AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
REGISTRATION NO. 333-59219
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON FORM S-1
UNDER
THE SECURITIES ACT OF 1933
------------------------
WHO? VISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3577 65-0768968
(State or other jurisdiction
of
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code No.) Identification No.)
</TABLE>
100 NORTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 837-5353
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
ALEXANDER G. DICKINSON, PH.D.
CHIEF EXECUTIVE OFFICER
WHO? VISION SYSTEMS, INC.
100 NORTH POINTE DRIVE
LAKE FOREST, CA 92630
(949) 837-5353
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies of all communications to:
<TABLE>
<S> <C> <C>
JAMES A. OUNSWORTH, ESQ. N. JEFFREY KLAUDER, ESQ. WALTER J. MOSTEK, JR., ESQ.
SAFEGUARD SCIENTIFICS, INC. MORGAN, LEWIS & BOCKIUS LLP DRINKER BIDDLE & REATH LLP
800 THE SAFEGUARD BUILDING 2000 ONE LOGAN SQUARE 1000 WESTLAKES DRIVE
435 DEVON PARK DRIVE PHILADELPHIA, PENNSYLVANIA SUITE 300
WAYNE, PENNSYLVANIA 19087 19103-6993 BERWYN, PENNSYLVANIA 19312-2409
(610) 293-0600 (215) 963-5694 (610) 993-2200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ X ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1998
P R O S P E C T U S
6,825,000 SHARES
WHO? VISION SYSTEMS, INC.
COMMON STOCK
(AND RIGHTS TO ACQUIRE UP TO 6,500,000 OF SUCH SHARES)
------------------------
Who? Vision Systems, Inc. is granting at no cost to the holders of common
shares of Safeguard Scientifics, Inc. transferable rights to purchase shares of
our Common Stock. Safeguard stockholders will receive one right for every five
Safeguard common shares that they own as of , 1998. Each right
will entitle the holder to purchase one share of our Common Stock at an exercise
price of $5.00 per share. We will offer up to 6,500,000 shares of our Common
Stock in the rights offering. If any shares remain unsubscribed for after the
rights offering, the underwriters will purchase all such shares pursuant to a
standby underwriting agreement.
Certain of our existing stockholders will be selling an additional 325,000
shares of our Common Stock to certain persons selected by us. These persons may
have a relationship with us, Safeguard or one of Safeguard's other partnership
companies.
The exercise period for the rights will expire at 5:00 p.m., New York City
time, on , 1998. You may only exercise your rights if you
purchase at least 20 shares of our Common Stock through such exercise.
(Continued on next page)
------------------------
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION REGARDING THE RISKS
ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK AND RIGHTS THAT ARE DISCUSSED
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C> <C>
| ASSUMED | UNDERWRITING | UNDERWRITING | |
| EXERCISE | DISCOUNT | DISCOUNT PAID BY | PROCEEDS | PROCEEDS TO
| AND | PAID BY THE | SELLING | TO THE | THE SELLING
| OFFER PRICE | COMPANY | STOCKHOLDERS | COMPANY | STOCKHOLDERS
| | Min. $0.15 | Min. $0.15 | Max. $4.85 | Max. $4.85
Per Share............ | $5.00 | Max. $0.35 | Max. $0.35 | Min. $4.65 | Min. $4.65
| | Min. $ 975,000 | Min. $48,750 | Max. $31,525,000 | Max. $1,576,250
Total................ | $34,125,000 | Max. $2,275,000 | Max. $48,750 | Min. $30,225,000 | Min. $1,576,250
| | | | Max. $31,525,000 |
Total with Over- | | Min. $ 975,000 | Min. $276,250 | Min. | Max. $4,598,750
Allotment.......... | $37,375,000 | Max. $2,275,000 | Max. $276,250 | $30,225,000 | Min. $4,598,750
</TABLE>
The minimum underwriting discount assumes that all rights granted in the
rights offering are exercised and reflects the payment of a financial advisory
fee to the underwriters equal to 3% of the exercise price on the 6,825,000
shares sold in this offering. In such a case, the minimum underwriting discount
would yield the maximum proceeds to us. The maximum underwriting discount
assumes that none of the rights granted in the rights offering are exercised and
reflects the payment of an underwriting discount of 4% of the exercise price on
the 6,500,000 shares which would then be purchased by the underwriters plus an
additional 3% financial advisory fee on all of the 6,825,000 shares offered
hereby. In such a case, the maximum underwriting discount would yield the
minimum proceeds to us.
The last row of the table assumes that the underwriters have exercised
their option granted by the selling stockholders to purchase an additional
650,000 shares of our Common Stock. The exercise of the over-allotment option
would yield additional proceeds to the selling stockholders and would require
the payment by the selling stockholders of both a 4% underwriting discount and a
3% financial advisory fee on such shares.
ROBERT W. BAIRD & CO. JANNEY MONTGOMERY SCOTT INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
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 OR AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
THE VISION IN
PERSONAL IDENTIFICATION
[ARTWORK]
PLACE...
your finger on the Tactile SenseTM-enabled
identification device peripheral. The trade-
marked design comfortably guides your finger
to ensure consistent placement and enables a
reliable match.
PAUSE...
a few moments as the patent-pending Tactile SenseTM
sensor converts your finger's electric field into a digital
[ARTWORK] representation of your print and the patented software
matches this image. Listen as the software welcomes
you into the system, or instructs you to visit the IS
manager for authorization.
ENTER...
your corporate network or the world of electronic com-
merce through your home PC with the assurance that no
[ARTWORK] one has gained unauthorized access to your proprietary
data, or made financial transactions from your personal
accounts. Secure files in your own private space. And one
more thing: Go ahead and forget your passwords!
[LOGO]
<PAGE>
(Continued from cover page)
Once you exercise a right and we accept the exercise, you may not withdraw
the exercise. The shares of our Common Stock that are sold in the rights
offering will come from the shares being issued by us. If shares remain
unsubscribed for after the end of the rights exercise period, the first 300,000
of such shares will be offered by us to certain other persons. These persons may
have a relationship with us, Safeguard or one of Safeguard's other partnership
companies. All shares not purchased by such persons after this offer and all
unsubscribed shares in excess of 300,000 will be purchased by the underwriters
pursuant to a standby underwriting agreement.
There is no minimum number of shares that must be subscribed for in the
rights offering for it to be completed. The number of rights that will be
granted to the holders of Safeguard common shares is based upon the number of
Safeguard common shares that are outstanding on , 1998. If there
are fewer than 32,500,000 Safeguard common shares outstanding on
, 1998, we will grant fewer than 6,500,000 rights in the rights
offering. If fewer than 6,500,000 rights are granted, we will offer the shares
subject to the rights which were not granted to Safeguard stockholders to
certain persons selected by us at a purchase price of $5.00 per share. In any
event, all of the 6,500,000 shares of our Common Stock offered in the rights
offering will be sold. However, this offering may be canceled by the
underwriters if certain conditions are not satisfied. In that event, if you have
made any payments to the rights agent, ChaseMellon Shareholder Services, L.L.C.,
the full amount of your payments will be promptly returned to you.
We will not receive any proceeds from the sale of shares by the selling
stockholders. After the completion of this offering, the selling stockholders
together will own approximately 28.8% of our Common Stock.
We have filed a Registration Statement with the SEC covering the rights and
the shares of Common Stock. Before this offering, our Common Stock has not been
listed on any stock exchange or The Nasdaq Stock Market. We have filed an
application to have the rights and our Common Stock approved for quotation on
the Nasdaq National Market under the symbols "WHOVR" and "WHOV," respectively,
and our Common Stock approved for quotation on the Nasdaq National Market on a
when-issued basis during the rights exercise period under the symbol "WHOVV."
The underwriters may engage in transactions involving the rights and the
Common Stock during and after the rights exercise period. As a result, the
underwriters may realize profit in addition to the underwriting compensation
received for their participation in this offering. If there are shares of Common
Stock that are not purchased pursuant to the exercise of rights before the
rights expiration date, the underwriters will be obligated to purchase all of
the remaining shares from us. We expect that we will deliver any remaining
shares on or about , 1998 at the offices of Robert W. Baird & Co.
Incorporated in Milwaukee, Wisconsin.
After this offering, we intend to send to all of our stockholders annual
reports containing financial statements that have been examined and reported
upon with an opinion expressed by the Company's independent auditors.
We have filed an application to register TactileSense(Trademark) as a
trademark with the U.S. Patent and Trademark Office. All other product names
referred to herein are the property of their respective owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY, INCLUDING INITIATING BIDS OR EFFECTING PURCHASES ON THE
NASDAQ NATIONAL MARKET FOR THE PURPOSE OF PREVENTING OR RETARDING A DECLINE IN
THE MARKET PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) assumes no exercise of the underwriters'
over-allotment option, (ii) assumes an exercise price of $5.00 per share and
(iii) assumes conversion of all outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (the "Preferred Stock")
into shares of Common Stock. Unless the context otherwise indicates, Who? Vision
Systems, Inc. is referred to herein as "Who? Vision" or the "Company."
THE COMPANY
Who? Vision develops fingerprint identification technologies that enable
individuals to electronically authenticate their identities to access digital
networks and consumer products. The burgeoning use of the Internet, e-commerce
and computer networks is placing increasing importance upon network security. In
particular, the ability to authenticate identity is critical to safeguard
against unauthorized transactions and data access. The Company has designed and
developed TactileSense(Trademark), a proprietary fingerprint identification
technology, which enables it to create highly reliable, compact and
cost-effective authentication products. The Company believes that TactileSense
will enable the widespread integration of fingerprint identification devices
into numerous commercial mass market products.
The Company is focusing its initial commercialization efforts for its
TactileSense products on the computer network security market. According to an
April 1998 report by Dataquest, a technology market research firm, the worldwide
installed base of personal computers and office workstations ("PCs") totaled
more than 270 million in 1997, with new computer purchases exceeding 80 million
in 1997 and projected to increase at a compound annual growth rate of
approximately 15% from 1997 to 2002. Today, the most common means for
identifying individuals in computer network applications are personal
identification numbers ("PINs") and passwords. However, these methods are
inherently insecure, as they are easy to guess or difficult to remember and
consequently are often written down, subjecting them to theft. In addition to
providing only limited security, PINs and passwords are also costly to
administer. A February 1998 study by Forrester Research, Inc. indicated that
more than 40% of all help desk calls involve resetting passwords for employees
and estimated that elimination of these calls can save several hundred dollars
per user annually. The Company believes that its TactileSense based fingerprint
identification system is both simpler and less costly to support than PIN and
password-based systems. TactileSense products will be sold (i) as separate
attachments to existing PCs, (ii) as value-added product features embedded into
newly manufactured PC keyboards, mice and other peripherals or (iii) directly to
PC manufacturers for inclusion as a base or optional product feature. The
Company believes that initial demand within the computer network security market
will come from the healthcare and financial services industries in
identity-sensitive applications such as securing access to patient medical
records and on-line banking transactions.
Who? Vision has formed, and intends to form, strategic alliances with
companies possessing leading technology, manufacturing and distribution
capabilities in order to maintain its focus on advancing its fingerprint
identification technology and expedite its entry into selected markets. The
Company has entered into a strategic alliance with Koninklijke Philips
Electronics N.V., a leading worldwide manufacturer of a broad range of consumer
electronic products, and certain of its affiliates (collectively, "Philips")
under which the Company has received access to a broad range of patents and
intellectual property related to certain fingerprint sensor and flat panel
technologies developed by Philips. Who? Vision and Philips have also entered
into an exclusive relationship to combine their respective technologies and
jointly develop and manufacture fingerprint identification sensors for sale by
Who? Vision to product markets worldwide. One of the benefits of this alliance
is the expected development and manufacture of an extremely thin (less than 1/8
inch) and cost-effective fingerprint sensor that can be incorporated into a
variety of computer and consumer product devices, such as laptops and cellular
phones. In connection with this alliance, Philips received 3.7 million shares of
Who? Vision Series C Preferred Stock.
3
<PAGE>
In addition, Who? Vision has entered into strategic alliances with SPOT
Technology, Inc. and SPOT, Inc. (collectively, "SPOT"), subsidiaries of Mag
Technology Co., Ltd. ("MAG"), and Silitek Corporation ("Silitek") for the
high-volume manufacture and distribution of certain of its TactileSense
fingerprint sensors. Based in Taiwan, MAG is a leading computer monitor
manufacturer, supplying products to major retail outlets and PC manufacturers
worldwide including Wal-Mart Stores, Inc., CompUSA, Inc. and Gateway 2000, Inc.
Silitek is a Taiwanese manufacturer and distributor of computer peripherals and
one of the top three keyboard manufacturers in the world, whose customers
include Dell Computers, Inc., Hewlett-Packard Company and Compaq Computer
Corporation.
Who? Vision believes that its fingerprint identification technology
possesses attributes that collectively give it a competitive advantage over
alternative technologies and will allow it to be incorporated into numerous
commercial applications. These attributes include:
o LOW COST. The TactileSense technology's low material cost and relatively
simple manufacturing process enable it to be produced and sold at a price
point that will promote widespread commercial adoption.
o SMALL SIZE. The TactileSense device's small size will enable it to be
incorporated into numerous commercial applications, including computer
peripherals such as keyboards and mice, and directly into laptop computers
and cellular phones.
o HIGH RELIABILITY MATCHING. The TactileSense technology effectively overcomes
fingerprint image problems caused by dry skin and extraneous ambient light
sources.
o ANTI-FRAUD CAPABILITY. The TactileSense technology is capable of
consistently distinguishing real fingers from artificial replicas that can
fool existing optical fingerprint sensors.
o DURABILITY. The TactileSense technology utilizes a protective polymer
material to ensure its durability. Additionally, TactileSense's sensor
components do not come into contact with the finger surface, thereby avoiding
exposure to electrostatic discharge which can cause damage to direct-contact
silicon-based sensors.
o LOW POWER CONSUMPTION. The ability to operate without an external light
source and to enter into a low power "idle" mode allows TactileSense products
to be energy efficient and therefore makes it advantageous for power
sensitive applications such as laptop computers and cellular phones.
While the Company intends to focus its initial commercialization efforts on
the computer network security market, the attributes of the TactileSense
technology also enable its incorporation into a wide variety of other products.
Examples of these applications include integrating fingerprint sensors with
cellular phones, television remote controls and point-of-sale credit card or
smart card readers. The Company believes these markets will be significant and
intends to devote time and resources to developing these application markets,
with its focus on those that it considers to possess high-value and involve
early technology adopters.
The Company was incorporated in the State of Delaware on June 30, 1997.
From May 1, 1997 through June 29, 1997, the Company operated as a division of XL
Vision, Inc. ("XL Vision"). The Company's principal executive offices are
located at 100 North Pointe Drive, Lake Forest, California 92630 and its
telephone number is (949) 837-5353.
4
<PAGE>
THE OFFERING
Description of the Rights Offering..If you hold Safeguard common shares on
, 1998, you will receive one right
to purchase our Common Stock for every five
Safeguard common shares you own. Fractional
rights will be rounded up to the next whole
number in determining the number of rights
to be issued to Safeguard stockholders. Each
right entitles you to purchase one share of
our Common Stock at a purchase price of
$5.00. You must own at least 20 rights to be
eligible to exercise your rights. In other
words, if you own fewer than 96 Safeguard
common shares, you will receive fewer than
20 rights and you will not be eligible to
exercise your rights unless you purchase
additional rights in the market. We are
offering up to 6,500,000 shares of our
Common Stock for purchase through the
exercise of rights.
The Exercise Price of the Rights....If you wish to exercise your rights to
purchase our Common Stock, the purchase
price will be $5.00 per share of Common
Stock.
When You Can Exercise Your
Rights............................The rights will only be exercisable from the
period beginning on , 1998 and
ending on , 1998 at 5:00 p.m., New
York City time.
How Your Rights Will be
Evidenced.........................You will receive certificates that represent
your transferable rights.
Offer of Unsubscribed Shares to
Other Purchasers..................We will offer the first 300,000 unsubscribed
shares in the event that not all of the
rights are exercised and any shares of
Common Stock subject to rights that were not
distributed to certain persons selected by
us. These persons may have a relationship
with us, Safeguard or one of Safeguard's
other partnership companies.
Obligations of the Underwriters.....The underwriters will purchase any shares
offered in the rights offering that have not
been purchased through the exercise of
rights and have not otherwise been sold by
us by , 1998 at the exercise price,
less a 4% underwriters' discount and a 3%
financial advisory fee. The underwriters
will then offer these shares to the public.
Number of Shares of Common Stock
Offered in the Rights Offering....We will be selling the 6,500,000 shares
offered in the rights offering.
5
<PAGE>
Offer of Direct Shares to Direct
Purchasers........................The selling stockholders are offering up to
325,000 shares of our Common Stock to
certain persons selected by us. These
persons may have a relationship with us,
Safeguard or one of Safeguard's other
partnership companies.
Common Stock to be Outstanding
After the Offering................After this offering, 25,081,704 shares of
Common Stock will be outstanding and 972,425
shares will be issuable upon the exercise of
stock options outstanding as of October 15,
1998 (at a weighted average exercise price
of $2.08 per share).
How We Intend to Use the Proceeds...We will use approximately $6.5 million of
the money received from the sale of our
shares to repay in full our outstanding debt
to XL Vision, approximately $6.0 million for
continued product development prior to
commercialization, approximately $2.3
million to complete the development of
certain components and the transfer of
technology related to the Philips alliance
and the remainder for working capital,
including ongoing product development and
sales and marketing, general corporate
purposes and capital expenditures. We will
not receive any proceeds from the sale of
shares by the selling stockholders.
Nasdaq National Market Symbols......During the period in which you can exercise
your rights, the rights will trade on the
Nasdaq National Market under the symbol
"WHOVR" and the Common Stock will trade
under the symbol "WHOVV" on a when-issued
basis. After the expiration of the rights
period, the Common Stock will trade under
the symbol "WHOV."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997
(INCEPTION) (INCORPORATION) NINE MONTHS
THROUGH THROUGH ENDED
JUNE 29, 1997 DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------- ----------------- ------------------
(DIVISIONAL (UNAUDITED)
OPERATIONS(1))
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................... $ -- $ -- $ --
Cost of revenue........................... -- -- --
Operating expenses:
Selling, general and administrative.... 123,940 1,440,406 2,803,137
Research and development............... 58,804 1,540,950 3,209,658
In-process research and
development(2)...................... -- -- 29,000,000
Total operating expenses............ 182,744 2,981,356 35,012,795
Interest expense.......................... 1,216 74,499 366,041
--------- ----------- ------------
Net profit (loss)......................... $(183,960) $(3,055,855) $(35,378,836)
========= =========== ============
Net profit (loss) subsequent to
incorporation(1)....................... $(3,055,855) $(35,378,836)
=========== ============
Net profit (loss) per common share
subsequent to incorporation:(1)(3)
Basic............................... $ (2.46) $ (6.97)
=========== ============
Diluted............................. $ (2.46) $ (6.97)
=========== ============
Weighted average number of common shares
outstanding............................ 1,241,467 5,076,980
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------------
ACTUAL AS ADJUSTED(4)
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash....................................................... $ 9,405 $ 22,558,022
Capitalized offering costs................................. 216,356 --
Total assets............................................... 1,099,045 23,431,306
Total indebtedness(5)...................................... 6,526,383 --
Equity purchase option(6).................................. 3,000,000 --
Total stockholders' equity (deficit)....................... (9,783,321) 22,291,679
</TABLE>
- ------------------
(1) Prior to June 30, 1997, the Company operated as a division of XL Vision. See
Note 1 of the Notes to Financial Statements.
(2) Includes a one-time $10.0 million fee payable for the transfer of technology
from XL Vision and $19.0 million in costs associated with the technology
purchased from Philips during the nine months ended September 30, 1998. See
Notes 10 and 11 of the Notes to Financial Statements.
(3) See Note 2 of the Notes to Financial Statements for information concerning
the calculation of net profit (loss) per common share.
(4) Adjusted to give effect to the sale by the Company of 6.5 million shares of
Common Stock, the receipt of approximately $29.1 million in net proceeds
from this offering, after deducting the maximum total underwriting discount
with respect to such shares of approximately $2.3 million and estimated
offering expenses of approximately $1.2 million (including $200,000
representing the maximum applicable non-accountable expense allowance to the
underwriters), and the application of the proceeds as set forth in "Use of
Proceeds."
(5) Represents outstanding indebtedness owed to XL Vision as of September 30,
1998.
(6) Represents a provision to repurchase 600,000 shares of Series C Preferred
Stock. This repurchase provision expires upon the earlier of the completion
of this offering or March 31, 1999. See Note 11 of the Notes to Financial
Statements.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock and the rights offered hereby
involves a high degree of risk. Prospective investors should carefully consider
the following risk factors, as well as the other information in this Prospectus,
before investing in the shares of Common Stock and rights offered hereby. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the following risk factors.
DEVELOPMENT STAGE COMPANY WITH LIMITED OPERATING HISTORY; UNCERTAINTY OF
OPERATING RESULTS
The Company is a development stage enterprise, has no commercialized
products or revenues and has a limited operating history. Since the inception of
the Company's operations in May 1997 as a division of XL Vision through
September 30, 1998, the Company has incurred losses totaling approximately $38.6
million, including a one-time $10.0 million fee related to the purchase of the
TactileSense technology from XL Vision and $19.0 million for technology
purchased from Philips. To date, the Company has not made any commercial sales
of its products and has never successfully marketed a product. The Company does
not anticipate that it will realize any material commercial revenues before the
first half of 1999 and, therefore, will continue to incur losses for the
foreseeable future. The Company's prospects must be considered in light of the
risks and uncertainties encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets. The
Company's success will depend on many factors, including, but not limited to,
the timing and rate of adoption of fingerprint identification technologies in
markets targeted by the Company, the demand for the Company's products, the
degree of competition faced by the Company and the Company's ability to enter
into and maintain additional strategic relationships. To address these risks,
the Company must, among other things, successfully introduce products and
enhancements to products, respond to competitive developments and attract and
retain qualified personnel. There can be no assurance that the Company will
succeed in addressing any or all of these risks, or that the Company will
achieve profitable operations at any time in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
If the Company is successful in achieving revenues, the Company's operating
results may vary substantially and may continue to fluctuate due to a number of
factors, including the timing, size and nature of the orders for the product;
the market acceptance of new products and product enhancements by the Company or
its competitors; product and price competition; the relative proportions of
revenues derived from different channels of distribution; changes in the
Company's operating expenses; foreign currency exchange rates; and general
fluctuations in economic conditions. Once revenues begin, the timing, size and
nature of individual orders are important factors in the Company's quarterly
results of operations. Because orders for the Company's products may involve
review, validation and adoption of new technologies, the sales cycles for
certain transactions may be lengthy and unpredictable. Due to these and other
factors related to the transition of a development stage company to commercial
operations, the Company believes that period-to-period comparisons of its
results of operations will not necessarily be meaningful and that results in any
particular quarter will not necessarily be indicative of future performance.
Future revenues, if any, and results of operations may vary substantially from
quarter to quarter. In future quarters, the Company's results may be below
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected.
DEPENDENCE UPON NEW AND UNCERTAIN MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE
All of the Company's revenues for the foreseeable future are anticipated to
be derived from fingerprint identification products. These products represent
new technologies, which have not gained widespread commercial acceptance. To
date, fingerprint identification products have only been used in limited
applications. The expansion of the markets for the Company's products depends on
a number
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of factors, including the cost and reliability of the Company's and its
competitors' products, the degree to which a percentage of the population will
not be able to use these products, the public perception of the benefits of
these products relative to their intrusiveness and customer satisfaction. Public
objections have been raised to the use of biometric identification products for
some applications on civil liberties grounds. The Company's future success is
dependent upon the development and expansion of markets for biometric
fingerprint identification products both domestically and internationally. There
can be no assurance that markets will develop for the Company's products. Even
if markets develop for biometric fingerprint identification products, there can
be no assurance that the Company's products will gain wide market acceptance. A
number of factors may affect the market acceptance of the Company's products,
including the performance and price of the Company's products compared to
competitive products or technologies, the adoption of an industry standard for
fingerprint identification applications related to computer network security,
the ability of the Company to develop technological innovations and the success
of marketing efforts by the Company's partners. If the markets for the Company's
products fail to develop or develop more slowly than anticipated or if the
Company's products fail to gain wide market acceptance, the Company's business,
financial condition and results of operations will be materially adversely
affected. See "Business -- Markets."
DEPENDENCE ON PRODUCT INTRODUCTIONS AND TECHNOLOGICAL INNOVATIONS
The Company's future success will depend upon its ability to develop,
introduce and achieve market acceptance of its products on a timely basis that
keeps pace with technological developments, emerging industry standards and
evolving customer requirements. The development of new, technologically-advanced
products and product enhancements is a complex, costly and uncertain process
requiring high levels of innovation, as well as the accurate anticipation of
technological and market trends. Any failure by the Company to anticipate or
adequately respond to technological developments or end-user requirements, or
any significant delays in product development or introduction, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The development cycle for the Company's new products may
be significantly longer than the Company's historical product development cycle
or than that anticipated by the Company, resulting in higher development costs
or a loss in market share. If the Company is unable, for technological or other
reasons, to develop, introduce and sell its products in a timely manner, the
Company's business, financial condition and results of operations will be
materially adversely affected. For instance, the failure to develop Philips'
technology in accordance with certain milestones and specifications set forth in
the agreements with Philips could result in the termination of the exclusive
license to use such technology, resulting in the Company holding only a
non-exclusive license to use Philips' technology. In addition, because a number
of the Company's fingerprint identification products will be incorporated into
systems marketed by other companies, or will be co-marketed together with other
products sold by other companies, the failure to introduce products in a timely
manner may cause such companies to seek alternative suppliers or marketing
partners. From time to time, the Company or its present or future competitors
may announce new products, capabilities or technologies that have the potential
to replace the Company's products. There can be no assurance that announcements
of currently planned or other new products will not cause customers to delay or
alter their purchasing decisions in anticipation of such products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, new product introductions may contribute
to fluctuations in quarterly operating results or result in the early
obsolescence of the Company's products. If the Company's products have
reliability or quality problems, the Company may experience reduced orders,
higher manufacturing costs, delays in collecting accounts receivable and
additional service and warranty expense. There can be no assurance that the
Company will be successful in developing and marketing products or product
enhancements on a timely basis, if at all, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of these products, or that any of its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance.
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NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS
The Company does not intend to establish its own manufacturing capabilities
and will depend initially on third parties for distribution capabilities. A
significant business strategy of the Company is to enter into strategic or other
similar collaborative relationships for the manufacture, marketing and
distribution of its products. The Company has also established strategic
relationships in connection with the acquisition of technology it believes will
lead to the development of new and better products. There can be no assurance
that the Company will be able to enter into or maintain strategic relationships
on commercially reasonable terms, if at all. If the Company is unable to enter
into strategic relationships or maintain its strategic relationships, it will be
required to devote substantially greater resources than anticipated to the
manufacture, distribution, sale and marketing of its products. Furthermore, as a
result of the Company's emphasis on these relationships, the Company's success
will depend on the ultimate success of the other parties to such relationships,
and there can be no assurance that such parties will be able to perform their
obligations to the Company's expectations. In addition, there can be no
assurance that the other parties to the Company's manufacturing and distribution
relationships will not reduce their commitments to the Company at any time in
the future. Failure of one or more of the Company's strategic relationships
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Strategic Alliances."
In addition, the Company or its distribution partners will be required to
enter into and maintain strategic relationships with software companies for
software to be integrated with the Company's products or to develop software
packages on their own. There can be no assurance that the Company or its
distribution partners will be able to enter into or maintain strategic
relationships with companies for such software. The failure to enter into such
relationships could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Strategic
Alliances."
DEPENDENCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology and to obtain and enforce
patents on the Company's technology. In addition, the Company has acquired the
right to use certain intellectual property from Philips which it believes it
will be able to employ in the development of future products. The Company relies
primarily on a combination of copyright, patent and trademark laws, trade
secrets, confidentiality procedures, exclusive licensing and contractual
provisions to protect its proprietary rights. No assurance can be given that the
Company's efforts will provide meaningful protection for its proprietary
technology against others who independently develop or otherwise acquire
substantially equivalent techniques or gain access to, misappropriate or
disclose the Company's proprietary technology. The Company applied for three
patents with the U.S. Patent and Trademark Office, one on July 30, 1998 and two
on September 5, 1998, regarding certain aspects of the Company's fingerprint
imaging technology and its integration into PCs. The Company believes that
approval of such patents, if granted, will be received not later than December
31, 2000. The Company has also filed foreign patent applications that correspond
to the U.S. patent applications. There can be no assurance that any patent
applications filed by the Company will result in the issuance of patents or that
any patents issued to the Company will afford protection against competitors
that develop similar technology. The failure to obtain meaningful protection for
its proprietary technology would cause the Company to reconsider its business
plan and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The computer manufacturing and software industry has experienced a
significant amount of litigation regarding patents and other proprietary rights.
Any claims of infringement by third parties, with or without merit, relating to
intellectual property owned or licensed by the Company, could be time-consuming,
resulting in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all. A determination that the Company is infringing the
proprietary rights of others could have a material adverse effect on the
Company's
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business, financial condition and results of operations. See "Business --
Patents and Proprietary Technology."
COMPETITION
Although the biometric identification product industry has yet to fully
develop, the Company anticipates that it will be characterized by intense
competition. The Company will generally compete with producers of both
non-biometric and biometric methods of restricting access. Non-biometric methods
of restricting access, such as keys, tokens, PINs and passwords, will initially
compete with the Company's devices. The Company will compete more directly with
other biometric methods of restricting access, such as signature verification,
voice recognition, iris recognition, facial recognition, hand geometry
recognition and retinal scanning, all of which are currently being marketed.
Companies that develop and distribute fingerprint identification devices, such
as American Biometric Company, Digital Persona, Inc., Harris Corporation,
Identicator, Inc., Identix Incorporated, Siemens AG, ST Microelectronics N.V.,
Thomson-CSF and Veridicom, Inc., will compete directly with the Company. The
Company will face additional competition from other established and emerging
companies in each market in which the Company intends to compete. Many of the
Company's present and potential competitors have longer operating histories and
significantly greater financial, marketing and research resources than those of
the Company. The Company expects competition to increase as other companies
introduce additional and more competitive products. In order to compete
effectively in this environment, the Company must continually be able to develop
and market new and enhanced products and market those products at competitive
prices. There can be no assurance that the Company will be able to compete
effectively in the markets in which it intends to enter. See "Business --
Competition."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
An integral part of the Company's business strategy is to form strategic
alliances for the manufacture and distribution of its products with third
parties, including foreign corporations. Two of the Company's strategic partners
are located in the Pacific Rim. See "Business -- Strategic Alliances." Several
countries in this region have recently experienced currency devaluation and/or
reduced access to credit. There can be no assurance that the effect of this
economic condition on the Company's strategic partners, or the exposure to
variations in the respective value of the currency of all of the Company's
international partners with that of the U.S. dollar, will not have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company intends to market and sell its products internationally
and, therefore, the sale of its products may be regulated by foreign
governmental agencies. The Company does not know the impact of such regulation,
if any, on the Company, and there can be no assurance that foreign regulation
will not have a material adverse effect on the Company's ability to sell its
products in such countries. Additionally, the Company's products are subject to
restrictions on export to foreign countries. These restrictions require the
Company to obtain a validated export license prior to the sale of its products
to purchasers in such countries, thereby making many of the Company's sales to
foreign countries subject to the approval of the U.S. Department of Commerce.
There can be no assurance that the U.S. Department of Commerce will not mandate
more restrictions in the future towards the Company's products or, due to the
political or diplomatic climate or for human rights reasons, impose additional
restrictions on exports to one or more countries where the Company desires to
sell its products. Such a change could adversely affect the Company's ability to
sell its products in such countries, which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Governmental Regulation."
RISKS ASSOCIATED WITH IMPLEMENTATION OF LARGE SCALE MANUFACTURING CAPABILITIES
The Company plans to market its products for potentially large volume
commercial applications, such as computer network security. The Company is
relying on strategic partners for the manufacture and assembly of its products.
As a result, the Company's manufacturing partners may be required to fulfill
large orders in a short period of time and to implement measures in their
manufacturing
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processes to decrease product costs. The Company's manufacturing partners have
not yet demonstrated the ability to manufacture the Company's products on a
large scale. There can be no assurance that the Company's manufacturing partners
will be able to establish large scale manufacturing and assembling capacity
sufficient to fulfill large orders and to decrease manufacturing costs or that
the quality of such high volume products will meet customer requirements. Any
failure by the Company's manufacturing partners to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing" and "Business -- Strategic
Alliances."
DEPENDENCE UPON SOLE AND LIMITED SOURCES OF SUPPLY
The TactileSense material, the silicon image sensor, the glass image
sensors and certain custom silicon chips used in the Company's products are
obtained by the Company or the Company's manufacturing partners from a single
source or a limited group of suppliers. Specifically, the glass image sensors
used in the Company's products are manufactured exclusively by Philips. The
partial or complete loss of certain of these sources or the delay in receiving
supplies from these sources could result in delays in manufacturing and shipping
of products to customers and require the incurrence of development, re-tooling
and other costs to establish alternative sources of supply. If the Company is
required to seek alternative suppliers, there can be no assurance that the
Company will be able to obtain such components within the time frames and cost
parameters required by the Company, if at all.
Any delays resulting from the failure of suppliers to deliver components on
a timely basis in sufficient quantities and of sufficient quality or any
significant increase in the price of components from existing or alternative
suppliers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology" and
"Business -- Manufacturing."
RISKS OF PRODUCT DEFECTS AND FAILURE TO MEET PERFORMANCE CRITERIA; PRODUCT
LIABILITY RISK
Complex products such as those to be offered by the Company may contain
undetected or unresolved defects or may fail initially to meet customers'
performance criteria when first introduced or as new versions are released.
There can be no assurance that defects or performance flaws will not be found in
products or versions of products following commercial release or that
performance failures will not result, causing loss of market share, delay in or
loss of market acceptance, additional warranty expense or product recall. In
addition, the failure of products to meet performance criteria could result in
delays in recognition of revenue and higher operating expenses during the period
required to correct any such defects. There is a risk that, for unforeseen
reasons, the Company may be required to repair or replace a substantial number
of products in use or to reimburse persons for products that fail to work or
meet strict performance criteria. Any such occurrence could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company does not carry, nor is it intending to
procure in the foreseeable future, product liability insurance. The assertion of
product liability claims against the Company could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS RELATED TO THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions or engage in similar normal business
activities. The Company is in the process of working with its software vendors
to ensure that the software that the Company has licensed will operate properly
in the year 2000 and beyond. Additionally the Company is working with its
strategic partners and suppliers to determine the extent to which such third
parties' systems (insofar as they relate to the Company's business) are subject
to the Year 2000 issue. Significant uncertainty exists concerning the potential
costs and effects associated with Year 2000 compliance. Any Year 2000 compliance
problems could have a material adverse effect on the Company's business,
financial condition and
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results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on the continued service of key management,
sales, operations and technical personnel, including Alexander G. Dickinson, the
Company's Chief Executive Officer, and on its continued ability to attract,
retain and motivate such personnel. The Company has not obtained key man
insurance policies for, and has not entered into employment contracts with, any
of its personnel. The competition for qualified management, sales, operations,
and technical personnel is intense, and there can be no assurance that the
Company can retain its key personnel or attract other highly qualified personnel
in the future. The failure to attract or retain such persons could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management."
LIMITED HISTORY OF MANAGEMENT TEAM
Of the senior executives of the Company, only the Chief Executive Officer
has been employed by the Company since its incorporation in June 1997. Other
members of the Company's senior management have a more limited history with the
Company. As a result, the Company's senior management has only worked together
as a team for a short period of time. There can be no assurance, therefore, that
the Company's senior management will establish an effective working relationship
that will facilitate the successful implementation of the Company's business
plan. See "Management."
RISKS ASSOCIATED WITH RAPID GROWTH
To date, the Company has largely been dependent upon XL Vision for
accounting, management and administrative resources. The Company is currently in
the process of establishing its own corporate infrastructure. If the Company is
successful in implementing its business strategy, it may experience a period of
rapid growth and expansion which could place significant additional demands on
the Company's corporate infrastructure. The failure by the Company's management
team to manage this potential growth effectively could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS RELATED TO GOVERNMENT REGULATION
Third-party software bundled with the Company's fingerprint identification
technologies could contain cryptographic technology which is subject to export
controls under U.S. law and applicable foreign government restrictions. All
cryptographic products require export licenses from either the U.S. State
Department, acting under the authority of the International Traffic in Arms
Regulation, or the U.S. Department of Commerce, acting under the authority of
the Export Administration Regulations. The U.S. government generally limits the
export of software with encryption capabilities to mass marketed software with
limited key sizes, which could affect the Company's international competitive
position or results of operations.
The Director of the U.S. Federal Bureau of Investigation has asked Congress
to enact legislation that would require manufacturers of encryption products to
incorporate key escrow and recovery capabilities into their products for both
domestic and international use, thereby allowing law enforcement officials to
gain access to decryption keys for the purposes of decoding messages relating to
illegal activities, subject to constitutional due process safeguards. There can
be no assurance that this or other similar measures will not in the future
become law in the United States or other countries, and the Company cannot
predict what effect any such law would have on its domestic or international
competitive position or on its business, financial condition and results of
operations.
In addition, states may enact legislation which restricts the use and
dissemination of data derived from biometric products, which could have a
material adverse effect on the Company's ability to commercialize its products
in such markets. See "Business -- Governmental Regulation."
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FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
Notwithstanding the receipt of the net proceeds from this offering, the
Company may require additional capital to finance its growth and its marketing
and research and development projects beyond the next 18 months. The Company's
capital requirements will depend on many factors including, but not limited to,
the demand for the Company's products and the timing of and extent to which such
products achieve market acceptance, the timing of and extent to which the
Company invests in new technology, the Company's general and administrative and
new product development expenses, the extent to which competitors are successful
in developing their own products and increasing their own market share and brand
awareness, the success of the Company's strategic relationships, the costs
involved in maintaining and enforcing intellectual property rights, the level
and timing of revenues, the available borrowings under line of credit
arrangements and other factors. To the extent that resources are insufficient to
fund the Company's activities, the Company may need to raise additional funds
through public or private financing (including the issuance of equity
securities), strategic relationships or other arrangements. The Company
currently does not have any such arrangements in place. There can be no
assurance that such additional funding, if needed, will be available on terms
acceptable to the Company, if at all. Strategic relationships that provide
funding to the Company may require the Company to relinquish rights to certain
of its technologies or products. The inability to obtain sufficient funds may
require the Company to delay, scale back or eliminate some or all of its
development activities or license to third parties the right to commercialize
products or technologies that the Company would otherwise seek to commercialize
itself. After this offering, the Company will not have arrangements with any
financial institution for funding. The failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
financial condition and results of operations. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company by its then-current stockholders would be reduced. Furthermore, such
equity securities might have rights, preferences or privileges senior to those
of the Company's Common Stock. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
CONTROL BY PRINCIPAL STOCKHOLDERS
After the completion of this offering, Safeguard, Philips, XL Vision,
Technology Leaders II and Technology Leaders I (collectively, the "Principal
Stockholders") will beneficially own approximately 20.8%, 14.8%, 6.3%, 4.8% and
4.5%, respectively, of the Company's outstanding Common Stock. In addition,
officers of the Principal Stockholders will own an additional 5.8% of the
outstanding Common Stock (before the exercise of any rights they may receive in
this offering). Additionally, Safeguard owns approximately 55.5% of XL Vision,
3.3% of Technology Leaders I and 4.4% of Technology Leaders II. As a result, the
Principal Stockholders will collectively have the voting power to substantially
control the election of the Company's entire Board of Directors and all matters
requiring stockholder approval. See "Management -- Executive Officers and
Directors," "Management -- Certain Relationships," "Principal and Selling
Stockholders," "Certain Transactions" and "Shares Eligible for Future Sale."
BROAD DISCRETION IN APPLICATION OF NET PROCEEDS
The Company intends to use the net proceeds from this offering to repay
certain indebtedness and for working capital, including product development and
sales and marketing, general corporate purposes and capital expenditures. Other
than the repayment of debt and continuing product development payments related
to the Philips technology transfer, the Company has not specifically allocated
the remaining net proceeds of approximately $14.3 million for any particular
uses. Accordingly, the specific uses for a substantial portion of the net
proceeds will be at the complete discretion of the Board of Directors of the
Company and may be allocated from time to time based upon a variety of
circumstances. There can be no assurance that the Company will deploy such funds
in a manner that will enhance the financial condition of the Company. See "Use
of Proceeds."
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BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS
This offering will provide significant benefits to the current stockholders
of the Company, including the creation of a public market for the Common Stock
and the receipt of proceeds from the sale of Common Stock in this offering by
the selling stockholders. As a result, the Company's current stockholders will
generally have greater liquidity with respect to their investment in the Common
Stock and their holding of Common Stock will potentially have a greater value.
Furthermore, the Company intends to use approximately $6.5 million of the
estimated net proceeds to the Company to repay loans from XL Vision, a selling
stockholder in this offering, and approximately $1.4 million to pay ongoing
product development costs to Philips, a stockholder of the Company, related to
the Company's joint development efforts. The Principal Stockholders and the
Company's other executive officers and directors will beneficially own
approximately 14.0 million shares of Common Stock after completion of this
offering. Based on the exercise price of $5.00, such shares owned will have an
aggregate market value of approximately $70.1 million. See "Use of Proceeds,"
"Principal and Selling Stockholders" and "Certain Relationships and Related
Transactions."
RISKS ASSOCIATED WITH RELATED PARTY TRANSACTIONS
The Company began operations in May 1997 as a division of XL Vision.
Historically, the Company has been managed to a great extent by members of XL
Vision's management and receives services from XL Vision pursuant to an
administrative services agreement. After this offering, XL Vision will own
approximately 6.3% of the Company's outstanding capital stock. In addition, a
member of the Company's Board of Directors is also an officer and director of XL
Vision. XL Vision will therefore have the ability to influence the management of
the Company. In July 1998, the Company entered into a value-added reseller
agreement with Integrated Visions, Inc., a subsidiary of XL Vision ("Integrated
Visions"). There can be no assurance that such terms are at least as favorable
as terms that the Company may have been able to negotiate for a similar
agreement with an unrelated third party. In the future, the Company may enter
into additional agreements with Integrated Visions or other affiliates of XL
Vision. There can be no assurance that such agreements will be negotiated at
arms-length or on terms at least as favorable as if they had been negotiated
with unrelated third parties. See "Business -- Strategic Alliances" and "Certain
Transactions."
DILUTION
The average price per share paid upon the original issuance by the Company
of Common Stock as of September 30, 1998 was $1.71. Purchasers of the Common
Stock of the Company offered hereby will suffer an immediate and substantial
dilution of $4.11 as of September 30, 1998 in the net tangible book value per
share of the Common Stock from the exercise price of the rights and the offering
price for the shares of Common Stock offered hereby. See "Dilution."
REQUIREMENTS FOR LISTING SECURITIES ON THE NASDAQ NATIONAL MARKET; APPLICATION
OF THE PENNY STOCK RULES
The Company has filed an application for listing of the Common Stock and
rights (the "Listed Securities") on the Nasdaq National Market. If the Company
is unable to maintain the standards for continued listing, the Listed Securities
could be subject to delisting from the Nasdaq National Market. Trading, if any,
in the Listed Securities would thereafter be conducted on the Nasdaq Small Cap
Market. If, however, the Company did not meet the requirements of the Nasdaq
Small Cap Market, trading of the Listed Securities would be conducted on an
electronic bulletin board established for securities that do not meet the Nasdaq
listing requirements or on what is commonly referred to as the "pink sheets." As
a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.
In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000
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together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, delisting, if it occurred, may affect the ability of
broker-dealers to sell the Company's securities and the ability of purchasers in
this offering to sell their securities in the secondary market.
The Securities and Exchange Commission (the "SEC" or the "Commission") has
adopted regulations that define a "penny stock" to be any equity security that
has a market price (as defined in the regulations) of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result, if the Common
Stock is determined to be "penny stock," an investor may find it more difficult
to dispose of the Company's Common Stock.
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICES
Prior to this offering, there has been no public market for the Common
Stock or the rights, and there can be no assurance that an active public market
will develop or be sustained. The exercise price of the rights and purchase
price of the Common Stock has been determined solely by negotiations among the
Company, the selling stockholders and the underwriters and does not necessarily
reflect the price at which shares of Common Stock may be sold in the public
market during or after this offering. See "The Offering -- Why We are Selling
Shares Through a Rights Offering" for a discussion of the factors considered in
determining the exercise price. The public markets, in general, have from time
to time experienced extreme price and volume fluctuations, which have in some
cases been unrelated to the operating performance of particular companies, and
the market for biometric identification and computer network security stocks,
such as the Common Stock, can be subject to greater price volatility than the
stock market in general. In addition, factors such as announcements of
technological innovations, new products by the Company's competitors or other
third parties, potential litigation, strategic alliances of the Company's
competitors, the status of the Company's patent applications, regulatory action
and market conditions in the biometric identification and computer network
security industries may have a significant impact on the market price of the
Common Stock.
CANCELLATION OF RIGHTS OFFERING
If the conditions precedent to the sale of shares of Common Stock to the
underwriters, set forth in the standby underwriting agreement entered into by
the Company, the selling stockholders and the underwriters (the "Standby
Underwriting Agreement"), are not satisfied, the underwriters may elect, on or
before the sixth business day after the Expiration Date (the "Closing Date"), to
cancel the rights offering and the Company and the selling stockholders will not
have any obligations with respect to the rights except to return, without
interest, any payment received in respect of the exercise price. See
"Underwriting." The Company has been advised by the NASD that trades in the
rights and the when-issued shares of Common Stock in the market would be
canceled if the rights offering is not consummated.
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding stock options will become
eligible for future sale in the public market at various times. In addition to
the factors affecting the stock market in general and the market for the Common
Stock discussed above, sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. Upon completion of this offering,
the Company will have 25,081,704 shares of
16
<PAGE>
Common Stock outstanding, excluding 972,425 shares of Common Stock subject to
stock options outstanding as of October 15, 1998 and any stock options granted
by the Company after October 15, 1998. Of these shares, the Common Stock sold by
the Company and the selling stockholders in this offering, except for certain
shares described below, will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Act"). The
remaining 18,256,704 shares of Common Stock (the "Restricted Shares") were sold
by the Company in reliance on exemptions from the registration requirements of
the Act and are "restricted securities" as defined in Rule 144 under the Act
("Rule 144") and may not be sold in the absence of registration under the Act
unless an exemption is available, including an exemption afforded by Rule 144 or
Rule 701 ("Rule 701") under the Act. Without considering the contractual
restrictions described below, (i) 1,250 Restricted Shares will be eligible for
sale ninety days after the date of this Prospectus, subject to volume and other
resale conditions imposed by Rule 144, and (ii) 18,255,454 Restricted Shares
will be eligible for future sale subject to the holding period and other
conditions imposed by Rule 144. Certain restrictions on shares of Common Stock
are applicable to (i) any shares of Common Stock purchased in this offering by
affiliates of the Company, which may generally only be sold in compliance with
the limitations of Rule 144, except for the holding period requirements
thereunder, and (ii) the shares of Common Stock beneficially owned by the
Principal Stockholders all of which, together with the shares of Common Stock
beneficially owned by the directors, executive officers and certain other
stockholders of the Company are subject to lock-up agreements (the "Lock-Up
Agreements") and pursuant to such agreements will not be eligible for sale or
other disposition until 180 days after the Expiration Date (the "Lock-Up Expiry
Date") without the prior written consent of Robert W. Baird & Co. Incorporated.
In addition, the Company has granted certain registration rights to its
shareholders whereby they may cause the Company to register shares of Common
Stock. See "Shares Eligible for Future Sale."
It is anticipated that a registration statement (the "Form S-8 Registration
Statement") covering the Common Stock that may be issued pursuant to the
exercise of options awarded by the Company will be filed and become effective
prior to the Lock-Up Expiry Date, and that shares of Common Stock that are so
acquired or offered thereafter pursuant to the Form S-8 Registration Statement
generally may be resold in the public market without restriction or limitation.
Subject to the provisions of any Lock-Up Agreement, shares of Common Stock may
be resold in the public market beginning 90 days after the date of this
Prospectus pursuant to Rule 701(i) by persons who are not affiliates of the
Company without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144 and (ii) by affiliates of the
Company without compliance with the holding period requirements of Rule 144. See
"Management -- Equity Compensation Plan," "Shares Eligible for Future Sale --
Stock Options" and "Underwriting."
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of preferred stock may be issued by the Company in the future
without stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company and potentially prevent the
payment of a premium to stockholders in an acquisition transaction. The Company
has no present plans to issue any shares of preferred stock and all shares of
the Company's preferred stock which are currently outstanding will be converted
to Common Stock prior to the consummation of this offering. See "Description of
Capital Stock -- Preferred Stock."
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain future earnings for use in its business
and, therefore, does not expect to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."
17
<PAGE>
THE OFFERING
WHY WE ARE SELLING SHARES THROUGH A RIGHTS OFFERING
We have agreed with Safeguard and the selling stockholders to make a rights
offering to holders of Safeguard common shares. This rights offering represents
the Company's initial public offering of its securities, although it is
different than a traditional public offering in that securities are directed
first to Safeguard shareholders and then to the general public. We believe that
this rights offering will provide several advantages over a traditional initial
public offering. This type of offering gives us the opportunity to offer our
Common Stock to investors who, as Safeguard shareholders, already have some
knowledge of our business. Our securities will also be distributed to a broader,
more stable shareholder base and underwriting discounts and commissions will be
less than if we pursued a traditional initial public offering. In addition,
Safeguard supports this type of rights offering because it affords its
shareholders the opportunity to purchase shares before the shares are offered to
the general public.
We determined the exercise price through negotiations with the selling
stockholders and the underwriters. In making this determination, we considered
such factors as our future prospects and historical financial data, our industry
in general and our position in the industry; market valuations of the securities
of companies engaged in activities similar to ours; the quality of our
management team; and the advice of our underwriters. We will also obtain two
independent appraisals to further support the determination of the final
exercise and offering price.
YOU CAN EXERCISE OR SELL YOUR RIGHTS
Until , 1998, you may purchase one share of our Common Stock
for each right you receive, or you may sell your rights in the market. However,
you may not exercise rights for fewer than 20 shares of Common Stock in a single
account, unless you have previously exercised rights for at least 20 shares in
the same account and you provide a letter to ChaseMellon stating that you have
already exercised at least 20 rights. If you hold Safeguard common shares in
multiple accounts, you must meet the minimum purchase requirement for each
account. You may, however, consolidate your rights into one account. If you
receive fewer than 20 rights, you should consider purchasing enough additional
rights to be eligible to exercise your rights or selling your rights in the
market. You should consult with your regular investment advisor and carefully
consider your alternatives.
IF THE NUMBER OF SAFEGUARD COMMON SHARES YOU OWN IS NOT DIVISIBLE BY FIVE
If the number of Safeguard common shares you own is not evenly divisible by
five, we will round up to the next highest whole number in calculating the
number of rights that you are entitled to receive. For example, if you hold 96
Safeguard common shares, you will receive 20 rights. If you are a nominee for
beneficial holders of Safeguard common shares, we will round the number of
rights that you will receive based upon the amount held by each beneficial
holder individually.
WHEN YOU CAN EXERCISE YOUR RIGHTS
You can exercise your rights at any time during the period beginning on
, 1998 and ending at 5:00 p.m., New York City time, on ,
1998. After that date, you will not be able to exercise or transfer your rights
and they will be worthless. We do not intend to honor any rights received for
exercise by ChaseMellon after , 1998, regardless of when you sent
your rights to ChaseMellon for exercise.
HOW YOU CAN TRANSFER YOUR RIGHTS
You may transfer all or a portion of your rights by endorsing and
delivering to ChaseMellon (at the addresses set forth below) your rights
certificate. You must properly endorse the certificate for transfer, your
signature must be guaranteed by a bank or securities broker and your certificate
must be accompanied by instructions to reissue the rights you want to transfer
in the name of the person
18
<PAGE>
purchasing the rights. ChaseMellon will reissue certificates for the transferred
rights to the purchaser, and will reissue a certificate for the balance, if any,
to you if it is able to do so before , 1998. You will be responsible
for the payment of any commissions, fees and other expenses (including brokerage
commissions and any transfer taxes) incurred in connection with the purchase or
sale of your rights. We believe that a market for the rights may develop during
the period in which the rights may be exercised. To facilitate the market, we
have applied with the Nasdaq National Market to have the rights approved for
quotation for the period , 1998 through , 1998. We have
reserved "WHOVR" as the Nasdaq symbol under which the rights will trade. If you
have any questions regarding the transfer of rights, you should contact
ChaseMellon at P.O. Box 3301, South Hackensack, New Jersey 07606, Attention:
Reorganization Department, telephone number (800) 223-6554.
HOW YOU CAN EXERCISE YOUR RIGHTS
On , 1998, ChaseMellon transferred a significant majority of
the rights to The Depository Trust Company, which, in turn, will credit the
rights, in its normal course of handling this type of transaction, to the
accounts of the participants (including brokers and dealers, banks, trust
companies and clearing corporations) for whom it holds Safeguard common shares.
The remainder will be transferred as soon as possible thereafter. You may
exercise your rights by completing and signing the election to purchase form
that appears on the back of each rights certificate. You must send the completed
and signed form, along with payment in full of the exercise price for all shares
that you wish to purchase to ChaseMellon. ChaseMellon must receive these
documents and the payment by 5:00 p.m., New York City time, on ,
1998. We do not intend to honor any exercise of rights received by ChaseMellon
after that date.
We will, however, accept your exercise if ChaseMellon has received full
payment of the exercise price for shares to be purchased through the exercise of
rights and has received a letter or telegraphic notice from a bank, trust
company or member firm of the New York Stock Exchange or the American Stock
Exchange setting forth your name, address and taxpayer identification number,
the number of shares you wish to purchase and guaranteeing that a properly
completed and signed election to purchase form will be delivered to ChaseMellon
by 5:00 p.m., New York City time, on , 1998. If the properly
executed documents are not received by 5:00 p.m. on , 1998, we do
not intend to accept your subscription.
We suggest, for your protection, that you deliver your rights to
ChaseMellon by overnight or express mail courier. If you mail your rights, we
suggest that you use registered mail. If you wish to exercise your rights, you
should mail or deliver your rights and payment for the exercise price to
ChaseMellon as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway -- 13th 85 Challenger Road,
South Hackensack, NJ 07606 Floor Mail Drop Reorg.
New York, NY 10271 Ridgefield Park, NJ 07660
</TABLE>
You must pay the exercise price in U.S. dollars by cash, check or money
order payable to the "Safeguard Escrow Account." Until this offering is closed,
your payment will be held in escrow by ChaseMellon, who will serve as the escrow
agent of the Safeguard Escrow Account.
ChaseMellon will deliver certificates to you representing the Common Stock
purchased through the exercise of rights by , 1998. Until that date,
ChaseMellon will hold all funds received in payment of the exercise price in
escrow and will not deliver any funds to us or to the selling stockholders until
the shares of Common Stock have been issued.
19
<PAGE>
If you are a broker or depository who holds Safeguard common shares for the
account of others and you receive rights certificates for the account of more
than one beneficial owner, you should provide copies of this Prospectus to the
beneficial owners. You should also carry out their intentions as to the exercise
or transfer of their rights.
Safeguard will decide all questions as to the validity, form and
eligibility (including times of receipt, beneficial ownership and compliance
with minimum exercise provisions). The acceptance of subscription forms and the
exercise price also will be determined by Safeguard. Alternative, conditional or
contingent subscriptions will not be accepted. Safeguard reserves the absolute
right to reject any subscriptions not properly submitted. In addition, Safeguard
may reject any subscription if the acceptance of the subscription would be
unlawful. Safeguard also may waive any irregularities (or conditions) in the
subscription of shares of Common Stock, and its interpretation of the terms (and
conditions) of the rights offering shall be final and binding.
If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than , 1998. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived. If
your exercise is rejected, your payment of the exercise price will be promptly
returned by ChaseMellon.
HOW YOU CAN OBTAIN ADDITIONAL INFORMATION
If you wish to receive additional copies of this Prospectus or additional
information concerning this offering, you should contact Catherine Laboe at
Robert W. Baird & Co. Incorporated, telephone number (414) 298-7647 or Antony
Joffe at Janney Montgomery Scott Inc., telephone number (215) 665-6191.
EXPECTED EXERCISE OF RIGHTS BY SAFEGUARD CEO
Warren V. Musser, the Chairman and Chief Executive Officer of Safeguard, or
his assignees, is expected to exercise all rights distributed to him. As a
result, he (or his assignees) is expected to acquire approximately 560,000
shares of our Common Stock through the rights offering.
WHAT HAPPENS TO THE UNSUBSCRIBED SHARES
The first 300,000 shares of Common Stock that are not subscribed for at the
end of the rights exercise period will be offered at a price of $5.00 per share
to persons selected by us. These persons may have a relationship with us,
Safeguard or one of Safeguard's other partnership companies. We expect to enter
into agreements with these persons to purchase the unsubscribed shares before
the end of the rights exercise period. If there are less than 300,000
unsubscribed shares at the end of the rights exercise period, the number of
unsubscribed shares offered to each of these persons will be adjusted
accordingly.
To the extent that any unsubscribed shares remain unsold after the offer to
these persons, the underwriters will purchase these shares pursuant to the
standby underwriting agreement. The underwriters must purchase these shares no
later than , 1998.
In connection with this offering, the underwriters will receive a financial
advisory fee of 3% of the exercise price for each share of Common Stock being
offered in this offering, regardless of whether they purchase any shares in this
offering. In addition, if the underwriters purchase any shares in this offering
or through the exercise of certain rights that are purchased in the open market
under certain circumstances, they may purchase the shares at the exercise price
less an underwriting discount of 4% of the exercise price, subject to certain
limitations. The underwriters will offer shares of Common Stock purchased by
them to the public at prices which may vary from the exercise price. The selling
stockholders have granted to the underwriters an option to purchase an
additional 650,000 shares of Common Stock to cover over-allotments, if any,
during the 20-day period beginning on , 1998. The underwriters will
be entitled to purchase these over-allotment shares at the exercise price
20
<PAGE>
less the 3% financial advisory fee and the 4% underwriting discount. See
"Underwriting." We will not receive any proceeds from the sale of any shares of
Common Stock by the selling stockholders.
We intend to supplement this Prospectus after the rights exercise period is
over to set forth the results of the rights offering, the transactions by the
underwriters during the exercise period, the number of unsubscribed shares
purchased, if any, and any resale transactions.
WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELED
The underwriters have the right to cancel the rights offering if certain
conditions are not satisfied or if certain circumstances exist prior to the
closing date of this offering. If you exercise rights and the rights offering is
canceled, ChaseMellon will promptly return to you, without interest, any payment
received in respect of the exercise price and you will not receive any shares of
our Common Stock. Along with the selling stockholders, we have established an
escrow account with ChaseMellon to hold funds received prior to the closing date
of this offering. The NASD has advised us that trades in the rights and the
when-issued shares of Common Stock in the market would be canceled if this
offering is not consummated.
21
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
affecting holders of Safeguard common shares receiving rights in this offering.
In the opinion of Morgan, Lewis & Bockius LLP, the distribution of the rights by
the Company to holders of Safeguard common shares more likely than not will
constitute a taxable transaction under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be subject to state or local income taxes.
Because of the complexity of the provisions of the Code referred to below and
because tax consequences may vary depending upon the particular facts relating
to each holder of Safeguard common shares, such holders should consult their own
tax advisors concerning their individual tax situations and the tax consequences
of this offering under the Code and under any applicable state, local or foreign
tax laws.
Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under
current interpretations of case law, the Code and applicable regulations
thereunder, the federal income tax consequences applicable to holders of
Safeguard common shares receiving rights in this offering generally are as
follows:
DISTRIBUTION OF RIGHTS TO HOLDERS OF SAFEGUARD SHARES
The rights, representing the right to acquire shares of Common Stock from
the Company, can be considered as constituting "property" within the meaning of
Section 317(a) of the Code. The federal income tax consequences of a
distribution of the rights by the Company to holders of Safeguard common shares,
as determined under the Code and the regulations thereunder, are as follows: (i)
each noncorporate holder of Safeguard common shares will be deemed to have
received a distribution from Safeguard, generally taxable as ordinary dividend
income, in an amount equal to the fair market value (if any) of the rights, as
of the date of distribution, (ii) each corporate holder of Safeguard common
shares (other than foreign corporations and S corporations) will be deemed to
have received a distribution from Safeguard (generally taxable as a dividend
subject to the dividends received deduction for corporations (generally 70%, but
80% under certain circumstances) in an amount equal to the fair market value (if
any) of the rights, as of the date of distribution; and (iii) the tax basis of
the rights in the hands of each holder (whether corporate or noncorporate) of
Safeguard common shares will be equal to the fair market value (if any) of the
rights as of the date of distribution. Because of the predominantly factual
nature of determining the fair market value, if any, of the rights, Morgan,
Lewis & Bockius LLP has expressed no opinion with respect to the fair market
value of the rights.
Since the fair market value of the rights will determine the amount of
taxable income deemed received by the holders of Safeguard common shares, the
determination of the fair market value of each right as of the date of
distribution is critical. The exercise price was determined through arms-length
negotiations among the Company, the selling stockholders and the underwriters.
Based on these negotiations and the two independent appraisals which have been
obtained, Safeguard's Board of Directors believes that the per share value of
Common Stock represented by the rights at the date of the commencement of this
offering approximates the exercise price and that the rights should have no
value for federal income tax purposes. However, the Internal Revenue Service is
not bound by this determination. See "The Offering -- Why We Are Selling Shares
Through a Rights Offering."
EXERCISE OF RIGHTS
Holders of rights, whether corporate or noncorporate, will recognize
neither gain nor loss upon the exercise of the rights. A holder of rights who
receives shares of Common Stock upon the exercise of the rights will acquire a
tax basis in such shares equal to the sum of the exercise price paid under this
offering and the tax basis (if any) of the holder of rights in the rights.
TRANSFER OF RIGHTS
The transferable nature of the rights will permit a holder of rights to
sell rights prior to exercise. Pursuant to Section 1234 of the Code, a rights
holder who sells rights prior to exercise will be entitled to treat the
difference between the amount received for the rights and the adjusted tax basis
(if any) of
22
<PAGE>
the holder of rights in the rights as a short-term capital gain or capital loss,
provided that Common Stock subject to the rights would have been a capital asset
in the hands of the holder had it been acquired by him. The gain or loss so
recognized will be short-term since the rights will have been held for less than
12 months.
NON-EXERCISE OF RIGHTS
The income tax treatment applicable to holders of rights who fail to
exercise or transfer their rights prior to the expiration date also is set forth
in Section 1234 of the Code. Holders of rights who allow their rights to lapse
are deemed under the Code to have sold their rights on the date on which the
rights expire. Since upon such lapse no consideration will be received by a
holder of rights, and since the rights will have been held for less than 12
months, a short-term capital loss equal to the tax basis (if any) in the rights
will be sustained by the holder on such lapse, provided that Common Stock
subject to the rights would have been a capital asset in the hands of the holder
had it been acquired by him.
USE OF PROCEEDS
The minimum net proceeds to the Company from the sale of the 6,500,000
shares of Common Stock offered by the Company are estimated to be approximately
$29.1 million after deducting estimated offering expenses allocable to and
payable by the Company, assuming that none of the rights granted in the rights
offering are exercised and that, as a result, 6,500,000 shares of Common Stock
are purchased by the underwriters pursuant to the standby underwriting
agreement. Estimated offering expenses include the maximum applicable
non-accountable expense allowance to the underwriters, a financial advisory fee
of 3% of the exercise price and an underwriting discount of 4% of the exercise
price. In the event any shares of Common Stock offered hereby are sold pursuant
to the exercise of rights, the Company will not be obligated to pay the
underwriting discount with respect to such shares and will, therefore, realize
an amount of net proceeds greater than approximately $29.1 million. See "The
Offering -- What Happens to the Unsubscribed Shares" and "Underwriting."
The Company intends to use a portion of the net proceeds from this offering
to repay in full amounts due to XL Vision. As of September 30, 1998,
approximately $6.5 million was due to XL Vision. The amounts due to XL Vision
under a note and a loan agreement bear interest at 7.0% and 9.5%, respectively,
as of September 30, 1998 and are due in full upon the earlier of the closing of
the Company's initial public offering and March 31, 2000. Of the remainder of
the net proceeds, approximately $6.0 million will be used for continued product
development prior to commercialization, approximately $2.3 million will be used
to complete the development of certain components and the transfer of technology
related to the Philips alliance and the balance will be used for working
capital, including ongoing product development and sales and marketing, general
corporate expenses and capital expenditures. The amounts and the timing of any
such use may vary significantly depending upon a number of factors, including
the Company's revenue growth, asset growth, cash flow and acquisition
activities. Pending such uses, the net proceeds of this offering will be
invested in short-term, investment-grade, interest-bearing securities. The
Company currently anticipates that the net proceeds received by the Company from
this offering and existing cash balances will be sufficient to satisfy its
operating cash needs for at least 18 months from receipt of the proceeds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
To date, the Company has not paid or declared any cash dividends on its
Common Stock. The Company currently intends to retain future earnings for use in
its business and, therefore, does not anticipate paying or declaring any cash
dividends in the foreseeable future. The payment of future dividends, if any,
will depend among other things, on the Company's results of operations, cash
flows and financial condition and on such other factors as the Company's Board
of Directors may, in its discretion, consider relevant.
23
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual total capitalization of the
Company as of September 30, 1998, (ii) the pro forma capitalization after giving
effect to the conversion of all shares of Preferred Stock and (iii) the pro
forma as adjusted capitalization to reflect the conversion of shares of
Preferred Stock, the sale of 6,500,000 shares of Common Stock by the Company
pursuant to this offering and the application of the estimated minimum net
proceeds of approximately $29.1 million therefrom. This table should be read in
conjunction with the financial statements and related notes thereto and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
----------- ------------ --------------
<S> <C> <C> <C>
Total indebtedness(3)................................... $ 6,526,383 $ 6,526,383 $ --
Equity purchase option(4)............................... 3,000,000 -- --
Stockholders' equity (deficit)(5):
Preferred Stock, par value $0.01 per share; 15,000,000
shares authorized:
Series A Preferred Stock, 8,300,000 shares
designated; 8,258,881 shares issued and
outstanding actual, and no shares issued and
outstanding pro forma and pro forma as
adjusted........................................ 82,589 -- --
Series B Preferred Stock, 1,400,000 shares
designated; 1,400,000 shares issued and
outstanding actual, and no shares issued and
outstanding pro forma and pro forma as
adjusted........................................ 14,000 -- --
Series C Preferred Stock, 3,800,000 shares
designated; 3,775,000 shares issued and
outstanding, and no shares issued and
outstanding pro forma and pro forma
as adjusted..................................... 37,750 -- --
Common Stock, par value $0.01 per share; 60,000,000
shares authorized, and 5,147,823 shares issued and
outstanding actual, 18,581,704 shares issued and
outstanding pro forma and 25,081,704 shares issued
and outstanding pro forma as adjusted(5)........... 51,478 185,817 250,817
Additional paid-in capital(5)......................... 28,649,513 31,649,513 60,659,513
Accumulated deficit................................... (38,618,651) (38,618,651) (38,618,651)
----------- ----------- -----------
Total stockholders' equity (deficit)............... (9,783,321) (6,783,321) 22,291,679
----------- ----------- -----------
Total capitalization............................ $ (256,938) $ (256,938) $22,291,679
=========== =========== ===========
</TABLE>
- ------------------
(1) Adjusted to give pro forma effect to the automatic conversion of all shares
of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock and the expiration of the Company's equity purchase option
upon consummation of this offering.
(2) Adjusted to give effect to the sale by the Company of 6,500,000 shares of
Common Stock and the receipt and application of approximately $29.1 million
in net proceeds from this offering, after deducting the maximum total
underwriting discount with respect to such shares of approximately $2.3
million and estimated offering expenses of $1.2 million (including $200,000
representing the maximum applicable non-accountable expense allowance to the
underwriters).
(3) Represents amounts due to XL Vision.
(4) Represents the buyback provision included in the Philips agreements. See
Note 11 of the Notes to Financial Statements.
(5) Excludes as of September 30, 1998, 901,425 shares of Common Stock issuable
upon the exercise of options at a weighted average exercise price of $1.85
per share (34,333 of which were exercisable as of September 30, 1998 at a
weighted average exercise price of $1.99). As of October 15, 1998, 972,425
shares of Common Stock were issuable upon the exercise of options at a
weighted average exercise price of $2.08 per share (38,645 of which were
exercisable at a weighted average exercise price of $1.85 as of October 15,
1998). See "Management -- Equity Compensation Plan."
24
<PAGE>
DILUTION
As of September 30, 1998, the Company had a negative net tangible book
value of approximately $6.8 million or $(0.37) per share of Common Stock, after
giving effect to the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock into Common Stock. Net tangible
book value per share of Common Stock represents the amount of the Company's
tangible assets less its total liabilities divided by the total number of shares
of Common Stock outstanding. Without taking into account any changes in net
tangible book value after September 30, 1998, other than to give effect to the
items described in Note (1) appearing immediately below the following table, the
pro forma net tangible book value of the Company as of September 30, 1998 would
have been approximately $22.3 million or $0.89 per share. This represents an
immediate increase in such pro forma net tangible book value of $1.26 per share
to existing stockholders and an immediate dilution of $4.11 per share to
investors purchasing Common Stock at the exercise price in this offering. New
stockholders that acquire Common Stock from the underwriters at a price greater
than the exercise price will experience greater dilution. The following table
illustrates this per share dilution in net tangible book value:
Exercise price.............................................. $5.00
Net tangible book value per share as of September 30,
1998................................................... $(0.37)
Increase per share attributable to new stockholders(1).... 1.26
------
Pro forma net tangible book value per share as of September
30, 1998.................................................. 0.89
-----
Dilution per share to new stockholders...................... $4.11
=====
- ------------------
(1) Reflects the automatic conversion of all outstanding shares of Preferred
Stock, the sale by the Company of 6,500,000 shares of Common Stock and the
receipt of approximately $29.1 million in net proceeds from this offering
after deducting the maximum total underwriting discount with respect to such
shares of approximately $2.1 million and estimated offering expenses of $1.2
million (including $200,000 representing the maximum applicable
non-accountable expense allowance to the underwriters).
The following table sets forth, on an adjusted basis as of September 30,
1998, the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to this offering and by new investors before deducting the
underwriters' compensation and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE(1)
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 18,581,704 74.1% $31,835,330 49.5% $1.71
New stockholders............... 6,500,000 25.9 32,500,000 50.5 5.00
---------- ----- ----------- -----
Total........................ 25,081,704 100.0% $64,335,330 100.0% 2.57
========== ===== =========== =====
</TABLE>
- ------------------
(1) Reflects gross consideration from the issuance of stock, and therefore does
not reflect deductions for stock issuance costs, underwriting discounts and
offering expenses.
The foregoing tables assume no exercise of outstanding options. As of
September 30, 1998, there were outstanding options to purchase an aggregate of
901,425 shares of Common Stock at a weighted average exercise price of $1.85 per
share (of which 34,333 were exercisable at September 30, 1998 at a weighted
average exercise price of $1.99), and the Company had an additional 667,325
shares of Common Stock available for future grants and other issuances under its
Equity Compensation Plan. See "Management" and Note 6 of the Notes to Financial
Statements. As of October 15, 1998, there were outstanding options to purchase
an aggregate of 972,425 shares of Common Stock at a weighted average exercise
price of $2.08 per share (of which 38,645 were exercisable at October 15, 1998
at a weighted average exercise price of $1.25 per share), and the Company had an
additional 596,325 shares of Common Stock available for future grants and other
issuances under its Equity Compensation Plan.
25
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from May 1, 1997
(inception) through June 29, 1997 and the period from June 30, 1997
(incorporation) through December 31, 1997 are derived from the financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The audited balance
sheet as of December 31, 1997 and the related statements of operations,
stockholders' equity (deficit) and cash flows and the KPMG Peat Marwick LLP
report thereon are included elsewhere in this Prospectus. The selected financial
data as of September 30, 1998 is unaudited. The following information should be
read in conjunction with the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
PERIOD FROM JUNE 30, 1997 MAY 1, 1997
MAY 1, 1997 (INCORPORATION) NINE MONTHS (INCEPTION)
(INCEPTION) THROUGH ENDED THROUGH
THROUGH DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
JUNE 29, 1997 1997 1998 1998
-------------- --------------- ------------- -------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS(1))
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ -- $ -- $ -- $ --
Cost of revenue............................. -- -- -- --
--------- ----------- ------------ ------------
Gross profit (loss)......................... -- -- -- --
Operating expenses:
Selling, general and administrative....... 123,940 1,440,406 2,803,137 4,367,483
Research and development.................. 58,804 1,540,950 3,209,658 4,809,412
In-process research and development(2).... -- -- 29,000,000 29,000,000
--------- ----------- ------------ ------------
Total operating expenses................ 182,744 2,981,356 35,012,795 38,176,895
Interest expense............................ 1,216 74,499 366,041 441,756
--------- ----------- ------------ ------------
Net profit (loss)......................... $(183,960) $(3,055,855) $(35,378,836) $(38,618,651)
========= =========== ============ ============
Net profit (loss) subsequent to
incorporation(1)........................ $(3,055,855) $(35,378,836)
=========== ============
Net profit (loss) per common share
subsequent to incorporation(1)(3):
Basic................................... $ (2.46) $ (6.97)
=========== ============
Diluted................................. $ (2.46) $ (6.97)
=========== ============
Weighted average number of common shares
outstanding............................... 1,241,467 5,076,980
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 500 $ 9,405
Capitalized offering costs................................ -- 216,356
Total assets.............................................. 187,706 1,099,045
Total indebtedness(4)..................................... 2,728,448 6,526,383
Equity purchase option(5)................................. -- 3,000,000
Total stockholders' equity (deficit)...................... (2,937,658) (9,783,321)
</TABLE>
- ------------------
(1) Prior to June 30, 1997 the Company operated as a division of XL Vision. See
Note 1 of the Notes to Financial Statements.
(2) Includes a one-time $10.0 million fee payable for the transfer of technology
from XL Vision and $19.0 million in costs associated with the technology
purchased from Philips during the nine months ended September 30, 1998. See
Notes 10 and 11 of the Notes to Financial Statements.
(3) See Note 2 of the Notes to Financial Statements for information concerning
the calculation of net profit (loss) per common share.
(4) Represents outstanding indebtedness owed to XL Vision.
(5) Represents a provision to repurchase 600,000 shares of Series C Preferred
Stock. This repurchase provision expires upon the earlier of the completion
of this offering or March 31, 1999. See Note 11 of the Notes to Financial
Statements.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain information contained herein may include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts included in this
Prospectus, are forward-looking statements. Such statements are subject to
certain risks and uncertainties, which include but are not limited to those
discussed in the section entitled "Risk Factors." Should one or more of these
risks or uncertainties, among others as set forth in this Prospectus,
materialize, actual results may vary materially from those estimated,
anticipated or projected. Although the Company believes that the expectations
reflected by such forward-looking statements are reasonable based on information
currently available to the Company, no assurance can be given that such
expectations will prove to be correct. Cautionary statements identifying
important factors that could cause actual results to differ materially from the
Company's expectations are set forth in this Prospectus. All forward-looking
statements included in this Prospectus and all subsequent oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.
OVERVIEW
From inception on May 1, 1997 through June 29, 1997, the Company operated
as a division of XL Vision (the "Division"). On June 30, 1997, the Company was
incorporated as a wholly-owned subsidiary of XL Vision, and XL Vision
contributed the assets and liabilities of the Division to the Company. Prior to
January 1998, all administrative personnel and services of the Company were
provided by XL Vision and the related costs were allocated to the Company.
Effective January 1, 1998, the Company entered into an administrative services
agreement with XL Vision that provides for cost-based administrative charges by
XL Vision based upon actual hours of work provided to the Company.
Since inception, the Company has devoted substantially all of its resources
to the development of its TactileSense and related fingerprint identification
technologies. From inception to September 30, 1998, the Company accumulated
losses totaling approximately $38.6 million, including one-time expenses of
$29.0 million related to in-process research and development. The Financial
Statements included in this Prospectus reflect the Company's operations since
inception as if it had been a separate entity. Until the Company begins to
realize significant revenue from operations, the Company will be considered in
the development stage.
On January 14, 1998, XL Vision transferred the TactileSense technology to
the Company in exchange for a one-time technology fee of $10.0 million, which
has been reflected in the Company's statements of operations as an in-process
research and development expense. Since inception, the Company has expended
approximately $9.2 million to develop and commercialize this technology and
expects to expend between $2.0 million and $4.0 million in additional
development costs prior to production of the first commercial units. Since
acquiring the technology from XL Vision the research and development activities
required for product commercialization relate to the basic functional components
that comprise the fingerprint module. These include (i) the TactileSense
polymeric material necessary to capture an image, (ii) a low-cost lens and
complementary metal oxide semiconductor ("CMOS") chip and (iii) electronics
circuitry and software to process the image and to control the operation of the
device. Additional research and development is required to integrate software to
process the fingerprint image and perform matching functionality, to finalize
the interface between the device and a computer interface, through either a
parallel or universal serial bus port, and to resolve issues related to
large-volume production. Production of the first commercial units incorporating
this technology is expected to begin during 1999; however, no significant
commercial revenues related to these units are anticipated until the second half
of 1999.
On September 30, 1998, the Company entered into an agreement with Philips
pursuant to which the Company issued 3.7 million shares of Series C Preferred
Stock to Philips in exchange for access to a broad range of patents and other
intellectual property. In addition, 75,000 shares of Series C Preferred Stock
were issued and $125,000 cash will be paid to a third party for services related
to the
27
<PAGE>
transfer of the Philips technology to the Company. Combined, the total
consideration paid in connection with the Philips transaction was $19.0 million,
which has been reflected in the Company's statements of operations as an
in-process research and development expense. Currently, the additional expenses
required to develop the product incorporating the licensed Philips amorphous
silicon glass technology are believed to be between $5.0 million and $9.0
million over the next 18 months. Additional product variations from this
technology may be developed over an extended period of time. At this time, the
Company is unable to estimate all of the costs that will be required to develop
and commercialize technologies licensed or otherwise made available by Philips.
The initial research and development activities related to commercialization of
the Philips technology are expected to include (i) payment of $1.4 million to
Philips for technical services to be performed by Philips employees, (ii)
payment of approximately $900,000 to complete development of an
application-specific integrated circuit ("ASIC") by a third party, (iii)
research and development to integrate the TactileSense material, ASIC and
Philips glass technology, (iv) design of interfaces of the fingerprint module
with computers and other products and (v) development related to adapting
designs to high-volume manufacturing. Production of the first commercial units
incorporating Philips technology is expected to begin during late 1999 or during
early 2000.
Although the Company believes that it will be successful in its efforts to
commercialize products based on the TactileSense technology, if the Company is
not successful in completing the development of this technology, the Company
would consider developing products based upon other available technologies.
The Company has developed a fingerprint identification technology which is
designed to be a component for integration into computer peripherals, laptops
and stand alone systems. The Company will recognize revenue as products are
shipped to its customers. The Company anticipates increasing its level of
expenditures for marketing, research and development and administrative
expenses. The Company expects to incur significant negative cash flows from
operations and additional losses for at least the next 18 months.
RESULTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
Overview. The Company began operations on May 1, 1997 and, accordingly,
there was no comparable period in 1997.
Revenue. The Company is a development stage company and had no revenue for
the nine-month period ended September 30, 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $2.8 million for the nine-month period ended
September 30, 1998. These expenses consisted primarily of salary, travel,
consulting and administrative fees associated with conducting the business of
the Company. These costs are expected to increase in the future as the Company
builds the necessary infrastructure to support its anticipated growth.
Research and development expenses. Research and development expenses were
$3.2 million for the nine-month period ended September 30, 1998. These expenses
consisted of product development costs for the Company's TactileSense
technology. The Company anticipates that product development costs will increase
in the future due to costs related to product commercialization and the
continuation of advances in its TactileSense technology.
In-process research and development expenses. In-process research and
development expenses consisted of a one-time $10.0 million technology fee
payable to XL Vision and a one-time $19.0 million technology fee for the
transfer and license from Philips of certain technology.
Interest expense. Interest expense was $366,041 for the nine-month period
ended September 30, 1998. This expense was attributable to amounts accrued on
advances made by XL Vision to the Company to fund its operations.
28
<PAGE>
PERIOD FROM MAY 1, 1997 THROUGH DECEMBER 31, 1997
Overview. The Company began operations on May 1, 1997 and, accordingly,
there was no comparable period in 1996. While the financial statements segregate
the results of operations between periods prior to and after the Company's
incorporation, for convenience, management's discussion and analysis of the
Company's results for the periods in 1997 have been combined.
Revenue. The Company is a development stage company and had no revenue for
the period ended December 31, 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.6 million for the period ended December 31,
1997. These expenses consisted primarily of salary, travel, consulting and
administrative fees associated with conducting the business of the Company.
These costs are expected to increase in the future as the Company builds the
necessary infrastructure to support its anticipated growth.
Research and development expenses. Research and development expenses were
$1.6 million for the period ended December 31, 1997. These expenses consisted of
product development costs for the development of the Company's TactileSense
technology.
Interest expense. Interest expense was $75,715 for the period ended
December 31, 1997. This expense was attributable to amounts accrued on advances
made by XL Vision to the Company to fund its operations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 30, 1997, the Company operated as a division of, and was
funded by, XL Vision. XL Vision has continued to make advances to the Company to
fund its operations. In February 1998, the Company raised approximately $8.3
million in a private placement. All proceeds from this private placement were
paid to XL Vision as partial repayment of its advances. Pursuant to an agreement
between XL Vision and the Company, XL Vision has agreed to fund the Company's
operations, with no maximum specified, until the earlier of March 30, 2000 and
the successful completion of the Company's initial public offering. As of
September 30, 1998, the Company had approximately $9,400 of cash and
indebtedness of approximately $6.5 million to XL Vision. The amounts due to XL
Vision will be repaid in full from the net proceeds of this offering.
Capital expenditures for the period from inception through December 31,
1997 and for the nine-month period ended September 30, 1998 were $189,218 and
$708,780, respectively, and related primarily to the purchase of computers and
computer software for the Company's employees. Capital expenditures are expected
to total approximately $1.1 million in 1998. This expected increase in capital
expenditures is primarily attributable to leasehold improvements and office
furnishings and equipment related to the Company's move into its new facility in
Lake Forest, California in May 1998.
The Company anticipates that the net proceeds from this offering, together
with existing cash balances, will be sufficient to satisfy its operating cash
needs for at least 18 months following this offering. The Company intends to use
the net proceeds from this offering to repay the net cumulative advances due to
XL Vision, which were approximately $6.5 million as of September 30, 1998, for
continued product development prior to commercialization of approximately $6.0
million, and for the Company's ongoing working capital requirements. Management
expects that losses from operations and increases in working capital
requirements will produce significant negative cash flows for at least the next
18 months. To support the Company's future cash needs, it may consider
additional debt or equity financing. However, there can be no assurance that any
such financing will be available to the Company or that adequate funds for the
Company's operations will be available when needed or on terms acceptable to the
Company. If the Company is unable to obtain sufficient additional funds, the
Company may have to delay, scale back or eliminate some or all of its marketing
and development activities.
29
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company has been engaged in an evaluation of its Year 2000 readiness in
connection with various aspects of its business. Specifically, the Company has
focused on its information technology and non-information technology systems. In
addition, the Company has analyzed its production processes and products. The
Company has also attempted to analyze Year 2000 issues relating to third parties
with whom the Company has a business relationship. The current status of the
Company's efforts is as follows:
Internal Systems, Processes and Products
Information Technology Systems. The Company's accounting software provider
and operating system provider have advised the Company that such software is
Year 2000 compliant
Non-Information Technology Systems. The Company's heating, cooling,
ventilation, telephone and alarm systems include microprocessor-based
components. The Company has not determined whether such systems are Year 2000
compliant. The Company does not believe that such systems are material to its
business; however, the Company has begun reviewing and testing such systems. The
Company does not believe that it will incur any material costs in connection
with the review and testing of such systems.
Products. The Company's products are not date sensitive. Therefore, the
Company does not believe it has any material exposure with regard to its
products as a result of the Year 2000 issue.
Year 2000 Issues Relating to Third Parties
Strategic Partners. The Company intends to manufacture and distribute its
products through strategic partners. The Company has surveyed its existing
strategic partners regarding their Year 2000 system and has not received
confirmation that such partners are Year 2000 ready.
Suppliers. Certain of the components included in the Company's products,
including the TactileSense material, are obtained by the Company or the
Company's manufacturing partners from a single source or a limited group of
suppliers. The Company intends to survey such suppliers regarding their Year
2000 status. Absent widespread difficulties affecting several major vendors, the
Company does not anticipate that vendors' Year 2000 issues would have a material
adverse effect on the Company, because the Company believes alternative sources
of supply are available for all required components.
The Company is not currently aware of the Year 2000 readiness of certain
outside services companies. The failure of these providers to be Year 2000
compliant could have a material adverse effect on the Company, which is not
currently susceptible to quantification. In the worst case, the Company's
operations could be seriously disrupted.
Customers. Because the Company intends to distribute its products through
its strategic partners and because the customer base is expected to change from
year to year, the Company is unable to predict the identity of most of its major
customers in the Year 2000 and thereafter. Accordingly, the Company is unable to
make an inquiry as to whether the customers' computer driven payment or
purchasing processes are Year 2000 compliant. A customer's Year 2000 issues
could cause a delay in receipt of purchase orders or in payment. If Year 2000
issues are widespread among the Company's customers, the Company's sales and
cash flow could be materially affected.
30
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence as
other financial statements, the components of other comprehensive income. SFAS
No. 130 requires that an enterprise classify items of other comprehensive income
by their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Through September
30, 1998, the Company did not have any components of other comprehensive income
as defined by SFAS No. 130.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of An Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about its operating
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. SFAS No. 131 is not expected to have an
impact on the Company as it expects to operate within a single segment.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures About Pensions and Postretirement Benefits." SFAS
No. 132 revises employers' disclosures about pensions and other postretirement
benefits. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 is not expected to have a material impact on the
Company's disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 is effective for periods beginning after June
15, 1999. The Company believes that it does not currently have any transactions
that will be affected by SFAS No. 133.
31
<PAGE>
BUSINESS
OVERVIEW
Who? Vision develops fingerprint identification technologies that enable
individuals to electronically authenticate their identities to access digital
networks and consumer products. The burgeoning use of the Internet, e-commerce
and computer networks is placing increasing importance upon network security. In
particular, the ability to authenticate identity is critical to safeguard
against unauthorized transactions and data access. The Company has designed and
developed TactileSense(Trademark), a proprietary fingerprint identification
technology, which enables it to create highly reliable, compact and
cost-effective authentication products. The Company believes that TactileSense
will enable the widespread integration of fingerprint identification devices
into numerous commercial mass market products.
The Company is focusing its initial commercialization efforts for its
TactileSense products on the computer network security market. According to an
April 1998 report by Dataquest, a technology market research firm, the worldwide
installed base of PCs totaled more than 270 million in 1997, with new computer
purchases exceeding 80 million in 1997 and projected to increase at a compound
annual growth rate of approximately 15% from 1997 to 2002. Today, the most
common means for identifying individuals in computer network applications are
PINs and passwords. However, these methods are inherently insecure, as they are
easy to guess or difficult to remember and consequently are often written down,
subjecting them to theft. In addition to providing only limited security, PINs
and passwords are also costly to administer. A February 1998 study by Forrester
Research, Inc. indicated that more that 40% of all help desk calls involve
resetting passwords for employees and estimated that elimination of these calls
can save several hundred dollars per user annually. The Company believes that
its TactileSense fingerprint identification system is both simpler and less
costly to support than PIN and password based systems. TactileSense products
will be sold (i) as separate attachments to existing PCs, (ii) as value-added
product features embedded into newly manufactured PC keyboards, mice and other
peripherals or (iii) directly to PC manufacturers for inclusion as a base or
optional product feature. The Company believes that initial demand within the
computer network security market will come from the healthcare and financial
services industries in identity-sensitive applications such as securing access
to patient medical records and on-line banking transactions.
Who? Vision has formed, and intends to form, strategic alliances with
companies possessing leading technology, manufacturing and distribution
capabilities in order to maintain its focus on advancing its fingerprint
identification technology and expedite its entry into selected markets. The
Company has entered into a strategic alliance with Philips, a leading world-wide
manufacturer of a broad range of consumer electronic products, under which the
Company has received access to a broad range of patents and intellectual
property related to certain fingerprint sensor and flat panel technologies
developed by Philips. Who? Vision and Philips have also entered into an
exclusive relationship to combine their respective technologies and jointly
develop and manufacture fingerprint identification sensors for sale by Who?
Vision to product markets worldwide. One of the benefits of this alliance is the
expected development and manufacture of an extremely thin (less than 1/8 inch)
and cost-effective fingerprint sensor that can be incorporated into a variety of
computer consumer product devices, such as laptops and cellular phones. In
connection with this alliance, Philips received 3.7 million shares of Who?
Vision Series C Preferred Stock.
In addition, Who? Vision has entered into strategic alliances with SPOT, a
subsidiary of MAG, and Silitek for the high-volume manufacture and distribution
of certain of its TactileSense fingerprint sensors. Based in Taiwan, MAG is a
leading computer monitor manufacturer, supplying products to major retail
outlets and PC manufacturers worldwide including Wal-Mart Stores, Inc., CompUSA,
Inc. and Gateway 2000, Inc. Silitek is a Taiwanese manufacturer and distributor
of computer peripherals and one of the top three keyboard manufacturers in the
world, whose customers include Dell Computers, Inc., Hewlett-Packard Company and
Compaq Computer Corporation.
32
<PAGE>
COMPUTER NETWORK SECURITY INDUSTRY
The continuing shift to an information-driven and communication-intensive
society, as evidenced by the proliferation of PCs, dramatic growth of the
Internet and burgeoning use of electronic commerce, is placing increasing
importance upon computer network security and, specifically, the ability to
positively confirm a person's identity. In both commercial and personal
settings, the ability to identify a specific individual is critical in order to
adequately safeguard against unauthorized persons gaining access to confidential
or inappropriate data and against various kinds of fraudulent activity. A 1998
survey by the Computer Security Institute ("CSI"), an association of information
security professionals, with the participation of the Federal Bureau of
Investigation ("FBI") found that 64% of the 520 respondents surveyed reported
computer security breaches within the last 12 months representing a 16% increase
from the CSI/FBI survey conducted in 1997. Of the reporting respondents, 44%
reported unauthorized access by employees and 24% reported system penetration
from the outside. While the survey indicated that the most serious financial
losses occurred through unauthorized access by insiders, increasingly
organizations are finding that their Internet connection is a point of attack.
While 72% of respondents that reported a breach acknowledged suffering financial
losses from unauthorized intrusions, only 46%, or 241, of the respondents were
able to quantify their losses. For the 241 respondents that could quantify their
losses, an aggregate of $136.8 million in losses were incurred, representing an
average annual loss per respondent of approximately $568,000. The need for
greater computer network security is further heightened by the increasing
availability of remote access to corporate networks and direct electronic links
to outside strategic suppliers, customers and business partners, all of which
place a business' intellectual property and proprietary data at risk.
33
<PAGE>
THE THREE COMPUTER NETWORK SECURITY FACTORS
As the following diagram depicts, the Company believes that there are three
independent factors that should be analyzed when evaluating the efficacy of a
computer network security solution: confidentiality, portability and identity. A
security solution can be implemented using any combination of these independent
factors, depending upon the specific application or level of flexibility and
security desired.
Identity
|
| Biometrics
|
|
|
|___________________ Confidentiality
/ Encryption
/
Smart /
Cards /
/
Portability
Confidentiality. "Confidentiality" refers to the protection of data while
it is stored or being transmitted within local and wide area networks or across
the Internet. Confidentiality has been widely addressed by the commercial
marketplace through sophisticated encryption and decryption technologies. With
commercially-available encryption and decryption algorithms, confidential
communication between two or more computer systems can be achieved, without
interception by an unauthorized user or "hacker."
Portability. "Portability" refers to the ability to access data from a
variety of physical locations without compromising security. Information may be
delivered to various locations through such means as a network or the Internet.
The ability to secure access to information from remote locations has been
commercially addressed through data encoded cards or smart cards and
identification tokens.
Identity. "Identity" refers to the ability to unambiguously confirm the
specific user on either end of a digital transaction. The Company believes that,
to date, identity has not been adequately addressed in the commercial computer
network security industry. Today, it is possible to communicate securely from
one machine to another and assure the identity of the user indirectly, by using
a combination of commercially available products. However, these products
require that individuals exercise certain procedures or possess a device or
piece of information to establish and communicate their identity.
The Company does not believe that existing commercially available products
provide both a reliable and cost-effective identification solution. Such
positive identification of an individual requires the use of some measurable
physical characteristics or personal traits, referred to as biometrics. The most
widely used biometric today is a handwritten signature. However, because
signatures are difficult to utilize in computer network security systems, PINs
and passwords are commonly used as a substitute for verifying identity. People
generally have multiple PINs and passwords, many of which are changed
periodically in an attempt to improve security. PINs and passwords are either
easy to remember and are therefore inherently insecure because they are easy to
guess, or difficult to remember, and consequently are often written down,
subjecting them to theft. Furthermore, in addition to providing only limited
security, PINs and passwords are also costly to administer. A February 1998
study by Forrester Research, Inc. indicated that more than 40% of all help desk
calls involve resetting
34
<PAGE>
passwords for employees and estimated that elimination of these calls can save
several hundred dollars per user annually. Because of the inherent shortcomings
of PINs and passwords, the Company believes that an effective computer network
security solution can be achieved by integrating the biometric information with
existing technologies such as a Smart Card, or an independent biometric
identification device. For a biometric solution to gain widespread commercial
acceptance, however, it must not only be technologically viable but also
commercially available at a price point that is competitive with the total cost
of ownership of PINs and passwords.
OVERVIEW OF BIOMETRICS
Biometrics are unique biological characteristics or personal traits that
can be used to identify an individual. A wide variety of biometrics are
available, including fingerprints, voice, hand geometry, facial structure, iris
and retinal patterns and handwritten signatures. Although biometric systems can
provide a more accurate means of identification than traditional non-biometric
methods, until recently, their integration into commercial applications has been
limited by the cost and technological complexity of the equipment needed to
read, record and distinguish unique biological data. In order to compete with
non-biometric systems, biometric identification systems must be accurate,
cost-effective and applicable to a broad user base.
The Company believes that fingerprint identification systems possess
several important advantages over alternative biometric systems, including low
cost, small size, convenience, reliability, fraud resistance and social
acceptance, which will promote their commercial adoption. Fingerprints have a
long history of being used as a means of verifying the identity of individuals
both in the U.S. and internationally. Legal systems throughout the world accept
the validity of positive identification through fingerprints. In addition,
fingerprints are already in widespread use on documents such as drivers'
licenses, voter registration cards, bank checks and national identification
cards. In the U.S., 11 states have started programs to scan fingerprints of
welfare applicants, and five states require thumbprints on drivers' license
applications.
Fingerprints are well-suited for positive identification because each
individual's fingerprints contain unique patterns that are distinguishable from
the fingerprint patterns of the rest of the population. The process of
capturing, storing, retrieving and comparing fingerprints has become
increasingly automated as a result of advances in optics, electronics and
computing. The Company believes that these advances will enable fingerprint
identification technology to be used to confirm an individual's identity for a
large number of commercial applications. Although the Company believes that a
small percentage of the population may be unable to utilize fingerprint
technology due to the absence of readable fingerprints and although certain
other biometrics might be more appropriate for specialized applications, the
Company believes that fingerprints are the most effective biometric for
widespread commercial use. Relative to other biometric alternatives,
fingerprint-based systems are believed to have significant technological
advantages, including speed, accuracy and the relatively small size of the
reading device. Although the costs of fingerprint identification technology have
been declining in recent years, the Company believes that costs have not yet
reached a level competitive with PINs and passwords. The Company believes that
its technology will reduce costs of fingerprint identification products to
facilitate their widespread commercial adoption.
CURRENT FINGERPRINT IDENTIFICATION TECHNOLOGIES
To date, in addition to the Company's technology, two primary fingerprint
identification technologies have been developed: optical sensor technology and
direct-contact silicon-based sensor technology. The majority of fingerprint
sensors currently in use and available for purchase are optical sensors. In such
devices, light enters a conventional or holographic prism and illuminates the
image of a fingerprint created by the oil and moisture of a finger that has been
placed on the prism surface. The fingerprint image is then captured by imaging
sensor electronics.
Recently, several companies have demonstrated fingerprint sensor prototypes
that utilize direct-contact silicon-based technology. These sensors measure the
electric field around a fingertip placed on
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the silicon device surface to generate a digital representation of the ridges
and valleys of the finger. This technology has several reported advantages over
optical sensor technology, the most important of which are its relatively small
size and its applicability to a broader segment of the population.
Neither of these technologies, however, has achieved widespread commercial
acceptance. To date, each of these technologies possesses one or more of the
following inherent limitations: high unit cost, large size, lack of reliability,
high power requirements and susceptibility to damage.
THE WHO? VISION ADVANTAGE
The Company has developed a proprietary approach to fingerprint
identification that addresses many of the limitations of existing optical and
direct-contact silicon-based sensor technologies. The Company's proprietary
TactileSense technology uses a polymeric sensor to measure the electric current
modulated by the ridges and valleys that comprise a fingerprint. The finger is
placed on one side of the polymer and a high resolution image of the finger
appears on the opposite surface. This image is then directed onto an optical
sensor where it is captured and digitized. Additionally, the Company and Philips
are jointly developing fingerprint identification sensors that combine Who?
Vision's proprietary TactileSense technology with Philips' proprietary
photosensitive flat panel glass technology. Furthermore, Philips has granted
Who? Vision broad access to patents and other intellectual property related to
fingerprint identification technology, which the Company believes will
significantly enhance its ability to commercialize advanced product offerings.
Who? Vision believes that its fingerprint identification technology
possesses attributes that collectively give it a competitive advantage over
alternative technologies and will allow its technology to be incorporated into
numerous commercial applications. These attributes include:
Low Cost. The Company believes that its proprietary TactileSense
technology will enable the Company to price its products at a level that will
make widespread commercial adoption viable. The primary factors that determine
the production cost of a fingerprint identification device are the cost of the
materials utilized and the complexity of its assembly process. Silicon
represents a significant component of the production cost of direct-contact
silicon-based sensors. Because the Company's technologies require much smaller
quantities of costly silicon, it is expected to have inherent cost advantages
over direct-contact silicon-based technologies. In addition, TactileSense
devices have fewer optical components and require a lesser degree of precision
in their assembly than existing optical fingerprint sensors, thereby making
assembly less costly.
Small Size. Size reduction is critical for the continued expansion of
commercial applications for fingerprint identification products. The Company has
developed a fingerprint identification device that can be incorporated into
computer peripherals, such as keyboards and mice. Furthermore the Company's
strategic relationship with Philips will enable it to produce extremely thin
(less than 1/8 inch) sensors for use in portable devices such as laptop
computers and cellular phones.
High Reliability Matching. Certain conditions relating to an individual's
finger and the environment can significantly impact fingerprint image quality.
For example, optical technologies rely on the presence of oil and moisture on
the skin and will often generate low quality fingerprint images for individuals
with dry skin. In addition, optical technologies are susceptible to false
readings caused by ambient light from sources such as bright desk lamps. The
electric-field sensing technology of TactileSense significantly reduces dry skin
and ambient light problems.
Anti-Fraud Capability. To ensure positive identification, it is essential
for fingerprint identification devices to verify that a fingerprint image has
been generated by a live finger and not by an artificial replica. Optical
technologies are often unable to differentiate such fingerprints, thereby
potentially exposing systems utilizing these technologies to fraudulent
activity. Devices utilizing the TactileSense electric-field sensing technology
are significantly more capable of discerning real fingers from artificial
replicas.
Durability. The potential for highly repetitive utilization of fingerprint
identification devices in widespread commercial applications and their potential
use in harsh environments require them to be
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both durable and sturdy. Optical technologies face the challenge of protecting a
transparent optical surface from long-term damage, and these surfaces typically
must undergo regular replacement. Direct-contact silicon-based technologies,
although coated with a thin layer of hard material, may be sensitive to common
environmental conditions, such as electrostatic discharge, which could damage
the device. The TactileSense material is coated with protective polymer
materials to ensure its long-term durability. Additionally, TactileSense's image
sensor does not come into contact with the finger surface, thereby avoiding
certain harmful environmental hazards such as electrostatic discharge.
Low Power Consumption. Due to the increasing miniaturization and
portability of computers and other electronic devices, it is essential that
commercial security devices be energy efficient. The ability to operate without
an external light source and to enter into a low power "idle" mode will allow
TactileSense products to be energy efficient and therefore makes them
advantageous for power sensitive applications such as a laptop computers.
BUSINESS STRATEGY
The Company seeks to leverage the inherent advantages of its TactileSense
technology and the increasing need for positive identification to introduce
highly reliable, small and durable fingerprint identification devices at price
points that will facilitate the widespread adoption of its device into numerous
markets. The Company plans to pursue this objective through the following
strategic initiatives:
Provide High Quality, Cost-Effective Products. The Company believes that
its TactileSense technology enables the commercialization of a high quality
fingerprint identification sensor that can be marketed at a price point that
will facilitate the rapid adoption of the technology into a wide variety of
markets. While competitive fingerprint identification technologies exist, the
Company believes that the characteristics of its TactileSense technology
position it to overcome the price, size, reliability and durability constraints
of such competing technologies.
Focus Initial Commercialization Efforts on the Computer Network Security
Market. According to Dataquest, there were over 270 million existing PCs
worldwide in 1997, with worldwide PC purchases expected to exceed 80 million in
1997 and projected to increase at a compound annual growth rate of approximately
15% from 1997 to 2002. The rapid growth in and increased dependence on
information technology has created a favorable environment for the commercial
adoption of the Company's high quality, cost-effective TactileSense fingerprint
identification device. Within this market, the Company expects that initial
demand will come from the healthcare and financial services industries in
applications such as securing access to patient medical records and on-line
banking transactions. The Company believes the corporate network security market
will evolve from early individual and small business adopters to high volume
larger commercial entities.
Pursue Additional Application Markets. The Company intends to pursue
additional market opportunities for its TactileSense products beyond the
computer network security market, such as consumer electronic security and
access control applications. Examples of these applications include integrating
fingerprint sensors with cellular phones, television remote controls and
point-of-sale credit card or smart card readers. As a result of the small size
and low power consumption of the TactileSense device and the Company's strategic
partnership with Philips, Who? Vision believes that it is particularly
well-positioned to pursue cellular phone applications and that such applications
will present a significant market opportunity.
Utilize Strategic Alliances. The Company is forming strategic alliances
with companies possessing leading technology, manufacturing and distribution
capabilities in order to enable the Company to develop leading fingerprint
identification products and expedite the introduction of its products into its
targeted markets. The Company believes that entering into strategic alliances
will (i) broaden its technological capabilities, (ii) allow for rapid
penetration of targeted markets, (iii) provide significant cost benefits due to
the manufacturing and volume purchasing scale advantages possessed by its
strategic partners and (iv) mitigate the potential risks associated with
manufacturing and distribution by working with strategic partners that have
proven capabilities in these areas.
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Focus on Continued Product Development. The Company has devoted a
significant amount of its resources to the development of its TactileSense
technology. The Company intends to continue to devote significant time and
resources to enhance its current core technology to effect reductions in the
cost and size of its products and to enhance reliability and durability of its
products. In addition, the Company seeks to identify and develop the next
generation fingerprint identification technology by pursuing targeted research
and development initiatives, such as the September 1998 acquisition of
technology from Philips.
Pursue Software Alliances and Conform to Emerging Software
Standards. Initially, the Company through its strategic partners intends to
enter into alliances with software companies which have products that will be
integrated into the Company's products to provide customers with turnkey
security solutions. The Company believes that it is necessary to enter into
these alliances in the absence of a standard software protocol or application
program interface ("API") for biometrics. The Company seeks to enter into
strategic alliances with leading software providers to achieve this goal.
Currently, several APIs for biometrics are being developed. The Company believes
that the adoption of a single standard API would accelerate the acceptance of
its products and has participated in software industry standard setting
committees. The Company believes that its products will be easily conformed to
the standards that may be established in the future.
MARKETS
The Company believes that its TactileSense fingerprint identification
technology is well-positioned to achieve widespread adoption in numerous
commercial mass markets because of its unique characteristics and effectiveness.
The Company is focusing its initial commercialization efforts on areas in which
it believes it can gain rapid penetration and achieve significant market share,
such as the computer network security market. Furthermore, the Company is
targeting specific industries within this market that have an awareness of and
immediate need for the technology to control access to records and/or identify
individuals entering into electronic transactions. The healthcare and financial
services industries are examples in which such needs currently exist.
Additionally, the Company believes that its TactileSense products can be
integrated into a wide variety of other, non-computer security applications. The
Company anticipates that production of the first commercially available
TactileSense products will begin during 1999.
COMPUTER NETWORK SECURITY MARKET
The shift from mainframes to distributed computer networks has led to a
dramatic increase in the number of users now sharing computer resources and
communicating with each other over local networks, wide-area networks and the
Internet. As open electronic communications become more prevalent, personal and
corporate information becomes increasingly vulnerable to unauthorized or
inappropriate access. Whether restricting a child's access to private files or
inappropriate Internet usage at home or safeguarding against attempts to access,
alter or steal proprietary information at the corporate level, the cost of
ineffective computer network security can be significant.
The Company believes the addressable market for its TactileSense technology
is the number of existing and new PCs. According to an April 1998 Dataquest
report, the worldwide installed base of PCs totaled more than 270 million in
1997. Additionally, the report estimated that over 80 million new PCs were
purchased worldwide in 1997, with approximately 75% and 25% of these used in
professional and private environments, respectively. Furthermore, compound
annual growth for new PC purchases was projected by Dataquest to be
approximately 15% through the year 2002. Within the PC market, the Company's
device is expected to be sold (i) as a separate attachment to existing PCs, (ii)
as a value-added product feature embedded into newly manufactured PC keyboards,
mice and other peripherals and (iii) directly to PC manufacturers for inclusion
as a base or optional product feature.
The Company's initial commercialization effort is to introduce its
TactileSense technology for use with PCs as a highly reliable and cost-effective
means of data and network security. The Company views this market opportunity as
evolving from the early individual and small business adopters
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("Consumer/Small Business" segment) to the high-volume larger commercial
entities ("Enterprise" segment).
In order to address both the Consumer/Small Business and Enterprise
segments, the Company has entered into strategic partnerships with two leading
computer peripheral manufacturer that possess significant distribution
capabilities to these target segments. Additionally, the Company has had
discussions with, and is committing significant internal resources to,
developing close relationships directly with major PC manufacturers.
Consumer/Small Business Segment
The Company believes that the Consumer/Small Business segment can be
divided into three categories:
Home User Desktop Security. Applications for the Company's TactileSense
products within the Home User Desktop Security Market include data privacy for
shared home computer systems, password elimination and child Internet control.
According to a January 1998 survey by Dataquest, 40.1% of the U.S. households
surveyed in 1997 had a PC. The Company believes that this retail category
presents a significant potential market opportunity.
Small Business Desktop Security. Applications for the Company's
TactileSense products within the Small Business Desktop Security Market include
data security for confidential accounting and human resources data and password
elimination. According to a U.S. Small Business Administration study, there were
23.3 million businesses of 500 employees or less within the U.S. in 1996. The
Company believes that this retail category presents a significant potential
market opportunity.
On-line Service Security. Use of fingerprint security for accessing
Internet accounts represents a large potential market as e-commerce such as home
banking, stock trading and general Internet-based purchasing increases.
According to a fall 1997 CommerceNet/Nielsen Demographic study, approximately 52
million users (over the age of 16) in the U.S. had used the Internet in the
prior three-month period. Furthermore, estimates based on various
CommerceNet/Nielsen Demographic studies show worldwide usage at approximately
99.5 million users. A March 1998 International Data Corporation report estimates
that global Internet commerce revenues will grow from approximately $12.4
billion in 1997 to approximately $425.7 billion in 2002.
The Company believes that initially these opportunities are best addressed
by the sale of standalone fingerprint peripheral devices through the mass-market
retail channels of its distribution partners and in the longer term by
incorporating the devices directly into PCs and peripherals.
Enterprise Segment
The Enterprise segment, which is comprised of large corporations and other
organizations, can be divided into multiple vertical markets, including
healthcare, financial services, government, manufacturing, technology and
utilities. Applications common to each include password elimination and data
security. While the Company believes that its TactileSense technology will have
broad application to a wide variety of corporate users, two vertical markets
that have exhibited particular near-term demand for TactileSense devices are the
healthcare and financial services industries.
Healthcare Industry. Within the healthcare industry, there is a high
degree of concern over the confidential treatment of patient and related medical
records. Due to the large volumes of patient data and the need to access this
information quickly and at multiple locations, electronic storage and retrieval
databases are being widely adopted as a means to enhance productivity. However,
because of the confidential nature of medical information, and recent Federal
legislation that mandates the protection of this data, hospitals and other
healthcare providers are increasingly seeking to improve the security of patient
records while providing an audit trail of the review or modification of such
records. One of the Company's distribution partners has engaged in discussions
with several leading healthcare institutions and has experienced significant
demand for the Company's product from these institutions.
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Financial Services Industry. The financial services industry is
increasingly exploring ways to improve customer service, such as providing
remote access to individual accounts and allowing clients to conduct various
transactions electronically. However, the Company believes that widespread
acceptance of many of these services has been slow due to security concerns
regarding the inability to positively identify the user attempting to gain
access to an account or make a financial transaction. The Company and its
distribution partners are engaged in discussions with several leading financial
institutions in order to develop this market opportunity.
OTHER MARKET OPPORTUNITIES
The need for a reliable method of positive identification exists in a wide
variety of commercial and noncommercial applications. Consquently, the Company
intends to pursue additional market opportunities for its TactileSense products
beyond the computer network security market, such as consumer electronic
security and access control applications. Potential noncomputer consumer
electronic security applications include integration into cellular phones,
television remote controls, point of sale devices and other high-value personal
or commercial electronic systems. Of particular interest to the Company is the
rapidly growing cellular phone market. As cellular phone manufacturers continue
to integrate added functionality such as Internet access into the handsets, the
Company believes that these devices will require biometric security to secure
communications. Additionally, thefts of cellular phone numbers cost the
telephone industry over $2 billion annually, which could be substantially
mitigated through incorporation of a fingerprint sensor which validates the
identity of the user. Potential access control applications may range from
simple applications, such as replacing standard door locks, to more advanced
applications, such as automotive and building security systems. The Company
believes these markets are significant and intends to devote time and resources
to developing these application markets, and in particular those that it
considers to possess high-value and involve early technology adopters.
SALES AND MARKETING
Critical to the successful implementation of the Company's business
strategy is a rapid penetration of each selected market. For this reason, the
Company is pursuing a two-pronged sales and marketing approach directed to
hardware manufacturers and end-users and applications developers.
Well-established PC peripheral device manufacturers are a target market for
incorporation of the TactileSense fingerprint device which will "push" the
technology into use. At the same time, by marketing to end-users, application
developers and operating system security infrastructure producers, the Company
believes that the resulting software will have attractive features that users
will desire, thereby creating a demand or "pull" for the fingerprint sensors.
The Company believes that this "push-pull" strategy will be the most effective
method for rapid market entry and market share capture.
The Company's sales efforts will thus be directed toward a relatively small
number of large accounts. The Company intends to employ experienced channel
managers who will train the PC manufacturers' sales staff, accompany them on
sales calls and assist in the generation of support materials, including product
release notes and documentation.
The Company's marketing efforts will establish a broad consumer and user
awareness of the technology and its applications. The Company has thus adopted a
strategy that utilizes advertising, trade journal articles and reviews by panels
of "industry experts."
MANUFACTURING
The Company is planning to rapidly expand production capacity for its
products. In order to achieve this result and minimize the risks and expenditure
of its resources, the Company has entered into agreements with international
manufacturing partners that have the capacity to manufacture the volumes
anticipated and directly integrate the device into end products. This approach
will significantly reduce the time to market of the Company's products. See "--
Strategic Alliances."
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SUPPLIERS
The principal raw materials and components used in the manufacturing of the
Company's products are the TactileSense material, silicon image sensors, glass
image sensors and certain custom silicon chips. While the TactileSense material,
silicon image sensors and custom silicon chips are obtained by the Company or
the Company's manufacturing partners from a single souce or a limited group of
suppliers, the Company believes that there are numerous alternative suppliers of
each. However, the Company exclusively obtains glass image sensors through its
strategic alliance with Philips. In addition, the Company sources customized
silicon chips from various other suppliers.
TECHNOLOGY
The Company's proprietary patent-pending TactileSense technology was
invented by XL Vision. The technology was transferred to the Company, whose
staff of scientists and engineers has worked to develop a reliable, low cost,
manufacturable device. The Company expects to make considerable ongoing
investments in TactileSense technology and product development, including
working with external technical partners, such as Philips, to combine
TactileSense with other advanced technologies to create leading edge fingerprint
identification products. In addition, the Company is focused on providing
constant reductions in product costs and size over time in order to both
maximize computer industry penetration and to address new markets for
fingerprint identification technologies.
Who? Vision's TactileSense polymer material is used to generate a
high-resolution image of an individual's fingerprint. When the light emitting
polymer comes into contact with the electric current present within the
fingertip, a precise illuminated image is generated, revealing the fingerprint
patterns of ridges and valleys specific to the individual.
An advantage of the TactileSense fingerprint device is that it is
relatively simple, comprised of only three principal components:
o The finger contact/image generation surface which is approximately one
square inch of TactileSense material.
o An electrical circuit that controls the supply of an appropriate current
to the TactileSense material.
o An image sensor that combines an image capture function with a digital
interface.
Traditionally, digital imaging sensing has been performed using
charge-coupled-devices ("CCD"), a highly specialized and expensive form of
silicon chip. In recent years, a new image capture technology has emerged that
utilizes CMOS to fabricate chips for digital image capture. Not only are such
chips far less expensive than comparable CCDs, they have an additional advantage
of enabling specialized digital processing and interface circuits to be created
on the same chip that captures the image.
The Company believes that the use of CMOS image sensors in conjunction with
its TactileSense technology will allow it to produce highly competitive
fingerprint sensors. However, such sensors do require a small space between the
TactileSense material and the image sensor. To even better address
space-sensitive applications such as laptop computers, the Company has entered
into an exclusive alliance with Philips that allows it to build extremely thin
devices by combining its TactileSense technology with Philips' flat, glass-based
image technology. The Company believes that the combination of Who? Vision's
technology and Philips' technology will give it technical advantages in markets
such as the laptop computer and cellular phone markets. The Company believes
that the combination of these technologies may also be used to develop
next-generation "fingerprint-enabled" flat panel display products.
Once an image of the fingerprint has been captured using the Company's
hardware, it must be processed to precisely locate the fingerprint "minutiae"
that uniquely identify an individual. The Company has licensed computer software
that incorporates patented algorithms from The Phoenix
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Group, Inc. ("Phoenix") for this processing which can be executed on either a
standard general purpose PC or a low-cost, purpose-specific "embedded" computer
of the Company's own design.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's commercial success will depend in part on its ability to
protect and maintain its proprietary technology and to obtain and enforce
patents on its technology. The Company has applied for three patents with the
U.S. Patent and Trademark Office regarding certain aspects of the Company's
fingerprint imaging technology. The Company has also filed foreign patent
applications that correspond to its U.S. patent applications. The Company is not
aware of any patents held by others that would prevent the Company from
manufacturing and commercializing its fingerprint imaging technology in the
United States and abroad. However, the Company has not performed an exhaustive
worldwide search. There can be no assurance that any patent applications filed
by the Company will result in the issuance of patents or that any patents issued
to the Company will afford protection against competitors that develop similar
technology, or that a competitor will not reverse engineer the Company's
technology. The Company has acquired a license to use certain Philips patents
and rights to certain intellectual property, and the Company's future success
may depend on the protection and confidentiality of such information.
The Company currently relies on a combination of trade secrets, proprietary
knowledge, licenses, technological advances and non-disclosure, confidentiality
and non-competition agreements entered into with its employees and certain
consultants, customers and suppliers to protect its proprietary rights. No
assurance can be given that the Company's efforts will provide meaningful
protection for its unpatented proprietary technology against others who
independently develop or otherwise acquire substantially equivalent technologies
or gain access to, misappropriate or disclose the Company's proprietary
technology.
There can be no assurance that other parties will not in the future make
claims or threaten to take legal action against the Company alleging
infringement of patents by the Company. The computer manufacturing and software
industry has experienced a significant amount of litigation regarding patents
and other rights. Patent litigation can be costly and time consuming. If the
Company were determined to be infringing any patent, the Company could be
required to pay damages, alter its products or processes, obtain licenses and/or
cease certain activities. In addition, if patents are issued to others which
contain claims that cover subject matter made, used or sold by the Company, the
Company may be required to obtain licenses to these patents, to develop or
obtain alternative technology or to cease using such technology. If the Company
is required to obtain any licenses, there can be no assurance that the Company
will be able to do so on terms acceptable to the Company, if at all.
PRODUCT DEVELOPMENT
The Company intends to continue to devote significant time and resources to
enhance its current core technology to effect reductions in the cost and size of
its products and to enhance the reliability and durability of its products. As
of September 30, 1998, the Company had 28 employees dedicated to product
development, including several scientists who hold Ph.D. degrees in various
disciplines, primarily in the areas of electrical engineering, physics and
mathematics. Over 49% of the Company's expenses during the period ended December
31, 1997 and over 50% of the Company's expenses, excluding in-process research
and development, for the nine months ended September 30, 1998 were direct
research and development expenses. The Company intends to continue to invest
heavily in research and development and focus on the recruitment of experienced
scientists and engineers.
STRATEGIC ALLIANCES
Philips Alliance. On September 30, 1998, the Company entered into a
strategic alliance with Philips. Pursuant to various agreements (collectively,
the "Philips Agreements"), the Company agreed to use its reasonable efforts to
develop its TactileSense products and other products based on Philips'
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technology that incorporate photo sensitive and capacitive fingerprint sensor
systems. In return, Philips granted the Company, a worldwide license to make,
use and sell products in the field of photo sensitive and capacitive fingerprint
sensors based on Philip's proprietary amorphous silicon technology. The
Company's license will be exclusive, so long as the Company achieves certain
development milestones and purchases minimum quantities under the Philips
Agreements. For its exclusive license, the Company is obligated to pay Philips a
royalty fee based upon the amounts received by the Company from sales of
products to Philips. Under the Philips Agreements, the Company is required to
supply photo sensitive and capacitive fingerprint sensors to Philips at the
Company's most favored customer prices. The Philips Agreements require the
Company to pay developmental costs associated with developing Philips'
technology, including any fees due to Cadence Design Systems Ltd., which is
working on the design and development of an ASIC for fingerprint sensors based
on Philips' technology, and the services of certain Philips engineers. The
Company's license with Philips continues until all of the licensed patents have
expired.
As consideration for entering into the Philips Agreements, the Company
issued 3,700,000 shares of Series C Preferred Stock to Philips and will pay
$125,000 in cash and issued 75,000 shares of Series C Preferred Stock to A3
Ventures Incorporated ("A3 Ventures"), which will assist in the transfer of
Philips' technology to the Company. See "Principal and Selling Stockholders."
Philips and A3 Ventures were granted certain stockholder rights, including
registration rights, in connection with the issuance of their shares. See
"Shares Eligible for Future Sale -- Registration Rights." Under the Philips
Agreements, the sale of Series C Preferred Stock to Philips included a buyback
provision to repurchase 600,000 shares at $5.00 per share which is triggered if
the Company does not become public on or before March 31, 1999. The Company as
an alternative to this buyback provision may at its discretion choose to lose
its exclusivity with respect to the Philips patents. In consideration for
receiving its shares, Philips agreed, subject to certain exceptions, not to
acquire more than 30% of the outstanding voting power of the Company prior to
August 18, 2000.
SPOT/Silitek Alliances. In order to fulfill its manufacturing and
distribution requirements, the Company has entered into agreements with SPOT and
Silitek to provide certain global sales, manufacturing, service and distribution
capabilities in the Company's target markets.
The Company has entered into a strategic alliance with SPOT, a Taiwanese
computer peripheral company, for the high-volume manufacture and distribution of
its TactileSense fingerprint identification devices. SPOT provides low-cost,
high resolution digital imaging products worldwide and is a subsidiary of MAG.
MAG is the second largest monitor manufacturer in Taiwan, supplying products to
major retail outlets and PC manufacturers worldwide including Wal-Mart Stores,
Inc., CompUSA, Inc. and Gateway 2000, Inc. The Company has entered into a
manufacturing agreement and a distribution agreement with SPOT. Pursuant to the
manufacturing agreement, SPOT will manufacture and sell TactileSense fingerprint
identification devices to the Company at cost plus a fixed mark-up. Pursuant to
the agreement, the Company is obligated to meet certain minimum purchase
requirements. The Company will then resell the devices to distribution channels,
including SPOT. The distribution agreement provides SPOT with the rights to
market fingerprint identification devices to manufacturers of monitors,
keyboards and mice and into certain retail channels. In order to retain certain
of its distribution rights, SPOT is required to purchase a minimum number of
fingerprint devices from the Company. The agreement also requires SPOT to
purchase all of its fingerprint identification devices for distribution through
certain channels set forth in the agreement from the Company.
The Company has also formed a strategic alliance with Silitek, a Taiwanese
manufacturer and distributor of computer peripherals and one of the top three
keyboard manufacturers in the world, whose customers include Dell Computer
Corporation, Hewlett-Packard Company, and Compaq Computer Corporation. The
Company granted to Silitek a license, subject to certain manufacturing rights
granted to SPOT, to be the only major keyboard manufacturer permitted to
manufacture the Company's fingerprint identification devices. In accordance with
a manufacturing agreement, Silitek will manufacture fingerprint identification
devices pursuant to the Company's purchase orders and sell them to the Company
at cost plus a fixed mark-up. Pursuant to a distribution agreement, Silitek and
the
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Company's other distribution partners will then purchase such devices from the
Company and incorporate them into their keyboards and stand-alone peripheral
units for resale into established PC and other markets.
Integrated Visions Alliance. In July 1998, the Company entered into a
value-added reseller ("VAR") agreement with Integrated Visions, which is engaged
in the business of providing integrated security solutions incorporating
biometric identification to its clients in vertical markets such as healthcare
and financial services. Integrated Visions is a development stage company and a
subsidiary of XL Vision. See "Management -- Certain Relationships" and "Certain
Transactions." The Company granted Integrated Visions the right to market and
sell the TactileSense fingerprint identification device on a non-exclusive basis
as a component of and in conjunction with the sale of computer hardware,
software and/or systems integration services to non-retail end users and to
other third party resellers in vertical markets, including healthcare and
financial services. Integrated Visions and its third party resellers may only
resell the fingerprint device as part of a complete business solution for its
non-retail customers and are prohibited from selling into distribution channels
granted to SPOT and Silitek. The Company has agreed to sell the fingerprint
identification devices to Integrated Visions at the lowest price for which it
sells such devices to other resellers who purchase similar volumes provided that
Integrated Visions purchases a minimum number of devices from the Company.
Phoenix Alliance. The Company has also formed a strategic alliance with
Phoenix from which the Company licenses field-tested fingerprint matching
software. In consideration of the grant by Phoenix to the Company of this
non-exclusive, worldwide license, the Company issued 92,042 shares of its Common
Stock to Phoenix and additionally agreed to pay quarterly license fees. See Note
10 of the Notes to Financial Statements. The License Agreement, which was
originally entered into by XL Vision on November 5, 1997 and subsequently
assigned to the Company, expires on December 31, 2002, but will automatically
renew for additional one year terms unless the Company gives Phoenix 90 days
notice before the end of each term.
The Company plans to enter into arrangements with other manufacturing and
distribution partners for other product applications and/or markets.
COMPETITION
Although the biometric identification industry has yet to fully develop,
the Company anticipates that it will be characterized by intense competition.
The Company will generally compete with producers of both non-biometric and
biometric methods of restricting access. Non-biometric methods of restricting
access, such as keys, tokens, PINs and passwords, will initially compete with
the Company's devices. The Company will compete more directly with other
biometric methods of restricting access, such as signature verification, voice
recognition, iris recognition, facial recognition, hand geometry recognition and
retinal scanning, all of which are currently being marketed. Companies which
develop and distribute fingerprint identification devices, such as American
Biometric Company, Digital Persona, Inc., Harris Corporation, Identicator, Inc.,
Identix Incorporated, Siemens AG, ST Microelectronics N.V., Thomson-CSF and
Veridicom, Inc., will compete directly with the Company. The Company will face
additional competition from other established and emerging companies in each
market in which the Company intends to compete. The Company believes that it has
developed technology that has cost and technological advantages over the
technologies employed by its competition and that these differences will allow
the Company to successfully differentiate its products in the market.
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LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
GOVERNMENTAL REGULATION
The Company's products are subject to restrictions on their export to and
reexport from many foreign countries. These restrictions require the Company to
obtain a validated export license prior to the sale of its products to
purchasers in such countries, thereby making many of the Company's sales to
foreign countries subject to the approval of the U.S. Department of Commerce.
Such requirements are not expected to have a material adverse effect on the
Company. In addition, states may enact legislation which restrict the use and
dissemination of data derived from biometric products, which could have a
material adverse effect on the Company's ability to commercialize its products
in such markets.
EMPLOYEES
As of September 30, 1998, the Company employed a total of 43 persons,
including 28 persons in product development and engineering, four persons in
marketing and sales, and 11 persons in administration. The Company is not
subject to any collective bargaining agreements and the Company believes that
its relationship with its employees is good.
FACILITIES
The Company's corporate facilities located in Lake Forest, California
occupy approximately 21,000 square feet. The lease has a five year term with
monthly base rent of approximately $20,000 and additional provisions for
allocations of direct expense charges for building upkeep, maintenance and
property taxes. This lease expires on May 17, 2003 at which time the Company has
an option to renew the lease for an additional five-year term. The Company
believes that this space is adequate to support its needs for the foreseeable
future.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Alexander G. Dickinson, Ph.D.(1)(2)............. 36 Chief Executive Officer and Director
James W. Kerrigan(1)............................ 62 Chief Financial Officer
John S. Scott, Ph.D.(2)......................... 47 Chairman of the Board of Directors
Edward Anderson(3)(4)........................... 51 Director
Walter W. Buckley, III(2)(3).................... 38 Director
Alex W. Hart.................................... 58 Director
James Ionson, Ph.D.(4).......................... 47 Director
Christopher Moller, Ph.D........................ 44 Director
Charles A. Root(2)(3)........................... 65 Director
Brian D. Berger................................. 37 Vice President, Operations
Executive Vice President, Business
Robert L. Miller................................ 44 Development
Linda Starr..................................... 40 Senior Vice President, Sales and Marketing
</TABLE>
- ------------------
(1) Executive officer
(2) Member of the Executive Committee
(3) Member of the Audit Committee
(4) Member of the Compensation Committee
Alexander G. Dickinson, Ph.D. has been Chief Executive Officer of the
Company since May 1997 and a Director of the Company since July 1997. From
February 1996 until joining the Company, Dr. Dickinson held the position of
Director of Strategy and Business Development at Lucent Technologies, Inc. where
he developed new ventures based on AT&T Bell Labs technologies, including
fingerprint sensing and single-chip cameras. From January 1988 until February
1996, Dr. Dickinson led a digital imaging research and development group within
Bell Labs. Before joining Bell Labs, Dr. Dickinson co-founded and managed two
Australian high technology start-up companies. Dr. Dickinson holds a Ph.D. in
Electrical Engineering from the University of Adelaide, Australia and an M.B.A.
from Columbia University. Dr. Dickinson holds 16 patents relating to various
aspects of chip design and imaging.
James W. Kerrigan has been Chief Financial Officer of the Company since
March 1998. From March 1997 through March 1998, Mr. Kerrigan was a self-employed
securities trader. From April 1995 to March 1997, Mr. Kerrigan was Chief
Financial Officer of Artios Corporation, a company that develops enterprise and
computer-aided design software and manufactures peripheral devices for
prototyping in the packaging industry. From October 1994 to January 1995, Mr.
Kerrigan served as Chief Financial Officer of Pinnacle Micro Inc., a computer
peripheral manufacturer. From 1988 to 1994, Mr. Kerrigan was Chief Financial
Officer of PDA Engineering Inc., a computer-aided engineering software company.
He holds a B.S. in engineering and an M.B.A. from Northwestern University.
John S. Scott, Ph.D. has been Chairman of the Board of the Company since
July 1997. Since May 1993, he has also been Chairman of the Board and Chief
Executive Officer of XL Vision. From 1991 until July 1993, Dr. Scott was the
President of Lenzar Electro-Optics, Inc., a manufacturer of imaging devices. Dr.
Scott has a Ph.D. in both physics (turbulence and particle acceleration,
associated space-
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borne instrumentation, plasma physics and electro-optical sensor system
development) and astrophysics from the University of Arizona. He has designed
and developed scanners for a wide range of media types including intelligence
imagery, microfiche, microfilm, fingerprint cards, aerial photos, voter
registration cards and medical x-rays. Dr. Scott is also Chairman of the Board
of ChromaVision Medical Systems, Inc., a Safeguard partnership company.
Edward Anderson has been a Director of the Company since November 1997. Mr.
Anderson has served since January 1994 as President and Chief Executive Officer
of CompuCom Systems, Inc., a Safeguard partnership company. CompuCom is a
leading provider of distributed desktop computer products and network
integration services with annual revenues in excess of $2 billion. Mr. Anderson
joined CompuCom in August 1993 as Chief Operating Officer and has been a
Director of CompuCom since 1993. Prior to joining CompuCom, Mr. Anderson was
President and Chief Operating Officer of ComputerLand Corp. from 1989 until
1993. Mr. Anderson is a director of Diamond Technology Partners, a Safeguard
partnership company, and M/A/R/C Inc.
Walter W. Buckley, III has been a Director of the Company since November
1997. Mr. Buckley has been the President and Chief Executive Officer of Internet
Capital Group, a Safeguard partnership company which invests primarily in
Internet companies, since March 1996. Prior to that, Mr. Buckley worked for
Safeguard since 1987, most recently as Vice President. Prior to joining
Safeguard, Mr. Buckley was President and co-founder of Centralized Management
Systems, Inc., a medical supply company, which he sold in 1987. Mr. Buckley is a
member of the Board of Directors of Internet Capital Group, Sky Alland Marketing
Inc., MultiGen, Inc., VerticalNet, Inc., and XL Vision.
Alex W. Hart has been a Director of the Company since April 1998. Mr. Hart
has served as the Chief Executive Officer of Advanta Corp. from 1996 to 1998,
and as an officer of Advanta Corp. since 1994. Prior to that time, he was
President and Chief Executive Officer of Mastercard International Inc., a
position he held since 1988. For a period of ten years prior to joining
Mastercard, Mr. Hart served as Executive Vice President of First Interstate
Bancorp, Los Angeles.
James Ionson, Ph.D. has been a Director of the Company since November 1997.
Dr. Ionson is President and Chief Executive Officer of JDC, Inc., a management
consultant firm. Previously, Dr. Ionson worked for Polaroid Corporation from
1991 to 1995 where he served as corporate vice president of ImageNow business
development from 1994 to 1995, and corporate vice president of research and
technology from 1991 to 1994. Dr. Ionson held the Harvard Smithsonian
Astrophysical Observatory Award from 1981 to 1984 and was the Maryland Academy
of Sciences Scientist of the Year in 1983.
Christopher Moller, Ph.D. has been a Director of the Company since February
1998. Dr. Moller has served as Managing Director of Technology Leaders III and
since 1994 Technology Leaders II Management L.P., and in various capacities
since 1990 with its predecessors. He holds a Ph.D. in immunology from the
University of Pennsylvania. He is a director of five biotechnology companies
including ViroPharma, Inc. Dr. Moller serves on the medical advisory board of
Lankenau Research Institute. Dr. Moller is a director of ChromaVision Medical
Systems, Inc., a Safeguard partnership company.
Charles A. Root has been a Director of the Company since November 1997.
Since 1986, Mr. Root has served as an Executive Vice President of Safeguard.
From 1988 until March 1994, Mr. Root served as Chairman and Chief Executive
Officer of Coherent Communications Systems Corporation, a Safeguard partnership
company which manufactures telecommunications equipment, where he continues to
serve as Chairman. Mr. Root is Chairman of Tangram Enterprise Solutions, Inc.
and a director of ChromaVision Medical Systems Inc., a Safeguard partnership
company.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified. The
Board of Directors has a Compensation Committee, which makes recommendations
concerning salaries and incentive compensation for employees of and consultants
to the Company; an Audit Committee, which reviews the results and scope of the
audit and other services provided by the Company's independent auditors; and an
Executive Committee. All
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non-employee directors are reimbursed for travel and other expenses related to
their service on the Board of Directors.
KEY EMPLOYEES
Brian D. Berger has been Vice President, Operations of the Company since
April 1998. From May 1988 until joining the Company, Mr. Berger held various
marketing and sales positions with NMB Technologies Inc. ("NMB"), one the
world's largest computer keyboard manufacturers. Prior to joining the Company,
Mr. Berger was Product Sales Manager, Input Devices at NMB. Mr. Berger has
related technical experience in fingerprint technologies through his marketing
association with the product development process at NMB. Mr. Berger holds a B.A.
degree from California State University, Northridge.
Robert L. Miller has been Executive Vice President, Business Development of
the Company since April 1998. From January 1997 to January 1998, Mr. Miller was
Executive Vice President for Customer Care, BellSouth Business Systems Inc. From
August 1995 to January 1997, Mr. Miller was Vice President and General Manager,
Sales and Service for BellSouth Business Systems. From 1976 to 1995, Mr. Miller
held various executive and managerial sales and marketing positions with IBM.
Mr. Miller holds a B.S. degree in Commerce and Engineering from Drexel
University and an M.S. degree from MIT's Sloan School.
Linda Starr has been Senior Vice President, Sales and Marketing of the
Company since July 1998. From June 1997 to November 1997, Ms. Starr was Vice
President, Channel Sales, North America for Compaq Computer Corporation. From
October 1993 to June 1996, she was Vice President, Worldwide Sales for Visioneer
Communications, Inc. From October 1988 to October 1993, Ms. Starr held various
sales positions with NEC Technologies, Inc., including Vice President, Sales,
Western Operations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1997, the Company did not have a Compensation Committee
or any other committee of the Board of Directors performing similar functions.
Recommendations concerning all of the Company's employees were made to the Board
of Directors by the Company's Chief Executive Officer. There are currently no
compensation committee interlocks with other entities or insider participation
on the Compensation Committee.
CERTAIN RELATIONSHIPS
Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology Leaders
Offshore C.V. are venture capital funds that are required by their governing
documents to make all investment, voting and disposition actions in tandem.
Technology Leaders L.P. and Technology Leaders Offshore C.V. are referred to
collectively in this Prospectus as "Technology Leaders I." Technology Leaders
Management L.P. has sole responsibility for all investment, voting and
disposition decisions for Technology Leaders I. The general partners of
Technology Leaders Management L.P. are (i) Technology Leaders Management, Inc.,
a privately held subsidiary of Safeguard, (ii) TL Partners I, a general
partnership among Technology Leaders Management, Inc. and the Managing Directors
of Technology Leaders Management, Inc., other than Mark J. DeNino, and (iii)
four other corporations (the "TLA Corporations") owned by individuals, one of
whom serves as a director of Safeguard, and three of whom are not currently
otherwise affiliated with Safeguard or the Company. Technology Leaders
Management L.P. is managed by an executive committee, by whose decisions the
general partners have agreed to be bound, that consists of seven voting members
including (i) Warren V. Musser, Robert E. Keith, Jr. and Gary J. Anderson, M.D.,
each of whom are designees of Technology Leaders Management, Inc., and (ii) one
designee of each of the TLA Corporations. Clayton S. Rose is a non-voting member
of that executive committee. Technology Leaders Management, Inc. is the
administrative manager of Technology Leaders, subject
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<PAGE>
to the control and direction of the executive committee of Technology Leaders
Management L.P. Mr. Musser is the chairman and Mr. Keith is president and chief
executive officer of Technology Leaders Management, Inc. and Mr. Keith, Dr.
Anderson, Mr. DeNino and Christopher Moller, Ph.D., a director of the Company,
are the managing directors of Technology Leaders Management, Inc. Mr. Keith and
Dr. Anderson are former officers of Safeguard and Mr. Keith is a director of
Safeguard.
Technology Leaders II Management L.P., a limited partnership, is the sole
general partner of Technology Leaders II L.P. and a co-general partner of
Technology Leaders II Offshore C.V. Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. are venture capital funds that are required by their
governing documents to make all investment, voting and disposition actions in
tandem. Technology Leaders II L.P. and Technology Leaders II Offshore C.V. are
referred to in this Prospectus as "Technology Leaders II." Technology Leaders II
Management L.P. has sole authority and responsibility for all investment, voting
and disposition decisions for Technology Leaders II. The general partners of
Technology Leaders II Management, L.P. are (i) Technology Leaders Management,
Inc., a wholly-owned subsidiary of Safeguard, (ii) Robert E. Keith, Jr., Gary J.
Anderson, M.D., Mark J. DeNino and Christopher Moller, Ph.D., a director of the
Company, and (iii) four other corporations (the "TLA Corporations") owned by
natural persons, one of whom is a director of Safeguard. Technology Leaders II
Management L.P. is managed by an executive committee, by whose decisions the
general partners have agreed to be bound, which consists of nine voting members
including (i) Warren V. Musser, who is a designee of Technology Leaders
Management, Inc., (ii) Mr. Keith, Dr. Anderson, Mr. DeNino, Dr. Moller,
individually, and (iii) one designee of each of the TLA Corporations and (as a
non-voting member) Clayton S. Rose. Technology Leaders Management, Inc. is the
administrative manager of Technology Leaders II, subject to the control and
direction of the executive committee of Technology Leaders II Management L.P.
Mr. Keith is a director of Safeguard.
Safeguard Scientifics (Delaware), Inc., a privately held subsidiary of
Safeguard, is a limited partner in Technology Leaders L.P. and Technology
Leaders II, holding 3.3% of the aggregate limited partnership interest in
Technology Leaders L.P. and 4.4% of the aggregate limited partnership interest
in Technology Leaders II L.P. Technology Leaders Management, Inc. holds directly
or indirectly 31% of the general partnership interests in Technology Leaders
Management L.P. and 39% of the general partnership interests in Technology
Leaders II Management L.P.
Internet Capital Group L.L.C. ("Internet Capital") is a limited liability
company organized to invest in and provide strategic management and financial
support to Internet companies. Walter Buckley, a Director of the Company, is the
chief executive officer and a director of Internet Capital Group, Inc., the
management company for Internet Capital. Mr. Buckley is a former officer of
Safeguard. Robert Keith and Warren Musser are also members of Internet Capital's
Board. Safeguard and Technology Leaders II collectively own approximately 37% of
Internet Capital's ownership interests.
Safeguard, Technology Leaders I and Technology Leaders II collectively
beneficially own approximately 41% of the voting common stock of XL Vision and
approximately 97% of the non-voting convertible preferred stock of XL Vision and
have the right to designate two of the nine members of XL Vision's Board of
Directors. In February 1998, the Company raised its initial equity capital
through a private offering of its Series A Preferred Stock primarily to XL
Vision's stockholders. In May 1998 and June 1998, the Company sold an aggregate
of 300,000 shares of its Series B Preferred Stock to Technology Leaders I,
Technology Leaders II and Internet Capital.
Integrated Visions is a privately held subsidiary of XL Vision. XL Vision
controls 100% of the voting rights of Integrated Visions and approximately 36%
of its issued and outstanding common stock. Integrated Visions is engaged in the
business of providing integrated security solutions incorporating biometric
technology to its clients in vertical markets such as healthcare and financial
services. In July 1998, the Company entered into a VAR agreement with Integrated
Visions pursuant to which Integrated Visions was granted the right to market and
sell the TactileSense fingerprint device on a non-exclusive basis as a component
of and in conjunction with the sale of computer hardware, software and/or
systems integration services to non-retail end users and to other third party
resellers in
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vertical markets. See -- "Strategic Alliances." Dr. Scott, a director of the
Company, owns approximately 13% of the issued and outstanding common stock of
Integrated Visions. Dr. Scott's shares of Integrated Visions are restricted
shares granted pursuant to XL Vision's Long Term Incentive Plan and as such, the
voting rights related to his shares are controlled by XL Vision. Dr. Scott is
the Chairman of the Board of Integrated Visions and the Chairman of the Board
and Chief Executive Officer of XL Vision. Dr. Dickinson and Dr. Hsieh received
from XL Vision grants of 50,000 and 25,000 shares, respectively, of restricted
stock in Integrated Visions.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid or accrued from the inception of the Company through December 31, 1997 with
respect to the Company's Chief Executive Officer and its other most highly
compensated executive officer who earned total salary and bonus in excess of
$100,000 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL ---------------------------
COMPENSATION(1) RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(4) OPTIONS/SARS COMPENSATION
- ------------------------------- ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alexander G. Dickinson,
Ph.D.(2)
Chief Executive Officer...... 1997 $98,470 $40,000 $31,875 -- $43,532
Tzu-Chiang Hsieh, Ph.D.(3)
Vice President and Chief
Operating Officer............ 1997 80,000 31,000 13,125 -- 23,350
</TABLE>
- ------------------
(1) Except as otherwise noted, the annual compensation described in this table
reflects actual salary and bonus paid to such executive officers from the
inception of the Company through December 31, 1997. In 1997, Drs. Dickinson
and Hsieh were paid based upon an annual salary of $160,000 and $130,000,
respectively. The compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Officers which are available generally to all salaried employees of the
Company and certain perquisites and other personal benefits, securities or
property received by the Named Officers which do not exceed the lesser of
$50,000 or 10% of the aggregate of any such Named Officer's salary and
bonus.
(2) Dr. Dickinson joined the Company on May 22, 1997. Included in Dr.
Dickinson's All Other Compensation is the reimbursement by the Company of
relocation expenses of $42,609 and a Company contribution of $923 to his
401(k) Plan account. Dr. Dickinson earned a bonus of $40,000 for 1997, which
was paid in 1998.
(3) Dr. Hsieh joined the Company on May 19, 1997. Included in Dr. Hsieh's All
Other Compensation is a Company contribution of $1,050 to his 401(k) Plan
account and a $22,300 buyout of XL Vision stock. Dr. Hsieh earned a bonus of
$31,000 for 1997, which was paid in 1998. Dr. Hsieh ceased being an employee
of the Company as of September 18, 1998.
(4) In November 1997, Drs. Dickinson and Hsieh were granted restricted stock
grants in the Company of 531,250 and 218,750 shares, respectively, at a
deemed value of $0.06 per share. These amounts were reported as additional
paid compensation to these individuals.
The Named Officers do not hold any options to purchase the Company's Common
Stock and no stock options were granted by the Company to the Named Officers in
1997.
EQUITY COMPENSATION PLAN
The Company has adopted the Who? Vision Systems, Inc. 1997 Equity
Compensation Plan (the "Plan") pursuant to which it has awarded, and may in the
future award, stock options, restricted stock and equity compensation awards to
its employees, non-employee directors and independent contractors.
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The Plan provides for the issuance to employees, non-employee directors and
eligible independent contractors of up to 2,400,000 shares of Common Stock
pursuant to the grant of incentive stock options ("ISOs"), non-qualified stock
options ("NQSOs"), Stock Appreciation Rights ("SARs") and restricted stock
awards. The maximum aggregate number of shares of stock that shall be subject to
grants under the Plan to any recipient shall not exceed 625,000. The Plan is
administered by a committee of two or more non-employee directors appointed by
the Board of Directors (the "Committee"). Subject to the provisions of the Plan,
the Committee has the authority to determine to whom stock options and equity
compensation awards will be granted and the terms of the awards granted,
including the number of shares subject to each award, vesting and exercise
provisions and the duration of an award, to amend the terms of any outstanding
award and to generally deal with any other matters arising under the Plan.
As of October 15, 1998, options to purchase a total of 972,425 shares of
Common Stock, at a weighted average exercise price per share of $2.08 were
outstanding. Options to purchase a total of 38,645 shares were vested and
exercisable as of October 15, 1998. As of October 15, 1998, the Company had an
additional 596,325 shares of Common Stock available for future grants and other
issuances under the Plan. The Company also granted 750,000 shares of restricted
stock under the Plan. Options for 81,250 shares have been exercised.
The option price per share of stock under the Plan shall be determined by
the Committee at the time of each grant, provided, however, that the option
price per share for any ISO shall not be less than 100% of the fair market value
of the stock at the time of the grant. If a 10% stockholder receives an ISO, the
exercise price shall not be less than 110% of the fair market value at the time
of grant. The term of each stock option shall be fixed by the Committee, but
shall not exceed ten years. In the case of a 10% stockholder, the term shall not
exceed five years. Stock options shall be exercisable at such time or times as
shall be determined by the Committee. Payment for the exercise of an option
shall be made by cash, check or other instrument as the Committee may accept,
including, in the discretion of the Committee, unrestricted stock of the
Company. The Committee may also agree to allow an optionholder to elect to cash
out the excess of the fair market value over the option price of all or a
portion of a stock option. The Committee may also grant, in its sole discretion,
a "cashless exercise" feature for the exercise of stock options.
The Board of Directors may amend or revise the terms of the Plan in any
respect whatsoever, provided, that certain amendments of the Plan are subject to
shareholder approval. Unless sooner terminated, the Plan will terminate in 2007.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the Chief Executive Officer or to any of the other four most
highly compensated officers in any one year. Total remuneration would include
amounts received upon the exercise of stock options granted under the Plan. An
exception does exist, however, for "performance-based compensation," including
amounts received upon the exercise of stock options pursuant to a plan approved
by stockholders that meets certain requirements. The Plan is intended to meet
the requirements of Treasury Regulation section 1.162-27(f), and the options
granted under the Plan are intended to meet the requirements of
"performance-based compensation."
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<PAGE>
CERTAIN TRANSACTIONS
The Company's business commenced as an unincorporated business division of
XL Vision in May 1997 to develop fingerprint identification technologies. From
inception of the business through its incorporation as a separate entity on June
30, 1997, the Company incurred approximately $184,000 in operating costs. As of
1997, the assets and liabilities of the Company's business were transferred to
the Company in exchange for the assumption of a liability to XL Vision totaling
approximately $126,000. Operations of the Company subsequent to inception have
been funded by loans from XL Vision. In November 1997, 4,223,281 shares of
Common Stock were issued to XL Vision at a purchase price of $0.06 per share. As
of January 14, 1998, the Company issued a promissory note in the principal
amount of $10.0 million bearing interest at 7% in consideration for the one-time
transfer of the TactileSense technology to the Company. The $10.0 million
technology fee paid to XL Vision was based on negotiations between XL Vision and
the Company and includes costs incurred by XL Vision over several years as XL
Vision developed the basic technical building blocks for the TactileSense
technology. XL Vision has agreed to provide funding to the Company as reasonably
required for its working capital needs until the first to occur of (i) the
initial public offering of the Company and (ii) March 31, 2000. In connection
with this commitment, the Company entered into a loan agreement with XL Vision
covering all amounts loaned by XL Vision for working capital. The loan bears
interest at the prime lending rate plus 1%. Both the note and the loan are due
in full upon the earlier of the closing of the Company's initial public offering
and March 31, 2000.
In February 1998, the Company closed a private placement of 8,258,881
shares of Series A Preferred Stock to certain stockholders of XL Vision,
including Safeguard, Technology Leaders I, Technology Leaders II, Charles A.
Root and Walter W. Buckley, III. All of the shares in the private placement were
sold at a purchase price of $1.00 per share. The Company used a portion of the
proceeds from the private placement to repay a portion of the debt to XL Vision.
In connection with the purchase of shares in the private placement, the
purchasers were granted certain registration rights. See "Shares Eligible for
Future Sale -- Registration Rights." In addition, the holders of Series A
Preferred Stock are entitled to elect two members of the Company's Board of
Directors for as long as the Series A Preferred Stock remains outstanding. The
holders entered into an agreement to vote their shares of Series A Preferred
Stock to elect one designee of Safeguard and one designee of Technology Leaders
I and Technology Leaders II, together, to the Company's Board of Directors.
Also, in connection with the private placement, the Company agreed with
Safeguard to make a rights offering of its Common Stock to holders of Safeguard
Common Shares under certain circumstances. Upon consummation of this offering,
all shares of Series A Preferred Stock will automatically convert into Common
Stock.
In May and June 1998, the Company closed a private placement of 1,400,000
shares of Series B Preferred Stock, of which 300,000 shares were issued to
Safeguard affiliates, including Technology Leaders I, Technology Leaders II,
Technology Leaders I Offshore, Technology Leaders II Offshore, and Internet
Capital Group. All of the shares in the private placement were sold at a
purchase price of $3.00 per share. Upon consummation of this offering, all
shares of Series B Preferred Stock will automatically convert into Common Stock.
The Company has entered into an Administrative Services Agreement with
Safeguard and XL Vision. This agreement requires XL Vision and Safeguard to
provide certain administrative services for the Company including management
consultation, investor relations, financial management, human resources
management, legal services, insurance program administration, audit
administration, tax planning, income tax return preparation and other services.
The Administrative Services Agreement requires the Company to accrue an annual
fee payable quarterly to XL Vision and Safeguard based upon an aggregate of 1.5%
of gross revenues subject to an annual limit of $300,000 and a minimum amount of
$100,000. The fee is only payable upon achievement of positive cash flow from
operations. The Administrative Services Agreement extends through May 18, 2003
and continues thereafter unless terminated by any party.
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On September 30, 1998, the Company entered into a strategic alliance with
Philips. In connection with this alliance, the Company issued 3.7 million shares
of Series C Preferred Stock to Philips. See "Business -- Strategic Alliances --
Philips Alliance."
The Company also entered into a Direct Charge Administrative Services
Agreement with XL Vision. Under this agreement, XL Vision provides
administrative services to the Company at the request of the Company as needed.
The Company accrues fees payable to XL Vision monthly based on actual hours
incurred at individual rates of XL Vision employees who perform the services
plus actual costs incurred. The Direct Charge Administrative Services Agreement
is on a month-to-month basis and provides for termination by either party with
30 days written notice.
In July 1998, the Company entered into a VAR agreement with Integrated
Visions, which is engaged in the business of providing integrated security
solutions incorporating biometric identification to its clients in vertical
markets such as healthcare and financial services. Integrated Visions is a
subsidiary of XL Vision. See "Management -- Certain Relationships."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as calculated pursuant to Rule 13d-3 of the
Exchange Act as of the date of this Prospectus and as adjusted to reflect the
sale of the shares offered hereby (i) by each selling stockholder, (ii) by each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (iii) by each director of the Company, (iv)
by each Named Officer and (v) by all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) NUMBER OF AFTER THIS OFFERING(1)
------------------------ SHARES TO BE ----------------------
NUMBER OF SOLD IN NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE THIS OFFERING(2) SHARES PERCENTAGE
- ---------------- ---------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Safeguard Scientifics, Inc.(3)............ 5,341,989 28.7% 116,667 5,225,322 20.8%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Koninklijke Philips Electronics N.V....... 3,700,000 19.9 -- 3,700,000 14.8
3200 North First Street
San Jose, CA 95135
XL Vision, Inc.(4)........................ 1,769,031 9.5 200,000 1,569,031 6.3
10305 102nd Terrace
Sebastian, FL 32958
Technology Leaders II(4).................. 1,204,839 6.5 -- 1,204,839 4.8
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders I(4)................... 1,130,592 6.1 -- 1,130,592 4.5
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Citicorp Venture Capital, Ltd(5).......... 765,000 4.1 -- 765,000 3.1
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Alexander G. Dickinson, Ph.D.(6).......... 531,250 2.9 -- 531,250 2.1
John S. Scott, Ph.D.(7)................... 501,250 2.7 -- 501,250 2.0
Applewood Associates, L.P.(8)............. 437,472 2.4 8,333 429,139 1.7
Tzu-Chiang Hsieh, Ph.D.(9)................ 234,375 1.3 -- 234,375 *
James W. Kerrigan(10)..................... 75,000 * -- 75,000 *
Charles A. Root........................... 40,365 * -- 40,365 *
Walter W. Buckley, III.................... 32,812 * -- 32,182 *
Alex W. Hart.............................. -- -- -- -- --
Edward Anderson........................... -- -- -- -- --
James Ionson, Ph.D........................ -- -- -- -- --
Christopher Moller, Ph.D.(11)............. -- -- -- -- --
All executive officers and directors as a
group (9 persons)(12)................... 1,180,677 6.4 -- 1,180,677 4.7
</TABLE>
- ------------------
* Less than 1% of the outstanding Common Stock.
54
<PAGE>
(1) Solely for the purpose of the percentage ownership calculation for each
beneficial owner depicted herein, the number of shares of Common Stock
deemed outstanding prior to the offering (i) assumes 18,581,704 Common
Stock outstanding as of the date of this Prospectus, (ii) the conversion of
all shares of Preferred Stock outstanding as of the date of this
prospectus, (iii) includes additional shares issuable pursuant to options
held by such owner which may be exercised within 60 days after the date of
this Prospectus ("presently exercisable options"), as set forth below, (iv)
includes all restricted stock grants, as set forth below, and (v) includes
additional shares to be issued to Phoenix prior to the date of the
offering. Solely for the purpose of the percentage ownership calculation
for each beneficial owner depicted herein, the number of shares of Common
Stock deemed outstanding after the offering (i) assumes 25,081,704 shares
of Common Stock will be outstanding upon the successful completion of this
offering, (ii) includes shares of Common Stock which are subject to certain
vesting conditions, and (iii) includes additional shares to be issued to
Phoenix prior to the date of this offering. The beneficial ownership after
this offering does not account for the exercise of rights by such
stockholders in this offering.
(2) Represents an aggregate of 325,000 shares of Common Stock being sold to
certain persons selected by the Company. Assuming that the underwriters'
over allotment option is exercised in full, Safeguard, XL Vision and
Applewood Associates, L.P. will sell an additional 233,334 shares, 400,000
shares and 16,666 shares in this offering, respectively.
(3) The shares of Safeguard are held of record by Safeguard XL Capital, L.P., a
limited partnership of which the sole general partner is Safeguard
Delaware, Inc., a wholly-owned subsidiary of Safeguard. The limited
partnership interests are held by executives and employees of Safeguard,
subject to vesting. Safeguard disclaims beneficial ownership of all but its
proportionate interest in the shares held by the partnership. Excludes all
shares of Common Stock beneficially owned by Technology Leaders I,
Technology Leaders II, XL Vision and Internet Capital, in each of which
Safeguard has a beneficial interest. Safeguard owns approximately 55.5% of
XL Vision, 3.3% of Technology Leaders I and 4.4% of Technology Leaders II.
See "Management -- Certain Relationships" for a description of the
relationships between Safeguard, Technology Leaders I, Technology Leaders
II, XL Vision and Internet Capital. The largest shareholder of Safeguard is
Warren V. Musser, the chairman and chief executive officer of Safeguard,
who is the record holder of approximately 9.0% of the total Safeguard
Common Shares outstanding.
(4) See "Management -- Certain Relationships" for a description of the
relationships between Safeguard and Technology Leaders I, Technology
Leaders II, XL Vision and Internet Capital.
(5) Citibank owns a controlling interest of Citicorp Venture Capital, Ltd.
(6) Represents shares of Common Stock subject to certain vesting conditions.
(7) Includes 501,250 shares held by a family partnership, and excludes 30,000
shares held by certain family members for which Dr. Scott disclaims
beneficial ownership. Excludes shares owned by XL Vision, of which Dr.
Scott is Chairman and Chief Executive Officer.
(8) The address of this stockholder is 68 Wheatley Road, Brookville, NY 11545.
Applewood Associates, L.P. is a limited partnership. The general partners,
Barry Rubenstein, Barry Fingerhut, Irwin Lieber, Jonathan Lieber, Seth
Lieber and Applewood Capital Corp, own, in aggregate, approximately 27% of
the partnership.
(9) Includes 218,750 shares of Common Stock subject to certain vesting
conditions and 15,625 shares issuable pursuant to stock options exercisable
within 60 days after the date of this Prospectus.
(10) Represents 75,000 shares of Common Stock subject to certain vesting
conditions.
(11) Excludes shares owned by Technology Leaders I and Technology Leaders II,
for each of which Dr. Moller serves as an indirect general partner. Dr.
Moller disclaims beneficial ownership of such shares.
(12) Represents shares of Common Stock subject to certain vesting conditions.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock, $.01 par value per share, and 15,000,000 shares of Preferred
Stock, $.01 par value per share. As of October 15, 1998, there were 5,147,823
shares of Common Stock, 8,258,881 shares of Series A Preferred Stock, 1,400,000
shares of Series B Preferred Stock and 3,775,000 shares of Series C Preferred
Stock issued and outstanding.
COMMON STOCK
As of October 15, 1998, there would have been 18,581,704 shares of Common
Stock outstanding, after giving effect to the conversion of the shares of
Preferred Stock. After giving effect to the issuance of the 6,500,000 shares of
Common Stock offered by the Company hereby, there will be 25,081,704 shares of
Common Stock outstanding.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast and, except as otherwise required by law, all other matters
are determined by a majority of the votes cast. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. See "Risk
Factors -- Control by Principal Stockholders." Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by the Company in
this offering will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
class or series of Preferred Stock which the Company may designate and issue in
the future. See " -- Preferred Stock."
PREFERRED STOCK
The Company, by resolution of the Board of Directors and without any
further vote or action by the stockholders, has the authority, subject to
certain limitations prescribed by law, to issue from time to time up to an
aggregate of 15,000,000 shares of Preferred Stock in one or more classes or
series and to determine the designation and the number of shares of any class or
series as well as the voting rights, preferences, limitations and special
rights, if any, of the shares of any such class or series, including dividend
rights, dividend rates, conversion rights and terms, redemption rights and
terms, and liquidation preferences. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the Company.
As of the date of this Prospectus, assuming conversion of all outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock into Common Stock, there will be no shares of Preferred Stock outstanding,
and the Company has no plans to issue any shares of Preferred Stock.
RIGHTS
The Company is granting on the date hereof the rights to the holders of
Safeguard common shares. The rights, subject to minimum exercise requirements,
are each exercisable for one share of Common Stock at an exercise price of $5.00
per share. Persons may not exercise rights for fewer than 20 shares of Common
Stock. For purposes of this offering, a person that holds Safeguard common
shares in multiple accounts must meet the 20 share minimum purchase requirement
in each account. Accordingly, persons holding fewer than 20 rights in an account
should consider the advisability of consolidating their rights in one account,
selling rights, or purchasing additional rights to comply with the minimum
exercise requirements of this offering. Rights may be transferred, in whole or
in part, by
56
<PAGE>
endorsing and delivering to ChaseMellon a rights certificate that has been
properly endorsed for transfer, with instructions to reissue the rights, in
whole or in part, in the name of the transferee. ChaseMellon will reissue
certificates for the transferred rights to the transferee, and will reissue a
certificate for the balance, if any, to the holder of the rights, in each case
to the extent it is able to do so prior to the expiration date of the rights.
This offering will terminate and the rights will expire at 5:00 p.m., New York
City time, on the expiration date, which is , 1998. After the
expiration date of the rights, unexercised rights will be null and void. For
more information about the rights and the offering process, reference should be
made to "The Offering" and to "Risk Factors -- Cancellation of Rights Offering."
LIMITATION ON LIABILITY
The Company's Certificate of Incorporation limits or eliminates the
liability of the Company's directors or officers to the Company or its
stockholders for monetary damages to the fullest extent permitted by the
Delaware General Corporation Law, as amended (the "DGCL"). The DGCL provides
that a director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability (i) for any breach of such person's duty of
loyalty, (ii) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) for the payment of unlawful
dividends and certain other actions prohibited by Delaware corporate law and
(iv) for any transaction resulting in receipt by such person of an improper
personal benefit.
The Company intends to apply for directors' and officers' liability
insurance to provide its directors and officers with insurance coverage for
losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts to be effective contemporaneously with the closing of this
offering. See "Business -- Legal Proceedings" for a discussion of pending
litigation.
CERTAIN ANTI-TAKEOVER PROVISIONS
The ability of the Company's Board to establish the rights of, and to
issue, substantial amounts of Preferred Stock without the need for stockholder
approval, upon such terms and conditions, and having such rights, privileges and
preferences, as the Company's Board may determine in the exercise of its
business judgment, may, among other things, be used to create voting impediments
with respect to changes in control of the Company or to dilute the stock
ownership of holders of Common Stock seeking to obtain control of the Company.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, may
have the effect of discouraging, delaying or preventing a change in control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors -- Possible Issuance of Preferred Stock," " -- Common
Stock" and " -- Preferred Stock."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain business combinations between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. For purposes of Section 203, business
combinations are defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits any such business combination for a period of
three years commencing on the date the interested stockholder becomes an
interested stockholder, unless (i) the business combination is approved by the
corporation's board of directors prior to the date the interested stockholder
becomes an interested stockholder, (ii) the interested stockholder acquired at
least 85% of the voting stock of the corporation (other than stock held by
directors who are also officers or by
57
<PAGE>
certain employee stock plans) in the transaction in which it becomes an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds of
the outstanding voting stock that is not owned by the interested stockholder.
See "Risk Factors -- Possible Issuances of Preferred Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC, 85 Challenger Road, Overpeck Centre, Ridgefield Park,
New Jersey 07660.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 25,081,704 shares
of Common Stock outstanding, excluding 972,425 shares of Common Stock subject to
stock options outstanding as of October 15, 1998 and any stock options granted
by the Company after October 15, 1998. Of these shares, the Common Stock sold by
the Company and the selling stockholders in this offering, except for certain
shares described below, will be freely tradeable without restriction or further
registration under the Act. The remaining shares of Common Stock (the
"Restricted Shares") were issued and sold by the Company in private transactions
in reliance upon exemption from the registration requirements of the Act and are
therefore deemed "restricted securities" as defined in Rule 144 and may not be
sold in the absence of registration under the Act unless an exemption is
available, including an exemption afforded by Rule 144 or Rule 701. See "Risk
Factors -- Shares Eligible for Future Sale."
In general, under Rule 144 as currently in effect, if two years have
elapsed since the date of acquisition of restricted securities from the Company
or any affiliate and the acquiror or subsequent holder is not deemed to have
been an affiliate of the Company for at least three months prior to a proposed
transaction, such person would be entitled to sell such shares under Rule 144(k)
without regard to the limitations described below. If one year has elapsed since
the date of acquisition of restricted securities from the Company or any
affiliate, the acquiror or subsequent holder thereof (including persons who may
be deemed affiliates of the Company) is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock or the average weekly trading volume in
the Common Stock on the Nasdaq National Market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain provisions
regarding the manner of sale, notice requirements and the availability of
current public information about the Company. Without considering the
contractual restrictions described below, approximately (i) 1,250 Restricted
Shares will be eligible for sale ninety days after the date of this Prospectus,
subject to manner of sale and other resale conditions imposed by Rule 144, and
(ii) 18,255,454 Restricted Shares will be eligible for future sale subject to
the holding period and other conditions imposed by Rule 144. Certain
restrictions apply to any shares of Common Stock purchased in this offering by
affiliates of the Company, which may generally only be sold in compliance with
the limitations of Rule 144, except for the holding period requirements
thereunder. See "Risk Factors -- Shares Eligible for Future Sale."
Rule 144A under the Act provides a nonexclusive safe harbor exemption from
the registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests on a discretionary basis at least $100 million in securities of
issuers that are not affiliated with the entity, as long as these securities
when issued were not of the same class as securities listed on a national
securities exchange or quoted on Nasdaq. The shares of Common Stock outstanding
as of the date of this Prospectus would be eligible for resale under Rule 144A
because such shares, when issued, were not of the same class as any listed or
quoted securities.
58
<PAGE>
STOCK OPTIONS
As of October 15, 1998, there were outstanding options to purchase an
aggregate of 972,425 shares of Common Stock (38,645 of which were exercisable at
October 15, 1998 at a weighted average exercise price of $1.85) at a weighted
average exercise price of $2.08 per share. As of October 15, 1998, the Company
had an additional 596,325 shares of Common Stock available for future grant
under the Plan. The holders of options which are exercisable upon the offering
to purchase a total of 8,333 shares are subject to Lock-Up Agreements, which
restrict, until after the Lock-Up Expiry Date (without the prior written consent
of the underwriters), the holders' ability to sell or otherwise dispose of
Common Stock acquired upon the exercise of such options. See "Management --
Equity Compensation Plan."
The Company issued options and underlying shares of Common Stock to
employees of the Company who were not executive officers and directors of the
Company pursuant to Rule 701. Under Rule 701, employees of the Company who prior
to this offering purchased shares upon the exercise of options granted under the
Plan are entitled to sell such shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule 144
and they may begin making such sales on the 90th day after the date of this
Prospectus. Rule 701 also permits the shares subject to unexercised options
granted under the Plan to be sold upon exercise without having to comply with
the foregoing provisions of Rule 144. As of October 15, 1998, approximately
596,325 shares of Common Stock and shares of Common Stock subject to unexercised
options will be eligible for sale under Rule 701 by Company employees (subject
to applicable vesting provisions).
It is anticipated that a Registration Statement on Form S-8 covering the
Common Stock that may be issued pursuant to the options granted under the Plan
will be filed prior to the Lock-Up Expiry Date and that shares of Common Stock
that are so acquired and offered thereafter pursuant to this Registration
Statement generally may be resold in the public market without restriction or
limitation, except in the case of affiliates of the Company, whom generally may
only resell such shares in accordance with each provision of Rule 144, other
than the holding period requirement.
LOCK-UP AGREEMENTS
The Principal Stockholders, who will beneficially own 12,829,784 shares of
Common Stock after the completion of this offering, certain other shareholders
of the Company and each executive officer and director of the Company have
agreed with the underwriters that they will not sell or otherwise dispose of any
shares of Common Stock until after the Lock-Up Expiry Date without the prior
written consent of the underwriter. In addition, Warren V. Musser has agreed
that he and/or his assignees will not sell or otherwise dispose of 280,000
shares of Common Stock until after the Lock-Up Expiry Date without the prior
written consent of Robert W. Baird & Co. Incorporated.
REGISTRATION RIGHTS
The Company has granted certain piggyback and demand registration rights to
holders of Preferred Stock. Holders of a certain number of shares of Preferred
Stock have the right to request that the Company effect the registration, under
the Act, of the Common Stock issuable upon the conversion of the Preferred
Stock, provided that the securities to be registered have a value of at least
$5,000,000. These registration rights become exercisable at any time after the
earlier of six months after the completion of this offering and January 13,
2002. In addition, the holders of Preferred Stock have the right to include
their securities in the offerings of the Company's securities under the Act. By
exercising such registration rights, subject to certain limitations, such
holders could cause a significant number of shares to be registered and sold in
the public market. Such sales may have an adverse effect on the market price for
the Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. All holders of registration rights have
waived their respective rights to participate in this offering.
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<PAGE>
UNDERWRITING
The Company, the selling stockholders and the underwriters have entered
into the Standby Underwriting Agreement on the date hereof, pursuant to which
the underwriters are required, subject to certain terms and conditions (all of
which are set forth below), to purchase the shares of Common Stock offered and
not purchased in the rights offering (the "Excess Unsubscribed Shares") in
accordance with the percentages set forth below. If all of the rights are
exercised, there will be no Excess Unsubscribed Shares.
<TABLE>
<CAPTION>
UNDERWRITERS: % OF UNDERWRITER SHARES
- ------------- -----------------------
<S> <C>
Robert W. Baird & Co. Incorporated.......................... %
Janney Montgomery Scott Inc................................. %
</TABLE>
The underwriters have agreed, severally and not jointly, subject to the
condition that the Company and the selling stockholders comply with their
obligations under the Standby Underwriting Agreement and subject to the
underwriters' right to terminate its obligations under the Standby Underwriting
Agreement (as specified below), to purchase all of the Excess Unsubscribed
Shares. The Company will pay the underwriters the financial advisory fee equal
to 3% of the exercise price for each share of Common Stock included in this
offering. The financial advisory fee is for services and advice rendered in
connection with the structuring of the offering, valuation of the business of
the Company and financial advice to the Company before and during the offering.
An additional fee of 4% of the exercise price will be paid to the underwriters
(i) for each share of Common Stock purchased by the underwriters pursuant to the
Standby Underwriting Agreement and (ii) for each share of Common Stock purchased
upon the underwriters' exercise of rights if such rights were purchased by the
underwriters at a time when the Common Stock was trading (on a "when-issued"
basis) at a per share price of less than 120% of the exercise price or if the
underwriters purchase such rights with Safeguard's prior written acknowledgment
that they would be entitled to receive the underwriting discount for Common
Stock purchased pursuant to the exercise of such rights. In addition, the
Company has agreed to pay the underwriters a non-accountable expense allowance
in the aggregate amount of $200,000, provided, however, such non-accountable
expense allowance shall be reduced to $100,000 or zero if, on the Expiration
Date, the closing price for the Common Stock traded on a "when issued" basis is
at least $7.25 per share or greater than $8.25 per share, respectively. The
selling stockholders have granted to the underwriters a 20-day option commencing
on the Expiration Date to purchase a maximum of 650,000 additional shares of
Common Stock at a per share price equal to the exercise price less the financial
advisory fee and the underwriting discount. The underwriters may exercise such
option in whole or in part only to cover over-allotments made in connection with
the sale of shares of Common Stock by the underwriters.
Prior to this Expiration Date, the underwriters may offer shares of Common
Stock on a when-issued basis, including shares to be acquired through the
purchase and exercise of rights, at prices set from time to time by the
underwriters. It is not contemplated that the offering price set on any calendar
day will be increased independently by the underwriters more than once during
such day. After the Expiration Date, the underwriters may offer shares of Common
Stock, whether acquired pursuant to the Standby Underwriting Agreement, the
exercise of the rights or the purchase of Common Stock in the market, to the
public at a price or prices to be determined. The underwriters may thus realize
profits or losses independent of the underwriting discount and the financial
advisory fee. Shares of Common Stock subject to the Standby Underwriting
Agreement will be offered by the underwriters when, as and if sold to, and
accepted by, the underwriters and will be subject to its right to reject orders
in whole or in part.
Prior to this offering, there has been no public market for the Common
Stock or the rights. Consequently, the exercise price was determined by
negotiations among the Company, the selling stockholders and the underwriters.
In determining the exercise price, the underwriters, the selling stockholders
and the Board of Directors of the Company considered such factors as the future
prospects and historical growth rate in revenues and earnings of the Company;
its industry in general and the Company's position in its industry; revenues,
earnings and certain other financial and operating
60
<PAGE>
information of the Company in recent periods; market valuations of the
securities of companies engaged in activities similar to those of the Company;
the management of the Company; and, with respect to the Company, the advice of
the underwriters.
The underwriters will be prohibited from engaging in any market making
activities with respect to the Company's when-issued Common Stock and Common
Stock until the underwriters have completed its participation in the
distribution of shares offered hereby. As a result, the underwriters may be
unable to provide a market for the Company's when-issued Common Stock and Common
Stock should they desire to do so during certain periods while the rights are
exercisable.
In connection with this offering, the underwriters and certain selling
group members may engage in stabilizing, syndicate covering transactions or
other transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. A "syndicate covering transaction" is the placing of any
bid or the effecting of any purchase on the behalf of the underwriters to reduce
a short position created in connection with this offering. After the opening of
quotations for the Common Stock on the Nasdaq National Market, stabilizing bids
for the purpose of preventing or retarding a decline in the market price may be
initiated by the underwriters or selling group members in any market at a price
no higher than the last independent transaction price for the Common Stock and
then maintained, reduced or raised to follow the independent market. Such
transactions may stabilize the market price of the Common Stock at a level above
that which might otherwise prevail and, if commenced, may be discontinued at any
time.
The Company and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities arising out of or based upon
misstatements or omissions in this Prospectus or the Registration Statement of
which this Prospectus is a part and certain other liabilities, including
liabilities under the Act, and to contribute to certain payments that the
underwriters may be required to make.
The underwriters may terminate their obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event or
act or occurrence has disrupted the general securities market in the United
States; (ii) if trading in the Common Stock (on a when-issued basis) shall have
been suspended by the SEC or Nasdaq; (iii) if trading on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or in the
over-the-counter market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD or by order
of the SEC or any other government authority having jurisdiction; (iv) if the
United States shall have become involved in a war or major hostilities which, in
the underwriters' opinion, will affect the general securities market in the
United States; (v) if a banking moratorium has been declared by a California,
New York, Pennsylvania, Wisconsin or federal authority; (vi) if a moratorium in
foreign exchange trading (with respect to a foreign exchange on which the
Company's securities are traded) has been declared; (vii) if the Company shall
have sustained a loss material to the Company by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious act,
whether or not such loss shall have been insured, or from any labor dispute or
any legal or governmental proceeding; (viii) if there shall be such material
adverse market conditions (whether occurring suddenly or gradually between the
date of this Prospectus and the closing of the offering) affecting markets
generally as in the underwriters' reasonable judgment would make it inadvisable
to proceed with the offering, sale or delivery of the shares of Common Stock
offered hereby; or (ix) if there shall have been such material adverse change,
or any development involving a prospective material adverse change, in the
financial condition, net worth or results of operations of the Company since
December 31, 1997 or in the business prospects or condition of the Company since
the date of this Prospectus, or that materially and adversely impacts the
Standby Underwriting Agreement.
The Company has agreed that, without the prior written consent of the
underwriters, it will not offer, sell, grant any option for the sale of or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") acquired in this
offering or held by it as of the date hereof until after the Lock-Up Expiry
Date, other than (i) Common
61
<PAGE>
Stock to be sold in this offering, (ii) Company option issuances and sales of
Common Stock pursuant to the Plan and (iii) Securities issued as consideration
for an acquisition if the party being issued the Securities agrees not to
transfer, sell, offer for sale, contract or otherwise dispose of such Securities
until after the Lock-Up Expiry Date. The Principal Stockholders, each executive
officer and each director of the Company and certain other stockholders, who
will in the aggregate own approximately 11,798,351 shares of Common Stock after
the completion of this offering and will be deemed to beneficially own an
additional 15,625 shares of Common Stock, have agreed with the underwriters that
they will not sell or otherwise dispose of any shares of Common Stock until
after the Lock-Up Expiry Date without the prior written consent of the
underwriters. See "Management -- Equity Compensation Plan" and "Shares Eligible
for Future Sale." In addition, Warren V. Musser has agreed that he and/or his
assignees will not sell or otherwise dispose of 280,000 shares of Common Stock
without the prior written consent of the underwriters. See "Management -- Equity
Compensation Plan" and "Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the rights and shares of Common Stock offered hereby will
be passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with this offering are being
passed upon for the underwriters by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania.
EXPERTS
The financial statements of the Company as of December 31, 1997 and for the
period from May 1, 1997 (inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997 and the period from May 1,
1997 (inception) through December 31, 1997 have been included in this Prospectus
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock and Rights offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees. In addition, the Commission maintains a Web site at http://www.sec.gov
that contains reports, proxy statements, information statements and other
information regarding the Company.
62
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and September 30,
1998 (unaudited).......................................... F-3
Statements of Operations for the period from May 1, 1997
(inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997, the
period from May 1, 1997 (inception) through December 31,
1997, the nine months ended September 30, 1998 (unaudited)
and the period from May 1, 1997 (inception) through
September 30, 1998 (unaudited)............................ F-4
Statements of Stockholders' Equity (Deficit) for the period
from May 1, 1997 (inception) through June 29, 1997, the
period from June 30, 1997 (incorporation) through December
31, 1997 and the nine months ended September 30, 1998
(unaudited)............................................... F-5
Statements of Cash Flows for the period from May 1, 1997
(inception) through June 29, 1997, the period from June
30, 1997 (incorporation) through December 31, 1997, the
period from May 1, 1997 (inception) through December 31,
1997, the nine months ended September 30, 1998 (unaudited)
and the period from May 1, 1997 (inception) through
September 30, 1998 (unaudited)............................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Who? Vision Systems, Inc.:
We have audited the accompanying balance sheet of Who? Vision Systems, Inc. (a
development stage enterprise) as of December 31, 1997 and the related statements
of operations, stockholders' equity (deficit) and cash flows of Who? Vision
Systems (a development stage enterprise), a division of XL Vision, Inc., for the
period from May 1, 1997 (inception) through June 29, 1997, and Who? Vision
Systems, Inc. (a development stage enterprise) for the period from June 30, 1997
(incorporation) through December 31, 1997, and for the cumulative development
stage from May 1, 1997 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 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 Who? Vision Systems, Inc. (a
development stage enterprise) at December 31, 1997 and the results of operations
and cash flows of Who? Vision Systems (a development stage enterprise), a
division of XL Vision, Inc., for the period from May 1, 1997 (inception) through
June 29, 1997, and Who? Vision Systems, Inc. (a development stage enterprise)
for the period from June 30, 1997 (incorporation) through December 31, 1997, and
for the cumulative development stage from May 1, 1997 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Orlando, Florida
April 22, 1998, except for note 10, which
is as of July 16, 1998
F-2
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, 1998
1997 1998 (NOTE 2(C))
------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 500 $ 9,405 $ 9,405
Prepaid expenses.............................. 6,734 57,567 57,567
---------- ----------- -----------
Total current assets.................... 7,234 66,972 66,972
Property and equipment, net (note 3)............ 170,336 789,472 789,472
Capitalized offering costs...................... -- 216,356 216,356
Deposits and other.............................. 10,136 26,245 26,245
---------- ----------- -----------
Total assets............................ $ 187,706 $ 1,099,045 $ 1,099,045
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 209,541 $ 645,640 $ 645,640
Accrued liabilities:
Salaries and benefits...................... 167,599 559,781 559,781
Severance costs............................ -- 65,000 65,000
Other...................................... 19,776 85,562 85,562
Due to XL Vision, Inc. (note 7)............... 2,728,448 6,526,383 6,526,383
---------- ----------- -----------
Total current liabilities............... 3,125,364 7,882,366 7,882,366
---------- ----------- -----------
Equity purchase option (note 11)................ -- 3,000,000 --
---------- ----------- -----------
Commitments and contingencies (notes 8, 10 and
11)
Stockholders' equity (deficit) (notes 4, 6, 8,
10 and 11):
Preferred stock, $.01 par value, authorized
15,000,000 shares:
Series A preferred stock, (aggregate
involuntary liquidation preference of
$-0- and $8,844,922 in 1997 and 1998,
respectively), designated 8,300,000
shares, issued and outstanding -0-
shares in 1997 and 8,258,881 in 1998.... -- 82,589 --
Series B preferred stock, (aggregate
involuntary liquidation preference of
$-0- and $4,340,384 in 1997 and 1998,
respectively), designated 1,400,000
shares, issued and outstanding -0-
shares in 1997 and 1,400,000 shares in
1998.................................... -- 14,000 --
Series C preferred stock, (aggregate
involuntary liquidation preference of
$-0- and $18,880,171 in 1997 and 1998,
respectively), designated 3,800,000
shares, issued and outstanding -0-
shares in 1997 and 3,775,000 shares in
1998.................................... -- 37,750 --
Common stock $.01 par value, authorized
60,000,000 shares, issued and outstanding
5,037,031 shares in 1997, 5,147,823 shares
in 1998 and 18,581,704 shares in pro forma
as adjusted................................ 50,370 51,478 185,817
Additional paid-in capital.................... 251,787 28,649,513 31,649,513
Accumulated deficit during the development
stage...................................... (3,239,815) (38,618,651) (38,618,651)
---------- ----------- -----------
Total stockholders' equity (deficit).... (2,937,658) (9,783,321) (6,783,321)
---------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)..................... $ 187,706 $ 1,099,045 $ 1,099,045
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997 MAY 1, 1997 MAY 1, 1997
(INCEPTION) (INCORPORATION) (INCEPTION) NINE MONTHS (INCEPTION)
THROUGH THROUGH THROUGH ENDED THROUGH
JUNE 29, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997 1998 1998
----------- --------------- ------------ ------------- ------------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS
-- NOTE 1)
<S> <C> <C> <C> <C> <C>
Revenue........................ $ -- $ -- $ -- $ -- $ --
Cost of revenue................ -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Gross profit (loss).... -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Operating expenses:
Selling, general and
administrative............ 123,940 1,440,406 1,564,346 2,803,137 4,367,483
Research and development
(notes 8 and 10).......... 58,804 1,540,950 1,599,754 3,209,658 4,809,412
In-process research and
development
(notes 10 and 11)......... -- -- -- 29,000,000 29,000,000
--------- ----------- ----------- ------------ ------------
Total operating
expenses............ 182,744 2,981,356 3,164,100 35,012,795 38,176,895
--------- ----------- ----------- ------------ ------------
Profit (loss) from
operations.......... (182,744) (2,981,356) (3,164,100) (35,012,795) (38,176,895)
--------- ----------- ----------- ------------ ------------
Interest expense (note 7).... (1,216) (74,499) (75,715) (366,041) (441,756)
--------- ----------- ----------- ------------ ------------
Profit (loss) before
income taxes........ (183,960) (3,055,855) (3,239,815) (35,378,836) (38,618,651)
Income tax expense (benefit)
(note 5)..................... -- -- -- -- --
--------- ----------- ----------- ------------ ------------
Net profit (loss)...... $(183,960) $(3,055,855) $(3,239,815) $(35,378,836) $(38,618,651)
========= =========== =========== ============ ============
Net profit (loss) subsequent to
incorporation (notes 1 and
2)........................... $(3,055,855) $(35,378,836)
=========== ============
Net profit (loss) per common
share subsequent to
incorporation
(notes 1 and 2):
Basic..................... $ (2.46) $ (6.97)
=========== ============
Diluted................... $ (2.46) $ (6.97)
=========== ============
Weighted average number of
common shares outstanding.... 1,241,467 5,076,980
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES C COMMON STOCK
------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at May 1, 1997
(inception).................... -- $ -- -- $ -- -- $ -- -- $ --
Net profit (loss)................ -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balances at June 29, 1997........ -- -- -- -- -- -- -- --
Issuance of common stock to XL
Vision upon incorporation at
$.008 per share................ -- -- -- -- -- -- 1,250 10
Issuance of common stock to XL
Vision for cash at $.06 per
share (note 7)................. -- -- -- -- -- -- 4,223,281 33,786
Grant of common stock to officers
as compensation at $.06 per
share (note 6)................. -- -- -- -- -- -- 750,000 6,000
Grant of common stock to The
Phoenix Group, Inc. at $.06 per
share (note 8)................. -- -- -- -- -- -- 62,500 625
Five for four common stock split
(note 9)....................... -- -- -- -- -- -- -- 9,949
Net profit (loss)................ -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balances at December 31, 1997.... -- -- -- -- -- -- 5,037,031 50,370
Sale of Series A preferred stock
for cash at $1.00 per share
(notes 4 and 10) (unaudited)... 8,258,881 82,589 -- -- -- -- -- --
Sale of Series B preferred stock
for cash at $3.00 per share
(notes 4 and 10) (unaudited)... -- -- 1,400,000 14,000 -- -- -- --
Exercise of stock options for
cash at an average of $1.11 per
share (unaudited).............. -- -- -- -- -- -- 81,250 812
Grant of common stock to The
Phoenix Group, Inc. at an
average of $1.40 per share
(note 8) (unaudited)........... -- -- -- -- -- -- 29,542 296
Issuance of Series C preferred
stock at $5.00 per share (note
11) (unaudited)................ -- -- -- -- 3,775,000 37,750 -- --
Reclassification of equity
purchase option (note 11)
(unaudited).................... -- -- -- -- -- -- -- --
Net profit (loss) (unaudited).... -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balances at September 30, 1998
(unaudited).................... 8,258,881 $82,589 1,400,000 $14,000 3,775,000 $37,750 5,147,823 $51,478
========= ======= ========= ======= ========= ======= ========= =======
<CAPTION>
ACCUMULATED
DEFICIT
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
CAPITAL STAGE TOTAL
----------- ------------ ------------
<S> <C> <C> <C>
Balances at May 1, 1997
(inception).................... $ -- $ -- $ --
Net profit (loss)................ -- (183,960) (183,960)
----------- ------------ ------------
Balances at June 29, 1997........ -- (183,960) (183,960)
Issuance of common stock to XL
Vision upon incorporation at
$.008 per share................ -- -- 10
Issuance of common stock to XL
Vision for cash at $.06 per
share (note 7)................. 219,611 -- 253,397
Grant of common stock to officers
as compensation at $.06 per
share (note 6)................. 39,000 -- 45,000
Grant of common stock to The
Phoenix Group, Inc. at $.06 per
share (note 8)................. 3,125 -- 3,750
Five for four common stock split
(note 9)....................... (9,949) -- --
Net profit (loss)................ -- (3,055,855) (3,055,855)
----------- ------------ ------------
Balances at December 31, 1997.... 251,787 (3,239,815) (2,937,658)
Sale of Series A preferred stock
for cash at $1.00 per share
(notes 4 and 10) (unaudited)... 8,176,292 -- 8,258,881
Sale of Series B preferred stock
for cash at $3.00 per share
(notes 4 and 10) (unaudited)... 4,186,000 -- 4,200,000
Exercise of stock options for
cash at an average of $1.11 per
share (unaudited).............. 89,188 -- 90,000
Grant of common stock to The
Phoenix Group, Inc. at an
average of $1.40 per share
(note 8) (unaudited)........... 108,996 -- 109,292
Issuance of Series C preferred
stock at $5.00 per share (note
11) (unaudited)................ 18,837,250 -- 18,875,000
Reclassification of equity
purchase option (note 11)
(unaudited).................... (3,000,000) -- (3,000,000)
Net profit (loss) (unaudited).... -- (35,378,836) (35,378,836)
----------- ------------ ------------
Balances at September 30, 1998
(unaudited).................... $28,649,513 $(38,618,651) $ (9,783,321)
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM PERIOD FROM PERIOD FROM PERIOD FROM
MAY 1, 1997 JUNE 30, 1997 MAY 1, 1997 MAY 1, 1997
(INCEPTION) (INCORPORATION) (INCEPTION) NINE MONTHS (INCEPTION)
THROUGH THROUGH THROUGH ENDED THROUGH
JUNE 29, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997 1998 1998
----------- --------------- ------------ ------------- -------------
(DIVISIONAL (UNAUDITED) (UNAUDITED)
OPERATIONS
-- NOTE 1)
<S> <C> <C> <C> <C> <C>
Cash flows from development stage activities:
Net profit (loss)........................... $(183,960) $(3,055,855) $(3,239,815) $(35,378,836) $(38,618,651)
Adjustments to reconcile net profit (loss)
to net cash used in operating activities:
Depreciation and amortization........... 105 18,777 18,882 89,644 108,526
Non-cash compensation -- issuance of
common stock......................... -- 45,000 45,000 -- 45,000
Non-cash consideration for software
license -- issuance of common
stock................................ -- 3,750 3,750 109,292 113,042
Non-cash considersation -- issuance of
preferred stock for in-process
research and development............. -- -- -- 18,875,000 18,875,000
Changes in operating assets and
liabilities:
Prepaid expenses..................... -- (6,734) (6,734) (50,833) (57,567)
Deposits............................. -- (10,136) (10,136) (16,109) (26,245)
Accounts payable..................... 71,102 138,439 209,541 436,099 645,640
Accrued liabilities.................. 38,391 148,984 187,375 522,968 710,343
--------- ----------- ----------- ------------ ------------
Net cash used in operating
activities......................... (74,362) (2,717,775) (2,792,137) (15,412,775) (18,204,912)
--------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment......... (51,336) (137,882) (189,218) (708,780) (897,998)
--------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Net borrowings from XL Vision, Inc.......... 125,698 2,602,750 2,728,448 3,797,935 6,526,383
Sale of common stock........................ -- 253,407 253,407 90,000 343,407
Sale of preferred stock..................... -- -- -- 12,458,881 12,458,881
Capitalized offering costs.................. -- -- -- (216,356) (216,356)
--------- ----------- ----------- ------------ ------------
Net cash provided by financing
activities......................... 125,698 2,856,157 2,981,855 16,130,460 19,112,315
--------- ----------- ----------- ------------ ------------
Net increase in cash................. -- 500 500 8,905 9,405
Cash -- beginning of period................... -- -- -- 500 --
--------- ----------- ----------- ------------ ------------
Cash -- end of period......................... $ -- $ 500 $ 500 $ 9,405 $ 9,405
========= =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(1) ORGANIZATION
Who? Vision Systems, Inc. (a development stage enterprise) ("Who? Vision"
or the "Company") is a Delaware corporation. Prior to the incorporation of the
Company on June 30, 1997, the Company's business was conducted as the Who?
Vision Systems Division (the "Division") of XL Vision, Inc. ("XL Vision").
On June 30, 1997, the assets and liabilities of the Division were
contributed to the Company, which was a wholly-owned subsidiary of XL Vision.
This transaction was accounted for as a reorganization of entities under common
control and, accordingly, the assets and liabilities were recorded at their
historical book value. As of the date of incorporation, the Division had assets
of $51,231, assumed liabilities of $235,191 and had an accumulated deficit of
$183,960. The Company assumed a liability to XL Vision totaling $125,688 after
$10 in consideration for the issuance of 1,250 shares of common stock.
Operations of the Company subsequent to incorporation have been funded by loans
from XL Vision (see note 7).
On January 14, 1998, the Company entered into an agreement with XL Vision
for the transfer of certain technology that will be used by the Company in the
sale of its products for $10.0 million (see note 10). In February 1998, the
Company raised $8,258,881 from a private equity placement. The proceeds were
used to fund the repayment of amounts due to XL Vision.
The accompanying financial statements for the period from May 1, 1997
(inception) through June 29, 1997 reflect operations within XL Vision.
Significant management assumptions were made in allocating indirect costs from
XL Vision in order to present the balance sheet and statement of operations for
that period. The Company was allocated all incremental costs and certain
indirect or common costs based upon the proportional value of all expenses
incurred by XL Vision. Management of the Company believes the allocated costs
reasonably reflect the costs of the entity as if it were on a stand alone basis.
From inception on May 1, 1997, the Company has devoted substantially all of
its resources to developing its TactileSense(Trademark) fingerprint
identification technology which it intends to manufacture and distribute to
various markets through strategic partners. In order to fulfill its
manufacturing and distribution requirements, the Company has selected original
equipment manufacturing partners which provide existing global sales,
manufacturing and distribution infrastructures in the Company's target markets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DEVELOPMENT STAGE
From the inception of the Company on May 1, 1997, the Company was
considered to be in the development stage as defined by the Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." Until the Company begins to realize significant
revenue associated with its planned operations, the Company will be considered
in the development stage.
(b) MANAGEMENT'S PLANS
At September 30, 1998, the Company had a working capital deficiency of
$7,815,394 and a stockholders' deficit of $6,783,321. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts leading to initial revenues from its products. The
Company's business plans anticipate reliance on manufacturing and distribution
of its products through two or more companies. In addition, to support the
Company's future cash needs, it may consider additional debt or equity
financing. XL Vision has agreed to fund the Company's operations for at least
eighteen months from March 31, 1998 or until the successful completion of the
F-7
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Company's initial public offering ("IPO"). Although management believes that its
IPO will be successful, there can be no assurances that it will be achieved or
that the Company will be successful in raising other financing. The Company
anticipates that net proceeds from its planned IPO of common stock (see note 10)
will be sufficient to satisfy its operating cash needs for at least eighteen
months following the IPO. If the Company is unable to obtain sufficient
additional funds, the Company may have to delay, scale back or eliminate some or
all of its marketing and development activities.
(c) INTERIM FINANCIAL INFORMATION
The financial statements for the period ended September 30, 1998 are
unaudited but reflect adjustments which are, in the opinion of management,
necessary for the fair presentation of financial position and results of
operations. Operating results for the nine months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
The pro forma balance sheet as of September 30, 1998 reflects the
conversion of preferred stock, to common stock, including the equity purchase
option on Series C preferred stock.
(d) REVENUE RECOGNITION
The Company will recognize revenue in accordance with the terms of the
sale, generally as products are shipped by the Company to its customers.
(e) DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets which are generally 5 years for engineering and
manufacturing equipment and 3-7 years for all other assets.
(f) CAPITALIZED OFFERING COSTS
Capitalized offering costs consist of legal and accounting fees and other
related expenses in connection with the Company's proposed IPO (see note 10).
Should the IPO prove unsuccessful, these costs, as well as any additional
expenses to be incurred, will be charged to operations.
(g) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. In-process
research and development costs in 1998 includes a one-time technology fee
payable to XL Vision in the amount of $10.0 million and purchased technology
licenses acquired in the amount of $19.0 million (see note 11).
(h) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying 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.
Prior to June 30, 1997, the Company operated as a division of XL Vision.
(i) STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of Accounting
F-8
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25") and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(j) USE OF ESTIMATES
The preparation of the Company's 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,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates. In
particular, as further described in note 1, significant assumptions were made to
allocate indirect costs from XL Vision to Who? Vision for the period prior to
incorporation.
(k) NET PROFIT (LOSS) PER SHARE
Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders by the weighted average number of shares of common stock
outstanding. As of December 31, 1997 and September 30, 1998, the Company's
options (286,250 at December 31, 1997 and 901,425 at September 30, 1998) and
convertible preferred stock (8,258,881 at December 31, 1997 and 18,581,704 at
September 30, 1998) (see notes 4 and 6), have not been used in the calculation
of diluted net profit (loss) per share because to do so would be anti-dilutive.
As such, the numerator and the denominator used in computing both basic and
diluted net profit (loss) per share allocable to common stockholders are equal.
Calculation of net profit (loss) per share is based upon operations subsequent
to the initial capitalization (incorporation) of the Company on June 30, 1997.
Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented herein
and through the filing of the registration statement for the IPO are to be
reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.
(l) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts payable and accrued liabilities
reflected in the financial statements approximates fair value due to the
short-term maturity of these instruments.
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Office and computer equipment...................... $119,732 $323,895
Furniture and fixtures............................. 12,169 409,298
Engineering and manufacturing equipment............ 57,317 109,572
Leasehold improvements............................. -- 48,229
-------- --------
189,218 890,994
Less: accumulated depreciation and amortization.... (18,882) (101,522)
-------- --------
Property and equipment, net........................ $170,336 $789,472
======== ========
</TABLE>
F-9
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(4) PREFERRED STOCK
As of December 31, 1997, the Company had authorized the issuance of
10,000,000 shares of preferred stock and had designated 8,300,000 as Series A
shares (see note 10).
SERIES A -- Each share of Series A preferred stock is convertible into one
share of common stock at the option of the holder or upon the vote of holders of
two-thirds of the Series A preferred stock outstanding. The Series A preferred
stock is automatically converted into common stock upon a qualified initial
public offering of at least $10,000,000 with a Company valuation of at least
$35,000,000 or upon a public rights offering of the Company to shareholders of
Safeguard Scientifics, Inc. ("Safeguard") (see note 10). The holders of Series A
preferred stock are entitled to vote as a separate class to elect two directors
to the Board of Directors of the Company. The Series A shares are entitled to a
liquidation preference before any distribution to common stockholders equal to
the greater of (a) $1.00 per share plus an additional $.10 per year (pro rated
for partial year) from January 14, 1998 or until the date of distribution of
available assets or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to common stock prior to
liquidation.
SERIES B -- Each share of Series B preferred stock is convertible into one
share of common stock at the option of the holder or upon the vote of holders of
two-thirds of the Series B preferred stock outstanding. The Series B preferred
stock is required to be converted upon a qualified initial public offering of at
least $10,000,000 with a Company valuation of at least $35,000,000 or a public
rights offering of the Company to shareholders of Safeguard (see note 10). The
Series B shares are entitled to a liquidation preference before any distribution
to common stockholders equal to the greater of (a) $3.00 per share plus an
additional $.30 for each year per year from May 31, 1998 or until the date of
distribution of available assets or (b) the amount which would be distributed if
all of the preferred stock of the Company were converted to common stock prior
to liquidation. Series B shares are on parity with Series A shares.
SERIES C -- Each share of Series C preferred stock is convertible into one
share of common stock at the option of the holder or upon the vote of holders of
two-thirds of the Series C preferred stock outstanding. The Series C preferred
stock is required to be converted upon a qualified initial public offering of at
least $10 million with a Company valuation of at least $35 million or a public
rights offering of the Company to shareholders of Safeguard (see note 11). The
Series C shares are entitled to a liquidation preference before any distribution
to common stockholders equal to the greater of (a) $5.00 per share plus an
additional $.50 for each year from September 30, 1998 or until the date of
distribution of available assets or (b) the amount which would be distributed if
all of the preferred stock of the Company were converted to common stock prior
to liquidation. Series C shares are on parity with Series A shares.
(5) INCOME TAXES
Prior to June 30, 1997 (incorporation), the Company operated as a division
of XL Vision and as such was not directly subject to income taxes. The results
of the Company's operations are included in the consolidated income tax return
of XL Vision for the period from May 1, 1997 through June 29, 1997. The
Company's net operating loss carryforward of approximately $2,824,000 was
generated for losses incurred only during the period from June 30, 1997
(incorporation) through December 31, 1997. This tax carryforward is available to
offset future taxable income through 2012. Because the Company is a development
stage enterprise, deferred tax benefits generated by deferred tax assets are
offset by a corresponding valuation allowance.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
F-10
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(5) INCOME TAXES -- (CONTINUED)
Significant components of the Company's deferred income tax assets and
liability are as follows:
DECEMBER 31,
1997
------------
Deferred tax assets:
Net operating loss carryforward...................... $ 960,161
Intangible assets.................................... 69,275
Accrued liabilities.................................. 12,889
----------
Deferred tax assets............................... 1,042,325
Deferred tax liability:
Depreciation......................................... (5,950)
----------
Total............................................. 1,036,375
Less valuation allowance for deferred tax assets....... (1,036,375)
----------
Deferred tax asset (liability), net............... $ --
==========
The difference between the "expected" tax benefit (computed by applying the
federal corporate income rate of 34% to the loss before income taxes) and the
actual tax benefit is primarily due to the effect of the valuation allowance.
(6) STOCK PLAN
In September 1997, the Company adopted an equity compensation plan (the
"Plan") pursuant to which the Company's Board of Directors may grant shares of
common stock or options to acquire common stock to certain directors, advisors
and employees. The Plan authorizes grants of shares or options to purchase up to
2,400,000 shares of authorized but unissued common stock. Stock options granted
have a maximum term of ten years and have vesting schedules which are at the
discretion of the Compensation Committee of the Board of Directors and
determined on the effective date of the grant. The Plan allows the Compensation
Committee to change a vesting schedule after the date of grant and allows for
the exercise prior to vesting.
A total of 750,000 shares were granted to officers as compensation out of
the Plan in 1997.
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF WEIGHTED REMAINING
EXERCISE AVERAGE CONTRACTUAL
PRICES EXERCISE LIFE
SHARES PER SHARE PRICE (IN YEARS)
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance outstanding June 30, 1997
(incorporation)............................. -- $ -- $ --
Granted..................................... 286,250 .80 .80
--------
Balance outstanding December 31, 1997......... 286,250 $ .80 $ .80 9.92
======== ========== ===== ====
Granted..................................... 854,175 $1.00-5.00 $1.93
Exercised................................... (81,250) .80-2.00 1.11
Canceled.................................... (157,750) .80-1.00 .81
--------
Balance outstanding September 30, 1998........ 901,425 $ .80-5.00 $1.85 9.60
======== ========== ===== ====
</TABLE>
At December 31, 1997 and September 30, 1998, there were -0- and 34,333
shares exercisable, respectively. The weighted average exercise price for shares
exercisable at September 30, 1998 was $1.99.
F-11
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(6) STOCK PLAN -- (CONTINUED)
At December 31, 1997 and September 30, 1998, 588,750 and 667,325 shares
were available for grant under the Plan, respectively.
The per share weighted-average fair value of stock options granted during
1997 was $-0- on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 5.94%, and an expected life of 6.75 years. No
volatility was assumed due to the use of the Minimum Value Method of computation
for options issued by the Company prior to becoming a public entity as
prescribed by SFAS No. 123.
All stock options granted through December 31, 1997 have been granted to
directors or employees. The Company applies APB Opinion No. 25 for issuances to
directors and employees in accounting for its Plan and, accordingly, no
compensation cost has been recognized for its stock options in the 1997
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would not have increased since the exercise price of the
options was significantly greater than the fair market values on the dates of
the grants.
(7) RELATED PARTY TRANSACTIONS
Prior to January 1998, personnel and other administrative services were
provided by XL Vision and allocated to Who? Vision. Effective January 1, 1998,
the Company entered into an administrative services agreement with XL Vision
which allows for cost-based administrative charges based upon actual hours
incurred. Administrative service fees incurred between May 1, 1997 (inception)
and December 31, 1997 and for the nine months ended September 30, 1998 were
approximately $420,000 and $432,000, respectively.
As of December 31, 1997 and September 30, 1998, the Company owed XL Vision
$2,728,448 and $6,526,383, respectively. The advances from XL Vision as of
December 31, 1997 were made pursuant to a loan agreement entered into in
November 1997 and as of September 30, 1998 were made pursuant to such loan
agreement and a note payable issued on January 14, 1998. The loan agreement
bears interest at prime plus 1% (9.5% at December 31, 1997 and 9.25% at
September 30, 1998). The note payable bears interest at 7%. Intercompany
interest charges for the period from May 1, 1997 (inception) through June 29,
1997, the period from June 30, 1997 (incorporation) through December 31, 1997
and the nine months ended September 30, 1998 were $1,216, $74,499 and $366,041,
respectively.
The average outstanding balance due to XL Vision for the period from May 1,
1997 (inception) through June 29, 1997, the period from June 30, 1997
(incorporation) to December 31, 1997 and the
F-12
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(7) RELATED PARTY TRANSACTIONS -- (CONTINUED)
nine months ended September 30, 1998 was $51,980, $1,563,845 and $6,280,573,
respectively. An analysis of amounts due to XL Vision is summarized as follows:
Amounts due to XL Vision at May 1, 1997..................... $ --
Allocation of costs and funding of working capital to the
Company................................................ 125,698
Consideration for 1,250 shares of common stock at June 30,
1997................................................... (10)
-----------
Amount due to XL Vision at June 30, 1997 (incorporation).... 125,688
Allocation of costs and funding of working capital to the
Company................................................ 2,856,157
Consideration for 4,223,281 shares of common stock issued
to XL Vision........................................... (253,397)
-----------
Amounts due to XL Vision at December 31, 1997............... 2,728,448
Allocation of costs and funding of working capital to the
Company................................................ 6,346,816
Transfer of technology (note 10).......................... 10,000,000
Cash transferred to XL Vision............................. (12,548,881)
-----------
Amounts due to XL Vision at September 30, 1998.............. $ 6,526,383
===========
(8) COMMITMENTS AND CONTINGENCIES
Agreement with The Phoenix Group, Inc. On November 5, 1997, the Company
entered into a software license agreement with The Phoenix Group, Inc. The
agreement provides for the Company to buy up to a total of 55.1 million licenses
through December 31, 2002 with one year renewal terms thereafter. The agreement
includes an upfront payment of $200,000 and issuance of 62,500 shares (at $.06
per common share) of the Company's common stock. As a result of this agreement,
the Company recognized $203,750 of research and development expenses for the
period from June 30, 1997 (incorporation) through December 31, 1997.
The agreement also contains a provision which requires the Company to issue
additional common stock to The Phoenix Group, Inc. equal to one-half of one
percent (0.5%) of the number of issued and outstanding shares of the Company's
combined common and preferred stock that exceeds 12,500,000 shares. During the
nine months ended September 30, 1998, there were 29,542 additional shares
issuable to The Phoenix Group, Inc. based upon this provision. The Company
recognized expense of $109,292 related to the issuance of these shares as
additional research and development expense.
Voluntary Employee Savings 401(k) Plan. The Company established a
voluntary employee savings 401(k) plan in 1997 which is available to all
full-time employees 21 years or older. The plan provides for a matching by the
Company of the employee's contribution to the plan for 50% of the first 6% of
the employee's annual compensation. The Company's matching contributions were
approximately $14,000 for the period from May 1, 1997 (inception) through
December 31, 1997.
(9) STOCK SPLIT
On January 14, 1998, the Company authorized a five-for-four common stock
split. Stock options outstanding and common shares outstanding have been
adjusted to retroactively reflect the effect of this stock split.
(10) SUBSEQUENT EVENTS
Lease Commitment. On January 8, 1998, the Company entered into a five year
lease for office space beginning May 18, 1998. The lease provides for a monthly
base rent of approximately $22,000 and for allocations of direct expense charges
for building upkeep, maintenance and property taxes.
F-13
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(10) SUBSEQUENT EVENTS -- (CONTINUED)
Technology Fee. On January 14, 1998, the Company entered into an agreement
with XL Vision for the transfer of certain technology that will be used by the
Company in the sale of its products for $10,000,000. The Company expensed the
cost of this technology as in-process research and development expense during
the nine months ended September 30, 1998.
Initial Public Offering. On April 21, 1998, the Company's Board of
Directors authorized the filing of a registration statement on Form S-1. The IPO
will be conducted as a rights offering primarily to Safeguard's stockholders and
will result in the expected sale of 6,500,000 new shares of common stock.
Equity. The Company sold 8,258,881 shares of convertible Series A
preferred stock in an offering based upon a private placement memorandum dated
January 14, 1998 for $1.00 per share.
On May 21, 1998, the Company authorized an additional 5,000,000 shares of
preferred and an additional 20,000,000 shares of common stock.
On May 21, 1998 and June 16, 1998, the Company authorized an increase in
the Company's equity compensation plan of 300,000 and 475,000 shares,
respectively, bringing the aggregate number of shares authorized under the plan
to 2,400,000 (note 6).
In May 1998, the Compensation Committee of the board of directors of the
Company approved the exercise of outstanding stock options for certain
executives of the Company prior to their scheduled vesting date. Any shares
issued pursuant to an exercise prior to the scheduled vesting date are subject
to restrictions on transfer until such shares are vested, and in the event the
executive ceases to be employed by the Company prior to vesting of the shares
obtained upon exercise, the Company may repurchase any unvested shares at the
lesser of the exercise price and the then fair value of the common shares.
Between May 21 and June 3, 1998, the Company designated 1,400,000 shares of
preferred stock as Series B and sold those shares for $3.00 per share.
Management Services Fee. Effective May 18, 1998, the Company entered into
an agreement which requires accrual of a management services fee based upon a
percentage of gross revenues. The fee for administrative support services,
including management consultation, investor relations, legal services and tax
planning, is payable monthly to XL Vision and Safeguard Scientifics, Inc., the
majority shareholder of XL Vision, based upon an aggregate of 1.5% of gross
revenues subject to an annual minimum of $100,000 and an annual limit of
$300,000. The fee is accrued monthly but is only payable in months during which
the Company has achieved positive cash flow from operations. The agreement
extends through May 18, 2003 and continues thereafter unless terminated by any
party.
Major Suppliers and Distributors. On July 1, 1998 and July 16, 1998, the
Company finalized agreements with two Taiwanese companies, Silitek Corporation
and SPOT Technology, Inc., respectively, to serve as contract manufacturers of
the Company's products.
On July 1, 1998, July 16, 1998 and July 9, 1998, respectively, the Company
finalized separate distribution agreements with two Taiwanese companies, Silitek
Corporation and SPOT, Inc., a subsidiary of Mag Technology Co., Ltd., and a
related party, Integrated Visions, Inc. Pursuant to these agreements, these
companies will purchase products from the Company and integrate them into other
products to be sold through various channels.
F-14
<PAGE>
WHO? VISION SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED
(11) TECHNOLOGY LICENSES -- (UNAUDITED)
On September 15, 1998, the Company designated 3,800,000 shares of preferred
stock as Series C and issued those shares for technology licenses and related
fees as discussed below.
Effective September 30, 1998, the Company reached agreements with
Koninklijke Philips Electronics N.V. ("Philips") for the transfer and license
from Philips of certain technology, valued at $18,500,000 and in exchange issued
3,700,000 shares of Series C preferred stock. The sale of Series C preferred
stock, included a buyback provision to repurchase 600,000 preferred shares at
$5.00 per share which is triggered if the Company's IPO is not declared
effective on or before March 31, 1999. The value of the buyback provision of
$3,000,000 is reflected in the accompanying balance sheet outside of
stockholders' equity as "equity purchase option." The Company, as an alternative
to this buyback provision, may at its discretion choose to lose its exclusivity
under the technology transfer agreement. Also under these agreements the Company
has entered into long-term development arrangements for commercialization of the
technology and a purchase agreement to supply components. In addition, the
Company is obligated to pay Philips a quarterly royalty of 5% of net sales of
the Company's products to Philips.
The Company also incurred fees related to this transaction which totaled
$500,000. The Company issued 75,000 shares of Series C preferred stock to
satisfy $375,000 of this obligation. The remaining $125,000 of the obligation is
included in accounts payable in the accompanying balance sheets as of September
30, 1998.
The Company has expensed the costs related to these technology licenses and
related fees as in-process research and development expense for the nine months
ended September 30, 1998 as the technology is under development and has no
alternative future uses.
F-15
<PAGE>
THE FUTURE OF
PERSONAL AUTHENTICATION
[ARTWORK]
[LOGO]
Our lives are becoming increasingly entwined with the
machines that serve us. As telephones communicate with
personal digital assistants, personal digital assistants
link to the Internet/e-mail, and the Internet/e-mail
connects to personal bank accounts and corporate
enterprises, the need for a higher level of security arises
at each juncture. Who? Vision believes that its TactileSense
technology will in the future enable machines such as computers,
cellular phones, home security systems, automobiles, television
remote controls, point of sale devices and personal digital
assistants to recognize us by our unique physical
characteristics, thus adding security and convenience for
the emerging digital world.
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR
THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
The Offering........................ 18
Federal Income Tax Consequences..... 22
Use of Proceeds..................... 23
Dividend Policy..................... 23
Capitalization...................... 24
Dilution............................ 25
Selected Financial Data............. 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 27
Business............................ 32
Management.......................... 46
Certain Transactions................ 52
Principal and Selling
Stockholders...................... 54
Description of Capital Stock........ 56
Shares Eligible for Future Sale..... 58
Underwriting........................ 60
Legal Matters....................... 62
Experts............................. 62
Additional Information.............. 62
Index to Financial Statements....... F-1
</TABLE>
------------------------------
UNTIL , 1998 (25 DAYS AFTER THE EXPIRATION DATE), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
6,825,000 SHARES
(AND RIGHTS TO ACQUIRE
UP TO 6,500,000 OF SUCH SHARES)
WHO? VISION
SYSTEMS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
ROBERT W. BAIRD & CO.
INCORPORATED
JANNEY MONTGOMERY SCOTT INC.
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The expenses (other than underwriting discounts and commissions and the
underwriters' non-accountable expense allowance) payable in connection with this
offering of the rights and the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,026
NASD filing fee............................................. 4,237
Nasdaq filing fee........................................... 100,000
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 200,000
Blue Sky fees and expenses (including legal fees)........... 25,000
Transfer agent and rights agent and registrar fees and
expenses.................................................. 25,000
Miscellaneous............................................... 209,737
--------
Total............................................... $950,000
</TABLE>
All expenses are estimated except for the SEC fee and the NASD fee.
ITEM 14. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant unless and only to the extent that the
Delaware Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's By-laws as to expenses
actually and reasonably incurred to the extent that an authorized representative
of the Registrant has been successful on the merits or otherwise in defense of
any third party or corporate proceeding or in defense of any claim, issue or
matter therein. The determination of whether an individual is entitled to
indemnification may be made by a majority of disinterested directors,
independent legal counsel in a written legal opinion or the stockholders.
Delaware law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its favor.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
The Registrant expects to obtain a directors and officers liability insurance
policy prior to the effective date of this Registration Statement.
II-1
<PAGE>
The Standby Underwriting Agreement provides that the underwriter is
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Act. Reference is made to Section 8 of the form of Standby
Underwriting Agreement which will be filed by amendment as Exhibit 1.1 hereto.
ITEM 15. Recent Sales of Unregistered Securities
In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:
Since its inception, the Company has issued to employees and certain other
persons (i) an aggregate of 5,122,698, shares of Common Stock, including 825,000
shares issued pursuant to the Company's 1997 Equity Compensation Plan, (ii) an
aggregate of 8,258,881 shares of Series A Preferred Stock, at a price of $1.00
per share and (iii) an aggregate of 1,400,000 shares of Series B Preferred
Stock, at a price of $3.00 per share. All of such sales were made under the
exemption from registration provided under Section 4(2) of the Act.
Pursuant to the Company's 1997 Equity Compensation Plan, the Company has
granted since inception (i) options to purchase a total of 706,425 shares of
Common Stock at a weighted average exercise price of $1.50 per share and (ii)
750,000 shares of restricted Common Stock to its employees and certain other
persons. Options for 75,000 shares have been exercised. For a more detailed
description of the Company's Equity Compensation Plan, see "Management -- Equity
Compensation Plan" in this registration statement. In granting the options and
selling the underlying securities upon exercise of the options, the Company is
relying upon exemptions from registration set forth in Rule 701 and Section 4(2)
of the Act.
On September 30, 1998 the Company issued an aggregate of 3,775,000 shares
of Series C Preferred Stock to third party entities in consideration of the
transfer of technology and certain other obligations. Such shares were valued at
$5.00 per share. The issuance of such shares was made under the exemption from
registration provided under Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
1.1 Form of Standby Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.**
3.2 Amended and Restated By-laws of the Company.**
5.1 Opinion of Morgan, Lewis & Bockius LLP.***
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax
matters.***
10.1 1997 Equity Compensation Plan of the Company.**
10.2 Lease Agreement, dated as of January 8, 1998, between the
Company and Olen Properties Corp.**
10.3 Manufacturing Agreement, dated as of July 16, 1998, between
the Company and SPOT Technology, Inc.*+
10.4 Distribution Agreement, dated as of July 16, 1998, between
the Company and SPOT, Inc.*+
10.5 Manufacturing Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.*+
10.6 Distribution Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.*+
10.7 Administrative Services Agreement, dated as of May 21, 1998,
among the Company, XL Vision, and Safeguard.**
10.8 Direct Charge Administrative Services Agreement, dated as of
December 9, 1997, between the Company and XL Vision.**
10.9 Value Added Reseller Agreement, dated as of July 9, 1998,
between the Company and Integrated Visions.*+
10.10 Purchase Agreement, dated as of September 30, 1998, between
the Company and Philips Electronics North America
Corporation.*+
10.11 Supply Agreement, dated as of September 29, 1998, between
the Company and Philips Flat Panel Display Co. B.V.*+
10.12 Technology Transfer Agreement, dated as of September 30,
1998, between the Company and Philips Flat Panel Display Co.
B.V.*+
10.13 Technology Services Agreement, dated as of September 30,
1998, between the Company and Philips Flat Panel Display Co.
B.V.*+
10.14 License Agreement, dated as of September 30, 1998 between
the Company and Koninklijke Philips Electronics N.V.*+
10.15 Professional Services Framework Agreement, dated as of
September 30, 1998, among the Company, Cadence Design
Systems Limited and Philips Flat Panel Display Co. B.V.*+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
10.16 Investment Agreement, dated as of September 30, 1998,
between the Company and Koninklijke Philips Electronics
N.V.*
10.17 Services and Stock Purchase Agreement, dated as of September
30, 1998, among the Company, Philips Flat Panel Display Co.
B.V. and A3 Ventures Incorporated.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of KPMG Peat Marwick LLP*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).***
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 8.1).***
24.1 Power of Attorney (included on signature page).**
27.1 Financial Data Schedule.*
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Confidential Treatment requested. The entire agreement
will be filed separately with the Securities and
Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. 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 the 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 was
registered) and any deviation from the low or high and 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 percent change in
the maximum aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration statement; and
(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) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
II-4
<PAGE>
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) 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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, 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.
The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriter during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriter, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriter is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Lake Forest,
California on October 30, 1998.
WHO? VISION SYSTEMS, INC.
By: /s / ALEXANDER G. DICKINSON
-----------------------------------
Alexander G. Dickinson, Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALEXANDER G. DICKINSON Chief Executive Officer and Director October 30, 1998
- ----------------------------- (Principal Executive Officer)
Alexander G. Dickinson, Ph.D.
/s/ JAMES W. KERRIGAN Chief Financial Officer (Principal October 30, 1998
- ----------------------------- Financial and Accounting Officer)
James W. Kerrigan
* Chairman of the Board October 30, 1998
- -----------------------------
John S. Scott, Ph.D.
* Director October 30, 1998
- -----------------------------
Edward Anderson
* Director October 30, 1998
- -----------------------------
Charles A. Root
* Director October 30, 1998
- -----------------------------
Walter W. Buckley, III
* Director October 30, 1998
- -----------------------------
James Ionson
* Director October 30, 1998
- -----------------------------
Alex W. Hart
* Director October 30, 1998
- -----------------------------
Christopher Moller
*By: /s/ JAMES W. KERRIGAN
-----------------------
James W. Kerrigan
as Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- -------------- ----------- --------
<C> <S> <C>
1.1 Form of Standby Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the
Company.**
3.2 Amended and Restated By-laws of the Company.**
5.1 Opinion of Morgan, Lewis & Bockius LLP.***
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax
matters.***
10.1 1997 Equity Compensation Plan of the Company.**
10.2 Lease Agreement, dated as of January 8, 1998, between the
Company and Olen Properties Corp.**
10.3 Manufacturing Agreement, dated as of July 16, 1998, between
the Company and SPOT Technology, Inc.*+
10.4 Distribution Agreement, dated as of July 16, 1998, between
the Company and SPOT, Inc.*+
10.5 Manufacturing Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.*+
10.6 Distribution Agreement, dated as of July 1, 1998, between
the Company and Silitek Corporation.*+
10.7 Administrative Services Agreement, dated as of May 21, 1998,
among the Company, XL Vision, and Safeguard.**
10.8 Direct Charge Administrative Services Agreement, dated as of
December 9, 1997, between the Company and XL Vision.**
10.9 Value Added Reseller Agreement, dated as of July 9, 1998,
between the Company and Integrated Visions.*+
10.10 Purchase Agreement, dated as of September 30, 1998, between
the Company and Philips Electronics North America
Corporation.*+
10.11 Supply Agreement, dated as of September 29, 1998, between
the Company and Philips Flat Panel Display Co. B.V.*+
10.12 Technology Transfer Agreement, dated as of September 30,
1998, between the Company and Philips Flat Panel Display Co.
B.V.*+
10.13 Technology Services Agreement, dated as of September 30,
1998, between the Company and Philips Flat Panel Display Co.
B.V.*+
10.14 License Agreement, dated as of September 30, 1998, between
the Company and Koninklijke Philips Electronics N.V.*+
10.15 Professional Services Framework Agreement, dated as of
September 30, 1998, among the Company, Cadence Design
Systems Limited and Philips Flat Panel Display Co. B.V.*+
10.16 Investment Agreement, dated as of September 30, 1998,
between the Company and Koninklijke Philips Electronics
N.V.*
</TABLE>
<PAGE>
<TABLE>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- -------------- ----------- --------
<C> <S> <C>
10.17 Services and Stock Purchase Agreement, dated as of September
30, 1998, among the Company, Philips Flat Panel Display Co.
B.V. and A3 Ventures Incorporated.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of KPMG Peat Marwick LLP*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).***
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 8.1).***
24.1 Power of Attorney (included on signature page).**
27.1 Financial Data Schedule.*
</TABLE>
- ------------------
<TABLE>
<C> <S>
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Confidential treatment requested. The entire agreement will
be filed separately with the Securities and Exchange
Commission.
</TABLE>
WHO? VISION SYSTEMS, INC.
6,825,000 Shares of Common Stock
($.01 Par Value Per Share)
Standby Underwriting Agreement
[ ], 1998
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5391
Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, Pennsylvania 19103-1675
Ladies and Gentlemen:
Who? Vision Systems, Inc., a Delaware corporation (the "Company"),
Safeguard XL Capital, L.P., a Delaware limited partnership ("Safeguard XL
Capital"), Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard
(PA)" and together with Safeguard XL Capital, "Safeguard"), XL Vision, Inc., a
Delaware corporation ("XL Vision"), and Applewood Associates, L.P. ("Applewood"
together with Safeguard and XL Vision are collectively referred to herein as the
"Selling Stockholders") hereby confirm their respective agreements with you with
respect to:
(i) the proposed distribution by the Company to the Safeguard
Shareholders of up to an aggregate of 6,500,000 rights (the "Rights")
(which represent 6,500,000 shares of the Company's common stock, $.01 par
value per share (the "Common Stock"), to be sold by the Company upon the
exercise of 6,500,000 of such Rights) with (A) each Right entitling the
holder thereof to purchase at any time prior to the Expiration Date, at a
subscription price of $5.00 per share, one share of Common Stock of the
Company, and (B) Rights being distributed on the basis of one Right for
each five shares of Safeguard Stock held (with the holder of a number of
shares of Safeguard Stock not evenly divisible by five entitled to receive
the next higher whole number of Rights);
(ii) the proposed sale of all Unsubscribed Shares by the Company with:
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<PAGE>
(A) the Other Purchasers Standby Shares being deemed to be
Company Unsubscribed Shares to be sold pursuant to the Other
Purchasers Standby Purchase Agreements; and
(B) all Excess Unsubscribed Shares to be sold to and purchased by
the Underwriters, severally and not jointly, in accordance with the
terms and conditions of this Agreement; and
(iii) the proposed sale by the Company to the Other Purchasers of the
Undistributed Shares; and
(iv) the grant by the Selling Stockholders to the Underwriters of an
option described in Section 3(b) hereof to purchase additional shares of
Common Stock for the purpose of covering over-allotments, if any.
The parties acknowledge that concurrently with the Offering of the Rights,
the Selling Stockholders intend to offer and sell the number of Direct Shares
set forth beside such Selling Stockholders' names on Schedule C to the Direct
Purchasers for purchase at a subscription price of $5.00 per share. The parties
also acknowledge that, except as set forth in Section 7, the Direct Shares shall
not be deemed to be Shares for purposes of this Agreement and are not otherwise
a part of this Agreement.
1. Certain Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Adverse Claim" means the term as used in Section 8-302 of the Delaware
Uniform Commercial Code.
"Application" means the application described in Section 9(a)(i)(B) hereof.
"Associated Person Lock-Ups" means the agreements, acceptable in form and
substance to Baird, pursuant to which each of the Company's officers, directors
and principal stockholders listed in Schedule A attached hereto has agreed not
to, without the prior written consent of Baird, transfer, sell, offer for sale,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable or exchangeable for or convertible into shares of Common
Stock owned by such person or with respect to which such person has the power of
disposition during a period commencing on the date the Registration Statement is
declared effective by the Commission and ending 180 days following the
Expiration Date, except as otherwise permitted in the Associated Person
Lock-Ups.
"Baird" means Robert W. Baird & Co. Incorporated, one of the Underwriters.
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<PAGE>
"Bona Fide Purchaser" means the term as defined in Section 8-302 of the
Delaware Uniform Commercial Code.
"Closing" means 10:00 a.m., New York City time on the sixth business day
after the Expiration Date (or the first business day thereafter), or at such
other time on the same or such other date, not later than [____________], 1998,
as shall be agreed to by the Company, the Selling Stockholders and the
Underwriters.
"Closing Date" means the time and date of payment for and delivery of the
Excess Unsubscribed Shares.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of Common Stock, $.01 par value per share,
of the Company.
"Company Unsubscribed Shares" means the shares of Common Stock which had
been offered by the Company pursuant to the Rights but which were not acquired
through the exercise of Rights on or prior to the Expiration Date.
"Controlling Person" means a person who controls the Underwriters, the
Company or the Selling Stockholders within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act.
"Custody Agreement" means the Custody Agreement and Power of Attorney dated
____________, 1998 by and among the Selling Stockholders, ________ as custodian
thereunder and ________ as attorney-in-fact thereunder.
"Direct Purchasers" means the certain persons selected by the Company to
whom the Direct Shares are being offered.
"Direct Shares" means the 325,000 shares of Common Stock of the Selling
Stockholders offered to the Direct Purchasers.
"Disagreement" means the term as used in Item 304 of Regulation S-K of the
Rules and Regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means the escrow agent named in the Rights Agent Agreement.
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<PAGE>
"Excess Unsubscribed Shares" means all of the Unsubscribed Shares other
than the Other Purchasers Standby Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the subscription price of $5.00 per share.
"Expiration Date" means 5:00 p.m., New York City time, on
[_______________], 1998 or such later date as may be agreed upon by the
Underwriters and the Company.
"Intellectual Property" means all patents, trademarks, service marks, trade
names, copyrights, inventions, trade secrets, proprietary techniques, including,
without limitation, all software service codes, processes and substances,
technology and know-how necessary to conduct (or used to conduct) the business
now operated or proposed to be operated by the Company as described in the
Prospectus.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"KPMG" means KPMG Peat Marwick LLP.
"Material Adverse Effect" means a material adverse effect on the condition,
financial or otherwise, or on the earnings, business affairs, financial
position, value, operations, properties, results of operation or business of the
Company.
"Musser Group" means Warren V. Musser and/or his assignees.
"Musser Lock-Up" means the agreement of the Musser Group not to, without
the prior written consent of Baird, transfer, sell, offer for sale, contract to
sell or otherwise dispose of any shares of Common Stock acquired by the Musser
Group upon exercise of the Musser Rights or any securities exercisable or
exchangeable for or convertible into Common Stock (including the Musser Rights)
owned on the date hereof or acquired through the rights offering or with respect
to which the Musser Group has the power of disposition during a period
commencing on the date the Registration Statement is declared effective and
ending 180 days after the Expiration Date; provided, however, that the Musser
Group may transfer, sell, offer for sale, contract to sell or otherwise dispose
of up to 280,000 shares of Common Stock without the prior written consent of
Baird so long as the Musser Group notifies Baird of any such transaction at
least one business day before such transfer, sale, offer or disposition.
"Musser Rights" means all Rights granted to the Musser Group as a
shareholder of Safeguard (PA).
"NASD" means the National Association of Securities Dealers, Inc.
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<PAGE>
"Offering" means the public offering of the Excess Unsubscribed Shares as
set forth in the Prospectus; provided that the Offering shall also include the
Other Purchasers Standby Shares purchased by the Underwriters, if any.
"Option Closing Date" means the time of delivery of any of the Option
Shares.
"Option Shares" means any and all shares of Common Stock to be purchased by
the Underwriters pursuant to the option described in Section 3(b) of this
Agreement.
"Other Purchasers" means certain persons selected by the Company.
"Other Purchasers Standby Purchase Agreement" means the agreements between
the Company and the Other Purchasers to be entered into after the date hereof
and obligating the Other Purchasers to purchase from the Company up to 300,000
Other Purchasers Standby Shares on the Closing Date at a price of $5.00 per
share.
"Other Purchasers Standby Shares" means that number of Unsubscribed Shares
purchased by the Other Purchasers pursuant to the Other Purchasers Standby
Purchase Agreement.
"Preliminary Prospectus" means each prospectus subject to completion filed
with the Registration Statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration Statement
or any amendment thereto at the time of the Registration Statement was or is
declared effective).
"Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act, or, if no prospectus is required to be filed
pursuant to said Rule 424(b), the prospectus included in the Registration
Statement. For purposes of Sections 2 and 8(d)(v) hereof, all references to the
"Prospectus" are deemed to include, in the alternative, the most recent
Preliminary Prospectus if the Prospectus is not in existence.
"Provided Information" means the statements made in the [third] paragraph
preceding the stabilization legend on the inside of the front cover page, the
stabilization legend on the inside of the front cover page and the [third] and
[sixth] paragraphs under the heading "UNDERWRITING" in the Prospectus (and the
same paragraphs and stabilization legend in any Preliminary Prospectus).
"Registration Statement" means the registration statement described in
Section 2(a)(i) hereof.
"Reportable Event" means the term as used in Item 304 of Regulation S-K of
the Rules and Regulations.
"Rights Agent" means ChaseMellon Shareholder Services, L.L.C.
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<PAGE>
"Rights Agent Agreement" means the agreement in the form previously
approved by the Underwriters, dated the date hereof, by and among the Company,
the Escrow Agent and the Rights Agent.
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Exchange Act.
"Safeguard Shareholders" means the holders of record of Safeguard Stock as
of [_________________], 1998.
"Safeguard Stock" means the common shares, $.10 par value per share, of
Safeguard (PA).
"Shares" means the Option Shares, the Excess Unsubscribed Shares to be
purchased by the Underwriters and the Other Purchasers Standby Shares purchased
by the Underwriters, if any, pursuant to Section 3.
["Significant Subsidiary" means the term as defined in Rule 405 of the
Rules and Regulations.]
"Transfer Agent and Registrar" means the transfer agent and registrar
described in Section 6(a)(ix) hereof.
"Underwriters" means Robert W. Baird & Co. Incorporated and Janney
Montgomery Scott Inc.
"Underwriters' Counsel" means Drinker Biddle & Reath LLP.
"Undistributed Shares" means 6,500,000 shares of Common Stock less those
shares of Common Stock that had been offered by the Company pursuant to the
Rights if Rights to purchase fewer than 6,500,000 shares of Common Stock are
granted to holders of the Safeguard Stock.
"Unsubscribed Shares" means the Company Unsubscribed Shares and the
Undistributed Shares.
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, the
Underwriters as follows:
(i) The Company has filed with the Commission a registration
statement on Form S-1 (No. 333-59219), including a prospectus subject
to completion, for the registration of the Rights, the shares of
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<PAGE>
Common Stock subject to the Rights, the Direct Shares and the Option
Shares under the Act, and have filed with the Commission one or more
amendments thereto. After the execution of this Agreement, the Company
will file with the Commission either (A) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the Act as of the time of
effectiveness of this Agreement, a prospectus in the form most
recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Underwriters prior to the
execution of this Agreement, or (B) if such registration statement, as
it may have been amended, has not been declared by the Commission to
be effective under the Act as of the time of effectiveness of this
Agreement, an amendment to such registration statement, including a
form of prospectus, a copy of which amendment has been furnished to
and approved by the Underwriters prior to the execution of this
Agreement;
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or any part thereof
and, to the best knowledge of the Company, no proceedings for a stop
order have been instituted or are pending or threatened. When any
Preliminary Prospectus was filed with the Commission, it contained all
statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the Act
and the Rules and Regulations except to the extent that such
Preliminary Prospectus did not contain any such required statements,
or did not so comply, in a manner corrected in the Prospectus. When
the Registration Statement or any amendment thereto was (or is)
declared effective, it (A) contained (or will contain) all statements
required to be stated therein in accordance with, and complied in all
material respects (or will comply in all material respects) with the
requirements of, the Act and the Rules and Regulations and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any amendment or supplement thereto
is filed pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared
effective) and on the Closing Date and any Option Closing Date, the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the Rules and Regulations and
(B) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(ii) do not apply to the Provided Information;
(iii) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or
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<PAGE>
leasing of any properties or the character or conduct of its
operations requires such qualification, except where failures to be so
qualified, individually or in the aggregate, would not result in a
Material Adverse Effect. The Company does not own any stock of or
other equity in, or otherwise control directly or indirectly, any
corporation, firm, partnership, trust, joint venture or other business
entity;
(iv) The Company has all requisite power and authority (corporate
and other), and has obtained and currently maintains in full force and
effect and is operating in compliance with any and all authorizations,
approvals, orders, licenses, certificates, franchises and permits of
and from all governmental or regulatory officials and bodies
(including those having jurisdiction over environmental or similar
matters) necessary or required to own or lease its properties and
conduct its business as described in the Registration Statement, the
Prospectus and any amendment or supplement thereto, except where the
failure to so maintain or operate would not result in a Material
Adverse Effect. The Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations (including without limitation
those relating to employment matters and the payment of taxes) except
as disclosed in the Prospectus and except where failures to be in
compliance, individually or in the aggregate, would not result in a
Material Adverse Effect. The Company has not received any notice or
notices of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate,
franchise or permit that if the subject of unfavorable decisions,
rulings or findings, would, individually or in the aggregate, result
in a Material Adverse Effect;
(v) The Company has duly executed and delivered the Rights Agent
Agreement. The shares of Common Stock to be sold by the Company
hereunder and upon the exercise of the Rights are subject to the
rights and interests of the Underwriters and the Rights Agent
hereunder and under the Rights Agent Agreement. Except to the extent
otherwise provided therein, the arrangements for custody or
reservation and delivery of the certificates for such shares, made by
the Company hereunder and under the Rights Agent Agreement, are
irrevocable, and are not subject to termination by any acts of the
Company or by operation of law;
(vi) The Company has all requisite power and authority (corporate
and other) to enter into this Agreement, the Other Purchasers Standby
Purchase Agreements and the Rights Agent Agreement, and to consummate
the transactions provided for herein and therein; and this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement have each been duly authorized by the Company. Each of this
Agreement and the Rights Agent Agreement have been and the Other
Purchasers Standby Purchase Agreements will be prior to the Closing
Date duly executed and delivered by the Company. Each of this
Agreement and the Rights Agent Agreement constitutes and the Other
Purchasers Standby Purchase Agreements will constitute prior to the
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<PAGE>
Closing Date, assuming due authorization, execution and delivery by
the other parties to such agreements, the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with their respective terms, subject to the effect of
general principles of equity (including standards of materiality, good
faith, fair dealing and reasonableness) whether applied by a court of
law or equity, and except as rights to indemnity and contribution
hereunder may be limited by applicable law, statutory duties or public
policy. The Company's execution and delivery of this Agreement, the
Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement, its performance of its obligations hereunder and
thereunder, the consummation of the transactions contemplated hereby
and thereby by it, and its conduct of its business as described in the
Registration Statement, the Prospectus and any amendment or supplement
thereto, will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any material liens, charges,
claims, encumbrances, pledges, security interests, defects or other
like restrictions or material equities of any kind whatsoever upon,
any right, property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the Certificate of Incorporation or
bylaws, each as amended to date, of the Company, (B) any lease,
license, permit, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit
agreement (including any related to indebtedness) or any other
agreement or instrument to which the Company is a party or by which
the Company is or may be bound or to which any of its properties or
assets (tangible or intangible) is or may be subject, except to the
extent that any such conflict, breach, violation or default,
individually or in the aggregate, does not and would not result in a
Material Adverse Effect and does not and would not interfere with the
Offering or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of its activities or
properties adopted or issued by an arbitrator, court, regulatory body
or administrative agency or other governmental agency or body
(including those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties (other than such as may be
required under state securities or "Blue Sky" laws and such as may be
required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters);
(vii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required in
connection with the offer, issuance and sale of the shares of Common
Stock to be sold by the Company hereunder or upon exercise of the
Rights, the Company's performance of its obligations hereunder, or the
consummation by the Company of the other transactions contemplated
hereby, except (A) such as may be required under the state securities
or "Blue Sky" laws of any jurisdiction or as may be required by the
by-laws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters, (B) any filing of the
Prospectus pursuant to Rule 424(b) or 430A of the Rules and
Regulations and, if the Registration Statement has not been declared
effective, an order of the Commission declaring the Registration
Statement effective under the Act, and (C) such other approvals as
have been obtained and remain in full force and effect;
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<PAGE>
(viii) Upon consummation of the Offering, the authorized, issued
and outstanding capital stock of the Company is set forth, and
conforms to the description thereof contained, in the Registration
Statement, the Prospectus, and any amendment or supplement thereto.
All of the issued shares of capital stock of the Company, including
the shares to be sold by the Selling Stockholders, have been duly
authorized and validly issued, and are fully paid and nonassessable;
the holders thereof have no rights of rescission against the Company
with respect thereto and are not subject to personal liabilities
solely by reason of being such holders (except to the extent that as a
result of acquiring a substantial number of shares of Common Stock a
holder may be subject to claims of personal liability as an affiliate
or control person of the Company, as to which no representation is
made hereby); and none of such shares have been issued in violation of
the preemptive rights of any security holders of the Company arising
as a matter of law or under or pursuant to the Company's Certificate
of Incorporation, as amended, the Company's By-Laws, as amended, or
any agreement or instrument to which the Company is a party or by
which it is bound. The shares of Common Stock offered by the Company
and to be sold upon the exercise of the Rights or pursuant to this
Agreement and the Other Purchasers Standby Purchase Agreements have
been duly authorized and at the Closing Date, after payment therefor
in accordance herewith or in accordance with the terms and conditions
of the Rights (as the case may be), will be validly issued, fully paid
and nonassessable and not subject to any Adverse Claim, with no
personal liability attaching to the holder solely as a result of the
ownership thereof (except to the extent that as a result of acquiring
a substantial number of shares of Common Stock a holder may be subject
to claims of personal liability as an affiliate or control person of
the Company, as to which no representation is made hereby). Upon the
issuance and delivery pursuant to this Agreement and the Rights Agent
Agreement of the Shares to be sold by the Company, assuming that each
of the Underwriters is a Bona Fide Purchaser, the Underwriters will
acquire good and marketable title to the Shares free and clear of any
liens, charges, claims, preemptive rights, encumbrances, pledges,
security interests, defects or other like restrictions or like
material equity of any kind whatsoever. The shares of Common Stock
offered by the Company and to be sold upon the exercise of the Rights
or pursuant to this Agreement or the Other Purchasers Standby Purchase
Agreements will conform to the description thereof contained in the
Prospectus. There are no preemptive or other rights to subscribe for
or to purchase nor any restriction upon the voting or transfer of, any
shares of Common Stock pursuant to the Company's Certificate of
Incorporation or By-Laws, each as amended to date, or pursuant to any
agreement among stockholders to which the Company is a party, by which
it is bound or of which it has knowledge, and the Shares to be sold by
the Company are not otherwise subject to any preemptive or other
similar rights of any security holder. The Company is not a party to
or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the
Prospectus. Except as described in the Prospectus with respect to
Common Stock that may be registered by the Company in a registration
statement on Form S-8, no holder of any securities of the Company has
the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by
the Company during a period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days
following the Expiration Date or to require the Company to file a
registration statement under the Act during such period. All of the
(i) Rights and (ii) outstanding shares of Common Stock and all of the
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<PAGE>
shares of Common Stock to be issued by the Company as contemplated
herein have been approved for quotation upon notice of issuance on the
Nasdaq National Market of the Nasdaq Stock Market;
(ix) The financial statements and schedules of the Company
included in the Registration Statement, the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) and any amendment or supplement thereto fairly present the
financial position and results of operations of the Company as of the
dates and for the periods therein specified. Such financial statements
and schedules have been prepared in accordance with generally accepted
accounting principles as in effect in the United States and as
consistently applied throughout the periods involved and in accordance
with the Rules and Regulations. The selected financial data set forth
under the caption "SELECTED FINANCIAL DATA" in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present, on the basis stated therein, the
information included therein. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. The Company's internal
accounting controls are designed to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as
amended. KPMG, whose reports are filed with the Commission as a part
of the Registration Statement, are independent auditors as required by
the Act and the Rules and Regulations. Since [May 1, 1997], KPMG has
been the only public accountants engaged by the Company, and the
Company has not had any Disagreement with KPMG, and has not
experienced any Reportable Event since that date;
(x) The Company has filed all federal, state, local and foreign
tax returns that are required to be filed by it or has duly requested
extensions thereof, except in any case in which the failure so to
file, individually or in the aggregate, would not have a Material
Adverse Effect. The Company has paid all taxes required to be paid by
it and all other assessments, fines or penalties, if any, levied
against it, to the extent that any of the foregoing are due and
payable, except for (A) any such assessment, fine or penalty that is
currently being contested in good faith or (B) any case in which the
failure so to pay, individually or in the aggregate, would not have a
Material Adverse Effect;
(xi) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with the issuance by
the Company, or the purchase by the Underwriters, of the Shares to be
sold by the Company or any resales of such Shares by the Underwriters;
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<PAGE>
(xii) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free
and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other like restrictions or like
equities of any kind whatsoever, other than (A) liens for taxes not
yet due and payable, (B) liens as described or referred to in the
Prospectus, and (C) liens that are not material in amount in relation
to the business of the Company and which do not interfere with the
Offering;
(xiii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), the Company owns or possesses adequate licenses or other
rights, in each case free of fees, charges or royalties payable after
the date hereof, to use the Intellectual Property, except where the
lack thereof would not result in a Material Adverse Effect. Except as
disclosed in the Prospectus, the Company has not received any notice
of infringement of or conflict with (and does not know of any such
infringement of or conflict with) rights or claims of others with
respect to the Intellectual Property, any of the activities engaged
in, or proposed to be engaged in, by the Company or any challenge to
the ownership or right of the Company with respect to the Intellectual
Property which could result in a Material Adverse Effect or which
could have a material adverse effect on the development, marketing or
sale of any of the Company's existing or contemplated products,
services or processes as described in the Prospectus. None of the
products, services or processes of the Company referred to in such
Prospectus and relating to the business of the Company now operated or
proposed to be operated by it as described in such Prospectus
infringes or conflicts with any right or patent, or with any
discovery, invention, product or process which is the subject of any
patent application known to the Company, in a manner which would
result in a Material Adverse Effect;
(xiv) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the business in which they are engaged,
and the Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not result in
a Material Adverse Effect;
(xv) The Company is not in breach of, or in default under, any
term, covenant or provision of any license, permit, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit
agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which it is a party or by which it may be bound or to which any of its
property or assets (tangible or intangible) is subject or affected,
except as disclosed in the Registration Statement and Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and except as to defaults that (A) individually or in the
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<PAGE>
aggregate would not have a Material Adverse Effect and (B) would not
interfere with the Offering. The Company is not in violation of any
term or provision of its charter or bylaws, each as amended to date;
(xvi) Other than as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there is not pending or, to the Company's knowledge,
threatened against the Company or involving the properties or business
of the Company (or, to the Company's knowledge, any circumstance that
may give rise to the same), any action, suit, proceeding,
investigation, litigation or governmental proceeding (including those
having jurisdiction over environmental or similar matters), domestic
or foreign, that (A) is required to be disclosed in the Registration
Statement and is not so disclosed, (B) questions the validity of the
capital stock of the Company or the validity or enforceability of this
Agreement, (C) questions the validity of any action taken or to be
taken by the Company pursuant to or in connection with this Agreement,
or (D) could materially adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement
or result in a Material Adverse Effect. Any such proceedings
summarized in the Prospectus are accurately summarized in all material
respects;
(xvii) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (A) issued any securities other
than the Rights, the shares of Common Stock to be sold by the Company
upon the exercise of the Rights, the Shares to be sold by the Company
pursuant to this Agreement and shares of Common Stock issuable upon
the exercise of stock options disclosed in the Prospectus as
outstanding as of the date hereof, (B) incurred any liability or
obligation, direct or contingent, for borrowed money, (C) entered into
any transaction other than in the ordinary course of business, (D)
declared or paid any dividend or made any other distribution on or in
respect of its capital stock, or (E) entered into any transactions
with any affiliate, including, without limitation, the Selling
Stockholders or their respective affiliates;
(xviii) The Company has satisfactory employer-employee
relationships with its employees. No labor or other dispute with the
employees of the Company exists, or, to the best knowledge of the
Company, is imminent;
(xix) Except as disclosed in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), each employee benefit plan, within the
meaning of Section 3(3) of ERISA that is maintained, administered or
contributed to by the Company or any of its affiliates for employees
or former employees of the Company and its affiliates has been
maintained in compliance with its terms and the requirements of any
applicable statutes, orders, rules and regulations, including but not
limited to ERISA and the Code; no prohibited transaction, within the
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<PAGE>
meaning of Section 406 of ERISA or Section 4975 of the Code has
occurred with respect to any such plan excluding transactions effected
pursuant to a statutory or administrative exemption; and for each such
plan which is subject to the funding rules of Section 412 of the Code
or Section 302 of ERISA no "accumulated funding deficiency" as defined
in Section 412 of the Code has been incurred, whether or not waived,
and the fair market value of the assets of each such plan (excluding
for these purposes accrued but unpaid contributions) exceeded the
present value of all benefits accrued under such plan determined using
reasonable actuarial assumptions;
(xx) The minute books of the Company made available to
Underwriters' Counsel, (A) contain minutes and consents from all
meetings and actions of the Company's stockholders, board of
directors, and the committees of such board since the respective dates
of organization of the Company and (B) reflect all transactions
referred to in such minutes accurately in all material respects;
(xxi) All agreements filed as exhibits to the Registration
Statement to which the Company is a party or by which the Company may
be bound or to which any of its assets, properties or businesses may
be subject have been duly and validly authorized, executed and
delivered by the Company and constitute the legal, valid and binding
agreements of the Company enforceable against it in accordance with
their respective terms, subject in each case to the effect of general
principles of equity (including standards of materiality, good faith,
fair dealing and reasonableness) whether applied by a court of law or
equity and except as rights to indemnity and contribution under this
Agreement may be limited by applicable law, statutory duties or public
policy. The descriptions in the Registration Statement, the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and any amendment or supplement thereto, of
agreements, whether written or oral, and of other documents are
accurate and fairly present the information required to be shown with
respect thereto by Form S-1 under the Act. There are no agreements,
whether written or oral, or other documents that are required by the
Act or the Rules and Regulations to be described in the Registration
Statement or filed as exhibits to the Registration Statement that are
not described or filed as required;
(xxii) Neither the Company nor any of its officers, directors, or
affiliates (within the meaning of the Rules and Regulations) has taken
or will take, directly or indirectly, any action designed to or that
has constituted or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common
Stock or the Rights in violation of Regulation M under the Exchange
Act;
(xxiii) There are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's, advisory or
origination fee or otherwise, either with respect to the sale of the
shares of Common Stock to be sold by the Company upon exercise of the
Rights, the sale of the Shares hereunder or with respect to the
proceeds received by the Company from such sales. Other than as
reflected in this Agreement, there are no other arrangements,
agreements, understandings, payments or issuances with respect to the
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<PAGE>
Company or, to the Company's knowledge, any of its officers,
directors, or affiliates that may constitute "underwriter's
compensation," as determined by the NASD;
(xxiv) The Company has delivered or caused to be delivered to the
Underwriters the Associated Person Lock-Ups;
(xxv) All of the Rights have been duly authorized, and, when
issued and distributed as set forth in the Prospectus, will be legally
issued and valid and binding obligations of the Company having the
rights summarized in the Prospectus; and none of such Rights will have
been issued in violation of the preemptive rights of any security
holders of the Company arising as a matter of law or under or pursuant
to the Company's Certificate of Incorporation, as amended, the
Company's By-Laws, as amended, or any agreement or instrument to which
the Company is a party or by which it is bound;
(xxvi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there has not been any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, business, prospects, management,
financial position, stockholders' equity or results of operations of
the Company otherwise than as set forth or contemplated in the
Prospectus;
(xxvii) No relationship, direct or indirect, exists between or
among the Company, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, Safeguard ,
Integrated Visions, Inc. or XL Vision, on the other hand, which is
required by the Act to be described in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) which is not so described;
(xxviii) The Company is not and, after giving effect to the
Offering, will not be an "investment company" or entity "controlled"
by an "investment company," as such terms are defined in the
Investment Company Act;
(xxix) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida), relating
to doing business with the Government of Cuba or with any person or
affiliate located in Cuba; and
(xxx) To the best of the Company's knowledge, no Unsubscribed
Shares or Direct Shares have been sold to any person listed in Section
IM-2110-1(b)(3)-(8) of the NASD's Conduct Rules, except in compliance
with the proviso set forth in subsection (b)(5) thereof.
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<PAGE>
(b) Each Selling Stockholder severally represents and warrants to, and
agrees with, the Underwriters as follows:
(i) The Selling Stockholder has delivered certificates in negotiable
form for the shares of Common Stock to be sold by it pursuant to this
Agreement and has placed such shares in custody for delivery pursuant to
the terms of the Custody Agreement and this Agreement. The shares
represented by the certificates so held in custody for the Selling
Stockholder are subject to the interests hereunder of the Underwriters and
the Company. The arrangements for custody and delivery of such certificates
are, to the extent provided hereunder, irrevocable, and are not subject to
termination by any act of the Selling Stockholder, or by operation of law;
(ii) The Selling Stockholder has the legal right and power to enter
into this Agreement and the Custody Agreement and to sell, transfer and
deliver the Shares proposed to be sold by it hereunder. This Agreement and
the Custody Agreement have been duly authorized, executed and delivered by
the Selling Stockholder and, assuming due authorization, execution and
delivery by the other respective parties hereto and thereto, constitutes
the legal, valid and binding obligation of the Selling Stockholder
enforceable against the Selling Stockholder in accordance with their
respective terms, subject to the effect of general principles of equity
(including standards of materiality, good faith, fair dealing and
reasonableness) whether applied by a court of law or equity, and except as
rights of indemnity and contribution hereunder may be limited by applicable
law, statutory duties or public policy;
(iii) The execution and delivery of this Agreement and the Custody
Agreement and the performance by the Selling Stockholder of its obligations
hereunder and thereunder will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under (A) any charter documents, including articles or certificates of
incorporation, partnership agreements or by-laws, of the Selling
Stockholder, as amended to date, (B) any lease, permit, license, contract,
indenture, mortgage, deed of trust, voting trust agreement, shareholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Selling Stockholder is a party or by which it is or
may be bound or to which any of its properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, except to the extent
that any such conflict, breach, violation or default, individually or in
the aggregate, does not and would not result in a material adverse effect
on the condition, financial or otherwise, or on the earnings, business
affairs, financial position, prospects, value, operation, properties,
results of operation or business of the Selling Stockholder and does not
and would not interfere with the Offering or (C) any statute, judgment,
decree, order, rule or regulation applicable to the Selling Stockholder or
any of its activities or properties adopted or issued by any arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Selling
Stockholder or any of its
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<PAGE>
activities or properties. No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is required
for the consummation by the Selling Stockholder of the transactions
contemplated herein, except (A) such as may be required under the state
securities or "Blue Sky" laws of any jurisdiction or as may be required by
the by-laws of the NASD in connection with the purchase and distribution of
the Shares by the Underwriters, (B) any filing of the Prospectus pursuant
to Rule 424(b) or 430A of the Rules and Regulations and, if the
Registration Statement has not been declared effective, an order of the
Commission declaring the Registration Statement effective under the Act,
and (C) such other approvals as have been obtained and remain in full force
and effect;
(iv) The Selling Stockholder has, and on the Closing Date will have,
good and marketable title to the Shares proposed to be sold by the Selling
Stockholder hereunder and the shares of Common Stock to be sold upon the
exercise of the Rights, and none of such shares will be subject to any
Adverse Claim. Upon delivery of and payment for the Shares to be sold by
the Selling Stockholder hereunder, assuming that each of the Underwriters
is a Bona Fide Purchaser, the Underwriters will acquire good and marketable
title thereto free and clear of any liens, charges, claims, preemptive
rights, encumbrances, pledges, security interests, voting trusts, defects
or other like restrictions or other like material equity of any kind
whatsoever;
(v) To the best knowledge of the Selling Stockholder, the Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any part thereof and, to the best knowledge of
the Selling Stockholder, no proceedings for a stop order have been
instituted or are pending or threatened;
(vi) The Selling Stockholder has not (a) made or caused to be effected
any transaction, directly or indirectly, designed to or that has
constituted or that might reasonably be expected to cause or result in
stabilization of the price of the Common Stock or the Rights, (b) taken or
will take, directly or indirectly, any action designed to or that has
constituted or that might reasonably be expected to cause or result in
manipulation of the price of the Common Stock or the Rights in violation of
Regulation M under the Exchange Act, or (c) failed to comply with the Act
or the Rules and Regulations in order to effect the transactions
contemplated hereby; and
(vii) No facts have come to the Selling Stockholder's attention that
cause such Selling Stockholder to believe that (a) the Registration
Statement, at the time it was declared effective by the Commission,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (b) the Prospectus, as of its date or
the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
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<PAGE>
(c) Safeguard represents and warrants to, and agrees with, the Underwriters
as follows:
(i) To the best knowledge of Safeguard, the Commission has not issued
any order preventing or suspending the use of any Preliminary Prospectus or
any part thereof and, to the best knowledge of Safeguard, no proceedings
for a stop order have been instituted or are pending or threatened. When
any Preliminary Prospectus was filed with the Commission, it contained all
statements required to be stated therein in accordance with, and complied
in all material respects with the requirements of, the Act and the Rules
and Regulations except to the extent that such Preliminary Prospectus did
not contain any such required statements, or did not so comply, in a manner
corrected in the Prospectus. To the best knowledge of Safeguard, when the
Registration Statement (or any amendment thereto) was (or is) declared
effective, it (A) contained (or will contain) all statements required to be
stated therein in accordance with, and complied in all material respects
(or will comply in all material respects) with the requirements of, the Act
and the Rules and Regulations and (B) did not or will not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. To the best
knowledge of Safeguard, when the Prospectus or any amendment or supplement
thereto is filed pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and on the
Closing Date and any Option Closing Date, the Prospectus, as amended or
supplemented at any such time, (A) contained or will contain all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the Act and the
Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this Section 2(c)(iii) do not apply to the Provided Information;
(ii) To the best knowledge of Safeguard, the descriptions in the
Registration Statement, the Prospectus and any amendment or supplement
thereto of agreements, whether written or oral, and of other documents are
accurate and fairly present the information required to be shown with
respect thereto by Form S-1 under the Act. To the best knowledge of
Safeguard, there are no agreements, whether written or oral, or other
documents that are required by the Act or the Rules and Regulations to be
described in the Registration Statement or filed as exhibits to the
Registration Statement that are not described or filed as required;
(iii) To the best of Safeguard's knowledge, no Unsubscribed Shares or
Direct Shares have been sold to any person listed in Section
IM-2110-1(b)(3)-(8) of the NASD's Conduct Rules, except in compliance with
the proviso set forth in subsection (b)(5) thereof.
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3. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to issue and the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
in the percentages set forth in Schedule B hereto, all of the Excess
Unsubscribed Shares and any Other Purchasers Standby Shares not purchased by the
Other Purchasers pursuant to the Other Purchasers Standby Purchase Agreements at
a price of $5.00 per share.
(b) In addition, on the basis of the representations, warranties, covenants
and agreements herein contained and upon not less than two business days' notice
from the Underwriters, for a period of 20 days after the Expiration Date, each
Selling Stockholder agrees to sell to the Underwriters all or part of up to the
number of shares of Common Stock set forth beside such Selling Stockholder's
name on Schedule C (an aggregate of 650,000 Option Shares) at a purchase price
of $5.00 per share for the sole purpose of covering over-allotments that may be
made in connection with the offering and distribution of the shares of Common
Stock. The Underwriters may exercise their option to purchase all or any portion
of the Option Shares from the Company up to two times, provided that the
aggregate number of Option Shares purchased by the Underwriters shall not exceed
650,000. Delivery of the Option Shares shall be made concurrently with payment
therefor. Option Shares may be purchased by the Underwriters only for the
purpose of covering over-allotments that may be made in connection with the
offering and distribution of the shares of Common Stock. No Option Shares shall
be delivered unless the Excess Unsubscribed Shares (if any are purchased by the
Underwriters) shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the respective aggregate purchase prices of the Excess
Unsubscribed Shares purchased from the Company shall be made by the Underwriters
on the Closing Date by wire transfer payable to or upon the order of the Company
at the offices of Robert W. Baird & Co. Incorporated at 777 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53202-5391, or at such other place as shall be agreed upon
by the Underwriters and the Company, upon delivery of certificates (in form and
substance satisfactory to the Underwriters) representing the Excess Unsubscribed
Shares to the Underwriters. Delivery and payment for the Excess Unsubscribed
Shares shall be made at the Closing. In addition, in the event that any or all
of the Option Shares are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Shares shall be made at
the above mentioned office or at such other place as shall be agreed upon by the
Underwriters and the Company, on each Option Closing Date as specified in the
notice from the Underwriters to the Company. Certificates for the Excess
Unsubscribed Shares and the Option Shares, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two business days prior to the Closing Date or the relevant
Option Closing Date, as the case may
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be. The certificates for the Excess Unsubscribed Shares and the Option Shares,
if any, shall be made available to the Underwriters at such office or such other
place as the Underwriters may designate for inspection, checking and packaging
not later than 9:30 a.m., New York City time, on the last business day prior to
the Closing Date or the relevant Option Closing Date, as the case may be.
(d) Delivery of certificates representing the shares of Common Stock to be
sold pursuant to the exercise of the Rights, and the payment of the subscription
price therefor to the Company shall be made at the Closing on the Closing Date
pursuant to the Rights Agent Agreement, irrespective of whether or not any
Excess Unsubscribed Shares are to be purchased by the Underwriters at such
Closing.
4. Public Offering of the Excess Unsubscribed Shares.
As soon after the Registration Statement becomes effective as the
Underwriters deem advisable, the Underwriters shall make the Offering.
5. Registration of Common Stock in Certain States.
(a) On the basis of the representations, warranties and covenants herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters will act (or at their expense, will cause another broker-dealer
registered in such state to act) as the agent of the Company and the Selling
Stockholders to effect the offering of the Rights and the sale of the shares of
Common Stock upon exercise thereof or pursuant to the Other Purchasers Standby
Purchase Agreements in the [States of Arizona, Florida, Nebraska, New Hampshire,
New Jersey, New York, North Dakota and Texas], such states being those states in
which applicable state law requires that a registered broker-dealer effect the
offering of the Rights or the shares of Common Stock purchasable upon exercise
thereof or pursuant to the Other Purchasers Standby Purchase Agreements. The
Underwriters may delegate their obligations under the immediately preceding
sentence through another registered broker-dealer satisfactory to them in states
where the Underwriters are not registered as such. The Underwriters shall not be
liable under this Section 5(a), except for gross negligence, lack of good faith
and for their obligations expressly assumed hereunder.
(b) The Company will deliver to the Underwriters, on or before the day the
Registration Statement becomes effective, a "Blue Sky Memorandum" (herein so
called), prepared by Morgan, Lewis & Bockius LLP relating to the securities or
Blue Sky laws of any jurisdictions in which the transfer of the Rights or the
offer and sale of the Common Stock is required to be qualified or registered,
which will set forth the circumstances under which said transfer or offers and
sales may be made and advising that the appropriate action, if any, will be
taken in each of such jurisdictions so as to permit the transfer of the Rights
and the offer and sale
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<PAGE>
of the Common Stock (whether upon or in connection with the exercise of Rights,
as part of the public offering of the Shares by the Underwriters or pursuant to
the Other Purchasers Standby Purchase Agreements) to the persons resident in the
jurisdictions indicated in such survey. Such Blue Sky Memorandum may be based
upon qualification of the Rights and the Common Stock as necessary with
appropriate persons in such jurisdictions and an examination of the statutes and
regulations, if any, of such jurisdictions as reported in standard compilations
and upon interpretive advice obtained from representatives of certain securities
commissions and such local counsel as may be necessary. Such Blue Sky Memorandum
will be furnished only for the Underwriters' general information and guidance
rather than as an opinion of counsel with regard to the laws of the
jurisdictions referred to therein.
6. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees with the Underwriters as follows:
(i) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and
any amendments thereto, to become effective as promptly as possible. Unless
required by law, the Company will not file with the Commission the
prospectus or amendment referred to in the second sentence of Section
2(a)(i) hereof, any amendment or supplement to such prospectus, any
amendment to the Registration Statement, or any document under the Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Underwriters shall not previously have been advised and furnished
with a copy, or to which the Underwriters shall have reasonably objected by
notice to the Company in writing after having been provided a copy thereof,
or which is not in compliance with the Act, the Exchange Act or the Rules
and Regulations. During the time when a prospectus relating to the Shares
is required to be delivered under the Act, the Company will comply with all
requirements imposed upon it by the Act and the Rules and Regulations to
the extent necessary to permit the continuance of sales of or dealings in
the Shares in accordance with the provisions hereof and of the Prospectus,
as amended or supplemented. The Company will prepare and file with the
Commission, promptly upon the reasonable request by the Underwriters or
Underwriters' Counsel, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters, and will use its best efforts to cause the same to be filed
with the Commission as promptly as possible;
(ii) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriters, with a confirmation in writing,
of (A) the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed, (B) the issuance by the Commission of
any stop order, or of the initiation or threatening of any proceeding,
suspending the effectiveness of the Registration Statement or any amendment
thereto or any order preventing
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<PAGE>
or suspending the use of any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto, (C) the issuance by any state
securities commission of any notice of any proceedings for the suspension
of the qualification of the Shares for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that
purpose, (D) the receipt of any comments from the Commission, and (E) any
request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance
of any such order or the imposition of any such suspension and, if any such
order is issued or suspension is imposed, to obtain the withdrawal thereof
as promptly as possible;
(iii) If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) and Rule 430A(a)(3) of the
Rules and Regulations;
(iv) The Company will arrange for the qualification of the shares of
Common Stock for offering and sale under the securities or "Blue Sky" laws
of such jurisdictions in which recipients of Rights and the Other
Purchasers are resident and such jurisdictions as the Underwriters may
reasonably designate, including any Canadian provinces, as appropriate, and
will continue such qualifications in effect for as long as may be necessary
to complete the distribution of the shares of Common Stock, provided,
however, that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction;
(v) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which, in the opinion of the Company or counsel for the Company, the
Prospectus, as then amended or supplemented, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it
is otherwise necessary at any time to amend or supplement the Prospectus to
comply with the Act or the Rules and Regulations, the Company will promptly
notify the Underwriters thereof and, subject to Section 6(a)(i) hereof,
prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to
the Prospectus that corrects such statement or omission or effects such
compliance. If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which, in the opinion of the Underwriters or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, the
Underwriters will promptly notify the Company thereof and the Company will,
subject to Section 6(a)(i) hereof, prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such
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<PAGE>
statement or omission or effects such compliance. The Company will furnish
to the Underwriters and dealers (whose names and addresses shall be
furnished to the Company by the Underwriters) to which Shares may have been
sold on behalf of the Underwriters and to any other dealers upon request, a
reasonable number of copies of any amendment or supplement prepared
pursuant to this paragraph (v);
(vi) The Company will furnish to each of the Underwriters and to
Underwriters' Counsel, without charge, a signed copy of the registration
statement originally filed with respect to the Shares and each amendment
thereto. So long as the Underwriters or any dealer is required by the Act
or the Rules and Regulations to deliver a prospectus, the Company will also
furnish as many copies of each Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto as the Underwriters may reasonably
request.
(vii) As soon as practicable after the effective date of the
Registration Statement, the Company will make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Underwriters an earnings statement that will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations;
(viii) For a period of five years following the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and will deliver to the Underwriters unaudited quarterly
reports of earnings (through delivery of the Company's quarterly reports
filed with the Commission on Form 10-Q or Form 10-QSB) and the following:
(A) concurrently with furnishing quarterly reports, if any, to
the stockholders, statements of income of the Company for each quarter
in the form furnished to the Company's stockholders;
(B) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
public accountants;
(C) as soon as they are available, copies of all reports
(financial or other) mailed to its stockholders;
(D) as soon as they are available, copies of all reports (other
than preliminary proxy materials) and financial statements furnished
to or filed with the Commission, the NASD or Nasdaq which are
available to the public;
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<PAGE>
(E) as soon as they are available every press release and every
material news item or article of interest to the financial community
in respect of the Company or its affairs that is released or prepared
by the Company; and
(F) any additional information of a public nature concerning the
Company that the Underwriters may reasonably request from time to
time;
(ix) The Company will maintain a Transfer Agent and Registrar for the
shares of Common Stock. Effective as of the Closing Date, the Company will
cause the Transfer Agent for the shares of Common Stock to make appropriate
"stop transfer" restrictions in its records relating to the certificates
representing all shares of Common Stock subject to restrictions under the
agreements described in Sections 2(a)(xxiv) and 6(b)(i) hereof;
(x) During the period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days after
the Expiration Date, the Company, will not, without the prior written
consent of the Underwriters, (A) directly or indirectly, transfer, sell,
offer for sale, contract for sale, grant any option for the sale of, or
otherwise dispose of (or announce any transfer, sale, offer for sale,
contract for sale, grant of any option for sale of, or other disposition
of) any shares of Common Stock, or other securities convertible into, or
exercisable or exchangeable for, shares of Common Stock (except as
contemplated by this Agreement) or (B) file any registration statement
relating to any such securities with the Commission or any other authority
except as contemplated herein, provided, however, that (1) the Company may
grant or issue securities pursuant to any employee stock option plan or
stock purchase plan or outstanding stock options described in the
Prospectus and, commencing after the Closing Date, may file a registration
statement on Form S-8 with respect to such plans and (2) the Company may
issue shares of Common Stock, or other securities convertible into, or
exercisable or exchangeable for shares of Common Stock, as consideration
for any acquisition by the Company so long as the party being issued such
securities signs an agreement, acceptable in form and substance to the
Underwriters, that such party will not transfer, sell, offer for sale,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock owned by such party or with respect to which such party has
the power of disposition during a period commencing on the date of issuance
of such securities and ending 180 days following the Expiration Date;
(xi) The Company will apply the net proceeds from the sale of the
Common Stock sold by it in the manner set forth under "USE OF PROCEEDS" in
the Prospectus. Except as described in the Prospectus, no portion of the
net proceeds will be used directly or indirectly to acquire any securities
issued by the Company;
(xii) The Company will furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if
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<PAGE>
any, but no later than two full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company
(which in each case shall not be earlier than the last day of the preceding
month, unless such month-end shall be less than three business days prior
to the date such statements are to be delivered) that have been read by the
Company's independent public accountants, as stated in their letter to be
furnished pursuant to Section 8(h) hereof;
(xiii) The Company will cause the Shares and the Rights to be approved
for quotation on the Nasdaq National Market and will use its reasonable
commercial efforts to maintain such approvals;
(xiv) The Company will file and cause to become effective prior to the
Closing Date a registration statement with respect to the Common Stock
pursuant to Section 12(g) of the Exchange Act and will use its best efforts
to maintain such registration;
(xv) The Company will apply the net proceeds from the sale of the
shares of Common Stock sold by it and conduct its operations in a manner
that will not subject it to registration as an investment company under the
Investment Company Act of 1940, as amended; and
(xvi) The Company will furnish, without charge, to the Underwriters
and Underwriters' Counsel within four months of the Closing Date such
number of closing binders as the Underwriters and Underwriters' Counsel may
reasonably request.
(b) Each Selling Stockholder covenants and agrees with the Underwriters as
follows:
(i) During the period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days after
the Expiration Date, the Selling Stockholder will not, without the prior
written consent of the Underwriters, directly or indirectly, transfer,
sell, offer for sale, contract for sale, grant any option for the sale of
or otherwise dispose of any shares of Common Stock or other securities
convertible into, or exercisable or exchangeable for, shares of Common
Stock except (A) as contemplated in this Agreement or (B) pursuant to
grants or sales of such shares to employees of the Selling Stockholder or
its subsidiaries, provided, that such transferees agree to be bound by the
restrictions contained in this paragraph; and
(ii) The Selling Stockholder will pay all applicable state transfer
taxes, if any, involved in the transfer to the Underwriters of the Shares
to be purchased by the Underwriters from such Selling Stockholder.
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<PAGE>
7. Payment of Expenses; Fees.
(a) As compensation to the Underwriters for their services in connection
with the transactions contemplated by this Agreement and their commitment
hereunder, the Company and the Selling Stockholders hereby agree, jointly and
severally, to pay to the Underwriters, by wire transfer, on the sixth business
day following the Expiration Date, an amount equal to the sum of (i) 3% of the
Exercise Price for each share of Common Stock subject to Rights, (ii) 3% of the
subscription price for each Direct Share and each Undistributed Share sold to
the Direct Purchasers, and (iii) an additional fee of 4% of the Exercise Price
for each share (other than the Option Shares) purchased by the Underwriters
pursuant to Section 3(a) of this Agreement or upon the exercise of Rights by the
Underwriters if such Rights were purchased by the Underwriters at a time when
the Common Stock was trading (on a "when-issued" basis) at a per share price of
less than $6.00 or with the prior acknowledgement of Safeguard that the
Underwriters would be entitled to receive such compensation pursuant to the
exercise of such Rights. As compensation to the Underwriters for their
commitment hereunder, the Company hereby agrees to pay the Underwriters, by wire
transfer, on each Option Closing Date an amount equal to 7% of the Exercise
Price for each Option Share purchased on such date by the Underwriters. As
additional compensation to the Underwriters for their commitment hereunder, the
Company shall reimburse the Underwriters, by wire transfer on the sixth business
day following the Expiration Date, for a non-accountable expense allowance of
(i) $200,000 if, on the Expiration Date, the closing price for the Common Stock
was trading (on a "when-issued" basis) at a per share price of less than $7.25,
(ii) $100,000 if, on the Expiration Date, the closing price for the Common Stock
was trading (on a "when-issued basis) at a per share price equal to or greater
than $7.25 but less than or equal to $8.25 or (iii) no expense allowance if, on
the Expiration Date, the closing price for the Common Stock was trading (on a
"when-issued" basis) at a per share price greater than $8.25.
(b) The Company hereby agrees to pay all expenses and fees incident to the
performance of the obligations by the Company and the Selling Stockholders under
this Agreement, including all expenses and fees of the Company and the Selling
Stockholders incurred in connection with or by (i) the engagement of
accountants, counsel for the Company and the Selling Stockholders, the Rights
Agent and the Transfer Agent and Registrar for the Common Stock, (ii)
preparation, duplication, printing, filing and distribution of the registration
statement originally filed with respect to the Shares and any amendments
thereto, any Preliminary Prospectus and the Prospectus and any amendments and
supplements thereto and related documents used in connection with the Offering,
including in each case the cost of all copies supplied to the Underwriters in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of certificates representing the Rights and the Shares, (iv) the
qualification of the Shares under state securities or "Blue Sky" laws and the
laws of any Canadian provinces, as appropriate, including filing fees, costs of
printing and mailing of a "Preliminary Blue Sky Memorandum" and "Final Blue Sky
Memorandum" and disbursements
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<PAGE>
and fees of Underwriters' Counsel in connection with the review of such
materials (which shall be paid at the Closing), (v) the approval of the Common
Stock and Rights for quotation on the Nasdaq National Market, (vi) the filing
fees of the Underwriters in connection with any filings required to be made with
the NASD, (vii) travel and out of pocket expenses of the Company in connection
with meetings with prospective investors in the Shares (other than such expenses
as shall have been specifically approved in writing by the Underwriters to be
paid for by the Underwriters), and (viii) any expenses incurred by the Company
in connection with a "road show" presentation to potential investors.
(c) If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 8, Sections 12[(a)(ii),] (a)(vii) or (a)(viii), or
Section 13, the Company and Safeguard agree, jointly and severally, to reimburse
and indemnify the Underwriters for all of their reasonable accountable
out-of-pocket expenses, including the reasonable fees and disbursements of
Underwriters' Counsel and any of the state securities, "Blue Sky" and NASD fees
and expenses identified in Sections 7(b)(iv) and 7(b)(vi) above, that shall have
been incurred by them in connection with the proposed purchase and sale of the
Shares.
8. Conditions of the Underwriters' Obligations.
The obligations of the Underwriters to purchase and pay for the Shares
shall be subject, in their sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein as of the date hereof and as of the Closing Date, as if they had been
made on and as of the Closing Date, to the accuracy on and as of the Closing
Date of the statements of the officers of the Company and the Selling
Stockholders made in certificates delivered pursuant to the provisions hereof,
to the performance by the Company and the Selling Stockholders on and as of the
Closing Date of their respective covenants and obligations hereunder, and to the
following further conditions:
(a) If the Registration Statement or any amendment thereto filed prior to
the Closing Date has not been declared effective as of the time of execution
hereof, the Registration Statement or such amendment shall have been declared
effective not later than the first full business day next following the date
hereof or such later date and time as shall have been consented to in writing by
the Underwriters. If required, the Prospectus shall have been timely filed with
the Commission in accordance with Rule 424(b) of the Rules and Regulations. If
required, any amendment or supplement to the Prospectus shall have been filed in
accordance with Rule 424(c) under the Act. No stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Company, the Selling Stockholders or the Underwriters,
shall be contemplated by the Commission. The Company shall have complied, to the
reasonable satisfaction of the Underwriters and Underwriters' Counsel, with any
request of the Commission for additional information (to be included in the
Registration Statement, the Prospectus or otherwise).
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(b) The Underwriters shall not have advised the Company or any Selling
Stockholder that, in the opinion of the Underwriters or Underwriters' Counsel,
(i) the Registration Statement, or any amendment thereto, includes an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading or (ii) the Prospectus, or any amendment or supplement
thereto, includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) The Underwriters shall have received from Underwriters' Counsel an
opinion dated the Closing Date, with respect to the issuance and sale of the
Shares, the Registration Statement, the Prospectus and such other related
matters as the Underwriters reasonably may request. Underwriters' Counsel shall
have received from the Company and the Selling Stockholders such papers and
information as they may request to enable them to review or pass upon such
matters or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties, or covenants of the Company or any
Selling Stockholder contained herein.
(d) The Underwriters shall have received from Morgan, Lewis & Bockius LLP,
counsel to the Company and the Selling Stockholders, an opinion, on or prior to
the date Rights certificates and Prospectuses are first mailed to Safeguard
Shareholders and on the Closing Date, dated the respective dates thereof and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of organization and is duly
qualified to transact business as foreign corporations and is in good
standing in each jurisdiction in which the Company has represented to such
counsel that it conducts business;
(ii) The Company has all requisite corporate power and authority
necessary or required to own or lease its properties and conduct its
businesses as described in the Registration Statement and the Prospectus;
(iii) The Company has all requisite power and authority (corporate and
other) to enter into this Agreement, the Rights Agent Agreement and the
Other Purchasers Standby Purchase Agreements and to consummate the
transactions provided for herein and therein; and this Agreement, the Other
Purchasers Standby Purchase Agreements and the Rights Agent Agreement have
each been duly authorized, executed and delivered by the Company. Each of
this Agreement, assuming due authorization, execution and delivery by the
Underwriters, and each of the Other Purchasers Standby Purchase Agreements,
and the Rights
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Agent Agreement, assuming due authorization, execution and delivery by the
parties thereto other than the Company, constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar
laws affecting creditors' rights generally or by general principles of
equity (including standards of materiality, good faith, fair dealing and
reasonableness) whether applied by a court of law or equity, and except as
rights to indemnity and contribution hereunder may be limited by applicable
law, statutory duties or public policy (provided that as of the first date
of the opinion only, such opinion need not express any opinion set forth
above with respect to the Other Purchaser Standby Purchase Agreements that
have not theretofore been executed and delivered). The Company's execution
and delivery of this Agreement, the Other Purchasers Standby Purchase
Agreements and the Rights Agent Agreement, its performance of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby do not and will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any liens, charges, claims, encumbrances, pledges, security interests,
defects or other like restrictions or equities of any kind whatsoever upon,
any right, property or asset (tangible or intangible) of the Company
pursuant to the terms of (A) the charter or bylaws, each as amended through
the date of the opinion, of the Company, (B) any material lease, permit,
license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument known to such counsel to which the Company is
a party or by which it is or may be bound or to which any of its properties
or assets (tangible or intangible) is or may be subject, or any
indebtedness, except that such counsel need not express an opinion with
respect to any violation based upon any covenant of a financial or
numerical nature or that requires arithmetic computation and such counsel
has not otherwise known of or had reason to expect the occurrence of such
default, or (C) to the knowledge of Company counsel, any statute, rule,
regulation, judgment, decree or order applicable to the Company or any of
its activities or properties adopted or issued by an arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body (including those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any
of its respective activities or properties (other than such as may be
required under state securities or "Blue Sky" laws and such as may be
required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters);
(iv) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or, to such counsel's knowledge, any court
is required in connection with the issuance of the shares of Common Stock
to be sold by the Company, the Company's performance of its obligations
hereunder, the Offering, or the consummation by the Company of the other
transactions contemplated hereby, except such as may be required under the
state securities or "Blue Sky" laws of any jurisdiction or as may be
required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters and except such
other approvals as have been obtained and remain in full force and effect.
Upon the effectiveness of the Registration Statement, the Common Stock will
be
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registered pursuant to Section 12(g) of the Exchange Act, and will be
included in the Nasdaq National Market;
(v) At the date or dates indicated in the Prospectus, the authorized,
issued and outstanding capital stock of the Company was as set forth
therein, and conformed as to legal matters, to the extent that it
constitutes matters of law or legal conclusions, to the description thereof
contained therein under the captions "CAPITALIZATION" and "DESCRIPTION OF
CAPITAL STOCK." All of the issued shares of Common Stock of the Company
(including the Shares sold by the Selling Stockholders) have been duly
authorized and validly issued, and are fully paid and non-assessable; the
holders thereof are not subject to personal liabilities solely by reason of
holding such shares; and none of such shares have been issued in violation
of the preemptive rights of any security holders of the Company known to
Company counsel. The Shares to be sold by the Company have been duly
authorized and, when paid for in accordance herewith, will be validly
issued, fully paid and non-assessable, and with no personal liability
resulting solely from the ownership thereof. Upon the issuance and delivery
pursuant to this Agreement of the Shares to be sold by the Company to the
Underwriters, assuming the Underwriters do not have knowledge of any
Adverse Claim, the Underwriters will acquire good and marketable title to
such Shares free and clear of any liens, charges, claims, encumbrances,
pledges, security interests, defects or other like restrictions or like
equities of any kind whatsoever. Except as described in the Prospectus,
there are no preemptive or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of, any shares of Common
Stock pursuant to the Company's Certificate of Incorporation or By-Laws,
each as amended to date, or pursuant to any agreement among stockholders to
which the Company is a party or of which it has knowledge, and the Shares
to be sold by the Company are not subject to any preemptive or other
similar rights of any security holder. The Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities,
except for this Agreement and as described in the Prospectus. Except as
described in the Prospectus, no holder of any securities of the Company or
of any options, warrants or other convertible or exchangeable securities of
the Company which are exercisable for or convertible or exchangeable for
securities of the Company has any right (which has not been waived) to
include any securities issued by the Company in the Registration Statement
or any registration statement to be filed by the Company within the period
commencing on the date the Registration Statement is declared effective by
the Commission and ending 180 days after the Expiration Date or to require
the Company to file a registration statement under the Act during such
period. Based on the form of specimen certificate filed as an exhibit to
the Registration Statement, the certificates representing the Shares are in
due and proper form;
(vi) The Registration Statement has become effective under the Act.
Any required filing of the Prospectus pursuant to Rule 424(b) and
430A(a)(3) of the Rules and Regulations has been made in accordance with
the time period required thereby. To such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement
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has been issued, and no proceedings for that purpose have been instituted
or are pending or threatened, by the Commission;
(vii) At the time the Registration Statement was declared effective by
the Commission, the Registration Statement and the Prospectus and any
amendment or supplement thereto (other than the financial statements, and
notes thereto, the financial schedules, and the other financial and
statistical data included in the Registration Statement or the Prospectus
or omitted therefrom, as to which such counsel need express no opinion)
complied as to form in all material respects with the requirements of the
Act and the Rules and Regulations;
(viii) Such counsel has reviewed all contracts and other documents
referred to in the Registration Statement and the Prospectus, and the
summaries of and other disclosures regarding such contracts and other
documents included in the Registration Statement and the Prospectus fairly
present the information required to be shown with respect thereto. To such
counsel's knowledge, there are no contracts or other documents of a
character required to be filed as exhibits to the Registration Statement or
required to be described in the Registration Statement or the Prospectus
that were not filed or disclosed as required;
(ix) Except as disclosed in the Prospectus, to such counsel's
knowledge, there is not pending or threatened or contemplated against the
Company, or involving the properties or business of the Company, any
action, suit, proceeding, inquiry, investigation, litigation or
governmental proceeding (including those having jurisdiction over
environmental or similar matters), domestic or foreign, that (A) is
required to be disclosed in the Registration Statement and is not so
disclosed, (B) questions the validity of the capital stock of the Company
or the validity or enforceability of this Agreement, (C) questions the
validity of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement, or (D) could materially adversely effect
the present or prospective ability of the Company to perform its
obligations under this Agreement or result in a Material Adverse Effect;
(x) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act, nor, by receipt of the proceeds from its sale by it
of the Shares pursuant to this Agreement, will the Company become or be
deemed to be an "investment company" under such Act;
(xi) No transfer taxes are required to be paid in connection with the
sale and delivery of the Common Stock by the Company to the Underwriters
hereunder;
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(xii) The certificates evidencing the Rights to be distributed to the
Safeguard Shareholders and the shares of Common Stock to be delivered
hereunder are in due and proper form under Delaware law;
(xiii) All of the Rights have been duly authorized and validly issued,
and, when issued and distributed as set forth in the Prospectus, will be
legally issued and valid and binding obligations of the Company having the
rights summarized in the Prospectus; and none of such Rights will have been
issued in violation of the preemptive rights of any security holders of the
Company arising as a matter of law or under or pursuant to the Company's
Certificate of Incorporation, as amended, the Company's By-Laws, as
amended, or any agreement or instrument to which the Company is a party or
by which it is bound;
(xiv) Each Selling Stockholder has the legal right and power to enter
into this Agreement and each Selling Stockholder has the requisite capacity
and legal right to sell, transfer and deliver hereunder the Shares proposed
to be sold hereunder. This Agreement has been executed and delivered by
each of the Selling Stockholders. This Agreement, assuming due
authorization, execution and delivery by the Underwriters constitutes the
legal, valid, and binding obligations of each Selling Stockholder
enforceable against each Selling Stockholder in accordance with its terms,
subject to the effect of general principles of equity (including standards
of materiality, good faith, fair dealing and reasonableness) whether
applied by a court of law or equity and except as rights to indemnity and
contribution hereunder or thereunder may be limited by applicable law,
statutory duties or public policy;
(xv) The execution and delivery of this Agreement, the performance by
each Selling Stockholder of its obligations hereunder will not conflict
with or result in a breach or violation of any of the terms and provisions
of, or constitute a default under, or result in the creation or imposition
of any liens, charges, claims, encumbrances, pledges, security interests,
defects or other like restrictions or equities of any kind whatsoever upon,
any right, property or (tangible or intangible) of each of the Selling
Stockholders pursuant to the terms of (A) any material lease, permit,
license, contract, indenture, mortgage, deed of trust, voting trust
agreements, stockholders agreement, note, loan or credit agreement
(including any related to indebtedness) or any other agreement or
instrument to which any Selling Stockholder is a party or by which it is or
may be bound or to which any of its respective properties or assets
(tangible or intangible) is or may be subject, or (B) any statute,
judgment, decree, order, rule or regulation, known to such counsel,
applicable to any Selling Stockholder or any of its respective activities
or properties adopted or issued by any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including
those having jurisdiction over environmental or similar matters), having
jurisdiction over any Selling Stockholder or any of its respective
activities or properties, in each case except where such breach, violation
or default would not (i) affect the enforceability of this Agreement, or
(ii) affect the Offering or the sale of the Common Stock contemplated
hereby. To such counsel's knowledge, no consent, approval, authorization or
order of, or filing with, any governmental agency or body or any court is
required for the
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consummation by any Selling Stockholder of the transactions contemplated
herein, except such as may be required under the state securities or "Blue
Sky" laws of any jurisdiction or as may be required by the by-laws and
rules of the NASD in connection with the purchase and distribution of the
Shares by the Underwriters and except such other approvals as have been
obtained and remain in full force and effect;
(xvi) To such counsel's knowledge, each Selling Stockholder has title
to the Shares proposed to be sold by such Selling Stockholder hereunder
free of any adverse claims and upon delivery of and payment for such Shares
hereunder, assuming that each Underwriter does not have any notice of an
adverse claim, such Underwriter will be a protected purchaser (as defined
in Section 8-303 of the Uniform Commercial Code as in effect in the State
of Delaware); and
(xvii) The descriptions in the Registration Statement, the Prospectus
and any amendment or supplement thereto of agreements, whether written or
oral, and of other documents to which each Selling Stockholder or any of
its affiliates (other than the Company) is a party are accurate and fairly
present the information required to be shown with respect thereto. To such
counsel's knowledge, there are no agreements, whether written or oral, or
other documents to which each Selling Stockholder or any of its affiliates
(other than the Company) is a party of a character that are required by the
Act or the Rules and Regulations to be described in the Registration
Statement or filed as exhibits to the Registration Statement that are not
described or filed as required.
In addition, such opinion shall contain statements substantially to
the following effect:
In the course of the preparation by the Company and its counsel of the
Registration Statement and the Prospectus, such counsel attended
conferences with certain of the officers of, and the independent
public accountants for, the Company, at which the Registration
Statement and the Prospectus were discussed (some of which were
attended by representatives of the Underwriters). Between the date of
effectiveness of the Registration Statement and the Closing Date, such
counsel attended (if applicable) additional conferences with certain
of the officers of, and the independent public accountants for, the
Company, at which the contents of the Registration Statement and the
Prospectus were discussed. Given the limitations inherent in the
independent verification of factual matters and the character of
determinations involved in the registration process, such counsel is
not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (other than as set forth in
the first sentence of paragraph (v) and as set forth in paragraph
(viii) above).
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Subject to the foregoing and on the basis of the information such
counsel gained in the performance of the services referred to above,
including information obtained from officers and other representatives
of the Company, no facts have come to such counsel's attention that
cause such counsel to believe (except that such counsel need not
express any opinion or belief with respect to the financial
statements, schedule and the notes thereto and other financial and
statistical data included therein) that (y) the Registration
Statement, at the time it was declared effective by the Commission,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (z) the Prospectus, as of its
date or the Closing Date, contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, provided such counsel need not express any belief as
to the contents of the eighth paragraph under the heading
"UNDERWRITING" in the Prospectus.
In rendering such opinions, such counsel may rely as to matters of
fact, to the extent they deem proper, on the representations and warranties
of the Company and the Selling Stockholders contained in this Agreement and
on certificates and written statements of the Company or responsible
officers of the Company and certificates or other written statements of
officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall
be delivered to Underwriters' Counsel if requested.
The Underwriters are entitled to rely on the opinion of such firm, filed as
an exhibit to the Registration Statement, as to the matters discussed in the
Prospectus under the heading "FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
References to the Prospectus and the Registration Statement in this Section
8(d) shall include any amendment or supplement thereto at the date of such
opinion.
(e) The Underwriters shall have received a certificate, dated the Closing
Date and in form and substance satisfactory to the Underwriters, of the Company
signed by each of the Chief Executive Officer and Chief Financial Officer of the
Company to the effect that each of such officers has carefully examined the
Registration Statement, the Prospectus and this Agreement and, to his best
knowledge, that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied in all material respects with all agreements
and covenants and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to the Closing Date;
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(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of such officers' knowledge, are
contemplated or threatened by the Commission; and
(iii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) there has been
no material adverse change, or development involving a prospective material
adverse change (including a change in management or control of the
Company), in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company, except in each case as
described in or contemplated by the Prospectus; (B) the Company has not
entered into any transactions not in the ordinary course of business; (C)
the Company has not incurred any material liabilities or obligations,
direct or contingent, other than as disclosed in the Registration Statement
and the Prospectus; (D) the Company has not sustained a loss material to
the Company by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act, whether or not such loss shall
have been insured, or from any labor dispute or from any legal or
governmental proceeding; (E) no action, suit or proceeding, at law or in
equity, has been filed or, to the knowledge of such officer, is threatened
against the Company or affecting any of its properties or businesses before
or by any court or federal, state or foreign commission, board or other
administrative agency that (1) alleges that the conduct of such business as
currently conducted or as proposed to be conducted infringes on any
trademarks, service marks, copyrights, service names, trade names, patents,
patent applications or trade secrets currently held by any third party and
(2) has had as of the date of such certificate or, if pending and if
decided unfavorably, is likely to have a Material Adverse Effect; and (F)
there has not occurred any other event required to be set forth in the
Prospectus that has not been so set forth.
Except as otherwise provided in clause (iii)(A) above, references to the
Prospectus and Registration Statement in this Section 8(e) shall include any
amendment or supplement thereto at the date of such opinion.
(f) The Underwriters shall have received a certificate, dated the Closing
Date, of the Chairman and the Vice President and General Counsel of Safeguard
(PA) to the effect that such officers have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the representations and
warranties of Safeguard in this Agreement are true and correct on and as of the
Closing Date, and that Safeguard has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the
Closing Date.
(g) The Underwriters shall have received a certificate, dated the Closing
Date, from each Selling Stockholder other than Safeguard to the effect that such
Selling Stockholder has carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of the
Selling Stockholder in this Agreement are true and
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correct on and as of the Closing Date, and that the Selling Stockholder has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date.
(h) The Underwriters shall have received from KPMG a letter dated,
respectively, the date hereof and the Closing Date, in form and substance
satisfactory to the Underwriters and Underwriters' Counsel, with respect to
matters set forth below:
(i) confirming that they are and were independent public accountants
with respect to the Company within the meaning of the Act and the Rules and
Regulations;
(ii) stating that it is their opinion that the audited financial
statements and schedules examined by them and included in the Registration
Statement and the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations;
(iii) stating that, on the basis of certain procedures which included
a reading of the latest available unaudited interim financial statements of
the Company (with an indication of the date of the latest available
unaudited interim financial statements), a reading of the latest available
minutes of meetings and actions of the stockholders and board of directors
and the various committees of the board of directors of the Company,
inquiries of officers and other employees of the Company responsible for
financial and accounting matters and other specified procedures and
inquiries, nothing came to their attention that caused them to believe that
(A) the unaudited financial statements, if any, and schedules of the
Company included in the Registration Statement and the Prospectus do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration Statement
and the Prospectus, (B) at a specified date not more than five days prior
to the date of such letter, there was any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity,
or net current assets of the Company, in each case, as compared with
amounts shown in the March 31, 1998 consolidated balance sheet included in
the Registration Statement and the Prospectus, except for changes set forth
in such letter, and (C) during the period from March 31, 1998 to such
specified date, there was any decrease in consolidated revenues, income
before income taxes, or net income, or any decrease in net income per
common share of the Company, except for changes set forth in such letter;
(iv) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus
in each case to the extent that such
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amounts, numbers, percentages, statements and information may be derived
from the general accounting records, including work sheets, of the Company
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(v) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriters may reasonably request.
In the event that the letter referred to above set forth any such changes,
decreases or increases, it shall be a further condition of the obligations of
the Underwriters that (A) such letter shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Underwriters deem such explanation unnecessary, and (B) such changes, decreases
or increases do not, in the sole judgment of the Underwriters, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the registration statement originally filed with
respect to the Shares, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this Section
8(h) with respect to the letter referred to above shall include any amendment or
supplement thereto at the date of such letter.
(i) The Associated Person Lock-Ups with respect to each person listed on
Schedule A annexed hereto and the Musser Lock-Up shall be in full force and
effect.
(j) The outstanding shares of Common Stock and the shares of Common Stock
to be issued by the Company as contemplated by this Agreement shall have been
approved for quotation on the Nasdaq National Market (upon notice of issuance in
the case of the latter shares).
(k) No order suspending the sale of the Shares in any jurisdiction
designated by the Underwriters pursuant to Section 6(a)(iv) hereof shall be in
effect on the Closing Date and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Underwriters, shall be
contemplated.
(l) The Underwriters shall have received from Morris, Manning & Martin,
L.L.P., intellectual property counsel to the Company, an opinion, on or prior to
the date Rights certificates and Prospectuses are first mailed to Safeguard
Shareholders and on the Closing Date, dated the respective dates thereof and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
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(i) To such counsel's knowledge, except as disclosed in the
Prospectus, the Company has not received any notice of infringement of or
conflict with (and such counsel does not know of any such infringement of
or conflict with) any rights or claims of others with respect to the
TactileSense(TM) application, any of the activities engaged in, or proposed
to be engaged in, by the Company as described in the Prospectus, in any
such case which could reasonably be expected to result in a Material
Adverse Effect or could reasonably be expected to have a Material Adverse
Effect on the development, marketing or sale of any of the Company's
existing or contemplated products, services or processes as described in
the Prospectus.
(ii) To such counsel's knowledge, the factual representations
concerning the Company's patent applications contained in the Prospectus
under the captions: "RISK FACTORS - Dependence on Intellectual Property and
Proprietary Rights" and "BUSINESS--Patents and Proprietary Technology" are
accurate in all material respects.
(iii) The Company has filed a U.S. Patent Application and [expand to
cover patents filed] before the U.S. Patent and Trademark Office. [Describe
pending patent applications]. Such counsel has no knowledge or information
that would invalidate the claims of the Company's pending patent
applications as filed or that would render an issued patent containing
those claims unenforceable.
In rendering such opinions, such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates and written statements of
responsible officers of the Company and each Selling Stockholder, as
appropriate, and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel if
requested.
References to the Prospectus and Registration Statement in this Section
shall include any amendment or supplement thereto at the date of such opinion.
(m) On or prior to the date that Rights certificates are first mailed to
Safeguard Shareholders and on the Closing Date, dated the respective dates
thereof and in form and substance satisfactory to Underwriters' Counsel, the
Company shall furnish to the Underwriters such information, certificates and
documents as either of the Underwriters may reasonably request.
If any condition of the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date is not so fulfilled, the Underwriters may
terminate this Agreement or, if the Underwriters so elect, they may waive any
such conditions that have not been fulfilled or extend the time for their
fulfillment. In the event the Underwriters so elect to terminate this
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Agreement, all Rights and the Other Purchasers Standby Purchase Agreements shall
become immediately null and void and the Company shall cause the Escrow Agent
under the Rights Agent Agreement to promptly return to the subscribers any
payments received by the Escrow Agent in respect of the exercise price relating
thereto. All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and
Underwriters' Counsel. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and Underwriters' Counsel shall reasonably
request.
The obligations of the Underwriters to purchase and pay for any Option
Shares after having exercised an option set forth in Section 3(b) hereof shall
be subject, in their discretion, to each of the foregoing conditions of this
Section 8 to purchase the Excess Unsubscribed Shares, with all references to the
Excess Unsubscribed Shares and the Closing Date being deemed to refer to such
Option Shares and the related Option Closing Date, respectively.
9. Indemnification.
(a) The Company and the Selling Stockholders, jointly and severally, agree
to indemnify and hold harmless each of the Underwriters and each person, if any,
who is a Controlling Person with respect to either of the Underwriters against
any and all losses, claims, damages, expenses and liabilities, joint or several
(and actions in respect thereof), whatsoever (including any and all reasonable
expenses incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, (i) to which the Underwriters or such Controlling Person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented) or (B) in any application or
other document or written communication (in this Section 9 collectively called
"Application") executed by the Company or the Selling Stockholders or based upon
written information furnished by the Company or the Selling Stockholders in any
jurisdiction in order to qualify the Common Stock under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the Nasdaq National Market or any other securities exchange, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, unless such statement or omission was
made in reliance upon, and in strict conformity with, the Provided Information
or (ii) to which the Underwriters or such Controlling Person may become liable
to any party which relate to, or arise out of, the Underwriters' or such
Controlling Person's consummation of the transactions contemplated hereby or the
Underwriters' or such Controlling Person's role in connection herewith
(including without limitation as a result of any breach of any representation or
warranty made by the Company or the Selling Stockholders); provided, however,
that neither the Company nor the
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Selling Stockholders shall be responsible for any losses, claims, damages,
expenses or liabilities that are finally judicially determined to have resulted
primarily from the gross negligence or intentional or reckless misconduct of the
Underwriters or such Controlling Person. The indemnity agreement contained in
this Section 9(a) with respect to any Preliminary Prospectus shall not inure to
the benefit of the Underwriters and such Controlling Person with respect to a
person asserting any such losses, claims, damages, liabilities or expenses who
purchased the Shares if at or prior to the written confirmation of the sale of
such Shares a copy of the Prospectus (or the Prospectus as amended or
supplemented) was not sent or delivered to such person and the untrue statement
contained in, or omission of a material fact from, such Preliminary Prospectus
was corrected in the Prospectus (or the Prospectus as amended or supplemented).
The indemnity agreements in this Section 9(a) shall be in addition to any
liability that the Company or the Selling Stockholders may have at common law or
otherwise.
(b) The Underwriters agree to indemnify and hold harmless the Company, each
of its directors, each of its officers who has signed the Registration
Statement, the Selling Stockholders and each other Controlling Person, if any,
who controls the Company or the Selling Stockholders, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholders to the
Underwriters but only with respect to statements made in, or omissions from, any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any Application made in reliance
upon, and in strict conformity with, the Provided Information.
(c) Promptly after receipt by any indemnified party or parties under this
Section 9 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 9, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party or parties shall not relieve it
from any liability that it may have under this Section 9 except to the extent
that it has been prejudiced in any material respect by such failure or from any
liability that it may have otherwise). In case any such action is brought
against any indemnified party or parties, and it notifies the indemnifying party
or parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it may elect, by written
notice delivered to the indemnified party or parties promptly after receiving
the aforesaid notice from such indemnified party or parties, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party
or parties. Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such case but the
fees and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such action within a reasonable time after notice to the
indemnifying party or parties of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them that are
-40-
<PAGE>
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 9 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 9, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 9 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or action in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Shares or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where either the Company and/or the
Selling Stockholders are the contributing parties and the Underwriters are the
indemnified parties, the relative benefits received by the Company and/or the
Selling Stockholders, on the one hand (treated collectively as one person for
this purpose), and the Underwriters, on the other, shall be deemed to be in the
same proportion as the total proceeds from the offering of the Shares and the
shares of Common Stock sold upon exercise of the Rights (net of underwriting
discounts and other commissions paid to the Underwriters but before deducting
the other expenses incurred by the Company and the Selling Stockholders in
connection with the sale of the Shares) bear to the total underwriting discounts
and other commissions received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. 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 related to information supplied by the Company and the Selling
Stockholders (treated collectively, as one person for this purpose) or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this Section 9(d) shall be deemed to include any
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<PAGE>
legal or other expense reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9(d) the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount and
other commissions applicable to the Shares purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 9, each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act, each officer of the Company who has
signed the Registration Statement, and each director of the Company shall have
the same rights to contribution as the Company and the Selling Stockholders,
subject in each case to this Section 9(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this Section 9(d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this Section 9(d), but only to the extent that such party
or parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
10. Representations and Agreements to Survive Delivery.
All representations, warranties, agreements and covenants contained in this
Agreement or contained in certificates of each of the officers of the Company or
of each Selling Stockholder submitted pursuant hereto, shall be deemed to be
representations, warranties, agreements and covenants at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties, agreements and covenants of the Underwriters, the Company and each
Selling Stockholder, and the indemnity agreements contained in Section 9 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriters, the Company and each
Selling Stockholder, or any Controlling Person, and shall survive termination of
this Agreement or the issuance and delivery of the Shares to the Underwriters,
provided that to the extent any such representations, warranties, agreements or
covenants are expressly waived in writing by the Underwriters, the survival of
the same shall be as set forth in such waiver, or, if not so set forth, as
provided in this Section 10.
11. Effective Date.
This Agreement shall become effective at 9:00 a.m., New York time, on the
next full business day following the date hereof or upon the commencement of the
Rights Offering, whichever is earlier; provided, however, that the provisions of
Sections 6, 7, 9, 10 and 12 of this Agreement shall at all times be effective.
-42-
<PAGE>
12. Termination.
(a) Subject to subsection (c) of this Section 12, the Underwriters shall
have the right to terminate this Agreement (i) if any calamitous domestic or
international event or act or occurrence has disrupted the general securities
market in the United States; (ii) if trading in the Common Stock (on a
when-issued basis) shall have been suspended by the Commission or the Nasdaq
National Market; (iii) if trading on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on the over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; (iv) if the United States shall
have become involved in a war or major hostilities which, in the Underwriters'
opinion, affects the general securities market in the United States; (v) if a
banking moratorium has been declared by any California, New York, Pennsylvania,
Wisconsin or federal authority; (vi) if a moratorium in foreign exchange trading
(with respect to a foreign exchange on which the Company's securities are
traded) has been declared; (vii) if the Company shall have sustained a loss
material to the Company by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act, whether or not such loss shall have
been insured, or from any labor dispute or any legal or governmental proceeding;
(viii) if, in the reasonable judgment of the Underwriters, there shall have been
such material adverse change, or any development involving a prospective
material adverse change in the financial condition, net worth or results of
operations of the Company since March 31, 1998 or in the business prospects or
conditions of the Company since the date of this Prospectus, or that materially
and adversely impacts this Agreement; or (ix) on any date commencing on the date
hereof and ending on the Closing Date, if there shall be such material adverse
market conditions (whether occurring suddenly or gradually between the date
hereof and the Closing Date) affecting the markets generally as in the
Underwriters' reasonable judgment would make it inadvisable to proceed with the
offering, sale or delivery of the Shares.
(b) If the Underwriters elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 12, they
shall so notify the Company on the same day as such election is made by
telephone or telegram, confirmed by letter.
(c) Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including pursuant to
Section 13 hereof), and whether or not this Agreement is otherwise carried out,
the provisions of Section 7 and Section 9 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
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<PAGE>
13. Default by the Company or the Selling Stockholders.
If the Company shall fail to sell and deliver to the Underwriters the
Excess Unsubscribed Shares to be sold and delivered by the Company at the
Closing Date or the Option Shares to be sold and delivered by the Selling
Stockholders at any Option Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice to the Company and
Selling Stockholders either (a) terminate this Agreement without any liability
on the part of any non-defaulting party other than pursuant to Section 12 or (b)
purchase the Shares which the Company and the Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. In the event of a
failure of the Selling Stockholders to sell and deliver as referred to in this
Section, either the Underwriters or the Company shall have the right to postpone
the Closing Date or the Option Closing Date, as the case may be, for a period
not exceeding seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, as may be effected. No action taken pursuant to this Section shall
relieve the Company or the Selling Stockholders from liability in respect of
such default.
14. Notices.
All notices and communications hereunder may be mailed or transmitted by
any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing by the notice parties.
Notices to the Underwriters shall be directed to the Underwriters in care of
Robert W. Baird & Co. Incorporated, 777 E. Wisconsin Avenue, Milwaukee, WI
53202-5391, Attention: Dominick P. Zarcone, Janney Montgomery Scott Inc., 1801
Market Street, Philadelphia, PA 19103-1675, Attention: Michael J. Mufson with a
copy to Drinker Biddle & Reath LLP, 1000 Westlakes Drive, Suite 300, Berwyn,
Pennsylvania 19312, Attention: __________, Esq. Notices to the Company shall be
directed to the address of the Company as set forth on the facing page to the
Registration Statement, with a copy to Morgan, Lewis and Bockius LLP, 2000 One
Logan Square, Philadelphia, Pennsylvania, Attention: N. Jeffrey Klauder, Esq.
Notices to Safeguard shall be directed to Safeguard Scientifics, Inc., 800 The
Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087, Attention:
James A. Ounsworth, Esq., with a copy to Morgan, Lewis and Bockius LLP, 2000 One
Logan Square, Philadelphia, Pennsylvania 19103, Attention: N. Jeffrey Klauder,
Esq. In each case a party may change its address for notice hereunder by a
written communication to the other parties.
15. Parties.
This Agreement shall inure solely to the benefit of, and shall be binding
upon, the Underwriters, the Company and the Selling Stockholders and the
Controlling Persons, and their
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<PAGE>
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Shares from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
16. Construction.
This Agreement shall be governed by the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles
thereof. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described.
17. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall be
deemed to be one and the same instrument.
18. Entire Agreement.
This Agreement contains the entire agreement between the parties hereto in
connection with the subject matter hereof.
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company, Safeguard and the Selling Stockholders, please so
indicate in the space provided below for that purpose, thereupon this letter
shall constitute a binding agreement among us.
Very truly yours,
WHO? VISION SYSTEMS, INC.
By:
---------------------------------------------
Name:
Title:
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<PAGE>
SAFEGUARD SCIENTIFICS, INC.
By:
---------------------------------------------
Name:
Title:
SAFEGUARD XL CAPITAL, L.P.
By: Safeguard Delaware, Inc., its general partner
By:
---------------------------------------------
Name:
Title:
XL VISION, INC.
By:
---------------------------------------------
Name:
Title:
APPLEWOOD ASSOCIATES, L.P.
By:
---------------------------------------------
Name:
Title:
Confirmed and accepted
as of the date first
above written:
ROBERT W. BAIRD & CO. INCORPORATED
By:
------------------------------
Name:
Title:
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<PAGE>
JANNEY MONTGOMERY SCOTT INC.
By:
------------------------------
Name:
Title:
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<PAGE>
Schedule A
Associated Person Lock-Ups
Safeguard Scientifics (Delaware), Inc.
Safeguard Scientifics, Inc.
Technology Leaders L.P.
Technology Leaders Offshore C.V.
Technology Leaders II L.P.
Technology Leaders II Offshore C.V.
XL Vision, Inc.
Applewood Associates, L.P.
Citicorp Venture Capital, Ltd.
Koninkluke Philips Electronics N.V.
Edward Anderson
Brian Berger
Walter W. Buckley, III
Alexander G. Dickinson
Alexander W. Hart
Tzu-Chiang Hsieh
James Ionson
James W. Kerrigan
Robert Miller
Christopher Moller
Charles A. Root
John S. Scott
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<PAGE>
Schedule B
Name of Underwiters % of Underwriter Shares
- ------------------- -----------------------
Robert W. Baird & Co. Incorporated [__]
Janney Montgomery Scott Inc. [__]
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<PAGE>
Schedule C
<TABLE>
<CAPTION>
============================================================================================
Total Number of
Name of Number of Number of Shares Sold by
Selling Stockholder Direct Shares Option Shares Selling Stockholder
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Safeguard Scientifics (DE), Inc. 116,667 233,334 350,001
- --------------------------------------------------------------------------------------------
XL Vision, Inc. 200,000 400,000 600,000
- --------------------------------------------------------------------------------------------
Applewood Associates, L.P. 8,333 16,666 24,999
- --------------------------------------------------------------------------------------------
TOTAL 325,000 650,000 975,000
============================================================================================
</TABLE>
-50-
Exhibit 10.3
MANUFACTURING AGREEMENT
This Agreement is entered into by and between Who?Vision Systems, Inc., a
Delaware corporation, with its principal place of business at 10315 102nd
Terrace, Sebastian, Florida (hereafter referred to as "WVS"), and SPOT
TECHNOLOGY, Inc., a Taiwanese corporation, with its principal place of business
at No. 115 Community 4, Chang 16, Tung Kuang Li, Kuan Hsi Town, Hsinchu Hsien,
Taiwan, ROC (hereafter referred to as "SPOT").
BACKGROUND
WHEREAS, WVS has certain expertise in fingerprint solutions and has
proprietary technical information in the areas of fingerprint acquisition,
processing and verification that may be used to create complete fingerprint
solutions for the computer industry, and is developing a finger print module
(hereafter referred to as "FPM");
WHEREAS, SPOT has developed expertise in manufacturing computer related
equipment and peripherals in significant volumes;
WHEREAS, both parties acknowledge that there is a specific market window
for fingerprint technology and products. Therefore, the parties agree to use
their reasonable efforts to work together to make the best use of each partners
capabilities;
WHEREAS, SPOT and XL Vision, Inc. previously entered into a Strategic
Distribution and Manufacturing Agreement dated November 19, 1997 (the "XLV
Agreement").
NOW THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
AGREEMENT
1.0 Definitions. As used in this Agreement, the following terms shall have the
respective meanings assigned to them below:
1.1 Calendar. The calendar used herein is the western calendar currently in
common use in the United States. For the purposes of this Agreement, quarters
are defined as:
Q1 January 1 - March 31
1
<PAGE>
Q2 April 1 - June 30
Q3 July 1 - September 30
Q4 October 1 - December 31
Should these dates fall on non-working days, the quarter shall begin on the
first working day following the date shown and end on the last working day
before the date shown.
1.2 "FPM" shall mean WVS's finger print module comprised of:
a) A finger sensing surface that generates an image of the
fingerprint
b) An image sensor that can translate the finger image to an
electronic signal
c) Lens-based air gap optics that translates the image from the
finger surface to the sensor.
d) A signal processing and interface chip, that processes the
fingerprint image into a form suitable for transportation to a
PC host via USB and/or parallel port.
e) Firmware for the signal processing and interface chip.
f) An API that runs on the PC and allows development of PC
applications that makes use of the FPM. The API will include
fingerprint matching functions and functions for accessing the
FPM hardware via USB and/or Parallel Port.
g) Any insufficient parts, or future upgrade will be granted into
"FPM."
1.3 "Object Code" shall mean computer programming code, routines and
programs in machine executable form.
1.4 "Third Party Software" shall mean the computer programming code,
routines and programs in Object Code form (and also in Source
Code if available), and the documentation thereof, which make up
part of the FPM, and which are owned by, or proprietary to
persons other than WVS or any of its affiliates.
1.5 BOM means Bill of Material for the FPM as described in 1.2 of
this Agreement.
2
<PAGE>
2.0 Responsibilities.
2.1 WVS License. WVS hereby grants SPOT a license in all its most up
to date technology, know-how and information concerning or
pertaining to the FPM subject to all other terms of this
Agreement, and a sublicense to all Third Party Software, if
available, to permit SPOT to manufacture quality and marketable
FPM at affordable prices and in quantities necessary to meet
WVS's demand. The schedule for transfer of such technology and
know-how is attached hereto as appendix B. (such transfer will
not be later than 31 December, 1997.)
2.2 SPOT's Engineering and Manufacturing Responsibilities
a) SPOT or its designated subsidiary or affiliate, agrees
to manufacture all of its own generated FPM requirements
and [xxxxxxxxxxxxxxxxxxxxxx] to be able to produce the
unit volumes per 2.3(c) of this agreement.
b) SPOT agrees to sell in U.S. dollars all manufactured
FPMs to WVS or its designated subsidiary/affiliates
using the following formula; hereinafter called SPOT
Sell Price:
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
c) SPOT agrees to tool for increases in capacity above
2.3(c) volumes, due to WVS generated requirements as
long as WVS provides SPOT notice of such increases 3
months before such volume increase is required, and the
aggregate cost of additional tooling for said increase
does not exceed [xxxxxxxxxxxxxxxxxx] per year for a
minimum 50% increase in quantity.
d) Spot agrees to purchase, at SPOT / WVS best
manufacturing cost in US dollars, all necessary Tactile
sense material for use with its FPM, plus shipping,
handling, taxes, insurance and duties. WVS agrees to
provide SPOT with monthly financial records related to
manufacturing and supply of the tactile sense material.
e) SPOT shall establish a manufacturing transfer team
with qualified engineers no later than 31 December1997.
[Confidential Treatment requested for redacted portion of document]
3
<PAGE>
f) SPOT shall participate with WVS in reviewing WVS's
designs and drawings for the FPM and the component piece
parts in order to ensure compatibility with SPOT
industrial design and manufacturing requirements, but
WVS shall solely be responsible for proper designs.
g) SPOT will be responsible for ensuring cost
effectiveness, quality and reliability of the
manufacturing process and the manufactured products.
h) SPOT shall ensure that its facility and systems
substantially comply with ISO 9002 standards.
i) WVS shall provide SPOT with quality control criteria.
SPOT shall perform quality control procedures jointly
developed by SPOT and WVS on all manufactured units. In
the event more than a specified number or percentage of
units do not pass quality control tests, product
acceptance and shipping shall be suspended until SPOT
determines the source of failure and takes appropriate
corrective action at its ownership/granted
responsibility.
j) Upon mass production, SPOT shall certify to WVS with
each invoice that it has performed the mutually agreed
upon quality control procedures on all manufactured
units covered by the invoice.
k) SPOT shall obtain at its own expense all safety
approvals, quality certificates, manufacturing permits
and licenses as may be required to manufacture and ship
FPMs, and WVS will be responsible for such approvals,
certifications, permits, and licenses to license the
technology to SPOT.
2.3 WVS Manufacturing Related Responsibilities
a) WVS shall work with SPOT to provide mechanical interface
drawings and information to SPOT on the FPM no later than 1
December 1997.
b) WVS shall work with SPOT to provide a complete design and
documentation package to SPOT for use in manufacturing no later
than 31 December 1997.
4
<PAGE>
c) WVS is responsible for providing SPOT a design of the FPM
described in 1.2 of this Agreement, whose Bill of Material will
not exceed the following costs based on the following volumes:
1998 [xxxxxxxxxxxxx xxxxxxx]
1999 [xxxxxxxxxxxxx xxxxxxx]
2000 [xxxxxxxxxxxxx xxxxxxx]
2001 [xxxxxxxxxxxxx xxxxxxx]
(assumes an exchange rate of 29.00 Taiwanese dollars to 1 US
dollar or better)
The above pricing reflects a software per unit cost in the BOM
of [xxxx xxxxxxxxxx] for the years and quantities respectively.
If a customer does not require the WVS supplied Software, the
BOM cost will be reduced by the above software per unit figures.
Any increases in the BOM due to special housing, packaging,
connectors, or other requirements requested by SPOT shall be
excluded in determining whether the BOM is within the maximum
price.
d) WVS agrees to establish a manufacturing team with qualified
engineers no later then December 31, 1997 to provide SPOT with
technology.
e) WVS shall prepare and deliver to SPOT prior to commencement of
production, quality control procedures to be applied to
manufactured units.
2.4 Purchases, Forecasts and Orders
a) Purchases
WVS agrees to purchase a minimum of [xxx] of all its FPM and
stand-alone requirements from SPOT of this agreement, as long as
SPOT remains cost competitive, meets delivery needs and quality
criteria. SPOT acknowledges that WVS intends to enter into a
manufacturing agreement with 1 or more other manufacturers of
the FPM, for other non-related products in additional
distribution channels than those exclusively reserved for SPOT
under any distribution agreement. Such minimum purchase
requirement will not apply to requirements of such other
manufacturers or their affiliates.
[Confidential Treatment requested for redacted portion of document]
5
<PAGE>
b) Forecasts
Beginning in ________ 1998, WVS will provide SPOT with a rolling
6-month forecast of unit purchase requirements. Forecasts are
"Non-binding Forecasts", provided as good-faith estimates to
help SPOT plan production, and manage inventory levels to meet
WVS's requirements.
c) Order Placement
Only authorized employees of WVS may place purchase orders
(P.O.). SPOT is not authorized to accept purchase orders from
any other entity. All P.O.s shall specify a price, delivery date
and, if available, destination. All requested delivery dates
will be subject to reasonable approval by SPOT.
d) Order Acknowledgment
An acknowledgment of purchase orders will be returned to WVS
within four working days of receipt of an order. If SPOT is
unable to comply with some conditions of the order, for example,
the delivery date, SPOT should still acknowledge orders,
confirming all accepted data (quantity, price, etc) and
informing WVS of the issue.
e) Invoices and Payment
SPOT will invoice WVS for FPM units upon delivery on board the
ship or other shipping mode.
Payment by WVS shall be due NET 60 days after receipt of
invoice. All invoices and payments shall be in U.S. dollars.
Late payments shall bear interest at 1% per month.
f) Title and Risk of Loss
All shipments of FPMs shall be made F.O.B. manufacturer's
origin. Title for FPMs (if not passed per paragraph (i) above)
and risk of loss for FPMs shall pass to WVS when the FPMs are
placed on board the ship or other shipping mode.
g) SPOT shall provide to WVS on a monthly basis with its 6 month
rolling unit prices for FPMs based on WVS' forecasted volume
requirements. SPOT shall provide supporting detail for its
prices to confirm compliance with the formula in paragraph
2.2(b).
6
<PAGE>
3.0 Project Managers; Personnel; Progress Reports.
3.1 WVS Project Manager and Personnel
a) WVS shall appoint a project manager to coordinate WVS's
activities and responsibilities relating to SPOT. WVS shall
provide written notice to SPOT of the name and business address,
daytime telephone number and telefax address of the WVS Project
Manager. The initial WVS Project Manager shall be Tzu-Chiang
Hsieh. WVS shall also appoint a full time manufacturing liaison,
who will be responsible for the transition of the WVS FPM design
to SPOT for manufacture, and will assist in its initial
implementation.
b) From time to time, personnel of WVS may perform work at
the facilities of SPOT. WVS shall be solely responsible
for any and all losses, liabilities, suits, claims, and
expenses incurred by any of its personnel for damage to
property or bodily injury, unless such damage to
property or bodily injury was caused by the gross
negligence or intentional misconduct of SPOT. While at
the facilities of SPOT, all WVS personnel shall observe
and follow the work rules, policies, and standards of
SPOT.
3.2 SPOT Project Manager and Personnel
a) SPOT shall appoint a project manager to coordinate
SPOT's activities and responsibilities relating to WVS.
SPOT shall provide written notice to WVS of the name and
business address, daytime telephone and telefax number
of the SPOT Project Manager. The initial SPOT Project
Manager shall be Paul Yang.
b) From time to time, personnel of SPOT may perform work at
the facilities of WVS. SPOT shall be solely responsible
for any and all losses, liabilities, suits, claims, and
expenses incurred by any of its personnel for damage to
property or bodily injury, unless such damage to
property or bodily injury was caused by the gross
negligence or intentional misconduct of WVS. While at
the facilities of WVS, all SPOT personnel shall observe
and follow the work rules, policies and standards of
WVS.
7
<PAGE>
3.3 Progress Report Meetings
(a) WVS and SPOT shall each provide to the other a monthly
written progress report. Reports shall be in Microsoft
Office format and shall indicate the following:
Status of progress to current scheduled milestones.
Short description of problems in meeting such milestones.
Proposed recovery method to meet next milestone.
Probability of meeting next milestone.
Any other information reasonably requested by either party with
respect to the Project.
4.0 Deliverable & Acceptance
4.1 The deliverables from WVS for the manufacturing effort are as
follows (also, the deliverables should contain an FPM sample described in
section 1.2):
Theory of Operation - a detailed, written description of the functional
nature of the FPM design. It shall include functional and circuit block
diagrams, data flow and timing diagrams, and a detailed description of the
functional flow.
Schematic Diagrams - a full set of electronic schematic circuit
diagrams. The drawings for these items shall be in the OrCad DSN format.
Mechanical Drawings - These shall include all relevant drawings required
to implement the design into SPOT's manufacturing process. Included will be
detailed drawings for piece parts designed by WVS, source control documents for
all components specified by WVS, and a preliminary Bill of Materials. These
documents will be created and delivered in the AutoCad DWG format. WVS will
participate with SPOT in reviewing industrial Design and package drawings and
will determine how the overall Industrial Design will impact the design and
layout of specific piece parts (for instance, Printed Circuit Boards), but WVS
shall not be responsible for providing overall envelope drawings. Since SPOT
will be responsible for the implementation of the FPM into other parties'
industrial designs, WVS will provide only the mechanical drawings necessary to
support SPOT's industrial design and manufacturing requirements.
Software - All firmware and interface drivers will be developed by WVS
and delivered to SPOT. This delivery shall be in the form of executable code.
4.2 Orientation and Training Program. WVS shall provide an orientation
and training program for the purpose of educating SPOT's personnel in the use,
operation, technical support,
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maintenance, management, and assistance for manufacturing of the FPM. WVS shall
also provide to SPOT all improvements with respect to the FPM subject to the
terms of this agreement and, in order to maintain a competitive product, shall
use its best efforts to make incremental improvements to the technology.
5.0 Proprietary Rights
5.1 Proprietary Rights of WVS Defined
a) FPM Design and Configuration - All right, title and interest in
and to (i) the design and configuration of the FPM, including
all deliverables, (ii) all updates and enhancements to the
design and configuration of the FPM, (iii) all documentation
prepared by WVS for the FPM, and (iv) any and all intellectual
property rights inherent in the FPM design and configuration
('i', 'ii', and 'iii' and 'iv' are collectively the "FPM Design
and Configuration"), including without limitation all patent
rights, copyrights, trademarks, know-how and trade secrets, does
and shall belong exclusively to WVS. If any know-how or trade
secrets are jointly developed [or become part of public domain],
they shall be jointly owned by WVS and SPOT.
b) Developed Software - All right, title and interest in and to (i)
software developed for incorporation into the FPM, (ii) all
updates and enhancements of such software, (iii) all
documentation and (iv) any and all intellectual property rights
relating to the foregoing, does and shall belong exclusively to
WVS. If any software is jointly developed or becomes part of the
public domain, it shall be jointly owned by WVS and SPOT.
c) Third Party Software - WVS has at its own expense secured the
rights to fingerprint matching software. WVS shall pass through
(in whatever form) licensing rights and restrictions, which
pertain to third party software and technology.
5.2 Confidentiality. The FPM Design and Configuration and the Developed
Software, and each item included in such, and all materials and copies
containing any part of such, shall be maintained as confidential by SPOT, shall
be disclosed by SPOT only to its employees who need such materials and
information for SPOT to fulfill its obligations and not to any other person or
entity, and shall not be used by SPOT for any other purpose. SPOT's obligation
shall not apply to any information which becomes part of the public domain other
than as a result of SPOT's breach of its obligations under this paragraph. SPOT
shall be responsible for ensuring that its employees comply with its
confidentiality obligations.
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5.3 Trademarks. Neither SPOT nor WVS shall use the other party's trademarks
or tradenames without prior written consent.
6.0 License and Sublicense
6.1 Exclusive License--WVS hereby grants SPOT the rights accorded to
it as provided of this agreement, as long as SPOT meets it's
obligations under this agreement. No other licenses shall be
implied or given.
6.2 Right to Sub-license. SPOT shall not have the right to
sub-license or discuss the potential to sub-license, any of the
rights, privileges and licenses granted hereunder without the
express written consent of WVS, during the period of this
Agreement including to affiliates of SPOT. Any agreement to
sub-license shall be incorporated as an amendment to this
Agreement and therefore carry all requirements as stated herein.
7.0 Term and Termination
7.1 WVS's Right to Terminate. WVS shall have the right to terminate this
Agreement if:
a) SPOT materially breaches its confidentiality obligations
this Agreement;
b) SPOT sells or delivers any FPMs or other fingerprint
sensing/reading device to any unauthorized person in
violation of Section 2.2(l);
c) SPOT materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days
after written notice of the breach is given by WVS; or
d) If SPOT should become bankrupt or insolvent, or shall
file a petition in bankruptcy, or if the business of
SPOT shall be placed in the hands of a receiver,
assignee or trustee for the benefit of creditors,
whether by the voluntary act of SPOT or otherwise, this
Agreement shall automatically terminate.
7.2 SPOT Right of Termination. SPOT shall have the right to terminate this
Agreement if:
a) WVS fails to pay any amount when due which failure
remains uncured for 30 days after written notice by
SPOT.
b) WVS materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days
after written notice of the breach is given by SPOT.
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c) If WVS should become bankrupt or insolvent prior to
completing its obligations under the Agreement, or shall
file a petition in bankruptcy, or if the business of WVS
shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors, whether by the
voluntary act of WVS or otherwise, this Agreement shall
automatically terminate.
d) SPOT is unable to manufacture quality FPMs under the
design provided by WVS.
7.3 Effect of Termination. Upon termination of this agreement:
a) All outstanding amounts payable shall be payable in accordance
with the terms of this Agreement,
7.4 Term of License. The term of this Agreement shall commence on the
date thereof and continue through 31 December 2001, subject to earlier
termination pursuant to sections 7.3 and 7.4 of this Agreement. The term shall
review for additional one-year terms unless either party gives written notice at
least 60 days before the expiration of any terms of its intent not to renew. The
parties shall begin negotiating minimum production capacity commitments for each
renewal term at least 120 days before expiration of the prior term.
8.0 Warranties; Product Returns
8.1 Warranties by WVS. In recognition of the fact that SPOT shall be
required to complete the process of developing a manufacturing prototype for the
FPM and shall have the sole responsibility for maintaining the quality control
process associated with the manufacture of the FPM, WVS takes sole
responsibility for any patent infringement related directly, indirectly or
collectively and pertaining to paragraph 1.2, 5.1a and 5.1b.
8.2 SPOT Warranty. SPOT warrants that, for a period of 90 days from
delivery, each FPM unit shall be free from defects in materials or workmanship.
8.3 Mutual Indemnification. WVS will indemnify SPOT in the event of
damages arising from product design, and SPOT will indemnify WVS for damages
attributed to manufacturing. SPOT also agrees to advise and work with WVS in the
area of product liability coverage and insurance, and if possible will include
this product from both a design and manufacturing point of view under its
existing products liability coverage. If appropriate, WVS agrees to pay SPOT for
50% of the cost of additional coverage for this item, in order to provide proper
insurance for XLV and offset any additional cost to SPOT.
9.0 Dispute
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Any dispute arising in connection with this Agreement will be resolved
in the following order;
1) Face to Face negotiations between senior executives of each
company.
2) By mediation in Southern California with a mediator selected in
accordance with procedures of the American Arbitration
Association.
3) If no resolution is achieved within 30 days after mediation is
requested, then both parties agree to binding arbitration in
accordance with commercial arbitration rules of the American
Arbitration Association. If said arbitration is requested by
SPOT, then such action shall take place in Southern California.
If requested by WVS, such action shall take place in Taipei,
Taiwan. This Agreement shall be governed by the laws of the
state of California without regard to choice of law rules.
10.0 Assignability
SPOT and WVS both have the right to assign this Agreement to any of
their majority-owned affiliated companies by providing 30 days prior notice to
the other party. The party assigning the Agreement will not be denied said
assignment by the other party unless it would materially affect the ability of
the non-assigning party to continue under the terms of this Agreement.
11.0 Entire Agreement
This Agreement constitutes the entire agreement between the parties and
there are no representations, warranties, covenants, or obligations except as
set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, purchase orders, understandings, negotiations, and discussions,
written or oral, of the parties hereto.
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12.0 Notices.
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing, sent by certified mail to the respective parties at
the address below, or to such other address as each party may hereafter specify
in writing to the other.
If to WVS: Who?Vision Systems, Inc.
100 North Pointe Drive
Lake Forest, CA 92630
Telephone: 949-837-5350
Attention: Tzu Chiang Hsieh
If to SPOT: SPOT Technology, Inc.
No. 115 Community 4
Chang 16,
Tung Kuang Li,
Kuan Hsi Town,
Hsinchu Hsien,
Taiwan, ROC,
Telephone: 886-3-587-8966
Attention: Paul Yang
13.0 Relationship of Parties
In making and performing this Agreement, the parties are acting and
shall act as independent contractors. Nothing in this Agreement shall be deemed
to create an agency, joint venture or partnership relationship between the
parties hereto. At no time shall either party make commitments or incur any
charges or expenses for, or in, the name of the other party.
14.0 Amendments.
These terms and conditions may be amended only in writing by an
authorized officer of each party to this document.
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15.0 XLV Agreement.
This Agreement and the Distribution Agreement between WVS and SPOT of
even date replace and supersede the XLV Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the 16th day of July,
1998.
Who? Vision Systems, Inc. SPOT Technology, Inc.
By: /s/ Alex Dickinson By: /s/ Jose Wong
------------------------------ -------------------------------
Name: Alex Dickinson Name: /s/ Jose Wong
Title: Chief Financial Officer Title: President
15
Exhibit 10.4
DISTRIBUTION AGREEMENT
This Agreement is entered into by and between Who? Vision Systems, Inc., a
Delaware corporation, with its principal place of business at 10315 102nd
Terrace, Sebastian, Florida (hereafter referred to as "WVS"), and SPOT, Inc., a
Taiwanese corporation, with its principal place of business at No. 115
Community 4, Chang 16, Tung Kuang Li, Kuan Hsi Town, Hsinchu Hsien, Taiwan, ROC,
(hereafter referred to as "SPOT").
BACKGROUND
WHEREAS, WVS has certain expertise in fingerprint solutions and has
proprietary technical information in the areas of fingerprint acquisition,
processing and verification that may be used to create complete fingerprint
solutions for the computer industry, and is developing and will manufacture a
finger print module (hereafter referred to as "FPM");
WHEREAS, SPOT has developed expertise for the packaging and selling of
computer related equipment and peripherals in significant volumes, and has
relationships with PC OEMs, computer peripheral manufacturers and retail PC
distribution channels, and desires to market and sell WVS's FPM for inclusion
into computer equipment such as keyboards, mice and monitors for sale through
said channels; and
WHEREAS, both parties acknowledge that there is a specific market window
for fingerprint technology and products. Therefore, the parties agree to use
their reasonable efforts to work together to make the best use of each partners
capabilities;
WHEREAS, SPOT and XL Vision, Inc., previously entered into a Strategic
Distribution and Manufacturing Agreement dated November 19, 1997 (the "XLV
Agreement").
NOW THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
AGREEMENT
1.0 Definitions. As used in this Agreement, the following terms shall have the
respective meanings assigned to them below:
1.1 Calendar. The calendar used herein is the western calendar currently in
common use in the United States. For the purposes of this Agreement, quarters
are defined as:
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Q1 January 1 - March 31
Q2 April 1 - June 30
Q3 July 1 - September 30
Q4 October 1 - December 31
Should these dates fall on non-working days, the quarter shall begin on the
first working day following the date shown and end on the last working day
before the date shown.
1.2 "FPM" shall mean WVS's finger print module comprised of:
a) A finger sensing surface that generates an image of the
fingerprint
b) An image sensor that can translate the finger image to an
electronic signal
c) Lens-based air gap optics that translates the image from the
finger surface to the sensor.
d) A signal processing and interface chip, that processes the
fingerprint image into a form suitable for transportation to a PC
host via USB and/or parallel port.
e) Firmware for the signal processing and interface chip.
f) An API that runs on the PC and allows development of PC
applications that makes use of the FPM. The API will include
fingerprint matching functions and functions for accessing the
FPM hardware via USB and/or Parallel Port.
g) Any insufficient parts, or future upgrade will be granted into
"FPM."
1.3 "Object Code" shall mean computer programming code, routines and
programs in machine executable form.
1.4 "Third Party Software" shall mean the computer programming code,
routines and programs in Object Code form, and the documentation thereof, which
make up part of the FPM, and which are owned by, or proprietary to persons other
than WVS or any of its affiliates.
1.5 "Retail Channel" shall mean retail sales channels such as Best Buy,
Cosco, Computer City, Fry's, Circuit City, CompUSA or any other retail sales
outlet.
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2.0 Responsibilities.
2.1 SPOT's Distribution Rights
SPOT shall have the right to market and sell the FPM as described herein:
a. Exclusively to all manufacturers of keyboards and mice, with the
exception being Silitek & MaxiSwitch for keyboards.
b. Exclusively to all manufacturers of monitors, mice and
non-exclusive for stand alone units.
c. Exclusively into the retail market all keyboards, mice, stand
alone FPM and calculators based on appendix A "Priority List".
The priority list of SPOT exclusive retail channels will be
provided to WVS no later than 7 working days after the signing of
this Agreement. Upon receipt of said list, WVS will compare it to
one provided by Silitek/MaxiSwitch and determine which channels
for retail will be exclusive to SPOT. In cases where SPOT and
Silitek/MaxiSwitch priority preferences are ranked the same, SPOT
will be given preference and exclusivity as long as it maintains
its commitments as described in section 2.2 of this Agreement.
Notwithstanding the above, exceptions to SPOT's exclusivity in
this area will be the Microsoft and Kensington brands.
d. Exclusively for integration into or bundling with Notebook
computers.
e. SPOT developed new hardware applications (for FPM based solely
upon technology provided by WVS), will be reviewed for inclusion
as an amendment of this Agreement on a case-by-case basis by WVS,
and SPOT will receive top priority over other parties that
approach WVS for like hardware applications.
f. SPOT may not sell FPM's purchased under this Agreement for any
other use or into any channels not listed herein, with the
exception of the mutual written Agreement by both parties.
2.2 SPOT's Commitments
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a) SPOT agrees that in consideration for the rights and exclusivity
described in section 2.1 of this Agreement, it makes the
following volume and activity commitments in order to retain such
rights.
1998-[xxxxxxxxxxxxx] or, a signed agreement with a PC OEM
manufacturer for use of the FPM in their product line and a
signed agreement from a computer peripheral manufacturer for use
of the FPM in products sold through the retail channels.
1999-[xxxxxxxxxxxxxxxxxxx], or [xxx] share of markets that SPOT
has exclusivity in pursuant to 2.1 of this Agreement.
2000-[xxxxxxxxxxxxxxxxxxxx], or [xxx] share of markets that SPOT
has exclusivity in pursuant to 2.1 of this Agreement.
2001-[xxxxxxxxxxxxxxxxxxx], or [xxx] share of markets that SPOT
has exclusivity in pursuant to 2.1 of this Agreement.
Above, volume commitments are based on assumed BOM for the FPM as
follows:
1998 [xxxxxx]
1999 [xxxxxx]
2000 [xxxxx]
2001 [xxxxx]
b) Should SPOT not meet the minimum sales volume commitment as
described above, WVS as its sole remedy has the option to
eliminate or change the exclusivity and rights granted to SPOT
with 90 days written notice. If SPOT does not meet its minimum
volume commitments due to WVS prices exceeding the assumed sales
price, SPOT and WVS project managers and senior executives will
meet face to face to discuss modifications to the sales price and
volume schedules.
c) SPOT agrees to work with its PC OEM and computer peripherals
partners as described in 2.1 and to integrate WVS supplied
product samples into various, mice and monitors, for
demonstration and marketing at COMDEX 1997. d) SPOT shall obtain
and pay for all approvals, certificates, permits and licenses as
may be required to distribute the FPM.
[Confidential Treatment requested for redacted portion of document]
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e) SPOT and its subsidiaries or affiliated companies shall purchase
FPM's exclusively from WVS or its appointed subsidiary or
affiliated company for use in the markets described in 2.1 of
this Agreement. Price from WVS to SPOT for the FPMs is as
calculated in section 2.3(d) of this Agreement.
f) SPOT agrees beginning ________ 1998 to provide WVS with rolling
6-month forecasts of unit purchase requirements. Said forecasts
will not constitute binding purchase orders. SPOT also agrees
that, if at any time its projections are trending towards it not
meeting the required sales of FPMs as provided for under section
2.3 (a) of this Agreement, SPOT will meet face to face with
senior executives of XLV to provide assurances that it is capable
of continuing to meet its obligations, or will negotiate in good
faith the potential modification of exclusivity, as provided for
under this Agreement.
g) SPOT and WVS shall comply with all US export control
restrictions, including re-export restrictions.
h) SPOT shall be responsible for all technical support and
maintenance requirements of its customers, provided that WVS
shall provide, at no cost to SPOT, all assistance to SPOT
required with respect to technology licensed or transferred
hereunder by WVS.
i) SPOT shall market and sell FPMs in accordance with all applicable
laws and regulations, and shall not advertise or make claims
about the FPM which are inconsistent with the specifications and
descriptions of the FPM provided by WVS.
j) SPOT shall use its best commercial efforts to promote the FPM
among the channels and customers specified in section 2.1 through
a thorough, vigorous and diligent marketing program.
k) SPOT shall not purchase any fingerprint readers/sensors from any
other entity, for sale into the channels described in 2.1, during
the exclusive term of this Agreement, with the exception of the
mutual agreement of both parties, as long as WVS remains design
cost and quality competitive.
2.3 WVS's Distribution Related Responsibilities
a) At its own cost, WVS shall design the FPM described in 1.2 and
shall train SPOT personnel in the use, operation, technical
support, and maintenance of said FPMs.
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b) WVS shall provide technology demonstration modules no later than
1 November 1998 to SPOT for initial management and customer
briefings.
c) WVS shall provide product samples to SPOT no later then 7
November 1998, for integration into peripherals for use by SPOT.
d) WVS shall sell to SPOT or its designee all of the units necessary
for SPOT's requirements for sale into the channels described in
2.1 of this Agreement, for a price of [xxxxxxxxxxxxxxxxxxxxxxxxx
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxx]. WVS agrees to review its required/desired
margins beginning at the last quarter of 1998, in order to
determine if volumes could be increased by a decrease in the
required margin as specified in this paragraph or if the margin
makes the product become not competitive with other fingerprint
products in terms of sales price.
e) All shipments of FPMs shall be shipped F.O.B. origin. Title and
risk of loss for FPMs shall pass to SPOT when the FPMs are placed
on board the ship or other shipping mode.
2.4 Orders, Purchases
a) Order Placement. Only authorized employees of SPOT may place
purchase orders (P.O.). All P.O.s shall specify a price,
delivery date, and destination. All requested delivery dates will
be subject to reasonable approval by WVS.
b) Order Acknowledgment. An acknowledgment of purchase orders will
be returned to SPOT within four working days of receipt of an
order. If WVS is unable to comply with some conditions of the
order, for example, the deliver date, WVS should still
acknowledge orders, confirming all accepted data (quantity,
price, etc.) and informing SPOT of the issue.
c) Invoices.
1) WVS will invoice SPOT for FPM units upon delivery on board the
ship or other shipping mode.
Payment by SPOT shall be due net 60 days after receipt of
invoice. All invoices and payments shall be in U.S. dollars. Late
payments shall bear interest at 1% per month.
[Confidential Treatment requested for redacted portion of document]
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b) Title and Risk of Loss. All shipments of FPMs shall be made
F.O.B. manufacturer's origin. Title for FPMs and risk of loss for
FPMs shall pass to SPOT when the FPMs are placed on board the
ship or other shipping mode.
3.0 Project Managers; Personnel; Progress Reports.
3.1 WVS Project Manager and Personnel
a) WVS shall appoint a project manager to coordinate WVS's
activities and responsibilities relating to SPOT. WVS shall
provide written notice to SPOT of the name and business address,
daytime telephone number and telefax address of the WVS Project
Manager. The initial WVS Project Manager shall be Tzu-Chiang
Hsieh. WVS shall also appoint a full time channel manager to SPOT
to handle all marketing and business related issues and
opportunities.
b) From time to time, personnel of WVS may perform work at the
facilities of SPOT. WVS shall be solely responsible for any and
all losses, liabilities, suits, claims, and expenses incurred by
any of its personnel for damage to property or bodily injury,
unless such damage to property or bodily injury was caused by the
gross negligence or intentional misconduct of SPOT. While at the
facilities of SPOT, all WVS personnel shall observe and follow
the work rules, policies, and standards of SPOT.
3.2 SPOT Project Manager and Personnel
a) SPOT shall appoint a project manager to coordinate SPOT's
activities and responsibilities relating to WVS. SPOT shall
provide written notice to WVS of the name and business address,
daytime telephone and telefax number of the SPOT Project Manager.
The initial SPOT Project Manager shall be Paul Yang.
b) From time to time, personnel of SPOT may perform work at the
facilities of WVS. SPOT shall be solely responsible for any and
all losses, liabilities, suits, claims, and expenses incurred by
any of its personnel for damage to property or bodily injury,
unless such damage to property or bodily injury was caused by the
gross negligence or intentional misconduct of WVS. While at the
facilities of WVS, all SPOT personnel shall observe and follow
the work rules, policies and standards of WVS.
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3.3 Progress Review Meetings
(a) WVS and SPOT agree to provide each other with written progress
reports on a monthly basis of their respective performance, in a
Microsoft Office format. Each report shall indicate the
following:
Status of progress to current scheduled milestones.
Short description of problems in meeting such Milestones.
Proposed recovery method to meet next Milestones.
Probability of meeting next Milestone.
Any other information reasonably requested by either party with
respect to the Project.
4.0 Proprietary Rights.
4.1 Proprietary Rights of WVS Defined
a) Design and Configuration of FPM - All right, title and interest
in and to (i) the design and configuration of the FPM, (ii) all
updates and enhancements to the design and configuration of the
FPM, (iii) all documentation prepared by WVS for the FPM, and
(iv) any and all intellectual property rights inherent in the FPM
design and configuration ('i', 'ii', 'iii' and 'iv' are
collectively the "FPM Design and Configuration"), including
without limitation all patent rights, copyrights, trademarks,
know-how and trade secrets, does and shall belong exclusively to
WVS.
b) Developed Software - All right, title and interest in and to (i)
software developed for incorporation into the FPM, (ii) all
updates and enhancements of such software, (iii) all
documentation and (iv) any and all intellectual property rights
relating to the foregoing, does and shall belong exclusively to
WVS.
c) Third Party Software - WVS has at its own expense secured the
rights to fingerprint matching software. WVS shall pass through
(in whatever form) licensing rights and restrictions, which
pertain to third party software and technology.
4.2 Confidentiality. The FPM Design and Configuration and the Developed
Software, and each item included in such, and all materials and copies
containing any part of such, shall be maintained as confidential by SPOT, shall
be disclosed by SPOT only to its employees who need such materials and
information for SPOT to fulfill its obligations and not to any other person or
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entity, and shall not be used by SPOT for any other purpose. SPOT's obligation
shall not apply to any information which becomes part of the public domain other
than as a result of SPOT's breach of its obligations under this paragraph. SPOT
shall be responsible for ensuring that its employees comply with its
confidentiality obligations.
4.3 Trademarks. Neither SPOT nor WVS shall use the other party's trademarks
or tradenames without prior written consent.
5.0 Licenses and Termination.
5.1 Exclusive License - WVS hereby grants SPOT the rights accorded to it as
provided for it in section 2.1 of this Agreement as long as SPOT meets its
obligation under section 2.3 of this Agreement. No other licenses shall be
implied or given.
5.2 Right to Sub-license - SPOT shall not have the right to sub-license or
discuss the potential to sub-license, any of the rights, privileges and licenses
granted hereunder without the express written consent of WVS, during the period
of this Agreement including to affiliates of SPOT. Any agreement to sub-license
shall be incorporated as an amendment to this Agreement and therefore carry all
requirements as stated herein.
5.3 WVS's Right to Terminate. WVS shall have the right to terminate this
Agreement if:
a) SPOT materially breaches its confidentiality obligations under
this Agreement;
b) SPOT fails to pay any amount when due which failure remains
uncured for 30 days after written notice by WVS;
c) SPOT materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days after
written notice of the breach is given by WVS;
d) In the event that SPOT's sale commitment falls below minimums as
described in section 2.2 (a), and as the BOM of the FPM is at or
below the amount specified in section 2.2 (a), and both parties
are unable to re-negotiate after face to face meetings between
senior executives of both companies, within 90 days the
conditions of the Agreement, WVS has the right to terminate;
e) If SPOT should become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of SPOT shall be
placed in the hands of a
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receiver, assignee or trustee for the benefit of creditors,
whether by the voluntary act of SPOT or otherwise, this Agreement
shall automatically terminate.
5.4 SPOT Right of Termination. SPOT shall have the right to terminate this
Agreement if:
a) If WVS should become bankrupt or insolvent prior to completing
its obligations under the Agreement, or shall file a petition in
bankruptcy, or if the business of WVS shall be placed in the
hands of a receiver, assignee or trustee for the benefit of
creditors, whether by the voluntary act of WVS or otherwise, this
Agreement shall automatically terminate.
b) In the event that SPOT purchases fall below the minimum
commitments as described in this Agreement, due to the BOM costs
for the FPM being above the goals set out in section 2.2 (a), and
both parties are unable to re-negotiate after face to face
meetings between senior executives of both companies, within 90
days, the conditions of the Agreement;
c) WVS materially breaches any other obligation under this Agreement
and the breach remains uncured for 90 days after written notice
of the breach is given by SPOT;
d) SPOT is unable to manufacture quality FPM under the design
provide by WVS.
5.5 Effect of Termination
a) Upon termination of this Agreement,
(i) All outstanding amounts payable shall be payable in
accordance with the terms of this Agreement; and
(ii) SPOT shall continue to be responsible for support and
maintenance for its customers.
5.6 Term of Agreement. The term of this Agreement shall commence on the
date hereof and continue through 31 December 2001, subject to earlier
termination pursuant to sections 5.3 and 5.4 of this Agreement. The term shall
all be reviewed for additional one-year terms unless either party gives written
notice at least 60 days before the expiration of any term of its intent not to
renew. The parties shall begin negotiating minimum volume commitments for each
renewal term at least 120 days before the expiration of the prior term.
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6.0 Warranties, Product Returns; Indemnity.
6.1 Pass Through Warranty. WVS agrees to pass through to SPOT all
warranties it receives from its' manufacturers. WVS MAKES NO WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.2 Patents. WVS represents that to the best of its knowledge there are no
infringements on third party intellectual property rights or patents.
6.3 Mutual Indemnification. SPOT agrees to indemnify WVS against all
losses, costs, and damages arising out of SPOT's conduct in marketing the FPMs.
WVS agrees to indemnify SPOT for any breach of its warranty against claims for
patent infringement.
6.4 Product Returns. All defective product returns shall be made directly to
the original manufacturer with a copy of the paperwork supplied to WVS.
7.0 Dispute.
Any dispute arising in connection with this Agreement will be resolved in
the following order;
1) Face to Face negotiations between senior executives of each company.
2) By mediation in Southern California with a mediator selected in
accordance with procedures of the American Arbitration Association.
3) If no resolution is achieved within 30 days after mediation is
requested, then both parties agree to binding arbitration in
accordance with commercial arbitration rules of the American
Arbitration Association. If said arbitration is requested by SPOT then
such action will take place in Southern California. If requested by
WVS, such action shall take place in Taipei, Taiwan. This Agreement
shall be governed by the laws of the state of California without
regard to choice of law rules.
8.0 Assignability.
SPOT and WVS both have the right to assign this agreement to any of their
majority-owned affiliated companies, by providing 30 days prior notice to the
other party. The party assigning the agreement will not be denied said
assignment by the other party, unless it would materially affect the ability of
the non-assigning party to continue under the terms of this agreement.
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9.0 Entire Agreement.
This Agreement constitutes the entire agreement between the parties and
there are no representations, warranties, covenants, or obligations except as
set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, purchase orders, understandings, negotiations, and discussions,
written or oral, of the parties hereto.
10.0 Notices.
Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing, sent by certified mail to the respective parties at
the address below, or to such other address as each party may hereafter specify
in writing to the other.
If to WVS: Who? Vision Systems, Inc.
100 North Pointe Drive
Lake Forest, CA 92630
Telephone: 949-837-5350
Attention: Tzu Chiang Hsieh
If to SPOT: SPOT Technology, Inc.
No. 115 Community 4
Chang 16,
Tung Kuang Li,
Kuan Hsi Town,
Hsinchu Hsien,
Taiwan, ROC,
Telephone: 886-3-587-8966
Attention: Paul Yang
11.0 Relationship of Parties.
In making and performing this Agreement, the parties are acting and shall
act as independent contractors. Nothing in this Agreement shall be deemed to
create an agency, joint venture or partnership relationship between the parties
hereto. At no time shall either party make commitments or incur any charges or
expenses for, or in, the name of the other party.
12.0 Amendments.
These terms and conditions may be amended only in writing by an authorized
officer of each party to this document.
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13.0 XLV Agreement.
This Agreement and the Manufacturing Agreement of even date replace and
supersede the XLV Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the 16th day of July,
1998.
Who? Vision Systems, Inc. SPOT, Inc.
By: /s/ Alex Dickinson By: /s/Jose Wong
- ---------------------- ----------------
Name: Alex Dickinson Name: Jose Wong
Title: Chief Executive Officer Title: President
14
Exhibit 10.5
MANUFACTURING AGREEMENT
This Agreement is entered into by and between Who? Vision Systems, Inc., a
Delaware corporation, with its principal place of business at 100 Northpointe
Drive, Lake Forrest, California (hereafter referred to as "WVS"), and SILITEK
Corporation, a Taiwanese corporation, with its principal place of business at
10F, 25 Tun Hwa Road, Sec. 1, Taipei, Taiwan, (hereafter referred to as
"SILITEK").
BACKGROUND
WHEREAS, WVS has certain expertise in fingerprint solutions and has
proprietary technical information in the areas of fingerprint acquisition,
processing and verification that may be used to create complete fingerprint
solutions for the computer industry, and is developing a finger print module
(hereafter referred to as "FPM");
WHEREAS, SILITEK has developed expertise in manufacturing computer related
equipment and peripherals in significant volumes;
NOW THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
AGREEMENT
1.0 Definitions. As used in this Agreement, the following terms shall have the
respective meanings assigned to them below:
1.1 Calendar. The calendar used herein is the western calendar currently in
common use in the United States. For the purposes of this Agreement, quarters
are defined as:
Q1 January 1 - March 31
Q2 April 1 - June 30
Q3 July 1 - September 30
Q4 October 1 - December 31
Should these dates fall on non-working days, the quarter shall begin on the
first working day following the date shown and end on the last working day
before the date shown.
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1.2 "FPM" shall mean WVS's finger print module comprised of:
a) A finger sensing surface that generates an image of the
fingerprint.
b) An image sensor that can translate the finger image to an
electronic signal.
c) Lens-based air gap optics that translates the image from the
finger surface to the sensor.
d) A signal processing and interface chip, that processes the
fingerprint image into a form suitable for transportation to
a PC host via USB and/or parallel port.
e) Firmware for the signal processing and interface chip.
f) An API that runs on the PC and allows development of PC
applications that makes use of the FPM. The API will include
fingerprint matching functions and functions for accessing
the FPM hardware via USB and/or Parallel Port.
1.3 "Object Code" shall mean computer programming code, routines and
programs in machine executable form.
1.4 "Third Party Software" shall mean the computer programming code,
routines and programs in Object Code form (and also in Source Code if
available), and the documentation thereof, which make up part of the FPM, and
which are owned by, or proprietary to persons other than WVS or any of its
affiliates.
2.0 Responsibilities.
2.1 WVS Design and Manufacturing Responsibilities
a) WVS shall work with SILITEK to provide mechanical interface
drawings and information to SILITEK on the FPM no later than
July 1, 1998.
b) WVS shall work with SILITEK to provide a complete design and
documentation package to SILITEK for use in manufacturing.
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c) WVS is responsible for providing SILITEK a design of the FPM
described in 1.2 of this agreement. The annual Average Bill
of Material (ABOM) of the WVS design will not exceed the
following costs based on the following volumes:
1998 [xxxxxx]
1999 [xxxxxx]
2000 [xxxxxxx]
2001 [xxxxxxx]
These are approximate BOM numbers based on
approximately [xxxxxxx] units in 1998 and [xxxxxxxxxxxxxx]
unit and up volumes in later years - exact numbers will be
calculated based on WVS' proposed volumes in each year.
Note that ABOM is defined as follows:
ABOM = (volume1 X BOM1 + volume2 X BOM2 + ... + ...)/(volume1
+ volume2 + ... + ...)
Where volume N is the number of units in any year
manufactured with BOMN. The total annual volume will then be
(volume1 + volume2 + ... + ...)
d) WVS agrees to establish a manufacturing transfer team with
qualified engineers no later than July 1, 1998.
e) WVS shall prepare and deliver to SILITEK prior to
commencement of production, quality control procedures to be
applied to manufactured units.
f) WVS will negotiate in good faith to provide SILITEK access
to manufacture any further fingerprint technologies
developed by WVS.
2.2 SILITEK's Engineering and Manufacturing Responsibilities
a) SILITEK shall participate with WVS in understanding WVS's
designs and drawings for the FPM and the component piece
parts in order to ensure compatibility with SILITEK's
industrial design and manufacturing requirements.
[Confidential Treatment requested for redacted portion of document]
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b) SILITEK shall produce the overall industrial design and the
package drawings and specifications for the FPM. SILITEK
shall complete the process of developing a manufacturing
prototype. SILITEK shall be responsible for all engineering
work necessary to manufacture the FPM in accordance with the
designs, drawings, and specifications delivered by WVS.
SILITEK will be responsible for ensuring cost effectiveness,
quality and reliability of the manufacturing process and the
manufactured products.
c) SILITEK shall ensure that its facility and systems comply
with ISO 9002 standards.
d) SILITEK shall provide or obtain at its own expense all
tooling and equipment necessary to fulfill its obligations
under this Agreement.
e) SILITEK recognizes that several component parts within the
FPM are proprietary to WVS and contain intellectual property
that WVS considers critical to the proper operation of the
FPM. Therefore, SILITEK agrees that it recognizes that
several component parts within the FPM are proprietary to
WVS and contain intellectual property that WVS considers
critical to the proper operation of the FPM. Therefore,
SILITEK agrees that it shall only use WVS approved vendors
for the Tactile Sense material, FPM lens and imaging device.
WVS shall supply SILITEK with a drawing/specification that
specifies the part to be procured and an authorized list of
vendors from which it may be purchased. SILITEK agrees to
attach a copy of such specification which acknowledges that
the information is proprietary to WVS with each purchase
order. WVS will work with SILITEK on approving any
additional vendors identified by SILITEK for these
components. SILITEK agrees that from time to time WVS may
request certification from these vendors as to the quantity
and quality of the parts being procured and that SILITEK
agrees to instruct the vendors to release of such
information.
f) SILITEK shall sell and/or deliver FPMs only to WVS or
persons designated by WVS, and not to any other person or
entity.
g) SILITEK shall perform quality control procedures developed
by WVS on all manufactured units. In the event more than a
specified number or percentage of units do not pass the
quality control tests, product acceptance and shipping shall
be suspended until SILITEK determines the source of the
failure and takes appropriate corrective action at its own
expense.
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h) SILITEK shall certify to WVS that it has performed WVS's
quality control procedures on all manufactured units.
i) SILITEK agrees that it will cooperate with WVS in
establishing a quality program consistent with industry
standards and that sufficient samples will be provided to
WVS to accomplish this objective. WVS and SILITEK jointly
agree to let the review team designated in paragraph 3.0
establish such program.
j) SILITEK shall obtain at its own expense all approvals,
certificates, permits and licenses as may be required by the
Taiwanese government to manufacture and ship the FPMs.
k) SILITEK shall establish a manufacturing transfer team with
qualified engineers no later than July 1, 1998.
2.3 Forecasts, Orders, Purchases and Deliveries
2.3.1 FORECASTS
a) FORECASTS
WVS will provide SILITEK with a rolling 4-month forecast, by
part number and by eligible buyer. The forecast will be
provided to SILITEK on the first week of each calendar
month, by fax, from WVS. The forecasts will cover the
following 4 month period. The forecasts should specify the
quantity of products, by WVS part number, and by eligible
buyer, which WVS expects to call for delivery each forecast
month. Forecasts are "Non-binding Forecasts", provided as
good-faith estimates to help SILITEK plan production, and
manage inventory levels to meet WVS's requirements.
b) FORECAST ACKNOWLEDGMENT
Acknowledgment of receipt and confirmation of SILITEK's
ability to meet forecast should be returned to WVS within
five(5) working days of receipt of the said forecasts.
SILITEK should also provide information on
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planned production for the 2 months following receipt of
such Forecasts, once their monthly production planning has
been completed.
c) PARTS LIABILITY
In the event that WVS ceases FPM production orders to
SILITEK, WVS shall be liable for the value of all FPM unique
parts and raw materials still in inventory or in process at
that time and produced according to WVS forecast estimates.
In the event of a failure by WVS to pay such amounts and
take delivery of such inventory within 30 days after notice
and invoice from SILITEK, SILITEK shall have all of the
rights of a seller under the California Uniform Commercial
Code in the event of a repudiation by the buyer.
2.3.2 ORDERING PROCEDURES
a) ORDER PLACEMENT
Individual employees designated by the CEO or COO of WVS as
authorized buyers will place 8-weeks purchase orders on a
weekly-rolling basis. SILITEK is not authorized to accept
purchase orders from any other entity. A 8-weeks P.O. will
reflect the quantity WVS commits to buy from SILITEK, in
accordance with the cancellation and flexibility conditions
described in this document and on which WVS and SILITEK have
agreed. No different or additional terms and conditions in
any P.O. shall be effective unless specifically accepted by
SILITEK. All P.O.s shall specify a price, delivery date and,
if available, destination. All requested delivery dates will
be subject to reasonable approval by SILITEK. All FPMs
produced under P.O.s without a specified destination will be
warehoused by SILITEK in accordance with Section 2.3.4(a).
b) ORDER ACKNOWLEDGMENT
An acknowledgment of purchase orders will be returned to the
ordering authorized buyer within two(2) working days of
receipt of an order. If SILITEK is unable to comply with
some conditions of the order, for example, the delivery date
in an allocation situation, SILITEK should still acknowledge
orders, confirming all accepted data (quantity, price, etc)
and informing the authorized buyer of the issue.
c) LEAD TIME
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"Lead Time" means the time between receipt of Purchase
Order, by SILITEK, and delivery of PRODUCT to the agreed FOB
point for the ordering authorized buyer.
d) ORDER STATUS REPORTS-AUTHORIZED BUYERS
SILITEK will provide a weekly "Open Order Status Report" to
WVS with the following information.
PO Number
WVS Part Number
Name of Authorized Buyer for each order
Requested delivery date (to WVS)
Planned delivery date (to WVS)
Planned delivery quantity
Comments:
e) ORDER STATUS REPORTS- WORLDWIDE PLANNING
The same "Open Order Status Report" information,
consolidated worldwide, should be sent to WVS along with:
The worldwide inventory, split by PRODUCT and region
including in-transit inventory and future manufacturing
plans.
On Time delivery performance
Total amount invoiced for the month worldwide
2.3.3 INVOICES
a) INVOICING
SILITEK will invoice WVS the value of each P.O. delivery
pulled by WVS from a SILITEK location once POD (Proof of
Delivery) documents have been signed by a WVS authorized
representative.
b) INVOICE DELIVERY
SILITEK shall send all invoices for FPMs shipped to WVS.
c) INVOICE PERIOD AND PAYMENT PROCEDURE
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Payment by WVS shall be due NET 15 days after receipt of
invoice. All invoices and payments shall be in U.S. dollars.
Payment shall be by wire transfers. Late payments shall bear
interest at 1% per month.
2.3.4 INVENTORY: TITLE AND LIABILITY
a) TITLE TO INVENTORY
For all Purchase Orders without a specified destination,
SILITEK shall deliver the FPMs to its own warehouse,
segregated from SILITEK inventory, until WVS provides
SILITEK with delivery instructions. Title to the FPMs shall
pass to WVS upon notice to WVS of delivery to the warehouse
with appropriate papers evidencing WVS ownership. SILITEK
shall insure the FPMs against loss while stored in its
warehouse.
b) TITLE TO SHIPMENTS
All shipments of FPMs shall be made F.O.B. manufacturer's
origin. Title for FPMs (if not passed per paragraph (a)
above) and risk of loss for FPMs shall pass to WVS when the
FPMs are placed on board the ship or other shipping mode.
c) INVENTORY LIABILITY
WVS will be charged interest of 1% monthly upon the P.O.
value of FPM inventory still not pulled by WVS from SILITEK
warehouse 1 month after the Delivery Date specified on the
P.O. for such inventory.
d) SILITEK shall comply with U.S. and other applicable laws and
regulations regarding export controls covering the FPM.
e) The price at which SILITEK will sell FPMs to WVS or its
designated subsidiary or affiliate (the "SILITEK Sell
Price") shall be equal to: [xxxxxxxxxxxxxxxxxxxxxxxxxxxx].
This price covers SILITEK's costs, overhead, expenses, and
profit. BOM means Bill of Material for the FPM. All prices
shall be calculated in U.S. dollars. Both parties recognize
that market conditions may require altering this formula.
Hence the parties agree to negotiate in good faith changes
to the above.
f) SILITEK shall provide to WVS on a monthly basis with its 4
month rolling unit prices for FPMs based on WVS' forecasted
volume requirements. SILITEK shall provide supporting detail
for its prices to confirm compliance with the formula in
paragraph (e) above or such changed formula as the parties
may agree to in any case.
[Confidential Treatment requested for redacted portion of document]
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2.4 Exclusivity
SILITEK will be world-wide exclusively licensed as the only major
keyboard manufacturer permitted to manufacture the FPM. Silitek
recognizes that WVS has granted certain manufacturing rights to
SPOT and that nothing in this agreement is intended to conflict
with such rights.
3.0 Project Managers; Personnel; Progress Reports.
3.1 WVS Project Manager and Personnel
a) WVS shall appoint a project manager to coordinate WVS's
activities and responsibilities relating to SILITEK. WVS
shall provide written notice to SILITEK of the name and
business address, daytime telephone number and telefax
address of the WVS Project Manager. The initial WVS Project
Manager shall be Tzu-Chiang Hsieh. WVS shall also appoint a
full time manufacturing liaison, who will be responsible for
the transition of the WVS FPM design to SILITEK for
manufacture, and will assist in its initial implementation.
b) From time to time, personnel of WVS may perform work at the
facilities of SILITEK. WVS shall be solely responsible for
any and all losses, liabilities, suits, claims, and expenses
incurred by any of its personnel for damage to property or
bodily injury, unless such damage to property or bodily
injury was caused by the gross negligence or intentional
misconduct of SILITEK. While at the facilities of SILITEK,
all WVS personnel shall observe and follow the work rules,
policies, and standards of SILITEK.
3.2 SILITEK Project Manager and Personnel
a) SILITEK shall appoint a project manager to coordinate
SILITEK's activities and responsibilities relating to WVS.
SILITEK shall provide written notice to WVS of the name and
business address,
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daytime telephone and telefax number of the SILITEK Project
Manager. The initial SILITEK Project Manager shall be John
Liu. SILITEK shall appoint a full time manufacturing
liaison, who will be responsible for the transition of the
WVS FPM design to SILITEK for manufacture, and will
coordinate with WVS on all engineering and manufacturing
issues.
b) From time to time, personnel of SILITEK may perform work at
the facilities of WVS. SILITEK shall be solely responsible
for any and all losses, liabilities, suits, claims, and
expenses incurred by any of its personnel for damage to
property or bodily injury, unless such damage to property or
bodily injury was caused by the gross negligence or
intentional misconduct of WVS. While at the facilities of
WVS, all SILITEK personnel shall observe and follow the work
rules, policies and standards of WVS.
3.3 Technical Review Meetings; Manufacturing Review Board
a) WVS and SILITEK shall each appoint at least two qualified
technical personnel with appropriate decision-making
authority to participate in Technical Review Meetings to
review and take appropriate action on all design,
engineering and manufacturing issues. Technical Review
Meetings shall be held periodically and may be initiated by
either party.
b) WVS and SILITEK shall each appoint at least two qualified
technical personnel to participate on a joint Manufacturing
Review Board ("MRB"). The MRB will be responsible for
reviewing the ongoing manufacturing process, all claimed
product defects, and design/engineering issues. The MRB
shall meet in Taiwan once per month beginning in July 1998.
The MRB shall be responsible for identifying the cause of
all claimed defects and determining and implementing
appropriate corrective measures.
c) WVS and SILITEK shall each provide to the other a monthly
written progress report, at least one week before each
Technical Review Meeting and MRB meeting. Reports shall be
in Microsoft Office format and shall indicate the following:
Status of progress to current scheduled milestones.
Short description of problems in meeting such milestones.
Proposed recovery method to meet next milestone.
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Probability of meeting next milestone.
Any other information reasonably requested by either party
with respect to the Project.
4.0 Deliverables; Training
4.1 The deliverables from WVS for the manufacturing effort are as follows:
Theory of Operation - a detailed, written description of the functional
nature of the FPM design. It shall include functional and circuit block
diagrams, data flow and timing diagrams, and a detailed description of the
functional flow.
Schematic Diagrams - a full set of electronic schematic circuit diagrams.
The drawings for these items shall be in the OrCad DSN format.
Mechanical Drawings - These shall include all relevant drawings required to
implement the design into SILITEK's manufacturing process. Included will be
detailed drawings for piece parts designed by WVS, source control documents for
all components specified by WVS, and a preliminary Bill of Materials. These
documents will be created and delivered in the AutoCad DWG format. WVS will
participate with SILITEK in reviewing industrial Design and package drawings and
will determine how the overall Industrial Design will impact the design and
layout of specific piece parts (for instance, Printed Circuit Boards), but WVS
shall not be responsible for providing overall envelope drawings. Since SILITEK
will be responsible for the implementation of the FPM into other parties'
industrial designs, WVS will provide only the mechanical drawings necessary to
support SILITEK's industrial design and manufacturing requirements.
Software - All firmware and interface drivers will be developed by WVS and
delivered to SILITEK. This delivery shall be in the form of executable code.
4.2 Orientation and Training Program. WVS shall provide an orientation and
training program for the purpose of educating SILITEK's personnel in the use,
operation, technical support, maintenance, management, and assistance for
manufacturing of the FPM.
5.0 Proprietary Rights
5.1 Proprietary Rights of WVS
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a) Design and Configuration of FPM - All right, title and
interest in and to (i) the design and configuration of the
FPM, including all deliverables, (ii) all updates to the
design and configuration of the FPM, (iii) all documentation
for the FPM, and (iv) any and all intellectual property
rights inherent in the FPM design and configuration ('i',
'ii', and 'iii' are collectively the FPM design and
configuration), including without limitation all patent
rights, copyrights, trademarks, know-how and trade secrets,
does and shall belong exclusively to WVS.
b) Developed Software - All right, title and interest in and to
(i) software developed for incorporation into the FPM, (ii)
all of such, (iii) all documentation and (iv) any and all
intellectual property rights relating to the foregoing, does
and shall belong exclusively to WVS.
c) Third Party Software - WVS has at its own expense secured
the rights to fingerprint matching software. WVS shall pass
through (in whatever form) licensing rights and
restrictions, which pertain to third party software and
technology.
5.2 Confidentiality. The FPM design and configuration and the Developed
Software, and each item included in such, and all materials and copies
containing any part of such, shall be maintained as confidential by SILITEK,
shall be disclosed by SILITEK only to its employees who need such materials and
information for SILITEK to fulfill its obligations and not to any other person
or entity, and shall not be used by SILITEK for any other purpose. SILITEK's
obligation shall not apply to any information which becomes part of the public
domain other than as a result of SILITEK's breach of its obligations under this
paragraph. SILITEK shall be responsible for ensuring that its employees comply
with its confidentiality obligations.
SILITEK initiated engineering work, and all materials and copies containing any
part of such, shall be maintained as confidential by WVS, shall be disclosed by
WVS only to its employees who need such materials and information for WVS to
fulfill its obligations and not to any other person or entity, and shall not be
used by WVS for any other purpose. WVS obligation shall not apply to any
information which becomes part of the public domain other than as a result of
WVS breach of its obligations under this paragraph. WVS shall be responsible for
ensuring that its employees comply with its confidentiality obligations.
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5.3 Trademarks. Neither SILITEK nor WVS shall use the other party's
trademarks or tradenames without prior written consent.
6.0 Licenses
6.1 Manufacturing Rights. WVS grants to SILITEK, during the term of this
Agreement, the non-exclusive license to use the FPM design and configuration and
the Developed Software to manufacture FPMs in accordance with this Agreement.
SILITEK may make copies of the materials representing the FPM design and
configuration and of the Developed Software and Third Party Software as
necessary to perform under this Agreement.
6.2 Right to Sub-license. SILITEK shall not have the right to sub-license
or discuss the potential to sub-license, any of the rights, privileges and
licenses granted hereunder without the express written consent of WVS. Any
agreement to sub-license shall be incorporated as an amendment to this agreement
and therefore carry all requirements as stated herein.
7.0 Term and Termination
7.1 Term. The term of this Agreement shall commence on the date hereof and
continue through December 31, 2001, subject to earlier termination pursuant to
Sections 7.2 and 7.3. The term shall be renewed for additional one year terms
unless either party gives written notice at least 60 days before expiration of
any term of its intent not to renew.
7.2 WVS's Right to Terminate. WVS shall have the right to terminate this
Agreement if:
a) SILITEK materially breaches its confidentiality obligations
under Section 5.2;
b) SILITEK sells or delivers any FPMs or other fingerprint
sensing/reading device to any unauthorized person in
violation of Section 2.2(f); or
c) SILITEK materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days after
written notice of the breach is given by WVS.
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d) If SILITEK should become bankrupt or insolvent, or shall
file a petition in bankruptcy, or if the business of SILITEK
shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors, whether by the
voluntary act of SILITEK or otherwise, this Agreement shall
automatically terminate.
7.3 SILITEK Right of Termination. SILITEK shall have the right to terminate
this Agreement if:
a) WVS materially breaches its confidentiality obligations
under Section 5.2;
b) WVS fails to pay any amount when due to SILITEK which
failure remains uncured for 30 days after written notice by
SILITEK; or
c) WVS materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days after
written notice of the breach is given by SILITEK.
d) If WVS should become bankrupt or insolvent prior to
completing its obligations under the Agreement, or shall
file a petition in bankruptcy, or if the business of WVS
shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors, whether by the
voluntary act of WVS or otherwise, this Agreement shall
automatically terminate.
7.4 Effect of Termination
a) Upon termination of this Agreement, SILITEK shall
immediately: (i) turn over to WVS all materials and copies
containing the FPM design and configuration, the Developed
Software, and the Third Party Software, and (ii) arrange for
delivery to a location specified by WVS of all WVS inventory
held by SILITEK; in each case provided that WVS pays to
SILITEK all money due and owing to SILITEK under valid
invoices previously issued by SILITEK. All outstanding
amounts payable shall be payable immediately at termination.
The parties may but are not required to mutually agree to
permit SILITEK to complete and deliver any outstanding P.O.s
subject to satisfactory payment arrangements before SILITEK
turns over such materials and copies.
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b) SILITEK's obligations under Sections 2.2(f) and 8.1 - 8.4,
and WVS's obligations under Sections 2.3(l) and 8.1 and 8.4
shall survive termination of the Agreement for one year
after the termination of the Agreement. SILITEK's and WVS's
obligations under Section 5.2 shall survive termination of
the Agreement for three years after the termination of the
Agreement.
c) If SILITEK terminates the Agreement under Section 7.3,
SILITEK may complete production and delivery of any units
necessary to fulfill outstanding purchase orders as of the
time of termination generated by SILITEK or its affiliates
under the Distribution Agreement, before the effect of
Section 7.4(a), provided that SILITEK makes satisfactory
arrangement to pay WVS or credits against amounts due from
WVS the net amounts which SILITEK and its affiliates would
owe to WVS if such sales were made under this Agreement and
the Distribution Agreement.
d) If WVS repudiates a P.O. which had been previously accepted
by SILITEK, SILITEK shall have all of the rights of a seller
under the California Uniform Commercial Code in the event of
a repudiation by the buyer.
8.0 Warranties; Product Returns
8.1 Warranties by WVS. WVS warrants to SILITEK that the deliverables
defined in Section 4 above do not infringe on the intellectual property rights,
including patent, copyright, or proprietary rights, of any third party.
8.2 SILITEK Warranty. SILITEK warrants that all FPMs will be free from
defects in workmanship or materials and will comply with WVS's specifications
for a period of 12 months after delivery to WVS or to WVS's customer. Units will
be considered delivered for this purpose only upon shipment from SILITEK's
warehouse. SILITEK also warrants that all FPMs will be free from liens.
8.3 Mutual Indemnification. WVS agrees to indemnify, defend, and hold
harmless SILITEK and its affiliates and their respective directors, officers,
shareholders, employees and agents from and against any and all claims, demands,
suits, actions, judgments, costs and liabilities relating to third party claims
of patent infringement by the design of the FPM as delivered by WVS to SILITEK.
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SILITEK agrees to indemnify, defend, and hold harmless WVS and its affiliates
and their respective directors, officers, shareholders, employees and agents
from and against any and all claims, demands, suits, actions, judgments, costs
and liabilities relating to (i) third party claims of patent infringement by any
SILITEK-initiated engineering or design efforts under this agreement, and (ii)
for damages attributed to manufacturing and any SILITEK initiated engineering or
design efforts, and to any breach of SILITEK's warranty.
8.4 Product Returns.
a) All product returns shall be handled directly by SILITEK,
with a copy of all paperwork to be delivered to WVS.
b) SILITEK shall replace all defective products which are
returned under warranty, at its own expense including cost
of shipping replacements to the customer.
9.0 Dispute
Any dispute arising in connection with this agreement will be resolved in
the following order;
1) Face to Face negotiations between senior executives of each
company.
2) By mediation in Southern California with a mediator selected
in accordance with procedures of the American Arbitration
Association.
3) If no resolution is achieved within 60 days after mediation
is requested, then both parties agree to binding arbitration
in Southern California in accordance with commercial
arbitration rules of the American Arbitration Association.
This agreement shall be governed by the laws of the state of
California without regard to choice of law rules.
10.0 Assignability
SILITEK and WVS both have the right to assign this agreement to any of
their affiliated companies, with the consent of the other party. Consent may not
be unreasonably denied.
11.0 Entire Agreement
16
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This Agreement constitutes the entire agreement between the parties and
there are no representations, warranties, covenants, or obligations except as
set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, purchase orders, understandings, negotiations, and discussions,
written or oral, of the parties hereto.
12.0 Notices.
Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing, sent by certified mail to the respective parties at
the address below, or to such other address as each party may hereafter specify
in writing to the other.
If to WVS: Who? Vision Systems, Inc.
100 Northpointe Drive
Lake Forrest, CA 92630
Attn: CEO
Phone: 949-837-5353
Fax: 949-837-5355
If to SILITEK: SILITEK Corporation
10F, 25 Tun Hwa Road, Sec. 1,
Taipei, Taiwan
13.0 Relationship of Parties
In making and performing this Agreement, the parties are acting and shall
act as independent contractors. Nothing in this Agreement shall be deemed to
create an agency, joint venture or partnership relationship between the parties
hereto. At no time shall either party make commitments or incur any charges or
expenses for, or in, the name of the other party.
14.0 Amendments.
These terms and conditions may be amended only in writing by an authorized
officer of each party to this document.
17
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the 1st day of July,
1998.
Who? Vision Systems, Inc. SILITEK Corporation
By: /s/ Alex Dickinson By: /s/ Tony Ke
----------------------- ------------------
Name: Alex Dickinson Name: Tony Ke
Title: Chief Executive Officer Title: Vice President
18
Exhibit 10.6
DISTRIBUTION AGREEMENT
This Agreement is entered into by and between Who? Vision Systems, Inc., a
Delaware corporation, with its principal place of business at 100 Northpointe
Drive, Lake Forrest, California (hereafter referred to as "WVS"), and SILITEK
Corporation, a Taiwanese corporation, with its principal place of business at
10F, 25 Tun Hwa Road, Sec. 1, Taipei, Taiwan, (hereafter referred to as
"SILITEK").
BACKGROUND
WHEREAS, WVS has certain expertise in fingerprint solutions and has
proprietary technical information in the areas of fingerprint acquisition,
processing and verification that may be used to create complete fingerprint
solutions for the computer industry, and is developing a finger print module
(hereafter referred to as "FPM");
WHEREAS, SILITEK has developed expertise for the packaging and selling of
computer related equipment and peripherals in significant volumes, and has
relationships with PC OEM and retail PC distribution channels and desires to
market and sell WVS's FPM for inclusion into computer equipment such as
keyboards and stand-alone units for sale through said channels; and
WHEREAS, both parties acknowledge that there is a specific market window
for fingerprint technology and products. Therefore, the parties agree to use
their reasonable efforts to work together to make the best use of each partners
capabilities;
NOW THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, and intending to be legally bound hereby, the parties agree as
follows:
AGREEMENT
1.0 Definitions. As used in this Agreement, the following terms shall have the
respective meanings assigned to them below:
1.1 Calendar. The calendar used herein is the western calendar currently in
common use in the United States. For the purposes of this Agreement, quarters
are defined as:
Q1 January 1 - March 31
Q2 April 1 - June 30
Q3 July 1 - September 30
Q4 October 1 - December 31
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Should these dates fall on non-working days, the quarter shall begin on the
first working day following the date shown and end on the last working day
before the date shown.
1.2 "FPM" shall mean WVS's finger print module comprised of:
a) A finger sensing surface that generates an image of the
fingerprint.
b) An image sensor that can translate the finger image to an
electronic signal.
c) Lens-based air gap optics that translates the image from the
finger surface to the sensor.
d) A signal processing and interface chip, that processes the
fingerprint image into a form suitable for transportation to a PC
host via USB and/or parallel port.
e) Firmware for the signal processing and interface chip.
f) An API that runs on the PC and allows development of PC
applications that makes use of the FPM. The API will include
fingerprint matching functions and functions for accessing the
FPM hardware via USB and/or Parallel Port.
1.3 "Object Code" shall mean computer programming code, routines and
programs in machine executable form.
1.4 "Third Party Software" shall mean the computer programming code,
routines and programs in Object Code form, and the documentation
thereof, which make up part of the FPM, and which are owned by, or
proprietary to persons other than WVS or any of its affiliates.
2.0 Responsibilities.
2.1 SILITEK's Distribution
SILITEK shall have the right to market and sell the FPM as described
herein:
a) For incorporation of the FPM into SILITEK keyboards.
b) For distribution of SILITEK keyboards containing the FPM to any
PC OEM firm, but not for integration into or bundling with
notebook computers.
2
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c) For distribution of SILITEK keyboards containing the FPM into the
following retail channels: list to be determined my merging a
list of retail outlets previously provided by both SILITEK and
SPOT/MAG to avoid channel conflict.
d) For incorporation of the FPM into stand-alone (i.e. not
integrated with any other function) PC peripherals for sale into
any OEM or retail channel.
e) SILITEK agrees that it will not sell FPMs for end uses not
specified above without prior written consent from WVS.
2.2 Distribution Volumes Requirements
a) In order to maintain the distribution right outlined in Section
2.1, WVS requires that Silitek meet the following volume targets:
1999: [xxxxxxxx]
2000: [xxxxxxxx]
2001: [xxxxxxxx]
b) Should Silitek not meet these targets, WVS will have the right to
renegotiate the distribution right outlined in Section 2.1.
c) SILITEK shall obtain and pay for all approvals, certificates,
permits and licenses as may be required to distribute the FPM.
d) SILITEK shall comply with all US export control restrictions,
including reexport restrictions.
e) SILITEK shall be responsible for all technical support and
maintenance requirements of its customers.
[Confidential Treatment requested for redacted portion of document]
3
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f) SILITEK shall market and sell FPMs in accordance with all
applicable laws and regulations, and shall not advertise or make
claims about the FPM which are inconsistent with the
specifications and descriptions of the FPM provided by WVS.
2.3 WVS's Responsibilities
a) WVS shall train SILITEK personnel in the use, operation,
technical support, maintenance of said FPM.
b) WVS shall provide technology demonstration to SILITEK for initial
management and customer briefings.
c) WVS shall provide product samples to SILITEK for integration into
peripherals for use by SILITEK in order to meet it's obligations
under sections 2.1 and 2.2.
d) WVS will negotiate in good faith to provide Silitek access to
distribute any further fingerprint technologies developed by WVS.
2.4 Forecasts, Orders, Purchases and Deliveries
2.4.1 FORECASTS
a) FORECASTS
Beginning in September 1998, Silitek will provide WVS with a
rolling 4-month forecast, by part number and by eligible
buyer. The forecast will be provided to WVS on the first
week of each calendar month, by fax, from Silitek. The
forecasts will cover the following 4 month period. The
forecasts should specify the quantity of products, by
Silitek part number, and by eligible buyer, which Silitek
expects to call for delivery each forecast month. Forecasts
are "Non-binding Forecasts", provided as good-faith
estimates to help WVS plan production, and manage inventory
levels to meet Silitek's requirements.
For example: The May 4-Months forecast should provide the
estimated monthly delivery quantity demand for June, July,
August and September. The forecast quantity may be adjusted
on a monthly basis by the agreed percentage as specified in
the table below.
Month Adjustment Allowed
Present No adjustment permissible
Following 20%
Following+1 40%
4
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Following+2 60%
Following+3,4,etc Unlimited
For Example
For the next 4-month forecast(e.g. June forecast for July,
August, September, Oct) the previous 4-months forecast first
month figure cannot be adjusted (June). The production
forecast for two months later can be adjusted 20% up or
down. The forecast for three months later can be eadjusted
40% up or down. Four months later, 60% up or down.
b) FORECAST ACKNOWLEDGEMENT
Acknowledgment of receipt and confirmation of WVS's ability
to meet forecast should be returned to Silitek within
ten(10) working days of receipt of the said forecasts. WVS
should also provide information on planned production for
the 2 months following receipt of such Forecasts, once their
monthly production planning has been completed.
c) PARTS LIABILITY
In the event that Silitek ceases FPM production orders to
WVS, Silitek shall be liable for the value of all FPM unique
parts and raw materials still in inventory or in process at
that time and produced according to Silitek forecast
estimates. In the event of a failure by Silitek to pay such
amounts and take delivery of such inventory within 30 days
after notice and invoice from WVS, WVS shall have all of the
rights of a seller under the California Uniform Commercial
Code in the event of a repudiation by the buyer.
2.4.2 ORDERING PROCEDURES
a) ORDER PLACEMENT
Individual employees designated by the President of Silitek
as authorized buyers will place 8-weeks purchase orders on a
weekly-rolling basis. WVS is not authorized to accept
purchase orders from any other entity. A 8-weeks P.O. will
reflect the quantity Silitek commits to buy from WVS, in
accordance with the cancellation and flexibility conditions
described in this document and on which Silitek and WVS have
agreed. No different or additional terms and conditions in
any P.O. shall be effective unless specifically accepted by
WVS. All P.O.s shall specify a price, delivery date and, if
available, destination. All requested delivery dates will be
subject to reasonable approval by WVS. All FPMs produced
under P.O.s without a specified destination will be
warehoused by WVS in accordance with Section 2.4.4(a).
5
<PAGE>
b) ORDER ACKNOWLEDGEMENT
An acknowledgment of purchase orders will be returned to the
ordering authorized buyer within four(4) working days of
receipt of an order. If WVS is unable to comply with some
conditions of the order, for example, the delivery date in
an allocation situation, WVS should still acknowledge
orders, confirming all accepted data (quantity, price, etc)
and informing the authorized buyer of the issue.
c) LEAD TIME
"Lead Time" means the time between receipt of Purchase
Order, by WVS, and delivery of PRODUCT to the agreed FOB
point for the ordering authorized buyer.
d) ORDER STATUS REPORTS- AUTHORIZED BUYERS
WVS will provide a weekly "Open Order Status Report" to
Silitek with the following information.
PO Number
WVS Part Number
Name of Authorized Buyer for each order
Requested delivery date (to Silitek)
Planned delivery date (to Silitek)
Planned delivery quantity
Comments:
e) ORDER STATUS REPORTS- WORLDWIDE PLANNING
The same "Open Order Status Report" information,
consolidated worldwide, should be sent to Silitek along
with:
The worldwide inventory, split by PRODUCT and region
including in-transit inventory and future manufacturing
plans.
On Time delivery performance
Total amount invoiced for the month worldwide
6
<PAGE>
2.4.3 INVOICES
a) INVOICING
WVS will invoice SILITEK the value of each P.O. delivery
pulled by WVS from a WVS location once POD (Proof of
Delivery) documents have been signed by a SILITEK authorized
representative.
b) INVOICE DELIVERY
WVS shall send all invoices for FPMs shipped to Silitek.
c) INVOICE PERIOD AND PAYMENT PROCEDURE
Payment by Silitek shall be due NET 15 days after receipt of
invoice. All invoices and payments shall be in U.S. dollars.
Payment shall be by wire transfers. Late payments shall bear
interest at 1% per month.
2.4.4 INVENTORY: TITLE AND LIABILITY
a) TITLE TO INVENTORY
For all Purchase Orders without a specified destination, WVS
shall deliver the FPMs to its own warehouse, segregated from
WVS inventory, until Silitek provides WVS with delivery
instructions. Title to the FPMs shall pass to Silitek upon
notice to Silitek of delivery to the warehouse with
appropriate papers evidencing Silitek ownership. WVS shall
insure the FPMs against loss while stored in its warehouse.
b) TITLE TO SHIPMENTS
All shipments of FPMs shall be made F.O.B. manufacturer's
origin. Title for FPMs (if not passed per paragraph (a)
above) and risk of loss for FPMs shall pass to Silitek when
the FPMs are placed on board the ship or other shipping
mode.
c) INVENTORY LIABILITY
Silitek will be charged interest of 1% monthly upon the P.O.
value of FPM inventory still not pulled by WVS from WVS
warehouse 1 month after the Delivery Date specified on the
P.O. for such inventory.
d) WVS shall comply with U.S. and other applicable laws and
regulations regarding export controls covering the FPM.
7
<PAGE>
3.0 Project Managers; Personnel; Progress Reports.
3.1 WVS Project Manager and Personnel
a) WVS shall appoint a project manager to coordinate WVS's
activities and responsibilities relating to SILITEK. WVS shall
provide written notice to SILITEK of the name and business
address, daytime telephone number and telefax address of the WVS
Project Manager. The initial WVS Project Manager shall be
Tzu-Chiang Hsieh. WVS shall also appoint a full time channel
manager to SILITEK to handle all marketing and business related
issues and opportunities.
b) From time to time, personnel of WVS may perform work at the
facilities of SILITEK. WVS shall be solely responsible for any
and all losses, liabilities, suits, claims, and expenses incurred
by any of its personnel for damage to property or bodily injury,
unless such damage to property or bodily injury was caused by the
gross negligence or intentional misconduct of SILITEK. While at
the facilities of SILITEK, all WVS personnel shall observe and
follow the work rules, policies, and standards of SILITEK.
3.2 SILITEK Project Manager and Personnel
a) SILITEK shall appoint a project manager to coordinate SILITEK's
activities and responsibilities relating to WVS. SILITEK shall
provide written notice to WVS of the name and business address,
daytime telephone and telefax number of the SILITEK Project
Manager. The initial SILITEK Project Manager shall be John Liu.
SILITEK shall appoint a full time product manager to handle all
marketing and business related issues and opportunities.
b) From time to time, personnel of SILITEK may perform work at the
facilities of WVS. SILITEK shall be solely responsible for any
and all losses, liabilities, suits, claims, and expenses incurred
by any of its personnel for damage to property or bodily injury,
unless such damage to property or bodily injury was caused by the
gross negligence or intentional misconduct of WVS. While at the
facilities of WVS, all SILITEK personnel shall observe and follow
the work rules, policies and standards of WVS.
3.3 Marketing Review Meetings
a) WVS and SILITEK shall cause their channel manager and product
manager, plus at least one other qualified person each, to
participate in regular Marketing Review Meetings to review
marketing, business development, sales, and sales forecasts. The
group will make recommendations to WVS and SILITEK, but will not
have authority to incur any material obligations on behalf of
either party without the approval of the Project Managers of each
company.
8
<PAGE>
b) SILITEK shall provide WVS a written progress report at least one
week before each Marketing Review Meeting. Reports shall be in
Microsoft Office format.
4.0 Proprietary Rights
4.1 Proprietary Rights of WVS
a) Design and Configuration of FPM - All right, title and interest
in and to (i) the design and configuration of the FPM, (ii) all
updates and enhancements to the design and configuration of the
FPM, (iii) all documentation for the FPM, and (iv) any and all
intellectual property rights inherent in the FPM design and
configuration ('i', 'ii', and 'iii' are collectively the FPM
design and configuration), including without limitation all
patent rights, copyrights, trademarks, know-how and trade
secrets, does and shall belong exclusively to WVS.
b) Developed Software - All right, title and interest in and to (i)
software developed for incorporation into the FPM, (ii) all
updates and enhancements of such software, (iii) all
documentation and (iv) any and all intellectual property rights
relating to the foregoing, does and shall belong exclusively to
WVS.
c) Third Party Software - WVS has at its own expense secured the
rights to fingerprint matching software. WVS shall pass through
(in whatever form) licensing rights and restrictions, which
pertain to third party software and technology.
4.2 Confidentiality. The FPM design and configuration and the Developed
Software, and each item included in such, and all materials and copies
containing any part of such, shall be maintained as confidential by SILITEK,
shall be disclosed by SILITEK only to its employees who need such materials and
information for SILITEK to fulfill its obligations and not to any other person
or entity, and shall not be used by SILITEK for any other purpose. SILITEK's
obligation shall not apply to any information which becomes part of the public
domain other than as a result of SILITEK's breach of its obligations under this
paragraph. SILITEK shall be responsible for ensuring that its employees comply
with its confidentiality obligations.
4.3 Trademarks. Neither SILITEK nor WVS shall use the other party's
trademarks or tradenames without prior written consent.
9
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5.0 Term and Termination
5.1 Term. The term of this Agreement shall commence on the date hereof and
continue through December 31, 2001, subject to earlier termination pursuant to
Sections 5.2 and 5.3. The term shall be renewed for additional one year terms
unless either party gives written notice at least 60 days before expiration of
any term of its intent not to renew. The parties shall begin negotiating minimum
volume requirements for each renewal term at least 120 days before expiration of
the prior term.
5.2 WVS's Right to Terminate. WVS shall have the right to terminate this
Agreement if:
a) SILITEK materially breaches its confidentiality obligations under
Section 4.2;
b) SILITEK fails to pay any amount when due which failure remains
uncured for 30 days after written notice by WVS;
c) SILITEK materially breaches any other obligation under this
Agreement and the breach remains uncured for 90 days after
written notice of the breach is given by WVS;
d) SILITEK's purchases fall below the minimum requirements and both
parties are unable to re-negotiate within 30 days the conditions
of the Agreement;
e) If SILITEK should become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of SILITEK shall be
placed in the hands of a receiver, assignee or trustee for the
benefit of creditors, whether by the voluntary act of SILITEK or
otherwise, this Agreement shall automatically terminate.
5.3 SILITEK Right of Termination. SILITEK shall have the right to terminate
this Agreement if:
a) WVS materially breaches any other obligation under this Agreement
and the breach remains uncured for 90 days after written notice
of the breach is given by SILITEK;
b) If WVS should become bankrupt or insolvent prior to completing
its obligations under the Agreement, or shall file a petition in
bankruptcy, or if the business of WVS shall be placed in the
hands of a receiver, assignee or trustee for the benefit of
creditors, whether by the voluntary act of WVS or otherwise, this
Agreement shall automatically terminate.
10
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5.4 Effect of Termination
a) Upon termination of this Agreement,
(i) All outstanding amounts payable shall be payable in
accordance with the terms of this Agreement; and
(ii) SILITEK shall continue to be responsible for support and
maintenance for its customers. WVS recognizes that SILITEK
may require continued WVS support during this interim period
and WVS agrees to provide as is necessary and consistent
with the other terms of this agreement.
b) Upon a termination of this Agreement all outstanding purchase
orders shall remain effective unless the parties agree otherwise,
and SILITEK shall pay for such units at the time of delivery, or
make payment arrangements satisfactory to WVS.
6.0 Warranties, Product Returns; Indemnity.
6.1 Pass Through Warranty. WVS agrees to pass through to SILITEK all
warranties it receives from its' manufacturers. WVS MAKES NO WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.2 Patents. WVS represents that to the best of its knowledge there are no
infringements on third party intellectual property rights or patents.
6.3 Mutual Indemnification. WVS agrees to indemnify, defend, and hold
harmless SILITEK and its affiliates and their respective directors, officers,
shareholders, employees and agents from and against any and all claims, demands,
suits, actions, judgments, costs and liabilities relating to third party claims
of patent infringement by the design of the FPM as delivered by WVS to SILITEK.
SILITEK agrees to indemnify, defend, and hold harmless WVS and its affiliates
and their respective directors, officers, shareholders, employees and agents
from and against any and all claims, demands, suits, actions, judgments, costs
and liabilities relating to (i) third party claims of patent infringement by any
SILITEK-initiated engineering or design efforts under this agreement, and (ii)
for damages attributed to manufacturing and any SILITEK initiated engineering or
design efforts, and to any breach of SILITEK's warranty.
6.4 Product Returns. All defective product returns shall be made directly
to the original manufacturer with a copy of the paperwork supplied to WVS.
7.0 Dispute
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Any dispute arising in connection with this agreement will be resolved in
the following order;
1) Face to Face negotiations between senior executives of each company.
2) By mediation in Southern California with a mediator selected in
accordance with procedures of the American Arbitration Association.
3) If no resolution is achieved within 60 days after mediation is
requested, then both parties agree to binding arbitration in Southern
California in accordance with commercial arbitration rules of the
American Arbitration Association. This agreement shall be governed by
the laws of the state of California without regard to choice of law
rules.
8.0 Assignability
SILITEK and WVS both have the right to assign this agreement to any of
their affiliated companies, with the consent of the other party. Consent may not
be unreasonably denied.
12
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9.0 Entire Agreement
This Agreement constitutes the entire agreement between the parties and
there are no representations, warranties, covenants, or obligations except as
set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, purchase orders, understandings, negotiations, and discussions,
written or oral, of the parties hereto.
10.0 Notices
Any notice required or permitted to be given under this Agreement shall be
sufficient if in writing, sent by certified mail to the respective parties at
the address below, or to such other address as each party may hereafter specify
in writing to the other.
If to WVS: Who? Vision Systems, Inc.
100 Northpointe Drive
Lake Forrest, CA 92630
Attn: CEO
If to SILITEK: SILITEK
10F, 25 Tun Hwa Road, Sec. 1,
Taipei, Taiwan
11.0 Relationship of Parties
In making and performing this Agreement, the parties are acting and shall
act as independent contractors. Nothing in this Agreement shall be deemed to
create an agency, joint venture or partnership relationship between the parties
hereto. At no time shall either party make commitments or incur any charges or
expenses for, or in, the name of the other party.
12.0 Amendments
These terms and conditions may be amended only in writing by an authorized
officer of each party to this document.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative as of the 1st day of July,
1998.
Who? Vision Systems, Inc. SILITEK Corporation.
By: /s/ Alex Dickinson By: /s/ Tony Ke
- --------------------- --------------
Name: Alex Dickinson Name: Tony Ke
Title: Chief Executive Officer Title: Vice President
14
Exhibit 10.9
VALUE ADDED RESELLER AGREEMENT
This Value Added Reseller Agreement by and between Who? Vision Systems,
Inc., a Delaware corporation ("WVS"), and Integrated Visions, Inc., a Delaware
corporation ("Reseller") is dated as of July 9, 1998 (the "Effective Date").
1. BACKGROUND AND PURPOSE
WVS develops and sells fingerprint sensor module hardware. Reseller is in
the business of integrating fingerprint module hardware and software systems for
resale to its non-retail customers. WVS desires to retain Reseller to market the
WVS Module (as hereinafter defined) in conjunction with other software, hardware
and/or systems integration services offered by Reseller, and Reseller desires to
obtain the right to sell, deliver and install the WVS Module and the right to
license certain computer software embodied in the WVS Module from WVS for
integration into computer systems to be resold to non-retail customers. Reseller
represents to WVS that Reseller possesses experience and technical skill in the
sale, maintenance and support of fingerprint identification computer systems.
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties hereby enter into and agree to be legally bound.
2. WVS Module
As used herein, the "WVS Module" is comprised of :
2.1.1 A finger sensing surface that generates an image of the
fingerprint.
2.1.2 An image sensor that can translate the fingerprint image to an
electronic signal.
2.1.3 Lens-based air gap optics that translate the image from the
finger surface to the sensor.
2.1.4 A signal processing and interface chip, that processes the
fingerprint image into a from suitable for transportation to a
PC host via USB and/or parallel port.
2.1.5 An application processing interface ("API") that runs on the PC
and allows development of PC applications that makes use of the
fingerprint module. The API will include functions for accessing
the
-1-
<PAGE>
fingerprint module hardware via USB and/or parallel port and
binary object code fingerprint matching software ("WVS
Software").
3. RESELLER'S DISTRIBUTION
3.1 Distribution Appointment and Rights. WVS hereby appoints Reseller and
Reseller hereby accepts such appointment, on a non-exclusive basis, as a WVS
Reseller of the WVS Module. In connection with such appointment, WVS hereby
grants Reseller the right to market, sell, deliver and install the WVS Module as
a component of and in conjunction with the sale of computer hardware, software
and/or systems of integration services to non-retail end users and to other
third party remarketers in vertical markets, to initially include the healthcare
and financial services markets ("Area of Primary Responsibility"). The intention
of this Agreement is that Reseller may only resell the WVS Module purchased
hereunder as part of a complete business solution for its non-retail customers.
Reseller shall be free to set the pricing of its products and services that
Reseller provides to its customers, including the WVS Module.
3.2 Appointment Non-Exclusive.
3.2.1 The appointment contained herein does not constitute a grant to
resell the WVS Module in any specific territory or geographic area;
however, it is understood that Reseller's sales efforts should be directed
in its Area of Primary Responsibility. WVS reserves the right to market and
solicit sales for the WVS Module directly, through other distributors and
resellers, and through any other channels of distribution at any time and
from time to time, in Reseller's Area of Primary Responsibility or
otherwise, all WVS deems desirable in its sole judgment.
3.2.2 The parties acknowledged and agree that Reseller may obtain WVS
Modules from other established distribution channels for sale to non-retail
end users and to other third party re-marketers.
3.3 Distribution Restrictions and Limitations
3.3.1 Reseller shall not resell the WVS Module as a stand-alone
product, except in specific instances expressly approved in advance in
writing by WVS.
3.3.2 Reseller acknowledges that WVS has granted other parties certain
exclusive rights for sales of the WVS Module: (i) into retail sales
channels, (ii) to manufacturers of computer hardware peripherals, (iii) to
P.C. original equipment manufacturers, and Reseller hereby agrees that it
shall not sell, directly or indirectly, in or to any of the foregoing
channels or entities except in specific instances expressly approved in
writing by WVS. Reseller also
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<PAGE>
acknowledges that WVS has granted another party exclusive rights for the sale of
the WVS Module for the purpose of bundling or integrating the same into notebook
computers and hereby agrees that it shall refrain from such activities.
3.3.3 Reseller shall not incorporate WVS Modules into any
configuration except as expressly approved by WVS in writing, which
approval shall not be unreasonably withheld.
3.3.4 Reseller shall not disassemble, reverse engineer or modify the
WVS Module except for a modification which is expressly permitted by
separate authorization from WVS, pursuant to Section 11.1 herein. Reseller
is expressly prohibited from extracting the WVS Software from the WVS
Module or using it in any other application, system or configuration.
3.3.5 Reseller shall not resell the WVS Module into or for use in any
country outside the United States without complying with all U.S. export
control laws and regulations as well as all applicable foreign laws,
regulations and licenses. Such compliance shall be sole Reseller's
responsibility.
3.4 Method of Distribution
3.4.1 Reseller may resell the WVS Module directly through its own
sales force, through independent agents representing Reseller to end user
customers, or through distribution channels established by Reseller with
other third party integration service providers or remarketers.
4. TERM.
4.1 Term. This Agreement shall have a term of three (3) years, commencing
on the effective Date hereof, ("Initial Term") subject to automatic renewals for
additional one year terms thereafter (each a "Renewal Term") unless:
4.1.1. Reseller gives WVS written notice at least 60 days prior to the
end of the Initial Term or any Renewal Term of its intent not to renew; or
4.1.2 Reseller is in material default of any of its obligations under
this Agreement beyond any applicable grace period set forth herein as of
the end of the Initial Term or any Renewal Term; or
4.1.3 WVS gives Reseller written notice at least 60 days prior to end
of the Initial Term or any Renewal Term any one year of its intent not to
renew; or
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4.1.4 On or before September 30, 1999, and annually each September
thereafter, WVS and Reseller fail to establish in writing, and signed by
both parties the quarterly and annual minimum volume requirements for the
subsequent calendar year in the same essential format as contained in
Exhibit A 2.(a). In such case, termination shall be effective as of January
1 of the next following year;
4.2 Early Termination. This Agreement may be terminated prior to the end of
the Initial Term or any Renewal Term pursuant to Section 16 below. Any
expiration or termination shall not modify or alter the requests or obligations
of the parties which arose prior to such termination or expiration.
5. PURCHASES
5.1 Purchase Orders. Individual purchase orders of the Reseller issued to
WVS shall be effective upon acceptance thereof by WVS. If WVS does not reject in
writing a purchase order within ten (10) days of its receipt, then such purchase
order shall be deemed to have been accepted. Notwithstanding the foregoing, each
purchase order shall specifically incorporate the terms of this Agreement, and
any terms contained in a purchase order which conflict with or are inconsistent
with the terms of this Agreement shall not be valid unless specifically accepted
in writing by WVS. Purchase orders must specify the identity and volume of WVS
Modules, and the date the WVS Modules ordered thereunder should be received at
Reseller's designated location. Any change to a previously accepted purchase
order, as of the date changed, will be treated as new purchase order submitted
for acceptance unless Reseller is notified in writing otherwise by WVS. WVS
shall not be required to accept any order if Reseller is delinquent in payment
or fails to comply with the conditions relating to payment under this Agreement.
5.2 Delivery. WVS will endeavor to deliver WVS Modules on the date set
forth in the accepted purchase order, F.O.B. point of shipment. WVS will not be
liable for its failure to meet the delivery date, provided WVS uses commercially
reasonable efforts to do so. Notwithstanding the provisions of Section 6.7,
Reseller may cancel without charge or penalty its purchase order for any items
not shipped within 30 days after the requested delivery date. In the absence of
a specific written request in the purchase order regarding mode of
transportation, WVS will arrange for shipment and insurance by appropriate
carrier, the cost of which shall be reimbursed to WVS by Reseller. Delivery of
the WVS Module sold hereunder shall be made to the address set forth in
Reseller's Purchase Order. All freight transportation, and handling charges
shall be paid by Reseller.
5.3 Title and Risk of Loss. Title and risk of loss, damage or destruction
to the WVS Modules will pass to Reseller at the point of shipment specified in
the purchase order. Title to the WVS Software embodied in the WVS Module shall
remain with WVS at all times.
6. PURCHASE PRICE AND PAYMENT TERMS
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6.1 Purchase Price. The purchase price payable by Reseller for each WVS
Module shall be the lesser of:
6.1.1 The Reseller Base Price (as defined in Exhibit A attached
hereto) in effect on the date WVS accepts Reseller's purchase order, plus
the applicable mark-up based on the volume ordered,
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]; or
6.1.2 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
6.1.3 In addition, the purchase price may include the following
additional charges, if any:
6.1.3.1 [xxxxxxxxxxxxxxxxxxx]; and
6.1.3.2 [xxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
6.2 Proposal Pricing Concessions. WVS will consider any written proposal
for pricing concessions consistent with an identified, specific opportunity or
proposal, and Reseller's demonstrated success in similar/previous situations.
6.3 Product Modification Pricing. Reseller shall make no modifications to
the WVS Module unless authorized to do so in writing by WVS. The price and
delivery schedule for any approved modification to WVS Modules, pursuant to
Section 11 below, shall be at a price and delivery schedule to be mutually
agreed upon by Reseller and WVS. Reseller shall make no modifications to the WVS
Module unless authorized to do so in writing by WVS.
6.4 Invoices and Payment. WVS will submit an invoice for purchase price
payable with each delivery of the WVS Modules. Invoiced amounts will be due and
payable on the terms set forth in Exhibit A.
[Confidential Treatment requested for redacted portion of document]
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<PAGE>
6.5 Taxes. Reseller shall pay all charges, duties and taxes including
federal, state, country or other local taxes however designated, levied or based
upon prices hereunder, or on the Agreement, or on the WVS Module, or on their
manufacture, sale or use or any taxes or amounts in lieu thereof or payable by
WVS with respect to the foregoing, exclusive of taxes based on WVS's net income
which shall be borne by WVS. Any personal property taxes assessable on the WVS
Module before title passes to Reseller shall be borne by WVS. Upon demand,
Reseller shall reimburse WVS or its assignees for the amount of any such taxes
or other charges which are the obligation of Reseller hereunder, regardless of
when and by whom payable. It is Reseller's sole responsibility to provide WVS
with resale or other tax exemption certificates.
6.6 Price Changes. WVS will give Reseller at least 30 days advance written
notice of the effective date of all changes to the Reseller Base Price, which
price changes, will apply to all WVS Modules ordered by Reseller under purchase
orders submitted after the effective date of the change.
6.7 Cancellations. Purchase orders or portions thereof may be canceled
within 15 days of the issuance date at no charge to Reseller.
6.8 No Set-off. Reseller shall have no right to set off any amounts against
the purchase prices payable to WVS pursuant to Section 6.1.
7. GRANT OF LICENSE
7.1 License.
7.1.1 Reseller is granted a non-exclusive license to use and
distribute the WVS Software only in conjunction with the WVS Modules
purchased under this Agreement. Reseller is granted no title or ownership
rights to the WVS Software, which rights shall remain in WVS or WVS's
suppliers as appropriate.
7.1.2 Reseller and any successor to Reseller's title in the WVS Module
shall have the right, (a) to assign this license to any party who acquires
legal title to the WVS Module, and (b) to sublicense the rights granted by
this license to any party who subsequently acquires the right to use the
WVS Module, provided that any such other party (either assignee or
sublicensee) agrees in a writing addressed to WVS to abide by the terms and
conditions of this license in full.
7.1.3 Reseller's obligations under this license shall survive the
termination of this Agreement, regardless of the cause of termination.
7.2 U.S. Government Restricted Rights Legend. The WVS Software is
commercial computer software and documentation, and will be marked with the
following legend: Use, duplication or disclosure by the U.S. Government is
subject to restrictions as set forth in subdivision (b)(3)(ii)
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and (c)(1)(ii) of the Rights in Technical Data and Computer Software clause of
DFARS 252.227- 7013 and as set forth in FAR 52.227-19(a)-(d).
7.3 Proprietary Property. Reseller acknowledges that WVS Software
constitutes proprietary and confidential information of WVS and its licensors.
Reseller shall use reasonable care to protect the confidentiality of the WVS
Software
8. RESELLER OBLIGATIONS
8.1 End-User Agreements. In connection with Reseller's sales of the WVS
Modules to its third party reseller and remarketers, and end-user customers,
Reseller's written agreements with such parties shall include provisions for the
sublicensing of the WVS Software embodied in the WVS Modules, which sublicensing
terms and conditions shall be consistent in all respects with the WVS Software
licensing provisions set forth in this Agreement.
8.2 Marketing Efforts. Reseller shall use its best efforts to promote and
market the WVS Module. Reseller shall promote the WVS Module in accordance with
the marketing materials, documentation and other materials provided by WVS, if
any. Reseller shall not, and shall ensure that its sale representatives, agents
and third party re-marketers do not, make claims or assertions regarding the WVS
Module that are not supported by such WVS-supplied materials or verified by WVS.
8.3 Customer Installation and Training. Reseller shall be responsible for
ensuring that the systems it proposes to sell to its end user customers meet the
stated needs of the customers and that the customers have or obtain the proper
facilities and hardware/software environment to meet the operational
requirements set forth in WVS's documentation.
8.4 Sales Forecasts. Upon execution of this Agreement, Reseller shall give
WVS a six month unit sales forecast. Reseller shall update the sales forecast
every month thereafter with a rolling six month forecast. The rolling six month
sales forecast provided by Reseller shall not impose any liability on Reseller
to purchase specific quantities of WVS Modules.
8.5 Compliance with Law. Reseller shall at all times comply with all
applicable federal, state, local and foreign laws and regulations in its conduct
under this Agreement.
8.6 Insurance. During the term of this Agreement, Reseller shall maintain a
minimum of $1 million general liability insurance and provide WVS with proof of
such insurance.
9. OBLIGATIONS OF WVS
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9.1 Training. WVS may offer Reseller such training programs as WVS believes
are necessary to support the marketing or technology of the WVS Module. Charges
for this training shall be at rates established by WVS.
9.2 Technical Support. WVS shall make available reasonable amounts of
pre-sale technical and marketing assistance to Reseller as a backup to
Reseller's primary marketing efforts and to enable Reseller to integrate the WVS
Module into Reseller's products. Reseller shall pay for such services on a time
and materials basis at WVS than prevailing rates and will reimburse WVS for all
reasonable travel expenses incurred by WVS personnel in providing such services.
9.3 Order Fulfillment. WVS shall use commercially reasonable efforts to
fulfill all accepted purchase orders within the requested delivery dates, and
shall promptly notify Reseller of any known or anticipated delays.
10. CONFIDENTIALITY. Each of Reseller and WVS, and as required their consultant
and suppliers, has signed or will sign a Confidentiality Agreement which shall
apply to all confidential information supplied by either party to the other in
connection with this Agreement.
11. PROPRIETARY RIGHTS.
11.1 Modifications by Reseller. Reseller shall not, without WVS prior
written authorization, modify the WVS Module. If WVS authorizes Reseller to make
a modification, Reseller agrees to assign all of its right, title and interest
in such modification to WVS and WVS agrees to grant Reseller a non-exclusive,
worldwide, perpetual, royalty-free license to such modification for
incorporation into Reseller's products.
11.2 Modifications by WVS.
11.2.1 WVS reserves the right to change, modify or discontinue any
version of the WVS Module at any time. WVS shall provide Reseller with
written notice of all material product changes at least 90 days prior to
such change. Notwithstanding the foregoing, WVS shall remain obligated to
fulfill all accepted purchase orders placed by Reseller prior to the date
of such notice and to fulfill the purchase requirements reflected in
Reseller's then applicable six month rolling forecast as of the date of
such notice pursuant to Section 8.4.
11.2.2 Reseller may request in writing that WVS make modification(s)
to WVS Modules purchased under this Agreement. Such requested modifications
will be made at the sole discretion of WVS. If the effect of such
modifications increase (or decreases) the cost of the WVS Module, the
purchase price of the WVS Module may increase (or decrease) pursuant to
Section 6.1.3.3.
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11.3 Third Party Infringement. WVS reserves the sole and exclusive right at
its discretion to assert claims against third parties for infringement or
misappropriation of its intellectual property rights in the WVS Module.
12. LIMITED WARRANTY.
12.1 Pass Through Warranty. WVS agrees to pass through to Reseller and its
customers all product warranties that WVS receives from the manufacturers of the
WVS Modules. WVS further agrees to provide to Reseller in writing such
warranties at any time at the request of Reseller and on or about January 1 of
each year.
12.2 Disclaimer of Warranties. EXCEPT FOR THE LIMITED WARRANTIES SET FORTH
IN SECTION 12.1 ABOVE, WVS MAKES NO WARRANTIES OR REPRESENTATIONS TO RESELLER OR
TO ITS END-USER CUSTOMERS WITH RESPECT TO THE WVS MODULES, THE PERFORMANCE OF
THE WVS MODULES, THE DOCUMENTATION PROVIDED WITH RESPECT TO THE WVS MODULES, OR
ANY SERVICES PROVIDED HEREUNDER. WVS EXPRESSLY DISCLAIMS ANY AND ALL OTHER
WARRANTIES OF ANY KIND, CONCERNING THE WVS MODULES, DOCUMENTATION AND SERVICES,
WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER EXPRESS OR
IMPLIED WARRANTY, WHETHER ARISING IN LAW, CUSTOM, CONDUCT OR OTHERWISE.
12.3 Exclusive Remedy. Reseller's sole and exclusive remedy for warranty
claims pursuant to Section 12.1 relating to the WVS Module (other than
infringement claims pursuant to Section 13), shall be, at WVS' option, repair or
replacement of the WVS Module(s).
12.4 Neither Reseller nor its sales representatives, agents or third party
resellers or remarketers has the authority to make or bind WVS to any
affirmation, warranty, guarantee, or representation, whether written or oral,
concerning the WVS Module other than the limited warranty stated in Section
12.1.
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<PAGE>
13. INDEMNITIES.
13.1 Infringement Indemnity.
13.1.1 Duty to Indemnify and Defend. WVS will indemnify and defend
Reseller and its permitted customers representatives, agents and third
party resellers and remarketers (the "Indemnified Parties") against all
loss, cost and expense, (including, without limitation, reasonable
attorney's fees and legal costs) arising from any third party claim that
any WVS Module furnished and used within the scope of this Agreement
infringes a patent, copyright, or trade secret right; provided that the
Indemnified Parties shall promptly, upon the Indemnified Parties (a)
promptly notifying WVS in writing of any such claim made against (b)
permitting WVS (or its licensor) to take sole control of the defense and
all related settlement negotiations; and (c) providing WVS with reasonable
assistance, information, and authority necessary to perform the above.
Failure to provide prompt notice of any claim shall not relieve WVS of its
indemnity obligation except to the extent WVS's ability to defend such
claim is materially adversely affected.
13.1.2 Limitations. WVS shall have no liability for any claim to the
extent the claim is based on the combination, operation, or use of any WVS
Module furnished under this Agreement with programs, data, equipment, or
materials not provided to Reseller by WVS if use of the WVS Module alone
would not infringe.
13.1.3 Remedies. In the event the WVS Module or a portion thereof is,
or in WVS's opinion is likely to be, held to infringe, WVS shall have the
right at its sole option and expense to (a) modify the WVS Module or
portion thereof to be noninfringing (b) replace the same with
non-infringing fingerprint module which equals or exceeds the performance
of the WVS Module being replaced or, (c) obtain for Reseller and its
permitted customers the right to continue using and sublicensing the WVS
Module. THE FOREGOING ARE WVS' SOLE AND EXCLUSIVE OBLIGATIONS, AND THE
INDEMNIFIED PARTIES SOLE AND EXCLUSIVE REMEDIES, WITH RESPECT TO
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS.
13.2 Distribution Indemnity. Reseller agrees to indemnify WVS against any
third party claims by third party remarketers, and end user customers of
Reseller or any other third party against WVS for loss, damage, liability, or
expense (including but not limited to reasonable attorney's fees) arising out of
any breach by Reseller of its obligations under this Agreement; provided that
WVS shall (a) promptly notify Reseller in writing of any such claim made against
WVS; (b) permit Reseller to take sole control of the defense and all related
settlement negotiations; and (c) provide Reseller with reasonable assistance,
information, and authority necessary to perform the above. Failure to provide
prompt notice of any claim shall not relieve Reseller of its indemnity
obligation except to the extent Reseller's ability to defend such claim is
materially adversely affected.
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14. LIMITATIONS OF LIABILITY.
14.1 Limitation of Liability. EXCEPT FOR THE PARTIES OBLIGATION PURSUANT TO
SECTION 10 AND SECTION 13, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
INDIRECT, SPECIAL, COVER, RELIANCE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOSS OF ANTICIPATED REVENUE OR LOSS RESULTING FROM BUSINESS
DISRUPTION), OR DAMAGE TO SYSTEMS, DATA, OR PROGRAMS, EVEN IF THE PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES RESELLER HEREBY WAIVES SUCH DAMAGES,
EXCEPT FOR ITS LIABILITY UNDER SECTION 13.1, AND UNDER THE CONFIDENTIALITY
AGREEMENT WVS' LIABILITY FOR DIRECT DAMAGES HEREUNDER SHALL IN NO EVENT EXCEED
100% THE AGGREGATE AMOUNTS RECEIVED BY WVS AS PURCHASE PRICE AND TECHNICAL
SUPPORT FEES UNDER THIS AGREEMENT.
14.2 Limitation on Actions. Any action arising from or in connection with
this Agreement must be brought no later than two (2) years after the cause of
action occurred, except that an action for nonpayment may be brought by WVS
within three (3) years of the date of last payment.
14.3 Failure of Essential Purpose. The parties have agreed that the
limitations specified in this Section 14 are a reasonable allocation of risk and
will survive and apply even if any limited remedy specified in this Agreement is
found to have failed of its essential purpose.
15. FORCE MAJEURE
15.1 Any delay or failure of either party to perform its obligations
hereunder shall be excused if and to the extent caused by acts of God, actions
by any governmental authority (whether valid or invalid), fires, floods,
windstorms, explosions, riots, natural disasters, wars, sabotage, labor problems
(including lockouts, strikes and slowdowns), inability to obtain power,
material, labor, equipment or transportation, court injunction or order, or
other causes beyond the reasonable control of the party affected and without its
fault or negligence; provided that written notice within (10) days of such delay
(including the anticipated duration of the delay) shall be given by the affected
party to the other party. Reseller may request that WVS, within ten (10) days of
such request , provide adequate assurances that the delay shall not exceed
thirty (30) days. If the delay lasts more than thirty (30) days or WVS does not
provide adequate assurance that the delay will cease within thirty (30) days,
Reseller may without liability to WVS, but with written notice to WVS, cancel or
modify such portion of any purchase orders affected by such delay and WVS may,
by written notice to Reseller, cancel or modify any commitment to manufacturer
and supply WVS Modules against such purchase order.
16. TERMINATION.
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16.1 Events of Termination. Either party may terminate this Agreement if:
16.1.1 the other party breaches any material term or condition of this
Agreement and fails to cure such breach within 15 days after the due date
(with respect to any payment default) or within 60 days after written
notice for any other default;
16.1.2 the other party files a voluntary petition in bankruptcy,
commences a liquidation and dissolution or voluntarily assigns its assets
for the benefit of creditors: or
16.1.3 the other party becomes the subject of an involuntary petition
in bankruptcy or any proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors which is not
dismissed within 90 days of filing.
16.2 Effect of Termination. Upon termination or expiration of this
Agreement:
16.2.1 Reseller Inventory. Reseller shall be entitled, after
termination, to continue to sell the WVS Modules to the extent reasonably
necessary to use up stocks or inventories of same held by Reseller.
However, WVS reserves the right:
16.2.1.1 to repurchase from Reseller such stock of WVS Modules in
exchange for credit or reimbursement for same;
16.2.1.2 to require Reseller to return to WVS all drawings,
models, designs and pertinent technical material which Reseller has
received from WVS, unless such materials are required for the on-going
service and maintenance commitments of Reseller.
16.2.3 Payment. Any payment obligations incurred by Reseller under
this Agreement prior to such termination shall survive termination of this
Agreement. Upon termination, all amounts due for prior product shipments
shall become immediately payable.
16.2.4 Certification. Reseller will give WVS a written certification
that it has complied with its obligations under this Section 16.2.
16.2.5 No Damages for Termination. NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL
DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN
ACCORDANCE WITH ITS TERMS. EACH OF WVS AND RESELLER WAIVES ANY RIGHT IT MAY
HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION OR
EXPIRATION OF THIS AGREEMENT, OTHER THAN AS EXPRESSLY PROVIDED IN THIS
AGREEMENT.
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16.3 Remedies. Should any provision of this Agreement specify a sole and
exclusive remedy, the provisions of that section shall control over this Section
16.3 as to default and remedy in any action at law or equity unless the
defaulting party shall fail to abide by such remedy. If the defaulting party
fails to perform or provide such exclusive remedy, then the other party may
exercise such further or additional remedies as may be provided in this
Agreement or as may otherwise be available at law or in equity. The exercise by
either party of any non-exclusive remedy under this Agreement will be without
prejudice to its other non-exclusive remedies under this Agreement or otherwise.
16.4 Survival. The rights and obligations of these parties contained in
Sections 6 (Purchase Price and Payment Terms), 10 (Confidentiality), 11
(Proprietary Rights), 12 (Limited Warranty) 13 (Indemnities), 14 (Limitations of
Liability), 16 (Termination), and 17.3 (Mediation) will survive the termination
or expiration of this Agreement.
17. GENERAL.
17.1 Assignment. This Agreement will bind and inure to the benefit of each
party and to each party's permitted successors and assigns. Reseller may not
assign this Agreement, without WVS' prior written consent, which shall not be
unreasonably withheld or delayed. Any attempt to assign this Agreement without
such consent will be null and void.
17.2 Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of California.
17.3 Mediation. Except as set forth in Section 17.4 or relating to Section
10, any dispute arising under this Agreement shall be submitted to the following
mediation process:
17.3.1 a dispute will be reduced to writing by the account
representative of the alleging party containing a detailed description of
the dispute and all relevant facts. Such description shall be sent to the
account representative at the receiving party. The receiving party will
respond with an answer or proposed solution to the dispute within ten (10)
business days. If the parties have not reached a mutually agreed upon
resolution by the tenth (10th ) business day following the receipt of the
answer by the alleging party, then
17.3.2 all details of the dispute shall be immediately provided to the
Chief Executive Officer of each party. The CEO or his designee will
endeavor in good faith to resolve the dispute within ninety (90) days, with
each party bearing its costs relating thereto.
17.3.3 if the parties are unable to resolve the dispute pursuant to
Section 17.3.2, then the parties may utilize all available remedies
available at law or equity.
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17.4 Compliance with Law. Each party agrees to comply with all applicable
laws, rules, and regulations in connection with its activities under this
Agreement.
17.5 Severability. If any provision of this Agreement is found invalid or
unenforceable, that provision will be enforced to the maximum extent
permissible, and the other provisions of this Agreement will remain in force.
17.6 Notices. All permitted or required notices under this Agreement shall
be in writing and will be deemed given when delivered personally, when sent by
confirmed facsimile transmission, or when received if sent by certified or
registered U.S. Mail or nationally-recognized express courier, return receipt
requested, to the address shown below or as may otherwise be specified by either
party to the other in accordance with this Section 17.6.
Parties: Who? Vision Systems, Inc.
Attention: Chief Executive Officer
100 North Point Drive
Lake Forest, CA 92639
Facsimile No. 949-837-5355
Integrated Visions, Inc.
Attention: Chief Financial Officer
10315 102nd Terrace
Sebastian, FL 32958
Facsimile No. 567-589-2049
17.7 Relationship of the Parties. The parties to this Agreement are
independent contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. Neither party will have
the power to bind the other or incur obligations on the other's behalf without
the other's prior written consent.
17.8 Waiver. No failure of either party to exercise or enforce any of its
rights under this Agreement will act as a waiver of such rights or any other
rights. Any waiver granted under this Agreement must be in writing, executed by
the party to be charged with such waiver.
17.9 Entire Agreement. This Agreement and its exhibits and the
confidentiality agreement are the complete and exclusive agreement between the
parties with respect to the subject matter hereof, superseding and replacing any
and all prior written and oral agreements and understanding regarding such
subject matter. This Agreement may only be modified by a written document
executed by both parties.
17.10 Drafting Responsibility. Each party hereto has reviewed, commented
upon and participated in the preparation of this Agreement. In no event will any
provision of this
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Agreement be interpreted to the disadvantage of any party hereto based upon such
party's having been the draftsman of such provision.
17.11 Entirety of Agreement. Headings in this Agreement are for the purpose
of assisting the reader and do not constitute a part hereof.
17.12 Counterparts. This Agreement may be executed in counterparts, which
taken together, shall constitute one Agreement and any party hereto may execute
this Agreement by signing such counterparts.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
WHO? VISION SYSTEMS, INC. INTEGRATED VISIONS, INC.
BY: /s/ Alexander G. Dickinson BY: /s/ Gregory W. Haskell
--------------------------------- -------------------------
Name: Alexander G. Dickinson Name: Gregory W. Haskell
Title: Chief Executive Officer Title: President
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WVS
Value Added Reseller Agreement
Exhibits
A. Contract Terms
1. Reseller Base Price
2. Minimum Volume Requirements
3. Payment Terms
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EXHIBIT A CONTRACT TERMS
1. "Reseller Base Price" shall mean [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
2. Minimum Volume Requirements:
(a) Reseller shall be entitled to [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxx] for as long as it purchases the minimum volume
requirements of the WVS Modules set forth below:
<TABLE>
<CAPTION>
1998 1999
Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C>
- ------------------------ -------------------- -------------------- ------------------- -------------------
[xxxxx] [xxxxx] [xxxxxx] [xxxxxx] [xxxxxx]
- ------------------------ -------------------- -------------------- ------------------- -------------------
</TABLE>
(b) Notwithstanding as above, Reseller shall not be entitled to most
favored customer pricing if Reseller fails to make the minimum purchases set
forth above in any two consecutive quarters in 1999 and if at the end of the
second consecutive quarter Reseller has not achieved its cumulative 1999 minimum
volumes.
3. Payment Terms:
Payable within 30 days of invoice date. Late payments for WVS Modules and any
related costs or fees will be subject to a charge of 1.0% per month, or at a
rate, annualized, equal to Bank of America Reference Rate (or Prime) plus 2%,
whichever is greater.
[Confidential Treatment requested for redacted portion of document]
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Exhibit 10.10
CONFIDENTIAL
UMBRELLA PURCHASE AGREEMENT
(Standard Agreement
for the Purchase of Products)
This Agreement, effective as of September 30, 1998,
by and between,
WhoVision, Inc., a corporation having its principal office at 100 North Pointe
Drive, Lake Forest, 92630 and its wholly owned subsidiaries (hereinafter
referred to as "Supplier") and
Philips Electronics North America Corporation, a corporation having its
principal place of business at 1251 Avenue of the Americas, New York, NY, 10020,
USA, for the purpose hereof acting through the Business Group Flat Panel Display
which forms part of the worldwide Philips Components Division (hereinafter
referred to as "Philips"). Philips is also acting on behalf of its affiliated
companies. Philips and its affiliated companies are hereinafter collectively
referred as "Participant" or "Participants."
Supplier and Philips sometimes being referred to herein singularly as a "party"
and collectively as the "parties."
W I T N E S S E T H
WHEREAS, Philips and its affiliated companies are active in the field of design,
development, manufacture and sale of a wide range of components;
WHEREAS, Supplier is engaged in and active in the field of design, development,
manufacture and sale of a range of fingerprint sensor systems and is willing and
able to develop and manufacture such Products (as defined in Section 1.1) for
the Participants;
WHEREAS, Philips and WhoVision want to establish the terms and conditions
applicable to Purchase Orders, as defined hereinafter, placed by Participants
with Supplier for the delivery of certain Products during the term of this
Agreement;
NOW, THEREFORE, WhoVision and Philips hereby agree on this 30th day of
September, 1998, as follows:
<PAGE>
ARTICLE 1
SCOPE AND BASIC INTENT
1.1 This purpose of this Agreement is to establish the terms and conditions
applicable to the purchase by Participants from Supplier of the
products identified in Annex 1 hereto (the "Products") complying with
the respective specifications contained in Annex 2 hereto (the
"Specifications"). The definition of "Products" also automatically
includes "WhoVision Products," as such term is defined in the
Technology Transfer Agreement between Supplier and Philips dated
September 30, 1998. Additional Products may be added by mutual
agreement of the parties. Annexes 1 and 2 will then be amended
accordingly.
1.2 Any of the Participants may issue purchase orders ("Purchase Orders")
to Supplier for the supply and delivery of Products and WhoVision
undertakes to supply and deliver or cause to be supplied and delivered
such Products to the ordering Participant, all in accordance with the
terms and conditions of this Agreement.
ARTICLE 2
LEAD-TIME AND FORECASTS; RESCHEDULING AND CANCELLATION
2.1 Participants agree to provide to Supplier's contact address identified
in Annex 4 hereto, during the Term of this Agreement on a monthly basis
written rolling non-binding Product purchase forecasts in a format as
specified in Annex 1 indicating by Product, the quantity of Products to
be shipped in each of the next twelve (12) months ("Rolling
Forecasts"). Rolling Forecasts will be used for Supplier's capacity
planning purposes. The structure of each month's Rolling Forecast shall
be with due regard to the applicable lead-times.
2.3 Once per quarter the Rolling Forecast shall be accompanied by a
non-binding long term forecast(s) in a format as specified in Annex 1
indicating by Product the total quantity of Products anticipated to be
required for each of the successive periods of three months from the
twelfth (12th) through the twenty fourth (24th) months. The long term
forecast will be fore information and resource planning purposes.
2.4 It is understood by Philips that the manufacture of Products can only
be initiated upon receipt by Supplier of a firm Purchase Order from a
Participant and the subsequent confirmation thereof by Supplier, all in
accordance with Article 3 hereof.
2.5 A Participant may request that Supplier reschedule the original
Scheduled Shipment Date (defined in Section 5.3) for Products
(excluding discontinued products and warranty
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replacement orders) but may only do so pursuant to the criteria set
forth in Annex 1. All requests to reschedule the original Scheduled
Shipment Dates are subject to Supplier's written acceptance, which
shall not be unreasonably withheld.
2.6 A Participant may cancel a Purchase Order in whole or in part if such
Participant gives notice pursuant to the criteria set forth in Annex 1.
ARTICLE 3
PURCHASE ORDERS AND CONFIRMATION
3.1 Purchase Orders for Products shall be submitted by Participants to
Supplier at Supplier's contact address listed on Annex 4, on separate
Purchase Order forms, or, if so agreed, by EDI.
3.2 Any Purchase Order issued hereunder by a Participant to Supplier shall
include the following information:
o Reference to this Agreement by its number;
o (Reference to) Products by part number and description;
o Quantity of Products;
o Shipping and invoicing address;
o Requested delivery date(s);
o (Reference to) the applicable prices, discounts, and payment terms;
o (Reference to) any additional terms and conditions, e.g.,
additional logistic information.
3.3 Unless otherwise agreed in writing between Participant and Supplier,
Supplier may confirm and thereby accept each Purchase Order placed in
accordance with this Agreement (or advise Participant of required
clarifications) in writing promptly, but ultimately within 10 business
days, after receipt thereof. Purchase Order confirmations shall include
a reference to this Agreement by its number and shall furthermore
confirm all of the information provided in the Purchase Order.
3.4 Supplier shall supply and deliver to Participant the Products according
to the agreed Specifications as per Annex 2 hereto and in accordance
with the terms and conditions set forth in this Agreement.
3.5 [Intentionally omitted.]
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3.6 Notwithstanding any provisions to the contrary that might be set forth
in a Purchase Order or in the conditions of sale or other document of
Supplier submitted with the Purchase Order confirmation, the preprinted
terms and conditions on the face and reverse side of a Purchase Order
or any other document sent with or subsequent to the Purchase Order
confirmation of Supplier shall not apply to or become part of the
Purchase Order and/or the delivery obligations resulting therefrom,
unless any such term or condition has been expressly agreed upon in
writing by Participant and Supplier.
3.7 It is understood that Supplier's supply of Products requires lead-times
as specified per Product in Annex 1. Unless agreed otherwise between
Supplier and Participant, Participant's Purchase Order will take into
account such agreed lead-times.
ARTICLE 4
DELIVERY TERMS, PRICES, DISCOUNTS, AND PAYMENT TERMS
4.1 The Prices as per Annex 1 are in the currencies identified for each
Product, exclusive of sales taxes, duties or similar levies.
4.2 Sales taxes, duties or similar levies will be added by Seller to the
Prices where Seller is required by law to pay or collect them and will
be paid by Buyer in the form of a surcharge, unless Buyer supplies
Seller with appropriate tax exemption certificates, and holds Seller
harmless from all taxes and expenses incurred or arising out of and to
the extent of the use of such certificates.
4.3 Prices will be revised periodically and published in a Price List. It
is intended and foreseen that prices will decrease over time.
4.4 The price of any Products ordered under any Purchase order placed
before any revised prices have become effective according to the
preceding subclause shall only be affected by any subsequent price
increase according to the procedure as described in said subclause, if
and to the extent the required period of delivery of such Products
shall exceed a period of six (6) months as from the effective date of
the price increase.
4.5 In the event of unforeseen circumstances affecting Participants or
Supplier or both and/or in the event the price/performance ratio of
Products deteriorates as compared to competitive products, the parties
will jointly review the situation and attempt to find a solution
reasonably acceptable to the parties. [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
[Confidential Treatment requested for redacted portion of the document]
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xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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4.6 At the end of each twelve (12) months period during the validity period
of this Agreement, WhoVision shall report in writing to Philips the
types, quantities, discounts, and total purchase price of the Products
supplied by Supplier to all of the Participants during such period
and/separately, of those ordered but not yet supplied by Supplier. The
same applies as regards products and services which are not defined
within the scope of this Agreement.
4.7 Supplier shall allocate available product among strategic customers.
Customers characterized as strategic may vary from time to time, but
shall be a small group of customers that have a significant volume of
actual or expected purchases. [xxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxx] The establishment of these practices and administration of
material planning and allocation issues shall be consistent with
industry practice as in other computer related peripheral/component
suppliers. [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxx]
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] On a short-term
basis, Supplier may allocate additional capacity when available.
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]. All orders
from strategic customers shall be subject the requirement of Rolling
Forecasts. Flexibility and re-schedule percentages are limited by
lead-time and available capacity as set forth in Appendix 1.
ARTICLE 5
SHIPMENT AND DELIVERY
5.1 Unless otherwise agreed, the Incoterms 1990 edition issued by the
International Chamber of Commerce, Paris, France, shall apply to
deliveries under this Agreement.
5.2 Parties agree that delivery shall take place on an "Ex Works" basis.
Supplier reserves the right to store the Products in consignment at
Participant's risk and expense as and when they are available to
Participant in accordance with above.
[Confidential Treatment requested for redacted portion of the document]
<PAGE>
5.3 Title shall pass to Participant at the time the Products have been
placed at the disposal of Participant in accordance with Article 5.2
hereof and Participant shall bear all costs relating to the Products as
from such time.
5.4 Except in the case of a notified excusable delay as referred to in
Article 8 hereof, should Supplier fail to ship Products on the agreed
shipment date, Participant will give Supplier written notice of
non-shipment, allowing Supplier ten (10) business days from the date
of receipt of Participant's notice within which to cure non-shipment
before Supplier's delivery shall be deemed delinquent. If the delivery
is deemed delinquent, Participant's sole remedy shall be to cancel or
reschedule, at no cost to Participant, the delinquent portion of the
Purchase Order for the applicable Products. Participant shall be
responsible for payment for goods shipped and provided in accordance
with Purchase Orders in place, according to the terms of payment
described herein.
5.5 Products shall be delivered in such packing as is suitable for the mode
of transport to be used and Supplier shall provide each packing with
such indications as the relevant Participant may specify from time to
time.
5.6 Supplier shall include one (1) copy of the packing slip with each
delivery or shipment to Participant, and this packing slip shall
contain the following information:
o Reference to Purchase Order;
o Description of Product;
o Numbers of containers, sizes and quantities;
o Authorizing Personnel.
Supplier shall include such additional information as is necessary to
assure correct payment, accountability, and traceability to a
particular invoice.
5.7 In the event Participant contests delivery, Participant must request a
proof of delivery from Supplier within thirty (30) days of the date of
Supplier's invoice; otherwise, delivery shall be deemed complete.
ARTICLE 6
TYPE APPROVAL/QUALITY PERFORMANCE/INSPECTION
6.1 All Product to be supplied by Supplier to Participants pursuant to this
Agreement shall be checked and tested by Supplier in accordance with
the requirements specified in Annex 3 hereto and Supplier shall keep
record of the test results at least four (4) years after delivery of
each Product and on request provide Participant with copies thereof.
Supplier shall only
<PAGE>
supply Products which comply with the Specifications and other agreed
requirements, if any.
6.2 Each participant may inspect the delivered Products at their
destination within sixty (60) days after the arrival date at the place
of destination. Each Participant shall have the right to reject all or
any of the Products which do not meet the inspection standard, provided
that such claim shall be served to Supplier with supporting evidence
within ninety (90) days after the arrival date of the Products at the
place of destination. In case of a rejection, Supplier shall replace
the applicable Products free of charge within a reasonable period of
time, it being understood that all costs connected with the forwarding
of such replacement shall be for Supplier's account.
ARTICLE 7
INVOICING AND PAYMENT TERMS
7.1 Suppliers' invoice shall be issued upon delivery of the Products.
Payment of the invoice is due within thirty (30) days from the date of
Supplier's invoice. All payments shall be made without any discount
whatsoever. Supplier shall submit the invoices to the addresses stated
therefore in Annex 4 hereto.
Invoices shall be submitted in duplicate.
7.2 If shipments are made in installments, Supplier shall invoice the
Participant for each installment separately.
7.3 Unless otherwise agreed payment is to be made by wire transfer to
Supplier's bank account as mentioned in Annex 4. All bank charges,
taxes, levies, duties and other cost as may be due or become due on
payments hereunder are for Participant's account.
7.4 Participant hereby waives any and all rights to offset existing and
future claims against any payments due for Products sold hereunder or
under any other agreements that Participant and Supplier may have and
agrees to pay the amounts hereunder regardless of any claimed offset
which may be asserted by Participant or on its behalf.
7.5 Participant hereby grants Supplier a purchase money security interest
in the Products and in any proceeds therefrom (including accounts
receivable) as security for its obligations hereunder until the entire
amount due has been paid, and will execute any document to perfect this
security interest requested by Supplier.
<PAGE>
ARTICLE 8
EXCUSABLE DELAY
8.1 Neither Party shall be responsible for a failure in the performance of
this Agreement or of any confirmed Purchase Order if:
(i) such failure cannot reasonably be attributed to such party,
taking into account industry practice; or
(ii) such Party cannot be held accountable for such failure because
it is caused by Force Majeure as defined in Section 8.3
hereof.
In case of such a failure, the performance of the relevant part of the
confirmed Purchase Order will be suspended, without the non-performing
party being held responsible for any damage resulting therefrom to the
other party.
8.2 The non-performing party will notify the other party on the occurrence
of such failure and the estimated duration as soon as possible. In the
event the suspension has lasted for three (3) consecutive months or as
soon as it is established that the suspension will last for at least
three (3) consecutive months, either party is entitled to terminate
partially or in whole the confirmed Purchase Order without being held
liable to any indemnity whatsoever towards the other party.
8.3 The expression "Force Majeure" shall mean and include circumstances or
occurrence beyond one party's reasonable control - whether or not
foreseeable at the time of this Agreement or the Purchase Order or
Order Confirmation - in consequence of which one party cannot
reasonably be required to execute its obligations under this Agreement
or the confirmed Purchase Order. Such circumstances or occurrences
include but are not restricted to: acts of God, war, civil war,
insurrections, fires, floods, labor disputes, epidemics, governmental
regulations and/or similar acts, freight embargoes, non- availability
of any permits, licenses and/or authorizations required, defaults or
delays of suppliers or subcontractors and inability or impracticability
to secure transportation, facilities, fuel, energy, labor, materials or
components.
ARTICLE 9
LIMITED WARRANTY AND DISCLAIMER
9.1 Supplier warrants to Participant that the Products delivered pursuant
to this Agreement will, at the time of delivery and for a period of
twelve (12) months thereafter, be free from defects in design,
construction, manufacture, material and workmanship and shall conform
<PAGE>
to the Specifications. Supplier's obligations with respect to claims
under this warranty shall include a warranty adjustment consisting, at
Participant's option, of (i) repair or replacement of such defective or
non-conforming Products, or (ii) an appropriate credit of the purchase
price thereof, provided that Supplier is informed by Participant in
writing promptly after the defects have revealed themselves.
9.2 The provisions of this Article 9 will survive the expiration or
termination for whatever cause of this Agreement.
9.3 This limited warranty and disclaimer does not cover:
(i) damage sustained by normal wear and tear;
(ii) damage arising as a consequence of negligence, misuse or
improper storage, installation, repair, alteration, or return
handling of the Products or parts thereof, other than by
Supplier.
(iii) damage resulting from environmental or stress testing, other
than by Supplier.
(iv) and damage arising as a consequence of continuous operating
beyond Supplier's published Product Specifications.
THE EXPRESS WARRANTY GRANTED ABOVE SHALL EXTEND DIRECTLY TO PARTICIPANT
AND NOT TO PARTICIPANT'S CUSTOMERS, AGENTS OR REPRESENTATIVES OR ANY
OTHER THIRD PARTY AND EXCEPT FOR WARRANTY OF TITLE, IS IN LIEU OF ALL
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, SUCH
OTHER WARRANTIES BEING SPECIFICALLY DISCLAIMED BY SUPPLIER.
ARTICLE 10
LIMITATION OF LIABILITY
10.1 IN NO EVENT SHALL EITHER PARTY'S LIABILITY FOR ANY BREACH OR ALLEGED
BREACH OF THIS AGREEMENT EXCEED THE TOTAL PURCHASE PRICE FOR PRODUCTS
CONCERNED, NOR SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF PROFITS,
LOSS OF USE, SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY OR CONSEQUENTIAL
DAMAGES RESULTING FROM SUCH BREACH OR ALLEGED BREACH, INCLUDING BUT NOT
LIMITED TO EXCESS REPROCUREMENT COSTS, AND IRRESPECTIVE OF WHETHER SUCH
PARTY
<PAGE>
HAS ADVANCE NOTICE OR ADVANCE KNOWLEDGE OF THE POSSIBILITY OF
SUCH DAMAGES.
10.2 SELLER'S PRODUCTS ARE NOT DESIGNED FOR USE IN LIFE SUPPORT DEVICES,
APPLIANCES OR SYSTEMS WHERE MALFUNCTION CAN REASONABLY BE EXPECTED TO
RESULT IN A PERSONAL INJURY. BUYER USING OR SELLING SELLER'S PRODUCTS
FOR USE IN SAID EQUIPMENT DOES SO AT ITS OWN RISK.
ARTICLE 11
PRODUCT AND PRODUCTION CHANGES/DISCONTINUED PRODUCTS
11.1 Supplier reserves the right to make Product and/or production changes
with Participant's prior written approval, not to be unreasonably
withheld, provided that said changes shall not negatively affect form,
fit or function of the Products and their performance characteristics
or their integrability into Participant's systems or products.
11.2 If production of any Product covered by this Agreement is to be
permanently discontinued ("Discontinued Product") at any time during
the term of this Agreement, Supplier shall use reasonable commercial
efforts to give Philips and all Participants which have ordered such
Products during the preceding one year at least six (6) months prior
written notice of such discontinuance for multisourced Products and
twelve (12) months notice for sole sourced Products. Supplier will also
give Participants notice of Discontinued Products that are deemed to be
technically non-manufacturable, or otherwise limited in availability,
when a standard notice as outlined above is commercially impracticable.
If Philips discontinues supplying certain components to Supplier or
shorter notice, Participants acknowledge that such action could cause a
limited Product availability.
11.3 Supplier's written Discontinued Product notice to Participant will
contain the specific last time ordering conditions for the Discontinued
Products.
11.4 During the period after notice, Supplier shall accept Purchase Orders
from Participant for the unordered quantities of the Discontinued
Products as priced in this Agreement, to the extent such Purchase
Orders can be supplied within Supplier's manufacturing capabilities.
11.5 Discontinued Product Purchase Orders will be considered Participant's
firm, final Purchase Orders for the Discontinued Products and will not
be subject to Participant's termination or cancellation without
Supplier's express prior written approval. Supplier's Scheduled
Shipment Dates for Discontinued Product(s) are approximate and will be
based upon the aggregate of all final order quantities received for the
affected Products which Supplier must support. Supplier's shipment of
Discontinued Products ordered by Participant is
<PAGE>
conditioned upon Supplier's final availability and manufacturing yields
of the affected Products.
ARTICLE 12
INTELLECTUAL PROPERTY RIGHTS
12.1 Supplier, at its own expense, shall defend any suit brought by any
third party against Participant or its agents, stockholders, directors,
employees, officers, resellers, distributors, or assigns insofar as it
is based upon a claim that any Product alone, and not in combination
with any other products not supplied by Supplier, as directly supplied
by Supplier hereunder and not modified in any way by Participant
infringes any patent(s), trade mark(s), copyright(s) or design(s) or
other intellectual property right(s) of any third party, provided that
Supplier is notified promptly by Participant in writing of any claim of
or suit for infringement and is given full authority at Supplier's
option to settle or conduct the defense thereof with Participant's full
assistance and co-operation in said defense at Supplier's expense.
Supplier shall not reimburse costs or expenses incurred by Participant
without prior written notice of the expenditure. In the event that
Products supplied hereunder by Supplier in the form as specified above
are in such suit held to constitute infringement and their use is
prohibited, with Participant's consent (which consent shall be not
unreasonably withheld) Supplier shall replace the infringing Products
with non- infringing Products or shall modify the Products so that they
become non-infringing, or authorize the return of such Products and
grant Participant a credit for the Price paid therefor.
12.2 It is expressly understood that Supplier shall not be liable for
infringement of any intellectual property rights covering any product
other than Products as such hereunder, in the form as supplied and not
modified in any way, nor for infringement of intellectual property
rights covering any assembly, circuit, combination, method or process
in which, or in the manufacture, testing or application of which such
Products may have been used. Furthermore, Supplier shall not be liable
for any infringement necessarily arising from compliance with
Participant's design, specifications or instructions. Participant shall
indemnify Supplier against any final award of damages or costs for such
infringement and shall reimburse all costs incurred by Supplier in
defending any suit or proceeding for such infringement, provided
Supplier gives Participant prompt notice in writing of any such suit or
proceeding for infringement and, if so requested, full authority to
conduct the defense thereof and full assistance and co-operation in
said defense, at Supplier's expense.
12.3 The sale of any Product hereunder does not convey any license, by
implication, estoppel or otherwise, under any intellectual property
rights of Supplier covering any Product supplied hereunder or any
combination in which any Product supplied by Supplier hereunder is
combined with any other product, whether or not supplied by Supplier,
or any method or
<PAGE>
process in which any such Product of Supplier may be used, except the
implied license to use and resell the Products under any of Supplier's
IPR.
12.4 THE FOREGOING STATES THE ENTIRE LIABILITY OF SELLER IN CONNECTION WITH
THE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES BY
PRODUCTS SUPPLIED BY SELLER HEREUNDER AND EXCEPT AS STATED HEREABOVE,
SELLER SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF ANY KIND
WHATSOEVER, INCLUDING ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES, SUFFERED OR INCURRED BY BUYER OR ITS IMMEDIATE
CUSTOMERS IN RESPECT OF OR IN CONNECTION WITH THE INFRINGEMENT OF ANY
THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS.
ARTICLE 13
TRADEMARKS AND MARKINGS
13.1 Except where intended to serve as instructions for use or advertising
matter, all technical information in relation to Supplier's Products
and their maintenance remains Supplier's property and may without its
consent not be utilized or copied, reproduced, transmitted or
communicated to third parties. Illustrations, catalogues, colors,
drawings, dimensions, statements of weight and measurements etc. made
available by Supplier are only meant to present a general idea of the
products to which they refer; they are approximately only and therefore
not binding upon Supplier.
13.2 Neither Party shall, without the other Party's prior written consent,
use the other party's name or trademark as such and/or use same in
connection with any advertisement or sales literature.
13.3 The Parties understand that the consent necessary in article 13.2
above, may require separate authorization agreements for such use
consistent with then current policy of the authorizing Party.
ARTICLE 14
COMPLIANCE WITH LAWS
14.1 Supplier warrants that it is legally authorized to enter into this
Agreement. Supplier further warrants that it shall comply with all
applicable rules, regulations and laws in the manufacture and sale of
the Products, including but not limited to such matters as
environmental, export control and safety laws. If requested, Supplier
will assist Participant
<PAGE>
or Participant's customer(s), if applicable, by providing evidence of
its compliance or such information necessary to assist Participant or
Participant's customer(s) to comply with same.
ARTICLE 15
SEVERABILITY/WAIVER
15.1 In the event that any provision(s) of this Agreement shall be held
invalid or unenforceable by a court of competent jurisdiction or by any
future legislative or administrative action, such holding or such
action shall not negate the validity or enforceability of any other
provisions hereof.
15.2 The failure on the part of either party to exercise, or any delay in
exercising, any right or remedy hereunder shall not operate as a waiver
thereof nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or future exercise thereof or the exercise
of any other right or remedy granted hereby or by any related document
or by law.
ARTICLE 16
SUCCESSOR
16.1 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns and legal
representatives. Neither party shall, during the term of this
Agreement, have the right to assign or otherwise transfer its rights or
obligations under this Agreement except with the prior written consent
of the other party. However, nothing herein shall be construed to
prevent Supplier from assisting its rights to receive payments due
under the terms of this Agreement. Notwithstanding the foregoing, a
party shall not unreasonably withhold consent in the case of an
assignment in connection with a merger, consolidation or assignment of
the entire business of the other party.
ARTICLE 17
TERMINATION
17.1 This Agreement enters into force on the Effective Date and shall remain
in force until September 30, 2001. This Agreement shall be
automatically renewed annually for successive periods of one (1) year,
unless terminated by mutual agreement; provided that
<PAGE>
Supplier may terminate this Agreement upon 12 months notice to Philips
in the event the Supply Agreement between Supplier and Philips is
terminated.
ARTICLE 18
APPLICABLE LAW AND JURISDICTION
18.1 This Agreement and Purchase Orders and Order Confirmations made
hereunder shall be construed in accordance with and governed by the
laws of the State of California. The United Nations Convention on
Contracts for the International Sale of Goods shall not apply. Neither
Buyer's general conditions of purchase nor Seller's general conditions
of sale are applicable to this Agreement or to any Purchase Order or
Order Confirmation.
18.2 All disputes arising in connection with this Agreement, which cannot be
resolved amicably, shall be determined exclusively by the state or
federal courts located in the State of California.
ARTICLE 19
NOTICES
19.1 All notices, requests and demands given to or made upon the parties
hereto shall, except as otherwise specified herein, be in writing and
be delivered or mailed, or facsimile (fax) copied to the party at the
notice address stated in Annex 4 hereto.
Any notice, if mailed properly addressed, postage prepaid, certified
mail shall be deemed made on the certified date. Any fax or Purchase
Order or confirmation thereof sent electronically shall be deemed
delivered on the first working day immediately following the
transmission date.
<PAGE>
ARTICLE 20
CONFIDENTIAL INFORMATION
20.1 The partners shall be bound by the non-use and nondisclosure
provisions of Article 8 of the Technology Transfer Agreement by
Supplier and Philips and such provisions are incorporated herein by
reference.
20.2 Each receiving party shall return aforesaid data and information on the
disclosing party's request. The disclosed information shall remain the
property of the disclosing party and nothing contained in this Article
20 shall be construed as a grant of license to the receiving party to
make, use, or sell any products or services using confidential
information of or as a license under any patents or other intellectual
property rights covering same.
20.3 The commitment defined herein above shall continue during the period of
this Agreement and five (5) years thereafter, it being understood that
these commitments shall cease if but to the extent only, that
confidential information:
- is or becomes generally known or available to be public at
large through no act or omission of the receiving party; or
- can be demonstrated to have been available to the receiving
party prior to disclosure or has thereafter been furnished to
the receiving party always without restriction as to the
disclosure or use; or
- can be demonstrated to have been independently developed by
the receiving party subsequent to disclosure without use of
any confidential information received from the other party; or
- is furnished to others by the disclosing party without similar
restrictions to those herein contained as to the use or
disclosure thereof; or
- is ascertained from a commercially available product; or
- is disclosed pursuant to administrative or judicial action,
provided that the receiving party shall use its best effort to
maintain the confidentiality of the confidential information
by asserting in such action any applicable privileges and
shall, immediately after receiving notice of such action,
notify the disclosing party thereof and give the disclosing
party the opportunity to seek any other legal remedies so as
to maintain such confidential information in confidence
If only a portion of the confidential information falls under any of
the subsections, then only that portion of the confidential information
shall be excluded from the use and disclosure restrictions of this
Agreement.
<PAGE>
ARTICLE 21
EXPORT CONTROL
21.1 Participant and Supplier agree to inform the other Party of any export
control regulations which may regulate the export/import of the Product
to or from any countries of Participant's delivery addresses (Annex 2),
if so requested. Each party shall cooperate to promptly secure any
required export licenses for the Products.
ARTICLE 22
MISCELLANEOUS
22.1 Supplier shall provide adequate documentation with regard to the
Products to be supplied, such as CE Certification, storage
instructions, forwarding documents, and, at request, Certificate of
Origin, and furthermore all data relating to relevant governmental
regulations such as regarding import, export, safe handling, storage,
use, and disposal of Products.
22.2 In case Supplier will introduce new Products, Supplier will consult
Philips if the new Products could be interesting for Philips or
Participants in order to determine whether this Agreement could be
extended to said new Products as well, and if so, what prices and
discounts will apply to such new Products.
22.3 Supplier shall not in any way use or apply the Philips Shield emblem or
Philips name, trademark, or any mark resembling them in advertisements,
sales promotion, publicity or publications, nor in any other way, nor
advertise or publish that Supplier does do business with Philips or
Participants, unless with Philips' prior written consent.
22.4 This Agreement including the Annexes [1, 2, 4, 5] constitute the entire
Agreement between the Parties and the Parties agree that there are no
other representations, warranties or oral agreements relating to the
subject matter of this Agreement. Amendments and additions to this
Agreement shall be valid only by exchange of documents signed by both
Parties. For the sake of clarity such amendments shall be expressly
marked "Amendment (nbr ) to the Agreement." This Agreement between
Buyer and Seller shall supersede the provisions of any general
conditions of purchase which may be written behind the Purchase Order
used by Buyer.
<PAGE>
22.5 Any disputes arising with respect to this Agreement shall be resolved
in the manner provided the Technology Transfer Agreement.
PHILIPS ELECTRONICS NA CORP WHO?VISION SYSTEMS, INC.
Signature: /s/ Matthew T. Medeiros Signature: /s/ Alex Dickinson
Name: Matthew T. Medeiros Name: Alex Dickinson
Title: Chairman & CEO Flat Display Title: CEO
Date: 9/30/98 Date: 9/30/98
<PAGE>
ANNEX 1
Products
[to be determined on or before January 31, 1999]
Delivery Terms
Shipments to be made on an Ex Works basis, with freight and other costs billed
to Participants.
Lead Times
[to be determined on or before January 31, 1999]
Prices
[to be determined on or before January 31, 1999]
Discounts
[to be determined on or before January 31, 1999]
Payment Terms
Net 30
other Agreed Terms
Availability Period
[to be determined on or before January 31, 1999]
Validity Period
[to be determined on or before January 31, 1999]
Rolling Forecast Format
[to be determined on or before November 31, 1998]
<PAGE>
ANNEX 2
AGREED SPECIFICATIONS
[to be determined on or before January 31, 1999]
<PAGE>
ANNEX 3
A. Quality Procedures
[to be determined on or before January 31, 1999]
B. Inspection Procedures
[to be determined on or before January 31, 1999]
<PAGE>
ANNEX 4
Contract Addresses
A. Supplier's Contract Addresses for Purchase Orders
[to be determined on or before January 31, 1999]
B. Participant's Invoice Addresses
[to be determined on or before January 1, 1999]
C. Supplier's Bank Accounts for Payment of Invoices
[to be determined on or before January 31, 1999]
D. Notice Addresses
[to be determined on or before January 31, 1999]
Exhibit 10.11
SUPPLY AGREEMENT
This Agreement, effective as of September 29 1998 ("Effective Date"),
by and between,
WhoVision Systems, Inc., a corporation having its principal office at 100 North
Pointe Drive, Lake Forest, CA 92630 and its wholly owned subsidiaries
(hereinafter referred to as "WhoVision" or "Buyer")
and
Philips Flat Panel Display Co (Philips FPD) B.V., which has its principal place
of business at Professor Holstlaan 4, 5656 AA, Eindhoven, the Netherlands
(hereinafter referred to as "Philips" or "Seller").
WhoVision and Philips are sometimes referred to herein singularly as a "Party"
and collectively as the "Parties."
WHEREAS, Philips has considerable experience in the manufacture of glass-based
components;
WHEREAS, WhoVision is active in the field of design, development, manufacture
and sale of a range of fingerprint sensor systems and is designing, with
Philips' assistance, capacitive and photo fingerprint sensors to be manufactured
by Philips for WhoVision;
WHEREAS, the parties have entered into a Technology Transfer Agreement (the
"Technology Transfer Agreement") on the date hereof which provides, among other
things, for the parties to enter into this Supply Agreement;
WHEREAS, WhoVision desires to retain from Philips on a continuous basis a
certain volume of glass-based capacitive and photo fingerprint sensors, and
Philips is prepared to supply such products to WhoVision on the basis of Rolling
Forecasts (defined in Section 3.2) submitted by WhoVision in accordance with the
provisions hereof;
NOW, THEREFORE, WhoVision and Philips hereby agree on this day of September,
1998 as follows:
1. SCOPE AND BASIC INTENT
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1.1 The purpose of this Agreement is to establish the terms and conditions
applicable to the purchase by Buyer from Seller of the products listed in
Appendix 1 hereto (the "Products") complying with the respective
specifications contained in Appendix 2 hereto (the "Specifications").
Additional Products may be added by mutual agreement of the Parties.
Appendices I and 2 will then be amended accordingly.
1.2 WhoVision is the only party that may place Purchase Orders with Philips
for Products.
1.3 Seller agrees to sell and Buyer agrees to purchase the Products described
in Appendix 1 at the prices and on the other conditions set forth therein
and in this Agreement, in order to achieve at a minimum the quantities
set forth in Appendix 1. In case of a failure of Buyer to achieve such
quantities, Seller shall have the right to terminate this Agreement in
accordance with Section 17 and to "Terminate Rights" as provided in the
Technology Transfer Agreement.
1.4 The Specifications will be as set forth in Appendix 2. The ownership of
and rights to the Specifications will be governed by the Technology
Transfer Agreement and the Technology Services Agreement. Seller shall
cooperate with Buyer to ensure that the Product is compatible with
Seller's manufacturing process and to ensure cost effectiveness, quality
and reliability of the manufacturing process and the manufactured
Products.
1.5 Seller will produce prototype Products for testing purposes before
scaling up to commercial production levels. Seller will provide
manufacturing samples as set forth in Appendix 1.
1.6 Subject to Buyer committing to provide Seller with Rolling Forecasts,
Seller will reserve capacity accordingly in Seller's Fab#0 up to the
maximum capacity of Fab#0 for fingerprint sensors.
2. PRICES, DELIVERY AND PAYMENT TERMS
2.1 The prices, delivery and payment terms as per Appendix 1 are in the
currencies identified for each Product, exclusive of sales taxes, duties
or similar levies. All prices are based upon (i) the delivery conditions
for each Product as set forth in Appendix 1, and (ii) Buyer's purchase of
the aggregate quantities of each Product stated in Appendix 1. Appendix 1
may be amended from time to time by mutual agreement between the parties.
Appendix 1 and amendments shall only be valid when duly signed by
authorized representatives of both parties.
2.2 The prices and other terms agreed upon apply to Buyer's orders placed on
or after September 30, 1998 unless differently negotiated and stated in
Appendix 1.
2.3 Seller agrees to make commercially reasonable efforts to minimize the
prices of the Products. Seller's prices shall be guided by the Pricing
Concepts as defined in Appendix 5.
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2.4 Sales taxes, duties or similar levies will be added by Seller to the
prices where Seller is required by law to pay or collect them and will be
paid by Buyer in the form of a surcharge, unless Buyer supplies Seller
with appropriate tax exemption certificates, and holds Seller harmless
from all taxes and expenses incurred or arising out of and to the extent
of the use of such certificates.
2.5 In the event of unforeseen circumstances affecting Buyer or Seller or
both and/or in the event the price/performance ratio of Products
deteriorates as compared to competitive products, the parties will
jointly review the situation and attempt to find a solution reasonably
acceptable to the parties.
2.6 After the Exclusivity Period, [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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2A. VOLUME COMMITMENTS
2A.1 Buyer commits to purchase at least the minimum quantities of Products
listed in Appendix 1 in the time periods set forth in Appendix 1. If
Seller is late in completing any of its development milestones, Buyer's
minimum volume commitments will be rolled over to succeeding calendar
quarters consistent with the longest period by which any of Seller's
development milestones are delayed or by which any of Buyer's development
milestones are delayed due to reasons beyond Buyer's reasonable control.
The Steering Committee (defined in the Technology Transfer Agreement) may
revise the minimum quantity commitments at any time.
2A.2 Notwithstanding Article 3.14 of the Technology Transfer Agreement, Buyer
shall in case of failure to meet the quarterly volume commitments have a
ninety (90) days period to cure such failure.
3. LEAD-TIME AND FORECASTS: RESCHEDULING AND CANCELLATION
3.1 Buyer agrees to supply to Seller's contact address identified in Appendix
4 hereto, during the Term of this Agreement on a monthly basis written
rolling non-binding Product purchase forecasts in a format as specified
in Appendix 1 indicating by Product, the quantity of Products to be
shipped in each of the next twelve (12) months ("Rolling Forecasts").
[Confidential Treatment requested for redacted portion of the document]
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Buyer's Rolling Forecasts will be used for Seller's capacity planning
purposes. The structure of each month's Rolling Forecast shall be with
due regard to the applicable lead-times.
3.2 Once per quarter the Rolling Forecast shall be accompanied by Buyer's
long term forecast in a format as specified in Appendix 1 indicating by
Product the total quantity of Products anticipated to be required for at
least each of the successive periods of three months from the twelfth
(12th)through the twenty fourth (24th) month. The long term forecast will
be for information and resource planning purposes.
3.3 Buyer will notify Seller of any deviations of more than ten percent (10%)
from the monthly and/or quarterly forecasts so provided to Seller
promptly after it becomes aware that any such major chance is likely to
occur.
3.4 Seller cannot guarantee any production capacity to Buyer to the extent
resulting from Rolling Forecasts not being provided in time. It is
understood by Buyer that the manufacture of Products can only be
initiated upon receipt by Seller of a firm Purchase Order from Buyer and
the subsequent confirmation thereof by Seller, all in accordance with
Article 4 hereof.
3.5 Buyer may request that Seller reschedules the original Scheduled Shipment
Date (defined in Section 5.3) for Products (excluding discontinued
products and warranty replacement orders) but may only do so once and
only pursuant to the criteria set forth in Appendix 1. All requests to
reschedule the original Scheduled Shipment Dates are subject to Seller's
written acceptance, which shall not be unreasonably withheld. Seller may
withhold such acceptance among other reasons, when e.g. production
capacity limitations would not allow rescheduling of production.
3.6 Buyer may not cancel a Purchase Order in whole or in part except pursuant
to the criteria set forth in Appendix . When failing to give notice in
time in accordance with Appendix 1, Seller will deliver and Buyer will
pay for any Products which are identified with Buyer's Purchase Orders.
4. PURCHASE ORDER AND ORDER CONFIRMATION
4.1 Purchase Orders for Products shall be submitted by Buyer to Seller at
Seller's contact address listed on Appendix 4, on separate Purchase Order
forms, or, if so agreed, by EDI.
4.2 Any Purchase Order issued hereunder by a Buyer to Seller shall include
the following information:
- Reference to this Agreement by its number;
- (Reference to) Identity of required Products;
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- Quantity of Products;
- Shipping and invoicing address;
- Requested delivery date(s);
- (Reference to) the applicable prices, discounts, and payment terms;
- (Reference to) any additional terms and conditions, e.g., additional
logistic information.
4.3 Unless otherwise agreed in writing between Buyer and Seller, Seller may
confirm and thereby accept each Purchase Order placed in according with
this Agreement (or advise Buyer of required clarifications) in writing
promptly, but ultimately within 10 business days, after receipt thereof.
Purchase Orders and Purchase Order confirmations shall include a
reference to this Agreement by its number and shall furthermore confirm
all of the information provided in the Purchase Order. Changes to
Purchase Orders will only be made if appropriately agreed in writing by
Buyer.
4.4 Seller shall supply and deliver to the Buyer the Products according to
the agreed Specifications as per Annex 2 hereto and in accordance with
the terms and conditions set forth in this Agreement.
4.5 Notwithstanding any provisions to the contrary that might be set forth in
a Purchase Order or in the conditions of sale or other document of Seller
submitted with the Purchase Order confirmation, the preprinted terms and
conditions on the face and reverse side of a Purchase Order or any other
document sent with or subsequent to the Purchase Order confirmation of
Seller shall not apply to or become part of the Purchase Order and/or the
delivery obligations resulting therefrom, unless any such term or
condition has been expressly agreed upon in writing by Buyer and Seller.
4.6 It is understood that Seller's supply of Products requires lead-times as
specified per Product in Annex 1. Unless agreed otherwise between Seller
and Buyer, Buyer's Purchase Order will take into account such agreed
lead-times.
4.7 In case Buyer would request additional Purchase Orders or shipments over
the ranges as specified in the Rolling Forecast, Seller may, but shall
not be obligated to, accept and confirm such additional quantities.
5. SHIPMENT AND DELIVERY
5.1 Unless otherwise agreed, the Incoterms 1990 edition issued by the
International Chamber of Commerce, Paris, France, shall apply to the
interpretation of the delivery terms with
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<PAGE>
respect to supplies pursuant to this Agreement as mentioned in Appendix 1
or elsewhere in this Agreement.
5.2 Parties agree that delivery shall take place on an "Ex Works" basis
Seller reserves the right to store the Products in consignment at Buyer's
risk and expense as and when they are available to Buyer in accordance
with the above.
5.3 Seller shall exercise reasonable business practices to meet the scheduled
shipment date(s) as set forth in the Order Confirmation (the "Scheduled
Shipment Dates"). Where any Scheduled Shipment Date is later than Buyer's
requested shipment date, or Buyer requests an expedited shipment, Seller
will use commercially reasonable efforts to Improve its shipment to meet
Buyer's requests whenever commercially practical. In case of anticipated
shipment misses to the Scheduled Shipment Date due to any cause, Seller
shall alert Buyer in a timely manner and promptly submit a recovery plan
for all impacted shipments (which may include air/freighting to Buyer's
delivery location at Seller's expense).
5.4 Subject to the intellectual property right and title provisions in the
Technology Transfer Agreement, title and all risks of loss or damage
shall pass to Buyer at the time the Products have been placed at the
disposal of Buyer in accordance with Article 5.2 hereof and Buyer shall
bear all costs relating to the Products as from such time.
5.5 Except in the case of a notified excusable delay as referred to in
Article 8 hereof, should Seller fail to ship Products on the agreed
shipment date, Buyer will give Seller written notice of non-shipment,
allowing Seller ten (10) business days from the date of receipt of
Buyer's notice within which to cure non-shipment before Seller's delivery
shall be deemed delinquent. If the delivery is deemed delinquent, Buyer's
sole remedy shall be to cancel or reschedule, at no cost to Buyer, the
delinquent portion of the Purchase Order for the applicable Products. The
quantity of' any such canceled Products shall count towards Buyer's
committed total minimum Product quantity requirements under this
Agreement. Buyer shall be responsible for payment for goods shipped and
provided in accordance with Purchase Orders in place, according to the
terms of payment described herein.
5.6 Products shall be delivered in such packing as is suitable for the mode
of transport to be used and Seller shall provide each packing with such
indications as the Buyer may specify from time to time, at Buyer's cost.
5.7 Seller shall include one (1) copy of the packing slip with each delivery
or shipment to Buyer, and this packing slip shall contain the following
information:
- Reference to Purchase Order;
- Description of Product;
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- Numbers of containers, sizes and quantities;
- Authorizing Personnel.
Seller shall include such additional information as is necessary to
assure correct payment, accountability, and traceability to a particular
invoice.
5.8 In the event Buyer contests delivery, Buyer must request a proof of
delivery from Seller within thirty (30) days of the date of Seller's
invoice, otherwise, delivery shall be deemed complete.
6. THE APPROVAL/QUALITY PERFORMANCE/INSPECTION
6.1 All Product to be supplied by Seller to Buyer pursuant to this Agreement
shall be checked and tested by Seller in accordance with the requirements
specified in Annex 3 hereto and Seller shall keep record of the test
results at least four (4) years after delivery of each Product and on
request provide Buyer with copies thereof. Seller shall only supply
Products which comply with the Specifications and other agreed
requirements, if any.
6.2 Buyer may inspect the delivered Products at their destination within
sixty (60) days after the arrival date at the place of destination. Buyer
shall have the right to reject all or any of the Products which do not
meet the inspection standard, provided that such claim shall be served to
Seller with supporting evidence within ninety (90) days after the arrival
date of the Products at the place of destination. In case of a rejection,
Seller shall replace the applicable Products free of charge within a
reasonable period of time, it being understood that all costs connected
with the forwarding of such replacements shall be for Seller's account.
7. INVOICING AND PAYMENT TERMS
7.1 Seller's invoice shall be issued upon delivery of the Products. Payment
of the invoice is due within thirty (30) days from the date of Seller's
invoice. All payments shall be made without any discount whatsoever.
Seller shall submit the invoices to the address stated therefor in
Appendix 4 hereto. Invoices shall be submitted in duplicate.
7.2 If shipments are made in installments, Seller shall invoice Buyer for
each installment separately.
7.3 Unless otherwise agreed payment is to be made by wire transfer to
Seller's bank account as mentioned in Appendix 4. All bank charges,
taxes, levies, duties and other cost as may be due or become due on
payments hereunder are for Buyer's account.
7.4 Buyer hereby waives any and all rights to offset existing and future
claims against any payments due for Products sold hereunder or under any
other agreements that Buyer and
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Seller may have and agrees to pay the amounts hereunder regardless of any
claimed offset which may be asserted by Buyer or on its behalf.
7.5 Buyer hereby grants Seller a purchase money security interest in the
Products as security for its obligations hereunder until the entire
amount due has been paid, and will execute any document to perfect this
security interest requested by Seller.
8. EXCUSABLE DELAY
8.1 Neither party shall be responsible for a failure in the performance of
this Agreement or of any confirmed Purchase Order if:
(i) such failure cannot reasonably be attributed to such party,
taking into account industry practice; or
(ii) such party cannot be held accountable for such failure because it
is caused by Force Majeure as defined in Section 8.3 hereof.
In case of such a failure, the performance of the relevant part of the
confirmed Purchase Order will be suspended, without the non-performing
party being held responsible for any damage resulting therefrom to the
other party.
8.2 The non-performing party will notify the other party on the occurrence of
such failure and the estimated duration as soon as possible. In the event
the suspension has lasted for three (3) consecutive months or as soon as
it is established that the suspension will last for at least three (3)
consecutive months, either party is entitled to terminate partially or in
whole the confirmed Purchase Order without being held liable to any
indemnity whatsoever towards the other party.
8.3 The expression "Force Majeure" shall mean and include circumstances or
occurrences beyond one party's reasonable control - whether or not
foreseeable at the time of this Agreement or the Purchase Order or Order
Confirmation - in consequence of which one party cannot reasonably be
required to execute its obligations under this Agreement or the confirmed
Purchase Order. Such circumstances or occurrences include but are not
restricted to: acts of God, war, civil war, insurrections, fires, floods,
labor disputes, epidemics, governmental regulations and/or similar acts,
freight embargoes, non-availability of any permits, licenses and/or
authorizations required, defaults or delays of suppliers or
subcontractors and inability or impracticability to secure
transportation, facilities, fuel, energy, labor, materials or components.
9. LIMITED WARRANTY AND DISCLAIMER
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9.1 Seller warrants to Buyer that the Products delivered pursuant to this
Agreement will, at the time of delivery and for a period of twelve (12)
months thereafter, be free from defects in design, construction,
manufacture, material and workmanship and shall conform to the
Specifications. Seller's obligations with respect to claims under this
warranty shall include a warranty adjustment consisting, at Buyer's
option, of (i) repair or replacement of such defective or non-conforming
Products, or (ii) an appropriate credit of the purchase price thereof;
provided that Seller is informed by Buyer in writing promptly after the
defects have revealed themselves.
9.2 The provisions of this Article 9 will survive the expiration or
termination for whatever cause of this Agreement.
9.3 This limited warranty and disclaimer does not cover
(i) damage sustained by normal wear and tear;
(ii) damage arising as a consequence of negligence, misuse or improper
storage, installation, repair, alteration, or return handling of
the Products or parts thereof, other than by Seller;
(iii) damage resulting from environmental or stress testing, other than
by Seller;
(iv) and damage arising as a consequence of continuous operating
beyond Seller's published Product specifications.
THE EXPRESS WARRANTY GRANTED ABOVE SHALL EXTEND DIRECTLY TO BUYER AND NOT
TO BUYER'S CUSTOMERS, AGENTS OR REPRESENTATIVES OR ANY OTHER THIRD PARTY
AND EXCEPT FOR WARRANTY OF TITLE, IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF FITNESS
FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, SUCH OTHER WARRANTIES BEING
SPECIFICALLY DISCLAIMED BY SELLER.
10. LIMITATION OF LIABILITY
10.1 IN NO EVENT SHALL EITHER PARTY'S LIABILITY FOR ANY BREACH OR ALLEGED
BREACH OF THIS AGREEMENT EXCEED THE TOTAL PURCHASE PRICE FOR PRODUCTS
CONCERNED, NOR SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF PROFITS, LOSS
OF USE, SPECIAL, INCIDENTAL, INDIRECT, EXEMPLARY OR CONSEQUENTIAL DAMAGES
RESULTING FROM SUCH BREACH OR ALLEGED BREACH INCLUDING BUT NOT LIMITED TO
EXCESS REPROCUREMENT COSTS, AND IRRESPECTIVE OF WHETHER SUCH
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PARTY HAS ADVANCE NOTICE OR ADVANCE KNOWLEDGE OF THE POSSIBILITY OF SUCH
DAMAGES.
10.2 SELLER'S PRODUCTS ARE NOT DESIGNED FOR USE IN LIFE SUPPORT DEVICES,
APPLIANCES OR SYSTEMS WHERE MALFUNCTION CAN REASONABLY BE EXPECTED TO
RESULT IN A PERSONAL INJURY. BUYER USING OR SELLING SELLER'S PRODUCTS FOR
USE IN SAID EQUIPMENT DOES SO AT ITS OWN RISK.
11. PRODUCT AND DESIGN CHANGES/DISCONTINUED PRODUCTS
11.1 Seller reserves the right to make Product and/or production changes with
Buyer's prior written approval, not to be unreasonably withheld provided
said changes shall not negatively affect form, fit or function of the
Products and their performance characteristics or their integrability
with Buyer's systems or products.
11.2 If production of any Product covered by this Agreement is to be
permanently discontinued ("Discontinued Product") at any time during the
term of this Agreement, Seller shall use reasonable commercial efforts to
give Buyer at least six (6) months prior written notice of such
discontinuance for multi-sourced Products and twelve (12) months notice
for sole sourced Products. Seller will also give Buyer notice of
Discontinued Products that are deemed to be technically
non-manufacturable, or otherwise limited in availability, when a standard
notice as outlined above is commercially impracticable.
11.3 Seller's written Discontinued Product notice to Buyer will contain the
specific last time ordering conditions for the Discontinued Products.
11.4 During the period after notice, Seller shall accept Purchase Orders from
Buyer for the unordered quantities of the Discontinued Products as priced
in this Agreement, to the extent such Purchase Orders can be supplied
within Seller's manufacturing capabilities.
11.5 Discontinued Product Purchase Orders will be considered Buyer's firm,
final Purchase Orders for the Discontinued Products and will not be
subject to Buyer's termination or cancellation without Seller's express
prior written approval. Seller's Scheduled Shipment Dates for
Discontinued Product(s) are approximate and will be based upon the
aggregate of all final order quantities received for the affected
Products which Seller must support.
12. INTELLECTUAL PROPERTY RIGHTS
12.1 Seller, at its own expense, shall defend any suit brought by any third
party against Buyer or its agents, stockholders, directors, employees,
officers, resellers, distributors, or assigns insofar as it is based upon
a claim that any Product alone, and not in combination with any other
products supplied by Seller, as directly supplied by Seller hereunder and
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not modified in any way by Buyer infringes any patent(s), trade mark(s),
copyright(s) or design(s) or other intellectual property right(s) of any
third party, provided that Seller is notified promptly by Buyer in
writing of any claim of or suit for infringement and is given full
authority at Seller's option to settle or conduct the defense thereof
with Buyer's full assistance and co-operation in said defense at Seller's
expense. Seller will not be obligated to reimburse costs or expenses
incurred by Buyer without prior written notice of the expenditure. In the
event that Products supplied hereunder by Seller in the form as specified
above are in such suit held to constitute infringement and their use is
prohibited, with Buyer's consent (which consent shall be not unreasonably
withheld) Seller shall replace the infringing Products with
non-infringing Products or shall modify the Products so that they become
non-infringing, or authorize the return of such Products and grant Buyer
a credit for the Price paid therefor.
12.2 It is expressly understood that Seller shall not be liable for
infringement of any intellectual property rights covering any product
other than Products as such hereunder, in the form as supplied and not
modified in any way, nor for infringement of intellectual property rights
covering any assembly, circuit, combination, method or process in which,
or in the manufacture, testing or application of which such Products may
have been used. Furthermore, Seller shall not be liable for any
infringement necessarily arising from compliance with Buyer's design,
specifications or instructions. Buyer shall indemnify Seller against any
final award of damages or costs for such infringement and shall reimburse
all costs incurred by Seller in defending any suit or proceeding for such
infringement, provided Seller gives Buyer prompt notice in writing of any
such suit or proceeding for infringement and, if so requested, full
authority to conduct the defense thereof and full assistance and
co-operation in said defense at Seller's expense.
12.3 The sale of any Product hereunder does not convey any license, by
implication, estoppel or otherwise, under any intellectual property
rights of Seller covering any Product supplied hereunder or any
combination in which any Product supplied by Seller hereunder is combined
with any other product, whether or not supplied by Seller, or any method
or process in which any such Product of Seller may be used, except the
implied license to use and resell the Products under any of Seller's
intellectual property rights.
12.4 THE FOREGOING STATES THE ENTIRE LIABILITY OF SELLER IN CONNECTION WITH
THE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES BY
PRODUCTS SUPPLIED BY SELLER HEREUNDER AND EXCEPT AS STATED HEREABOVE,
SELLER SHALL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF ANY KIND WHATSOEVER,
INCLUDING ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
SUFFERED OR INCURRED BY BUYER OR ITS IMMEDIATE CUSTOMERS IN RESPECT OF OR
IN CONNECTION WITH THE
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INFRINGEMENT OF ANY THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS.
13. TRADEMARK AND ADVERTISING
13.1 Neither Party shall, without the other Party's prior written consent, use
the other party's name or trademark as such and/or use same in connection
with any advertisement or sales literature.
13.2 The Parties understand that the consent necessary in article 13.1 above,
may require separate authorization agreements for such use consistent
with then current policy of the authorizing Party.
14. COMPLIANCE WITH LAWS
14.1 Seller warrants that it is legally authorized to enter into this
Agreement. Seller further warrants that it shall comply with all
applicable rules, regulations and laws in the manufacture and sale of the
Products, including but not limited to such matters as environmental,
export control and safety laws. If requested, Seller will assist Buyer or
Buyer's customer(s), if applicable, by providing evidence of its
compliance or such information necessary to assist Buyer or Buyer's
customer(s) to comply with same.
15. SEVERABILITY/WAIVER
15.1 In the event that any provision(s) of this Agreement shall be held
invalid or unenforceable by a court of competent jurisdiction or by any
future legislative or administrative action, such holding or such action
shall not negate he validity or enforceability of any other provisions
hereof.
15.2 The failure on the part of either Party to exercise, or any delay in
exercising, any right or remedy hereunder shall not operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or future exercise thereof or the exercise
of any other right or remedy granted hereby or by any related document or
by law.
16. SUCCESSOR
16.1 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their respective successors, assigns and legal
representatives. Neither Party shall, during the Term of this Agreement,
have the right to assign or otherwise transfer its rights or obligations
under this Agreement except with the prior written consent of the other
Party. However, nothing herein shall be construed to prevent Seller from
assigning its rights to receive payments due under the terms of this
Agreement.
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17. TERM AND TERMINATION
17.1 The term of this Agreement is from the Effective Date until September 30,
2001 (the "Term") and shall be automatically extended for a period of one
year unless notice not to extend is given by Buyer, and thereafter on
each anniversary of the Effective Date for additional one-year terms,
unless notice not to extend is given by either Party to the other Party
in writing by means of communication ensuring evidence and date of
receipt (e.g. registered mail with return receipt, special courier,
telex), not less than four (4) months before the date of expiry. The
Parties may agree in writing on longer periods of notice. Seller may
terminate this Agreement (1) in case of a material breach by Buyer that
is not cured within thirty (30) days after notice thereof, (2) in the
event that Buyer falls to meet its minimum volume purchase requirements
subject to the cure period provided in Section 2A.2, or (3) by giving
Buyer 60 days written notice in the event that the Board of Management of
Koninklijke Philips Electronics N.V. determines to close down Philips
Fab#0 in Eindhoven, the Netherlands or to discontinue the fingerprint
sensor activities in Fab#0. In case of termination by Seller of this
Agreement as described in this Article 17.1 (except for termination by
Seller in case of material breach by Buyer and termination by Seller for
convenience after the Term as described in this Section 17.1), Buyer has
the right to issue a last-time Purchase Order per Section 17.2. Buyer's
right to issue a last-time Purchase Order per Section 17.2 shall not
exist in case Buyer already has access to an alternative source of supply
for the Products. In case of termination by Seller of this Agreement,
(except for termination by Seller in case of material breach by Buyer and
for termination by Seller for convenience after the Term as described in
this Section 17.1), Seller shall make reasonable efforts in supporting
Buyer in finding an alternative source of supply for the Products,
including but not limited to royalty free licensing and disclosure of
Philips owned intellectual property rights to such alternative source of
supply. Which are necessary to manufacture the Products and solely for
the purpose of manufacturing the Products]. Purchase Orders outstanding
at the moment of termination (except for termination by Seller in case of
material breach by Buyer), which have been confirmed by Seller's Order
Confirmation, shall continue to be executed by the Parties in accordance
with the terms thereof and the provisions of this Agreement shall
continue to apply thereto until the pertinent transactions shall have
been completed. Buyer may terminate this Agreement in case of a material
breach by Seller that is not cured within 30 days after notice thereof.
17.2 Seller shall accept a last time Purchase Order from Buyer for additional
quantities of Products equal to the capacity of Fab #0 for a period of
nine (9) months, or until the time the alternative source is operative,
whichever is less]. Buyer shall not have the right to cancel or
reschedule outstanding Purchase Orders or such last-time Purchase Order.
18. APPLICABLE LAW AND JURISDICTION
18.1 This Agreement and Purchase Orders and Order Confirmations made hereunder
shall be construed in accordance with and governed by the laws of the
State of California. The
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<PAGE>
United Nations Convention on Contracts for the International Sale of
Goods shall not apply. Neither Buyer's general conditions of purchase nor
Seller's general conditions of sale are applicable to this Agreement or
to any Purchase Order or Order Confirmation.
19. NOTICES
19.1 All notices, requests and demands given to or made upon the Parties
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to the Party at the notice address stated in Appendix
4 hereto.
Any notice, if mailed properly addressed, postage prepaid, certified mail
shall be deemed made on the certified date. Any, fax, telex, or Purchase
Order or Order Confirmation contained on electronic data or telegraphic
notice shall be deemed delivered on the first working day immediately
following the transmission date.
20. CONFIDENTIAL INFORMATION
20.1 The parties shall be bound by the non-use and non-disclosure provisions
of Article 8 of the Technology Transfer Agreement and such provisions are
incorporated herein by reference.
21. EXPORT CONTROL
21.1 Buyer and Seller agree to inform the other Party of any export control
regulations which may regulate the export/import of the Product to or
from any countries of Buyer's delivery addresses (Appendix 2), if so
requested Each Party shall cooperate to promptly secure any required
export licenses for the Products.
22. CHANGES
22.1 Buyer may, from time to time, request reasonable change(s) to the agreed
Specification of the Products or request chances to the Terms and
Conditions of this Agreement and Seller agrees to make good faith efforts
to comply. If such changes affect Seller's costs or in the time for
performance, an adjustment will be made in the unit prices and/or the
other affected terms and conditions. Any assertion of adjustment shall be
in writing and must be requested by Seller within twenty (20) working
days of Seller's receipt of Buyer's notice of change.
23. COMPLETE AGREEMENT AND APPLIED DOCUMENTS
23.1 This Agreement including its Annexes constitute the entire Agreement
between the Parties and the Parties agree that there are no other
representations, warranties or oral agreements relating to the subject
matter of this Agreement. Amendments and additions
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<PAGE>
to this Agreement shall be valid only by exchange of documents signed by
both Parties. For the sake of clarity such amendments shall be expressly
marked "Amendment (nbr _________) to the Agreement." This Agreement
between Buyer and Seller shall supersede the provisions of any general
conditions of purchase which may be attached to or printed on the reverse
side of the Purchase Order used by Buyer.
24. DISPUTE RESOLUTION
Any dispute arising with respect to this Agreement shall be resolved in
the manner provided in the Technology Transfer Agreement.
List of Appendices:
Appendix 1 Products, Prices, Quantities, Business Conditions
Appendix 2 Participating Affiliates
Appendix 3 Quality Agreements and Procedures
Appendix 4 Contract Addresses
Appendix 5 Pricing Concepts
PHILIPS FLAT PANEL WHO?VISION SYSTEMS, INC.
DISPLAY (PHILIPS FPD) CO. B.V.
By: /s/ Matthew T. Medeiros By: /s/ Alex Dickinson
Name: Matthew T. Medeiros Name: Alex Dickinson
Title: Chairman & CEO Flat Displays Title: CEO
Date: 9/30/98 Date: 9/30/98
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<PAGE>
SUPPLY AGREEMENT
APPENDIX I
A. Products:
- To be filled in before signing for Photo and Capacitive products
B. Business Conditions:
- Minimum purchase volumes:
[ xxxxxx xxxxxxxxxxxxxxx
xx xx xxx xxxx
xx xxx xxxx
xx xx xxx xxxx
xx xxx xxxx
xx xxx xxxx
xx xxx xxxx]
- Lead-times [to be provided on/before December 31, 1999]
- Incoterrn specification - Ex Works
- (upside Flexibility [to be provided on/before March 31, 1999]
- Monthly rolling forecast [to be provided on/before March 31, 1999]
- cancellation/rescheduling [to be provided on/before March 31, 1999]
- Currency -- $US
- bookings delivery validity - [monitoring, reporting, and auditing
procedures to be established on or before March 31, 1999, with
audits, if any, to be performed by the Parties independent
accountants]
- fixed exchange rate [prices to be established in $US. The exchange
rate is the average value calculated over the ten days prior to the
Effective Date of this Agreement. To the extent prices are linked to
Dfl, Parties agree that exchange rates in effect on the date of
establishing Price List shall be subject to a variance
[Confidential Treatment requested for redacted portion of document]
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<PAGE>
of +- 5%, and that the Parties share in the variance above such range on an
equal basis measured by the date of shipment/invoicing from Such Price List
assumptions.]
C. Ordering/Forecast Formats: (if applicable)
- EDI [to be described and completed on or before January 31, 1999]
-17-
<PAGE>
APPENDIX 2
Product Specifications
To be mutually agreed for Photo Sensor Glass on/before March 31, 1999, and for
Capacitive Sensor Glass by the date to be established by the Steering Committee.
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<PAGE>
APPENDIX 3
QUALITY AGREEMENTS AND PROCEDURES
A. Quality Procedures
[to be described and completed on or before March 31, 1999]
B. Inspection Procedures
[to be described and completed on or before March 31, 1999]
C. Customer Complaint Procedure (RMA)
[to be described and completed on or before March 31, 1999]
D. Product and Design Change Conditions
[to be described and completed on or before March 31, 1999]
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<PAGE>
APPENDIX 4
CONTRACT ADDRESSES
A. Philips Contract Address for Rolling Forecasts and Purchase Orders
[to be described and completed on or before March 31, 1999]
B. Buyer's Contract Address for Order Confirmation
[to be described and completed on or before March 31, 1999]
C. Buyer's Invoice Address
[to be described and completed on or before March 31, 1999]
D. Seller's Bank-Account for Payment of Invoices
[to be described and completed on or before March 31, 1999]
E. Notice Addresses
[to be described and completed on or before March 31, 1999]
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<PAGE>
APPENDIX 5
PRICING CONCEPTS
[to be described and completed on or before March 31, 1999]
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Exhibit 10.12
TECHNOLOGY TRANSFER AGREEMENT
BETWEEN WHO?VISION AND PHILIPS
This Technology Transfer Agreement ("Agreement") is made as of
September 30, 1998 (the "Effective Date") by and between Philips Flat Panel
Display (Philips FPD) Co. BV, which has its registered place of business at
Professor Holstlaan 4, 5656 AA, The Netherlands ("Philips") and Who?Vision
Systems, Inc., having its place of business at 100 North Pointe Drive, Lake
Forest, CA 92630 ("WhoVision").
RECITALS
WHEREAS, WhoVision is active in the field of the development,
manufacture, marketing and sale of fingerprint sensor systems based on
WhoVision's proprietary technology named TactileSense, which uses polymers that
transform capacitive coupling into light.
WHEREAS, Philips is active in the development and manufacture of
capacitive and optical fingerprint sensors, more specifically the Philips
proprietary amorphous silicon technology.
WHEREAS, the parties, after having each other's aforementioned
proprietary fingerprint sensor technology as well as their future fingerprint
sensor (system) business objectives, have concluded that there is substantial
synergy between their fingerprint sensor (system) businesses and therefore wish
to enter into a co-operative relationship, and Philips feels that in the
interest of minimizing prices and maximizing output for fingerprint sensor
systems, Philips prefers to support WhoVision as set out hereinafter in
WhoVision's efforts to extend and complete its fingerprint sensor systems
portfolio rather than for Philips to attempt to establish a complete portfolio
of fingerprint sensor systems on its own behalf.
WHEREAS, Koninklijke Philips Electronics N.V. (as defined below) owns
patented technology in the field of fingerprint sensors based on its proprietary
amorphous silicon technology and Philips is prepared to arrange for WhoVision a
non-exclusive license thereunder as further set out hereinafter.
WHEREAS, Koninklijke Philips Electronics N.V. (as defined below) owns
know-how in the field of fingerprint sensors based on its proprietary amorphous
silicon diode technology and Philips is prepared to arrange for WhoVision an
exclusive license thereunder as further set out hereinafter.
WHEREAS, Philips is working with Cadence Design Systems Ltd. from
Bracknell, Berkshire, United Kingdom ("Cadence") on the design and development
of an ASIC to be applied
<PAGE>
in conjunction with fingerprint sensors based on Philips proprietary amorphous
silicon diode technology. In consideration for WhoVision's payment of the fees
due to Cadence as described hereinafter, WhoVision will be party to the relevant
agreements with Cadence, such that WhoVision has certain rights to the ASIC
design and related technology so developed.
WHEREAS, Philips is prepared to grant WhoVision technological support
by certain of Philips' design engineers active in the field of the development
of fingerprint sensors based on Philips proprietary amorphous silicon
technology, on terms and conditions to be agreed upon by the parties, as further
set out hereinafter.
WHEREAS, Philips is prepared to supply to WhoVision capacitive and
photo fingerprint sensors subject to WhoVision committing to purchase from
Philips certain minimum quantities to be agreed upon.
WHEREAS, it is Philips' intent to concentrate its marketing and sales
efforts on fingerprint sensors to be applied in cellular phones and furthermore
on sales to affiliated companies within the world-wide Philips Group of
Companies and Philips is in that respect prepared to purchase fingerprint sensor
systems from WhoVision.
WHEREAS, in consideration for Philips granting WhoVision broad access
to its fingerprint sensor technology based on its proprietary amorphous silicon
technology, for Philips rendering technological support to WhoVision, for
Philips purchasing fingerprint sensor systems from WhoVision and for Philips
cooperating with WhoVision in general and for the added goodwill that will be
associated with WhoVision as a result of a strategic business alliance with
Philips, Koninklijke Philips Electronics N.V. (as defined below) will acquire
capital stock of WhoVision pursuant to a separate agreement of even date
herewith (the "Securities A") and furthermore WhoVision is prepared to grant
Philips a license, subject to certain conditions set forth herein, under
intellectual property rights and know-how generated by WhoVision related to,
based on or derived from Philips amorphous silicon technology.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms will have the meanings
indicated:
1.1 "Capacitive Sensor System" means a device for sensing fingerprints
that uses a glass sensor designed by Philips that measures the difference
between the valleys and ridges of a fingerprint to create capacitive output, and
an ASIC that converts and stores digital information regarding the fingerprints
sensed by the sensor ("Cadence ASIC"). The Capacitive Sensor System also may
include an electronic device designed by WhoVision that converts and stores
digital
2
<PAGE>
information regarding the fingerprints sensed by the sensor, and may include a
housing designed by WhoVision to contain the sensor system. Capacitive Sensor
System may also includes software designed by WhoVision that may be used to
compare or identify fingerprints sensed by the sensor.
1.2 "Change of Control" means (a) a merger or consolidation of
WhoVision with or into any other corporation or corporations in which the
shareholders of WhoVision own less than fifty percent (50%) of the voting
securities of the surviving corporation, or (b) a sale of all or substantially
all of the assets of WhoVision (other than to a wholly-owned Subsidiary).
1.3 "Improvement" means any modification, improvement, or enhancement
to a invention or technology or Intellectual Property related thereto that is
developed by a party to this Agreement during the term of this Agreement.
Improvements made by Philips or WhoVision are referred to as "Philips
Improvements" or "WhoVision Improvements," as the case may be.
1.4 "Intellectual Property" means all current and future worldwide
patents, patent applications, trade secrets, copyrights, copyright registrations
and applications therefor, moral rights, and all other intellectual property
rights and proprietary rights (except trademarks, service marks and related
rights), whether arising under the laws of the United States of America or any
other state, country or jurisdiction.
1.5 "Invention" means any idea, design, concept, technique, apparatus,
method, discovery, improvement or work of authorship, whether or not patentable,
that is conceived or reduced to practice by one or more of the inventing party's
employees during the term of this Agreement.
1.6 "Licensed Products" means capacitive fingerprint sensors and photo
fingerprint sensors based on Philips' proprietary amorphous silicon technology.
1.7 "Licensed Philips Information" means (a) Confidential Information
owned or controlled by Philips or Philips Affiliates on or before the Effective
Date regarding the development of Photo Sensor Systems and Capacitive Sensor
Systems, including without limitation all such information relating to the use
of amorphous silicon technology in the WhoVision Field of Use, and including
without limitation the Watson ASIC 1 and 2 specifications and other information
provided by Philips to Cadence in connection with the Cadence ASIC; and (b) all
such information developed by Philips after the Effective Date in the course of
the services to be provided by Philips under the Technology Services Agreement.
1.8 "Net Sales" means [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx
xxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxx
xxxxxxxxxxxxxxxxx xxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxx
xxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxx
xxxxxx xxxxxxxxxx.]
[Confidential Treatment requested for redacted portion of document]
3
<PAGE>
1.9 "Optical Sensor System" means a device for sensing fingerprints
that uses an optical sensor designed by WhoVision that converts capacitive
coupling to optical output, a lens or fiber bundle designed by WhoVision to
direct the light impulses detected by the optical sensor, and an electronic
device designed by WhoVision that converts and stores digital information
regarding the fingerprints sensed by the sensor. Optical Sensor System may also
include software designed by WhoVision that may be used to compare or identify
fingerprints sensed by the sensor.
1.10 "Philips Affiliates" means Koninklijke Philips Electronics N.V. of
Eindhoven, The Netherlands, the ultimate parent company of the world-wide
Philips Group of Companies (hereinafter referred to as "Koninklijke Philips
Electronics N.V.") and any entity that is directly or indirectly majority owned
or controlled by Koninklijke Philips Electronics, by owning more than fifty
percent (50%) of the voting capital stock or otherwise, but only for as long as
such ownership or control exists.
1.11 "Photo Sensor System" means a device for sensing fingerprints that
uses a sensor designed by WhoVision that converts capacitive input to photo
output, which is attached to a photosensitive glass strip designed by Philips,
and the Cadence ASIC. The Photo Sensor System also may include an electronic
device designed by WhoVision that converts and stores digital information
regarding the fingerprints sensed by the sensor, and may include a housing
designed by WhoVision to contain the sensor system. Photo Sensor System may also
include software that may be used to compare or identify fingerprints sensed by
the sensor.
1.12 "WhoVision Business" means the development and manufacture of
capacitive and optical fingerprint sensor systems.
1.13 "WhoVision Field of Use" means the field of sensing, storing,
identifying or comparing fingerprints.
1.14 "WhoVision Products" means all products manufactured, distributed
or sold by WhoVision in the WhoVision Field of Use.
ARTICLE 2
DEVELOPMENT
2.1 WhoVision shall develop sensor systems in the WhoVision Field of
Use as follows:
2.1.1 Optical Sensor System.
Development. WhoVision shall use commercially reasonable efforts
to develop products embodying the Optical Sensor System according to the
milestone schedule and specifications in Exhibit D.
4
<PAGE>
2.1.2 Photo Sensor System.
(a) Technology Transfer. Philips shall provide WhoVision with
information, including all relevant documents, software and other materials as
described in Section 2.3, to develop the Photo Sensor System.
(b) Development. WhoVision shall use commercially reasonable
efforts to develop products embodying the Photo Sensor System according to the
milestone schedule and specifications in Exhibit D.
2.1.3 Capacitive Sensor System.
(a) Technology Transfer. Philips shall provide WhoVision with
information, including all relevant documents, software and other materials as
described in Section 2.3, to develop the Capacitive Sensor System.
(b) Development. WhoVision shall use commercially reasonable
efforts to develop products embodying the Capacitive Sensor System according to
the milestone schedule and specifications in Exhibit D.
2.1.4 Steering Committee Review. The Steering Committee (as
defined in Section 2.4) may review and modify the milestone schedules described
in this Section 2.1.
2.2 Improvements and Enhancements. WhoVision shall use commercially
reasonable efforts to develop improvements and enhancements to the products
described in Sections 2.1.1, 2.1.2 and 2.1.3. The parties may contribute
technology or resources, or otherwise cooperate to develop such additional
improvements and enhancements, as mutually agreed.
2.3 Transfer of Technology. Philips shall deliver to WhoVision all
relevant documents, software and other materials embodying the Licensed Philips
Information, and shall provide the services of certain engineers to advise
WhoVision regarding the information disclosed by Philips under this Section 2.3,
all in accordance with a Technology Services Agreement in substantially the form
in Exhibit F. WhoVision shall pay Philips for such services as set forth in such
Technology Services Agreement. A3 Ventures Incorporated ("A3") will provide
certain services to assist in the transfer of technology described in this
Section 2.3, pursuant to the Services Agreement between WhoVision and A3, which
is attached to this Agreement as Exhibit E, of which Philips is an intended
third party beneficiary.
2.4 Steering Committee. The parties shall form a technology advisory
board and steering committee ("Steering Committee") to address technological and
business issues relating to this Agreement. The Steering Committee will consist
of 2 representatives from each party, one of which must be a corporate officer
of such party, selected by such party. The Steering Committee will meet
quarterly, or as otherwise agreed by the parties, at such locations as the
parties agree. Each party
5
<PAGE>
shall bear its own personnel and travel costs and expenses relating to Steering
Committee meetings. Decisions of the Steering Committee will be made by
unanimous approval, and a quorum will consist of 4 members.
2.5 Disclosures and Technology Review. WhoVision shall present
quarterly reports to the Steering Committee regarding the development of the
WhoVision Products and technology in the field of the Licensed Products, subject
to existing and future restrictions on WhoVision in agreements between WhoVision
and third parties for the co-development of products in the field of the
Licensed Products. WhoVision shall disclose to Philips its development plans for
the WhoVision Products and technology in the WhoVision Field of Use
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
Philips acknowledges WhoVision may acquire or develop alternative technologies
at any time, so long as such development does not violate Philips' intellectual
property rights or this Agreement.
2.6 Development Costs. WhoVision shall pay all the costs of the
development described in this Section 2.
ARTICLE 3
INTELLECTUAL PROPERTY
3.1 Patent License. Philips shall cause Koninklijke Philips Electronics
N.V. to grant to WhoVision the non-exclusive (subject to Section 3.3),
worldwide, non-transferable, royalty-free (except under Section 3.11),
irrevocable (except under Section 3.6) and non-sublicenseable right under
certain of Philips' patent rights, during the term ending with the last
expiration of any such patent, to make, use, sell, have made, import, lease, and
otherwise dispose of products in the field of the Licensed Products, pursuant to
the Patent License Agreement in Exhibit A. In case of a WhoVision Change of
Control, the patent license mentioned in the previous sentence will remain
effective as provided for herein and in the Patent License Agreement in Exhibit
A for the WhoVision Business only, or the license may be transferred subject to
the terms and conditions set out in the Patent License Agreement in Exhibit A
for the WhoVision Business only, subject to the prior written approval of
Koninklijke Philips Electronics N.V., which will not be unreasonably withheld.
3.2 Proprietary Information License. Koninklijke Philips Electronics
N.V. hereby grants to WhoVision, under Koninklijke Philips Electronics N.V.'s
and all Philips Affiliates' rights to the Licensed Philips Information, a
non-exclusive (subject to Section 3.3), non-transferable, royalty-free (except
under Section 3.11), irrevocable (except under Section 3.6), non-sublicenseable,
perpetual license to use such proprietary information to make, use, sell, have
made, import, lease, and otherwise dispose of products in the field of the
WhoVision Field of Use. In case of a WhoVision Change of Control, the license
mentioned in the previous sentence will remain effective as provided for herein
for the WhoVision Business only, or the license may be transferred subject to
the terms
[Confidential treatment requested for redacted portion of document]
6
<PAGE>
and conditions set out herein for the WhoVision Business only, subject to the
prior written approval of Koninklijke Philips Electronics N.V., which will not
be unreasonably withheld. Nothing in this Section 3.2 will be deemed to require
Philips to disclose any proprietary information outside the field of the
Licensed Products.
3.3 Exclusivity. Neither Philips nor Koninklijke Philips Electronics
N.V. nor any Philips Affiliates shall grant to any third party the right to use
(a) the Licensed Philips Information; (b) the Philips Improvements; (c) any
Innovations (as defined in the Cadence Agreement) assigned jointly to WhoVision
and Philips under Section 6.2 of the Cadence Agreement; (d) any Joint
Innovations (as defined in the Cadence Agreement); or (e) the rights granted
jointly to WhoVision and Philips under Section 7.2 of the Cadence Agreement to
make products in the WhoVision Field of Use, nor shall Philips use the Licensed
Philips Information to make fingerprint sensors based on amorphous silicon diode
technology. Subject to Section 3.14, such obligation will cease with respect to
the Photo Sensor System if WhoVision fails to deliver the Photo Sensor System in
accordance with the milestone schedule described in Section 2.1.2, and such
obligation will cease with respect to the Capacitive Sensor System if WhoVision
falls to deliver the Capacitive Sensor System in accordance with the milestone
schedule described in Section 2.1.3. In addition, subject to Section 3.14, such
obligation will cease if WhoVision commits either of the following breaches of
the Agreement: (i) if WhoVision cannot meet the quarterly minimum volume orders
required under Article 4 of this Agreement; or (ii) if WhoVision materially
breaches its non-use or non-disclosure obligations under Article 8 of this
Agreement.
3.4 License to Philips Improvements.
3.4.1 Amorphous Silicon Technology. Koninklijke Philips
Electronics N.V. hereby grants to WhoVision, under Koninklijke Philips
Electronics N.V.'s and all Philips Affiliates' rights to the Philips
Improvements, a non-exclusive (subject to Section 3.3), nontransferable,
royalty-free (except under Section 3.11), irrevocable (except under Section
3.6), non-sublicenseable, perpetual license to make, use, sell, have made,
import, lease, and otherwise dispose of products in the field of the Licensed
Products. In case of a WhoVision Change of Control, the license mentioned in the
previous sentence will remain effective as provided for herein for the WhoVision
Business only, or the license may be transferred subject to the terms and
conditions set out herein for the WhoVision Business only, subject to the prior
written approval of Koninklijke Philips Electronics N.V., which will not be
unreasonably withheld.
3.4.2 Other Fingerprint Sensor Technology. Koninklijke Philips
Electronics N.V. hereby grants to WhoVision, under Koninklijke Philips
Electronics N. V.'s and all Philips Affiliates' rights to the Philips
Improvements in the field of fingerprint sensor technology other than in the
field of the Licensed Products, a non-exclusive, non-transferable, irrevocable
(except under Section 3.6), non-sublicenseable, perpetual license to make, use,
sell, have made, import, lease, and otherwise dispose of products in the field
of the Licensed Products; provided that (i) such grant is subject to any other
current or future agreements between Philips and any third party, and (ii)
WhoVision shall pay to Philips a reasonable royalty for such license, to be
determined in good faith by the parties. In
7
<PAGE>
case of a WhoVision Change of Control, the license mentioned in the previous
sentence will remain effective as provided for herein for the WhoVision Business
only, or the license may be transferred subject to the terms and conditions set
out herein for the WhoVision Business only, subject to the prior written
approval of Koninklijke Philips Electronics N.V., which will not be unreasonably
withheld. Philips shall use commercially reasonable efforts to disclose to
WhoVision its development plans for the products and technology in the WhoVision
Field of Use [xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxx] Philips'
obligations under this Section 3.4.2 will terminate automatically if Philips
terminates the exclusivity of the licenses under Section 3.3.
3.5 Other Intellectual Property. Koninklijke Philips Electronics N.V.
hereby grants to WhoVision, under Koninklijke Philips Electronics N.V.'s rights
to any works of authorship included in the Licensed Philips Information, a
non-exclusive, non-transferable, non-sublicenseable, royalty-free (except under
Section 3.11), perpetual, irrevocable (subject to Section 3.6) license under
Philips' copyrights, mask work rights, and design rights, to use, copy,
distribute, display, and perform such works, solely in connection with the
exercise of WhoVision's rights under Sections 3.1, 3.2 and 3.4.
3.6 Termination of License. Subject to Section 3.14, Philips may
terminate the licenses under Sections 3.1, 3.2, 3.4 and 3.5 above only if
WhoVision has materially breached WhoVision's obligations to Philips under
Section 5.1 with respect to a product that WhoVision has developed in
satisfaction of WhoVision's obligations under Section 2.1.
3.7 Ownership. Each party will retain the rights in its Intellectual
Property developed before the Effective Date, subject only to the licenses
granted herein. Any Philips Improvements made by Philips employees in the course
of performing under the terms of Exhibit F will be owned as set forth therein.
3.8 Patent Prosecution. Philips and WhoVision, as the case may be, may,
at its expense, prepare, file, prosecute and maintain its solely-owned patent
applications and patents. Philips may pursue patent or other Intellectual
Property protection for Inventions that are jointly owned by Philips and
WhoVision under Section 3.7, and WhoVision shall take all reasonable actions to
cooperate fully with Philips in this regard. WhoVision shall promptly reimburse
Philips for one-half of Philips' out-of-pocket expenses in connection with such
activities as they are incurred, provided that if WhoVision notifies Philips
that it no longer desires to pay for such expenses, WhoVision will not be
responsible for any further costs under this Section 3.8 related to such patent
or patent application, in which case all right, title and interest in or to such
patent or application, and any patents issuing on such application, will be
owned solely by Philips (subject to the rights and licenses granted to WhoVision
under this Agreement) and WhoVision hereby assigns to Philips all right, title
and interest in and to such patent. If Philips declines to take such actions
with respect to
[Confidential Treatment requested for redacted portion of document]
8
<PAGE>
any jointly owned Inventions in accordance with this Section 3.8, then WhoVision
may file, prosecute and maintain such patent applications or patents at its sole
expense, in which case all right, title and interest in or to such patent or
application, and any patents issuing on such application, will be owned by
WhoVision (subject to the rights and licenses granted to Philips under this
Agreement) and Philips hereby assigns to WhoVision all right, title and interest
in and to such patent. Philips shall notify WhoVision at least thirty (30) days
prior to the date the next action or filing is due to be taken with respect to a
jointly owned invention, patent application or patent, as to whether Philips
intends not to take any of the foregoing actions with respect to such invention,
patent application or patent.
3.9 Enforcement. If WhoVision believes that a third party is infringing
any of the Intellectual Property rights licensed by Koninklijke Philips
Electronics N.V. to WhoVision under this Article 3 or the Patent License in
Exhibit A, WhoVision shall notify Philips of such alleged infringement. Upon
such notice, the parties will discuss in good faith what action, if any, should
be taken by Philips with respect to such infringement. Any such action may be
taken only by Philips, in its sole discretion. Philips shall make reasonable
efforts to protect the value of the licenses granted under this Agreement.
WhoVision shall take no action against such alleged Infringement without the
prior written approval of Philips, which Philips may give or withhold in its
sole discretion.
3.10 License Back of Improvements. WhoVision hereby grants to Philips
and the Philips Affiliates the non-exclusive, perpetual, irrevocable, worldwide,
royalty-free (except as described in the last sentence of this Section 3.10),
fully paid-up, sublicenseable right and license, under all of WhoVision's
proprietary information, copyright, and other Intellectual Property rights in
and to WhoVision Improvements with respect to the technology licensed by Philips
to WhoVision under this Article 3, to make, use, sell, have made, import, lease,
and otherwise dispose of products in the WhoVision Field of Use. Such license
may be exercised by Philips only if Philips terminates the exclusivity in
accordance with Section 3.3. The right to sublicense the rights granted in this
Section 3.10 is subject to the prior written approval of WhoVision, which shall
not be unreasonably withheld. Philips' exercise of the above license with
respect to products outside the field of the Licensed Products will bear a
reasonable royalty to be negotiated by the parties.
3.11 Royalty. In consideration of the license to Philips Affiliates'
Intellectual Property and other proprietary information granted under this
Agreement, WhoVision shall pay to Koninklijke Philips Electronics N.V., no later
than thirty (30) days after the end of each calendar quarter, a royalty of
[xxxxxxxxxxxx] of Net Sales received by WhoVision during such quarter.
WhoVision's obligation to pay royalties pursuant to the previous sentence will
cease if Philips, in accordance with Section 3.3, terminates the exclusivity of
the license granted under Sections 3.1 and 3.2. WhoVision shall make quarterly
written reports to the Philips Affiliates no later than thirty (30) days after
the end of each calendar quarter, stating in each report the number,
description, and aggregate Net Sales of such WhoVision Products sold during the
calendar quarter. If no royalties are due, WhoVision shall so report.
[Confidential Treatment requested for redacted portion of document]
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3.11.1 Records; Inspection. WhoVision shall keep complete and
accurate books of account and records for the purpose of determining the royalty
amounts payable under this Article 3, and regarding the pricing of products sold
under the purchase agreement referenced in Article 5. WhoVision shall keep such
books and records reasonably accessible for at least three (3) years following
the end of the calendar quarter to which they pertain. Such records will be open
for inspection during such three (3) year period by an independent certified
public accountant appointed by Philips or the Philips Affiliates, for the
purpose of verifying the royalty statements. Such inspections may be made no
more than once each calendar year, at reasonable times. Philips' or Philips
Affiliates' representative or agent will be obliged to execute a reasonable
confidentiality agreement prior to commencing any such inspection. Philips shall
bear the costs and expenses of inspections conducted under this Section 3.11.1.
unless a variation or error producing an underpayment in royalties payable
exceeding five percent (5%) of the amount paid for the period covered by the
inspection is established in the course of any such inspection, whereupon all
costs relating to the inspection and any unpaid amounts that are discovered will
be paid by WhoVision, together with interest on such unpaid amounts.
3.12 Indemnification.
3.12.1 By Philips. Philips shall indemnify WhoVision against all
third party claims arising out of the infringement of any third party copyright
or trade secret right by the Licensed Philips Information. WhoVision shall
promptly notify Philips of such claim. WhoVision shall give Philips sole control
of the defense or settlement of such claim. WhoVision shall provide reasonable
assistance and full information with respect to such claim at Philips's expense.
The Philips Corporate Patents Department is prepared to assist WhoVision in the
defense of claims filed against WhoVision by third parties alleging that
products developed and/or sold on the basis of the technology which is the
subject of the patent license mentioned in Section 3.1 infringe upon the patents
of those third parties. Such assistance will be at Philips' expense if it
relates to a claim that the Watson 1 or 2 Specification would necessarily cause
one or more Licensed Products to infringe on patents of third parties.
3.12.2 By WhoVision. WhoVision shall indemnify Philips and the
Philips Affiliates against all claims arising out of the Agreement other than
those specified in Section 3.12.1, including without limitation claims of
infringement to the extent relating to the Intellectual Property of WhoVision,
claims of unfair business practices or fraud by WhoVision, and products
liability claims relating to the WhoVision Products. Philips shall promptly
notify WhoVision of such claim. Philips shall give WhoVision sole control of the
defense or settlement of such claim. Philips shall provide reasonable assistance
and full information with respect to such claim at WhoVision's expense.
WhoVision's obligations under this Section 3.12.2 will be subject to any
indemnity obligations of Philips in the supply agreement referenced in Article 4
and the purchase agreement referenced in Article 5.
3.13 Reservation of Rights. Each party reserves all rights in its
proprietary information and Intellectual Property that are not explicitly
granted to the other party under this Agreement.
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3.14 Termination of Exclusivity or Licenses. Philips may terminate its
exclusivity obligations as described in Section 3.3, or the licenses as
described in Section 3.6 (such process, to "Terminate Rights") only as follows.
In the event Philips determines it has the right to Terminate Rights, Philips
shall provide WhoVision with written notice of such determination, which notice
must include a description of the act or omission of WhoVision that is the basis
for such determination, which act or omission is not the result of a breach by
Philips ("Termination Trigger Event"). WhoVision will have thirty (30) days in
which to cure such Termination Trigger Event before Philips may take any further
action under this Section 3.14. If WhoVision cures such Termination Trigger
Event within such time period, Philips may not Terminate Rights based on such
Termination Trigger Event. If WhoVision fails to cure such Termination Trigger
Event within such period, the parties shall submit the question to the Steering
Committee. The parties shall abide by the decision of the Steering Committee
whether Philips may Terminate Rights. If the Steering Committee cannot make a
unanimous determination regarding the matter within thirty (30) days, Philips
may bring the matter to arbitration as described in Section 7.3. The arbitrators
will be instructed to make a determination no less than thirty (30) days after
the matter is brought whether Philips has the right to Terminate Rights. To
Terminate Rights is Philips' sole remedy for any Termination Trigger Event
(except a breach of Article 8). Philips may Terminate Rights under this Section
upon thirty (30) days written notice to WhoVision if and only if (a) WhoVision
does not cure the Termination Trigger Event at any time during the process
described above; and (b) the arbitrators decide that Philips may Terminate
Rights.
ARTICLE 4
SUPPLY BY PHILIPS
Supply of Components. Philips shall sell to WhoVision the following
components for the WhoVision Products, according to a supply agreement in
substantially the form of Exhibit B: capacitive fingerprint sensors, photo
fingerprint sensors. The Steering Committee may review and modify the quarterly
minimum quantities required of WhoVision as set forth in such supply agreement.
ARTICLE 5
SALES TO PHILIPS
Requirements. WhoVision shall sell to Philips and the Philips
Affiliates all WhoVision Products requested by Philips and the Philips
Affiliates, according to a purchase agreement in substantially the form of
Exhibit C. The above obligations will be subject to that certain manufacturing
and supply agreement between WhoVision and SPOT Technology, Inc. dated July 21,
1998 and that certain manufacturing and supply agreement between WhoVision and
Silitek Corporation dated July 10, 1998, as they are in effect as of the
Effective Date.
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ARTICLE 6
CADENCE ASIC
6.1 Cadence Agreements. Philips, WhoVision and Cadence have entered
into a Professional Services Agreement in the form attached as Exhibit G (the
"Cadence Agreement"). Philips and WhoVision are jointly and severally liable for
the obligations under the Cadence Agreement of the Customer (as such term is
defined therein). Philips has made payments to Cadence for work performed
through August 19, 1998. WhoVision shall be responsible for all payments to
Cadence for work performed thereafter. WhoVision shall be the primary contact as
the Customer (as such term is defined in the Cadence Agreement) of Cadence, with
assistance from Philips. All correspondence from either party regarding the
Cadence Agreement shall be copied to WhoVision and Philips.
6.2 Indemnification. Philips shall indemnify WhoVision against claims
by Cadence relating to technology provided by Philips to Cadence. WhoVision
shall promptly notify Philips of such claim. WhoVision shall give Philips sole
control of the defense or settlement of such claim. WhoVision shall provide
reasonable assistance and full information with respect to such claim at
Philips' expense. WhoVision shall indemnify Philips against claims by Cadence
for breach of other Customer (as defined in the Cadence Agreement) obligations
unless Philips has expressly undertaken to perform such obligations. Philips
shall promptly notify WhoVision of such claim. Philips shall give WhoVision sole
control of the defense or settlement of such claim. Philips shall provide
reasonable assistance and full information with respect to such claim at
WhoVision's expense.
ARTICLE 7
DISPUTE RESOLUTION
7.1 Disputes. Any dispute relating to this Agreement will be referred
to the Steering Committee. If the Steering Committee cannot resolve a dispute
within thirty (30) days after such dispute is referred to the Steering Committee
under Section 7.1, the parties shall abide by the dispute resolution procedures
in Section 7.2 and 7.3.
7.2 Mediation. The parties shall submit to non-binding mediation of the
dispute before a professional mediator, whom the parties will mutually select.
If such dispute is not resolved within thirty (30) days of the start of such
mediation, the parties shall resolve the dispute as set forth in Section 7.3.
7.3 Arbitration Proceedings. The parties shall resolve disputes through
binding arbitration using the rules of conciliation and arbitration of the
International Chamber of Commerce ("ICC") having its seat in Paris, France. The
arbitration will take place before three (3) arbitrators appointed in accordance
with ICC rules (the "Panel"). The parties and the arbitrators shall use their
best efforts to complete the arbitration within one (1) year after the
appointment of the Panel, unless a party can demonstrate to the Panel that the
complexity of the issues or other reasons warrant an extension of such time
limit. In such a case, the Panel may extend such time limit as reasonably
required. The
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Panel shall, in rendering its decision, apply the substantive law of the State
of California, without regard to its conflict of laws provisions. The
arbitration will take place in the English language, in Santa Clara County,
California. The parties shall submit all pleading and written evidence in the
English language. The party losing the arbitration, as designated by the Panel,
shall pay the fees of the Panel. If the Panel is unable to designate a losing
party, the parties shall equally split the fees of the Panel. Each party shall
bear the costs of its attorneys' and experts' fees, provided that the Panel may,
in its discretion, award the prevailing party all or part of the costs and
expenses incurred by the prevailing party in connection with the arbitration.
7.4 Injunctive and Equitable Relief. Notwithstanding Sections 7.1, 7.2
and 7.3 above, should any dispute arise relating this Agreement, either party
may apply to any court of competent jurisdiction for injunctive or equitable
relief.
ARTICLE 8
NON-USE AND NON-DISCLOSURE
8.1 Definition. "Confidential Information" means any information
disclosed by either party to the other party, either directly or indirectly, in
writing, orally or by inspection of tangible objects (including without
limitation documents, prototypes, samples, plant and equipment), which is
designated as "Confidential," "Proprietary" or some similar designation.
Information communicated orally shall be considered Confidential Information if
such information is confirmed in writing as being Confidential Information
within a reasonable time after the initial disclosure. Confidential Information
may also include information disclosed to a disclosing party by third parties.
Confidential Information shall not, however, include any information which (i)
was publicly known and made generally available in the public domain prior to
the time of disclosure by the disclosing party; (ii) becomes publicly known and
made generally available after disclosure by the disclosing party to the
receiving party through no action or inaction of the receiving party; (iii) is
already in the possession of the receiving party at the time of disclosure by
the disclosing party as shown by the receiving party's files and records
immediately prior to the time of disclosure; (iv) is obtained by the receiving
party from a third party without a breach of such third party's obligations of
confidentiality; (v) is independently developed by the receiving party without
use of or reference to the disclosing party's Confidential Information, as shown
by documents and other competent evidence in the receiving party's possession;
or (vi) is required by law to be disclosed by the receiving party, provided that
the receiving party gives the disclosing party prompt written notice of such
requirement prior to such disclosure and assistance in obtaining an order
protecting the information from public disclosure.
8.2 Non-Use and Non-Disclosure. Neither party shall use any
Confidential Information of the other party for any purpose except to exercise
its rights and perform its obligations under this Agreement. Neither party shall
disclose any Confidential Information of the other party to third parties or to
such party's employees, except to those employees of the receiving party with a
need to know. Notwithstanding the above, either party may disclose information
on a "need-to-know" basis to potential business associates with the approval of
the other party, which will not be
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unreasonably withheld. Neither party shall reverse engineer, disassemble or
decompile any prototypes, software or other tangible objects that embody the
other party's Confidential Information and that are provided to the party
hereunder.
8.3 Maintenance of Confidentiality. Each party shall take reasonable
measures to protect the secrecy of and avoid disclosure and unauthorized use of
the Confidential Information of the other party. Without limiting the foregoing,
each party shall take at least those measures that it takes to protect its own
most highly confidential information and shall ensure that its employees who
have access to Confidential Information of the other party have signed a non-use
and non-disclosure agreement in content similar to the provisions hereof prior
to any disclosure of Confidential Information to such employees. Neither party
shall make any copies of the Confidential Information of the other party unless
the same are previously approved in writing by the other party. Each party shall
reproduce the other party's proprietary rights notices on any such approved
copies, in the same manner in which such notices were set forth in or on the
original.
ARTICLE 9
TERM AND TERMINATION
9.1 Term. The term of this Agreement will commence on the Effective
Date and continue in full force and effect in perpetuity. Neither party may
terminate this Agreement except by mutual agreement of the other party.
ARTICLE 10
LIMITATIONS ON LIABILITY
Liability Arising Out of Supply or Purchase. In addition to
the limitations on liability set forth in Section 11.11 of this Agreement, the
parties' liability arising out of the supply or purchase of WhoVision Products
will be as set forth in the supply and purchase agreements attached to this
Agreement as Exhibit B and Exhibit C respectively.
ARTICLE 11
GENERAL
11.1 Patent Marking. WhoVision shall mark permanently and legibly all
WhoVision Products manufactured, used or sold under the license granted by
Philips under Article 3 with all applicable patent numbers or otherwise conform
to patent laws and practices of the country in which such licensed product is
sold.
11.2 Independent Contractors. The relationship of Philips and WhoVision
established by this Agreement is that of independent contractors. Nothing in
this Agreement will be construed to create any other relationship between
Philips and WhoVision. Neither party will have any right, power or authority to
assume, create or incur any expense, liability or obligation, express or
implied, on behalf of the other.
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11.3 Confidential Terms. Except as expressly provided herein, neither
party shall disclose any terms of this Agreement to any third party without the
consent of the other party, except as required by securities or other applicable
laws, rules, and regulations, or to prospective and other investors and such
party's accountants, attorneys and other professional advisors, provided such
parties receive such information under a duty of confidentiality.
11.4 Assignment. Philips may not assign this Agreement without the
prior written consent of WhoVision, except to (i) a Philips Affiliate, or (ii) a
party that succeeds to all or substantially all of Philips' business or assets
relating to this Agreement whether by sale, merger, operation of law or
otherwise, provided that such assignee or transferee promptly agrees in writing
to be bound by the terms and conditions of this Agreement. WhoVision may not
assign this Agreement without the prior written consent of Philips. Subject to
the above, this Agreement will inure to the benefit of the parties' successors
and assigns.
11.5 Force Majeure. If either party to this Agreement is prevented from
or delayed in the performance of any of its obligations under this Agreement by
reason of acts of God, war, strikes, riots, storms, fires, or any other cause
whatsoever beyond the reasonable control of the party, the party so prevented or
delayed will be excused from the performance of any such obligation to the
extent and during the period of such prevention or delay.
11.6 Notices. Any notice, submission, or communication required or
permitted under the terms of this Agreement, or required by law, whether or not
so required elsewhere in this Agreement, must be in writing and must be (a)
delivered in person, (b) sent by first class registered mail, return receipt
requested, or air mail, as appropriate, or (c) sent by overnight air courier, in
each case properly posted and fully prepaid to the appropriate address set forth
below:
If to Philips: Matt Madieros, CEO
3200 N. First Street
San Jose, California
With a copy to: Kees Van Der Klauw
Philips Flat Panel Display (Philips FPD) Co. BV
Professor Holstlaan 4, 5656 AA
The Netherlands
And a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Heather Meeker, Esq.
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If to WhoVision: Alex Dickinson, CEO
WhoVision Systems
100 North Pointe Drive
Lake Forest, CA 92630
Either party may change its address for notice by notice to the other party
given in accordance with this Section 11.6. Notices will be deemed to have been
given upon the earlier of (i) actual delivery in person, (ii) the date of a
receipt of such notice signed by an authorized representative of the party being
notified, (iii) the date of a written confirmation of receipt by the party being
notified, or (iv) thirty (30) days after deposit in the mail as set forth above.
11.7 Payment. All payments made under this Agreement by either party
must be in U.S. Dollars.
11.8 Language. This Agreement is in the English language only, which
language will be controlling in all respects, and any version hereof in any
other language is not binding on the parties hereto. The parties shall make or
give all communications and notices pursuant to this Agreement in the English
language.
11.9 Governing Law. This Agreement will be governed by, and construed
and interpreted in accordance with, the laws of the State of California, without
regard to its conflicts of laws principles.
11.10 No Waiver. A waiver, express or implied, by either party of any
right under this Agreement or of any failure to perform or breach hereof by the
other party hereto will not constitute or be deemed to be a waiver of any other
right hereunder or of any other failure to perform or breach hereof by such
other party, whether of a similar or dissimilar nature thereto.
11.11 Limitation of Liability. NEITHER PARTY WILL BE LIABLE TO THE
OTHER PARTY OR ANY PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL
DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE
SAME), ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM IS
BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN
AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR
LIKELIHOOD OF SUCH DAMAGES.
11.12 Headings. Headings included herein are for convenience only, do
not form a part of this Agreement and must not be used in any way to construe or
interpret this Agreement.
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11.13 Severability. If any provision of this Agreement is adjudicated
to be void, invalid or unenforceable, such provision will be reformed to comply
with applicable law or stricken if not so conformable, so as not to affect the
validity or enforceability of the remainder of this Agreement.
11.14 Entire Agreement. This Agreement (along with the Exhibits hereto)
constitutes the entire understanding and agreement between the parties with
respect to the subject matter hereof and supersedes any and all prior
negotiations, representations, agreements, and understandings, written or oral,
that the parties may have reached with respect to the subject matter hereof. No
agreements altering or supplementing the terms hereof may be made except by
means of a written document signed by the duly authorized representatives of
each of the parties hereto. It is understood that the Securities Agreement is
separate and independent from this Agreement and termination of either agreement
will not operate to terminate or otherwise effect the rights and obligations of
the parties under the other agreement. In the event of a conflict between the
terms of the body of this Agreement and the Exhibits, the terms of the body of
this Agreement will govern, unless such Exhibit specifically states that its
terms are to supersede the terms of the body of this Agreement. In the event any
Exhibits, or portions thereof, are incomplete at the time of execution of this
Agreement, the parties shall negotiate in good faith the completion thereof.
11.15 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
11.16 Board of Management Approval. This Agreement including its
Exhibits which form an integral part hereof are subject to the approval of the
Board of Management of Koninklijke Philips Electronics N.V.
11.17 Warranty Disclaimer. EACH PARTY HEREBY DISCLAIMS ANY WARRANTIES,
WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO ANY
PROPRIETARY INFORMATION DISCLOSED UNDER SECTIONS 2.3 AND 2.5, INCLUDING WITHOUT
LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
The parties have signed below to indicate their acceptance of the terms and
conditions of this Agreement:
Philips Electronics Who?Vision Systems, Inc.
North America Corporation
By: /s/ Matthew T. Medeiros By: /s/ Alex Dickinson
--------------------------------- -----------------------------
Name: Matthew T. Medeiros Name: Alex Dickinson
-------------------------------- ----------------------------
Title: Chairman & CEO Flat Display Title: CEO
------------------------------- ---------------------------
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Exhibit D
Development Schedule
18
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Exhibit D
2.1.2
Milestone Schedule*
[xxxxxx]
[Confidential treatment is requested for redacted portion of document]
19
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Exhibit D
2.1.3
Preliminary Milestone Schedule*
[xxxxxx]
[Confidential treatment is requested for redacted portion of document]
20
Exhibit 10.13
TECHNOLOGY SERVICES AGREEMENT
This Technology Services Agreement ("Agreement") is made as of 30 Sept.,
1998 (the "Effective Date") by and between Philips Flat Panel Display (Philips
FPD) Co. BV, which has its registered place of business at Professor Holstlaan
4, 5656 AA, The Netherlands (Philips Flat Panel Display (Philips FPD) Co. BV
hereinafter referred to as "Philips") and Who? Vision Systems, Inc., having its
place of business at 100 North Pointe Drive, Lake Forest, CA 92680
("WhoVision").
WHEREAS, the parties are entering into a Technology Transfer Agreement of
even date herewith (the "Technology Transfer Agreement") for the purpose of,
among other things, Philips licensing and disclosing to WhoVision certain
technology in the field of fingerprint sensors based on Philips proprietary
amorphous silicon diode technology (the "Philips Technology") in order to
support WhoVision to develop fingerprint sensor systems based on the Philips
Technology.
WHEREAS, as set forth in the Technology Agreement, Philips is prepared to
grant WhoVision technological support by certain of Philips' design engineers
active in the field of the development of fingerprint sensors.
Now Therefore, in consideration of the mutual covenants herein contained
the parties agree as follows:
1. Definitions. Capitalized terms used and not defined herein shall have
the meanings given them in the Technology Transfer Agreement.
2. Services.
2.1 Philips shall provide to WhoVision the services of certain of its
design engineers active in the field of the development of fingerprint
sensors based on the Philips Technology (the "Philips Engineers") in
order to (i) consult WhoVision regarding the Philips Confidential
Information disclosed by Philips under the Technology Agreement in order
to transfer to WhoVision engineers to know-how embodied in and relating
to the Philips Technology, (ii) actively lead the management of the
development (including consultancy support in production engineering) of
the Photo Sensor System, and (iii) assist WhoVision personnel in the
development of the Capacitive Sensor System. The services shall include
participation in the development of the Cadence ASIC Watson I. Philips
shall allocate a sufficient number of Philips Engineers as agreed
between the Parties
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with sufficient expertise. The scope of the activities of those Philips
Engineers is as described in Exhibit A attached to this Agreement (which
Exhibit may be amended from time to time by mutual consent of the
parties). The parties understand that these are estimates only, and the
parties will discuss from time to time within the Steering Committee
established by the Technology Transfer Agreement the status of each task
and any revisions to such estimates. It is understood that
[xxxxxxxxxxxxx] will be his full time involved as the principal project
manager of the technology transfer, with involvement of qualified
engineers from both Philips FPD and Philips Research.
2.2 Philips will use reasonable efforts to ensure that the cooperation
with WhoVision to achieve the Milestones (as defined in Exhibit D to the
Technology Transfer Agreement) on schedule will be the top priority for
the Philips Engineers assigned to this project.
2.3 In addition to the services set forth in Section 2.1, Philips agrees
to commit an aggregate of [xxx] full time equivalent man-years of time
of Philip Engineers during the first year of the term of this Agreement
toward continuing to advance Philips' technology in the field of
fingerprint sensors, not limited to amorphous silicon diode technology.
Such efforts shall be at Philips' own expense. Licensed Philips
Information (as defined in Section 1.7 of the Technology Transfer
Agreement) developed by Philips after the Effective Date of that
Agreement while and in the course of performing the services to be
provided under this Article 2.3 shall be licensed to WhoVision as set
forth in Section 3.4 of the Technology Transfer Agreement.
2.4 The Philips Engineers will remain as employees of Philips, who shall
be solely responsible for all liabilities as an employer of such
engineers, including without limitation wages, insurance, employment
taxes, employment records and reporting, employee benefits, and
unemployment benefits. Philips will retain control over the activities
of the Philips Engineers.
2.5 The Philips Engineers will perform the services primarily at Philips
facilities, but will travel to WhoVision's facilities or Cadence's
facilities from time to time as reasonably requested by WhoVision where
such travel will facilitate the expeditious completion of the
Milestones. WhoVision shall reimburse Philips for all ordinary and
necessary travel, lodging and related expenses incurred by Philips
Engineers when they travel to WhoVision's or Cadence's facilities, upon
submission of invoices itemizing such expenses in a form reasonably
satisfactory to WhoVision. WhoVision may send its personnel to Philips'
facilities or Cadence's facilities, at WhoVision's expense and with
[Confidential Treatment requested for redacted portion of document]
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reasonable notice, to work with the Philips Engineers. The Philips
Engineers shall comply with all reasonable, consistently applied
WhoVision work rules while at the WhoVision facility, and WhoVision
personnel shall comply with all reasonable, consistently applied Philips
work rules while at the Philips facility.
3. Term. This Agreement shall commence on the Effective Date and shall
continue until March 31, 2000, or so much earlier as the [xxxxxxx] man years of
the Philips Engineers have been used by WhoVision or otherwise if mutually
agreed.
4. Compensation. For the services performed pursuant to Section 2.1,
WhoVision shall pay Philips in accordance with Exhibit B attached to this
Agreement. Compensation shall be paid on the basis of the time actually spent by
the Philips Engineers and materials actually used.
5. Ownership of Inventions and Intellectual Property. Philips acknowledges
and agrees that WhoVision shall become the owner of all Inventions and
proprietary information and all Intellectual Property rights therein, developed,
conceived, or made by the Philips Engineers in the WhoVision Field of Use,
whether alone or in conjunction with WhoVision or Cadence personnel, in the
performance of the services under Section 2.1 of this Agreement. Philips
acknowledges that all copyrightable works shall be considered works made for
hire under the U.S. Copyright Act. Philips hereby assigns and transfers to
WhoVision, and shall cause each Philips Engineer to assign and transfer to
WhoVision, all of their right, title and interest in and to all such works and
Inventions, and agrees that it and they shall, at the request of WhoVision,
cooperate with WhoVision in any patent or copyright applications which needs to
be accounted for in the [xxxxxx] man years of Engineers as committed to by
Philips, while WhoVision remains solely responsible for the adverse consequences
on meeting the Milestone Schedule.
6. Nondisclosure of Confidential Information Concerning Business. In the
performance of the services hereunder, each Party may acquire from the other
Party Confidential Information. Each Party will comply with the non-use and
non-disclosure provisions of Article 8 of the Technology Transfer Agreement with
respect to such Confidential Information.
7. Termination
7.1 Each Party may terminate this Agreement on thirty (30) days prior
written notice in case of a material breach by the other Party of his
obligations under this Agreement.
7.2 Philips may also terminate this Agreement only in the event of a
termination of the licenses granted in Article 3 of the Technology
Agreement.
[Confidential Treatment requested for redacted portion of document]
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8. Indemnities.
8.1 WhoVision shall indemnify Philips and its employees against all
claims for damage to persons or property asserted with respect to the
Philips Engineers' work at WhoVision's facilities unless and except to
the extent such damage is due to the gross negligence or wilful
misconduct of Philips or the Philips Engineers.
8.2 Philips shall indemnify WhoVision and its employees against all
claims for damage to persons or property asserted with respect to
WhoVision's personnel's work at Philips facilities unless and except to
the extent such damage is due to the gross negligence or wilful
misconduct of WhoVision or the WhoVision personnel.
9. Force Majeure. If either party to this Agreement is prevented from or
delayed in the performance of any of its obligations under this Agreement by
reason of acts of God, war, strikes, riots, storms, fires, or any other cause
whatsoever beyond the reasonable control of the party, the party so prevented or
delayed will be excused from the performance of any such obligation to the
extent and during the period of such prevention or delay.
10. Notices. Any notice, submission, or communication required or permitted
under the terms of this Agreement, or required by law, whether or not so
required elsewhere in this Agreement, must be in writing and trust be (a)
delivered in person, (b) sent by first class registered mail, return receipt
requested, or air mail, as appropriate, or (c) sent by overnight air courier; in
each case properly posted and fully prepaid to the appropriate address set forth
below:
If to Philips:
If to WhoVision: WhoVision Systems, Inc.
100 North Pointe Drive
Lake Forrest, CA 92630
Attn: Alex Dickinson, CEO
Either party may change its address for notice by notice to the other party
given in accordance with this Section 10. Notices will be deemed to have been
given upon the earlier of (i) actual delivery in person, (ii) the date of a
receipt of such notice signed by an authorized representative of the party being
notified, (iii) the date of a written confirmation of receipt by the party being
notified, or (iv) thirty (30) days after deposit in the mail as set forth above.
11. Payment. All payments made under this Agreement by either party must be
in U.S. Dollars.
4
<PAGE>
12. Language. This Agreement is in the English language only, which
language will be controlling in all respects, and any version hereof in any
other language is not binding on the parties hereto. The parties shall make or
give all communications and notices pursuant to this Agreement in the English
language.
13. Governing Law. This Agreement will be governed by, and construed and
interpreted in accordance with, the laws of the State of California, without
regard to its conflicts of laws principles.
14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same instrument.
The parties have signed below to indicate their acceptance of the terms and
conditions of this Agreement:
Philips Flat Panel Display Who?Vision System, Inc.
(Philips FPD) Co. B.V.
By: /s/ C.L. M. Van Der Klauw By: /s/ Alex Dickinson
---------------------------- ------------------------
Name: C.L. M. Van Der Klauw Name: Alex Dickinson
-------------------------- ----------------------
Title: General Manager Title: CEO
-------------------------- ----------------------
By: /s/ Matthew T. Medeiros
----------------------------
Name: Matthew T. Medeiros
--------------------------
Title: CEO Flat Displays
--------------------------
5
<PAGE>
EXHIBIT A
Scope of Activities
[xxxxxxx
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[Confidential Treatment requested for redacted portion of document]
6
<PAGE>
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[Confidential Treatment requested for redacted portion of document]
7
<PAGE>
EXHIBIT B
COMPENSATION
The total expected charges are [xxxxxxxx], as follows:
Time Charges:
[x] manyears @ [xxxxxxxx] US per full-time equivalent, covering photo sensor and
capacitive sensor development services
Materials Charges:
lotstarts [xxxxxxxxxxx]
test equipment [xxxxxxxxxxx]
electronics/tooling [xxxxxxxxxx]
Payment Terms:
Invoices to be presented monthly for actual services performed and materials
used; payable within 30 days after invoice
[Confidential Treatment requested for redacted portion of document]
8
Exhibit 10.14
LICENSE AGREEMENT
This Agreement is made and effective as of the Effective Date of the Technology
Transfer Agreement (as defined in this License Agreement) by and between
WhoVision Systems, Inc. ("WhoVision"), a United States corporation with offices
at 100 North Pointe Drive, Lake Forest, CA 96280, USA, and Koninklijke Philips
Electronics N.V. ("Philips"), a Dutch corporation with offices at Eindhoven, The
Netherlands.
WHEREAS, the parties have agreed to conclude a license agreement pursuant to
which Philips grants licenses to WhoVision under certain patents of Philips to
develop, manufacture, have manufactured and sell certain fingerprint sensors.
NOW, THEREFORE, it is hereby agreed as follows:
Article 1
Definitions
For the purpose of this Agreement the following definitions shall apply:
1.1 "Licensed Patents" shall mean
[a. xxxxxxxxxxxxxxxxxxxxxxxxxxx
b. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
c. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
d. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
e. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
f. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
g. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
h. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
i. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
j. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
k. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
l. xxxxxxxxxxxxxxxxxxxxxxxxxxx
m. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
n. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
[Confidential Treatment requested for redacted portion of document]
<PAGE>
and corresponding patent applications worldwide, including all continuation,
divisional and continuation-in-part applications resulting therefrom, and
patents issuing or issued on any of such applications. The current status of
each of the above listed patents is set forth on Exhibit A attached hereto.
1.2 "Licensed Products" shall mean capacitive and optical fingerprint
sensing devices based on Philips' proprietary amorphous silicon
technology.
1.3 "Associated Company" shall mean any entity which is at least fifty
percent (50%) owned or controlled, directly or indirectly, by Philips
or by WhoVision, but only for as long as such ownership or control
exists.
1.4 "Technology Transfer Agreement" shall mean the Technology Transfer
Agreement of _________________ 1998, between WhoVision and Philips Flat
Panel Display Co.
(Philips FPD) B.V.
Article 2
Grant of licenses
Subject to the terms and conditions of this Agreement, Philips hereby grants to
WhoVision and its Associated Companies a fully paid-up, royalty free, worldwide,
non-exclusive, irrevocable (subject to Article 4), non-transferable and
indivisible license under the Licensed Patents to develop, manufacture, have
manufactured and to use, sell, import, lease or otherwise dispose of capacitive
and optical fingerprint sensing devices based on Philips' proprietary amorphous
silicon or [xxxxxxxxxxx] technology.
Article 3
Warranties
3.1 Philips agrees, in addition to the licenses granted hereunder, that it
will not assert during the term of this Agreement any patent rights
owned or controlled by Philips or its Associated Companies which cover
inventions relating to Licensed Products against the manufacture and
sale by WhoVision and/or its Associated Companies of fingerprint
sensors anywhere in the world.
[Confidential Treatment requested for redacted portion of document]
<PAGE>
3.2 Philips represents that it owns and controls the Licensed Patents.
Philips represents that to the best of its knowledge the technology
covered by the Licensed Patents does not infringe upon third parties'
patent rights.
Article 4
Term and termination
4.1 This Agreement shall become operative with effect as from the date
first above written and shall continue in effect until the date of
expiration of the last to expire of the Licensed Patents.
4.2 Notwithstanding the above, in the event that WhoVision shall:
a. file a petition in bankruptcy or make a general assignment for
the benefit of creditors or otherwise acknowledge insolvency or
be adjudicated bankrupt,
b. go or be placed in a process of complete liquidation other than
for an amalgamation or reconstruction, or
c. suffer the appointment of a receiver for any substantial portion
of its business who shall not be discharged within sixty (60)
days after this appointment,
then, and in any such event, Philips at its option may terminate its
obligations to WhoVision under this Agreement upon ten (10) days
written notice to WhoVision. Philips may also terminate this License
Agreement in accordance with Article 3.14 of the Technology Transfer
Agreement.
Article 5
General
5.1 Neither party shall assign this Agreement without the prior written
consent of the other party. Any assignment without such consent shall
be null and void. In case of a WhoVision change of control, this
Agreement will remain effective for the WhoVision business only,
subject to the prior written approval of Philips, which will not be
unreasonably withheld.
5.2 Any notice under this Agreement shall be given by sending the notice by
prepaid registered mail addressed to the party to whom notice is to be
given at the party's registered office at that time and any notice so
sent shall be deemed to have been given
<PAGE>
on the date upon which, in ordinary course of the post, it would have
reached its destination, but not later than ten (10) days after mailing
in the fashion described.
5.3 Nothing contained in this Agreement shall be construed as conferring by
implication, estoppel or otherwise upon any party hereto any license or
other right or privilege under any patent, except the licenses, rights
and privileges expressly granted hereunder to such party.
5.4 Philips undertakes not to start an active licensing program under the
Licensed Patents in the WhoVision field of use as defined in the
Technology Transfer agreement, on the condition that and as long as
WhoVision's sales performance is in accordance with the Business Plan,
which is attached to the Technology Transfer Agreement as Annex B.
Article 6
Arbitration and applicable law
This Agreement, its validity, its interpretation and performance shall be
governed by the Laws of the State of New York as if this Agreement were wholly
executed and wholly to be performed in New York.
All disputes arising out of or in connection with the interpretation or
execution of this Agreement during its term or thereafter shall be finally
settled according to the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one or more arbitrators in accordance with
the Rules. The Court of Arbitration shall convene at New York, USA or such other
place as the parties may mutually agree. The proceedings shall be conducted in
the English language.
Article 7
Entire agreement
This Agreement sets forth the entire agreement and understanding between the
parties hereto as to the subject matter hereof and merges and, supersedes all
prior discussions between them and neither of the parties shall be bound by any
conditions, definitions, warranties, waivers or releases in respect of this
Agreement, other than expressly provided for herein or as duly set forth on or
subsequent to the date hereof in a written document signed by a duly authorized
representative of the party to be bound thereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in duplicate by its duly authorized officers or representatives.
KONINKLIJKE PHILIPS WHOVISION SYSTEMS, INC.
ELECTRONICS N.V.
By: Matt Medeiros By: Alex Dickinson
/s/ Matt Medeiros /s/ Alex Dickinson
-------------- ---------------
Title: Chief Executive Officer, Title: CEO
Business Group Flat Display Systems,
Philips Components Division
<PAGE>
List
Current status of patents and patent applications:
[a. xxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxx
b. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
c. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
d. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
e. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
f. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
g. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
h. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
i. xxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
j. xxxxxxxxxxxxxxxxxxxxxxxxxxxx
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[Confidential Treatment requested for redacted portion of document]
<PAGE>
k. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
l. xxxxxxxxxxxxxxxxxxxxxxxxxx
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m. xxxxxxxxxxxxxxxxxxxxxxxxxxxx
n. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
[Confidential Treatment requested for bracketed portion of document]
2
CADENCE CONFIDENTIAL Exhibit 10.15
CADENCE DESIGN SYSTEMS.
Professional Services Framework Agreement
Agreement No.:____________________
Effective Date: September 30, 1998
This Professional Services Framework Agreement (the "Agreement") is made and
entered into on the Effective Date between Cadence Design Systems Limited whose
registered office is at Bagshot Road, Bracknell, Berkshire, RG12 OPH, United
Kingdom ("Cadence") of the one part and Philips Electronics North America
Corporation ("Philips Electronics") having its registered place of business at
1251 Avenue of the Americas, New York, USA, for the purpose of acting through
the business group, Flat Panel Display which is part of the worldwide Philips
component divisions, and also acting for and on behalf of Philips Flat Panel
Display Co. (Philips FPD) B.V. ("Philips FPD"), Prof. Holstlaan 4, Building
WLC-V1, 5656 AA Eindhoven, The Netherlands and Who?Vision Systems, Inc.
("Who?Vision") having a principal place of business at 180 North Pointe Drive,
Lake Forest, CA 92630, USA of the other part (hereinafter jointly referred to as
the "Customer").
WHEREAS.
(A) Cadence has the right to use software products, design tools, and expertise
in the electronic design automation field, and is in the business of, among
other things, providing design consulting services utilising such products and
expertise to its customers.
(B) The Customer now wishes from time to time to engage Cadence to perform
certain design consulting services as may be agreed by Cadence in accordance
with the terms and conditions of this Agreement.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS,
(the remainder of this page is intentionally left blank)
<PAGE>
1. Definitions
In this Agreement unless the context otherwise requires the following words and
expressions shall have the following meanings:
"Circuit Blocks" shall be as defined in the Statement of Work.
"Confidential Information" means any information written or otherwise including
but not limited to the Licensed Technology disclosed in any medium by one party
to the other under this Agreement and marked or otherwise designated as
"Confidential" or is clearly by its nature confidential.
All references in this Agreement to the "Customer" shall be construed and
interpreted as follows:
a. Where the term is used in the context of an obligation, duty
or liability which is due or owing to Cadence, then Philips
Electronics, Philips FPD and Who?Vision Systems shall be
jointly and severally liable for the performance, discharge
and satisfaction of the obligation, duty or liability in
question; whereas
b. Where the term is used in the context of an obligation, duty
or liability which is due or owing to the Customer, then
Philips Electronics, Philips FPD and Who?Vision Systems shall
be treated for all purposes as though they were one
indivisible party to this Agreement."
"Deliverables" means the specific materials, devices, products or other
deliverables described as such in the Statement of Work;
"Effective Date" shall be deemed to be the date Cadence commenced the Services
which the parties acknowledge and agree is - March 1, 1998;
"IP Rights" means semiconductor topography rights, rights in mask works
including those conferred by the US semi conductor Chip Protection Act 1984 or
any modification or reenactment thereof, patents, copyrights, trademarks
(including service marks), trade secrets, design rights whether registered or
unregistered and including any application for registration of any of the
foregoing and all rights or forms of protection of a similar nature or having
equivalent or similar effect to any of these which may subsist anywhere in the
world;
"Innovation" means any invention development or innovation conceived or
developed by Cadence solely or jointly with Customer during the performance of
the Services and whether or not forming part of a Deliverable including but not
limited to formulas, algorithms, mechanical
<PAGE>
and electronic hardware, electronic components, computers and their parts,
computer languages, programs and their documentation, methods, methodologies,
design flows, mask works, cell libraries, circuit blocks, encoding techniques,
articles, writings, compositions, works of authorship and improvements;
"Licensed Technology" means the information, materials and technology owned or
controlled by Customer which Cadence reasonably requires to perform the Services
and which shall be agreed between the parties such agreement not to be
unreasonably withheld or delayed;
"Payment Schedule" means the payment schedule set out in each Statement of Work
in respect of the provision of the Services;
"Project Schedule" means the timetable relating to the performance of the
Services set out in each Statement of Work;
"Services" means the services described in the Statement of Work;
"Residual Information" means expertise in the intangible form of generic
knowledge and know-how that is or may be retained in the minds of persons who
have had authorised access to Confidential Information of the other party,
including ideas, concepts or techniques contained therein.
"Statement of Work" means the description of the Services to be agreed hereunder
from time to time substantially in the form set out in Schedule 1 of this
Agreement.
"Subsidiary or Subsidiaries" means a company or companies in which another
company, its "holding company", a) holds a majority of the voting rights in it;
or b) is a member of it and has the right to appoint or remove a majority of its
board of directors; or c) is a member of it and controls alone, pursuant to an
agreement with other shareholders or members, a majority of the voting rights in
it, or if it is a subsidiary of a company which is itself a subsidiary of that
other company.
2. Services
2.1 Cadence shall perform the Services described and the training (if any) set
out in the Statement of Work in accordance with the terms and conditions of this
Agreement.
2.2 Cadence shall provide such resources and utilise such employees and/or
design consultants as it deems necessary to perform the Services. The manner and
means used by Cadence to perform the Services are in the sole discretion and
control of Cadence. All work shall be performed at Cadence's facilities unless
otherwise agreed in a Statement of Work.
<PAGE>
2.3 Cadence shall perform the Services in accordance with the Project Schedule
set out in the Statement of Work, and Customer and Cadence agree to cooperate in
good faith to achieve completion of the Services in a timely and professional
manner. The Customer understands and agrees that Cadence's provision of the
Services will depend upon completion of certain Customer tasks set out and in
accordance with the Statement of Work and Project Schedule and that consequently
on the accuracy of information and data to be provided by Customer and any third
parties to the extent it is Customers obligation, the Statement of Work and the
Project Schedule may require adjustments or changes in the event that such
Customer tasks or the time scales for their performance change, are modified, or
are not completed as anticipated. Cadence shall bear no liability or otherwise
be responsible for delays in the provision of the Services or any part thereof
caused by the Customer's failure to complete a Customer task or adhere to the
Project Schedule.
2.4 In performing the Services, Cadence shall design, develop and/or make for
the Customer the Deliverables. In the event that Customer provides Cadence with
specifications for such Deliverables, and these specifications are referenced in
a Statement of Work, Cadence shall (subject to Clause 2.3) ensure that the
Deliverables meet such specifications. The only deviations from the
specifications that will be allowed will be those deviations that do not
negatively affect purpose, form, and/or function of the Deliverables.
2.5 Customer acknowledges and agrees that the performance of Services or the
timely delivery of Services by any third party foundry selected by either or
both parties shall be dependent upon and subject to Customer's responsibilities
and the project dependencies and assumptions set out in the Statement of Work.
3. Management of Prototype, Ramp Up and Production
In the event Customer wishes Cadence to perform or manage prototype, ramp up and
production of ICs ("IC") as more fully set out in the Statement of Work, Cadence
agrees to work with Customer and a third party foundry (to be agreed upon
between the parties) to implement the design prototype and production of ICs by
managing the prototype fabrication process, ramp up and full production of ICs.
Customer shall directly contract with the foundry selected by Customer and
Cadence. Cadence and Customer acknowledge and agree that Customer is not
representing, and Cadence is not responsible for directly contracting with the
foundry for finished semiconductor products.
4. Services Fees and Expenses
4.1 In consideration of Cadence performing the Services the Customer undertakes
to pay Cadence the fees and royalties (if any) set out in accordance with and in
the manner described in the Payment Schedule. Customer shall also reimburse
Cadence for actual, reasonable travel and
<PAGE>
out-of-pocket expenses incurred for any Services that are performed away from
Cadence facilities to the extent agreed by the parties in the relevant Statement
of Work.
4.2 In order to provide additional incentive to Cadence in performance of the
Services, the Statement of Work may provide for certain milestone events,
achievement of which by Cadence shall trigger the obligation by the Customer to
pay the applicable milestone payment as listed in the Payment Schedule.
Accordingly upon achievement of the application milestone as agreed between the
parties, Cadence shall provide to the Customer a statement showing achievement
of the milestone and an invoice for the amount of the milestone and an invoice
for the amount of the applicable milestone payment in accordance with Clause 4.3
below.
4.3 The amounts payable to Cadence pursuant to this Agreement are exclusive of
any Value Added Tax, sales or use, deductions, withholding or other taxes or
governmental charges. The Customer shall be responsible for payment of all such
taxes or charges except for any taxes based solely upon Cadence's net income.
5. Invoicing and Payment
Cadence shall invoice the Customer for the fees and royalties (if any) upon the
date on which such sums become payable for Services owing and expenses. All
invoices shall be due and payable when invoiced, and shall be deemed overdue if
they remain unpaid sixty (60) days after they become payable. Overdue amounts
shall accrue interest at the rate of one (1) per cent per month, or at the
highest legal interest rate, if less. If the Customer's procedures require that
an invoice be submitted against a purchase order before payment can be made, the
Customer shall be responsible for issuing such purchase order thirty (30) days
before the payment due date.
6. Intellectual Property Rights
6.1 In providing the Services, Cadence will exercise and utilise certain of its
pre-existing IP Rights and certain of Customer IP Rights, which shall be
identified in the Statement of Work. All pre-existings IP Rights that are owned
or controlled by a party at the commencement of this Agreement shall remain
under the ownership or control of such party throughout the term of this
Agreement and thereafter. Except as otherwise expressly provided, neither this
Agreement, nor the provision of the Services hereunder, shall give either
Cadence or the Customer any rights of ownership in or to the pre-existing IP
Rights of the other party, or, with respect to the IC fabrication, ramp up or
full production, the IP Rights of third parties. Customer also warrants that it
has all necessary consents, permissions, licences and authority to allow Cadence
to use any IP Rights or Licensed Technology, which have to be provided by or on
behalf of the Customer, to the extent related to those items set out in the
Statement of Work.
<PAGE>
6.2 The Customer shall own and be assigned ownership rights to any and all
Innovations, and the IP Rights subsisting therein, that derive solely and
directly from the Licensed Technology, and/or the Customer IP Rights therein.
Cadence shall retain all ownership rights to all Innovations, and all IP Rights
subsisting therein that derive solely and directly from Cadence's proprietary
information, materials and/or IP Rights.
6.3 To perfect ownership of IP Rights, each party hereby agrees to assign to the
other all rights it may have in those Innovations to be owned by the other as
provided in Clause 6.2 above, and to assist and cooperate with the other party
in all reasonable respects, and execute all documents and, subject to reasonable
availability, and take all further acts reasonably necessary to acquire,
transfer, maintain, and enforce such IP Rights.
6.4 Innovations which are based upon (i) both Cadence Technology and/or Cadence
IP Rights and Licensed Technology and/or Customer IP Rights, or (ii) neither
Cadence Technology, Licensed Technology, Cadence IP Rights nor Customer IP
Rights shall be jointly owned by Cadence and Customer (collectively, "Joint
Innovations"). All Joint Innovations shall be owned in equal undivided interests
by Cadence and Customer. Cadence and Customer shall: (i) execute any and all
documents necessary to effect such equal and undivided interests to Joint
Innovations, and (ii) have the right to freely use, exploit, protect, maintain,
license, transfer and enforce its rights to Joint Innovations with no royalty
payment or accounting to the other party, provided each party shall bear its
portion of Joint Costs (defined below). Each party hereby forever waives and
releases any right each has or will have in the future to require any
accounting, sharing or payment of profits from the other in connection with the
Joint Innovations. Cadence and Customer will: (a) reasonably cooperate with the
other party with respect to providing information and preparing and filing any
documents necessary, including patent applications to secure their rights with
respect to Joint Innovations; (b) jointly share expenses incurred in securing
rights such as those associated with obtaining and maintaining patents,
copyrights, mask works or similar rights with respect to Joint Innovations
("Joint Costs"). If one party elects not to seek or secure such rights on Joint
Innovations in any particular country or not to share equally in the expense
thereof, the other party will have the right to seek and maintain such
protection at its own expense and shall have full control over the prosecution
and maintenance thereof, even though title and any IP Rights arising from Joint
Innovations will be joint. Any party filing or receiving documents related to
the prosecution or issuance of any IP Rights arising from Joint Innovations will
provide copies of such documents to the other party promptly after filing or
receipt; and (c) maintain the confidentiality of Joint Innovations which are
trade secrets and which have not become the subject of a published patent in the
same manner as a party protects its own trade secrets and confidential
information with a degree of care that is at least reasonable.
<PAGE>
6.5 Cadence agrees that notwithstanding any provision contained in this Clause 6
it will not for a period of [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
use the Circuit Blocks and Innovations of such Circuit Blocks developed
specifically for this design [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] The list
of Circuit Blocks will be as identified by the parties in writing in an IP Log
throughout the course of the Project.
For the avoidance of doubt, in the event that Cadence is invited to engage in
assisting another customer to design a fingerprint sensor IC, Cadence agree that
it will follow a process similar to that followed with Customer where,
notwithstanding the fact that specification development is performed jointly
with the customer, the specification will be driven by and solely owned by the
customer. The final customer device specification will then be used to determine
which circuit blocks are required.
7. License Grant
7.1 Customer agrees to provide to Cadence with the Licensed Technology and
hereby grants to Cadence a royalty-free, non-exclusive, world-wide licence to
use and practise the Licensed Technology, and all IP Rights subsisting therein,
solely for the term of this Agreement and for the exclusive purpose of Cadence
performing the Services of the Customer. Customer represents that to the extent
Customer provides to Cadence hereunder any IP Rights covering such Licensed
Technology that it has obtained all necessary permissions, licences, consents
and has the authority to provide such technology to Cadence. At the prior
written request of Cadence, and following the agreement of both parties, the
Customer shall obtain for Cadence the right to use, for the purpose of
performing the Services, such third party information, materials and technology,
and the IP Rights therein, as Cadence reasonably requires in order to perform
the Services.
7.2 Subject to payment in full of the amounts to which Cadence is entitled
hereunder and compliance with the terms of this Agreement Cadence hereby grants
to Customer a worldwide, non-exclusive, perpetual, fully paid licence to use any
Cadence IP Rights and Cadence owned Innovation incorporated in the Deliverables
to the extent necessary to permit the Customer to make, have made, use, sell and
modify the Deliverables for the purposes set forth in the Statement of Work and
utilising the process technology described in the Statement of Work.
7.3 Cadence is not providing or licensing to the Customer any existing Cadence
electronic design automation software programs or products under this Agreement.
The Customer may acquire licences for such Cadence products only under the terms
of a separate software licence agreement.
[Confidential Treatment requested for redacted portion of document]
<PAGE>
8. Limited Warranties and Exception.
8.1 Cadence warrants that the Services provided hereunder, which specifically
exclude those services to be provided by any third party foundry or other
contractor engaged by the Customer, will be performed in a professional manner
and the Deliverables will be provided in accordance with the specifications
pursuant to the provisions of Clause 2.4 and that Cadence personnel will be
appropriately skilled or qualified for the tasks assigned to them.
8.2 WITH DUE REGARD TO THE WARRANTY PROVIDED IN CLAUSE 8.1 ABOVE, IT IS
UNDERSTOOD THAT THE WARRANTY ABOVE IS EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
SATISFACTORY QUALITY, AND FITNESS FOR ANY PARTICULAR PURPOSE (OTHER THAN FOR THE
PURPOSE SPECIFICALLY REFERRED TO IN SPECIFICATION REFERENCED IN THE STATEMENT OF
WORK) WHICH WARRANTIES ARE EXPRESSLY DISCLAIMED TO THE FULLEST EXTENT
PERMISSIBLE BY LAW.
8.3 In order to receive warranty remedies, deficiencies (being a deviation from
the specifications referenced in the Statement of Work that does not negatively
affect the purpose, form and/or function of the Deliverable) in the Services,
which exclude the services to be provided by any third party foundry or other
contractor engaged by the Customer, must be reported to Cadence in writing as
soon as reasonably practicable and, in any event, within 120 days of completion
of the Services. The Customer shall not make any additions, deletions or
modifications to the Deliverables except as specifically set forth in this
Agreement or as authorised in writing by Cadence. The Customer's sole remedy
shall be, at Cadence's option, to have such deficiencies remedied as set forth
in the Statement of Work or to receive a refund of the pro rata amount of the
fees allocable to such Services. For the avoidance of doubt, both parties
acknowledge and agree that modification of the Deliverables by Customer in
accordance with Clause 8.2 above shall cause immediate termination of any
applicable warranty as set out above.
9. Indemnification.
9.1 Cadence hereby agrees to indemnify, defend and hold Customer, its
affiliates, and their respective officers, directors, employees, and agents
("Customer Indemnitees") harmless from and against any and all liabilities,
losses, damages, costs and expenses ("Losses"), and any reasonable attorney's
fees and expenses relating to its defence, resulting from any suit or action
brought against the Customer Indemnitees due to (a) any injuries suffered by
Cadence employees except for injuries caused by gross negligence or intentional
harm of Customer or its employees or agents, of (b) infringement of any third
party patent, copyright, trade secret or other intellectual property right due
to the (i) use or practice by the Customer Indemnitees of any
<PAGE>
Cadence owned Innovations or IP Rights incorporated in the Deliverables, the IP
Rights of Cadence claiming or covering the Cadence owned Innovations, third
party materials, information or technology or any IP Rights subsisting therein
supplied by Cadence, or any other information disclosed by Cadence to Customer
hereunder; and (ii) the misuse of any Licensed Technology, Customer IP Rights
other than as permitted for the purpose of performing the Services; provided
that the Customer Indemnitees shall follow the indemnification procedure in
Clause 9.3.
9.2 Customer hereby agrees to indemnify and hold Cadence, its affiliates, and
their respective officers, directors, employees, and agents ("Cadence
Indemnitees") harmless from and against any and all Losses, and reasonable
attorney's fees and expenses relating to its defence, resulting from any suit or
action brought against any of the Cadence Indemnitees due to (a) any injuries
suffered by Customer employees, except for injuries caused by gross negligence
or intentional harm of Cadence of its employees or agents, or (b) infringement
of any third party patent, copyright, trade secret or other intellectual
property right due to the (i) use or practice by the Cadence Indemnitees of the
Licensed Technology, any third party IP Rights incorporated in the Deliverables,
the IP Rights of Customer claiming or covering the Licensed Technology, third
party materials, information or technology or any IP Rights subsisting therein
supplied by Customer, or any other information disclosed to Cadence by Customer
hereunder; and (ii) the use or practice by the Customer Indemnitees of the
Deliverables as modified by the Customer; and (iii) the misuse of any Cadence
Technology, Cadence IP Rights or Cadence Innovations incorporated in the
Deliverables other than as permitted in accordance with Clause 7.2 above; and
(c) Cadence's use or practice of the Licensed Technology and Customer's IP
Rights or reliance on Customer's directions or instructions in providing the
Services related to the implementation of or arrangement for the prototype, ramp
up or full production of the IC; provided that the Cadence Indemnitees shall
follow the indemnification procedure in Clause 9.3.
9.3 If any claim or action is commenced against a party entitled to
indemnification under this Section for Losses resulting from such claim or
action (a "Claim"), such party shall give written notice to the other party
within ten (10) days of notice of such Claim. If such party receiving notice is
obligated under this Clause 9 to defend the party against such Claim, then the
indemnifying party shall take control of the defense and investigation of the
Claim, using such attorneys and other assistance as it selects in its
discretion. The indemnified party shall cooperate in all reasonable respects in
such investigation and defense, including trial and any appeals, provided that
such party may also participate, at its own expense, in such defense. No
settlement of a Claim that involves a remedy other than payment of money by
indemnifying party shall be agreed to and entered without the consent of the
indemnified party, which consent shall not be unreasonably withheld.
<PAGE>
10. Limitations on Liability
10.1 Nothing in this Agreement shall have the effect of excluding or limiting
either party's liability for death or personal injury caused by negligence nor
will it apply to any breach of any obligations which may be implied by section
12 of the Sale of Goods Act 1979 or by section 2 of the Supply of Goods and
Services Act 1992.
10.2 The parties' maximum aggregate liability for damage to the other party's
tangible property shall not exceed US $100,000.
10.3 Subject to the remaining sub-sections of this Clause 10, the parties'
aggregate liability under this Agreement for all causes of action arising in
respect of any particular Service or Deliverable, including the Indemnities
given in Clause 9.1 and 9.2, shall not exceed the total amount actually paid by
Customer under this Agreement provided that nothing in this Clause 10 shall have
the effect of excluding or limiting the liability for death, personal injury or
intentional breach of confidentiality.
10.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR SPECIAL,
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES INCLUDING BUT
NOT LIMITED TO LOSS OF PROFITS, CONTRACTS, GOODWILL OR INTERRUPTION OF BUSINESS
HOWSOEVER CAUSED, WHETHER FOR BREACH OF WARRANTY, CONTRACT, TORT NEGLIGENCE, OR
OTHERWISE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR ANY
REMEDY SET FORTH IN THIS AGREEMENT.
11. Confidentiality and Non-Use
11.1 By virtue of this Agreement, each party hereto may disclose to the other
party information that is confidential and otherwise proprietary. Such
Confidential Information shall be governed by the terms of this Clause 11 and
shall supersede any previous agreements regarding the exchange of Confidential
Information.
11.2 Each party agrees, for the term of this Agreement and for five (5) years
after its expiration or termination, (i) to hold the other party's Confidential
Information in strict confidence, (ii) not to disclose such Confidential
Information to third parties not authorised by the disclosing party to receive
such Confidential Information, (iii) to disclose such Confidential Information
only to its employees with a need to know such Confidential Information and who
are placed under express obligations of confidentiality and (iv) not to use such
Confidential Information for any purpose except as expressly permitted
hereunder. Each party agrees to take reasonable steps to protect the other
party's Confidential Information to ensure that such Confidential Information is
not disclosed, distributed or used in violation of the provisions of this
Agreement. The foregoing
<PAGE>
prohibition on disclosure of Confidential Information shall not apply to the
extent that the Confidential Information is (a) required to be disclosed by the
receiving party as a matter of law or by order of a court, provided that the
receiving party uses reasonable efforts to provide the disclosing party with
prior notice of such obligation to disclose and reasonably assist in obtaining a
protective order therefor (b) is or becomes a part of the public domain through
no act or omission of the other party or was otherwise available to the public
other than by breach of this Agreement; or (c) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the other party
either directly or indirectly from the disclosing party; or (d) is lawfully
disclosed to the other party by a third party without restriction on disclosure;
or (e) is independently developed by the other party without access to the
Confidential Information; or (f) is reasonably required by Customer to complete
financing transactions and to satisfy SEC disclosure requirements; or (g) is
reasonably required to be disclosed to Customer's customers and OEM's provided
that in such case it shall obtain the prior written approval of Cadence which
approval shall not be unreasonably withheld.
11.3 Subject to the provisions of Clauses 6 and 7 above, within fifteen (15)
days of the receiving party's receipt of the disclosing party's written request
for the return of Confidential Information, or the completion of the Services
hereunder, all of the disclosing party's Confidential Information and all copies
thereof in the receiving party's possession or control shall be returned to the
disclosing party or destroyed by the receiving party at the disclosing party's
instruction. The receiving party shall then certify the same in writing and that
no copies have been retained by the receiving party, its employees or agents.
11.4 All of the parties acknowledge and agree that each party and its respective
employees may utilise for any purpose any Residual Information resulting from
performing the Services.
11.5 Each party acknowledges that unauthorised disclosure or use of the
Confidential Information may cause irreparable harm to the original disclosing
party for which recovery of monetary damages would be inadequate, and that the
original disclosing party shall therefore be entitled to obtain timely
injunctive relief to protect its right under this Agreement in addition to any
and all remedies available at law.
11.6 Nothing in this Clause 11 shall limit the party's right to independently
develop information, materials, technology, or other products or services for
itself or for others which may compete with the other party so long as no
unauthorised disclosures have been made by the party during the term of the
confidentiality obligation. Further, nothing in this Clause 11 shall prevent the
party from having developed, or may be in the process of developing information
similar to the Confidential Information.
<PAGE>
12. Right to Perform Consulting Services For Others
Subject to Cadence's compliance with the confidentiality provisions of this
Agreement, nothing in this Agreement shall restrict or limit (a) Cadence from
performing design consulting or other services to any other entity in any
industry, including the semiconductor and electronics industries, and (b)
Cadence's and its employees' ability to provide design consulting services
similar in nature to the Services for any third parties both during and after
the term of this Agreement.
13. Term and Termination
13.1 This Agreement commences on the Effective Date and, unless terminated
earlier pursuant to the terms of this Agreement, shall continue in force until
the Services have been completed.
13.2 This Agreement may be terminated by Cadence forthwith (a) if the Customer
defaults in the timely payment of any monies due to Cadence and fails to cure
such breach within thirty (30) days from the date of receipt by the Customer of
any notice of such breach (b) in the event of the insolvency, bankruptcy,
reorganisation assignment for the benefit of or composition with creditors of
the Customer or if the Customer has a receiver, manager, administrative receiver
or similar officer appointed to the whole or part of its assets or a resolution
is passed for its winding up (other than for the purpose of a bona fide
amalgamation or reconstruction) or an order is made for its winding up,
dissolution or liquidation (c) if the Customer is unable to pay its debts within
the meaning of Section 123 of the Insolvency Act 1986 or (d) if the Customer
ceases or threatens to cease or carry on its business.
13.3 This Agreement may be terminated by either party upon thirty (30) days
prior written notice if the other party materially breaches or fails to perform
any material term hereof and, in the case of a breach which is capable of
remedy, fails to cure such breach within such thirty (30) day period.
13.4 Each party's obligations under Clauses 6, 7, 8.2, 9, 10, 11, 12, 13, 14, 15
and 16 of the Agreement shall survive termination or expiration of the
Agreement. Within thirty (30) days of termination of this Agreement for any
reason, Cadence shall submit to the Customer an itemised invoice for any fees or
expenses accrued and unpaid under this Agreement prior to the date of such
termination. If Cadence terminates the Agreement by reason of the default of the
Customer to pay any amounts owing hereunder, the rights of the Customer to use
the Deliverables including any express or implied licenses which may have been
granted herein shall immediately terminate.
<PAGE>
14. Independent Contractors
Cadence shall perform the Services as an independent contractor, and nothing
contained in this Agreement shall be construed to create or imply a joint
venture, partnership, principal-agent or employment relationship between the
parties. Neither party shall take any action or permit any action to be taken on
its behalf which purports to be done in the name of or on behalf of the other
party and shall have no power or authority to bind the other party to assume or
create any obligation or responsibility express or implied on the other party's
behalf or in its name, nor shall such party represent to any one that it has
such power of authority.
15. Governing Law
This Agreement will be governed by and construed in accordance with the laws of
England. This Agreement is prepared and executed and shall be interpreted in the
English language only, and no translation of the Agreement into another language
shall have any effect.
16. Dispute Resolution
16.1 The parties shall attempt in good faith to resolve any dispute arising in
connection with this agreement informally according to the following procedure.
Upon written request of a party identifying a dispute to be resolved (the
"Notice of Dispute"), each party will designate an executive officer with the
responsibility and authority to resolve the dispute. The designated officers
shall meet preliminary within fifteen (15) days after the request is received
from the requesting party. At this first meeting, the designated officers shall
identify the scope of the dispute and the information needed to discuss and
attempt to resolve the dispute. These officers shall then gather relevant
information regarding the dispute and shall meet to discuss the issues and
negotiate in good faith to resolve the dispute. Such second meeting shall occur
within fifteen (15) days of the first meeting.
16.2 If the parties have not settled the dispute by the method set out in Clause
16.1 above within 42 days from the Notice of Dispute, the dispute shall be
referred to and finally resolved by arbitration under the Rules of the
International Chamber of Commerce which rules are deemed to be incorporated by
reference in to this Clause 16. Arbitration shall be conducted in Amsterdam in
the English language.
16.3 This Clause 16 shall not apply to any failure by the Customer to make the
payments due under the Agreement.
16.4 For the avoidance of doubt, nothing in this Clause 16 shall prevent either
party seeking interim injunctive relief from a court of appropriate
jurisdiction.
<PAGE>
17. General
17.1 Notices. Notices to be given or submitted by either party to the other
pursuant to this Agreement shall be in writing and directed in the case of the
Customer to the addresses of each of Philips Electronics, Philips FPD and Who?
Vision set out above, and in the case of Cadence, to: Bagshot Road, Bracknell,
Berkshire, RG12 OPH Att: Legal Department. All notices which are required to be
given hereunder may be delivered personally or by air mail prepaid letter or
facsimile and shall be deemed to have been served if by hand when delivered, if
by air mail post seventy two hours after posting and if by facsimile
transmission when dispatched provided that the transmission report shows the
correct number.
17.2 Severability. If any term or provision of this Agreement is determined to
be invalid or unenforceable for any reason, it shall be adjusted rather than
voided, if possible, to achieve the intent of the parties to the extent
possible. In any event, all other terms and provisions shall be deemed valid and
enforceable to the maximum extent possible.
17.3 Force Majeure. Neither party shall be liable for any loss or damage,
arising from delay due to causes beyond its reasonable control.
17.4 Assignment. Neither party shall assign, delegate, or subcontract any
portion of its rights, duties, or obligations under this Agreement without the
other party's prior written consent which shall not be unreasonable withheld or
delayed. As used in this Agreement, an assignment shall include but not be
limited to: (1) any dissolution, merger, consolidation, or other reorganisation
of or affecting the Customer, whether or nor the Customer is the surviving
corporate entity; and (2) the sale or transfer, by one or more transactions, of
shares possessing more than fifty per cent (50%) of the total combined voting
power of all classes of the Customer's share capital issued, outstanding and
entitled to vote for the election of its directors.
17.5 Export Administration. If any Deliverables are for use outside the U.S.A.,
the parties mutually agree to comply fully with all relevant regulations of the
U.S. Department of Commerce and with the U.S. Export Administration Act to
ensure that such are not exported in violation of United States Law and to
comply fully with any other regulations or laws relating to such export or
import into another country. The Customer shall be responsible for any duties,
customs charges or other taxes or fees relating to such export.
17.6 Complete Agreement. Both parties acknowledge that they have read,
understood and agree to be bound by this Agreement and that this Agreement
including Statements of Work agreed from time to time under the terms of this
Agreement is the complete and exclusive statement of the agreement between the
parties regarding the subject matter hereof, which supersedes all proposals,
oral or written, and all other communications between the parties relating to
such subject matter. Each party acknowledges that is has no action for any
<PAGE>
representation by the other party or made on the other party's behalf but
nothing in this Agreement shall limit any rights of the Customer in respect of
any fraudulent misrepresentation.
17.7 Modification. Both parties agree that any terms and conditions of any
purchase order or other instrument issued by either party in connection with the
Agreement that are in addition to or inconsistent with the terms and conditions
of this Agreement shall be of no force or effect. This Agreement may be modified
only by a written instrument duly executed by an authorised representative of
Cadence and Customer.
17.8 Waiver. The failure of a party to enforce any provision of this Agreement
shall not constitute a waiver of such provision or the right of such party to
enforce such provision or any other provision.
17.9 Conflict. If there is any conflict between the terms of the body of this
Agreement and the Statement of Work or the terms of any subsequent attachment
hereto, the terms of the body of this Agreement shall prevail.
17.10 The provisions of this Agreement shall not be binding on Who? Vision until
such time as it enters into a Technology Transfer Agreement, in writing until
with Philips FPD.
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement on the
Effective Date.
For and on behalf of Philips Electronics by:
Signature: /s/ Matthew T. Medeiros
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Name: Matthew T. Medeiros
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Title: Chairman & CEO Flat Displays
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Date: 9/20/98
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For an on behalf of Who? Vision by:
Signature: /s/ Alex Dickinson
---------------------------------------
Name: Alex Dickinson
--------------------------------------------
Title: CEO
-------------------------------------------
Date: 9/30/98
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For and on behalf of Cadence by:
Signature:
---------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Date:
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Exhibit 10.16
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT made as of the 30th day of September, 1998 by and
between WHO? VISION SYSTEMS, INC., a corporation incorporated under the laws of
the State of Delaware (the "Company"), and KONINKLIJKE PHILIPS ELECTRONICS N.V.,
a corporation incorporated under the laws of the Netherlands ("Purchaser"),
acting on behalf of Philips Flat Panel Display (Philips FPD) Co. B.V.
(Collectively, "Philips").
WHEREAS, the Company is active in the field of the development,
manufacture, marketing and sale of fingerprint sensor systems based on the
Company's proprietary technology named TactileSense, which uses polymers that
transform capacitive coupling into light.
WHEREAS, Philips is active in the development of capacitive and optical
fingerprint sensors based on glass, more specifically the Philips proprietary
amorphous silicon technology.
WHEREAS, the parties, after having assessed each other's aforementioned
proprietary fingerprint sensor technology as well as their future fingerprint
sensor (system) business objectives, have concluded that there is substantial
synergy between their fingerprint sensor (system) businesses and therefore wish
to enter into a co-operative relationship.
WHEREAS, the Company and Philips propose concurrently herewith to enter
into a separate technology Transfer Agreement (such agreement, together with all
ancillary agreements executed by Philips and the Company pursuant thereto, is
referred to herein as the "Technology Agreement") pursuant to which Philips will
support, through the granting of technology licenses, the provision of technical
support and otherwise, the Company's efforts to extend and complete its
fingerprint sensor systems portfolio.
WHEREAS, in consideration of (i) Philips granting the Company broad access
to its fingerprint sensor technology based on its proprietary amorphous silicon
technology, for Philips rendering technological support to the Company, (ii)
Philips purchasing fingerprint sensor systems from the Company and (iii) Philips
co-operating with the Company in general and for the added goodwill that will be
associated with the Company as a result of a strategic business alliance with
Philips, all as set forth in the Technology Agreement, the Company has agreed to
grant Philips a license under intellectual property rights generated by the
Company related to, based on or derived from Philips amorphous silicon
technology asset set forth in the Technology Agreement and to issue Purchaser
shares of its Series C Preferred Stock, all as set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
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<PAGE>
ARTICLE I
Authorization and Sale of Shares
1.1 Authorization. The Company has authorized the sale and issuance of up
to 3,700,000 shares (the "Preferred Shares") of the Company's Series C Preferred
Stock having the rights, preferences, privileges and restrictions as set forth
in the Certificate of Amendment of the Company's Restated Certificate of
Incorporation (the "Certificate") in the form attached hereto as Exhibit A.
1.2 Sale of Preferred Shares. On the terms and subject to the conditions
set forth herein, the Company will issue and sell to Purchaser, and Purchaser
will purchase from the Company, 3,700,000 Preferred Shares.
ARTICLE II
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the Preferred
Shares hereunder (the "Closing") shall be held at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, concurrently
with the execution and delivery of this Agreement by the parties.
2.2 Delivery. At the Closing, and in consideration of the licenses,
support, goodwill and other benefits to be provided by Philips to the company
pursuant to the Technology Agreement, the Company shall deliver to Purchaser a
certificate, registered in Purchaser's name, evidencing Purchaser's ownership of
the 3,700,000 Preferred Shares.
ARTICLE III
Representations and Warranties of the Company
3.1 Organization and Standing. The Company is a duly organized and validly
existing corporation in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority for the ownership and
operation of its properties and for the carrying on of its business as now
conducted and as now proposed to be conducted and to execute and deliver this
Agreement, to issue, sell and deliver the Preferred Shares and to issue and
deliver the Conversion Shares and to perform its other obligations pursuant
hereto and thereto. Exhibit A attached hereto is a true and correct copy of the
Company's Amended and Restated Certificate of Incorporation as filed with the
Secretary of State of the State of Delaware, and has not been further amended,
and no action has been taken by the Company with a view to
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<PAGE>
further amending the same. The Company is duly licensed or qualified and in good
standing as a foreign corporation authorized to do business in all jurisdictions
wherein the character of the property owned or leased or the nature of the
activities conducted by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, operations or financial condition of
the Company.
3.2 Corporate Power. The Company has all requisite legal and corporate
power to execute and deliver this Agreement, the Second Joinder and Amendment to
Registration Rights Agreement substantially in the form of Exhibit B attached
hereto, including the Registration Rights Agreement referenced therein
(collectively, the "Rights Agreement"), to sell and issue the Preferred Shares
hereunder, to issue the shares of Common Stock issuable upon conversion of the
Preferred Shares (the "Conversion Shares") and to carry out and perform its
obligations under the terms of this Agreement and the Rights Agreement.
3.3 Authorization. All corporate action on the part of the Company and its
officers, directors and shareholders that is necessary for the authorization,
execution, delivery and performance of this Agreement and the Rights Agreement
by the Company, for the performance of the Company's obligations hereunder or
thereunder, and for the authorization, sale, issuance and delivery of the
Preferred Shares and the Conversion Shares, has been taken. This Agreement and
the Rights Agreement when executed and delivered, shall constitute the legal and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to: (i) judicial principles
respecting election of remedies or limiting the availability of specific
performance, injunctive relief and other equitable remedies; (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors' rights; and (iii)
limitations imposed by applicable securities laws on the enforceability of the
indemnification and contribution provisions of the Rights Agreement.
3.4 Capitalization. As of the Closing, the Company will have a total
authorized capitalization consisting of (i) seventy-five million (75,000,000)
shares of common stock, $.01 par value per share ("Common Stock"), and (ii)
fifteen million (15,000,000) shares of preferred stock, $.01 par value per share
("Preferred Stock"), of which eight million three hundred thousand (8,300,000)
shares are designated as "Series A Preferred Stock," one million four hundred
thousand (1,400,000) shares are designated as "Series B Preferred Stock" and
three million eight hundred thousand (3,800,000) shares are designated as
"Series C Preferred Stock". Except as disclosed in the Registration Statement or
the Amendment (as each is defined in Section 3.11 hereof), no options, warrants,
subscriptions or purchase rights of any nature to acquire from the Company, or
commitments of the Company to issue, shares of capital stock or other securities
are authorized, issued or outstanding, nor is the Company obligated in any other
manner to issue shares or rights to acquire any of its capital stock or other
securities except as contemplated by this Agreement and options issued under the
Company's Equity Compensation Plan. All shares of capital stock and other
securities of the Company issued before the Closing were duly authorized,
validly issued and fully paid and non-assessable and were issued in
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<PAGE>
accordance with the registration and qualification provisions of the Securities
Act of 1933, as amended (the "Securities Act"), and relevant state securities
laws, or pursuant to valid exemptions therefrom. The Company has reserved
3,700,000 shares of Series C Preferred Stock for issuance hereunder, and
3,700,000 shares of Common Stock for issuance upon conversion of the Preferred
Shares, plus such additional number of shares of Common Stock as may be
necessary to comply with the antidilution provisions pertaining to the Preferred
Shares in the Certificate. The rights, privileges and preferences of the Series
C Preferred Stock are as stated in the Certificate.
3.5 Validity of Securities. The Preferred Shares, when issued, sold and
delivered in accordance with the terms of this Agreement, and the Conversion
Shares, when issued upon conversion of the Preferred Shares, will be duly and
validly issued, fully paid and nonassessable and will be free and clear of any
liens or encumbrances; provided, however, that any of the Preferred Shares or
the Conversion Shares may be subject to restrictions on transfer to the extent
provided herein or under the Rights Agreement or state and/or federal securities
laws. Based in part upon the representations of Purchaser in this Agreement, the
offer, sale and issuance of the Preferred Shares and the Conversion Shares will
be in compliance with all applicable federal and state securities laws.
3.6 Governmental Consent, etc. No consent, approval or authorization of or
designation, declaration or filing with any state or federal governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement or the Rights Agreement or the offer,
sale or issuance of the Preferred Shares or the Conversion Shares or the
consummation of any other transaction contemplated hereby or thereby, except the
qualification (or the taking of such action as may be necessary to secure an
exemption from qualification, if available) under applicable "Blue Sky" laws, of
the offer and sale of the Preferred Shares and the Conversion Shares, which
filing and qualification, if required, will be accomplished in a timely manner
prior to (if required), or promptly upon completion of, the Closing.
3.7 Patents, Trademarks, etc. To the best of the Company's knowledge, the
Company has sufficient title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted, and as proposed to be
conducted, and such business does not, and would not, conflict with or
constitute an infringement of the rights of others; provided, however, that the
provisions of this Section 3.7 do not apply to the transactions contemplated by
the Technology Transfer Agreement dated September 30, 1998 between Purchaser and
the Company (the "Technology Transfer Agreement"). The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate, the proprietary or intellectual property
rights of any other person or entity. The Company is not aware of any violation
or infringement by a third party of any of the Company's licenses, trade secrets
or other proprietary rights.
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<PAGE>
3.8 Compliance with Other Instruments, None Burdensome, etc. The Company is
not in violation of any term of its Restated Certificate of Incorporation or
Bylaws, or of any term or provision of any material mortgage, indenture,
contract, agreement, instrument, judgment or decree, and to its knowledge is not
in violation of any order, statute, rule or regulation applicable to the
Company. The execution, delivery and performance of and compliance with this
Agreement and the Rights Agreement and the issuance of the Preferred Shares and
the Conversion Shares have not resulted and will not result in any violation of,
or conflict with, or constitute (with or without the passage of time and giving
of notice) a default under any of the foregoing, or result in the creation of
any material mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company, or result in the suspension, revocation or
other impairment of any material permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties, and there is no such violation, default or other event which
materially and adversely affects the business of the Company or any of its
properties or assets.
3.9 Litigation.
(a) There are no actions, suits, proceedings or investigations pending
and the Company has not been notified of any threatened action, suit, proceeding
or investigation against the Company or its properties before any court or
governmental agency, nor is the Company subject to any writ, injunction or order
of any court or government agency (nor, to the Company's knowledge, is there any
basis therefor or threat thereof), which, either individually or in the
aggregate, might result in any material adverse change in the business,
prospects, financial condition or equity ownership of the Company or any of its
properties or assets, or in any material impairment of the right or ability of
the Company to carry on its business as now conducted or as currently proposed
to be conducted, or in any material liability on the part of the Company, and no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company questions the validity of this
Agreement or the Rights Agreement or any action taken or to be taken in
connection herewith or therewith. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending, and actions, suits,
proceedings or investigations which the Company has been notified are threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.
(b) The Company has no current plan to initiate any action, writ,
proceeding or investigation before any court or government agency.
3.10 Registration Rights. The Company is not under any obligation to
register any of its presently outstanding securities or any of its securities
which may hereafter be issued, under the Securities Act, except as contemplated
by the Rights Agreement.
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<PAGE>
3.11 SEC Filings; Financial Statements.
(a) The Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-1 (SEC File No. 333-59219) in
connection with the offering to the holders of common stock of Safeguard
Scientifics, Inc. of rights to purchase shares of Common Stock of the Company
(the "Registration Statement"). The Registration Statement was prepared in
accordance with the requirements of the Securities Act and the rules and
regulations of the SEC thereunder, and as of the date of its filing, and as of
the date hereof, does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Registration Statement and the
Amendment (collectively, the "Financial Statements") (i) comply as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto, (ii) were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto), and (iii)
fairly present the consolidated financial position of the Company and its
subsidiaries as of the respective dates thereof and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements are subject to normal and recurring year-end
adjustments which are not expected to be material in amount. Except as disclosed
in the Financial Statements or for obligations under this Agreement or the
Technology Agreement, the Company has no liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the consolidated financial statements prepared in
accordance with GAAP which are, individually or in the aggregate, material to
the business, results of operations or financial condition of the Company and
its subsidiaries taken as a whole, except liabilities (i) provided for in the
balance sheet of the Company as of _________, 1998 contained in the Amendment,
or (ii) incurred since the date of such balance sheet in the ordinary course of
business consistent with past practices.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to the Company that:
4.1 Investment Experience. It is aware of the Company's business affairs
and financial condition and believes it has acquired sufficient information
about the Company to reach an informed and knowledgeable decision to acquire the
Preferred Shares and the Conversion Shares (the "Securities"). It is experienced
in evaluating and investing in securities of companies in the development stage
so that it is capable of evaluating the merits and risks of
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its investment in the Company. In addition, it has the capacity to protect its
own interests in connection herewith and has the ability to bear the economic
risk of the investment, including a complete loss of the investment.
4.2 Investment Intent. It is acquiring the Preferred Shares, and will
acquire the Conversion Stock, for investment only for its own account, and not
with the view to, or for resale in connection with, any distribution thereof. It
understands that the Securities have not been, and will not be, registered under
the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent of such Purchaser as
expressed herein.
4.3 Rule 144. It acknowledges that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from such registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale occurring not less than one year after the security was last
held by the Company or an affiliate of the Company, the sale being effected
through a "broker's transaction" or in transactions directly with a "market
maker" and the number of shares being sold during any three-month period not
exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
any of the securities issued by the Company, and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Access to Data. It has had an opportunity to discuss the Company's
business, properties, prospects, management and financial affairs with the
Company's management and the opportunity to review the Company's facilities and
Financial Statements and obtain additional information necessary to verify the
accuracy of such information furnished to it or to which it had access. It has
also had an opportunity to ask questions of officers of the Company, which
questions were answered to its satisfaction. It understands that such
discussions, as well as any written information issued by the Company were
intended to describe certain aspects of the Company's business and prospects
which the Company believes to be material, but were not a thorough or exhaustive
description, except as set forth in Article III hereof.
4.6 Authorization. Each of this Agreement and the Rights Agreement, when
executed and delivered by Purchaser will constitute a valid and legally binding
obligation of Purchaser, enforceable in accordance with its terms, except as the
indemnification and contribution provisions of the Rights Agreement may be
limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
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4.7 Government Consents. No consent, approval or authorization of or
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of Purchaser is required in connection with
the valid execution and delivery of this Agreement and the Rights Agreement by
the Purchaser and the consummation by Purchaser of the transactions contemplated
hereby and thereby other than securities law filings required to be made by the
Company.
ARTICLE V
Covenants of the Company
5.1 Financial Statements, Reports, Etc. The Company shall furnish to
Purchaser so long as it holds at least 200,000 Preferred Shares, Conversion
Shares or any combination thereof (appropriately adjusted for recapitalizations,
stock splits and the like)
(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its subsidiaries as of
the end of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal
year (other than the last month in each fiscal year) a consolidated balance
sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company, such consolidated
balance sheet to be as of the end of such month and such consolidated statements
of income, stockholders' equity and cash flows to be for such month and for the
period from the beginning of the fiscal year to the end of such month, in each
case with comparative statements for the prior fiscal year, provided that the
Company's obligations under this Section 5.1 (b) shall terminate upon the
completion of a firm commitment underwritten public offering of the Company's
securities;
(c) at the time of delivery of each annual financial statement pursuant
to Section 5.1 (a), a certificate executed by the Chief Financial Officer of the
Company stating that such officer has caused this Agreement and the Series C
Preferred Stock to be reviewed and has no knowledge of any default by the
Company in the performance or observance of any of the provisions of this
Agreement or the Series C Preferred Stock or, if such officer has such
knowledge, specifying such default and the nature thereof;
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(d) at the time of delivery of each monthly statement pursuant to
Section 5.1 (b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that could materially
adversely affect the Company or any of its subsidiaries;
(h) promptly upon sending, making, available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the SEC; and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as such Purchaser reasonably may request.
5.2 Reserve for Conversion Shares. The Company shall at all times reserve
and keep available out of authorized but unissued shares of Common Stock, for
the purpose of effecting the conversion of the Preferred Shares and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the conversion of the
Preferred Shares from time to time outstanding or otherwise to comply with the
terms of this Agreement. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of the
Preferred Shares or otherwise comply with the terms of this Agreement, the
Company will forthwith take such corporate 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 purposes. The Company will obtain any
authorization, consent, approval or other action by or make any filing with any
court or administrative body that may be required under applicable state
securities laws in connection with the issuance of shares of Common Stock upon
conversion of the Preferred Shares.
5.3 Corporate Existence. The Company shall maintain corporate existence,
rights and franchises in full force and effect.
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5.4 Properties, Business, Insurance. The Company shall maintain its
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall not cause or
permit any assignment or change in beneficiary and shall not borrow against any
such policy.
5.5 Inspection, Consultation and Advice; Board Visitation. So long as
Purchaser holds at least 800,000 Preferred Shares, Conversion Shares or any
combination thereof (appropriately adjusted for recapitalizations, stock splits
and the like), the Company shall:
(a) permit Purchaser, and such persons as Purchaser may designate, to
visit and inspect, at Purchaser's expense, any of the properties of the Company
and its subsidiaries, examine their books and take copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company and its
subsidiaries with their officers, employees and public accountants (and the
Company hereby authorizes said accountants to discuss with Purchaser and such
designees such affairs, finances and accounts), and consult with and advise the
management of the Company and its subsidiaries as to their affairs, finances and
accounts, all at reasonable times and upon reasonable notice; and
(b) allow a representative of Purchaser to attend all meetings
of the Company's Board of Directors in a non-voting capacity, and, in connection
therewith, the Company shall give such representative copies of all notices,
minutes, consents and other materials, financial or otherwise, which the Company
provides to its Board of Directors.
The provisions of paragraph (a) of this Section 5.5 will expire upon
the effective date of a registration statement on Form S-1 of the Company's
securities filed under the Securities Act of 1933, as amended.
5.6 Restrictive Agreements Prohibited. The Company shall not become a party
to any agreement which by its terms restricts the Company's performance of its
obligations under this Agreement, the Rights Agreement, or the Certificate.
5.7 Transaction With Affiliates. Except for transactions contemplated by
this Agreement or as otherwise approved by the Board of Directors, the Company
shall not enter into any material transaction with any director, officer,
employee or holder of more than 5% of the outstanding capital stock of any class
or series of capital stock of the Company or any of its subsidiaries, member of
the family of any such person, or any corporation, partnership, or trust or
other entity in which any such person, or member of the family of any such
person, is a director, officer, trustee, partner or holder of more than 5% of
the outstanding capital stock thereof, except for transactions on customary
terms related to such person's employment.
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5.8 Compliance with Laws. The Company shall comply with all applicable
laws, rules, regulations and orders, noncompliance with which could materially
adversely affect its business or condition, financial or otherwise.
5.9 Keeping of Records and Books of Account. The Company shall keep and
cause each subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
5.10 Change in Nature of Business. The Company shall not make any material
change in the nature of its business without the approval of at least two-thirds
of its Board of Directors.
5.11 Right of First Refusal.
(a) The Company hereby grants to the Purchaser the right of first
refusal to purchase its Pro Rata Share of New Securities (as defined in this
Section 5.11) which the Company may, from time to time, propose to sell and
issue. "Pro Rata Share," for purposes of this right of first refusal, is the
ratio that (i) the sum of the number of shares of Preferred Stock or Common
Stock of the Company then held by Purchaser bears to (ii) the sum of the total
number of shares of Common Stock then outstanding and the number of shares of
Common Stock issuable upon exercise or conversion of all then outstanding
securities exercisable for or convertible into, directly or indirectly, Common
Stock.
(b) Except as set forth below, "New Securities" shall mean any shares
of capital stock of the Company, including Common Stock and any series of
Preferred Stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or Preferred Stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or Preferred Stock. Notwithstanding the
foregoing, "New Securities" does not include (i) Common Stock issued or issuable
upon conversion of the outstanding shares of Preferred Stock, (ii) Common Stock
or rights to purchase Common Stock offered to the public generally pursuant to a
registration statement under the Securities Act in connection with an initial
public offering or rights offering of the type described in Section __ of the
Certificate (a "Qualifying Offering"), (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of all or
substantially all of the assets or other reorganization whereby the Company or
its stockholders own more than fifty percent (50%) of the voting power of the
surviving or successor corporation, (iv) up to 2,000,000 shares (net of
repurchase or cancellation) of Common Stock or related options, warrants or
other rights to purchase such Common Stock issued to employees, officers and
directors of and consultants to the Company, pursuant to arrangements approved
by the Board of Directors of the Company, (v) stock issued pursuant to any
rights,
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agreements or convertible securities, including without limitation options and
warrants, provided that (A) such rights, agreements or convertible securities
were outstanding prior to the date of this Agreement, or (B) the rights of first
refusal established by this Section 5.11 applied with respect to the initial
sale or grant by the Company of such rights, agreements or convertible
securities, (vi) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company, (vii) up to 100,000 shares of Series C
Preferred Stock issued to A3 Ventures Incorporated, or (viii) securities issued
in connection with a loan, equipment lease or other similar transaction which is
approved by the Board of Directors of the Company.
(c) In the event the Company proposes to undertake an Issuance of New
Securities, it shall give Purchaser written notice of its intention, describing
the amount and type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Purchaser shall have twenty (20) days from
the date of receipt of any such notice to agree to purchase up to its Pro Rata
Share of such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(d) In the event Purchaser does not elect to purchase its Pro Rata
Share of such New Securities within twenty (20) days after the notice pursuant
to paragraph (c) above, the Company shall have sixty (60) days thereafter to
sell such New Securities at the price and upon terms no more favorable to the
purchasers of such New Securities than specified in the Company's notice. In the
event the Company has not sold the New Securities within said sixty (60) day
period, the Company shall not thereafter issue or sell any New Securities
without first offering such securities in the manner provided above.
(e) The right of first refusal hereunder is not assignable except to an
affiliate of Purchaser.
(f) The right of first refusal hereunder shall terminate upon
a Qualifying Offering.
ARTICLE VI
Other Agreements
6.1 Registration Rights Agreement. Concurrently herewith, and as a
condition to the Closing of the transactions hereunder, the Company and
Purchaser shall enter into the Second Joinder and Amendment to Registration
Rights Agreement attached hereto as Exhibit B (the "Second Joinder Agreement"),
which has been executed by holders of at least a majority of the shares of the
Series A Preferred Stock and Series B Preferred Stock of the Company voting
together as one class (the "Majority Investors"). Upon execution by the Company,
the Majority
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Investors and Purchaser, the Second Joinder Agreement and the Rights Agreement
will be valid and binding and enforceable in accordance with their respective
terms.
6.2 Technology Transfer Agreement. Concurrently herewith, the Company and
Philips shall enter into the Technology Agreement.
ARTICLE VII
Covenants of the Purchaser
Purchaser covenants and agrees that it, together with its affiliates, will
not acquire more than a 30% interest in the total combined voting power of all
of the outstanding shares of the Company and will not participate in any
contested proxy solicitation in connection with any vote of stockholders of the
Company for the period of time extending from the date of this Agreement until
the earliest to occur of (i) August 18, 2000; (ii) the date that a tender offer
is made for not fewer than 30% of the outstanding shares of the Company by any
party who has not executed a merger agreement with the Company; and (iii) the
date that another entity or group not affiliated with Purchaser or Safeguard
Scientifics, Inc. acquires not less than 20% ownership for the total combined
voting power of the Company other than pursuant to a stock purchase agreement
with the Company. In no event, however, shall Purchaser be required to dispose
of any shares it owns in the Company if their percentage ownership exceeds the
30% threshold as a result of a recapitalization, repurchase or other action
taken by the Company or its affiliates.
ARTICLE VIII
Share Repurchase
8.1 Buyback Provision. In the event that the Registration Statement, as
amended, is not declared effective by the Securities Exchange Commission on or
before March 31, 1999, Purchaser may, upon written notice to the Company given
prior to the date such Registration Statement is declared effective, require the
Company to elect one of the following two alternatives, provided, however, that
the Company shall have sole discretion to choose which alternative to elect
(subject to the restrictions set forth below):
(a) The Company will be obligated to repurchase six hundred thousand
(600,000) Preferred Shares from Purchaser at a price of five dollars ($5.00) per
share, for a total purchase price of three million dollars ($3,000,000). This
amount shall be received by Purchaser or an entity designated by Purchaser
within five (5) business days of receipt by the Company of Purchaser's notice,
and shall be transferred in the form of a wire transfer, certified check, or any
other method agreed to by Purchaser.
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(b) Purchaser will no longer be bound by the provisions of Section 3.3
("Exclusivity") of the Technology Transfer Agreement.
In the event that the Company has not notified Purchaser in writing of
its election of one of the two alternatives set forth above within five (5) days
of receipt of Purchaser's written notice as set forth in this Section 8.1, the
provision of paragraph (b) shall be deemed to have been chosen.
ARTICLE IX
Miscellaneous
9.1 Fees and Expenses. Each party shall pay its own fees and expenses in
connection with this Agreement.
9.2 Successors. This Agreement shall be binding upon and inure to the
benefit of the Company and the Purchaser and their respective legal
representatives, successors and assigns. This Agreement, the terms of the
Preferred Shares, and the Rights Agreement constitute the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
9.3 Confidentiality. Purchaser agrees that it will keep confidential and
will not disclose or divulge any confidential, proprietary or secret information
which the Purchaser may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to the
Purchaser pursuant to this Agreement, or pursuant to visitation or inspection
rights granted hereunder, unless such information is known, or until such
information becomes known, to the public; provided, however, that the Purchaser
may disclose such information (i) on a confidential basis to its attorneys,
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (ii) to
any prospective purchaser of any Shares from the Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 9.3, and (iii) as required by applicable law.
9.4 Governing Laws. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware, and without giving
effect to choice of laws provisions.
9.5 Counterparts. This Agreement 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 Agreement by signing
any such counterpart.
9.6 Further Action. From and after the date of this Agreement, upon the
request of the Purchaser or the Company, the Company and the Purchaser shall
execute and deliver such
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instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
WHO? VISION SYSTEMS, INC.
By: /s/ Alex Dickinson
-------------------------------
Name: Alex Dickinson
Title: CEO
KONINKLIJKE PHILIPS ELECTRONICS N.V.
By: /s/ Matthew T. Medeiros
-------------------------------
Name: Matthew T. Medeiros
Title: CEO Flat Displays
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Exhibit 10.17
SERVICES AND STOCK PURCHASE AGREEMENT
THIS SERVICES AND STOCK PURCHASE AGREEMENT ("Agreement") is entered
into this 30th day of September, 1998, by and between Philips Flat Panel Display
(Philips FPD) Co. B.V., which has its registered place of business at Professor
Holstlaan 4, 5656 AA, The Netherlands (hereinafter jointly referred to as
"Philips"), WHO?VISION SYSTEMS, INC., having its place of business at 100 North
Pointe Drive, Lake Forest, CA 92680 ("WhoVision"), and A3 VENTURES INCORPORATED,
having its place of business at 27791 Edgerton Road, Los Altos Hills, California
94022 ("A3 Ventures").
R E C I T A L S
A. Philips and WhoVision have entered into a Technology Transfer
Agreement of even date herewith (the "Technology Agreement") pursuant to which
Philips grants WhoVision broad access to its fingerprint sensor technology based
on its proprietary amorphous silicon diode technology, Philips renders
technological support to WhoVision, Philips purchases fingerprint sensor systems
from WhoVision, Philips and WhoVision establish a strategic business alliance,
and furthermore WhoVision grants Philips a license under intellectual property
rights and know-how generated by WhoVision related to, based on or derived from
Philips amorphous silicon diode technology, and furthermore Philips and
WhoVision have entered into an Investment Agreement of even date herewith (the
agreement and exhibits thereto are referred to collectively as the "lnvestment
Agreement") pursuant to which Philips will purchase shares of Series C Preferred
Stock of WhoVision and obtain certain stockholder rights in connection
therewith.
B. Philips and WhoVision jointly desire that A3 Ventures provide
certain services to assist in the transfer of technology pursuant to Section 2.3
of the Technology Agreement, in consideration of which WhoVision will issue to
A3 Ventures a total of Seventy-five Thousand (75,000) shares of the Series C
Preferred Stock bf WhoVision (the"Shares"), and in recognition of the tax burden
such issuance may create for A3 Ventures, WhoVision shall pay A3 Ventures One
Hundred Twenty-five Thousand Dollars ($125,000.00) pursuant to the terms and
conditions of this Agreement.
C. A3 Ventures desires to provide certain services to assist in the
transfer of technology pursuant to Section 2.3 of the Technology Agreement, and
agrees to accept the Shares and the One Hundred Twenty-five Thousand Dollars
($125,000.00) as consideration for its services pursuant to the terms and
conditions of this Agreement.
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NOW, THEREFORE, in consideration of the above premises, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, the parties hereto hereby agree as follows:
1. Definitions. As used herein:
1.1 Technology. The term "Technology" shall mean information, including
all relevant documents, software and other materials to develop the Photo Sensor
System and the Capacitive Sensor System as described in the Technology
Agreement, whether tangible or intangible, including, without limitation, each
and every invention, formula, trade secret, software program (including, without
limitation, object code, source code, flow chart, algorithm and related
documentation), manual specification, technique, product, concept, know-how, or
similar property, whether or not patentable or copyrightable and whether or not
embodied in any software.
1.2 Confidential Information. The term "Confidential Information" shall
mean all information disclosed by a party hereto (the "Disclosing Party") to any
other party hereto (the "Receiving Party"), in connection with the performance
by A3 Ventures of services hereunder, as described in the Technology Agreement.
2. Engagement for Performance of Services.
2.1 Engagement. In exchange for the Shares issued to A3 Ventures
pursuant to Section 5 of this Agreement and payment of One Hundred Twenty-five
Thousand Dollars ($125,000.00), Philips and WhoVision hereby engage A3 Ventures
to perform services during the thirty (30) day period following the closing date
as defined in the Technology Agreement (the "Services Term"), at the request of
Philips and WhoVision, in accordance with the terms and conditions of this
Agreement. A3 Ventures shall make the services of Adriaan Ligtenberg available
during the Services Term for purposes of fulfilling A3 Ventures' obligations
hereunder.
2.2 Facilities, Equipment and Supplies. A3 Ventures shall, at its own
cost and expense, provide all facilities, equipment and supplies necessary for
A3 Ventures to perform the services hereunder.
3. Protection of Confidential Information.
3.1 Confidentiality. A3 Ventures, Philips and WhoVision agree, with
respect to any Confidential Information disclosed hereunder:
(a) To use such Confidential Information only for the purposes
contemplated in this Agreement;
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(b) To use the same methods and degree of care to prevent disclosure of
such Confidential Information as the Receiving Party uses to prevent disclosure
of its own proprietary and confidential information;
(c) To disclose the Confidential Information to the employees of the
Receiving Party only on a need-to-know basis and not to disclose any
Confidential Information to any third party without the prior written consent of
the Disclosing Party; and
(d) To return any Confidential Information in any tangible form to the
Disclosing Party at the request of the Disclosing Party and to retain no copies
or reproductions thereof.
3.2 Limitations. The Receiving Party shall not be obligated to comply
with Section 3.1 if such information:
(a) was rightfully in the Receiving Party's possession or was
rightfully known to the Receiving Party prior to receipt from the Disclosing
Party;
(b) is or becomes publicly known without the fault of the Receiving
party;
(c) is or becomes rightfully available to the Receiving Party without
confidential restriction from a source not bound by a confidentiality obligation
to the Disclosing Party;
(d) is independently developed by the Receiving Party without use of
the Confidential Information disclosed hereunder; provided, however, that the
burden of proof of such independent development shall be upon the Receiving
Party; or
(e) is required to be disclosed pursuant to court or government action;
provided, however, that the Receiving Party gives the Disclosing Party
reasonable prior notice of disclosure pursuant to such court or government
action and, upon the request of the Disclosing Party, the Receiving Party shall
cooperate in contesting such disclosure
4. Property Rights. Except to the extent set forth in the Technology
Agreement, all right, title and interest in and to the Technology shall at all
times be and remain the sole and exclusive property of Philips or WhoVision, and
in no case shall any right, title or interest in and to the Technology accrue to
A3 Ventures.
5. Authorization and Sale of Preferred Stock.
5.1 Rights, Privileges and Preferences of the Shares. The Shares shall
have all the rights, privileges and preferences of Series C Stock set forth in
the
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WhoVision's Restated Certificate of Incorporation, and unless otherwise
specified herein shall be issued to A3 Ventures or an affiliated entity in
accordance with all terms and conditions of the Investment Agreement which is
attached hereto as Exhibit A and incorporated herein by reference, whereby
Philips will receive shares of Series C Preferred Stock of WhoVision and obtain
certain stockholder rights in connection therewith. In addition, A3 Ventures
shall be entitled to receive all information to be provided to Philips pursuant
to Article V of the Investment Agreement irrespective of the number of Shares
held by A3 Ventures.
5.2 Sale of the Shares. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined) WhoVision will issue and sell to A3
Ventures, and A3 Ventures agrees to purchase from WhoVision, Seventy-five
Thousand (75,000) shares of Series C Preferred Stock of WhoVision in partial
consideration of A3 Ventures' services provided hereunder.
5.3 Philips' Right to Enforce Agreement for Sale of the Shares.
WhoVision and A3 Ventures hereby grant Philips the right to enforce any and all
rights of A3 Ventures against WhoVision pursuant to the terms of this Agreement,
provided that Philips must give A3 Ventures notice of any intended enforcement
action and allow A3 Ventures full opportunity to participate in any such action.
6. Closing; Delivery.
6.1 Closing. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 concurrently
with the execution and delivery of this Agreement by the parties.
6.2 Delivery. WhoVision shall deliver to A3 Ventures at the Closing a
certificate representing the Shares, which shall be registered in the name of A3
Ventures or an affiliated entity. On the earlier of completion of WhoVision's
IPO or March 1, 1999, WhoVision shall deliver a check or wire transfer in the
amount of One Hundred Twenty-five Thousand Dollars ($125,000.00), payable to A3
Ventures or an affiliated entity.
7. Share Transfer Restrictions; Termination; Legends.
7.1 Share Transfer Restrictions. Subject to the termination provisions
of Section 7.2 herein, A3 Ventures shall not transfer, sell, assign,
hypothecate, encumber, or alienate any of the Shares other than according to the
terms of this Agreement, and any attempt to so transfer, sell, assign,
hypothecate, encumber, or alienate any of the Shares is void and shall transfer
no right, title, or interest in or to said Shares, or to the purported
transferee, buyer, assignee, pledgee, or encumbrance holder.
4
<PAGE>
7.2 Termination of Restrictions. All restrictions on transfer of the
Shares imposed by this Agreement shall be terminated in accordance with the
following schedule:
(a) Twenty-five Thousand (25,000) of the Shares at the Closing; and
(b) Twenty-five Thousand (25,000) of the Shares upon upon completion of
the first approved product described in Sections 2.1, 2.2 or 2.3 of the letter
of intent for technology transfer between Philips and WhoVision dated August 28,
1998 (the "Technology LOI"); and
(c) Twenty-five Thousand (25,000) of the Shares on completion of a
fingerprint sensor system into a commercially viable and customer deliverable
product as described in Sections 2.1, 2.1 and 2.3 of the Technology LOI; or
(d) The earlier of the third anniversary of this Agreement, or
termination or expiration of the Technology Service Agreement, or in the event
that upon the third anniversary of this Agreement neither of the events
contemplated in paragraphs (b) and (c) above have shall have occurred, all
restrictions on transfer of any of the Shares imposed by this Agreement shall be
terminated with regard to all the Shares on such third anniversary.
7.3 Endorsements on Certificates.
7.3.1. The certificates representing the Shares subject to
this Agreement shall be endorsed as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, PURSUANT TO THE TERMS OF AN AGREEMENT BETWEEN THE SHAREHOLDER AND
THE COMPANY, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
7.3.2. Any transfer or sale of the Shares is further subject
to all the restrictions on transfer imposed by California and Federal securities
laws. Accordingly, it is understood and agreed that the certificates
representing the Shares shall bear any legends required by the Commissioner or
Corporations of the State of California and any other state securities
administrator or commissioner and a legend required by Federal securities laws.
7.4 Issuance of New Certificate. As the restrictions imposed by this
Agreement are terminated as herein provided, a new certificate or certificates
representing such Shares shall be issued, on request, without the legends
referred to in Section 7.3.1, above.
8. Miscellaneous.
5
<PAGE>
8.1 Relationship of Parties. A3 Ventures shall at all times during; the
performance of its services hereunder be an independent contractor, maintaining
sole and exclusive control over its ;business and operations. At no time will
any party hold itself out to be the agent, employee, lessee, sublessee, partner
or joint venturer of the other party as a result of this Agreement. No party
hereto shall have the express or implied right or authority under this Agreement
to assume or create any obligation on behalf of or in the name of any other
party, or to bind any other party in regard to any contract, agreement or
undertaking with any third party.
8.2 Entire Agreement. This Agreement, together with the Technology
Agreement and exhibits attached hereto and thereto, constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes all prior, written or oral negotiations, representations or
agreements. No modification of this Agreement shall be binding on either party
unless it is in writing and signed by both parties.
8.3 Severability. The provisions of this Agreement are severable, and
if one or more provisions of judicially determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions or portions of this
Agreement shall nevertheless be binding on and enforceable by and between the
parties hereto.
8.4 Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto; provided,
however, that neither party shall transfer or assign this Agreement in whole or
in part without the prior written consent of the other party hereto.
Notwithstanding the foregoing and the restrictions on assignment of the Shares
set forth in Section 7.1, A3 may assign the Shares to another legal entity owned
50% or more by Adriaan Ligtenberg or to Adriaan Ligtenberg personally.
8.5 Governing Law. The rights and obligations of the parties to this
Agreement shall be governed by and construed in accordance with the laws of the
State of California as such laws are applied to agreements entered into and
wholly performed within California.
8.6 Headings. Section headings are for convenience of reference only
and shall not be considered in the interpretation of this Agreement.
8.7 Unavoidable Delays. Each party shall be excused for any delays or
defaults in the performance of this Agreement (except the payment of amounts due
and payable hereunder) unavoidably caused by the act of the other, the act of
any agent of the other, the act of any governmental authority, acts of God, the
elements, war, litigation, strikes, walkouts, or any other cause beyond its
reasonable control. Each party shall use all reasonable diligence to avoid any
such delay or default and to resume performance ;under this Agreement as soon as
practicable after such delay or default.
6
<PAGE>
8.8 Enforcement. The parties agree that a violation of the terms of
this Agreement by any of them may cause irreparable damage, the exact amount of
which is impossible to ascertain, and for that reason the parties, and each of
them agree that all other parties will be entitled to a decree of specific
performance of the terms of this Agreement or an injunction restraining further
violation thereof, said right to be in addition to any other remedies of the
parties.
8.9 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the day sent by facsimile transmission if a true and
correct copy is sent the same day by first class mail, postage prepaid, or by
dispatch by an internationally recognized express courier service, and in each
case addressed as follows:
If to A3 Ventures: A3 Ventures Incorporated
27791 Edgerton Road
Los Altos Hills, California 94022
Fax: (650) 618-1445
Attn: Adriaan Ligtenberg
If to WhoVision: Who?Vision Systems, Inc.
100 North Pointe Drive
Lake Forest, CA 92680
Fax: (949) 837-5355
Attn: Alex Dickinson, CEO
If to Philips: Philips Flat Panel Display (Philips FPD) Co. B.V.
Professor Holstlaan 4, 5656 AA,
The Netherlands
8.10 Third Party Beneficiaries. No party or person is an intended third
party beneficiary to any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
PHILIPS: WHOVISION:
By: /s/ Matthew T. Medeiros By: /s/ Alex Dickinson
Title: Chairman & CEO Flat Display Title: CEO
7
<PAGE>
A3 VENTURES:
By: /s/ Adriaan Lightenberg
Title: CEO
8
Consent of Independent Certified Public Accountants
The Board of Directors
Who? Vision Systems, Inc.:
We consent to the use of our report dated April 22, 1998, except for note 10
which is as of July 16, 1998, included herein and to the references to our firm
under the headings "Selected Financial Data" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
---------------------
Orlando, Florida
October 30, 1998
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