion Procedure. In order to exercise the conversion
privilege set out above, the Holder shall surrender this Convertible
Note to VASCO at any time during usual business hours at the address set
out below along with written notice to VASCO at such office that the
Holder elects to convert this Convertible Note or a specified portion
thereof (which shall not be less than One Hundred Thousand Dollars
($100,000.00)) and stating the name or names in which the certificate or
certificates for shares of common stock which shall be issuable upon such
conversion shall be issued. Should Holder elect to convert a portion of
amounts due and payable pursuant to this Convertible Note, the interest
converted into shares of VASCO's common stock shall only be such interest
calculated upon the portion of the principal so converted. As promptly as
practicable after the date of such notice and the surrender of this
Convertible Note as provided above, VASCO shall issue and deliver at its
office or pursuant to written order, a certificate or certificates with
the number of full shares of common stock issuable upon such conversion in
accordance with this provision. VASCO shall not be required to issue
fractions of a share or script representing fractional shares upon
conversion. If any fraction of a share would, except for provisions of
this sentence, be issuable upon the conversion of any this Convertible
Note, VASCO shall pay a cash adjustment in respect to such fraction equal
to the value of such fraction based upon the then conversion price. Such
conversion shall be deemed to have been effective at the close of business
on the date of conversion and the person or persons in whose name or names
and each certificate or certificates for shares of common stock shall have
been issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby on such
date; provided, however, that any such surrender on any date when the
stock transfer books of VASCO shall be closed shall constitute the person
or persons in whose name or names the certificate or certificates for such
shares are to be issued as the record holder or holders thereof for all
purposes at the close of business on the next succeeding day on which such
stock transfer books are open and the Convertible Note surrendered shall
not be deemed to have been converted until such time for all purposes, but
such conversion shall be at the conversion price in effect at the close of
business on the date of such surrender.
2
<PAGE> 3
In case this Convertible Note shall be surrendered for conversion of
only a portion of the principal and other accrued amounts thereof, VASCO
shall execute and deliver to the Holder, at the expense of VASCO, a new
Convertible Note in the denomination equal to the unconverted portion of
the Convertible Note so surrendered.
(d) Adjustments. Upon each adjustment of the conversion price, the
Holder shall thereafter be entitled to purchase, at the conversion price
resulting from such adjustment, the number of shares obtained by
multiplying the conversion price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof
by the conversion price resulting from such adjustment. The conversion
price shall be subject to adjustment from time to time as follows.
A. In case at any time VASCO shall subdivide its outstanding
shares of common stock into a greater number of shares, the
conversion price in effect immediately prior to such
subdivision shall be proportionately reduced and conversely, in case
the outstanding share of common stock shall be combined into a small
number of shares, the conversion price in effect immediately prior
to such combination shall be proportionately increased.
B. If VASCO proposes any capital reorganization or
reclassification of the capital stock of VASCO or consolidation or
merger of VASCO with another corporation or the sale of all or
substantially all of its assets to another corporation (a
"Transaction") then as a condition to the Transaction, VASCO shall,
no later than forty-five (45) days prior to the closing date of the
Transaction, provide notice to Holder of all material terms of the
Transaction; and VASCO shall, no more than forty-eight (48) hours
prior to closing of the Transaction, notify Holder of the date and
time of closing. Prior to closing of the Transaction, Holder shall
have the right to convert all amounts owed pursuant to this
Convertible Note into shares pursuant to other provisions of this
Convertible Note. If Holder, after receiving the notices
required by this Section, as of closing of the Transaction has not
elected to convert amounts owed pursuant to this Convertible Note
into shares, VASCO may, at its election, tender to Holder all
amounts of principal plus all accrued interest and other amounts
owed pursuant to this Convertible Note, and then this Convertible
Note shall be deemed assigned by Holder to VASCO. If the
Transaction does not close, VASCO shall not have the right to so
purchase this Note. If the Transaction does close and VASCO shall
not have acquired this Convertible Note pursuant to the terms
herein, VASCO, or its successor shall have no right to so acquire
this Convertible Note.
C. Upon any adjustment of the conversion price, then and in
each such case, VASCO shall give written notice thereof, to the
Holder, which
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<PAGE> 4
notice shall state the conversion price resulting from such
adjustment and the increase or decrease, if any, and the number of
shares purchasable at such price upon the exercise of this
Convertible Note setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
D. In case at any time:
(1) there should be any capital reorganization, or
reclassification of the capital stock of VASCO or
consolidation or merger of VASCO, or sale of all or
substantially all the assets to another corporation; or
(2) there should be a voluntary/involuntary dissolution,
liquidation or winding up of VASCO;
THEN in any one or more of said cases, VASCO shall give with notice
to the Holder of the date on which (a) the books of VASCO shall
close or a record shall be taken for such dividend,
distribution or subscription rights, or (b) such reorganization,
classification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place as the case may be.
E. The issue of certificates on conversions of this Convertible
Note shall be made without charge to the converting Holder for any
tax in respect of the issue thereof. Notwithstanding the above, to
the extent that any federal withholding tax is required by the tax
laws of the United States to be paid by VASCO, VASCO may withhold
such amounts from obligations paid pursuant to this Convertible Note.
F. VASCO shall at all times reserve and keep available out of
its authorized but unissued stock, for the purpose of affecting the
conversion of this Convertible Note, such number of its duly
authorized shares of its common stock as shall from time to time be
sufficient to affect the conversion of this entire Convertible Note.
G. All shares of VASCO common stock issued to Holder as a
consequence of the conversion rights set out herein shall benefit
from and shall be subject to the registration rights granted to
Holder in a separate written document entitled Purchase Agreement,
Exhibit B, dated May 28, 1996, by and between VASCO and Holder.
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<PAGE> 5
4. Automatic Conversion.
(a) If during the first twelve (12) months following the date of this
Convertible Note, the Triggering Event shall occur, then all of VASCO's
obligations for principal and interest pursuant to this Convertible
Note shall be automatically, subject to completion of necessary documents
including documents necessary for compliance with securities laws, be
deemed converted into a number of shares of Maker's common stock
calculated as if all such obligations had been converted into shares at a
conversion price of Fifteen Dollars ($15.00) per share and all notices
required by this Agreement shall be deemed to have been given.
(b) If at any time during the term of this Note, VASCO shall propose
to publicly offer shares of its common stock at a gross price of
Twenty-Two Dollars and Fifty Cents ($22.50) per share or less (a "Low
Price Offering"), Holder shall have the following redemption right (the
"Holder Redemption Right"): (i) at such time as VASCO proposes to make a
Low Price Offering, VASCO shall notify Holder of such proposal; (ii) at
any time up to and including the completion and closing of the Low Price
Offering, including the receipt of proceeds from the Low Price
Offering, Holder shall have the right to send notice to VASCO of its
election to have the Note and all amounts payable hereunder paid (the
"Redemption Notice"); and (iii) within five (5) business days after the
Redemption Notice, VASCO shall pay to Holder all amounts due and owing
pursuant to the Note.
(c) If Holder shall have had a Holder Redemption Right pursuant to
paragraph C above, and Holder shall not have elected to exercise such
right and the time for such exercise shall have elapsed, then VASCO shall
have the following right:
(1) If, during the period that any amount is payable to
Holder pursuant to the terms of this Note, VASCO shall
register pursuant to the Securities Act of 1933, as amended,
shares of its common stock for public sale at a price
of not less than Fifteen Dollars ($15.00) per share and such
public offering shall result in gross proceeds to VASCO of not
less than Five Million Dollars ($5,000,000) and if VASCO
shall, not later then completion of such public offering, in
writing notify Holder of automatic conversion pursuant to this
Section 4(b), then, all of VASCO's obligations for principal
and interest pursuant to this Convertible Note shall
automatically, subject to the completion of necessary
documents including documentation necessary for compliance
with securities laws, be deemed converted into a number of
Maker's common stock calculated as if all such obligations had
been converted into shares at the conversion price otherwise
applicable at that time. Nothing contained in this Subsection
(c) shall limit or terminate any right of Holder to convert
5
<PAGE> 6
the Note or any portion of this Note into shares of VASCO
common stock pursuant to other provisions of this Note.
5. Manner of Payments. All payments by Maker under this Convertible Note
shall be, unless Holder shall have elected to receive interest in the
form of shares of common stock pursuant to the provisions of Section 1 above,
(a) made in lawful money of the United States of America, (b) credited first to
any accrued interest under this Convertible Note and second to the principal
balance under this Convertible Note, and (c) deemed paid by Maker upon delivery
as provided herein. Payments under this Convertible Note shall be made by
check drawn to "Kyoto Securities, Ltd." Checks shall be mailed or delivered to
Holder's address set out below until further written notice of a substituted
address.
6. Expenses, Notices and Attorney's Fees. In the event that Holder shall
bring an action to enforce any rights hereunder, VASCO shall pay all of
Holder's expenses incurred in connection with such action including, but not
limited to, reasonable attorney's fees and expenses and costs of appeal.
Should VASCO fail to timely pay any amount due hereunder, Holder shall deliver
to VASCO at 1919 South Highland Avenue, Suite 118-C, Lombard, Illinois, 60148,
notice of such failure to pay. If within fifteen (15) days following receipt
of such notice, VASCO shall fail to timely perform any obligation pursuant
hereto, VASCO shall be deemed in default of it obligations pursuant to this
Convertible Note. Notice to Holder shall be sent to:
Kyoto Securities, Ltd.
Box N-9455
Nassau, BAHAMAS
7. Headings. The headings of the paragraphs of this Convertible Note
have been included only for convenience and shall not be deemed in any manner
to modify or limit any of the provisions of this Convertible Note, or be used
in any manner in the interpretation of this Convertible Note.
8. Interpretation. Whenever the context so required in this Convertible
Note, all words used in the singular shall be construed to have been
used in the plural (and vice versa), each gender shall be construed to
include any other gender, and the word "person" shall be construed to include a
natural person, a corporation, a firm, a partnership, a joint venture, a trust,
an estate or any other entity.
9. Partial Invalidity. Each provision of this Convertible Note shall be
valid and enforceable to the fullest extent permitted by law. If any
provision of this Convertible Note or the application of such provision to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Convertible Note, or the application of such provision to
persons or circumstances other than those as to which it is held invalid or
6
<PAGE> 7
unenforceable, shall not be affected by such invalidity or unenforceability,
unless such provision or such application of such provision is essential to
this Convertible Note.
DATED AND EFFECTIVE the day and year above written.
VASCO CORP., a Delaware corporation
By: /s/ T. Kendall Hunt
---------------------------------
Its: President
--------------------------------
7
<PAGE> 1
EXHIBIT 10.41
AMENDMENT TO PURCHASE AGREEMENT
AND CONVERTIBLE NOTE
This Amendment to Purchase Agreement and Convertible Note, effective as of
September 2, 1997, by and between VASCO CORP., a Delaware corporation
("Company"), and KYOTO SECURITIES, LTD., a Bahamian corporation ("Purchaser").
In consideration of good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged by both parties hereto, the parties hereto do
hereby agree as follows:
1. Company and Purchaser are parties to that certain Purchase Agreement made
as of May 28, 1996, a copy of which is attached hereto as Exhibit A (the
"Purchase Agreement") and pursuant to which Company has issued its Convertible
Note dated May 28, 1996 in the principal amount of Five Million Dollars
($5,000,000) (the "Convertible Note").
2. Company and Purchaser hereby agree that section 2.1(c) of the Purchase
Agreement is hereby replaced in its entirety with the following:
(c) If at any time during the term of the Note the Company shall receive
funds equal to or greater than $30,000,000 from a public offering of its
common stock ("Minimum Funds") then Company shall send to Purchaser
written notice of receipt of Minimum Funds and the Purchaser shall have
the following right (the "Purchaser Redemption Right"): (1) upon receipt
by Purchaser from Company of written notice that the Company has received
the Minimum Funds, the Purchaser shall have 5 calendar days to send
written notice to Company of Purchaser's intent to exercise the Purchaser
Redemption Right ("Purchaser's Notice") and (2) Company upon receipt of
the Purchaser's Notice shall have a period of 30 calendar days in which
it shall pay to Purchaser all amounts due and owing pursuant to the Note.
3. Purchaser is the holder of the Convertible Note and Company and Purchaser
hereby agree that the Convertible Note hereby is amended as follows:
3.1. Subsection 4(b) of the Convertible Note is hereby replaced in its
entirety with the following:
(b) If at any time during the term of this Note, VASCO shall receive
funds equal to or greater than $30,000,000 from a public offering of its
common stock ("Minimum Funds") then VASCO shall send to Holder written
notice of receipt of Minimum Funds and the Holder shall have the
following right (the "Holder Redemption Right"): (1) upon receipt by
Holder from VASCO of written notice that VASCO has received the Minimum
Funds, the Holder shall have 5 calendar days to send written notice to
VASCO of Holder's intent to exercise the Holder Redemption Right
("Purchaser's Notice") and (2) VASCO upon receipt of the Holder's Notice
shall have a period of 30 calendar days in which it shall pay to Holder
all amounts due and owing pursuant to this Note.
<PAGE> 2
3.2. Subsection 4(c) of the Convertible Note hereby is amended to change
(i) the reference to "paragraph C" to "Subsection 4(b)" and (ii) to
change the reference to "this Section 4(b)" to "this Subsection (c)."
3.3. Purchaser shall mark the face of the original of the Convertible
Note to reflect the foregoing changes to the Convertible Note.
4. All other terms of the Purchase Agreement and the Convertible Note remain
unchanged.
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto.
KYOTO SECURITIES, LTD.
By: /s/ Charles P. Villeneuve
-----------------------------------
Its: President
VASCO CORP.
By: /s/ T. Kendall Hunt
-----------------------------------
Its: Chairman & CEO
-2-
<PAGE> 1
EXHIBIT 10.42
VASCO CORP.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FEBRUARY 1995
The Executive Incentive Compensation Plan (the "Plan") is intended to promote
the interests of VASCO Corp., its subsidiaries (collectively the "Company"),
and the Company's shareholders by encouraging certain executive and key
employees of the Company, upon whose judgment, initiative and effort the
Company depends for the current and future success of its business, to remain
highly motivated employees of the Company.
The Plan covers the Company's eligible executives and other key employees
("participants"), as determined in the sole discretion of the Compensation
Committee of the Board of Directors (the "Committee"), with such eligibility
determined at the end of each calendar year. Participants must have been
employed by the Company at the end of such calendar year. Incentive awards
will be determined in the subsequent calendar year based on prior year results,
such results being subject to audit by the Company's independent accountants,
and will be granted following the completion of such audit.
The Plan shall be effective as of January 1, 1994. Incentive awards under the
Plan will therefore be paid to participants beginning in 1995 based on
performance during 1994.
The Plan will allow for the creation of a cash pool ("Pool") in the amount of
10% of the Company's annual pre tax earnings. Fifty percent (50%) of the Pool
is awarded to those participants based on each participant's earned salary as a
percentage of all participants salaries. The remaining fifty percent (50%) is
awarded at the sole discretion of the Committee.
At the discretion of the Committee, incentive awards, in whole or in part, may
be offered in the form of shares of the Company's Common Stock. If this option
is made available to participants, the choice of cash or stock is at the sole
discretion of each participant. To the extent that shares of stock are awarded
in lieu of cash, the number of shares is based on the market value of the
Company's shares on the date the award is determined, and are taxable income to
the participant in the year awarded. Such shares are restricted and cannot be
sold or transferred except pursuant to a registration under the Securities Act
of 1933 or an exemption from such registration.
<PAGE> 1
EXHIBIT 10.43
English translation of the letters for credit granted by Generale de Banque
to VASCO Data Security NV/SA
[LETTERHEAD OF GENERALE de BANQUE]
1. Letter dd.26.07.1996
Pursuant to your recent meetings with Mrs. L. Paquet, your Account Manager,
we have the pleasure to confirm to you our agreement to release the S.A.
Digiline International from any obligation relating to the guarantee in
principal of BEF 26.000.000, subscribed on March 8 1993.
Furthermore, we herewith confirm our willingness to maintain the credit of
an amount up to BEF 26.000.000, granted to you in our accounts, credit which
has already been covered by our letter dd.30.11.1995.
In pursuance of the conditions set forth in Article 1 of our General Rules
for Credit Granting, of which you received a copy, this credit of BEF
26.000.000, remains, until further notice, usable as follows:
BEF 11.000.000 (eleven million belgian francs)
_ either as advances on current account 260-0616851-01
_ either for documentary credits
BEF 15.000.000 (fifteen million belgian francs)
_ either for documentary credits
_ either for the issuing, on your behalf and under your
responsibility, of letter of guarantees and/or sureties
If necessary we restate that the foregoing constituted guarantee and
undertaking will be maintained in its entirety:
_ mandate to deposit the goodwill as security up to an amount of
15.000.000,- BEF in principal;
_ undertaking from your company that it will not ask for credits for
financing of sales as well as pledge securities towards other financial
institutions, without having obtained our prior written consent.
It is self explanatory that present conditions do not represent any kind of
novelty and do not modify any of the other articles, conditions and modalities
previously stipulated.
Would you please, confirm to us your approval on the present letter's content
by returning us a signed copy of present letter.
Present agreement will remain valid for one month. If we do not received your
approval on it within this period of time, we will consider present letter as
nul and void.
Awaiting your . . . . .
<PAGE> 2
2. Letter dd.27.01.1997
With reference to your latest meeting with Mrs. Laurence Paquet, Account
Manager of our Charleroi Branch, we herewith confirm our agreement for
amendment of your credit of 26.000.000,- BEF in our accounts, under nr
260.0616852.01, as follows:
In pursuance of the general conditions set forth in our General Rules for
Credit Granting, of which you received a copy, this credit of BEF
26.000.000,- remains, until further notice, usable as follows:
BEF 11.000.000,- as advances on current account
Usable either in Belgian Francs or in US dollars
And/or for documentary credits
BEF 15.000.000,- for documentary credits
And/or for the issuing, on your behalf and under your responsibility, of
letters of guarantee and/or sureties.
If necessary we restate that the foregoing constituted guarantees and/or
undertakings contained in our letter dd.26th of July 1996 are entirely
maintained.
An indemnity for administrative costs of BEF 1.000,-/file will be charged
annually. This indemnity will not be due if during the year preceding the
receipt date, a modification to the file has occurred receipt of a similar
indemnity.
The remaining paragraphs are similar to the letter dd.26.07.1996.
-2-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated September 11, 1997 with respect
to the balance sheet of VASCO Data Security International, Inc. as of July 16,
1997, included herein and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
September 11, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports dated September 11, 1997 with respect
to the consolidated balance sheets of VASCO CORP. as of December 31, 1995 and
1996, and the related statements of operations, stockholders' equity (deficit),
cash flows, and related schedule for each of the years in the three-year period
ended December 31, 1996, included herein and in the Registration Statement and
to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
September 11, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 of
our reports dated February 27, 1997 relating to the financial statements of
Lintel NV and Digipass SA/Digiline SA as of December 31, 1995 and for the two
years ended which appear therein. We also consent to the references to us under
the heading "Experts" in such Registration Statement.
/s/ PRICE WATERHOUSE AND PARTNERS
PRICE WATERHOUSE AND PARTNERS
Brussels, Belgium
September 12, 1997
<PAGE> 1
EXHIBIT 99.1
[LETTERHEAD OF VASCO DATA SECURITY INTERNATIONAL, INC.]
__________, 1997
Dear VASCO Corp. Stockholder:
VASCO Corp. has organized a new corporation, VASCO Data Security
International, Inc., to effect a reorganization through an exchange of
securities. VASCO Corp.'s Board of Directors believes that the reorganization
will facilitate efforts to raise capital in the future and, if successful in
the raising capital, intends to apply for listing of common stock of the new
company on the Nasdaq Stock Market system. Of course, there can be no
assurance that the capital-raising efforts or the listing of the common stock
will be successful.
In the Exchange Offer, VASCO Data Security International, Inc. is offering
to exchange its securities for your VASCO Corp. securities and a release of any
and all potential claims against Current VASCO and its predecessor entities
arising out of or related to "Corporate Matters" (defined in the enclosed
Prospectus).
THE BOARD OF DIRECTORS OF VASCO CORP. HAS UNANIMOUSLY APPROVED THE
EXCHANGE OFFER AND BELIEVES THAT THE EXCHANGE OFFER IS IN THE BEST INTEREST OF
VASCO CORP. The directors and their families own in the aggregate 63% and 11%
of VASCO Corp.'s Common Stock and Series B Preferred Stock, respectively. They
also own options and warrants for VASCO Corp. Common Stock. They plan to
exchange their securities and grant releases in the Exchange Offer.
THE ENCLOSED PROSPECTUS CONTAINS INFORMATION ABOUT THE EXCHANGE OFFER AND
THE COMPANIES. YOU SHOULD CAREFULLY STUDY THE DOCUMENT.
If you decide to participate in the Exchange Offer, you must execute the
enclosed Letter of Transmittal and Release and deliver it with your stock
certificates, prior to 5:00 p.m., Chicago time, on ____________, 1997 (unless
the date is extended) to Illinois Stock Transfer Company, 223 West Jackson
Boulevard, Suite 1210, Chicago, Illinois 60606.
If you have any questions regarding the Exchange Offer, please call me or
in my absence Gregory T. Apple (630) 932-8844. If your questions are about the
mechanics of exchanging your shares, please call the Exchange Agent, Illinois
Stock Transfer Company at (312) 427-2953.
Sincerely,
T. Kendall Hunt
Chairman, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF SHARES OF COMMON STOCK
OF
VASCO CORP.
TO
VASCO DATA SECURITY INTERNATIONAL, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery (or one substantially in the form
hereof) must be used to accept the Offer (as defined herein) if (i)
certificates ("Share Certificates") representing shares of common stock, par
value $.001 per share or (b) Series B Preferred Stock, par value $.01 per share
(collectively, the "Shares"), of VASCO CORP., a Delaware corporation, are not
immediately available or time will not permit all required documents to reach
Illinois Stock Transfer Company (the "Exchange Agent") on or prior to the
expiration date of the Offer. This Notice of Guaranteed Delivery may be
delivered by hand or mail or transmitted by telegram or facsimile to the
Exchange Agent. See "THE EXCHANGE OFFER - Guaranteed Delivery Procedure for
Current VASCO Shares" in the Prospectus of VASCO Data Security International,
Inc. ("New VASCO"), dated ____________, 1997 (the "Prospectus").
The Exchange Agent
ILLINOIS STOCK TRANSFER COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: [By Hand:]
Illinois Stock Transfer Company Illinois Stock Transfer Company Illinois Stock Transfer Company
223 West Jackson Boulevard 223 West Jackson Boulevard 223 West Jackson Boulevard
Suite 1210 Suite 1210 Suite 1210
Chicago, Illinois Chicago, Illinois Chicago, Illinois
</TABLE>
By Facsimile:
(For Eligible Institutions Only)
(312) 427-2879
Confirm Facsimile by Telephone:
(312) 427-2953
A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND RELEASE
AND THIS NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., CHICAGO, ILLINOIS, TIME ON _________, 1997.
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER
OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL AND RELEASE IS REQUIRED
TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX IN THE LETTER OF TRANSMITTAL AND RELEASE.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to VASCO Data Security International, Inc.,
a Delaware corporation and a wholly owned subsidiary of VASCO CORP., a Delaware
corporation, upon the terms and subject to the conditions set forth in the
Prospectus of VASCO Data Security International, Inc., dated _____________,
1997 (the "Prospectus" ), and the related Letter of Transmittal and Release
(which together constitute the "Offer"), receipt of each of which is hereby
acknowledged, the number of Shares indicated below pursuant to the guaranteed
delivery procedures set forth under "THE EXCHANGE OFFER - Guaranteed Delivery
Procedure for Current VASCO Shares" in the Prospectus:
- -------------------------------
NAME(S) OF RECORD HOLDER(S)
- -------------------------------
- -------------------------------
ADDRESS(ES)
- -------------------------------
ZIP CODE
- -------------------------------
(AREA CODE) TELEPHONE NO.
X
------------------------------
X
------------------------------
SIGNATURE(S) OF RECORDHOLDER(S)
- -------------------------------
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The UNDERSIGNED, A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR
OTHER ENTITY THAT IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM (AN "ELIGIBLE INSTITUTION"), HEREBY GUARANTEES DELIVERY TO THE
EXCHANGE AGENT, AT ONE OF ITS ADDRESSES SET FORTH ABOVE, OF Share Certificates
TENDERED HEREBY IN PROPER FORM FOR TRANSFER WITH ANY REQUIRED SIGNATURE
GUARANTEE, AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL AND
RELEASE, WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE (AS DEFINED
IN THE PROSPECTUS).
THE ELIGIBLE INSTITUTION THAT COMPLETES THIS FORM MUST COMMUNICATE THE
GUARANTEE TO THE EXCHANGE AGENT AND MUST DELIVER THE LETTER OF TRANSMITTAL AND
RELEASE AND SHARE CERTIFICATES TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD
INDICATED HEREIN. FAILURE TO DO SO MAY RESULT IN FINANCIAL LOSS TO SUCH
ELIGIBLE INSTITUTION.
X
- ----------------------------------- --------------------------------
Name of Firm Authorized Signature
- ----------------------------------- --------------------------------
Address Name (Please Print)
- ----------------------------------- --------------------------------
Zip Code Title
Dated: 1997
- ----------------------------------- --------------------,
(Area Code) Telephone No.
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL AND RELEASE
<PAGE> 1
EXHIBIT 99.3
VASCO DATA SECURITY INTERNATIONAL, INC.
OFFER TO EXCHANGE SHARES, OPTIONS AND WARRANTS
FOR
VASCO CORP.
SHARES, OPTIONS AND WARRANTS
(AND ASSOCIATED CORPORATE MATTER CLAIMS)
To Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees:
We are enclosing herewith the material listed below pursuant to the Offer
to Exchange Shares, Options and Warrants (the "Exchange Offer") by VASCO Data
Security International, Inc., a Delaware corporation ("New VASCO") and a wholly
owned subsidiary of VASCO CORP., a Delaware Corporation ("Current VASCO"). The
Exchange Offer includes an offer by New VASCO to exchange, on a one-for-one
basis, shares of its Common Stock ("New VASCO Common Stock") for shares of
Common Stock of Current VASCO ("Current VASCO Common Stock") and the release,
by each exchanging holder, of all "Associated Corporate Matter Claims"
(as defined in the Exchange Offer), upon the terms and subject to the conditions
set forth in the Exchange Offer and in the related Letter of Transmittal and
Release (which together constitute the "Offer"). The Offer will remain open
until 5:00 P.M., Chicago, Illinois time, on ______________, 1997, unless the
Offer is extended.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer at least 80% of
all shares of Current VASCO Common Stock outstanding and (ii) there being
validly tendered and not withdrawn prior to the expiration of the Offer at
least 80% of all shares of Current VASCO Series B Preferred Stock outstanding.
We have been engaged by New VASCO as Exchange Agent with respect to the
Offer. We are asking you to contact your clients for whom you hold Current
VASCO Common Stock registered in your name (or in the name of your nominee)or
who hold Current VASCO Common Stock registered in their own names. Please
bring the Offer to their attention as promptly as possible. No fees or
commissions will be payable to brokers, dealers or other persons for soliciting
tenders of Current VASCO Common Stock pursuant to the Offer. New VASCO will,
however, upon request reimburse you for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed material to your clients.
New VASCO will pay all transfer taxes on the exchange of Current VASCO Common
Stock pursuant to the Offer, except as set forth in Instruction 5 of the Letter
of Transmittal and Release.
For your information and for forwarding to your clients, we are enclosing
the following documents:
(1) New VASCO's Prospectus dated ___________, 1997 (the "Prospectus");
<PAGE> 2
(2) Letter of Transmittal and Release to be used by holders of Current
VASCO Common Stock to exchange Current VASCO Common Stock and release all
Associated Corporate Matter Claims;
(3) Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Current VASCO Common Stock are not immediately available or
if time will not permit all required documents to reach the Exchange Agent
prior to the expiration of the Offer;
(4) Letter to shareholders of Current VASCO from the Chairman, President
and Chief Executive Officer of Current VASCO;
(5) Guidelines of the Internal Revenue Service for certification of
Taxpayer Identification Number; and
(6) Return envelope addressed to: Illinois Stock Transfer Company, 223
West Jackson Boulevard, Suite 1210, Chicago, Illinois 60606.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER
WILL EXPIRE AT 5:00 P.M., CHICAGO, ILLINOIS TIME, ON _________, 1997, UNLESS
THE OFFER IS EXTENDED.
If holders of Current VASCO Common Stock with to tender their Common
Stock, but it is impractical for them to forward their certificates or if time
will not permit all required documents to reach the Exchange Agent prior to the
expiration date of the Offer, such Current VASCO Common Stock may be tendered
pursuant to the guaranteed delivery procedure set for under the caption "THE
EXCHANGE OFFER - Guaranteed Delivery Procedure for Current VASCO Shares" in the
Prospectus.
Your solicitation of tenders of Current VASCO Common Stock will constitute
your representation to New VASCO that (i) in connection with such solicitation,
you have complied with the applicable requirements of the Securities Exchange
Act of 1934, as amended, and the applicable rules and regulations thereunder;
(ii) if a foreign broker or dealer, you have conformed to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. in making
solicitations; and (iii) in soliciting tenders of Current VASCO Common Stock,
you have not used any soliciting materials other than those furnished by New
VASCO.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of holders of Current VASCO Common Stock residing in any jurisdiction
in which the making of the Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
-2-
<PAGE> 3
Additional copies of the enclosed material may be obtained from the
undersigned at (312) 427-2953. Any questions you may have with respect to the
Offer should also be directed to the undersigned.
Very truly yours,
-3-
<PAGE> 1
EXHIBIT 99.4
VASCO DATA SECURITY INTERNATIONAL, INC.
OFFER TO EXCHANGE SHARES, OPTIONS AND WARRANTS
FOR
VASCO CORP.
SHARES, OPTIONS AND WARRANTS
(AND ASSOCIATED CORPORATE MATTER CLAIMS)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., CHICAGO,
ILLINOIS TIME, ON _______, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration are an Offer to Exchange Shares, Options
and Warrants (the "Exchange Offer) and a related Letter of Transmittal
and Release, pursuant to an offer by VASCO Data Security International, Inc., a
Delaware corporation ("New VASCO) and a wholly owned subsidiary of VASCO
Corp., a Delaware corporation ("Current VASCO). The Exchange Offer includes
an offer by New VASCO to exchange, on a one-for-one basis, shares of its Common
Stock ("New VASCO Common Stock) for shares of Common Stock of Current VASCO
("Current VASCO Common Stock) and the release, by each exchanging holder, of
all "Associated Corporate Matter Claims (as defined in the Exchange Offer),
upon the terms and subject to the conditions set forth in the Exchange Offer
and in the related Letter of Transmittal and Release. We are the holder of
record of shares of Current VASCO Common Stock held for your account. A tender
of such shares can be made only by us as the holder of record and pursuant to
your instructions. IF YOU DECIDE TO EXCHANGE YOUR SHARES, THE ENCLOSED LETTER
OF TRANSMITTAL AND RELEASE MUST BE COMPLETED, SIGNED AND RETURNED TO US IN
SUFFICIENT TIME TO PERMIT US TO DEPOSIT THE LETTER OF TRANSMITTAL AND RELEASE
AND CERTIFICATES FOR YOUR SHARES WITH THE EXCHANGE AGENT PRIOR TO THE OFFER
EXPIRATION DATE STATED IN THE BOX ABOVE.
We request instructions as to whether you wish to have us tender on your
behalf any or all of such shares held by us for your account, upon the terms
and subject to the conditions set forth in the Exchange Offer and in the
related Letter of Transmittal and Release.
YOUR ATTENTION IS INVITED TO THE FOLLOWING:
(1) The Exchange Offer is on the basis of one share of New VASCO Common
Stock for one share of Current VASCO Common Stock and a release, by each
exchanging holder, of all Associated Corporate Matter Claims.
(2) The release contained in the Letter of Transmittal and Release will
effect a release of all Associated Corporate Matter Claims you may have even if
less than all of your Current VASCO Securities (as defined in the Exchange
Offer) are exchanged.
(3) The Exchange Offer is being made for all outstanding shares of Current
VASCO Common Stock.
(4) The Exchange Offer and withdrawal rights will expire at 5:00 p.m.,
Chicago, Illinois time, on _________, 1997, unless the Exchange Offer is
extended.
<PAGE> 2
(5) The Exchange Offer is conditioned upon, among other things, (i) there
being validly tendered and not withdrawn prior to the expiration of the
Exchange Offer at least 80% of the outstanding shares of Current VASCO Common
Stock, and (ii) 80% of the outstanding shares of Current VASCO Series B
Preferred Stock.
(6) The Board of Directors of Current VASCO has unanimously approved the
Exchange Offer and believes that the Exchange Offer in the best interests of
Current VASCO shareholders.
(7) Tendering stockholders will not be obligated to pay brokerage
commissions or, except as set forth in Instruction 5 of the Letter of
Transmittal and Release, transfer taxes on the exchange of shares pursuant to
the Exchange Offer.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of shares residing in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
IF YOU WISH TO HAVE US TENDER ANY OR ALL OF YOUR SHARES OF CURRENT VASCO
COMMON STOCK, PLEASE SO INSTRUCT US BY COMPLETING, EXECUTING, DETACHING AND
RETURNING TO US THE INSTRUCTION FORM SET FORTH BELOW AND THE LETTER OF
TRANSMITTAL AND RELEASE. AN ENVELOPE TO RETURN YOUR INSTRUCTIONS AND THE
LETTER OF TRANSMITTAL AND RELEASE IS ENCLOSED. IF YOU AUTHORIZE A TENDER OF
YOUR SHARES OF CURRENT VASCO COMMON STOCK, ALL SUCH SHARES WILL BE TENDERED
UNLESS OTHERWISE SPECIFIED BELOW. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US
IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE
EXPIRATION OF THE EXCHANGE OFFER.
TEAR HEAR TEAR HEAR
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INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Exchange Shares, Options and Warrants, dated _______, 1997 (the "Exchange
Offer ), and a Letter of Transmittal and Release, relating to the offer by
VASCO Data Security International, Inc., a Delaware corporation ("New VASCO )
and a wholly owned subsidiary of VASCO CORP., a Delaware corporation ("Current
VASCO ) to exchange shares of New VASCO Common Stock on a one-for-one basis for
all outstanding shares of Current VASCO Common Stock and a release, by each
exchanging holder, of all Associated Corporate Matter Claims.
This will instruct you to tender to the number of shares of Current VASCO
Common Stock indicated below (or, if no number is indicated below, all shares
of Current VASCO Common Stock) which are held by you for the account of the
undersigned upon the terms and subject to the conditions set forth in the
Exchange Offer and in the related Letter of Transmittal and Release furnished
to the undersigned.
Dated _______________, 1997
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